---

---

UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---




FORM 10-K





|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------




For the fiscal year ended May 26, 2001





OR





| ̈ |  | 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 incorporation or organization)

(I.R.S. Employer Identification Number)1521 Poplar Lane, Forest Grove, Oregon

97116(Address of principal executive offices)

(Zip Code)





(503) 359-9300


(Registrants telephone number)





---




Securities registered pursuant to Section 12(b) of the Act:


None





Securities registered pursuant to Section 12(g) of the Act:





Common Stock, no par value


Series A Preferred Stock Purchase Rights





---




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 during the 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  ̈





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form
10-K.  ̈





The aggregate market value of the voting stock held by non-affiliates of the Registrant as of July 25, 2001 was $299.0 million based upon the
composite closing price of the Registrants Common Stock on the Nasdaq National Market System on that date. For purposes of this computation, all executive officers and directors have been deemed affiliates. This shall not be deemed an
admission that such persons are affiliates.





The
number of shares of the Registrants Common Stock outstanding as of July 25, 2001 was 13,710,851 shares.





DOCUMENTS INCORPORATED BY REFERENCE





Portions of the registrants proxy statement in connection with its 2001 Annual Meeting of Shareholders are incorporated by reference into Part III.





---

---

---

MERIX CORPORATION


FORM 10-K





TABLE OF CONTENTS





Part I
PageItem 1.

Business
2Item 2.

Properties
7Item 3.

Legal Proceedings
8Item 4.

Submission of Matters to a Vote of Security Holders
8Part IIItem 5.

Market for the Registrants Common Equity and Related Stockholder Matters
9Item 6.

Selected Financial Data
9Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations
10Item 7A.

Quantitative and Qualitative Disclosures About Market Risk
18Item 8.

Financial Statements and Supplementary Data
19Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
38Part IIIItem 10.

Directors and Executive Officers of the Registrant
38Item 11.

Executive Compensation
38Item 12.

Security Ownership of Certain Beneficial Owners and Management
38Item 13.

Certain Relationships and Related Transactions
38Part IVItem 14.

Exhibits, Financial Statement Schedules, and Reports on Form 8-K
39Sig
natures


42


PART I





ITEM 1.
    BUSINESS.





In this report, the terms Merix, Company, we, us, and our refer to Merix Corporation. Merix, an Oregon corporation, was
formed in March 1994. 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. We focus on providing our solutions to manufacturers of technologically advanced
electronic products within selected high growth segments of the electronics industry, including communications, computing, and test and measurement. We provide our customers with an integrated interconnect manufacturing solution that includes
quick-turn prototypes, pre-production and volume production of printed circuit boards and backplanes. Our major and emerging customers include leading original equipment manufacturers, or OEMs, and contract manufacturers in the electronics industry.





Industry Overview





Printed circuit boards consist of patterns of electrical circuitry etched from copper that have been laminated on a board of
insulating material. They are the platforms used to interconnect microprocessors, integrated circuits and other components that are essential to the operation of electronic products and systems. Printed circuit boards are customized for specific
electronic applications and are sold to OEMs and contract manufacturers in volumes that range from several units for prototypes to small quantities for pre-production to large quantities for volume production. Quick-turn prototypes are used in the
design, test and launch phases of new electronic products and require rapid manufacturing, with delivery times ranging from as little as 24 hours to as long as 10 days. Larger volumes of printed circuit boards are needed as a product progresses past
the testing and design phases and into pre-production and then volume production.





Printed circuit boards are used in virtually all electronic equipment from consumer products, such as personal computers, cellular telephones and televisions, to high-end
commercial electronic equipment, such as data communication routers and switches, data storage devices, wireless base stations, computer workstations and network servers. Typically, printed circuit boards used in consumer electronic products are
less technologically sophisticated, employing lower layer counts and lower performance materials and requiring less manufacturing sophistication than printed circuit boards used in high-end commercial equipment.





We manufacture complex multilayer printed circuit boards primarily for use
in high-end commercial equipment. We are capable of producing, in volume, technologically sophisticated printed circuit boards of up to 40 layers utilizing high performance, mixed dielectric materials. We are also a leading supplier of advanced,
thermally enhanced products for wireless base stations and high-speed optical networking lasers. Our advanced manufacturing capabilities uniquely position us to serve the communications, computing and test and measurement segments of the electronics
industry. These industry segments are characterized by rapid technological change and short product life-cycles as OEMs continually develop new and technologically superior products. High-end commercial equipment manufacturers require more complex
multilayer printed circuit board solutions with advanced materials, narrow line widths and separations of copper traces, precision cavities and small diameter vias and through-holes to connect internal circuitry.





Manufacturing increasingly sophisticated electronic interconnect products
requires substantial investment in advanced production facilities, engineering and manufacturing expertise and process technology. These capital and technology requirements have led to consolidation in recent years, reducing the number of printed
circuit board manufacturers in the United States from approximately 950 in 1992 to approximately 680 in 2000. Despite this consolidation, the printed circuit board market remains fragmented, and we expect consolidation to continue. Of the
approximately 680 printed circuit board manufacturers in the United States in 2000, only thirteen independent manufacturers had revenues in excess of $100 million, and these manufacturers comprised 54% of the domestic printed circuit board market.




2


---






There are several
significant trends within the electronic interconnect industry. These include:





Increasing Complexity of Electronic Equipment.    The increasing complexity of electronic equipment drives technological advancements in interconnect
products. OEMs are continually designing more complex and high performance electronic equipment, which requires printed circuit boards that accommodate higher speeds, component densities, frequencies and operating temperatures. We believe this trend
is increasing the demand for interconnect manufacturers with superior manufacturing process techniques and engineering support.





Emerging Markets.    Although current demand is down, the demand for more complex multilayer printed circuit boards is
driven by the long-term expansion of traditional markets for high-end commercial electronic equipment, such as communications, computing and test and measurement. We believe that these emerging markets will continue to grow as a result of
technological changes, demands for wider variety of electronic product features, greater bandwidth and increasingly powerful electronic components, however, growth will be at a slower pace than experienced in recent years.





Shorter Product Life-Cycles for Electronic
Products.    Rapid advances in technology have significantly shortened the life-cycles of complex electronic products and placed increased pressure on OEMs to develop new products in shorter periods of time. The
time-to-market demands of OEMs have increased emphasis on the engineering and quick-turn production of small unit volumes of printed circuit boards in the prototype development stage. In addition, the success of first-to-market products has
heightened the demand for manufacturing expertise and process controls that enable manufacturers to quickly proceed to volume production.





Increased Demand for Integrated Products and Services.    The accelerated time-to-market and time-to-volume needs of OEMs
of high-end equipment have resulted in increased collaboration with interconnect providers that can offer engineering support in the design phase and manufacturing scalability throughout the product life-cycle. Many OEMs are limiting their vendor
base to a smaller number of technically qualified providers that are able to offer a broad range of interconnect products and services.





Products and Services





We offer a broad range of products and services designed to meet our customers needs for complex multilayer printed circuit boards and backplanes. Our products and services
span the period from product conception through volume production and include the following:





Design Assistance and Engineering Services.    We provide design assistance and engineering services in the early stages of product development to ensure
that mechanical and electrical elements are integrated to achieve a high quality and cost-effective product. We also evaluate customer designs for manufacturability and, when appropriate, recommend design changes to reduce manufacturing costs and
lead times or increase manufacturing yields and the quality of finished printed circuit boards. We believe this cooperative process shortens the time in transition from the development of the prototype design to volume manufacturing and facilitates
the delivery of high quality products in a timely fashion. By working closely with our customers throughout the design and manufacturing process, we gain insight into their future product requirements.





Quick-Turn Prototype and Pre-Production Services.    We produce
quick-turn prototypes with lead times of three to fifteen days for the product development groups of our customers. We also produce prototypes in pre-production quantities with lead times of ten to fifteen days for these customers. We offer volume
production and prototypes within the same facility. By using the same processing lines to manufacture prototypes, our prototypes more accurately represent our volume products. This allows us to shorten the time in transition from the development of
prototype designs to volume manufacturing and facilitates the volume delivery of high quality complex printed circuit boards in a timely fashion.





Volume Production.    Volume production is characterized by standard lead times of six to eight weeks, as printed circuit
boards move to full-scale commercial production. At this stage of production, quality, on-time delivery, process capability and price are the factors most important to our customers. Our engineering capability




3


---



enables us to produce, in volume, technologically sophisticated printed circuit boards of up to 40 layers utilizing high performance materials and leading edge fabrication techniques. In
addition, our manufacturing process controls enable us to meet the accelerated time-to-market and time-to-volume requirements of our customers.





Backplanes.    We produce backplanes for our customers. Backplanes are generally larger and thicker printed circuit
boards on which connectors are mounted to interconnect printed circuit boards, integrated circuits and other electronic components. In addition to providing backplane fabrication services, we also perform radio frequency testing services to evaluate
the performance of backplane circuits across a spectrum of frequencies.





Markets and Customers





The following table shows, for the periods
indicated, the percentage of our net sales to the principal market segments we serve:





Fiscal Years2001

2000

1999Market Segments:Communications

59.4
%

51.7
%

37.9
%Computing

19.2


21.3


32.8Test and Measurement

19.3


24.2


25.4Other

2.1


2.8


3.9Total

100.0
%

100.0
%

100.0
%





Our five
largest OEM customers during fiscal 2001, in alphabetical order, were Cisco Systems, Lucent Technologies, Motorola, Storage Technology Corp., and Teradyne. Our five largest OEM customers comprised 64.1%, 67.5% and 67.8% of our net sales during
fiscal 2001, 2000 and 1999, respectively. In fiscal 2001 and 2000, Cisco Systems, Motorola and Teradyne each accounted for more than 10% of our net sales. Cisco Systems, Hewlett-Packard, Motorola and Tektronix each accounted for more than 10% of our
net sales in fiscal 1999. We expect to continue to depend on a small number of customers for a significant portion of our net sales for the foreseeable future. The loss of or decrease in orders from one or more major customers could reduce our
revenues. In the second half of fiscal 2001, we experienced significantly lower levels of orders from our major customers. See Management Discussion and Analysis of Financial Condition and Results of Operations.





Our sales to OEMs include sales made through contract manufacturers that
assemble components on our products for resale to OEMs. Approximately 52.9%, 54.8% and 31.2% of our net sales were through our contract manufacturing customers in fiscal 2001, 2000 and 1999, respectively.





Sales and Marketing





We market our products through a field-based direct sales force, field application engineers, manufacturers representative firms and customer service personnel. We employ
field application engineers in regions across the U.S, who serve as the technical interface between Merix and customers design engineering teams. Our field application engineers integrate into the customers design teams as technical
experts, providing information and modeling data to assure that the final printed circuit board design meets certain electrical performance requirements, cost goals, and design guidelines for manufacturability. We are also represented by independent
manufacturers representative firms in the United States, Europe and Canada.





Our sales force develops close relationships with our OEM customers beginning at the earliest development and design phases and continuing throughout all stages of production. In
addition, because contract manufacturers are increasingly being given discretionary authority from OEMs to award business to printed circuit board manufacturers, we also target contract manufacturers as well as OEMs and leverage our relationships
with OEMs to access new business with contract manufacturers.




