TABLE OF CONTENTS

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549**

**FORM 10-Q**

|   |    x | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |   |
|--------|---------------------|----------------------------------------------------------------------------------------------|--------|
|        |                     | For the quarterly period ended August 25, 2001                                               |   |

****

**OR**

|   |   o | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF****THE SECURITIES EXCHANGE ACT OF 1934** |   |
|--------|---------------|-------------------------------------------------------------------------------------------------|--------|

**Commission file number 0-23818**

**MERIX CORPORATION***(Exact name of registrant as specified in its charter)*

|   | **OREGON**                        |  | **93-1135197**           |   |
|--------|-----------------------------------|--|--------------------------|--------|
|   | *(State or other Jurisdiction of* |  | *(I.R.S. Employer*       |   |
|   | *Incorporation or Organization)*  |  | *Identification Number)* |   |

|   | **1521 Poplar Lane, Forest Grove, Oregon** |  | **97116**    |   |
|--------|--------------------------------------------|--|--------------|--------|
|   | *(Address of principal executive offices)* |  | *(Zip Code)* |   |

**(503) 359-9300***(Registrant’s telephonenumber)*

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No o

The number of shares of the Registrant’s Common Stock outstanding as of October 2, 2001 was 13,927,536 shares.

|  ̄ |   |
|--------|--------|

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**MERIX CORPORATION****FORM 10-Q****TABLE OF CONTENTS**

| **Part I**  |    | **Financial Information** | **Page**                                                                                   |
|-------------|---------|---------------------------|--------------------------------------------------------------------------------------------|
|             |         |                           |                                                                                            |  |
|        |    |                      |                                                                                       |   |
|        | Item 1. |                      | Financial Statements:                                                                      |   |
|             |         |                           |                                                                                            |  |
|             |         |                      |    Balance Sheets as of August 25, 2001 and May 26, 2001                    | 2 |
|             |         |                           |                                                                                            |  |
|        |    |                      |    Statements of Operations for the three months ended August 25, 2001      |   |
|        |    |                      |       and August 26, 2000                                    | 3 |
|             |         |                           |                                                                                            |  |
|        |    |                      |    Statements of Cash Flows for the three months ended August 25, 2001      |   |
|        |    |                      |      and August 26, 2000                                          | 4 |
|        |    |                      |    Notes to Financial Statements                                            | 5 |
|        |    |                      |                                                                                       |   |
|             |         |                           |                                                                                            |  |
|        | Item 2. |                      | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 7 |
|             |         |                           |                                                                                            |  |
|        | Item 3  |                      | Quantitative and Qualitative Disclosure About Market Risk                                  | 11 |
|        |    |                      |                                                                                       |   |
|             |         |                           |                                                                                            |  |
| **Part II** |    | **Other Information**     |                                                                                       |
|             |         |                           |                                                                                            |  |
|        | Item 6. |                      | Exhibits and Reports on Form 8-K                                                           | 12 |
|             |         |                           |                                                                                            |  |
|        |    |                      | Signature                                                                                  | 13 |
|             |         |                           |                                                                                            |  |

1

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**PART I. FINANCIAL INFORMATION**

