Back to GetFilings.com
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
[NO FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[NO FEE REQUIRED]
For the transition period from _____________ to ___________
Commission file number 0-3698
SILICONIX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 94-1527868
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2201 Laurelwood Road
Santa Clara, California 95054
(Address of principal executive offices)
(408) 988-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
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 such
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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates is
$683,740,000, based upon the closing price for the registrant's Common Stock on
March 24, 2000 ($117.18).
The number of shares of the registrant's Common Stock, $0.01 par value,
outstanding at March 24, 2000 was 29,879,040.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Siliconix incorporated 1999 Annual Report to Stockholders:
Parts I, II, and IV.
2. Portions of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission in April 2000, pursuant to Section 14 of the
Securities Exchange Act of 1934, in connection with the 2000 Annual Meeting
of Stockholders of Siliconix incorporated: Part III.
1
PART I
Item 1. Business.
General
Siliconix incorporated ("Siliconix" or the "Company") designs, markets,
and manufactures power and analog semiconductor products. The Company focuses on
technologies and products for the communications, computer, and automotive
markets; additionally, many of the Company's products are also used in
instrumentation and industrial applications.
Founded in 1962, Siliconix uses its advanced technology and
applications expertise to develop value-added products for power management and
conversion. These products serve two types of markets. The first type,
represented by the communications and computer markets, exhibits design cycles
as short as a few months and product life cycles as short as six to twelve
months, thus creating numerous new opportunities for the Company. The other
type, represented by the automotive market, exhibits long design cycles,
sometimes as much as four or five years, and product life cycles as long or
longer. Participation in both types of businesses helps the Company balance
growth opportunities with research and development investments required to
maintain technology leadership.
Siliconix was a member of TEMIC Semiconductors, a division of the
Daimler-Benz microelectronics consortium, for several years. On December 16,
1997, Daimler-Benz announced that it had agreed to sell the Semiconductor
Division of TEMIC, which included its 80.4% interest in Siliconix, to Vishay
Intertechnology, Inc. of Malvern, Pennsylvania ("Vishay"). The acquisition was
completed on March 2, 1998, and on that date Vishay became the Company's largest
stockholder. The Company's products are now marketed with the Siliconix brand
name under the Vishay umbrella.
Products
All of the analog and power products produced by Siliconix can be
divided into two general classes: discrete devices and integrated circuits
(ICs). Discrete devices are active components that generate, control, regulate,
amplify, or switch electronic signals or energy. They must be interconnected
with other, passive components (resistors, capacitors, inductors, etc.) to
create an electronic circuit. ICs consist of a number of active and passive
components, interconnected on a single chip, that are intended to perform a
specific function.
The Company's discrete power MOSFETs (an acronym for "metal oxide
semiconductor field effect transistor") and power ICs are designed for similar
applications and can often be used together as chip sets with complementary
performance characteristics optimized for a specific application.
Power MOSFETs are the Company's fastest growing products in terms of
sales. In this product line, Siliconix has focused on low-voltage products that
are prevalent in battery-operated products (e.g., cellular phone handsets and
notebook computers) and in automotive systems. Siliconix has maintained
technology leadership in low-voltage, surface-mount power MOSFETs through
advances in both silicon technologies and product packaging. Advanced silicon
process technologies, such as the Company's "Trench" technology, offer very high
cell densities and low device on-resistance. These process technologies have
been coupled with innovative packaging techniques to create surface-mount
product families, such as LITTLE FOOT(R) power MOSFETs, that provide customers
with size and performance benefits as well as manufacturing compatibility with
digital integrated circuits. LITTLE FOOT packaging innovations take the form of
internal improvements to existing package outlines that result in superior
device performance and the development of new, smaller footprints that reduce
the space required by the MOSFET function in customer circuits. The Company's
PowerConnect power MOSFETs, for example, employ an internal package modification
in which the copper lead frame is connected directly to the surface of the
MOSFET, thus eliminating the need for bondwires and greatly reducing the effect
of package resistance on device performance. Other package innovations are
focused on
2
making the overall size of the device smaller, and include the introduction of
LITTLE FOOT power MOSFETs in the SC-70 package and leadless ChipFETs in the 1206
package.
Siliconix power ICs include power conversion, power interface ICs, and
motor control ICs. The Company's power conversion and interface ICs are based on
low-voltage mixed-signal silicon processes that offer customers higher
frequencies without compromising efficiencies compared to competitive products.
They are used in applications, such as cellular phone handsets, where an input
voltage from a battery or other supply source must be converted to a level that
is compatible with logic signals used by power amplifiers, baseband logic, DSPs,
CPU I/O, and other sub-circuits in the system. The Company's motor control ICs
are used to control motion in data storage applications (e.g., optical and hard
disk drives) and to control the speed of small motors in office equipment (e.g.,
printers and copy machines). In addition to these products, the Company offers a
line of power conversion ICs for higher-power applications in the fixed telecom
market.
The Company's mature product lines include discrete small-signal
transistors and signal processing ICs (e.g., analog switches and multiplexers).
The small-signal transistors range from junction field-effect transistors
(JFETs), which was Siliconix's original product line and even today remains
critical for some applications, to newer transistor processes, such as the
Company's DMOS processes, which offer performance advantages over our
competitors' products. The analog switches and multiplexers are primarily used
in instrumentation and industrial equipment that receives and/or outputs
real-world analog signals.
Manufacturing
The Company's manufacturing operations are strategically located to support
customer manufacturing locations, cultivate growth markets, and access
cost-effective labor markets. All of the Company's manufacturing sites use
Statistical Process Control methods of total quality control and have ISO 9000
certification.
Siliconix fabricates wafers for its advanced power products at its Santa
Clara, California manufacturing headquarters, where the Company maintains a
Class 1 (clean room classification) six-inch wafer fab. Further capacity for
wafer fabrication of power MOSFETs was added during 1997 in a Class 1 facility
in Itzehoe, Germany. A foundry in Japan will also begin to produce power MOSFETs
later this year. As previously announced, the Company closed its 4-inch wafer
fab in Santa Clara on December 31,1999. The wafer fab, which previously
manufactured analog switches, multiplexers and low power discrete devices, was
closed due to the age of the facility and its lack of cost competitiveness. The
manufacturing of wafers for these products was transferred to a foundry in
Dresden, Germany. In 1997, fabrication of the Company's JFETs was transferred to
a foundry in Beijing, China.
Assembly and testing of the Company's products are performed in Company
facilities in Taiwan and Shanghai, China, and by subcontractors in the
Philippines, China, and the United States. The Shanghai facility is a joint
venture between Siliconix and the Shanghai Institute of Metallurgy.
Raw materials used by the Company include single-crystal silicon wafers,
chemicals, gases, metal wire, and ceramic, plastic, and glass-to-metal packages.
Although these materials are generally available from two or more sources, the
industry has experienced difficulties in obtaining supplies of some raw
materials from time to time; such difficulties in the future could adversely
affect the Company's operations.
Government regulations impose various environmental controls on the
discharge of certain chemicals and gases used in the manufacturing process. The
Company believes that its activities substantially conform to present and
anticipated regulations and is constantly upgrading its Santa Clara facility to
ensure continued compliance with such regulations. In 1990, the Company reached
a settlement for cleanup of soil and ground water at a site the Company occupied
prior to 1972, with the current owner of that site, and settled a lawsuit
against its insurance carriers in 1992 and 1993 with respect to this matter. The
Company also established a remedial activity to remove soil and groundwater
contamination at its Santa Clara site in 1990. For details on these matters, see
Item 3, Legal
3
Proceedings. While the Company has experienced only limited effects on its
operations from environmental regulations, there can be no assurance that
changes in such regulations will not impose the need for additional capital
investments or other requirements.
Sales
From 1993 to February 1998, Siliconix sales were handled by the sales
organization of TEMIC Semiconductors, the semiconductor division of the
Daimler-Benz microelectronics group, which included Siliconix, Telefunken
Semiconductors, Matra MHS, and Dialog Semiconductor. Unifying the sales
activities for these four companies brought value to customers by allowing them
to deal with one entity for a broader range of their semiconductor needs. Since
the acquisition of a majority interest in the Company by Vishay, the Company's
products have been sold by the Vishay worldwide sales organization, which
consists of much of the same worldwide structure of sales representatives and
distributors that was established for TEMIC Semiconductors.
The sales organizations are regionally based, functioning as agents that
earn a commission as a fixed percentage of sales and perform all sales-related
activities. The following table shows net sales and the percentage of the
Company's net sales on a geographic basis for the periods indicated (dollars in
thousands):
Years ended December 31
-----------------------
1999 1998 1997
---- ---- ----
North America $ 98,042 26% $ 78,065 28% $ 113,858 35%
Europe 78,350 20% 72,168 26% 90,480 28%
Japan 40,007 10% 19,700 7% 33,359 10%
Taiwan 61,983 16% 29,530 10% 19,448 6%
Singapore 38,322 10% 36,425 13% 34,473 11%
Asia Pacific 63,632 17% 45,012 16% 29,901 9%
All other 2,972 1% 1,446 1% 32 0%
--------- ---- --------- ---- --------- ----
$ 383,308 100% $ 282,346 100% $ 321,551 100%
The Company markets its products in different geographic areas as follows:
North America: Sales are made by the United States and Canada ("North
American") field sales force and the respective sales representative. Sales
representatives are compensated by commissions only. Area sales managers
coordinate these representatives and the North American sales force. The North
American sales headquarters are located in Monroe, Connecticut. Regional sales
offices are located in or near Sanford, Maine; Chicago, Illinois; Tampa,
Florida; Houston, Texas; Santa Clara, California; and Orange County, California.
In addition, the Company has direct sales offices for automotive customers in
Troy, Michigan and Kokomo, Indiana.
Sales not made directly to original equipment manufacturers are made
through distributors, which currently have approximately 350 locations
throughout the United States and Canada. Certain distributors are provided with
contractual protection for their inventory against reductions in published
prices and against product obsolescence.
Europe: Sales are made by the European sales force and sales representative
organizations. As in North America, sales not made directly to the original
equipment manufacturers are made through distributors, with approximately 125
locations. The distributors are provided with certain inventory obsolescence and
price protections similar to those granted to domestic distributors.
Japan: Sales in Japan are made both by the Japan sales force and
distributors.
4
Asia Pacific: Sales are made in Hong Kong, Korea, Taiwan, The People's
Republic of China and in Southeast Asia by the Asia-Pacific sales force,
headquartered in Singapore. In these locations, as in the United States, sales
are made directly to original equipment manufacturers through field sales
engineers or through sales representatives. Direct sales agents and
representatives are compensated by commissions only. Sales not made directly to
original equipment manufacturers are made through distributors, which currently
have approximately 75 locations in the region.
Sales in the rest of the world are made through sales representatives,
stocking representatives and distributors.
For further information, see Note 7 of Notes to the Consolidated Financial
Statements, which is incorporated herein by reference.
Order Backlog
As of December 31, 1999, the backlog of orders booked was $113.4 million.
The backlog as of December 31, 1998 was $62.4 million. The Company includes in
backlog only open orders which have been released by the customer for shipment
in the calendar year 2000. The Company's customers encounter uncertain and
changing demand for their products. They typically order products from the
Company based on their forecasts. If demand falls below customers' forecasts, or
if customers do not control their inventory effectively, they may cancel or
reschedule the shipments that are included in the Company's backlog, in many
instances without the payment of any penalty. Therefore, backlog is not
necessarily indicative of sales for any future period.
Competition
The semiconductor industry is highly competitive. Many of the Company's
competitors are larger companies with greater financial resources and limited
dependency on semiconductor products as their sole source of sales and earnings.
The Company has been able to compete effectively by being selective in its
choice of products and markets, and by being a technology leader in those areas.
Through closely established customer relationships, the Company acquires
in-depth applications know-how for the markets it serves and develops products
that specifically address customer needs.
Research and Development
Research and development activities are directed toward expanding
technology leadership. The Company's focus is on developing new products and
technologies with particular attention to activities that improve the cycle time
from new product development to product release. Total research and development
expenditures were $17.0 million in 1999, $17.1 million in 1998 and $17.8 million
in 1997. Significant effort has been expended on new power products and ICs
where continued rapid market growth is expected. See Note 2 of Notes to the
Consolidated Financial Statements.
Patents and Licenses
Siliconix protects its technology leadership by securing patents on
proprietary products and processes. As of December 31, 1999, Siliconix owned 178
U.S. patents, covering primarily semiconductor device structures, processes, and
circuitry. Expiration dates for these patents range from 2000 to 2018. An
additional 11 patents had been allowed but not yet issued. There were also 56
U.S. patent applications pending. The Company believes that, as it increasingly
utilizes these patents in the design and manufacture of its products, its
royalty obligations will decrease significantly. See Note 8 of Notes to the
Consolidated Financial Statements.