4





Supplier Relationships





We have entered into strategic relationships with certain suppliers of laminates, raw materials
and services to reduce lead times and inventory carrying costs, enhance the quality and reliability of the supply of raw materials and reduce transportation and other logistics costs. For example, Matsushita Electronics Materials, a key laminate
supplier, operates a factory producing standard and high performance laminates adjacent to our facility. Isola Laminate Systems Corp., another laminate supplier, utilizes an independent warehouse distribution center adjacent to our facility to offer
just-in-time delivery of high-performance raw materials. In addition, Mania Technologie, Inc. USA provides on-site electrical test services at our facility.





We rely on our suppliers for laminates and raw materials to complete our customers purchase orders. Although we work with
our customers and suppliers to minimize the impact of shortages in materials, we have occasionally experienced short-term effects due to price fluctuations and delayed shipments. If a significant shortage of raw materials or laminates were to occur,
our operating results would be materially adversely affected. We also depend on a small number of suppliers for many of the raw materials and laminates that we use in our business. If we were unable to continue to purchase these raw materials and
laminates from our suppliers, our operating results would be materially adversely affected.





Manufacturing
and Technology





The increasing complexity of
electronic products has driven technological advancements in interconnect products and has placed increasingly more difficult demands on the manufacturing process. We have invested in production technology to manufacture dense multilayer printed
circuit boards utilizing advanced fabrication processes and high performance materials in volume production, with excellent reliability. We employ numerous advanced manufacturing techniques and systems, including automated imaging systems,
conveyorized automated optical inspection, computer controlled hot oil vacuum lamination, high-speed computer controlled drilling and routing, automated registration optimizers, periodic reverse pulse metal plating, photoimageable solder mask
processing, dual-sided access electrical testing and surface coating. Our execution of these techniques enables us to manufacture complex printed circuit boards of consistent quality in high-volume and on a timely basis.





In general, we receive circuit designs directly from our customers in the
form of computer data files, which we review to ensure data accuracy and product manufacturability. Using these computer files, we generate images of the circuit patterns that we develop on individual layers using advanced photographic processes.
Through a variety of plating and etching processes, we selectively add and remove conductive materials forming horizontal layers of thin traces or circuits, which are separated by insulating material. A finished multilayer printed circuit board
laminates together a number of layers of circuitry, using intense heat and pressure under vacuum. Vertical connections between layers are achieved by plating through small holes called vias. Vias are made by highly specialized drilling equipment
capable of achieving extremely fine tolerances with high accuracy. We specialize in high layer printed circuit boards with extremely fine geometries and tolerances. Because of the tolerances involved, we use clean rooms in certain manufacturing
processes where tiny particles might otherwise create defects on the circuit patterns and use automated optical inspection systems to ensure consistent quality.





To organize and track our orders, materials and processes, we have developed a proprietary computer-integrated manufacturing
system called the Computer On-Line Loading and Tracking system. This system tracks all phases and aspects of shop-floor production in real time, delivering crucial information to every decision point using online statistical process control tools
and helps us analyze and continually improve our products and processes.





We are members of the Advanced Embedded Passive Technology Consortium funded by the National Institute of Standards and Technology and administered by the National Center for
Manufacturing Sciences. This consortium was designed to develop new materials, tools and manufacturing techniques for embedding the




5


---



majority of passive electrical devices, such as resistors and capacitors, into the structure of a printed circuit board. This new technology should reduce costs and space requirements and improve
the reliability and performance of many electrical devices. We believe our participation in this project will help us maintain our technology leadership and provide us with additional funding for our engineering research in this area of interconnect
product development.





Competition





We believe our major competitors are the large U.S. and international independent producers
that also manufacture multilayer printed circuit boards and provide backplane and other electronic assemblies, such as Dynamic Details Inc., Honeywell, Multek (a division of Flextronics International Ltd.), Sanmina, TTM Technologies Inc. and
Viasystems.We believe our ability to compete successfully depends upon a number of factors, including our responsiveness to customers in delivery and service, our technological capability, our product quality and our pricing. See
Managements Discussion and Analysis of Financial Condition and Results of OperationsRisk Factors Affecting Business and Results of Operations.





Backlog





Our 90-day backlog was approximately $15.5 million at the end of fiscal 2001, $35.4 million at the end of fiscal 2000 and $18.0 million at the end of fiscal 1999. A substantial
portion of our backlog is typically scheduled for delivery within 60 days.





The level and timing of orders placed by our customers vary due to a number of factors, including customer attempts to manage inventory, changes in customer manufacturing
strategies and variations in demand for customer products. Because we do not generally obtain long-term purchase orders or commitments from our customers, we must anticipate the future volume of orders based on discussions with our customers. We
rely on our estimates of anticipated future volumes when making commitments regarding the level of business that we will seek and accept, the mix of products that we intend to manufacture, the timing of production schedules and the levels and
utilization of personnel and other resources. A customer may cancel, reduce or delay orders that were previously made or anticipated. A significant portion of our backlog at any time may be subject to cancellation or postponement without penalty. We
may not be able to timely replace canceled, delayed or reduced orders. In the second half of fiscal 2001, we experienced significant shortfalls between our forecasts of orders and actual orders, and higher levels of customer order deferrals and
cancellations. Significant or numerous cancellations, reductions or delays in orders by a customer or group of customers could lead to under-utilization of our installed capacity and harm our results of operations. In the near term, we expect our
forecasting ability to be less accurate than it has been in prior periods.





Patents and Other Intellectual
Property





Although we seek to
protect certain proprietary technology and other intangible assets through patents, we have relatively few patents and believe our business depends on our effective execution of fabrication techniques and our ability to improve our manufacturing
processes to meet evolving industry standards. In addition, because manufacturing printed circuit boards requires our employees to have sufficient know-how to operate advanced equipment and to conduct sensitive and complicated manufacturing
processes, we depend to a large extent on training, recruiting and retaining these employees.





Environmental
Matters





We are required to comply with federal,
state, county and municipal regulations regarding protection of the environment. Printed circuit board manufacturing requires the use of a variety of materials, including metals and chemicals. As a result, we are subject to environmental laws
relating to the storage, use and disposal of chemicals, solid waste and other hazardous materials, as well as air quality regulations. Water used in the manufacturing process must be treated to remove heavy metals and neutralized before it can be
discharged into




6


---



the municipal sanitary sewer system. We operate and maintain effluent water treatment systems and utilize approved laboratory testing procedures at our manufacturing facility under effluent
discharge permits issued by authorized governmental agencies. These permits must be renewed periodically and are subject to revocation in the event of violations of environmental laws. Certain waste materials and byproducts generated by our
manufacturing processes are sent to approved third parties for recycling, reclamation, treatment or disposal. We believe our environmental management complies with environmental protection requirements in all material respects.





Employees





As of May 26, 2001 we had a total of 1,059 employees, all of which were regular employees. None of our employees is represented by a labor union. We
have never experienced an employee-related work stoppage. We believe our relationship with our employees is good.





Executive Officers





The following
table sets forth certain information with respect to our executive officers:





Executive Officers

Age

PositionMark R. Hollinger


43


Chief Executive Officer, President and DirectorJanie S. Brown


56


Senior Vice President, Chief Financial Officer, Treasurer and SecretaryAnaya K. Vardya


38


Senior Vice President of OperationsDaniel T. Olson


46


Vice President of Sales and Marketing





Mark R.
Hollinger has served as Chief Executive Officer since September 1999 and as President since May 1999. Mr. Hollinger was elected to the Board of Directors in May 1999. Mr. Hollinger joined Merix in September 1997 as Senior Vice President of
Operations and served as Chief Operating Officer from August 1998 to September 1999. Prior to joining Merix, he spent three years as Vice President of Operations at Continental Circuits Corporation. His experience also includes more than a decade at
IBM, where he served in a variety of positions including PCB Manufacturing Superintendent.





Janie S. Brown has served as Senior Vice President since January 2001, Secretary since September 1999, Chief Financial Officer since August 1998 and Treasurer since
September 1997. Ms. Brown served as Vice President from April 1996 to January 2001 and as Corporate Controller from June 1995 until August 1998. From September 1982 until joining Merix, Ms. Brown held various positions, including audit partner, with
Deloitte & Touche LLP.





Anaya K. Vardya
has served as Senior Vice President of Operations since January 2001 and Vice President of Operations from December 1999 to January 2001. Mr. Vardya joined Merix in October 1997 as Director of Forest Grove Operations. Prior to joining Merix, Mr.
Vardya was the Corporate Development Manager for Continental Circuits Corporation from November 1994 to October 1997. From 1985 to 1994, Mr. Vardya held a number of positions with IBM, including Engineering Manager for IBMs Austin, Texas
facility.





Daniel T. Olson has served as Vice
President of Sales and Marketing since October 1999. From 1992 to April 1999, Mr. Olson held various positions, including Director of Strategic Business for the Electronics Business Group of MacDermid, Inc. From 1982 to 1991, Mr. Olson served in a
number of sales roles, including National Sales Manager, for Olin Corporation.





ITEM 2.
    PROPERTIES.





We currently manufacture all of our products on our 73-acre Forest Grove campus, which includes approximately 243,000 square feet of manufacturing facilities and a 62,500 square
foot training and




7


administration facility. Our manufacturing facility is ISO 9002 certified, and we use total quality management systems to meet the highest industry standards for product quality.





We are engaged in a capacity expansion program and
are constructing a leased manufacturing facility located at Wood Village, Oregon with approximately 90,000 square feet. This facility is expected to begin production in March 2002. See Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital ResourcesCapacity Expansion.





ITEM
3.
    LEGAL PROCEEDINGS.





We are not involved in any material litigation. From time to time we may be involved in litigation arising in the normal course of our business.





ITEM 4.
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





We did not submit any matters to a vote of our stockholders during the fourth quarter of fiscal year 2001.




8


---



PART II





| | ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
| | ------- | --------------------------------------------------------------------------




Our common stock is traded on the Nasdaq National Market under the symbol MERX. The
following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the Nasdaq National Market.





High

LowFiscal year 2001:Quarter 4

$25.76

$11.00Quarter 3

41.25

10.63Quarter 2

69.00

23.31Quarter 1

49.75

17.21Fiscal year 2000:Quarter 4

$20.25

$   9.92Quarter 3

15.25

6.62Quarter 2

9.50

6.17Quarter 1

7.59

3.79





As of July
25, 2001, the last reported sale price of our common stock on the Nasdaq National Market was $22.16 per share. As of July 25, 2001, there were approximately 81 shareholders of record and approximately 4,800 beneficial shareholders of our common
stock.





We currently intend to retain any earnings
for use in our business and, therefore, we do not anticipate paying any cash dividends in the foreseeable future. We have never declared or paid any cash dividends on our capital stock. In the future, the decision to pay any cash dividends will
depend upon our results of operations, financial condition and capital expenditure plans, as well as such other factors as our Board of Directors, in its sole discretion, may consider relevant.





ITEM 6.
    SELECTED FINANCIAL DATA.





2001

2000

1999

1998

1997(In thousands, except per share data)Statement of Operations Data:Net sales
$183,900

$155,872

$113,982


$178,620

$156,184Net income (loss)
26,597

7,458

(20,681
)

2,138

321Basic net income (loss) per share*
$       1.96

$         .76

$      (2.20
)

$      0.23

$      0.03Diluted net income (loss) per share*
$       1.84

$         .72

$      (2.20
)

$      0.23

$      0.03Balance Sheet Data:Working capital
$  65,970

$  73,540

$ 14,322


$ 40,755

$ 45,586Total assets
175,687

159,306

109,383


135,168

130,449Long-term debt, less current portion
16,000

25,150

34,299


40,000

42,390Shareholders equity
134,194

101,731

50,326


70,191

67,416


---

|* |  | Restated for the three-for-two stock split effected August 25, 2000
|- |  | -------------------------------------------------------------------



9


---






| | ITEM 7. | 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.