**MERIX CORPORATION****BALANCE SHEETS****(in thousands)**

|                                         |                                                |                                                   |      |  **August 25, 2001** |    |  **May 26,****2001** |
|---------------------------------------------------|----------------------------------------------------------|--------------------------------------------------------|--------------------------|---------------------------|--------------|---------------------------|
|                                              |                                                     |                                                   |                     |  **(unaudited)**     |         |                 |
|                                         |                                                     |                                                   |                     |                      |         |
| **Assets**                                        |                                                     |                                                   |                     |                      |         |
|                                         |                                                     |                                                   |                     |                      |         |
| Cash, cash equivalents and short-term investments | $                                                        | 63,162                                                 |                     | $                         | 63,127       |
| Accounts receivable, net of allowance of $1,071   |                                                     | 16,433                                                 |                     |                      | 15,891       |
| Inventories                                       |                                                     | 4,916                                                  |                     |                      | 6,240        |
| Income tax receivable                             |                                                     | 152                                                    |                     |                      | 1,329        |
| Deferred tax asset                                |                                                     | 3,253                                                  |                     |                      | 1,734        |
| Other current assets                              |                                                     | 1,640                                                  |                     |                      | 1,505        |
|                                              |                                                     |                                                   |                     |                           |         |                           |
|                                              | Total current assets                                     |                                                   | 89,556                   |                      |         | 89,826                    |
|                                              |                                                     |                                              |                     |                      |         |                      |   |   |
| Property, plant and equipment, net                |                                                     | 81,900                                                 |                     |                      | 77,525       |
| Long-term investments                             |                                                     | 5,090                                                  |                     |                      | 8,149        |
| Other assets                                      |                                                     | 244                                                    |                     |                      | 187          |
|                                              |                                                     |                                                   |                     |                           |         |                           |
|                                              |                                                     | Total assets                                           |                     | $                         | 176,790      |                      | $ | 175,687 |
|                                              |                                                     |                                                   |                     |                           |         |                           |
|                                              |                                                     |                                              |                     |                      |         |                      |   |   |
|                                              |                                                     | **Liabilities and Shareholders’ Equity**          |                     |                      |         |                      |   |   |
|                                         |                                                     |                                                   |                     |                      |         |
| Accounts payable                                  | $                                                        | 6,185                                                  |                     | $                         | 9,263        |
| Accrued compensation                              |                                                     | 2,863                                                  |                     |                      | 2,090        |
| Current portion of long-term debt                 |                                                     | 8,000                                                  |                     |                      | 9,149        |
| Other accrued liabilities                         |                                                     | 4,061                                                  |                     |                      | 3,354        |
|                                              |                                                     |                                                   |                     |                           |         |                           |
|                                              | Total current liabilities                                |                                                   | 21,109                   |                      |         | 23,856                    |
|                                              |                                                     |                                              |                     |                      |         |                      |   |   |
| Long-term debt                                    |                                                     | 16,000                                                 |                     |                      | 16,000       |
| Deferred tax liability                            |                                                     | 1,775                                                  |                     |                      | 1,637        |
|                                              |                                                     |                                                   |                     |                           |         |                           |
|                                              | Total liabilities                                        |                                                   | 38,884                   |                      |         | 41,493                    |
|                                              |                                                     |                                              |                     |                      |         |                      |   |   |
| Shareholders’ equity:                        |                                                     |                                                   |                     |                      |         |
|                                              | Preferred stock, no par value; authorized 10,000 shares; |                                                   |                     |                      |         |                      |
|                                              |                                                     | None issued                                            |                     |                      | —       |                      |   | — |
|                                              | Common stock, no par value; authorized 50,000 shares;    |                                                   |                     |                      |         |                      |
|                                              |                                                     | Issued and outstanding August 25, 2001: 13,925 shares, |                     |                      |         |                      |   |   |
|                                              |                                                     | May 26, 2001: 13,671 shares                            |                     |                      | 98,174       |                      |   | 95,004 |
|                                              | Retained earnings                                        |                                                   | 39,732                   |                      |         | 39,190                    |
|                                              |                                                     |                                                   |                     |                           |         |                           |
|                                              | Total shareholders’ equity                          |                                                   | 137,906                  |                      |         | 134,194                   |
|                                              |                                                     |                                                   |                     |                           |         |                           |
|                                              |                                                     | Total liabilities and shareholders’ equity        |                     | $                         | 176,790      |                      | $ | 175,687 |
|                                              |                                                     |                                                   |                     |                           |         |                           |

The accompanying notes are an integral part of the financial statements.