5
Employees
In the last three years, the total number of employees has remained
relatively flat, with only key positions, focused on target growth areas, being
added. On December 31, 1999, the Company employed 1,752 people, of whom 722 were
employed in the United States, 1,011 in East Asia, and 19 in Europe. The Company
anticipates a significant need for technical and administrative personnel in the
future to support the Company's current business growth. The Company's future
success is substantially dependent on its ability to attract and retain these
highly qualified technical and administrative personnel.
There are no collective bargaining agreements between the Company and its
employees, and there have been no work stoppages due to labor difficulties. The
Company considers its relations with its employees to be good.
Executive Officers
The following sets forth the name, age, offices presently held, business
experience, and principal occupation of the Company's executive officers:
Name Office Presently Held
---- ---------------------
King Owyang President, Chief Executive Officer
Mike Chang Executive Vice President, Technology & Silicon
Operations
Jens Meyerhoff Senior Vice President Administration and Chief
Financial Officer
Hamza Yilmaz Senior Vice President
Dr. Owyang, age 54, joined the Company in January 1988 as a divisional Vice
President of Research and Development. He assumed additional responsibility for
Corporate Reliability and Quality Assurance in April 1990. He became Vice
President, Engineering in May 1990; Executive Vice President, Technology and
Silicon Operations in April 1992; and President and Chief Executive Officer in
March 1998. Dr. Owyang holds B.S. and Ph.D. degrees in Physics.
Dr. Chang, age 54, joined the Company in December 1987 as Manager of
Process Technology. He became Director, Fab Operations in April 1992; Senior
Director, Worldwide Fab Operations in April 1995; and Executive Vice President,
Technology & Silicon Operations in October 1998. Dr. Chang holds B.S. and Ph.D.
degrees in Electrical Engineering.
Mr. Meyerhoff, age 35, joined the Company in May 1995 as Senior Manager of
Systems and Reporting. He became Director, Product Unit Controlling in April
1997; Senior Director and Corporate Controller in March 1998; and Chief
Financial Officer and Senior Vice President Administration in October 1998.
Prior to joining the Company, Mr. Meyerhoff served as Manager, Planning and
Controlling at a subsidiary of Daimler-Benz Rail Systems Division in Pittsburgh,
Pennsylvania from January 1992 to April 1995. Mr. Meyerhoff holds an M.B.A. in
Finance and Information Technology.
Dr. Yilmaz, age 45, joined the Company in March 1988 as Manager of Device
Design and Engineering. He became World Wide Product and Test Engineering Senior
Manager in July 1992; Director in June 1993; Senior Director, IC Design and
Engineering and Acting Senior Director, World Wide Product and Test Engineering
in October 1995; Senior Director of Engineering for the Power MOS Business Unit
in July 1996; and Vice President and head of the Power MOS Business Unit in
August 1997. He assumed the additional post of Senior Vice President in October
1998. Dr. Yilmaz holds B.S., M.S. and Ph.D. degrees in Electrical Engineering.
6
Item 2. Properties.
The Company owns its principal manufacturing plant and general offices
which are located in four two-story buildings totaling 234,600 square feet on a
13-acre site in Santa Clara, California. Siliconix Limited, a subsidiary of the
Company, currently occupies, under an agreement with Vishay UK Limited,
approximately 2,000 square feet at Vishay's Bracknell, United Kingdom location,
where the Company's European Headquarters are located. Siliconix (Taiwan)
Limited, a subsidiary of the Company, owns a 50,000-square-foot portion of a
building in the Nan-Tse Export Processing Zone, a suburb of Kaohsiung, Taiwan,
which consists of manufacturing and general office space. Shanghai Simconix Co.
Ltd., a joint venture between the Company and the Shanghai Institute of
Metallurgy (the "SIM"), leases 41,000 square feet of manufacturing and general
office space in Shanghai from the SIM. Simconix has also agreed to lease all of
the space in a new 35,000- square foot facility to be built by the SIM, to
accommodate the Company's need for additional back-end capacity at that
location.
Item 3. Legal Proceedings.
In 1996, the Company was a party to two environmental proceedings. The
first involved property that the Company vacated in 1972. In July 1989, the
California Regional Water Quality Control Board ("RWQCB") issued Cleanup and
Abatement Order No. 89-115 both to the Company and the current owner of the
property. The Order alleged that the Company contaminated both the soil and the
groundwater on the property by the improper disposal of certain chemical
solvents. The RWQCB considered both parties to be liable for the contamination
and sought to have them decontaminate the site to acceptable levels. The Company
subsequently reached a settlement of this matter with the current owner of the
property. The settlement provided that the current owner will indemnify the
Company and its employees, officers, and directors against any liability that
may arise out of any governmental agency actions brought for environmental
cleanup of the subject site, including liability arising out of RWQCB Order No.
89-115, to which the Company remains nominally subject.
The second proceeding involves the Company's Santa Clara, California
facility, which the Company has owned and occupied since 1969. In February 1989,
the RWQCB issued Cleanup and Abatement Order No. 89-27 to the Company. The Order
was based on the discovery of contamination of both the soil and the groundwater
on the property by certain chemical solvents. The Order called for the Company
to specify and implement interim remedial actions and to evaluate final remedial
alternatives. The RWQCB issued a subsequent order requiring the Company to
complete the decontamination. The Company is complying with the RWQCB's orders.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The registrant held a Special Meeting of Stockholders on
February 16, 2000.
(b) Not applicable.
(c) There were two matters voted on at the Meeting. A brief
description of each of these matters, and the results of the
votes thereon, are as follows:
1. Approval of a three-for-one split of the registrant's
Common Stock
For Against Abstain
--- ------- -------
9,831,895 860 1,533
2. Approval of an increase in the registrant's
authorized shares from 10,000,000 to 100,000,000
7
For Against Abstain
--- ------- -------
9,466,191 364,366 3,781
(d) Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of March 24, 2000, there were 655 holders of record of the Company's
Common Stock. Under Delaware law, the Company may pay dividends only from
retained earnings or, if none, from net profits for the current or preceding
fiscal year. The Company has paid no dividends since December 1980 in order to
retain the Company's earnings to fund future growth requirements. No change in
such policy is anticipated in the near future.
A presentation of the highest and lowest "last trade" price for the
Company's Common Stock for each quarterly period during 1998 and 1999 is
incorporated by reference from the Company's 1999 Annual Report to Stockholders,
portions of which are filed as Exhibit 13 hereto. The Company's Common Stock
trades on the Nasdaq Stock Market under the symbol "SILI."
Item 6. Selected Financial Data.
Incorporated by reference from the Company's 1999 Annual Report to
Stockholders, portions of which are filed as Exhibit 13 hereto.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated by reference from the Company's 1999 Annual Report to
Stockholders, portions of which are filed as Exhibit 13 hereto.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Incorporated by reference from the Company's 1999 Annual Report to
Stockholders, portions of which are filed as Exhibit 13 hereto.
Item 8. Financial Statements and Supplementary Data.
The financial statements, reports of independent auditors, and quarterly
financial data are incorporated by reference from the Company's 1999 Annual
Report to Stockholders, portions of which are filed as Exhibit 13 hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
8
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Stockholders of Siliconix incorporated:
We have audited the accompanying consolidated balance sheets of Siliconix
incorporated as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of the
years in the two-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Siliconix
incorporated as of December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the years in the two-year period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
San Jose, California
January 20, 2000
9
Independent Auditors Report
To The Board of Directors:
Siliconix incorporated:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Siliconix incorporated for the year
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of Siliconix
incorporated's operations and its cash flows for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/KPMG LLP
Mountain View, California
January 21, 1998
10
PART III
Item 10. Directors and Executive Officers of the Registrant.
The executive officers of the Company are identified in Item 1 of Part I of
this Annual Report on Form 10-K. Identification of the directors of the Company
is incorporated by reference from the "Election of Directors" section of the
Company's definitive Proxy Statement to be mailed to stockholders in connection
with the 2000 Annual Stockholders Meeting and filed with the Securities and
Exchange Commission in April 2000 (the "Proxy Statement").
Item 11. Executive Compensation.
Incorporated by reference from the "Compensation of Officers and Directors"
and "Report of Compensation Committee" sections of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference from the "Security Ownership" section of the
Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference from the "Certain Transactions" section of the
Proxy Statement.
11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents Filed as Part of Form 10-K
1. Financial Statements
Independent Auditors' Reports on the Financial Statements.
The remainder of the Financial Statements are incorporated by reference
from the Company's 1999 Annual Report to Stockholders, portions of
which are filed as Exhibit 13 hereto.
Consolidated Statements of Operations for the years ended December 31,
1999, 1998, and 1997
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998, and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
A. Independent Auditors' Reports on Financial Statement Schedule
II. Valuation and Qualifying Accounts
All other schedules have been omitted as the required information
is reported or incorporated by reference elsewhere in this Annual
Report or is not applicable.
12
3. Exhibits
--------
3.1 Restated Certificate of Incorporation(1)
3.2 Certificate of Amendment of Restated Certificate of
Incorporation
3.3 Bylaws(2)
10.2 One-Year Key Professional Incentive Bonus Plan(1)
10.3 Key Professional Performance Unit Plan(2)
10.5 Amended and Restated License Agreement dated April 10, 1990
between the Company and International Rectifier Corporation(1)
10.6 Amendment to Amended and Restated License Agreement dated
December 21, 1990 between the Company and International
Rectifier Corporation(1)
10.12 Change-in-Control Severance Plan of Siliconix incorporated(3)
10.14 Amendment No. 1 to Change-in-Control Severance Plan of
Siliconix incorporated(4)
10.15 Amendment No. 1 to Siliconix One-Year Key Professional
Incentive Bonus Plan(4)
10.16 Amendment No. 2 to Siliconix One-Year Key Professional
Incentive Bonus Plan(4)
10.17 Amendment No. 1 to Siliconix Key Professional Performance Unit
Plan(4)
10.18 Amendment No. 2 to Siliconix Key Professional Performance Unit
Plan(4)
10.19 Separation Agreement and Mutual Release dated March 11, 1998
among Richard Kulle, Siliconix incorporated and Vishay
Intertechnology, Inc.(5)
10.20 Amendment No. 1 to Separation Agreement and Mutual Release
dated March 19, 1998 among Richard Kulle, Siliconix
incorporated and Vishay Intertechnology, Inc.(5)
10.21 Promissory Note from Siliconix incorporated to Vishay
Intertechnology, Inc. in the principal amount of $34,570,000
dated March 2, 1998(5)
10.22 Promissory Note from Siliconix incorporated to Vishay
Intertechnology, Inc. in the principal amount of $16,000,000
dated May 26, 1998(5)
10.23 Revolving Intercompany Promissory Note from Siliconix
incorporated to Vishay Intertechnology, Inc. in the maximum
principal amount of $35,000,000 dated May 26, 1998(5)
10.24 Revolving Intercompany Promissory Note from Vishay
Intertechnology, Inc. to Siliconix incorporated in the maximum
principal amount of $75,000,000 dated December 22, 1999
(footnotes on following page)
13
13 Portions of Siliconix incorporated 1999 Annual Report to
Stockholders
21 Subsidiaries of the Company
27 Financial Data Schedule
- ---------------------
(1) Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990, filed with the SEC on
April 15, 1991.
(2) Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, filed with the SEC on
April 1, 1996.
(3) Incorporated by reference to Exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 30, 1997, filed with the SEC on May 14,
1997.
(4) Incorporated by reference to Exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 28, 1997, filed with the SEC on
November 12, 1997.
(5) Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, filed with the SEC on
March 31, 1999.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K in the last quarter of the
year ended December 31, 1999.
14
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Stockholders of Siliconix incorporated:
We have audited the consolidated statements of Siliconix incorporated as of
December 31, 1999 and 1998 and for each of the years in the two-year period
ended December 31, 1999, and have issued our report thereon dated January 20,
2000 (included elsewhere in this Annual Report on Form 10-K). Our audit also
included the financial statement schedule listed in item 14(a)2 of this Annual
Report on Form 10-K. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ERNST & YOUNG LLP
San Jose, California
January 20, 2000
15
Report on Financial Statement Schedule of Independent Auditors
The Board of Directors
Siliconix incorporated:
The audit referred to in our report dated January 21, 1998 included the related
financial statement schedule as of December 31, 1997 and for the year ended
December 31, 1997, as listed in the Index in Item 14(a)2 herein. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audit. In our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects, the information set forth
therein.