Our fiscal year consists of either the 52 or
53-week period ending on the last Saturday in May. Fiscal years 2001, 2000 and 1999 were 52-week years. For convenience, all of our fiscal years are presented as ended on May 31.





Throughout 2001, we continued our focus on customers who require advanced technology printed
circuit boards and we were able to increase average selling prices by increased higher technology sales and higher levels of premium revenue. Our premium revenue consists of both compressed lead-time and quick turn prototype and pre-production
revenues. In the first half of fiscal 2001 we continued to experience high customer demand and a focus on the availability of capacity rather than product price. Approximately 39% of our sales in the first half of 2001 were premium revenues,
consisting of quick turn prototype and pre-production and compressed lead-time volume orders.





In the second half of 2001 demand for volume production and pre-production declined significantly. Approximately 29% of sales in the second half were premium revenues, which
primarily reflected a relatively high demand for quick turn prototypes. We also significantly expanded our customer base in the second half, adding 27 new customers and many new programs. Many of these new customers are relatively small companies,
and our future business with these customers may be significantly affected by their ability to continue to obtain financing.





Results of Operations (Dollars in thousands)





Results of operations information in dollars and as a percentage of net sales are as follows:





Years Ended May 31,

Percentage of Net Sales2001

2000

1999

2001

2000

1999Net sales
$183,900

$155,872

$113,982

100.0
%
100.0
%
100.0
%Cost of sales
126,104

125,456

110,534

68.6

80.5

97.0Gross profit
57,796

30,416

3,448

31.4

19.5

3.0Operating expenses:Engineering
5,360

4,488

4,100

2.9

2.9

3.6Selling, general and administrative
13,371

11,184

9,045

7.3

7.2

7.9Restructuring




21,750





19.1Total operating expenses
18,731

15,672

34,895

10.2

10.1

30.6Operating income (loss)
39,065

14,744

(31,447
)
21.2

9.4

(27.6
)Interest income
4,460

922

912

2.4

0.6

0.8Interest expense
(2,034
)
(3,052
)
(2,906
)
(1.0
)
(2.0
)
(2.5
)Other income (expense), net
(102
)
(386
)
85

(0.1
)
(0.2
)
0.1Income (loss) before taxes
41,389

12,228

(33,356
)
22.5

7.8

(29.2
)Income tax (expense) benefit
(14,792
)
(4,770
)
12,675

(8.0
)
(3.0
)
11.1Net income (loss)
$   26,597

$     7,458

$  (20,681
)
14.5
%
4.8
%
(18.1
)%




10


---






Comparison of Fiscal Years 2001 and 2000





| | Net Sales
| | ---------




Our net sales were $183.9 million in fiscal 2001, an increase of 18.0% from net sales of $155.9 million in fiscal 2000. The increase in net sales
for the year was primarily the result of a favorable sales mix partially offset by lower volume unit shipments, especially in the second half of fiscal 2001. The favorable sales mix resulted from a higher percentage of more technologically advanced
printed circuit boards and premium revenue, both of which have higher average sales prices compared to the sales mix in the prior year. In the first half of fiscal 2001, premium revenues resulted primarily from compressed lead-time volume orders as
customers focused on availability of capacity rather than pricing. In the last half of fiscal 2001, consistent with industry trends, we experienced a downturn in customer demand for volume orders, but realized an increase in demand for prototype
orders. Premium revenue, consisting of both prototype and compressed lead-time volume orders, comprised 34.8% of net sales in fiscal 2001 compared to 23.1% in fiscal 2000.





Sales in the communications market segment increased in dollars and as a percentage of sales in fiscal 2001 compared to fiscal
2000. The number of communications customers has increased from approximately 30 in fiscal 2000 to approximately 47 in fiscal 2001. See BusinessMarkets and Customers.





Our five largest OEM customers comprised 64.1% of our net sales in fiscal 2001, compared to
67.5% in fiscal 2000. Our sales to OEMs include sales made through contract manufacturers. Sales through contract manufacturers were 52.9% of our net sales in fiscal 2001 compared to 54.8% in fiscal 2000. Three customers each accounted for more than
10% of our net sales in fiscal 2001and 2000. See BusinessMarkets and Customers.





The favorable growth in revenues during fiscal 2001 as compared to fiscal 2000 is not necessarily indicative of results to be expected for future periods and we are unable during
this time of low visibility to forecast revenues for periods beyond the next quarter. Future demand and product pricing are dependent upon a variety of factors including product mix and demand for quick-turn orders, competitive pressure in the
circuit board industry, and economic conditions affecting 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 inherently less reliable than in prior periods.





| | Gross Profit
| | ------------




Our gross profit as a percentage of sales, or gross margin, was 31.4% in fiscal 2001 and 19.5% in fiscal 2000. Gross margin increased in fiscal 2001
primarily due to a favorable product mix and cost reductions. Our product mix was favorable because we produced a greater proportion of advanced technology printed circuit boards and premium orders, which provide significantly higher gross margins.
Our cost reductions consisted of higher production yields, manufacturing process improvements and lower raw material and supply costs because of better supplier arrangements. The effect of cost reductions and a favorable product mix on gross margin
in fiscal 2001 was partially offset by a significant decline in capacity utilization in the second half of fiscal 2001.





| | Engineering
| | -----------




Our engineering expenses were $5.4 million in fiscal 2001 and $4.5 million in fiscal 2000, representing 2.9% of our net sales in each of those
periods. The increase in engineering expense in fiscal 2001 resulted primarily from increased headcount required to support the higher technology products manufactured, higher production levels in the first half of fiscal 2001 and capacity expansion
activities.





| | Selling, General and Administrative
| | -----------------------------------




Our selling, general and administrative expenses were $13.4 million and $11.2 million in fiscal 2001 and fiscal 2000,
respectively, representing 7.3% and 7.2% of our net sales in those periods. The increase in selling,




11


---



general and administrative expense resulted primarily from an increased provision for bad debts, increases in sales and administrative headcount required to support our growth in the first half
of fiscal 2001 and increased reserves for out-of-warranty costs.





| | Interest Income
| | ---------------




Interest income increased to $4.5 million in fiscal 2001 from $922,000 in fiscal 2000 due to the short-term investment of the $41.3 million proceeds
from the May 2000 public offering of common stock as well as cash generated from operations during fiscal 2001.





| | Interest Expense
| | ----------------




Interest expense declined to $2.0 million in fiscal 2001 from $3.1 million in fiscal 2000 primarily due to $9.2 million in principal payments on
long-term debt and the capitalization of approximately $296,000 of interest costs related to the capacity expansion projects. Capitalized interest will be amortized over the lives of the buildings and equipment to which it relates.





| | Other Income (Expense), Net
| | ---------------------------




Other income (expense), net, was ($102,000) in fiscal 2001, compared to ($386,000) in fiscal 2000. The decrease in other expense was primarily due
to greater losses on the disposal of manufacturing equipment in fiscal 2000.





| | Income Taxes
| | ------------




Our effective tax rate was approximately 35.7% in fiscal 2001 compared to 39.0% in 2000. The reduction in the effective tax rate was due to benefits
recorded in fiscal 2001 from foreign sales exclusion and the resolution of IRS tax issues. We expect our effective tax rate for fiscal 2002 to approximate 38.5%.





The Internal Revenue Service has examined our federal income tax returns for fiscal years 1995, 1996 and 1997. This examination
was closed during fiscal 2001 after a settlement was reached with the Internal Revenue Service.





Comparison
of Fiscal Years 2000 and 1999





| | Net Sales
| | ---------




Our net sales were $155.9 million in fiscal 2000, an increase of 36.8% from net sales of $114.0 million in fiscal 1999. The increase in net sales
was primarily the result of higher levels of demand from new and existing customers as the electronic equipment industry recovered from the downturn of 1998. Additionally, our average selling prices rose in the latter half of fiscal 2000 as a result
of a favorable sales mix, including increased levels of advanced technology printed circuit boards and quick-turn printed circuit boards. In the last half of fiscal 2000, we began to experience increased customer demand and an increased customer
focus on the availability of capacity rather than product price. Net sales in fiscal 1999 included five months of sales from our Loveland manufacturing facility ($11.9 million), which we closed in October 1998, and nine months of sales from our
Soladyne manufacturing facility ($5.6 million), which we sold in February 1999.





Sales in the communications market segment increased in dollars and as a percentage of sales in fiscal 2000 compared to fiscal 1999 as a result of continued strong demand for data
communications, primarily associated with the growth of the Internet, and increasing use of wireless communications.




12


---






Our five largest OEM
customers represented 67.5% of net sales in fiscal 2000 and 67.8% of net sales in fiscal 1999. Our sales to OEMs include sales made through contract manufacturers. Our sales to contract manufacturers were 54.8% of net sales in fiscal 2000 and 31.2%
of net sales in fiscal 1999. Three customers each accounted for more than 10% of our net sales in fiscal 2000, and four customers each accounted for more than 10% of our net sales in fiscal 1999.





| | Gross Profit
| | ------------




Gross profit as a percentage of net sales, or gross margin, was 19.5% in fiscal 2000 and 3.0% in fiscal 1999. Gross profit increased in fiscal 2000
primarily as a result of higher capacity utilization, a favorable product mix and cost reductions. In the latter half of fiscal 2000, we began to experience high capacity utilization rates due to increased demand, particularly from our customers in
the data communications and wireless communications markets. Our product mix was favorable because we produced a greater number of advanced technology printed circuit boards and quick-turn printed circuit boards, which provide significantly higher
gross margins. Our cost reductions consisted of higher production yields, manufacturing process improvements and lower raw material costs because of better supplier arrangements. Gross margin in fiscal 1999 was negatively affected by a $1.1 million
write-off of inventory related to the restructuring discussed below. In addition, because of the downturn in the electronic equipment industry in 1998, our capacity utilization in fiscal 1999 was significantly below our historical capacity
utilization levels.





| | Engineering
| | -----------




Our engineering expenses were $4.5 million and $4.1 million in fiscal 2000 and fiscal 1999, respectively, representing 2.9% and 3.6% of our net
sales in those periods. Engineering expenses were reduced in fiscal 1999 as a result of the capitalization of $650,000 in engineering labor expenses related to the Forest Grove expansion project. These costs are being amortized over approximately
seven years, commencing in fiscal 1999.





| | Selling, General and Administrative
| | -----------------------------------




Our selling, general and administrative expenses were $11.2 million and $9.0 million in fiscal 2000 and fiscal 1999,
respectively, representing 7.2% and 7.9% of our net sales in those periods. The increase in selling, general and administrative expenses in fiscal 2000 was primarily attributable to increased selling expenses resulting from a larger sales force and
higher commissions on greater net sales, and to a lesser extent, increased general and administrative expenses generally resulting from the growth of the Company.





| | Restructuring
| | -------------




In the first quarter of fiscal 1999, we implemented a restructuring plan designed to improve capacity utilization and lower our cost structure. We
closed our Loveland, Colorado facility in October 1998 and laid off approximately 340 manufacturing and support employees located there, sold our Soladyne facility in San Diego, California and laid off approximately 35 employees from administrative,
engineering and support functions at our Forest Grove, Oregon location. We also transferred a portion of the manufacturing equipment used in the Loveland facility to our Forest Grove site. Installation of the manufacturing equipment was completed in
December 1999.





| | Interest Income
| | ---------------




Interest income remained relatively flat at $922,000 in fiscal 2000 compared to $912,000 in fiscal 1999.





| | Interest Expense
| | ----------------




Interest expense increased to $3.1 million in fiscal 2000 from $2.9 million in fiscal 1999. The increase resulted from capitalizing interest of
approximately $584,000 in fiscal 1999, partially offset by lower interest




13


---



expense in fiscal 2000. The lower interest expense in fiscal 2000 resulted from $8.0 million of principal payments made during the year.





| | Other Income (Expense), Net
| | ---------------------------




Other income (expense), net, was $(386,000) in fiscal 2000, and $85,000 in fiscal 1999. In fiscal 2000, we incurred finance charges of $75,000 in
connection with the restructuring of our senior unsecured notes and retired manufacturing equipment. In addition, during 1999, we received a settlement payment.





| | Income Taxes
| | ------------




Our effective tax rate was approximately 39% in fiscal 2000 compared to 38% in fiscal 1999. The net operating losses we incurred in fiscal 1999 were
carried forward to offset our taxable income for fiscal 2000.