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**MERIX CORPORATION****STATEMENTS OF OPERATIONS****(in thousands, except per share amounts)**

|                                                 | **Three Months Ended** |
|-------------------------------------------------|------------------------|
|                                                 | **August 25,**         |   |   | **August 26,** |
|                                                 | **2001**               |  |  | **2000** |
|                                                 | **(unaudited)**        |  |  | **(unaudited)** |
|                                                 |                        |  |  |  |
|                                                 |                        |  |  |  |  |  |
| Net sales                                       | $                      | 27,669 |   |   | $ | 51,023 |
| Cost of sales                                   |                        | 22,700 |  |  |  | 33,662 |
|                                            |                        |  |  |  |
| Gross profit                                    |                   | 4,969 |   |   |   | 17,361 |
|                                                 |                        |  |  |  |  |  |
| Operating expenses:                             |                   |   |   |   |   |   |
|   Engineering                         |                        | 1,393 |  |  |  | 1,274 |
|   Selling, general and administrative |                   | 3,213 |   |   |   | 3,484 |
|                                            |                        |   |   |  |
| Total operating expenses                        |                        | 4,606 |  |  |  | 4,758 |
|                                            |                   |   |   |   |   |   |
| Operating income                                |                        | 363 |  |  |  | 12,603 |
| Interest and other income (expense), net        |                   | 484 |   |   |   | 289 |
|                                            |                        |   |   |  |
| Income before taxes                             |                        | 847 |  |  |  | 12,892 |
|                                            |                   |   |   |   |   |   |
| Income tax expense                              |                        | 305 |  |  |  | 5,027 |
|                                            |                        |  |  |  |
| Net income                                      | $                      | 542 |   |   | $ | 7,865 |
|                                            |                        |   |   |  |
|                                                 |                        |  |  |  |  |  |
| Net income per share:                           |                   |   |   |   |   |   |
|   Basic                               | $                      | 0.04 |  |  | $ | 0.59 |
|                                            |                        |  |  |  |
|   Diluted                             | $                      | 0.04 |   |   | $ | 0.54 |
|                                            |                        |   |   |  |
|                                                 |                        |  |  |  |  |  |
| Shares used in per share calculations:          |                   |   |   |   |   |   |
|   Basic                               |                        | 13,757 |  |  |  | 13,430 |
|                                            |                        |  |  |  |
|   Diluted                             |                   | 14,477 |   |   |   | 14,474 |
|                                            |                        |   |   |  |
|                                                 |                        |  |  |  |  |  |

The accompanying notes are an integral part of the financial statements.

|  ̄ | 3 |
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**MERIX CORPORATION****STATEMENTS OF CASH FLOWS****(Unaudited, in thousands)**