/s/KPMG LLP
Mountain View, California
January 21, 1998
16
SILICONIX INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Deductions Balance at
Beginning of Costs and Revenues End of
Period Expense Period
- ---------------------------------------------------------------------------------------------------------------
1997:
Allowance for Doubtful Accounts 2,101 545 - 458 2,188
Allowance for Price Adjustments 100 - 4,712 4,421 391
Allowance for Returned Parts and 6,404 - 24,818 21,878 9,344
Distributor Adjustments
- ---------------------------------------------------------------------------------------------------------------
8,605 545 29,530 26,757 11,923
- ---------------------------------------------------------------------------------------------------------------
1998:
Allowance for Doubtful Accounts 2,188 1,266 - 586 2,868
Allowance for Price Adjustments 391 - 6,687 6,328 750
Allowance for Returned Parts and 9,344 - 23,319 21,890 10,773
Distributor Adjustments
- ---------------------------------------------------------------------------------------------------------------
11,923 1,266 30,006 28,804 14,391
- ---------------------------------------------------------------------------------------------------------------
1999:
Allowance for Doubtful Accounts 2,868 1,487 - 1,489 2,866
Allowance for Price Adjustments 750 - 9,698 9,198 1,250
Allowance for Returned Parts and 10,773 - 19,669 16,188 14,254
Distributor Adjustments
- ---------------------------------------------------------------------------------------------------------------
14,391 1,487 29,367 26,875 18,370
- ---------------------------------------------------------------------------------------------------------------
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 24, 2000
SILICONIX INCORPORATED
By: /s/ King Owyang
----------------------------------------
King Owyang
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Principal Executive Officer
/s/King Owyang President, Chief Executive
---------------------------- Officer and a Director March 24, 2000
King Owyang
Principal Financial and
Accounting Officer
/s/Jens Meyerhoff Senior Vice President
--------------------------- Administration and
Jens Meyerhoff Chief Financial Officer March 24, 2000
/s/Everett Arndt Director March 24, 2000
---------------------------
Everett Arndt
/s/Lori Lipcaman Director March 24, 2000
---------------------------
Lori Lipcaman
/s/Glyndwr Smith Director March 24, 2000
---------------------------
Glyndwr Smith
18
INDEX TO EXHIBITS
Exhibit
-------
3.1 Restated Certificate of Incorporation(1)
3.2 Certificate of Amendment of Restated Certificate of
Incorporation
3.3 Bylaws(2)
10.2 One-Year Key Professional Incentive Bonus Plan(1)
10.3 Key Professional Performance Unit Plan(2)
10.5 Amended and Restated License Agreement dated April 10, 1990
between the Company and International Rectifier Corporation(1)
10.6 Amendment to Amended and Restated License Agreement dated
December 21, 1990 between the Company and International
Rectifier Corporation(1)
10.12 Change-in-Control Severance Plan of Siliconix incorporated(3)
10.14 Amendment No. 1 to Change-in-Control Severance Plan of
Siliconix incorporated(4)
10.15 Amendment No. 1 to Siliconix One-Year Key Professional
Incentive Bonus Plan(4)
10.16 Amendment No. 2 to Siliconix One-Year Key Professional
Incentive Bonus Plan(4)
10.17 Amendment No. 1 to Siliconix Key Professional Performance Unit
Plan(4)
10.18 Amendment No. 2 to Siliconix Key Professional Performance Unit
Plan(4)
10.19 Separation Agreement and Mutual Release dated March 11, 1998
among Richard Kulle, Siliconix incorporated and Vishay
Intertechnology, Inc.(5)
10.20 Amendment No. 1 to Separation Agreement and Mutual Release
dated March 19, 1998 among Richard Kulle, Siliconix
incorporated and Vishay Intertechnology, Inc.(5)
10.21 Promissory Note from Siliconix incorporated to Vishay
Intertechnology, Inc. in the principal amount of $34,570,000
dated March 2, 1998(5)
10.22 Promissory Note from Siliconix incorporated to Vishay
Intertechnology, Inc. in the principal amount of $16,000,000
dated May 26, 1998(5)
10.23 Revolving Intercompany Promissory Note from Siliconix
incorporated to Vishay Intertechnology, Inc. in the maximum
principal amount of $35,000,000 dated May 26, 1998(5)
(footnotes on following page)
19
10.24 Revolving Intercompany Promissory Note from Vishay
Intertechnology, Inc. to Siliconix incorporated in the maximum
principal amount of $75,000,000 dated December 22, 1999
13 Portions of Siliconix incorporated 1999 Annual Report to
Stockholders
21 Subsidiaries of the Company
27 Financial Data Schedule
- ---------------------
(1) Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990, filed with the SEC on
April 15, 1991.
(2) Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, filed with the SEC on
April 1, 1996.
(3) Incorporated by reference to Exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 30, 1997, filed with the SEC on May 14,
1997.
(4) Incorporated by reference to Exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 28, 1997, filed with the SEC on
November 12, 1997.
(5) Incorporated by reference to Exhibits to the Company's Annual Report on Form
10-Q for the fiscal year ended December 31, 1998, filed with the SEC on March
31, 1999.
20
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
Siliconix incorporated, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of Siliconix incorporated, by the
unanimous written consent of its members, filed with the minutes of the Board,
duly adopted resolutions setting forth a proposed amendment to the Restated
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED FURTHER, that Paragraph 4 of the Restated Certificate of
Incorporation of the Company is hereby amended to read in full as follows:
"4. The total number of shares of stock which the corporation shall have
authority to issue is one hundred million (100,000,000) and the par value
of each of such shares is one cent ($0.01)."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Siliconix incorporated has caused this Certificate
to be signed by King Owyang, its President, this 17th day of February, 2000.
SILICONIX INCORPORATED
By /s/ King Owyang
--------------------------
King Owyang, President
21
EXHIBIT 10.24
REVOLVING INTERCOMPANY PROMISSORY NOTE
US $75,000,000.00 December 22, 1999
Santa Clara, California
FOR VALUE RECEIVED, VISHAY INTERTECHNOLOGY, INC. ("Vishay"), a Delaware
corporation, by this promissory note unconditionally promises to pay to the
order of SILICONIX INCORPORATED ("Siliconix"), a Delaware corporation or its
registered assigns, on demand, the principal amount of SEVENTY-FIVE MILLION
DOLLARS ($75,000,000.00, the "Revolving Credit Line") or such lesser amount as
may then constitute the unpaid aggregate principal amount of the Revolving Loans
(as hereinafter defined) made by Siliconix to Vishay pursuant to the terms
hereof and to pay interest on the unpaid balance hereof at Siliconix's Lending
Rate (as defined below) on the 1st day of each January, April, July and October
of each year commencing April 1, 2000 and on the Maturity Date (each such date
being an Interest Payment Date), all as hereinafter further provided.
1. Making of Loans
1.1 Subject to the terms hereof, including but not limited to
Section 1.2 hereof, and at any time from the date hereof to the Maturity Date,
Siliconix agrees at any time and from time to time, to make one or more
revolving loans (the "Revolving Loans") to Vishay in an aggregate principal
amount not to exceed the Revolving Credit Line. During such period Vishay may
borrow, prepay and reborrow Revolving Loans.
1.2 Vishay shall give no fewer than three business day's
notice to the Chief Financial Officer of Siliconix of its desire to borrow a
Revolving Loan, stating the amount of such borrowing and the date on which such
borrowing is requested. Siliconix shall have absolute discretion to consent to
or to decline such request, on notice to Vishay. If Siliconix consents to
Vishay's request to make a Revolving Loan, Siliconix will make such Revolving
Loan available to Vishay at the account and on the date specified by Vishay.
2. Payments
2.1 To the extent that Siliconix has not demanded earlier
payment as authorized in the first paragraph hereof, principal of, and any
accrued and unpaid interest on, this Note shall be due and payable in full on
December 23, 2003, or such later date as may be agreed in writing by the parties
hereto (the "Maturity Date"); interest on this Note shall accrue from the date
hereof, to, but excluding, the next Interest Payment Date, and shall be payable
in arrears on each Interest Payment Date. Interest not paid when due shall
accrue and be added to principal on each subsequent Interest Payment Date.
2.2 If any Interest Payment Date or the Maturity Date falls on
a day that is not a Business Day (as defined below), the payment due on such
Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of New York.
22
2.3 Vishay may prepay at any time all or any portion of this
Note without penalty or premium. All payments on this Note shall be applied
first to accrued interest on this Note and then to the balance of principal on
this Note.
2.4 Payments of principal and interest on this Note shall be
made in U.S. dollars by electronic funds transfer to Siliconix's bank account
#9102752756 at Chase Manhattan Bank, New York, New York, or such other account
as Siliconix may designate.
2.5 The obligations to make the payments provided for in this
Note are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. Vishay hereby
expressly waives demand and presentment for payment, notice of non-payment,
notice of dishonor, protest, notice of protest and diligence in taking any
action to collect any amount called for hereunder, and shall be directly and
primarily liable for the payment of all sums owing and becoming due hereon,
regardless of and without any notice, diligence, act or omission with respect to
the collection of any amount called for hereunder.
2.6 For the purposes of this Note, Siliconix's Lending Rate
shall mean the interest rate payable by Vishay from time to time (the "Vishay
Borrowing Rate") under the Long Term Revolving Credit Agreement dated March 2,
1998 among Vishay, Comerica Bank and the other banks party thereto, or any
successor loan agreement thereto (the "Loan Agreement"). The average Vishay
Borrowing Rate for each calendar quarter will be Siliconix's Lending Rate for
that calendar quarter.
3. [intentionally omitted]
4. [intentionally omitted]
5. Events of Default.
-----------------
5.1 The occurrence of any of the following events shall
constitute a default (a "Default"):
(a) a default in the payment of the principal on this
Note, when and as the same shall become due and payable;
(b) a default in the payment of any interest on this
Note, when and as the same shall become due and payable, which default shall
continue for two (2) business days after the date fixed for the making of such
interest payment;
(c) a material default in the performance, or a
material breach, of any of the covenants of Vishay contained in this Note;
(d) a material default in the performance, or a
material breach, of any financial covenant contained in any loan agreement
executed by Vishay, which default or breach shall have continued beyond any
grace or cure period provided therein;
(e) any representation, warranty or certification made
by Vishay in this Note shall prove to have been false or misleading as of the
date made in any material respect; or
(f) the entry of a decree or order by a court having
jurisdiction adjudging Vishay a bankrupt or insolvent, or approving a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of Vishay under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of sixty (60) days; or the commencement by Vishay of a voluntary case
under federal bankruptcy law, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or the
consent by Vishay to the institution of bankruptcy or insolvency proceedings
against it, or the filing by Vishay of a petition or answer or
23
consent seeking reorganization or relief under federal bankruptcy law or any
other applicable federal or state law, or the consent by Vishay to the filing of
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator or similar official of Vishay, or of any substantial part
of the property of Vishay, or the making by Vishay of an assignment for the
benefit of creditors, or the admission by Vishay, in writing, of its inability
to pay its debts generally as they become due, or the taking of corporate action
by Vishay in furtherance of any such action.
5.2 Vishay agrees to give Siliconix prompt notice of the
occurrence of any Default hereunder as provided in Section 7.1 hereof.
6. Remedies Upon Default.
6.1 Upon the occurrence of a Default referred to in Section
5.1(f), the principal amount then outstanding of, and the accrued interest on,
this Note shall automatically become immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by Vishay. Upon the occurrence of a Default referred to
in Section 5.1 (other than Section 5.1(f)), Siliconix by notice in writing given
to Vishay, may declare the entire principal amount then outstanding of, and the
accrued interest on, this Note to be due and payable immediately, and upon any
such declaration the same shall become and be due and payable immediately
without presentation, demand, protest or other formalities of any kind, all of
which are expressly waived by Vishay.
6.2 Siliconix may institute such actions or proceedings in law
or equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of Vishay, and in connection
with any such action or proceeding shall be entitled to receive from Vishay,
payment of the principal amount of this Note plus accrued interest to the date
of payment plus reasonable expenses of collection, including, without
limitation, attorneys' and experts' fees and expenses; provided, however, that
the parties hereto acknowledge that the rights of the Banks, parties to the Loan
Agreement, may affect the rights of the parties hereunder.
7. Miscellaneous.
7.1 Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to Siliconix, at its address at 2201 Laurelwood
Road, Santa Clara, California 95054, Attention: Jens Meyerhoff, Chief Financial
Officer, with a copy to David Achterkirchen, General Counsel; and (ii) if to
Vishay, at its address at 63 Lincoln Highway, Malvern, Pennsylvania 19355,
Attention: Richard Grubb, Chief Financial Officer, with a copy to Steven
Klausner; or (iii) in either case, to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 7.1.
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 7.1. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof. Any notice given by other means permitted by this
Section 7.1 shall be deemed given at the time of receipt thereof.
7.2 No course of dealing and no delay or omission on the part
of Siliconix in exercising any right or remedy shall operate as a waiver thereof
or otherwise prejudice Siliconix's rights, powers or remedies. No right, power
or remedy conferred by this Note upon Siliconix shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statue or otherwise, and all such remedies may be exercised singly
or concurrently.
7.3 This Note may not be amended, or any of its provisions
waived, except by written consent or consents executed by the parties hereto.