Liquidity and Capital Resources





As of May 31, 2001, we had $26.8 million in
cash and cash equivalents as well as $36.3 million in short-term investments.





Cash provided by operating activities in fiscal 2001 was $47.8 million. Cash provided by operating activities consisted primarily of net income for the period, adjusted for
depreciation and amortization and deferred income tax expense, and the net reduction in our investment in working capital for the year. Accounts receivable and inventories decreased as a result of the lower levels of sales and production in the
later half of fiscal 2001. The deferred tax asset decreased due to the utilization of our net operating loss carryforward.





Cash used in investing activities in fiscal 2001 was $75.9 million. Cash was used for the investment in short and long-term corporate securities and
the purchase of manufacturing equipment and facilities pursuant to our capacity expansion program. We had capital commitments of approximately $23.6 million as of May 31, 2001, primarily for manufacturing equipment and leasehold improvements at Wood
Village.





Cash used in financing activities in
fiscal 2001 was $6.8 million, used primarily for reductions in the principal balance of our senior unsecured notes.





We had a secured note payable to Tektronix Inc. with $1.2 million outstanding at May 31, 2001, which bore interest at 7.5% per year. This note was paid in full in June 2001.





We have $24.0 million outstanding under senior
unsecured notes held by two insurance companies. Interest is payable semi-annually at 7.9%. 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, including minimum net worth, debt ratio and interest coverage and a make-whole provision covering potential prepayment penalties. As of May 31, 2001, we were in compliance with all covenants.





In February 2001, 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 of borrowing. We have not made any borrowings under this line
of credit to date.





| | Capacity Expansion
| | ------------------




We have been actively engaged in the expansion of our production capacity and technological capabilities since the announcement of two capacity
expansion projects totaling $90 million. The expansion projects include the addition of square footage at our Forest Grove facility, the construction of a 90,000 square foot leased manufacturing facility located in Wood Village, Oregon and
significant expenditures on new manufacturing




14


---



equipment. The completion of these projects is expected to increase our manufacturing production capacity by approximately 100% and be able to support a revenue run rate of over $400.0 million
annually. Full capacity realization resulting from these expansion projects is expected to be available in the summer of 2004.





We have incurred total costs of approximately $32.3 million related to these projects to date. We expect to fund our expansion projects with a
combination of internally generated funds, invested capital and lease financing.





Our planned 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 delivery schedules. 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, our operating results may be harmed. In addition, the electronics industry is cyclical and subject to significant economic downturns characterized by diminished product demand, rapid
declines in average selling prices and over-capacity. The electronics industry is currently experiencing a recessionary period. Unfavorable economic conditions affecting the electronics industry in general, or any of our major customers, may affect
our ability to successfully utilize our additional manufacturing capacity in an effective manner, which could adversely affect our operating results.





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 the next 12 months.





Risk Factors Affecting Business and Results of
Operations





This report contains forward-looking
statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements 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 are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks described below and those listed
from time to time in our other Securities and Exchange Commission reports or otherwise disclosed by us. These factors may cause our actual results to differ materially from any forward-looking statement.





Although we believe the expectations reflected in the forward-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 to actual results or to changes in
our expectations.





If economic conditions decrease demand for electronic products or adversely affect the
market for electronic products, we could continue to experience reduced sales and lower gross margins.





Our business depends on the electronics industry, which is subject to intense competition, rapid technological change, short product life cycles and pricing and margin pressures.
When these factors adversely affect our customers, we suffer similar effects. Our customers are primarily manufacturers in the communications, computing and test and measurement segments of the electronics industry. At any time, our customers can
discontinue or modify products containing components manufactured by us. This discontinuance or modification could adversely affect our results of operations.





In addition, the electronics industry has historically been cyclical and subject to significant economic downturns characterized
by diminished product demand, rapid declines in average selling prices and over-capacity. The electronic industry is experiencing a recession and is likely to experience recessionary periods in




15


---



the future. The economic conditions affecting the electronics industry, in general, or any of our major customers, in particular, has adversely affected our operating results and may do so in the
future.





Because a small number of customers account for a substantial portion of our revenue, our revenue
could decline if we lose a major customer or if a major customer demands less of our products or cancels or delays orders.





Historically, we have derived a significant portion of our revenue from a limited number of customers. Our top five OEM customers represented 64.1%,
67.5% and 67.8% of our net sales in fiscal 2001, 2000 and 1999, respectively. In fiscal 2001, Cisco, Motorola, and Teradyne each accounted for more than 10% of our net sales. We expect to continue to depend upon a small number of customers for a
significant portion of our net sales for the foreseeable future. The loss of or decrease in orders from one or more major customers could reduce our revenues and materially adversely affect our financial condition and results of operations. Our
revenues declined significantly in the second half of 2001.





Our quarterly operating results may fluctuate
significantly.





Our quarterly results of
operations are subject to significant variation for a variety of reasons, including the following:





| |  | the timing and volume of our customers orders;
| | - | -----------------------------------------------




| |  | price and product competition;
| | - | ------------------------------




| |  | changes in the mix of products we sell;
| | - | ---------------------------------------




| |  | the levels at which we utilize our manufacturing capacity;
| | - | ----------------------------------------------------------




| |  | our level of experience in manufacturing a particular product;
| | - | --------------------------------------------------------------




| |  | difficulties we may face integrating acquired operations;
| | - | ---------------------------------------------------------




| |  | costs associated with adding new geographical locations or expanding our facilities;
| | - | ------------------------------------------------------------------------------------




| |  | manufacturing process yields;
| | - | -----------------------------




| |  | raw material availability; and
| | - | ------------------------------




| |  | shortages of experienced labor.
| | - | -------------------------------




Each of these factors has had in the past, and may have in the future, an adverse effect on our quarterly operating results. In addition, a
significant portion of our operations expenses are relatively fixed in nature and planned expenditures are based in part on anticipated orders. Any inability to adjust spending quickly enough to compensate for any revenue shortfalls may magnify the
adverse impact of such revenue shortfalls on our results of operations. As a result, our operating results may vary significantly from one quarter to the next.





Competition in the market for electronic interconnect solutions is intense, and could reduce our sales and prevent us from achieving or maintaining profitability.





The market for electronic interconnect solutions is intensely
competitive, highly fragmented and rapidly changing. We expect competition to persist and intensify, which could result in price reductions, reduced gross margins and loss of market share. We believe our major competitors are the large United States
and international independent producers that also manufacture multilayer printed circuit boards and provide backplane and other electronic assemblies, such as Dynamic Details Inc., Honeywell, Multek (a division of Flextronics International Ltd.),
Sanmina, TTM Technologies Inc. and Viasystems. New and emerging technologies may result in new competitors entering our market.




16


---






Many of our competitors and
potential competitors have a number of significant advantages over us, including:





| |  | significantly greater financial, technical, marketing and manufacturing resources;
| | - | ----------------------------------------------------------------------------------




| |  | preferred vendor status with our existing and potential customers;
| | - | ------------------------------------------------------------------




| |  | greater name recognition; and
| | - | -----------------------------




| |  | larger customer bases.
| | - | ----------------------




In addition, these competitors may have the ability to respond more quickly to new or emerging technologies, may adapt more quickly to changes in customer requirements and may
devote greater resources to the development, promotion and sale of their products than us. We must continually develop improved manufacturing processes to meet our customers needs for complex products, and our basic interconnect technology is
generally not subject to significant proprietary protection. We may not be able to maintain or expand our sales if competition increases and we are unable to respond effectively. During recessionary periods in the electronics industry, our
competitive advantages in the areas of providing an integrated manufacturing solution and responsive customer service may be less important to our customers. Our customers may become more price sensitive.





We believe price competition from printed circuit board manufacturers in Asia and other
locations with lower production costs may play an increasing role in the printed circuit board markets in which we compete. While historically our competitors in these locations have primarily competed in less technologically advanced markets, they
continue to expand their technology to include higher technology printed circuit boards. These competitors may gain market share in the market for higher technology printed circuit board market, which may have a material adverse effect on the
pricing of our products and our gross margin and cause our sales to decrease.





If we lose key personnel, we
could experience reduced sales, delayed product development and diversion of management resources.





Our success depends largely on the continued contributions of our key management, engineering, sales and marketing and professional services personnel, many of whom would be
difficult to replace. We do not have employment or non-compete agreements with our key personnel. If one or more members of our senior management were to resign, the loss of personnel could result in loss of sales, delays in new product development
and diversion of management resources. We do not maintain key man insurance policies on any of our personnel and do not require our personnel to enter into non-competition agreements with us.





If we are not able to retain or attract employees with sufficient know-how to conduct our manufacturing processes, we may not be able to maintain or
increase our production output and quality.





Manufacturing printed circuit boards requires employees with sufficient know-how to operate advanced equipment and to conduct sensitive and complicated manufacturing processes.
There is intense competition for these types of employees. We have been successful in attracting and retaining a sufficient number of these employees in our operations to date. In the future, we may not be able to attract and retain a sufficient
number of these employees for our existing operations or our planned expanded operations.





Acquisitions may
be costly and difficult to integrate, divert management resources or dilute shareholder value.





As part of our business strategy, we may make acquisitions of, or investments in, companies, products or technologies that complement our current products, augment our market
coverage, enhance our technical capabilities or production capacity or that may otherwise offer growth opportunities.




17


---












|                                                                                                                   | In connection with these acquisitions or investments, we could:                                                              
|------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                             
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                             
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                             
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                             
|                                                                                                                   |                                                                                                                              
|                                                                                                                   | Future acquisitions also could pose numerous additional risks to our operations, including:                                  
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                             
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                             
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                             
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                             
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                              
|                                                                                                                   |                                                                                                                             
|                                                                                                                   |                                                                                                                              
|                                                                                                                   | We may not be able to complete one or more acquisitions or integrate the operations, products or personnel gained through any
|such acquisition without a material adverse effect on our business, financial condition and results of operations.