|                                                |                                                                                     |                                                                  |    | **Three Months Ended** |
|-----------------------------------------------------|------------------------------------------------------------------------------------------|-----------------------------------------------------------------------|--------------|------------------------|
|                                                |                                                                                     |                                                                       |         | **August 25,  2001**   |  |    | **August 26,  2000** |  |
| **Cash flows from operating activities:**           |                                                                                     |                                                                  |         |                   |   |   |   |
|                                                | Net income                                                                               | $                                                                     | 542          |                   |   | $ | 7,865 |   |
|                                                | Adjustments to reconcile net income to net cash provided   by operating activities: |                                                                  |         |                   |   |   |   |   |
|                                           |                                                                                | Depreciation and amortization                                         |         |                   | 2,540 |   |   |   | 2,302 |   |
|                                                |                                                                                     | Tax benefit related to exercise of nonqualified stock options         |         |                   | 1,687 |   |   |   | 1,825 |   |
|                                                |                                                                                     | Deferred income taxes                                                 |         |                   | (173 | ) |   |   | 3,202 |   |
|                                                |                                                                                     | Contribution of common stock to defined contribution plan   |         |                   | — |   |   |   | 338 |   |
|                                                |                                                                                     | Other                                                                 |         |                   | 11 |   |   |   | 794 |   |
|                                                | Changes in assets and liabilities:                                                       |                                                                  |         |                   |   |   |   |   |
|                                                |                                                                                     | Accounts receivable                                                   |         |                   | (542 | ) |   |   | (3,393 | ) |
|                                                |                                                                                     | Inventories                                                           |         |                   | 1,324 |   |   |   | (1,152 | ) |
|                                                |                                                                                     | Income tax receivable                                                 |         |                   | 1,177 |   |   |   | — |   |
|                                                |                                                                                     | Other assets                                                          |         |                   | (209 | ) |   |   | (363 | ) |
|                                                |                                                                                     | Accounts payable                                                      |         |                   | (3,078 | ) |   |   | 2,135 |   |
|                                                |                                                                                     | Accrued compensation                                                  |         |                   | 773 |   |   |   | 920 |   |
|                                                |                                                                                     | Income taxes payable                                                  |         |                   | — |   |   |   | (255 | ) |
|                                                |                                                                                     | Other accrued liabilities                                             |         |                   | (441 | ) |   |   | 428 |   |
|                                                |                                                                                          |                                                                  |         |                        |   |
| Net cash provided by operating activities           |                                                                                     | 3,611                                                                 |         |                   |   | 14,646 |   |
|                                                |                                                                                          |                                                                  |         |                        |   |
|                                                |                                                                                     |                                                                  |         |                   |   |   |   |   |   |   |
| **Cash flows from investing activities:**           |                                                                                     |                                                                  |         |                   |   |   |   |
|                                                |                                                                                     | Maturity of (purchase of) investments, net                            |         |                   | 22,478 |   |   |   | (14,797 | ) |
|                                                |                                                                                     | Capital expenditures                                                  |         |                   | (6,969 | ) |   |   | (6,164 | ) |
|                                                |                                                                                     | Proceeds from sale of assets                                          |         |                   | — |   |   |   | 140 |   |
|                                                |                                                                                          |                                                                  |         |                        |   |
| Net cash provided by (used in) investing activities |                                                                                     | 15,509                                                                |         |                   |   | (20,821 | ) |
|                                                |                                                                                          |                                                                  |         |                        |   |
|                                                |                                                                                     |                                                                  |         |                   |   |   |   |   |   |   |
| **Cash flows from financing activities:**           |                                                                                     |                                                                  |         |                   |   |   |   |
|                                                |                                                                                     | Principal payments on long-term borrowings                            |         |                   | (1,149 | ) |   |   | (1,150 | ) |
|                                                |                                                                                     | Exercise of stock options                                             |         |                   | 1,483 |   |   |   | 1,084 |   |
|                                                |                                                                                          |                                                                  |         |                        |   |
| Net cash provided by (used in) financing activities |                                                                                     | 334                                                                   |         |                   |   | (66 | ) |
|                                                |                                                                                          |                                                                  |         |                        |   |
| Increase (decrease) in cash and cash equivalents    |                                                                                     | 19,454                                                                |         |                   |   | (6,241 | ) |
| Cash and cash equivalents at beginning of period    |                                                                                     | 26,790                                                                |         |                   |   | 61,615 |   |
|                                                |                                                                                          |                                                                  |         |                        |   |
| Cash and cash equivalents at end of period          |                                                                                     | 46,244                                                                |         |                   |   | 55,374 |   |
| Short-term investments                              |                                                                                     | 16,918                                                                |         |                   |   | 14,797 |   |
|                                                |                                                                                          |                                                                  |         |                        |   |
| Cash and short-term investments at end of period    | $                                                                                        | 63,162                                                                |         |                   | $ | 70,171 |   |
|                                                |                                                                                          |                                                                  |         |                        |   |
|                                                |                                                                                     |                                                                  |         |                   |   |   |   |   |   |   |
| **Supplemental Disclosures:**                       |                                                                                     |                                                                  |         |                   |   |   |   |
| Cash paid for:                                      |                                                                                     |                                                                  |         |                   |   |   |   |
|                                                | Interest, net of amounts capitalized                                                     | $                                                                     | 193          |                   |   | $ | 174 |   |
|                                                | Taxes                                                                                    | $                                                                     | 1,026        |                   |   | $ | — |   |

The accompanying notes are an integral part of the financial statements.

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**MERIX CORPORATION NOTES TO FINANCIAL STATEMENTS (dollars in thousands)**

**Note 1. BASIS OF PRESENTATION**

The accompanying unaudited financial statements of Merix Corporation (the Company) have been prepared pursuant to Securities and Exchange Commission rules and regulations. Certain information and footnotedisclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read inconjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended May 26, 2001.