7.4 This Note shall be governed by and construed in accordance
with the laws of the State of California, without giving effect to principles
governing conflict of laws.
24
7.5 Vishay irrevocably consents to the jurisdiction of the
courts of the State of California and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Note, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Note, or a breach of this Note or any such document or
instrument. In any such action or proceeding, Vishay waives personal service of
any summons, complaint or other process and agrees that service thereof may be
made in accordance with Section 7.1. Within thirty (30) days after such service,
or such other time as may be mutually agreed upon in writing by the attorneys
for the parties to such action or proceeding, Vishay shall appear or answer such
summons, complaint, or other process.
IN WITNESS WHEREOF, Vishay has caused this Note to be executed and
dated the day and year first above written.
VISHAY INTERTECHNOLOGY, INC.
By: /s/ Richard Grubb
-------------------------------------
Richard Grubb, Chief Financial Officer
25
EXHIBIT 13
Financial Highlights
Siliconix incorporated
(In thousands, except per share and employment data) 1999 1998 1997
---- ---- ----
Net sales $ 383,308 $ 282,346 $ 321,551
Gross profit $ 158,329 $ 98,016 $ 127,115
Research and development expense $ 16,979 $ 17,110 $ 17,813
Selling, marketing, and administrative expense $ 48,688 $ 55,451 $ 65,322
Restructuring expense $ - $ 19,751 $ -
Interest expense $ 769 $ 2,795 $ 2,383
Other expense $ 646 $ 1,658 $ 78
Income before income taxes and minority interest $ 90,791 $ 908 $ 41,519
Income taxes $ 24,453 $ - $ 8,507
Minority interest in income of consolidated subsidiary $ 221 $ 170 $ -
Net income $ 66,117 $ 738 $ 33,012
Net income per share (basic and diluted) $ 2.21 $ 0.02 $ 1.10
Total assets $ 346,678 $ 317,259 $ 281,509
Stockholders' equity $ 216,301 $ 150,140 $ 149,550
Year-end worldwide employment 1,752 1,642 1,266
26
Five-Year Summary of Financial Data
Siliconix incorporated
(In thousands, except per share and employment data) 1999 1998 (1) 1997 1996 1995
Net sales $ 383,308 $ 282,346 $ 321,551 $ 268,934 $ 250,291
Operating income $ 92,206 $ 5,361 $ 43,980 $ 31,811 $ 28,839
Net income $ 66,117 $ 738 $ 33,012 $ 25,977 $ 24,221
Per share data: (2)
Net income (basic and diluted) $ 2.21 $ 0.02 $ 1.10 $ 0.87 $ 0.81
Shares used to compute basic and diluted
Net income per share 29,879 29,879 29,879 29,879 29,879
Total assets $ 346,678 $ 317,259 $ 281,509 $ 238,669 $ 207,962
Capital expenditures $ 33,835 $ 35,593 $ 40,244 $ 39,511 $ 28,196
Total long-term debt, including related party $ 1,700 $ 51,791 $ 38,457 $ 39,429 $ 40,652
Year-end worldwide employment 1,752 1,642 1,266 1,228 1,269
(1) Included in operating income for 1998 is a restructuring charge of $19,751
relating to the acquisition on March 2, 1998 of the 80.4% interest in the
Company by Vishay (see Note 12 of Notes to Consolidated Financial Statements).
(2) Earnings per share and average shares outstanding have been adjusted to give
effect to the three-for-one split of the Company's common shares in February
2000 (see Note 15 of Notes to Consolidated Financial Statements).
27
Selected Quarterly Financial Data
Siliconix incorporated
Unaudited
(In thousands, except per share data) 1999 1998
(1)
Fourth Third Second First Fourth Third Second First
Net sales $ 110,132 $ 101,328 $ 90,807 $81,041 $76,607 $70,118 $70,371 $ 65,250
Gross profit $ 49,425 $ 42,906 $ 36,025 $29,973 $26,822 $24,992 $21,091 $ 25,111
Net income (loss) $ 24,368 $ 18,818 $ 13,206 $ 9,725 $ 6,431 $ 3,879 $ 1,780 $(11,352)
Net income (loss) per share (basic and $ 0.82 $ 0.63 $ 0 .44 $ 0.33 $ 0.22 $ 0.13 $ 0.06 $ (0.38)
diluted) (2)
(1) Included in operating income for 1998 is a restructuring charge of $19,751
relating to the acquisition on March 2, 1998 of the 80.4% interest in the
Company by Vishay (see Note 12 of Notes to Consolidated Financial Statements).
(2) Earnings per share and average shares outstanding have been adjusted to give
effect to the three-for-one split of the Company's common shares in February
2000 (see Note 15 of Notes to Consolidated Financial Statements).
28
Management's Discussion & Analysis of Financial Condition and Results of
Operations
The statements in this management's discussion and analysis of financial
condition and results of operations that are forward looking reflect
management's current opinions and are subject to certain risks and uncertainties
that could cause actual results to differ materially from those stated or
implied. Siliconix incorporated assumes no obligations to update this
information.
Overview
Siliconix incorporated (the "Company") is engaged in designing, manufacturing,
and marketing power and analog semiconductor products. The Company is a leading
manufacturer of Power MOSFETs, Power ICs, and analog Signal Processing devices
for computers, cellular phones, fixed communication networks, automobiles and
other electronic systems. Power MOSFET is the producer of low-voltage,
surface-mount Power MOSFET products primarily used in the communication,
computer, and automotive markets. Power IC focuses on Power Integrated Circuits
used in communication and data storage applications. Signal Processing
manufactures a wide array of commodity products such as Analog Switches, Low
Power MOSFETs, and JFETs used in the industrial and consumer markets.
The Company manufactures power products in a Class 1 six-inch wafer fab in
Santa Clara, California and through subcontracted wafer fabrication in Itzehoe,
Germany. The Company is also in the process of transferring its power product
technology to a subcontractor in Japan in order to leverage the lower
manufacturing costs overseas as well as to insure adequate supply of wafers in
the future. Analog switches and multiplexers were fabricated in the Company's
four-inch wafer fab in Santa Clara. However, as previously announced, the
Company closed this facility on December 31, 1999, due to the age of the
facility and its lack of cost competitiveness. The manufacturing of wafers for
analog switches and multiplexers is now being done by a foundry in Dresden,
Germany. Small signal transistors are manufactured by a subcontractor in
Beijing, China. Assembly and test facilities include Company owned facilities in
Koahsiung, Taiwan and Shanghai, China, as well as subcontractors in the
Philippines, Taiwan, China and Japan.
In May 1999, Vishay Asia Pte. Ltd. ("VAPL"), a wholly owned subsidiary of
Siliconix, entered into a sale and purchase agreement with Vishay
Intertechnology Pte Ltd. ("VIAPL"), a wholly owned subsidiary of Vishay. VAPL
transferred the business and benefit of all current contracts and engagements of
VAPL and all other assets and liabilities to VIAPL for the cash sum of $5.8
million. In addition, Siliconix, Inc. sold its ownership interest in Vishay
Japan KK to VIAPL for cash of $0.4 million. The transaction resulted in no gain
or loss to the Company and had no impact on operating income. Receivables and
payables, which historically have been eliminated in consolidation as
intercompany balances, now are reflected as receivables and payables from/to
affiliates.
Vishay Intertechnology Inc. ("Vishay"), a Fortune 1000 Company, owns an 80.4%
interest in the Company. Vishay is the largest U.S. and European manufacturer of
passive electronic components (resistors, capacitors, and inductors) and a
leading producer of discrete semiconductor components (diodes, transistors and
optoelectronic products). All of these components are vital to the operation of
electronic circuits and can be found in computers, telephones, TVs, automobiles,
household appliances, medical equipment, satellites, military and aerospace
equipment. With headquarters in Malvern, Pennsylvania, Vishay employs over
20,000 people in over 60 facilities in the U.S., Mexico, Germany, Austria, the
United Kingdom, France, Portugal, the Czech Republic, Israel, Japan, Taiwan
(R.O.C.), China, and the Philippines.
29
Results of Operations
Net Sales
Net sales for 1999 were $383.3 million compared to $282.3 million in 1998 and
$321.6 million in 1997. The increase of 36% from the prior year was primarily
due to strong sales in the Asia Pacific region as well as an increase in all
other geographic regions. The Company has recovered from the downturn
experienced in the semiconductor industry in 1998 and has transitioned to a
period of capacity expansion and investment in advanced technology. Demand for
PowerMOSFET products in telecommunication and computer applications, including
portable phones, notebooks and desktop computers has increased significantly
from 1998 due to strong demand from our major OEM's, especially in the Asia
Pacific region, and the solidification of pricing for our products. The Company
experienced strong bookings in the fourth quarter and this trend continued into
the first quarter of 2000.
In 1999, net sales for the Company increased in every geographic region when
compared to 1998. Net sales in Asia Pacific (excluding Japan), North America,
Europe, and Japan were 48%, 26%, 9% and 103% higher than in 1998, respectively.
Net sales have increased throughout the world due to strong demand in the
Company's key market segments of portable communication, computers and
automotive. Sales in the Asia Pacific region were further fueled by the recovery
of the Asian economy and by the continuing trend at some of our major OEM
customers to shift their manufacturing to this region from North America in
order to leverage the regions' lower labor costs.
Net sales in Asia Pacific increased 32% in 1998 compared to 1997. Net sales in
North America, Japan and Europe decreased in 1998 over 1997 by 31%, 41% and 20%,
respectively. The increase in sales in Asia Pacific in 1998 compared to 1997
resulted from transfers of manufacturing to this region by the Company's major
OEM customers as well as the strong growth in contract manufacturing in Taiwan.
The decline in North America was a result of significantly reduced demand in the
Company's distribution channels as well as the aforementioned transfer of
manufacturing to Asia. In Japan, the overall lower unit demand combined with a
weak yen and very aggressive competition led to a strong decline in sales in
1998 when compared to 1997. In Europe, 1998 sales declined compared to 1997
primarily due to a reduced demand in portable GSM phones driven by lower exports
into the Asian markets.
Gross Profit
Gross profit as a percentage of net sales was 41% in 1999 compared to 35% in
1998 and 40% in 1997. The increase in margins in 1999 was primarily the result
of manufacturing efficiencies gained from full utilization of the Company's
existing manufacturing capacities and further advances in technologies, that
allowed a product mix shift to the Company's smaller, more profitable products,
and the continued implementation of productivity improvement and cost reduction
programs. The decrease in margins experienced in 1998 compared to 1997 relates
to significant pricing pressures and underutilization of the Company's installed
capital base caused by the worldwide slowdown in the semiconductor market. In
1997, the Company experienced significant manufacturing capacity shortages due
to continuous strong customer orders. In response to this and the continued
strong bookings experienced at the time, the Company embarked on an ambitious
capacity expansion plan, securing capital equipment and building the necessary
infrastructure to support the higher manufacturing capacities. Unfortunately,
due to equipment lead-times, the additional capacity and manufacturing
infrastructure became available just as the overall slowdown in the
semiconductor market began to emerge. While the underutilization of this
additional infrastructure adversely affected margins in 1998, this manufacturing
capacity, and the further expansion that took place at the end of 1998, has
allowed the Company flexibility in responding to the large increase in demand
for the Company's products that was experienced in 1999. In 1999, the Company
continued to experience pricing pressures in its key markets. While the level of
price erosion has slowed from the level experienced in 1998 and 1997, the
Company will continue to try to preserve its margins by
30
focusing on productivity improvements and cost reduction initiatives, leveraging
low cost manufacturing alternatives, and continuing to develop new, more cost
effective technologies.
Research and Development
Research and development expenses were $17.0 million in 1999, $17.1 million in
1998 and $17.8 million in 1997. The Company's research and development
expenditures as a percentage of net sales decreased to 4.4% in 1999 from 6.1% in
1998 and 5.5% in 1997, primarily due to the Company's strong sales volume. While
research and development expenditures in absolute dollars were similar to the
prior year, the Company was able to release 91 new products in 1999 compared to
68 in 1998 and 55 in 1997 due to the Company's continued focus on improving time
to market. New product introductions were focused primarily in the Company's
core markets of communication, automotive and computer applications and also
included the release of several new platform technologies. Some of the major
research and development accomplishments in 1999 include: the release of the
first products utilizing the Company's new ChipFET packaging technology, which
results in smaller footprint products with enhanced performance characteristics;
the release of the new 3-volt family of low voltage switchers targeted at the
low power requirements of today's portable communication and computer
applications; the significant improvements made to our high voltage buck-boost
converters for the telephone communication market which increases the level of
circuit integration and dramatically reduces the number of external components
that our customers will now need in their end applications; and the release of
our new optimized pulse with modulation MOSFETS for DC/DC applications allowing
for more efficient battery usage. Other significant accomplishments include the
release of our new SC70 packaged products and the establishment of our first
offshore design center in the United Kingdom. The Company believes that its
future operating results are highly dependent on its ability to maintain its
technological advantage over its competitors and, as such, expects to continue
to invest significant resources in the research and development area.