We are subject to a variety of environmental
laws.





We are required to comply with all
federal, state, county and municipal regulations regarding protection of the environment. Electronic interconnect product manufacturing requires the use of a variety of materials, including metals and chemicals. Water used in the printed circuit
board manufacturing process must be treated to remove metal particles and other contaminants before it can be discharged into the municipal sanitary sewer system. As a result, we are subject to various federal, state, local and foreign environmental
laws and regulations, including those governing the storage, use, discharge and disposal of hazardous substances in the ordinary course of our manufacturing processes. Although we believe our current manufacturing operations comply in all material
respects with applicable environmental laws and regulations, environmental legislation has been enacted and may in the future be enacted or interpreted to create environmental liability with respect to our facilities or operations. We may be
responsible for the cleanup of any contamination discovered at our current and former manufacturing facilities and could be subject to revocation of permits necessary to conduct our business. Further, we can not assure you that additional
environmental matters will not arise in the future at sites where no problem is currently known or at sites that we may acquire in the future.





ITEM 7A.
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.





Our exposure to market risk for changes in interest rates relates 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 various outstanding debt instruments. 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 plan to use derivative financial instruments in 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. Further information required by this item is included in Note 1 and in Note 4 of Notes to Financial Statements.




18


---



ITEM 8.
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.





REPORT OF
INDEPENDENT ACCOUNTANTS





|To | the Board of Directors and Shareholders of Merix Corporation:
|-- | -------------------------------------------------------------




In our opinion, the accompanying balance sheets and the related statements of operations, of shareholders equity and of
cash flows present fairly, in all material respects, the financial position of Merix Corporation (the Company) at May 26, 2001 and May 27, 2000, and the results of its operations and its cash flows for each of the two years in the period ended May
26, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





PRICEWATERHOUSECOOPERS LLP





|Portland, Oregon
|----------------
|June 22, 2001   



19


---



INDEPENDENT AUDITORS REPORT





|To | the Board of Directors and Shareholders of Merix Corporation:
|-- | -------------------------------------------------------------




We have audited the accompanying statements of operations, shareholders equity, and cash flows of Merix Corporation for the
year ended May 29, 1999. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.





We conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements of operations, shareholders equity, and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the statements of operations, shareholders equity and cash flows. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statements of operations, shareholders equity, and cash flows presentation. We believe that our audit provides a reasonable basis for our opinion.





In our opinion, such statements of operations, shareholders equity and cash flows present
fairly, in all material respects, the results of operations and cash flows of Merix Corporation for the year ended May 29, 1999 in conformity with accounting principles generally accepted in the United States of America.





|DELOITTE & TOUCHE LLP
|---------------------



|Portland, Oregon
|----------------
|June 25, 1999   



20


---



MERIX CORPORATION





BALANCE SHEETS


(In thousands)





May 31,2001

2000ASSETSCurrent assets:Cash and cash equivalents

$   26,790

$   61,615Short-term investments

36,337

Accounts receivable, net of allowance of $1,071 and $337, respectively

15,891

20,096Inventories

6,240

9,440Income tax receivable

1,329

Deferred tax asset

1,734

10,046Other current assets

1,505

487Total current assets

89,826

101,684Property, plant and equipment, net

77,525

57,011Long-term investments

8,149

Other assets

187

611Total assets

$175,687

$159,306LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$     9,263

$   12,371Accrued compensation

2,090

3,819Current portion of long-term debt

9,149

9,149Other accrued liabilities

3,354

2,805Total current liabilities

23,856

28,144Long-term debt

16,000

25,150Deferred tax liability

1,637

4,281Total liabilities

41,493

57,575Commitments and contingencies



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

95,004

89,1382001: 13,671 shares,  2000: 13,312 sharesRetained earnings

39,190

12,593Total shareholders equity

134,194

101,731Total liabilities and shareholders equity

$175,687

$159,306








See the
accompanying Notes to Financial Statements.




21


---



MERIX CORPORATION





STATEMENTS OF OPERATIONS


(In thousands, except per share data)





Years ended May 31,2001

2000

1999Net sales
$183,900

$155,872

$113,982Cost of sales
126,104

125,456

110,534Gross profit
57,796

30,416

3,448Operating expenses:Engineering
5,360

4,488

4,100Selling, general and administrative
13,371

11,184

9,045Restructuring




21,750Total operating expenses
18,731

15,672

34,895Operating income (loss)
39,065

14,744

(31,447
)Interest income
4,460

922

912Interest expense
(2,034
)
(3,052
)
(2,906
)Other income (expense), net
(102
)
(386
)
85Income (loss) before taxes
41,389

12,228

(33,356
)Income tax (expense) benefit
(14,792
)
(4,770
)
12,675Net income (loss)
$   26,597

$     7,458

$  (20,681
)Net income (loss) per share:Basic
$       1.96

$       0.76

$       (2.20
)Diluted
$       1.84

$       0.72

$       (2.20
)Shares used in per share calculations:Basic
13,540

9,861

9,404Diluted
14,479

10,367

9,404














See the accompanying Notes to Financial Statements.




22


---



MERIX CORPORATION





STATEMENTS OF SHAREHOLDERS EQUITY


(In thousands)





Common Stock

Unearned Compensation

Retained Earnings

TotalShares


AmountBalance at May 31, 1998 as previously reported

6,203


$44,625


$(250
)

$25,816

$   70,191Adjustment for three-for-two common stock spliteffected August 25, 2000

3,101










Balance at May 31, 1998, as adjusted

9,304


44,625


(250
)

25,816

70,191Net loss










(20,681
)
(20,681
)Tax benefit related to stock based compensation




(5
)






(5
)Stock issued under defined contribution plan

276


912







912Amortization of unearned compensation







(90
)



(90
)Shares surrendered or canceled

(25
)

(338
)

337




(1
)Balance at May 31, 1999, as adjusted

9,555


45,194


(3
)

5,135

50,326Net income










7,458

7,458Exercise of stock options

154


871







871Stock issued under defined contribution plan

153


1,252







1,252Tax benefit related to stock-based compensation




507







507Amortization of unearned compensation







3




3Sale of common stock, net

3,450


41,314







41,314Balance at May 31, 2000, as adjusted

13,312


89,138





12,593

101,731Net income










26,597

26,597Exercise of stock options

346


2,383







2,383Stock issued under defined contribution plan

14


519







519Tax benefit related to stock-based compensation




2,978







2,978Shares surrendered or canceled

(1
)

(14
)






(14
)Balance at May 31, 2001

13,671


$95,004


$ 


$39,190

$134,194














See the accompanying Notes to Financial Statements.







23


---



MERIX CORPORATION





STATEMENTS OF CASH FLOWS


(In thousands)





Years ended May 31,2001


2000


1999Cash flows from operating activities:Net income (loss)

$26,597


$   7,458


$(20,681
)Adjustments to reconcile net income (loss) to net cash provided byoperating activities:Depreciation and amortization

9,460


8,964


8,081Tax benefit related to stock based compensation

2,978


507


(5
)Deferred income taxes

6,876


4,041


(12,400
)Amortization of unearned compensation




3


(90
)Restructuring charge







16,798Contribution of common stock to defined contribution plan

519


1,252


912Other

1,440


686


169Changes in assets and liabilities:Accounts receivable

4,205


(2,588
)

4,296Inventories

3,200


(2,903
)

4,258Income tax refund receivable

(1,329
)




759Other current assets

(1,018
)

454


1,513Accounts payable

(2,606
)

267


1,520Accrued compensation

(1,729
)

1,307


Other accrued liabilities

(747
)

663


(1,039
)Net cash provided by operating
activities

47,846


20,111


4,091Cash flows from investing activities:Capital expenditures

(31,612
)

(10,754
)

(15,914
)(Purchase of) maturity of investments, net

(44,486
)

7,507


(38
)Net proceeds from sale-leaseback of equipment




4,492


Proceeds from sale of assets

208


200


4,537Net cash (used in) provided by investing
activities

(75,890
)

1,445


(11,415
)Cash flows from financing activities:Principal payments on long-term borrowings

(9,150
)

(8,000
)

(2,230
)Exercise of stock options

2,383


873


Proceeds from sale of common stock, net




41,314


Reacquisition of common stock

(14
)

(2
)

(2
)Net cash (used in ) provided by
financing activities

(6,781
)

34,185


(2,232
)(Decrease) increase in cash and cash equivalents

(34,825
)

55,741


(9,556
)Cash and cash equivalents at beginning of year

61,615


5,874


15,430Cash and cash equivalents at end of year

$26,790


$61,615


$   5,874Supplemental Disclosures:Cash paid for:Interest, net of amounts capitalized

$  2,254


$  3,182


$  2,951Taxes

7,121





Noncash transactions:Release of deposit upon buy-out of operating lease

502





Surrender of unvested shares of restricted stock







337





See the accompanying Notes to Financial Statements.




24


---



MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS


(Dollars in thousands, except per share amounts)





Note 1.    Summary of Significant Accounting Policies





| | Business
| | --------




Merix Corporation (the Company or Merix), an Oregon corporation, was formed in March 1994. The Company is a leading manufacturer of technologically
advanced electronic interconnect solutions for use in sophisticated electronic equipment. The Companys 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. The Company provides solutions to original equipment manufacturers and contract manufacturers in various segments of the electronics industry,
including the communications, high-end computing and test and measurement segments. The Company provides its customers with a broad range of products and services including quick-turn prototypes, volume and pre-production printed circuit boards and
backplanes.





| | Fiscal Year
| | -----------




The Companys fiscal year is the 52 or 53-week period ending the last Saturday in May. Fiscal years 2001, 2000 and 1999 were 52-week years
ended May 26, 2001, May 27, 2000 and May 29, 1999, respectively. For convenience, all of the Companys fiscal years are presented as ended on May 31.





| | Use of Estimates
| | ----------------




The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect: the reported amounts of assets and liabilities; the disclosure of contingent assets and liabilities at the date of the financial statements, and; the reported amounts of sales and expenses during the reporting period. Actual
results could differ from those estimates. Significant estimates and judgments made by management of the Company include matters such as collectibility of accounts receivable, realizability of inventories, amount of warranty charges from customers
and deferred tax assets.





| | Balance Sheet Financial Instruments: Fair Values
| | ------------------------------------------------




The carrying amounts reported in the balance sheet for short-term investments, accounts receivable and accounts payable
approximate fair value because of the short-term maturity of these financial instruments. The carrying amount of long-term investments approximates fair value because the instruments earn a rate of return comparable to yields currently available to
the Company for investments with similar terms and maturities. The carrying amount for long-term debt approximates its fair value because the related interest rates are comparable to rates currently available to the Company for debt with similar
terms and maturities.





| | Reclassifications
| | -----------------




Reclassifications have been made to amounts in prior years to conform to current year presentation. These changes had no impact on previously
reported results of operations or shareholders equity.





| | Cash and Cash Equivalents
| | -------------------------




Cash and cash equivalents are comprised of cash in banks and highly liquid investments with maturities of three months or less when purchased.




25


---





MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS(Continued)







| | Investments
| | -----------




The Company has designated its investments as held-to-maturity. Held-to-maturity investments are reported at amortized cost with associated premium
or discount amortized to interest income over the life of the investment. Amortized cost approximates market value at May 31, 2001.