The financialinformation included herein reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the results for interim periods. The results of operations for the threemonths ended August 25, 2001 are not necessarily indicative of the results to be expected for the full year.

Certain reclassifications have been made to amounts in prior years toconform to the current year presentation. These reclassifications had no impact on previously reported results of operations or shareholders’ equity. 

The Company’s fiscalyear is the 52 or 53-week period ending the last Saturday in May. Fiscal year 2002 is a 52-week year ending May 25, 2002 and fiscal year 2001 was a 52-week year ended May 26, 2001.

**Note 2. INVENTORIES**

|                                | **August 25, 2001** |   | **May 26, 2001** |
|-------------------------------------|---------------------|--------|------------------|
|                                |                     |   |                  |
|                                |                |   |             |   |   |
| Raw materials                       | $                   | 1,019  |             | $ | 871 |
| Work in process                     |                | 1,551  |             |  | 1,916 |
| Finished goods                      |                | 2,346  |             |   | 3,453 |
|                                |                     |   |                  |
|      Total | $                   | 4,916  |             | $ | 6,240 |
|                                |                     |   |                  |

**Note 3. PROPERTY, PLANT AND EQUIPMENT**

|                               | **August 25,** |    |   | **May 26,** |
|------------------------------------|----------------|---------|--------|-------------|
|                               | **2001**       |    |   | **2001**    |
|                               |                |    |   |             |
|                               |           |    |   |        |   |   |   |
| Land                               | $              | 2,190   |   |        | $ | 2,190 |   |
| Buildings and grounds              |                | 30,927  |   |        |  | 30,628 |   |
| Machinery and equipment            |           | 87,080  |   |        |   | 85,309 |   |
| Construction in progress           |                | 25,931  |   |        |  | 21,357 |   |
|                               |                |    |   |             |   |
|                               |           | 146,128 |   |        |   | 139,484 |   |
| Accumulated depreciation           |                | (64,228 | )      |        |  | (61,959 | ) |
|                               |                |    |   |             |   |
| Property, plant and equipment, net | $              | 81,900  |   |        | $ | 77,525 |   |
|                               |                |    |   |             |   |

 

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**Note 4. NET INCOME PER SHARE**

Basic net income per share is computed using the weighted average number of shares of commonstock outstanding for the period. Diluted net income per share is computed using the weighted average number of shares of common stock and dilutive common equivalent shares related to stock options outstanding during the period. Incremental sharesof 720,361 and 1,044,459, related to outstanding stock options, were included in the calculations of diluted net income per share for the three months ended August 25, 2001 and August 26, 2000, respectively. 

**Note 5. EQUITY**

The increase in equity for the three months ended August 25, 2001 included $542 of net income, the addition of $1,483 of common stock from the exerciseof stock options and $1,687 of tax benefit related to the exercise of stock options. 

|  ̄ | 6 |
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| **ITEM 2.** |   | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|--------|------------------------------------------------------------------------------------------------|

**Overview**

We are a leading manufacturer of technologically advanced electronic interconnect solutions for use in sophisticated electronic equipment. Our principal products are complex multilayer printed circuit boards,which are the platforms used to interconnect microprocessors, integrated circuits and other components that are essential to the operation of electronic products and systems. 

**Results ofOperations**

*Net Sales*

Our net sales for the first quarter of fiscal 2002 were $27.7 million, which represented a decrease of 45.8% fromnet sales of $51.0 million in the first quarter of fiscal 2001. The decrease in net sales for the quarter was the result of lower unit shipments in response to decreased demand in the electronics industry. Premium revenue, consisting of bothprototype and compressed lead-time volume orders, comprised 33.2% of net sales in the first quarter of fiscal 2002 compared to 37.9% in the first quarter fiscal 2001. Premium revenues in the first quarter of fiscal 2002 consisted principally ofprototype orders; in the first quarter of fiscal 2001 it consisted principally of compressed lead time orders. The decrease in sales was slightly offset by a one time customer payment recorded in connection with the release from future commitmentspursuant to a supply agreement.