Selling, Marketing, and Administration
Selling, marketing, and administration expenses were reduced to $48.7 million in
1999 compared to $55.5 million in 1998 and $65.3 million in 1997. In response to
the increasing competitive business environment, the Company has continued to
execute its restructuring plan and has implemented certain cost reduction
initiatives that have reduced the Company's overall cost structure. As a result,
the Company's selling, marketing, and administration expenses have continued to
decline, decreasing $6.8 million in 1999 compared to 1998 and $9.8 million in
1998 compared to 1997. These expenses have declined to 12.7% of net sales in
1999, compared to 19.6% of net sales in 1998, and 20.3% of net sales in 1997.
Restructuring
The Company incurred a pre-tax restructuring charge of $19.8 million relating to
the acquisition on March 2, 1998 of the 80.4% interest in the Company by Vishay.
In February of 1998, the company began an across-the-board assessment of its
cost structure. In connection with this assessment and in response to the
downturn of the semiconductor market experienced in 1998, actions were taken to
streamline operations and leverage synergies with the parent company, a
restructuring charge of $19.8 million was recorded. Of the total, approximately
$12.6 million related to employee termination costs covering seven key
executives and 72 technical, production, and administrative employees. The
remaining $7.2 million restructuring charge relates to the closure of a
manufacturing facility, termination of certain distributors, write down of
certain assets and other expenses. At December 31, 1999, 78 employees had been
terminated and the Company charged $17.1 million in costs, of which $10.8
million were paid and $6.3 million were written off. At December 31, 1999, a
restructuring charge of $2.7 million remained accrued, primarily relating to
ongoing scheduled severance payments and pending contract cancellations being
executed under the restructuring plan. The Company anticipates that it will
complete its restructuring by the end of 2000.
31
Interest Expense
Interest expense for 1999 decreased significantly by $2.0 million or 73% from
$2.8 million in 1998 to $0.8 million in 1999 as a result of the Company's strong
operating cash flow and the resulting aggressive debt retirement plan. In 1999,
the Company repaid two promissory notes with Vishay in the amount of $50.6
million. Interest expense for 1998 increased by $0.4 million or 17% compared to
1997 primarily due to additional loans from Vishay used to fund the acquisition
of the additional 40% interest in the Simconix joint venture and to temporarily
fund part of the cash payments called for under the restructuring plan.
Other Expense, net
Other expense, net decreased by $1.0 million from an expense of $1.6 million in
1998 to an expense of $0.6 million in 1999. The decrease in 1999 compared to
1998, as well as the increase in 1998 compared to 1997, is primarily due to a
one-time charge recorded in 1998 in connection with the consolidation of
Simconix.
Income Tax Expense
Income tax expense for 1999 increased $24.5 million over 1998 and $16.0 million
over 1997 primarily due to the increase of earnings before tax.
Financial Condition, Liquidity, and Capital Resources
As of December 31,1999, the Company had $57.9 million in cash and cash
equivalents and short-term note receivable from affiliate, compared to $37.7
million in cash and cash equivalents at December 31, 1998. The significant
increase from the prior year relates to the Company's strong operating cash
flows driven by its increasing revenues. During 1998, the Company borrowed $30.3
million from Vishay to fund a portion of the cash payments called for under the
restructuring plan, as well as the acquisition of an additional 40% interest in
Simconix. The Company repaid $14.3 million of this debt during 1998 and the
remaining balance in 1999. The Company has an available revolving credit
facility with Vishay of $35.0 million, which is due to expire in May 2000. The
Company anticipates that this revolving credit facility will be renegotiated and
extended. As of December 31, 1999, there were no borrowings against this credit
facility.
Net cash provided by operating activities was approximately $95.4 million in
1999, compared to $56.3 million in 1998. Accounts receivables increased $14.1
million in 1999 as a result of higher revenues. In addition, net affiliate
payables and receivables decreased by $15.3 million in 1999 compared to 1998
mainly due to timing of cash payments to unconsolidated affiliates. Intercompany
balances for Asia previously eliminated during consolidation are now classified
as affiliate payables/receivables due to the sale of the Asia subsidiaries.
Accrued liabilities and contingencies increased by $13.1 million due to an
increase in taxes payable. Net cash provided by operating activities was
approximately $56.3 million in 1998, compared to $40.7 million in 1997. Accounts
receivables decreased $22.6 million as a result of lower revenues in 1998.
Inventory balances decreased by $1.1 million in 1999 when compared to 1998.
Finished goods and raw materials decreased $1.7 million and $1.1 million,
respectively, due to the strong demand for the Company's products as well as
programs to reduce the amount of raw materials on hand by moving to a more
just-in-time delivery system. This decrease was partially offset by an increase
in work in process of $1.7 million to support the increased production volumes
called for by the Company's higher revenue levels and for faster customer
responsiveness as requested lead times from our customers have shortened.
32
Net cash used in investing activities was $55.7 million in 1999, compared to
$25.5 million in 1998 and $41.3 million in 1997. Capital expenditures were $33.8
million in 1999 compared to $35.6 million in 1998 and $40.2 million in 1997,
primarily related to additions for plant capacity expansion, new technology, and
regulatory compliance. Capital spending in 2000 is expected to substantially
exceed the 1999 level as the Company continues its capacity expansion plans and
invests significantly into its next generation products and technologies. The
Company sold its Asia subsidiaries for $6.2 million in May of 1999 (see Note 2
of Notes to Consolidated Financial Statements). The note receivable from
affiliate in the amount of $31.0 million is a note from Vishay. This investment,
which is callable by Siliconix at any time and bears an interest rate of 6.25%,
was made to provide the Company with short-term interest income until the
Company's funds are needed in the middle part of the year to fund capital
expenditures and other normal operating costs.
Net cash used in financing activities in 1999 includes the repayment of the two
loans to Vishay in the amount of $50.6 million (see Note 6 of Notes to
Consolidated Financial Statements).
Although the Company had available cash and cash equivalents of $26.9 million at
the end of 1999, cash and cash equivalents are expected to decrease in the first
quarter of 2000 due to payments for capital expenditures, royalties, sales
commissions, management and employee bonuses, the Company's portion of certain
employee benefit plans, and anticipated payments to affiliates. Management
expects that future cash flows from operations and existing lines of credit with
Vishay will be sufficient to meet its normal operating requirements and to fund
its research and development and capital expenditure plans.
Foreign Currency Forward Exchange Contracts
In September of 1999, the Company entered into foreign currency forward exchange
contracts to manage exposure related to certain foreign currency commitments and
balance sheet positions. Foreign currency forward exchange contracts designated
and effective as hedges of firm commitments are treated as hedges for accounting
purposes. Gains and losses related to qualified accounting hedges of firm
commitments are deferred and recognized in income when the hedged transaction
occurs. At December 31, 1999, the notional amount of outstanding foreign
currency forward exchange contracts was $6,438,000. All of the total outstanding
contracts at December 31, 1999 were to hedge yen denominated commitments for
product sales from customers in Japan.
Year 2000
In 1998 the Company began to lay out a formal, structured plan, under the
responsibility of the Company's CFO/Senior Vice President of Administration, to
deal with the significant business and operational issues surrounding the
pending Year 2000 issue. The Company's plan included a comprehensive review of
all worldwide information technology, facility, manufacturing, and logistics
systems to ensure Year 2000 readiness. Representatives from each of the
Company's departments and each of its locations worldwide performed risk
assessments, conducted Year 2000 readiness testing, implemented remediation
efforts, developed contingency plans, and communicated with employees,
suppliers, customers and other third parties about the Year 2000 problem. Due to
the successful implementation of this plan, the Company was Year 2000 ready by
the end of the second quarter of 1999 and did not experience any significant
problems as a result of the Year 2000 issue. As of December 31, 1999 the Company
spent approximately $1.1 million to ensure Year 2000 compliance. The Company
does not anticipate experiencing any significant problems or incurring any
additional costs in the future relating to the Year 2000 problem.
Recent Accounting Pronouncements
In June of 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137 (SFAS 137), "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133." This statement defers the effective date of the
implementation of SFAS 133 "Accounting for Derivative Instruments and Hedging
Activities." dealing with the accounting and reporting standards for derivative
33
instruments and hedging activities, to all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company is still in the process of assessing
the impact of SFAS No. 133 on its financial statements.
In December of 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosures related to
revenue recognition policies. Management believes that the Company's revenue
recognition policy is in compliance with the provisions of SAB 101 and that the
adoption of SAB 101 will have no material effect on the financial position or
results of operations of the Company.
Certain Factors
The Company has in the past, and may in the future, make forward looking
statements. These statements might be expressed by using words such as
"estimates," "assumes," "expects," "anticipates" and "are subject to risks and
uncertainties that could cause actual results to differ materially from those
predicted." Such risks and uncertainties include, but are not limited to, the
following:
Technological Change and Competition
The markets for the Company's products and technologies are characterized by
rapidly changing technology, frequent new product introductions, and declining
average selling prices over product life cycles. The Company's future success is
highly dependent upon the timely completion and introduction of new products and
technologies at competitive prices and performance levels, and upon having those
products selected for design into products of leading manufacturers. In
addition, the Company must respond to competitors in the Company's markets. If
the Company is not able to make timely introduction of new products and
technologies, or to respond effectively to competition, its business and
operating results could be adversely affected.
Variable Demand
The semiconductor industry has historically been highly cyclical and has been
subject to significant downturns characterized by diminished product demand.
Reduced demand for the Company's products or capacity could have an adverse
effect on the Company's business and operating results.
In order to secure additional manufacturing capacity, the Company signed an
agreement with Fraunhofer Gesellschaft ("FHG"), Germany for the use of its wafer
fab in Northern Germany until December 31, 2007. Under this agreement, the
Company is committed to pay for operating costs, at FHG's manufacturing location
in Itzehoe, Germany, regardless of the extent of actual manufacturing output
through the expiration of the agreement. In 1999, operating expenses at this
location to which the Company would have been responsible for under the
agreement were approximately $25.0 million.
Political and Economic Considerations
In recent years, a large and increasing portion of the Company's net sales,
operating profits, manufacturing production, and growth have come from its
international operations. As a result, the Company's business activities and its
results could be significantly affected by the policies of foreign governments
and prevailing political, social, and economic conditions.
34
Dependence on Key Suppliers
The Company uses numerous suppliers to supply raw materials for the manufacture
and support of its products. Although the Company makes reasonable efforts to
ensure that materials are available from multiple suppliers, this is not always
possible. Accordingly, certain key materials are obtained from a single supplier
or a limited group of suppliers. These suppliers are, in some cases, thinly
capitalized, independent companies that generate significant portions of their
business from the Company and/or a small group of other companies in the
semiconductor industry. The Company has sought and will continue to seek to
minimize the risk of production and service interruptions and/or shortages of
key materials by: 1) selecting and qualifying alternative suppliers for key
materials; 2) monitoring the financial stability of key suppliers; and 3)
maintaining appropriate inventories of key materials. There can be no assurance
that the Company's results of operations will not be materially and adversely
affected if, in the future, the Company does not receive sufficient materials to
meet its requirement in a timely and cost-effective manner.
Intellectual Property Matters
The semiconductor industry is characterized by litigation regarding patent and
other intellectual property rights. The Company has on occasion been notified
that it may be infringing patent and other intellectual property rights of
others. In addition, customers purchasing components from the Company have
rights to indemnification under certain circumstances if such components violate
the intellectual property rights of others. Although licenses are generally
offered in such situations and the Company has successfully resolved these
situations in the past, there can be no assurance that the Company will not be
subject to future litigation alleging intellectual property rights infringement,
or that the Company will be able to obtain licenses on acceptable terms. An
unfavorable outcome regarding one of these matters could have an adverse effect
on the Company's business and operating results.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union adopted
the euro as their common legal currency and established fixed conversion rates
between their existing sovereign currencies and the euro. The Company has not
experienced any problems by the introduction and initial implementation of the
euro on January 1, 1999. The Company does not expect the costs of any system
modifications that might be required due to the introduction of the euro to be
material, nor does it expect the introduction and use of the euro to have a
material adverse effect on its financial condition or results of operations. The
Company will continue to evaluate the impact of the euro introduction.
Interest and Currency Rate Exposure
In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks, including market risks associated
with interest rate movements, currency rate movements on non-U.S. dollar
denominated assets and liabilities and collectibility of accounts receivable.