Short-term investments at May 31, 2001, which have maturities of less than one year, are composed of commercial paper of $20,880, asset-backed
securities of $6,882, corporate bonds of $6,575 and mortgage-backed securities of $2,000. Long-term investments at May 31, 2001, which have maturities of more than one year, are composed of asset-backed securities of $2,037, corporate bonds of
$5,111 and mortgage-backed securities of $1,001.





During fiscal 2001, the Company sold an investment prior to maturity. The investment was sold based on information received by the Company which indicated the issuer was
experiencing a significant deterioration in its credit ratings. The amortized cost of the investment at the date of the sale was $1,630. The Company realized a gain on the sale of this investment of $38.





| | Inventories
| | -----------




Inventories are valued at the lower of cost or market and include materials, labor and manufacturing overhead. Cost is determined by standard cost
which approximates the first-in, first-out (FIFO) basis.





| | Property and Depreciation
| | -------------------------




Property, plant and equipment is carried at cost less accumulated depreciation. Costs of improvements, including capitalized interest, are
capitalized. Depreciation is calculated, using the straight-line method, based on the estimated useful lives of depreciable assets as follows: up to 40 years for buildings, 10 to 20 years for grounds and 3 to 10 years for machinery and equipment.





| | Long-lived Assets
| | -----------------




The Companys long-lived assets are reviewed for impairment when circumstances indicate that the carrying amount may not be recoverable. If the
sum of expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose.





| | Revenue Recognition
| | -------------------




The Company recognizes revenue upon the shipment of its products to the customer provided that the Company has received a signed purchase order, the
price is fixed, title has transferred, collection of resulting receivables is probable, product returns are reasonably estimable, there are no customer acceptance requirements and there are no remaining significant obligations. The Company provides
a provision for bad debts at the time revenue is recognized. During fiscal years 2001, 2000 and 1999, bad debt write-offs have been insignificant.





| | Engineering Expense
| | -------------------




Expenditures for engineering of products and manufacturing processes are expensed as incurred.





| | Warranty
| | --------




The Company generally warrants its products for a period of up to four months from shipment. Accordingly, a provision for the estimated cost of the
warranty is recorded upon shipment.




26


---





MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS(Continued)







| | Net Income (Loss) Per Share
| | ---------------------------




Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding for the period. Diluted net
income (loss) 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 shares of 938,972 and 505,919 for fiscal years
2001 and 2000, related to outstanding stock options, were included in the calculations of diluted net income per share. Stock options to purchase 1,891,335 shares were not included in the net loss per share calculation for the fiscal year 1999,
because to do so would have been antidilutive. Of the stock options outstanding at May 31, 2001 and 2000, 85,937 and 286,892 respectively had exercise prices above the average market price of the underlying common stock for the respective fiscal
years.





On July 28, 2000, the Company
declared a three-for-two stock split of outstanding common shares in the form of a stock dividend for holders of record as of August 10, 2000. The stock split was effected on August 25, 2000. Shares and net income (loss) per share were restated,
retroactively, to reflect the stock split.





| | Comprehensive Income (Loss)
| | ---------------------------




The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income which establishes
requirements for disclosure of comprehensive income (loss) in financial statements. Comprehensive income (loss) as defined, includes all changes in equity during a period from non-owner sources. The Company has not had any transactions that are
required to be reported in comprehensive income (loss) in the periods presented, except for net income (loss).





| | Income Taxes
| | ------------




The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.





| | Segment Reporting
| | -----------------




The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information (SFAS 131) in fiscal year 1999.
Based on definitions contained within SFAS 131, the Company has determined that it operates within one segment. Additionally, the Company has no material revenues from foreign customers outside the United States and has no long-lived assets outside
the United States. See Note 12 for information regarding significant customers.





| | Stock-Based Compensation
| | ------------------------




The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25) and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB No. 25, because the exercise price of stock options granted
to date equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. Income tax benefits, if any, related to stock-based compensation for which compensation expense is not reflected in net income, are
added to the stated value of common stock.




27


---










| | Recent Accounting Pronouncements
| | --------------------------------




In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133).
SFAS 133 establishes accounting and reporting standards requiring every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 also requires changes in the derivatives fair
value to be recognized currently in results of operations unless specific hedge accounting criteria are met. SFAS 133, as amended by SFAS 137, is effective for fiscal years beginning after June 15, 2000. The Company does not expect the adoption of
SFAS 133 to have a material impact on its financial statements.





In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, (SAB 101) which provides
guidance on the measurement and timing of revenue recognition in financial statements. Changes in accounting policies to apply the guidance of SAB 101, as amended by SAB 101B, must be adopted by recording the cumulative effect of the changes as of
the time of adoption. The Company adopted the provisions of SAB 101 in the fourth quarter of fiscal 2001. The cumulative effect of adoption of SAB 101 had no impact on the revenue or related direct costs for the period ended May 31, 2001





In March 2000, the FASB issued FASB Interpretation
No. 44, (FIN 44) which provides interpretive guidance on several implementation issues related to Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. The Company adopted the provisions of FIN 44 in the
first quarter of fiscal 2001. The adoption of FIN 44 by the Company had no impact on its financial statements.





Note 2.    Inventories





May 31,2001

2000Raw materials
$        871

$        805Work in process
1,916

4,552Finished goods
3,453

4,083Total
$    6,240

$    9,440





Note 3.    Property, Plant and Equipment





May 31,2001

2000Land
$     2,190

$     2,190Buildings and grounds
30,628

26,721Machinery and equipment
85,309

81,505Construction in progress
21,357

4,991Total
139,484

115,407Accumulated depreciation
(61,959
)
(58,396
)Property, plant and equipment, net
$   77,525

$   57,011





The Company
capitalized interest related to expansion projects of $296 and $584 in fiscal 2001 and 1999, respectively. Capitalized interest is amortized over the depreciable life of the assets to which it relates.




28


---





MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS(Continued)







Note
4.    Long-Term Debt





May 31,2001

2000Senior unsecured notes
$24,000

$32,000Note payable to Tektronix
1,149

2,299Total
25,149

34,299Less current portion
(9,149
)
(9,149
)Long-term debt
$16,000

$25,150





The Company
has a note payable to Tektronix, Inc. with $1,149 outstanding at May 31, 2001, which bears interest at 7.5% and was paid in June 2001. Certain assets of the Company have been pledged as collateral for the note.





At May 31, 2001, the Company has outstanding $24,000 senior unsecured notes
held by two insurance companies. Interest is payable semi-annually at a rate of 7.92%. The notes provide for semi-annual principal payments of $4,000 with a final principal payment of $8,000 in September 2003. The notes contain certain financial
covenants, including minimum net worth, debt ratio and interest coverage and a make-whole provision covering potential prepayment penalties. As of May 31, 2001 the Company was in compliance with all covenants.





Future principal payments of debt are as follows: 2002, $9,149; 2003,
$8,000; and 2004, $8,000.





In February 2001, the
Company obtained a $15,000 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 plus an additional amount up to a maximum of
1.75%. The line contains certain financial covenants. As of May 31, 2001 the Company was in compliance with all covenants. To date, no borrowings have been made under this line of credit.





Note 5.    Lease Agreements





In August 1999, the Company entered into a lease agreement, which allowed for the sale and leaseback of up to $5,000 of manufacturing equipment. As
of May 31, 2001, the Company has $4,397 of equipment remaining under this agreement. Gains resulting from these sales were deferred and are amortized on the straight-line basis over the life of the lease. The lease is classified as an operating
lease in accordance with SFAS No. 13, Accounting for Leases.





In August 2000, the Company entered into a lease agreement for a manufacturing facility located in Wood Village, Oregon related to an ongoing capacity expansion program. Lease
payments begin in July 2001 and escalate at specific points over the minimum ten year term of the lease. The Company has the option to extend the initial term of the lease for three consecutive periods of five years each. The lease is classified as
an operating lease in accordance with SFAS No. 13, Accounting for Leases.




29


---





MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS(Continued)







Rental expense under operating leases was $1,062, $763 and $1,036 in fiscal years 2001, 2000 and 1999, respectively. Minimum lease payments related to operating leases for certain
manufacturing equipment and the Wood Village facility, both of which have a lease term in excess of 12 months, are as follows:





Years Ended May 31,

Minimum  Payments Under  Operating Leases2002


$1,4312003


1,4732004


1,4732005


8532006


547Thereafter


3,051Total minimum lease payments


$8,828





Note 6.    Stock-Based Compensation Plan





The Company has a 1994 Stock Incentive Plan
(the 1994 Plan) for employees, consultants and directors of the Company. The 1994 Plan, as amended, covers 3,575,000 shares of common stock and permits the grant of incentive stock options, non-qualified stock options, stock bonus rights, restricted
stock awards and performance based awards to employees, independent contractors and consultants. The 1994 Plan provides for automatic option grants to directors not affiliated with Merix or Tektronix of 20,000 shares at the time first elected to the
board and 5,000 shares annually thereafter.





On
December 20, 2000, the Board of Directors approved the Merix Corporation 2000 Nonqualified Stock Option Plan (the 2000 Plan). The 2000 Plan covers 2,000,000 shares of common stock and permits the grant of nonqualified stock options to employees and
directors. Options granted to officers and directors in any given year cannot exceed 25% of the total options granted in that year.





A committee of the Board of Directors has theauthority to determine option prices. To date, all options have been granted at the fair market value of
the stock at thedate of grant. The options generally become exercisable ratably over a four-year period beginning one year after the dateof grant and expire five to ten years from the date of grant.




30


---



MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS(Continued)







A summary of non-qualified stock option activity is as follows:





Number of  Shares

Weighted  Average  Price Per
ShareOutstanding at May 31, 1998, as previously reported
1,192,669

$16.52Adjustment for three-for-two common stock split effected August 25, 2000
596,335

Outstanding at May 31, 1998, as adjusted
1,789,004

11.01Granted
1,279,353

4.86Canceled
(1,176,984
)
11.55Exercised
(38
)
3.42Outstanding at May 31, 1999, as adjusted
1,891,335

6.53Granted
531,825

6.89Canceled
(121,844
)
11.10Exercised
(154,727
)
5.64Outstanding at May 31, 2000, as adjusted
2,146,589

6.42Granted
506,425

26.18Canceled
(105,692
)
11.45Exercised
(345,911
)
6.90Outstanding at May 31, 2001
2,201,411

$10.65





The
Companys Board of Directors approved a plan that allowed employees, except executive officers, to reprice existing stock options to the fair market value of the underlying stock on June 30, 1998. Under the plan, employees received nine options
in exchange for every 10 options they elected to reprice. The vesting schedule and term of repriced options remained the same as the original option. During fiscal year 1999, options to purchase 499,230 shares at a weighted average price per share
of $12.26 were exchanged for options to purchase 448,466 shares at a weighted average price per share of $6.63.





Restricted stock awards are subject to vesting and other terms as specified at the time of issuance by a committee of the Board of Directors. Generally, restricted stock awards
vest ratably over a three-year period beginning on the first anniversary of their issuance. Unearned compensation expense is recognized ratably over the vesting period. There was no activity related to restricted stock in fiscal 2001.