We are currently experiencing a slowdown in demand from our customers for volume orders, including a reduction in demand for compressed lead-time volume orders. Futuredemand and product pricing are dependent upon a variety of factors, including product mix, levels of advanced technology and premium revenues, capacity utilization, competitive pressure in the circuit board industry, and economic conditionsaffecting the electronics industry in general and the markets we serve. The current uncertainty regarding the level and timing of an economic recovery in our product markets and volatility in our customer forecasts makes our forecasting inherentlyless reliable than in prior periods. However, we expect sales in the second quarter to be less than those in the first quarter of fiscal 2002.

Our 90-day backlog was approximately $8.9 million atAugust 25, 2001, compared to approximately $15.5 million at May 26, 2001 and $47.1 million at August 26, 2000. The level and timing of orders placed by our customers vary due to many factors, including customer attempts to manage inventory, changesin customers’ manufacturing strategies and variation in demand for customer products. Accordingly, our backlog is not necessarily indicative of future financial results. 

Our five largestoriginal equipment manufacturer, or OEM, customers represented 60.7% of net sales in the first quarter of fiscal 2002 and 66.9% of net sales in the first quarter of fiscal 2001. Our sales to OEMs include sales made through contract manufacturers.Sales made through contract manufacturers were 37.4% of net sales in the first quarter of fiscal 2002 and 59.0% of net sales in the first quarter of fiscal 2001. We expect to continue to depend upon a small number of customers for a significantportion of our net sales for the foreseeable future. The loss of or decrease in orders from one or more major customers could materially reduce our sales. 

|  ̄ | 7 |
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The following table shows, for the periods indicated, the percentage of our net sales to the principal end-user markets we serve ($ in thousands):

|                      |    | **Three Months Ended** |
|----------------------|--------------|------------------------|
|                      |              | **August 25,  2001**   |  | **August 26,  2000** |
| **Market Segments**  |         |                        |   |  |  |  |   |  |
| Communications       |         | 66                     | % | $18,268 |   | 57 | % | $29,240 |
| Computers            |         | 15                     |  | 4,056 |  | 25 |  | 12,778 |
| Test and Measurement |         | 17                     |   | 4,685 |   | 15 |   | 7,665 |
| Other                |         | 2                      |  | 660 |  | 3 |  | 1,340 |
|                 |         |                        |   |  |
| Total                |         | 100                    | % | $27,669 |   | 100 | % | $51,023 |
|                 |         |                        |   |  |

As a result of the release of commitments under a customer supply agreement, we expectto see significantly lower sales in the test and measurement segment that will continue until demand for semiconductor test equipment returns. 

*Gross Profit*

Our gross profit as a percentage of sales, or gross margin, was 18% in the first quarter of fiscal 2002 compared to 34% in the first quarter of fiscal 2001. The decrease in gross margin in the first quarter of fiscal 2001compared to the first quarter of fiscal 2002 is primarily due to the significant decrease in manufacturing capacity utilization. Decreased production volumes required fixed costs to be allocated over a lower number of units. Although premiumrevenues as a percent of sales declined slightly from the first quarter of the prior year, overall pricing for the Company’s advanced technology printed circuit boards has remained strong as a result of a favorable sales mix. Premium revenuesin the first quarter of fiscal 2001 primarily consisted of compressed lead-time volume orders, whereas in the first quarter of fiscal 2002 premium revenues primarily consisted of higher margin quick turn prototypes. The company reduced headcount atthe end of fiscal 2001 and continues to focus on cost reductions including mandatory time off, limited hiring, salary and wage freezes, reduced discretionary spending, higher production yields, manufacturing process improvements and lower rawmaterial and supply costs. 

 We expect our gross profit in the second quarter of fiscal 2002 to decrease significantly compared to the first quarter of fiscal 2002 since reduced manufacturing volumeswill further affect manufacturing capacity utilization resulting in lower absorption of fixed costs. Our gross profit may also be affected by various other factors including product mix, production yields, price changes and changes in our coststructure.