Due to the short-term nature and insignificant amount of the Company's
investment portfolio, an immediate 10 percent increase in interest rates is not
expected to have a material effect on the Company's near-term financial
condition or results of operations. Forward exchange contracts are purchased to
hedge a portion of, but not all, existing firm commitments and foreign currency
denominated transactions. Gains and losses on these contracts are recognized in
the consolidated financial statements at the time the related transactions being
hedged are recognized. Because the effect of movements in currency exchange
rates on forward exchange contracts generally offset the related effect on the
underlying items being hedged, this financial instrument is not expected to
subject the Company to risks that would otherwise result from changes in
currency exchange rates. The Company does not use derivative financial
instruments for trading or speculative purposes. Net foreign currency gains and
losses did not have a material effect on the Company's results of operations for
fiscal 1999, 1998 or 1997.
35
Consolidated Financial Statements
Statements of Operations
Siliconix incorporated
Years ended December 31
(In thousands, except per share data) 1999 1998 1997
Net sales $ 383,308 $282,346 $ 321,551
Cost of sales 224,979 184,330 194,436
------------ -------- ---------
Gross profit 158,329 98,016 127,115
Operating expenses:
Research and development 16,979 17,110 17,813
Selling, marketing, and administrative 48,688 55,451 65,322
Amortization of goodwill 456 343 -
Restructuring - 19,751 -
------------ -------- ----------
Operating income 92,206 5,361 43,980
Interest expense 769 2,795 2,383
Other expense 646 1,658 78
------------ -------- ----------
Income before income taxes and minority interest 90,791 908 41,519
Income taxes 24,453 - 8,507
Minority interest in income of consolidated subsidiary 221 170 -
------------ -------- ----------
$ 66,117 $ 738 $ 33,012
============ ======== ==========
Net income per share (basic and diluted) $ 2.21 $ 0.02 $ 1.10
Shares used to compute basic and diluted earnings per share 29,879 29,879 29,879
See accompanying Notes to Consolidated Financial Statements
36
Balance Sheets
Siliconix incorporated
As of December 31
(In thousands, except share data) 1999 1998
Assets
Current assets:
Cash and cash equivalents $ 26,876 $ 37,694
Note receivable from affiliate 31,000 -
Accounts receivable, less allowances of
$18,370 in 1999 and $14,391 in 1998 49,631 35,559
Accounts receivable from affiliates 16,128 9,917
Inventories 48,339 49,421
Other current assets 6,023 8,867
Deferred income taxes 10,286 15,182
--------- ----------
Total current assets 188,283 156,640
--------- ----------
Property, plant, and equipment, at cost:
Land 1,715 1,576
Buildings and improvements 48,027 47,962
Machinery and equipment 284,496 266,525
--------- ---------
334,238 316,063
Less accumulated depreciation 184,812 165,677
--------- ---------
Net property, plant, and equipment 149,426 150,386
Goodwill 8,361 8,820
Other assets 608 1,413
--------- ---------
Total assets $ 346,678 $317,259
========= ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 27,524 $ 23,947
Accounts payable to affiliates 26,244 29,192
Accrued payroll and related compensation 9,998 11,694
Accrued restructuring charge 2,746 5,352
Other accrued liabilities 47,442 32,803
--------- --------
Total current liabilities 113,954 102,988
--------- --------
Long-term related party debt - 50,570
Long-term debt, less current portion 1,700 1,221
Deferred income taxes 11,399 9,170
Minority interest 3,324 3,170
--------- --------
Total liabilities 130,377 167,119
--------- --------
Commitment and contingencies
Stockholders' equity
Common stock, par value $0.01; 100,000,000 shares
authorized; 29,879,040 shares issued and
outstanding in 1999 and 1998 299 299
Additional paid-in-capital 59,354 59,337
Retained earnings 157,402 91,285
Accumulated other comprehensive loss (754) (781)
--------- --------
Total stockholders' equity 216,301 150,140
--------- --------
Total liabilities and stockholders' equity $ 346,678 $317,259
========= ========
See accompanying Notes to Consolidated Financial Statements
37
Statements of Stockholders' Equity
Accumulated
Siliconix incorporated Additional Other Total
Years ended December 31 Common Stock at Par Paid-in- Retained Comprehensive Stockholders'
(In thousands) Shares Amount Capital Earnings Income(Loss) Equity
Balances at December 31, 1996 29,879 $ 299 $ 59,241 $ 57,535 $ (457) $ 116,618
Proceeds from sale of restricted common stock - - 42 - - 42
Net income - - - 33,012 - 33,012
Currency translation adjustments - - - - (122) (122)
-----------
Comprehensive income 32,890
---------- --------- ---------- ---------- --------- ----------
Balances at December 31, 1997 29,879 299 59,283 90,547 (579) 149,550
Proceeds from sale of restricted common stock - - 54 - - 54
Net income - - - 738 - 738
Currency translation adjustments - - - - (202) (202)
-----------
Comprehensive income 536
---------- --------- ---------- ---------- --------- -----------
Balances at December 31, 1998 29,879 299 59,337 91,285 (781) 150,140
Proceeds from sale of restricted common stock - - 17 - - 17
Net income - - - 66,117 - 66,117
Currency translation adjustments - - - - 27 27
-----------
Comprehensive income 66,144
---------- --------- ---------- ----------- ---------- ----------
Balances at December 31, 1999 29,879 $ 299 $ 59,354 $ 157,402 $ (754) $ 216,301
========== ========= ========== =========== ========== ==========
See accompanying Notes to Consolidated Financial Statements
38
Statements of Cash Flows
Siliconix incorporated
Years ended December 31
(In thousands) 1999 1998 1997
Cash flows from operating activities:
Net income $ 66,117 $ 738 $ 33,012
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 32,312 27,379 23,437
Deferred income taxes 7,125 (3,431) 1,585
Payment of pension benefits (33) (84) (1,467)
Restructuring (2,429) 11,099 -
Undistributed earnings from joint venture - (970) (3,542)
Other non-cash expenses 642 750 706
Changes in operating assets and liabilities:
Accounts receivable (14,072) 22,586 (14,972)
Accounts receivable from affiliates (6,211) (1,676) 6,555
Inventories 1,082 (5,732) (12,192)
Other current assets 3,286 (909) (1,497)
Accounts payable 3,577 (7,799) 5,123
Accounts payable to affiliates (9,100) 17,865 219
Accrued liabilities 13,097 (3,565) 3,762
------------ ------------ -------------
Net cash provided by operating activities 95,393 56,251 40,729
------------ ------------ -------------
Cash flows from investing activities:
Purchase of property, plant, and equipment (33,835) (35,593) (40,244)
Sale of Asia subsidiaries 6,152 - -
Cash acquired from purchase of business - 977 -
Proceeds from sale of property, plant, and equipment 2,995 381 347
(Purchase) sale of other assets - 111 (4,982)
Short-term investment with affiliate (31,000) 8,586 3,550
------------ ------------ -------------
Net cash used in investing activities (55,688) (25,538) (41,329)
------------ ------------ -------------
Cash flows from financing activities:
Repayment of long-term debt (50,570) (3,117) -
Repayment of short-term debt - - (1,041)
Proceeds from sale of restricted common stock 17 54 42
------------ ------------ -------------
Net cash used in financing activities (50,553) (3,063) (999)
------------ ------------ -------------
Effect of exchange rate changes on cash and cash equivalents 30 (205) (353)
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents (10,818) 27,445 (1,952)
Cash and cash equivalents:
Beginning of year 37,694 10,249 12,201
------------ ------------ -------------
End of year $ 26,876 $ 37,694 $ 10,249
============ ============ =============
Supplemental disclosure of cash flow information:
Interest paid $ 1,555 $ 3,370 $ 2,263
Income taxes paid $ 3,559 $ 3,218 $ 3,893
Noncash financing activity:
Acquisition of 40% interest in Simconix for long-term debt to related party $ - $ 16,000 $ -
See accompanying Notes to Consolidated Financial Statements
39
Notes to Consolidated Financial Statements
Note 1 - Organization and Significant Accounting Policies
Organization Siliconix incorporated (the "Company") was founded in 1962 and
subsequently reincorporated on March 5, 1987 in Delaware. Vishay
Intertechnology, Inc. of Malvern, Pennsylvania ("Vishay") is the record holder
of 80.4% of the Company's outstanding common stock as of December 31, 1999.
Consolidation The accompanying consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition The Company records sales to original equipment
manufacturers and distributors at the time of shipment. The Company's
distributors have limited rights of return. The Company records allowances
against revenue for estimated product returns and discounts at the time of
shipment.
Cash and Cash Equivalents Cash equivalents consist of short-term financial
instruments which are readily convertible to cash and have original maturities
of three months or less.
Note Receivable from Affiliate At December 31, 1999, the Company had a related
party note receivable from Vishay.
Inventories Inventories are stated at the lower of cost or market. Cost is
computed on a currently adjusted standard basis (which approximates actual
cost); market is based upon estimated net realizable value. The valuation of
inventory at the lower of cost or market requires the use of estimates as to the
amounts of current inventory that will be sold. These estimates are dependent on
the Company's assessment of current and expected orders from its customers.
Property, Plant, and Equipment Property, plant, and equipment are stated at
cost. Depreciation is computed for financial reporting purposes using the
straight-line method over the estimated useful lives of the respective assets.
The estimated lives used are 10 to 30 years for buildings and improvements and 3
to 10 years for machinery and equipment. The Company evaluates the
appropriateness of the carrying amount of property, plant and equipment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
Goodwill and Other Intangibles Goodwill and Other Intangibles are amortized
on a straight-line basis over periods estimated to be benefited. The Company
continually reviews the recoverability of the carrying value of these assets
using the methodology prescribed in SFAS No. 121 "Accounting for the Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The Company also reviews
long-lived assets and the related intangible assets for impairment whenever
events or changes in circumstances indicate the carrying amounts of such assets
may not be recoverable.
Financial Instruments and Credit Risk Due to the short maturities and/or the
variable interest rates of the Company's financial instruments, including cash
and cash equivalents, short-term investments, accounts receivable, debt
obligations, accounts payable, and accrued liabilities, the carrying amounts
approximate the fair value of the instruments. The Company's financial
instruments that are subject to concentrations of credit risk consist primarily
of trade receivables. The credit risk related to the Company's trade receivables
is mitigated by the Company's ongoing credit
40
evaluations of its customers' financial condition, reasonably short collection
terms, and the geographical dispersion of sales transactions. The Company
generally does not require any collateral from its domestic customers although
letters of credit are used frequently throughout Asia. Bad debt expense has not
been significant over the past three years. A material portion of the Company's
revenues in 1999, 1998, and 1997 were derived from the worldwide communication
and computer markets. These markets have historically been somewhat volatile, as
demand for the end products in these markets has varied widely from time to
time. If demand for these end products should decrease significantly, the
producers thereof could reduce their purchase of the Company's products which in
turn could have a materially adverse effect on the Company's consolidated
financial position and results of operations.
Derivative Financial Instruments The Company uses financial instruments such as
forward exchange contracts to hedge a portion, but not all, of its firm
commitments denominated in foreign currencies. The purpose of the Company's
foreign currency management is to minimize the effect of exchange rate changes
on actual cash flows from foreign currency denominated transactions. Foreign
currency forward exchange contracts designated and effective as hedges of firm
commitments are treated as hedges for accounting purposes. Gains and losses on
forward exchange contracts are deferred and recognized when the transactions
being hedged are recognized.
Income Taxes Income taxes are accounted for 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, as well as operating loss and tax credit carryforwards. 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. On March 2, 1998, as a result of the acquisition by Vishay, the
Company separated from the Daimler-Benz North America, Inc. consolidated group
of companies for U.S. tax filing purposes. Thus, the Daimler-Benz Tax Sharing
Agreement was terminated and replaced by the Vishay Tax Sharing Agreement. Under
the Vishay Tax Sharing Agreement, the Company continues to compute its income
taxes on a separate company basis. For the period ended December 31, 1999, the
Company is included in the consolidated federal and certain state tax returns of
the Vishay affiliated group. In accordance with the Vishay Tax Sharing
Agreement, federal and state taxes are determined as if the Company were
associated only with its wholly owned subsidiaries, taking into account all tax
credits and all carryback and carryforward items. For purposes of these
consolidated financial statements, federal, state, and foreign income taxes have
been computed as if the Company's tax provision and related liability had been
calculated on a separate return basis (see Note 5 of Notes to Consolidated
Financial Statements).
Net Income per Share In 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." SFAS No. 128 requires the presentation of basic earnings per share
("EPS") and, for companies with complex capital structures, diluted EPS. Due to
the Company's simple capital structure, basic and diluted EPS are the same.
Foreign Currency Translation The financial statements for certain of the
Company's foreign subsidiaries are measured using the local currency as the
functional currency. Foreign assets and liabilities in the consolidated balance
sheets have been translated at the rate of exchange as of the balance sheet
date. Revenues and expenses are translated at the average exchange rate for the
year. Translation adjustments do not impact the results of operations and are
reported as a separate component of stockholders' equity. Foreign currency
transaction gains and losses are included in the results of operations.