31


---





MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS(Continued)







A summary of restricted stock award activity is as follows:





Number of Shares

Value Per ShareUnvested balance at May 31, 1998, as previously reported
18,200

$16.50 - $37.25Adjustment for three-for-two common stock split effected August 25, 2000
9,100

Unvested balance at May 31, 1998, as adjusted
27,300

11.00 - 24.83Awarded


Vested
(1,800
)
3.83 -   7.42Canceled
(24,900
)
12.67 - 24.83Unvested balance at May 31, 1999, as adjusted
600

11.00Awarded


Vested
(600
)
7.59Canceled


Unvested balance at May 31, 2000


$                      






SFAS No.
123, Accounting for Stock-Based Compensation (SFAS 123) defines a fair value based method of accounting for employee stock options and similar equity instruments and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by Accounting Principles Board Opinion No. 25 (APB 25). Entities electing
to remain with the accounting in APB 25 must make pro forma disclosures of net income (loss) and, if presented, net income (loss) per share, as if the fair value based method of accounting defined in SFAS 123 had been adopted.





The Company has elected to account for its stock-based compensation
plans under APB 25; however, the Company has computed, for pro forma disclosure purposes, the value of all stock options granted during fiscal years 2001, 2000 and 1999 using the Black-Scholes option pricing model as prescribed by SFAS 123 using the
following weighted average assumptions:





Years ended May 31,2001

2000

1999Risk-free interest rate
5.87
%

5.78
%

5.12
%Expected dividend yield
0
%

0
%

0
%Expected lives
3.43
years

3.01
years

2.61
yearsExpected volatility
116
%

79
%

71
%





Using the
Black-Scholes methodology, the total value of stock options granted during 2001, 2000 and 1999 was $9,673, $1,944 and $2,016, respectively, which would be amortized on a pro forma basis over the vesting period of the options (typically four years).
The weighted average fair value of options granted during 2001, 2000 and 1999 was $19.10, $3.65 and $2.13 per share, respectively.




32


---





MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS(Continued)







If the Company had accounted for its 1994 Plan and 2000 Plan in accordance with SFAS 123, the Companys net income (loss) and net income (loss) per share would approximate the
pro forma disclosures below:





Years ended May 31,2001

2000

1999Net income (loss) as reported
$26,597

$7,458

$(20,681
)Net income (loss) pro forma
24,238

6,539

(21,492
)Net income (loss) per share, as reportedBasic
$     1.96

$   0.76

$     (2.20
)Diluted
$     1.84

$   0.72

$     (2.20
)Net income (loss) per share, pro formaBasic
$     1.79

$   0.66

$     (2.29
)Diluted
$     1.67

$   0.63

$     (2.29
)





The
following table summarizes information about stock options outstanding at May 31, 2001:





Options Outstanding

Options ExercisableRange of  Exercise Prices

Number  Outstanding

Weighted  Average  Remaining  Contractual  Life (years)

Weighted  Average  Exercise  Price

Number of  Shares  Exercisable

Weighted  Average  Exercise  Price$  2.04 - $  5.08

492,297

6.13

$   3.17

189,742

$  2.975.83 -     6.63

674,447

4.14

6.25

628,715

6.236.71 -   12.13

513,928

4.53

8.72

219,572

9.9012.17 -   43.88

441,489

4.61

20.19

36,012

17.8444.25 -   67.06

79,250

5.87

54.04

0

0.00$  2.04 - $67.06

2,201,411

4.83

$10.65

1,074,041

$  6.79





Note 7.    Equity





On March 25, 1997, the Board of Directors adopted a Shareholder Rights Plan
(the Plan) designed to preserve and enhance shareholder value and the Companys ability to carry out its long-term business strategy, and reserved 500,000 shares of Series A Preferred Stock for purposes of the Plan. In connection with the
adoption of the Plan, the Board of Directors declared a dividend distribution of one Right per share of common stock, payable to the shareholders of record on April 25, 1997. A Right enables the holder, under certain circumstances, to purchase
either Series A Preferred or Common Stock of the Company. The Company may redeem the Rights for $0.001 per Right under certain circumstances.





On March 29, 2001, the Board of Directors authorized a stock repurchase program that allows the Company, at managements discretion, to
purchase up to 650,000 shares of Merix common stock, through May 2002. As of May 31, 2001, no purchases have been made.




33


---





MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS(Continued)







Note
8.    Income Taxes





Income
tax expense consists of federal and state income taxes. Deferred income taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities, using currently enacted tax rates. The provision for (benefit
from) income taxes consisted of the following:





Years ended May 31,2001

2000

1999Current:Federal
$   6,687

$    251

$      (275
)State
1,229

1

Total current
7,916

252

(275
)Deferred:Federal
6,140

4,032

(10,962
)State
736

486

(1,438
)Total deferred
6,876

4,518

(12,400
)Income tax expense (benefit)
$14,792

$4,770

$(12,675
)





The
principal differences between taxes on income computed at the federal statutory rate of 34% in fiscal years 2001, 2000 and 1999 and recorded income tax expense (benefit) were as follows:





Years ended May 31,2001

2000

1999Tax computed at statutory rate
$14,072

$4,158

$(11,341
)State income taxes, net of federal benefit
1,481

486

(1,422
)Foreign sales exclusion
(188
)


Resolution of IRS tax issues and other, net
(573
)
126

88Income tax expense (benefit)
$14,792

$4,770

$(12,675
)





Significant
components of the Companys deferred tax asset and liability were as follows:





May 31,2001

2000Deferred tax assetcurrent:Inventories
$     810

$      510Vacation accrual
269

213Net operating loss


8,940Contribution carryforward


115Sales allowances
423

130Other
232

131Deferred tax assetcurrent
$ 1,734

$10,046Deferred tax asset (liability)long-term:Intangible basis difference
$    679

$     104Fixed asset basis difference
(3,314
)
(5,190
)Alternative Minimum Tax credit


251Other
998

554Deferred tax asset (liability)long-term
$(1,637
)
$(4,281
)




34




MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS(Continued)







The Internal Revenue Service has examined the Companys federal income tax returns for fiscal years 1995, 1996 and 1997. This examination was closed during fiscal 2001 after a
settlement was reached with the Internal Revenue Service.





Note 9.    Benefit Plan





The Company has a defined contribution plan,
which meets the requirements of Section 401(k) of the Internal Revenue Code, for all regular employees. Under this plan, the Company matches employee contributions as follows; 100% of the first 3% of an employees base pay and 50% of the next
3% of an employees base pay. The Companys contributions may be made in cash or in the Companys stock. During fiscal years 2001, 2000 and 1999, the Companys contribution expense was $1,415, $1,251 and $1,145, respectively.





Note 10.    Restructuring





In the first quarter of fiscal 1999, the Company implemented a restructuring plan designed to
improve capacity utilization and lower its cost structure. The Company closed its Loveland, Colorado facility in October 1998 and laid off approximately 340 manufacturing and support employees located there, sold its Soladyne facility in San Diego,
California and laid off approximately 35 employees from administrative, engineering and support functions at its Forest Grove, Oregon location. The Company also transferred a portion of the manufacturing equipment used in the Loveland facility to
its Forest Grove site. Installation of the manufacturing equipment was completed in December 1999.





In the third quarter of fiscal 1999, the Company reversed $7,109 of the restructuring expense taken in the first quarter of fiscal 1999, primarily because lease termination costs
at Loveland were $3,059 less than the Company had anticipated, the Company was able to realize a higher value on inventory that it had previously written down, and the Company realized $2,826 more from the sale of equipment than it had expected. The
Company also spent less on severance benefits than it expected.





The components of the restructuring expense, and the subsequent reversal, were as follows:





Restructuring  Charge

Reversal


Adjusted  Restructuring  ChargeNon-cash charges:Write-down and write-off of manufacturing equipment
$15,672

$(2,826
)

$12,846Write-off of goodwill and intangible assets
3,952




3,95219,624

(2,826
)

16,798Cash charges:Severance benefits
2,801

(372
)

2,429Lease termination costs
4,758

(3,059
)

1,699Other costs
696

128


8248,255

(3,303
)

4,952Total restructuring expense
27,879

(6,129
)

21,750Write-off of inventory, included inCost of sales
2,118

(980
)

1,138Total
$29,997

$(7,109
)

$22,888




35




MERIX CORPORATION





NOTES TO FINANCIAL STATEMENTS(Continued)







Cash proceeds from asset sales of $4.8 million are reflected in the amounts shown above for write-down and write-off of manufacturing equipment and inventory. All cash payments for
severance benefits, lease termination costs and other costs related to the restructuring expense were paid in fiscal 1999. As of May 31, 1999, there were no outstanding liabilities associated with the restructuring plan.





Note 11.    Concentrations of Credit Risk





The Company does not believe that at May 31, 2001, it had any significant credit risks.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable and investments. In total, six customers represented approximately 62.8% of the trade accounts receivable
balance at May 31, 2001, individually ranging from 6% to 17%. The risk in trade accounts receivable is limited due to the creditworthiness of companies comprising the Companys customer base and their dispersion across many different sectors of
the electronics industry and geographies. The Company has not had significant losses related to its accounts receivable in the past. The risk in investments is limited due to the creditworthiness of investees comprising the portfolio and the
diversity of the portfolio.





Note 12.    Significant Customers





In fiscal year 2001, three original equipment manufacturer (OEM)
customers represented 22.5%, 17.7% and 10.2%, respectively, of net sales. In fiscal year 2000, three OEM customers represented 25.1%, 15.1% and 13.0%, respectively, of net sales. In fiscal year 1999, four OEM customers represented 20.7%, 15.0% 13.8%
and 10.9%, respectively, of net sales.





Note 13.    Related Party Transactions





Included in net sales for fiscal years 2000 and
1999 are product sales of $11,102 and $15,720, respectively, to Tektronix Inc, a major shareholder of the Company during those years. Accounts receivable at May 31, 2000 consisted of amounts receivable from Tektronix Inc. of $650. During fiscal year
2001, Tektronix Inc. was not a related party.





The Company sells product through a contract manufacturer whose Chairman and Chief Executive Officer is a member of the Companys board of directors. Although the Company ships to and bills the contract manufacturer for these transactions,
procurement decisions related to volume, pricing and sourcing are typically negotiated by the Company with an OEM. Sales through this contract manufacturer represented 12.8%, 21.1% and 5.8% of sales in fiscal years 2001, 2000 and 1999, respectively.





Note 14.    Commitments and Contingencies





| | Litigation
| | ----------




In the normal course of business, the Company may be party to various legal claims, actions and complaints, including actions involving patent
infringement and other intellectual property claims. The Company believes that the disposition of these matters will not have a material adverse effect on the Companys financial position, results of operations and cashflows.





| | Capital commitments
| | -------------------




The Company had capital commitments of approximately $23.6 million as of May 31, 2001, primarily for manufacturing equipment and leasehold
improvements at Wood Village.