*Engineering*

****Our engineering expenses were $1.4 million in the first quarter of fiscal 2002 and $1.3million in the first quarter of fiscal 2001, representing 5.0% and 2.5% of our net sales, respectively. Engineering expenses increased in the first quarter of fiscal 2002 primarily due to an increase in engineering personnel to support the highertechnology products manufactured plus increased field engineering support for the Company’s sales organization.

*Selling, General and Administrative*

Our selling, general and administrative expenses were $3.2 million in the first quarter of fiscal 2002 and $3.5 million in the first quarter of fiscal 2001, representing 11.6% and 6.8% of our net sales, respectively. Thedecrease in selling, general and administrative expenses in the first quarter of fiscal 2002 was due to higher bonuses and commissions and charges to the provision for bad debts in the first quarter of fiscal 2001 related to the higher level ofsales. 

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*Interest and Other Income (Expense), net*

Our interest and other income (expense), net was $0.5 million in the firstquarter of fiscal 2002 and $0.3 million in the first quarter of fiscal 2001. The net change resulted principally from changes in interest income and interest expense. Interest income increased in the first quarter of fiscal 2002 due to higher levelsof cash equivalents and short-term investments. Interest expense decreased significantly in the first quarter of fiscal 2002 due to lower debt obligations and the capitalization of interest related to our capacity expansion project. Interest expenseof $413,000 was capitalized in the first quarter of fiscal 2002 and will be amortized over the lives of the assets to which it relates.

*Income Taxes*

Our effective tax rate was approximately 36% in the first quarter of fiscal 2002 and approximately 39% for the first quarter of fiscal 2001. The reduction in the effective tax rate was due to benefits from foreign salesexclusion and interest on government bonds. 

**Liquidity and Capital Resources**

Cash provided by operating activities in the first quarter offiscal 2002 was $3.6 million, consisting primarily of net income for the period adjusted for depreciation and amortization, deferred income taxes, the tax benefit of stock option exercises, and the net reduction of working capital for the quarter.The decrease in working capital is the net result of decreases in inventory and income tax receivable offset by a decrease in payables. 

Cash provided by investing activities in the first quarter offiscal 2002 was $15.5 million, primarily from the net maturity of investments over purchases offset by expenditures for manufacturing buildings and equipment supporting the capacity expansion program. Capital commitments at August 25, 2001 wereapproximately $17.8 million, primarily for manufacturing equipment.

Cash provided by financing activities in the first quarter of fiscal 2002 was $0.3 million, which primarily consisted of proceedsfrom the exercise of stock options partially offset by principal payments on our senior unsecured notes.

We have $24.0 million outstanding under 7.9% senior unsecured notes held by two insurancecompanies, with interest payable semi-annually. Semi-annual principal payments of $4.0 million began in September 1999, with a final principal payment of $8.0 million due in September 2003. The notes contain certain financial covenants, includingminimum net worth, debt ratio and interest coverage and a make-whole provision covering potential prepayment penalties. As of August 25, 2001, we were in compliance with all covenants. 

In February2001, we obtained a $15.0 million unsecured line of credit from a bank, which expires in February 2002. Borrowings under this line of credit would bear interest at the bank’s prime rate or alternative LIBOR based rates available at the time ofborrowing. We have not made any borrowings under this credit facility to date. 

*Capacity Expansion*

We continue to execute on our expansionplans, although at a slower pace than originally planned as a result of significantly lower customer demand for printed circuit boards. Our expansion projects announced in fiscal years 2000 and 2001 are expected to increase production capacity byapproximately 100% and will cost approximately $90.0 million. In connection with our expansion, we entered into a lease agreement for a 90,000 square foot facility in Wood Village, Oregon. Consistent with the current reduction in demand for ourproduct, we have delayed the completion of the initial phase of this new facility until the spring of 2002. We do not expect to start hiring or operations at the Wood Village facility until we see strengthening in demand for volumeproduction.