Use of Estimates Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Reclassifications Certain reclassifications were made to the 1998 and 1997
balances to conform with the 1999 presentation.
41
Accounting Pronouncements In June of 1999, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 137 (SFAS
137), "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133." This statement defers the
effective date of the implementation of SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities," dealing with the accounting and reporting
standards for derivative instruments and hedging activities, to all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company is still in
the process of assessing the impact of SFAS No. 133 on its financial statements.
In December of 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Management believes that the Company's
revenue recognition policy is in compliance with the provisions of SAB 101 and
that the adoption of SAB 101 will have no material effect on the financial
position or results of operations of the Company.
Commitments and Contingencies Liabilities for loss contingencies, including
environmental remediation costs, arising from claims, assessments, litigation,
fines and penalties, and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment and/or remediation
can be reasonably estimated. The costs for a specific clean-up site are
discounted if the aggregate amount of the obligation and the amount and timing
of the cash payments for that site are fixed or reliably determinable generally
based upon information derived from the remediation plan for that site.
Recoveries from third parties that are probable of realization and can be
reasonably estimated are separately recorded, and are not offset against the
related environmental liability.
42
Note 2 - Related Party Transactions
As of March 2, 1998 the Company became a majority owned subsidiary of Vishay.
During 1999, Vishay maintained the same sales structure as under Daimler-Benz.
The aim of the Vishay sales structure is to unify the activities of the member
companies to provide efficiencies by eliminating the duplications of many
functions and to bring greater value to end customers by allowing them to deal
with one entity for their semiconductor purchasing needs. In order to achieve
these goals, the following sales companies were established: TEMIC North
America, Vishay Americas Inc., Vishay Asia Pacific and TEMIC Germany. These
companies were established to fulfill all sales responsibilities for Vishay
within their respective regions. Vishay Americas Inc. started its business on
May 1, 1999 replacing TEMIC North America. TEMIC North America is a wholly owned
subsidiary of the Company; Vishay Asia Pacific is a division of Vishay Asia Pte.
Ltd. ("VAPL"), a wholly owned subsidiary of Siliconix incorporated; Vishay
Americas Inc. is a wholly owned subsidiary of Vishay; and TEMIC Germany is a
division of Vishay Semiconductors. Vishay Asia Pte. Ltd. ("VAPL") was sold to
Vishay Intertechnology Pte Ltd. ("VIAPL"), a wholly owned subsidiary of Vishay,
in May of 1999. The sales companies function as agents of the manufacturing
companies, namely Siliconix incorporated and all other Vishay entities, through
commission arrangements at a fixed percentage of sales. Under these agreements,
the sales companies perform all sales functions under their legal names;
however, the sales companies function only in an agency role and the ownership
of all sales, receivables, inventory, and risk of loss remain with the
manufacturing companies.
The Company and these affiliates entered into several significant transactions
and agreements, which are disclosed elsewhere in these consolidated financial
statements and related notes. In addition, the following are other transactions
between the Company and its affiliates during 1999, 1998, and 1997.
Under the Vishay sales structure, 1999 and 1998 commissions received pertaining
to the sale of affiliate products in the North America and Asia Pacific regions
were $2,866,000 and $10,666,000, respectively. Commissions paid in 1999 and 1998
for the North America and Asia Pacific regions were $9,740,000 and $0,
respectively. Under the TEMIC sales structure, commissions received in 1997 were
$15,017,000, while commissions paid pertaining to the sale of the Company's
products in Europe were $3,078,000, $3,266,000, and $5,472,000, in 1999, 1998,
and 1997, respectively. In 1997, the Company also paid $2,497,000 in commissions
to affiliates of Daimler Benz for the sale of the Company's products. These
commission amounts are included in selling, marketing, and administrative
expenses in the accompanying statements of operations.
In May 1999, VAPL entered into a sale and purchase agreement with VIAPL. VAPL
transferred the business and benefit of all current contracts and engagements of
VAPL and all other assets and liabilities to VIAPL for the cash sum of $5.8
million. In addition, Siliconix Inc. sold its ownership interest in Vishay Japan
KK to VIAPL for cash of $0.4 million. The transaction resulted in no gain or
loss to the Company and had no impact on operating income. Receivables and
payables, which historically have been eliminated in consolidation as
intercompany balances, are now reflected as receivables and payables from/to
affiliates.
Prior to the acquisition, the Company participated in a cash concentration
system established by Daimler-Benz North America ("DBNA"), an affiliated
company, whereby cash was pooled and invested on a short-term basis with
Daimler-Benz Capital Incorporated ("DBCI"), an affiliate of DBNA, to obtain a
higher rate of return. At December 31, 1997, a cash balance of $8,586,000 was
invested with DBCI. Interest rates on the investment were based on the one month
LIBOR. Interest income earned in 1998 and 1997 totaled $28,000 and $480,000,
respectively. The interest income amounts are included in other expense, net in
the accompanying statements of operations. The cash concentration system was
terminated in March 1998 subsequent to the acquisition of the Company by Vishay.
In 1997, the Company received $1,127,000 from a related party for research and
development contracts. This amount was recorded as an offset to research and
development expenses in 1997. Significant terms of these agreements included,
but were not limited to, project coordination by the Company, project inspection
by the related party, and assurance to the related party concerning
confidentiality of the technical information. In 1998, the Company paid $847,000
for
43
research and development costs to Daimler-Benz. These amounts are included in
research and development expenses in the accompanying statements of operations.
During 1999, a related party in Itzehoe, Germany was engaged to provide
subcontract services to the Company. The fee for this service was $24,206,000.
In 1998 and 1997, in addition to the related party in Itzehoe, Germany, a
subcontractor in the Asia Pacific region was used to provide back-end
subcontract services to the Company. Fees for these services were $35,219,000
and $9,020,000, respectively. The company paid operating costs associated with
the startup for the Itzehoe facility of $1,540,000 and $9,226,000 for 1998 and
1997, respectively. These subcontract fees and operating costs are included in
cost of sales in the accompanying statements of operations. The Company is
committed to pay for operating costs, regardless of the extent of actual
manufacturing output, until December 31, 2007.
The Company entered into certain arrangements with related parties whereby the
Company or the related party paid certain selling and administrative expenses on
behalf of the other company. These expenses were then billed back to the
appropriate party on a periodic basis. During 1999, 1998 and 1997 the Company
was reimbursed by related parties for $7,465,000, $7,948,000, and $11,113,000,
respectively, for selling and administrative expenses incurred on their behalf.
During the same periods, the Company reimbursed related parties $2,782,000,
$2,293,000, and $1,636,000, respectively, for selling and administrative
expenses incurred by related parties on the Company's behalf. These selling and
administrative amounts are included in selling, marketing, and administrative
expenses in the accompanying statements of operations. During 1998, a majority
of these related party arrangements were terminated in connection with the
acquisition. Subsequent to the acquisition, management fee arrangements have
been entered into by the Company and related parties to cover occupancy and
administrative costs. During 1999, 1998, and 1997, management fees received by
the Company were $942,000, $565,000, and $343,000, respectively, and fees paid
by the Company were $1,885,000, $1,389,000, and $183,000, respectively.
In 1997, the Company entered into an arrangement whereby the Company paid
certain selling, marketing, and administrative expenses for the Discrete
Components division and a related party paid these expenses for the Integrated
Circuit division. The Company and the related party agreed upon fixed fees for
these expenses which where then billed back on a periodic basis. During 1997,
the Company received $4,839,000 for selling, marketing, and administrative
expenses for the Discrete Components division. During the same period, the
Company paid $1,130,000 to a related party for selling, marketing, and
administrative expenses for the Integrated Circuit division. These amounts are
included in selling, marketing, and administrative expenses in the accompanying
statements of operations. Subsequent to the acquisition, the Company no longer
has segregated divisions for discrete components and integrated circuits.
Product sales to unconsolidated affiliates were $464,000, $1,369,000, and
$10,692,000 during 1999, 1998, and 1997, respectively. These amounts are
included in net sales in the accompanying statements of operations. Product
sales in 1999 and 1998 are significantly lower than in 1997 due to sales to
certain Daimler-Benz subsidiaries, which are no longer classified as affiliates
after the acquisition.
Long-term debt in 1998 includes two related party promissory notes aggregating
$50,570,000 with Vishay (see Note 6 of Notes to Consolidated Financial
Statements). The promissory notes were fully repaid in 1999. Interest expense
for this debt for 1999 and 1998 was $1,555,000, and $2,425,000, respectively.
Until the acquisition, 1998 long-term debt included a note of $34,570,000 with
DBCI which was assigned to Vishay as part of the acquisition. Interest expense
related to this debt in 1998 with DBCI was $340,000. These amounts are included
in interest expense in the accompanying statements of operations.
Note receivable from affiliate includes a related party promissory note for
$31,000,000 from Vishay, issued at the end of December 1999. As the note was
granted at year-end, the Company did not record interest income for this loan in
1999. This investment, which is callable by Siliconix at any time and bears an
interest rate of 6.25%, was made to provide the Company with short-term interest
income until the Company's funds are needed in the middle part of the year to
fund capital expenditures and other normal operating costs.
44
Note 3 - Simconix
On April 1, 1998, Vishay acquired a 40% interest in Simconix, a back-end
manufacturing facility in Shanghai, China for $16,000,000. This interest was
sold to the Company on the same date, in exchange for $16,000,000 of long-term
debt at 6.25% interest. The Company already had a 50% interest in Simconix
dating from 1993 and had been previously reporting its interest in the Simconix
joint venture under the equity method of accounting. The Company recognized
$970,000, and $3,542,000 in its consolidated statement of operations as its
share of profits for the first three months of 1998, and for 12 months in 1997,
respectively. At December 31, 1997 the Company recorded the investment in the
joint venture for $10,888,000 in other assets. Due to the acquisition of the
additional 40% ownership interest, Simconix is now recorded using the purchase
method of accounting, and the operating results of Simconix are included in the
consolidated financial statements of Siliconix incorporated beginning April 1,
1998. At the time of the purchase, the Company recorded property, plant, and
equipment of approximately $15,522,000, and net other assets and liabilities of
approximately $7,031,000. The Company also recorded goodwill of $9,163,000 as
part of the step acquisition. The goodwill is being amortized on a straight-line
basis over 20 years. The 10% minority interest is contractually fixed at
$3,000,000 with a fixed return on the investment based on the agreement signed
between Vishay and the previous owner.
45
Note 4 - Inventories
Inventories consisted of the following:
December 31
(In thousands) 1999 1998
Finished goods $ 8,976 $ 10,627
Work-in-process 34,015 32,348
Raw materials 5,348 6,446
-------- ---------
$ 48,339 $ 49,421
======== =========
46
Note 5 - Income Taxes
Earnings before income taxes from foreign operations for the years ended
December 31, 1999, 1998, and 1997 consisted of $46,289,000, $16,316,000 and
$12,926,000, respectively. Income taxes for the years ended December 31, 1999,
1998, and 1997 consisted of the following:
Years ended December 31
(In thousands) 1999 1998 1997
Current:
Federal $ 17,074 $ 2,021 $ 5,276
State and local 100 - 152
Foreign 154 1,410 1,494
------------- ------------- --------------
17,328 3,431 6,922
------------- ------------- --------------
Deferred:
Federal 6,712 (3,263) 4,272
State and local 229 - (1,219)
Foreign 184 (168) (1,468)
------------- ------------- --------------
7,125 (3,431) 1,585
------------- ------------- --------------
$ 24,453 $ - $ 8,507
============= ============= ==============
Income tax expense differs from the amounts computed by applying the federal
income tax rate to pretax income as a result of the following:
Years ended December 31
(In thousands) 1999 1998 1997
Computed "expected " tax expense $ 31,700 $ 318 $ 14,532
Change in valuation allowance - 1,608 (3,780)
Foreign income taxable at different tax rate (6,554) (1,789) (1,138)
Income tax benefit attributable to foreign sales
corporation (662) - (720)
State taxes, net of federal benefit 214 - (693)
Business tax credits (361) (217) -
Other 116 80 306
------------- ------------- -----------------
$ 24,453 $ - $ 8,507
=============== ============= =================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
Years ended December 31
(In thousands) 1999 1998
Deferred tax assets:
Accrued expenses and reserves $ 10,870 $ 9,295
Net operating loss carryforwards - 7,057
Tax credit carryforwards 6,740 8,535
--------- ----------
Total gross deferred tax assets 17,610 24,887
Less valuation allowance (1,950) (2,275)
--------- ----------
Net deferred tax assets 15,660 22,612
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation (14,098) (13,884)
Investment in joint venture (2,675) (2,716)
--------- ----------
Total gross deferred tax liabilities (16,773) (16,600)
--------- ----------
Net deferred tax asset (Liability) $ (1,113) $ 6,012
========= =========
47
At December 31, 1999, the Company had the following carryforwards for tax
purposes:
(In thousands) Expires
Credits:
California investment credit $ 4,700 2005-2007
California research credit $ 900 No Expiration
Alternative minimum tax credits $ 3,100 No Expiration
Utilization of the tax credit carryforwards incurred prior to March 2, 1998 may
be subject to an annual limitation due to the ownership change limitations
provided by the Internal Revenue Service Code of 1986 as amended and similar
state provisions. The annual limitation may result in the expiration of the tax
credit carryforwards before full utilization.