36


---



SUPPLEMENTARY DATAQUARTERLY FINANCIAL DATA (Unaudited)





Fiscal Year 20011st Qtr

2nd Qtr

3rd Qtr

4th Qtr(In thousands, except per share data)Net sales

$51,023

$58,362

$44,446

$30,069Gross profit

17,361

21,341

14,434

4,660Operating income

12,603

16,239

9,753

470Net income

7,865

10,218

6,357

2,157Basic net income per share

0.59

0.76

0.47

0.16Diluted net income per share

0.54

0.70

0.44

0.15


Fiscal Year 20001st Qtr

2nd Qtr

3rd Qtr

4th Qtr(In thousands, except per share data)Net sales

$34,098

$35,882

$39,674

$46,218Gross profit

6,079

6,160

7,530

10,647Operating income

2,676

2,561

3,389

6,118Net income

1,034

1,196

1,657

3,571Basic net income per share*

0.11

0.13

0.17

0.34Diluted net income per share*

0.11

0.12

0.16

0.31


---

* Restated for the three-for-two stock split effected August 25, 2000




37





| | ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
| | ------- | -------------------------------------------------------------------------------------




On August 5, 1999, with the recommendation of the Audit Committee and approval of the Board of
Directors, we dismissed Deloitte & Touche LLP as our independent auditors. Deloitte & Touches reports on our financial statements for the prior two years did not contain an adverse opinion or a disclaimer of opinion and the reports
were not qualified or modified as to uncertainty, audit scope or accounting principles. During the prior two fiscal years and during fiscal year 2000, through August 5, 1999, there were no disagreements with Deloitte & Touche on any matter of
accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte & Touche, would have caused it to make a reference to the subject matter of
the disagreement in connection with its reports. We do not believe there is any additional information regarding Deloitte & Touche required to be reported pursuant to Item 304 of Regulation S-K.





Effective August 5, 1999 we selected PricewaterhouseCoopers LLP as our independent auditors
beginning fiscal year 2000.





PART III





ITEM 10.
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.





The information required by this item about our directors is included under Election of Directors in our Proxy Statement for our 2001 annual meeting of shareholders.
The information required by this item about our executive officers is included in Executive Officers and Certain Key Personnel in Item 1 of this report. Information about compliance with Section 16(a) of the Securities Exchange Act of
1934 is included in Section 16(a) Beneficial Ownership Reporting Compliance in our Proxy Statement for our 2001 annual meeting of shareholders.





ITEM 11.
    EXECUTIVE COMPENSATION.





The information required by this item is included in Executive Compensation and Human Resource and Compensation Committee Report in our Proxy Statement for
our 2001 annual meeting of shareholders.





ITEM 12.
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.





The information required by this item is included in Voting Securities and Principal Shareholders and Election of Directors in our Proxy Statement for our
2001 annual meeting of shareholders.





ITEM 13.
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.





The information required by this item is included in Certain Relationships and Transactions in our Proxy Statement for our 2001 annual meeting of shareholders.




38


ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.





(a)1.  Index to Financial Statements.





Merix CorporationPage ReferenceReport of PricewaterhouseCoopers LLP


19Report of Deloitte & Touche LLP


20Balance Sheets as of May 26, 2001 and May 27, 2000


21Statements of Operations for fiscal years ended May 26, 2001, May 27, 2000 and May 29, 1999


22Statements of Shareholders Equity for fiscal years ended May 26, 2001, May 27, 2000 and
May 29, 1999


23Statements of Cash Flows for fiscal years ended May 26, 2001, May 27, 2000 andMay 29, 1999


24Notes to Financial Statements


25





(a)2.  Financial Statement Schedules





All schedules have been omitted since they are either not required or the information is included in the financial statements included
herewith.





(a)3.  Index to
Exhibits





The following exhibits are filed with, or incorporated by reference into, this Annual Report on Form 10-K:





Exhibit No.

Description3.1



Articles of Incorporation of the Company, as amended.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



Shareholder Rights Agreement dated as of March 25, 1997, incorporated by reference to the
     Companys Current Report on Form 8-K filed April 10, 1997.10.1



Asset Transfer Agreement between Tektronix and the Company (including Note and Trust Deed 
     and Assignment of Rents and Leases), incorporated by reference to Exhibit 10.1 the Companys       Form 10-K for the fiscal year ended May 28, 1994.10.2



Amendment No. 1 to Promissory Note dated June 1, 1994 from the Company to Tektronix, Inc., 
     incorporated by reference to Exhibit 10.33 to the Companys Form 10-Q for the quarterly       period ended February 27, 1999.10.3



Registration Rights Agreement between the Company and Tektronix, incorporated by reference to 
     Exhibit 10.2 to the Companys Form 10-K for the fiscal year ended May 28, 1994.10.4



1994 Stock Incentive Plan of the Company, as amended, incorporated by reference to Exhibit 99.1 
     to the Companys Registration Statement on Form S-8, File No. 333-59672.10.5



Indemnity Agreement between the Company and Deborah A. Coleman as of April 4, 1994, 
     incorporated by reference to Exhibit 10.6 to the Companys Form 10-K for the fiscal year ended       May 28, 1994.




39


Exhibit No.

Description10.6



Indemnity Agreement between the Company and Carl W. Neun as of April 4, 1994, incorporated by reference to
Exhibit 10.10 to the Companys Form 10-K for the fiscal year ended May 28, 1994.10.7



Indemnity Agreement between the Company and Carlene M. Ellis as of May 24, 1994, incorporated by reference to
Exhibit 10.11 to the Companys Form 10-K for the fiscal year ended May 28, 1994.10.8



Indemnity Agreement between the Company and Dr. Koichi Nishimura as of May 24, 1994, incorporated by
reference to Exhibit 10.13 to the Companys Form 10-K for the fiscal year ended May 28, 1994.10.9



Indemnity Agreement between the Company and Terri L. Timberman as of May 25, 1994, incorporated by reference
to Exhibit 10.14 to the Companys Form 10-K for the fiscal year ended May 27, 1995.10.10



Indemnity Agreement between the Company and Janie S. Brown as of August 11, 1998, incorporated by reference
to Exhibit 10.31 to the Companys Form 10-Q for the quarterly period ended August 29, 1998.10.11



Amended Executive Severance Agreement between the Company and Terri L. Timberman, incorporated by reference
to Exhibit 10.17 to the Companys Form 10-K for the fiscal year ended May 31, 1997.10.12



Executive Severance Agreement between the Company and Janie S. Brown as of October 5, 1998, incorporated by
reference to Exhibit 10.32 to the Companys Form 10-Q for the quarterly period ended November 28, 1998.10.13



Executive Severance Agreement between the Company and Mark R. Hollinger, incorporated by reference to Exhibit
10.33 to the Companys Form 10-Q for the quarterly period endedAugust 30, 1997.10.14



Indemnity Agreement between the Company and Mark R. Hollinger as of September 2, 1997, incorporated by
reference to Exhibit 10.32 to the Companys Form 10-Q for the quarterly period ended August 30, 1997.10.15



Indemnity Agreement between the Company and William C. McCormick as of October 21, 1997, incorporated by
reference to Exhibit 10.35 to the Companys Form 10-Q for the quarterly period ended November 29, 1997.10.16



Indemnity Agreement between the Company and Robert C. Strandberg as of June 30, 1998, incorporated by
reference to Exhibit 10.30 to the Companys Form 10-K for the fiscal year ended May 30, 1998.10.17



Note Purchase Agreement dated September 10, 1996, incorporated by reference to Exhibit 10.1 to the
Companys Form 10-Q for the quarterly period ended August 31, 1996.10.18



Amendment to Note Purchase Agreement dated May 28, 1997, incorporated by reference toExhibit 10.26 to the
Companys Form 10-K for the fiscal year ended May 31, 1997.10.19



Second Amendment to Note Purchase Agreement dated August 29, 1997, incorporated by reference to Exhibit 10.29
to the Companys Form 10-Q for the quarterly period ended August 30, 1997.10.20



Third Amendment to Note Purchase Agreement dated November 28, 1997, incorporated by reference to Exhibit
10.34 to the Companys Form 10-Q for the quarterly period endedNovember 29, 1997.10.21



Fourth Amendment to Note Purchase Agreement dated May 28, 1999, incorporated by reference to Exhibit 10.24 to
the Companys Form 10-K for the fiscal year ended May 29, 1999.




40


Exhibit No.

Description10.22



Indemnity Agreement between the Company and Daniel T. Olson as of October 25, 1999, incorporated by reference
to Exhibit 10.25 to the Companys Form 10-Q for the quarterly period ended November 27, 1999.10.23



Executive Severance Agreement between the Company and Daniel T. Olson as of December 1, 1999, incorporated by
reference to Exhibit 10.26 to the Companys Form 10-Q for the quarterly period ended November 27, 1999.10.24



Second Amended Executive Severance Agreement between the Company and Deborah A. Coleman as of September 27,
1999, incorporated by reference to Exhibit 10.27 to the Companys Form 10-Q for the quarterly period ended November 27, 1999.10.25



Executive Severance Agreement between the Company and Anaya K. Vardya, dated as ofJanuary 18, 2000,
incorporated by reference to Exhibit 10.25 to the Companys Registration Statement on Form S-3, (Registration No. 333-32616).10.26



Indemnity Agreement between the Company and Anaya K. Vardya as of December 20, 1999, incorporated by
reference to Exhibit 10.26 to the Companys Registration Statement on FormS-3, (Registration No. 333-32616).10.27



Promissory Note dated February 26, 2001 between the Company and U.S. Bank National Association, incorporated
by reference to Exhibit 10.34 to the Companys Form 10Q for the quarterly period ended February 24, 2001.10.28



Amendment to Registration Rights Agreement between the Company and Tektronix, Inc., incorporated by reference
to Exhibit 10.27 to the Companys Registration Statement on FormS-3, (Registration No. 333-32616).10.29



Lease Agreement between the Company and Opus Northwest, L.L.C., dated as of August 22, 2000, incorporated by
reference to Exhibit 10.32 to the Companys Form 10-Q for the quarterly period ended August 26, 2000.10.30



Indemnity Agreement between the Company and Dr. William Lattin dated as of September 28, 2000, incorporated
by reference to Exhibit 10.33 to the Companys Form 10-Q for the quarterly period ended November 25, 2000.10.31



Indemnity Agreement between the Company and George H. Kerckhove dated as of June 28, 2001.10.32



2000 Nonqualified Stock Option Plan of the Company, incorporated by reference to Exhibit 99.2 to the
Companys Registration Statement on Form S-8, File No. 333-59672.23.1



Consent of PricewaterhouseCoopers LLP23.2



Consent of Deloitte & Touche LLP


---

| |  | This Exhibit constitutes a management contract or compensatory plan or arrangement.
|- |  | -----------------------------------------------------------------------------------




(b)  Reports on Form 8-K





No reports on Form 8-K were filed during the quarter ended May 26, 2001.




41


SIGNATURES





Pursuant to
the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 7, 2001.


MERIX CORPORATIONBy:

/s/ JANIE
S. BROWNJanie S.
BrownSr. Vice President, Chief Financial Officer, Treasurer and Secretary








Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below on August 7, 2001 by the following persons on behalf of the Registrant and in the capacities indicated.





Signature

Title/s/ MARK R. HOLLINGER

Chief Executive Officer, President and Director (Principal Executive Officer)Mark R. Hollinger/s/ JANIE S. BROWN

Sr.Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)Janie S. Brown/s/ DEBORAH A. COLEMAN

DirectorDeborah A. Coleman/s/ CARLENE M. ELLIS

DirectorCarlene M. Ellis/s/ WILLIAM C. MC CORMICK

DirectorWilliam C. McCormick/s/ ROBERT C. STRANDBERG

DirectorRobert C. Strandberg/s/ DR . WILLIAM W. LATTIN

DirectorDr. William W. Lattin/s/ GEORGE H. KERCKHOVE

DirectorGeorge H. Kerckhove/s/ DR . KOICHI NISHIMURA

DirectorDr. Koichi Nishimura




42