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 However, we currently expect full capacity to be available in the fall of 2004. Upon the completion of these expansion projects, we expect that our manufacturing facilities willsupport a revenue run rate of approximately $400 million annually. We expect to fund our expansion projects with existing capital resources, internally generated funds and lease financing. 

Ourplanned capacity expansions involve significant risks. For example, we may encounter construction delays, equipment delays, labor shortages or disputes and production start-up problems that could prevent us from meeting our customers’ deliveryschedules. We also expect to incur new fixed operating expenses associated with our expansion efforts, including increases in depreciation expenses and lease expenses. If our revenues do not increase sufficiently to offset these expenses, ouroperating results may be harmed. In addition, the electronics industry has historically been cyclical and is currently experiencing a significant economic downturn characterized by diminished product demand and over-capacity. The current unfavorableeconomic conditions affecting any of our major customers or the electronics industry in general may affect our ability to successfully utilize our additional manufacturing capacity in an effective manner, which could adversely affect our operatingresults.

We believe that our existing capital resources and cash generated from operations should be sufficient to meet our working capital and capital expenditure requirements through at least thenext 12 months.

**Risk Factors Affecting Business and Results of Operations**

Certain statements in this report contain forward-lookinginformation (as defined in Section 27A of the Securities Act of 1933, as amended) that involves risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-lookingstatements by terminology including “could,” “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”“potential” or “continue,” the negative of these terms or other comparable terminology. These statements constitute forward-looking statements and are only predictions. Actual events or results may differ materially. Thedifferences could be caused by a number of factors or combination of factors, including, but not limited to the factors listed below and the risks detailed in the Company’s Securities and Exchange Commission filings, including our Annual Reporton Form 10-K for the fiscal year ended May 26, 2001.

Forward-looking statements contained in this report relate to the Company’s plans and expectations as to: future sales, our customer base,gross profit, capital expansion and the availability of capital resources and cash. 

The following factors, among others, could cause actual results to differ from those indicated in theforward-looking statements: a continued downturn in the economy; the effects of terrorist attacks in the United States; the loss of any of our major customers; a decrease in demand for electronic products; and an increase in competition in themarked for electronic interconnect solutions. These factors may cause our actual results to differ materially from any forward-looking statement.

Although we believe the expectations reflected in theforward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this report, to conform them toactual results or to make changes in our expectations. 

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| **ITEM 3.** |   | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
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Our exposure to market risk for changes in interest ratesrelates primarily to the increase or decrease in the amount of interest income we can earn on our available funds for investment and on the increase or decrease in the amount of interest expense we must pay with respect to our outstanding debtinstrument. The risk associated with fluctuating interest expense is limited, however, to the exposure related to a certain credit facility that is tied to variable market rates. We do not use, nor do we plan to use derivative financial instrumentsin our investment portfolio. We plan to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We plan to mitigate default risk by investing in high-credit quality securities.

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**PART II. OTHER INFORMATION**

**ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**

(a) See the Exhibit Index for the exhibits filed as part of this report.

(b)Reports on Form 8-K

          No reports on Form 8-K were filed during the quarter ended August 25, 2001.

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**SIGNATURE**

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized this 9th day of October, 2001.

|                    | MERIX CORPORATION                            |
|--------------------|----------------------------------------------|
|     |                                              |
|                    | By: /s/ Janie S. Brown                       |
|     |                                              |
|                    | Janie S. Brown                               |
|                    | Sr. Vice President, Chief Financial Officer, |
|                    | Treasurer and Secretary                      |
|                    | (Principal Financial Officer)                |

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**EXHIBIT INDEX**

| Exhibit Number |   | Document Description                                                                                                                                                    |
|----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1            |   | Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1,Registration No. 33-77348). |
|      |   |                                                                                                                                                                    |
| 3.2            |   | Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K for the fiscal year ended May 31,1997).                     |
|      |   |                                                                                                                                                                    |
| 4.1            |   | Instruments defining the rights of security holders (included in the Articles of Incorporation and Bylaws filed as Exhibits 3.1 and 3.2respectively).                   |

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