The Company has not provided for U.S. federal and state income taxes on $114.1
million of non-U.S. subsidiaries' undistributed earnings as of December 31,
1999, because such earnings are intended to be reinvested outside the United
States indefinitely.
The Company's U.S. income tax returns for the years ended 1996 through 1998 are
presently under examination by the Internal Revenue Service. Management believes
that any potential tax assessment plus related interest and penalty, if any,
have been sufficiently provided for in the financial statements.
48
Note 6 - Debt Obligations
The Company's debt obligations were as follows:
December 31
(In thousands) 1999 1998
Related party borrowings $ - $ 50,570
Unfunded retirement costs 1,700 1,221
---------- -----------
Total debt 1,700 51,791
---------- ----------
Less current portion - -
Total long-term borrowings $ 1,700 $ 51,791
=========== ==========
At December 31, 1999, the Company had no related party borrowings. Two notes in
the amount of $16,000,000 and $34,570,000 were paid in full during 1999.
In May 1998, the Company entered into a two-year revolving credit facility with
Vishay providing for borrowings of up to $35,000,000 at Vishay's borrowing rate
(6.25% at December 31, 1999). At December 31, 1999, the Company had no
outstanding borrowings on this credit facility.
49
Note 7 - Geographic and Industry Segment Reporting
The Company is engaged primarily in the designing, marketing, and manufacturing
of power and analog semiconductor products. The Company is organized in three
operating segments, which due to their inter-dependencies, similar long-term
economic characteristics, shared production processes and distribution channels
have been aggregated into one reportable operating segment. A Japanese
distributor accounted for 10% of net sales in 1999 and 1997. No one customer
accounted for 10% or more of net sales in 1998. At December 31, 1999 and 1997,
accounts receivable from this distributor was $5,353,000 and $3,999,000,
respectively.
The Company maintains subsidiaries in the Netherlands, United Kingdom, China,
and Taiwan. The Company has manufacturing operations in the United States,
Taiwan, China and through subcontractors in Germany and various countries
throughout Asia.
Information about the Company's operations by geographic area is shown in the
following table:
Years ended December 31
(In thousands). 1999 1998 1997
Sales to external customers:
North America $ 98,042 $ 78,065 $ 113,858
Europe 78,350 72,168 90,480
Japan 40,007 19,700 33,359
Taiwan 61,983 29,530 19,448
Singapore 38,322 36,425 34,473
Asia Pacific (excluding Japan, Taiwan and Singapore) 63,632 45,012 29,901
All other 2,972 1,446 32
---------------- --------------- ---------------
$ 383,308 $ 282,346 $ 321,551
================ =============== ===============
Long-Lived Assets at December 31
United States $ 115,440 $ 117,102 $ 122,820
All other geographic regions 64,698 65,684 19,518
---------------- --------------- ---------------
$ 180,138 $ 182,786 $ 142,338
================ =============== ===============
50
Note 8 - Leases and Commitments
At December 31, 1999, the future minimum commitments for all non-cancelable
operating leases were as follows:
(In thousands)
2000 $ 381
2001 130
2002 102
2003 20
2004 20
Thereafter 61
-----------
Total minimum lease payments $ 714
===========
The Company leases land, office facilities, and equipment under operating
leases. Operating lease expenses were $4,219,000, $6,252,000, and $6,488,000 in
1999, 1998, and 1997, respectively.
The Company entered into product license agreements which provide, among other
things, that the Company makes royalty payments based on sales of certain
products at royalty rates as specified in the agreements. The product license
agreements either have a fixed term or terminate upon expiration of the
licensors' underlying patents. There is no contractual limit to royalty
payments. Royalty expenses under these royalty agreements were $5,000,000,
$4,463,000, and $6,600,000, in 1999, 1998, and 1997, respectively. Included in
accrued liabilities are royalties payable of $2,855,000 and $2,052,000 at
December 31, 1999, and 1998, respectively.
51
Note 9 - Employee Benefit Plans
The profit sharing element of the Siliconix incorporated Retirement Plan Trust
(the "Plan") provides for annual contributions by the Company of up to 10% of
consolidated income before taxes (as defined). Vesting in the profit sharing
element of the Plan occurs ratably over a five-year period. Upon employee
termination, non-vested contributions are forfeited and reduce the Company's
current and/or future contributions to the Plan. The Company's contributions
under the plan were $5,982,000, $845,000, and $3,330,000, in 1999, 1998, and
1997, respectively. The tax deferred savings element of the Plan allows eligible
employees to contribute up to 15% of their compensation. The Company matches a
portion of each participating employee's contribution. The Company's matching
contributions were $1,188,000, $1,064,000, and $1,277,000, in 1999, 1998, and
1997, respectively.
The Company's U.S. defined benefit pension plan was terminated in 1998. The
Company's subsidiary in Taiwan has a defined benefit pension plan that covers
substantially all of its employees.
The Reconciliation of the Company's Benefit Obligation
1999 1998
Benefit obligation at beginning of the year $ 3,571 $ 3,370
Service Cost 517 207
Interest cost 232 237
Actuarial gain 524 91
Benefit paid (327) (84)
Change in exchange rate (206) (250)
-------------- --------------
Benefit obligation at the end of year $ 4,311 $ 3,571
-------------- --------------
1999 1998
Change in plan assets:
Fair value of plan assets at beginning of the year $ 700 $ 765
Actual return on plan assets 42 59
Employer contributions 311 275
Benefits paid (326) (415)
Actuarial gain -- 6
Change in exchange rate 79 10
------------- --------------
Fair value of plan assets at the end of the year $ 806 $ 700
============ =============
The following table sets forth the funded status and amounts of the defined
benefit pension plans recognized in the Company's balance sheets:
December 31
(In thousands) 1999 1998
Actuarial present value of benefit obligations:
Vested benefits obligation $ (136) $ (48)
Accumulated benefit obligation (2,335) (1,741)
Projected benefit obligation ("PBO") $ (4,311) $ (3,571)
Plan assets at fair value 806 700
Plan assets less PBO (3,505) (2,558)
Unrecognized net loss 1,492 1,309
Unrecognized net transition asset at:
January 1, 1989, recognized over 15 years 313 342
Accrued pension cost $ (1,700) $ (908)
52
Plan assets consist primarily of guaranteed insurance contracts and managed
trusts. Net pension cost included the following components:
Years ended December 31
(In thousands) 1999 1998 1997
Service cost benefits earned during the year $ 517 $ 207 $ 187
Interest cost on PBO 232 237 168
Actual return on plan assets (42) (59) (46)
Net amortization and deferral 87 103 27
------------ ------------- --------------
Net pension expense $ 794 $ 488 $ 336
------------ ------------- --------------
Assumptions used were:
Discount rates 6.5% 7% 7%
Rates of increase in compensation levels 4.5% 5% 5%
Expected long-term rate of return on assets 6.5% 7% 7%
53
Note 10 - Employee Stock Plan
From 1973 through the fourth quarter of 1990, the Company's Board of Directors
authorized the sale of restricted common stock to certain key employees and
directors for initial payments below market values. Vested shares are subject to
the Company's lifetime right of first refusal to purchase the shares. In the
event the Company declines to purchase the shares, a fixed amount of $1.02 (the
"delta") determined by the Company's plan of reorganization is paid to the
Company. Fully vested shares outstanding under this plan at a delta of $1.02 per
share at December 31, 1999, 1998, and 1997 were 179,577, 196,077, and 249,114,
respectively. There were no shares issued under this plan during 1999, 1998, and
1997. Vested shares sold by employees during 1999, 1998, and 1997 were 16,500,
53,037, and 41,721, respectively, resulting in payments of $16,830, $54,098, and
$42,555, respectively, to the Company which are included in additional
paid-in-capital. During 1999, 1998, and 1997, no vested shares were sold to the
Company.
54
Note 11 - Contingencies
In 1996, the Company was a party to two environmental proceedings. The first
involved property that the Company vacated in 1972. In July 1989, the California
Regional Water Quality Control Board ("RWQCB") issued Cleanup and Abatement
Order No. 89-115 both to the Company and the current owner of the property. The
Order alleged that the Company contaminated both the soil and the groundwater on
the property by the improper disposal of certain chemical solvents. The RWQCB
considered both parties to be liable for the contamination and sought to have
them decontaminate the site to acceptable levels. The Company subsequently
reached a settlement of this matter with the current owner of the property. The
settlement provided that the current owner will indemnify the Company and its
employees, officers, and directors against any liability that may arise out of
any governmental agency actions brought for environmental cleanup of the subject
site, including liability arising out of RWQCB Order No. 89-115, to which the
Company remains nominally subject.
The second proceeding involves the Company's Santa Clara, California facility,
which the Company has owned and occupied since 1969. In February 1989, the RWQCB
issued Cleanup and Abatement Order No. 89-27 to the Company. The Order was based
on the discovery of contamination of both the soil and the groundwater on the
property by certain chemical solvents. The Order called for the Company to
specify and implement interim remedial actions and to evaluate final remedial
alternatives. The RWQCB issued a subsequent order requiring the Company to
complete the decontamination. The Company is complying with the RWQCB's orders.
In management's opinion, based on discussion with legal counsel and other
considerations, the ultimate resolution of the above-mentioned matters are not
expected to have a material adverse effect on the Company's consolidated
financial condition or results of operations.
The Company is engaged in discussions with various parties regarding patent
licensing and cross patent licensing issues. In the opinion of management, the
outcome of these discussions will not have a material adverse effect on the
Company's consolidated financial condition or overall trends in the results of
operations.
55
Note 12 - Restructuring Charge
The Company incurred a pre-tax restructuring charge of $19.8 million relating to
the acquisition on March 2, 1998 of the 80.4% interest in the Company by Vishay.
In February of 1998, the company began an across-the-board assessment of its
cost structure. In connection with this assessment and in response to the
downturn of the semiconductor market experienced in 1998, actions were taken to
streamline operations and leverage synergies with the parent company, a
restructuring charge of $19.8 million was recorded. Of the total, approximately
$12.6 million related to employee termination costs covering seven key
executives and 72 technical, production, and administrative employees. The
remaining $7.2 million restructuring charge relates to the closure of a
manufacturing facility, termination of certain distributors, write down of
certain assets and other expenses. At December 31, 1999, 78 employees had been
terminated and the Company charged $17.1 million in costs, of which $10.8
million were paid and $6.3 million were written off. At December 31, 1999, a
restructuring charge of $2.7 million remained accrued, primarily relating to
ongoing scheduled severance payments and pending contract cancellations being
executed under the restructuring plan. The Company anticipates that it will
complete its restructuring by the end of 2000.
56
Note 13 - Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standard No. 130 ("SFAS"), "Reporting Comprehensive Income." SFAS No. 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, adoption of this statement had no impact on the
Company's net income or stockholders' equity. SFAS No. 130 requires foreign
currency translation adjustments to be included in other comprehensive income.
Prior to adoption, unrealized gains or losses related to foreign currency
translation adjustments were reported as a separate component of stockholders'
equity.
The following are the components of comprehensive income (in thousands):
1999 1998 1997
Net income $ 66,117 $ 738 $ 33,012
Foreign currency translation adjustment 27 (202) (122)
Comprehensive income 66,144 536 32,890
The component of accumulated other comprehensive loss is as follows:
Foreign currency translation adjustment $ (754) $ (781) $ (579)
57
Note 14 - Foreign Currency Forward Exchange Contracts
In September of 1999, the Company entered into foreign currency forward exchange
contracts to manage exposure related to certain foreign currency commitments and
balance sheet positions. Foreign currency forward exchange contracts designated
and effective as hedges of firm commitments are treated as hedges for accounting
purposes. Gains and losses related to qualified accounting hedges of firm
commitments are deferred and recognized in income when the hedged transaction
occurs. At December 31, 1999, the notional amount of outstanding foreign
currency forward exchange contracts was $6,438,000. All of the total outstanding
contracts at December 31, 1999 were to hedge yen denominated commitments for
product sales from customers in Japan.
58
Note 15 - Subsequent Events
In February 2000, the Company's stockholders approved an increase in authorized
shares of Common Stock from 10,000,000 shares to 100,000,000 shares. In
addition, the Company's stockholders approved an amendment to the Company's
Restated Certificate of Incorporation to effect a three-for-one stock split of
the Company's outstanding common stock. All share and per share information have
been restated, as appropriate, to reflect the split.
59
Siliconix incorporated common stock is traded on the NASDAQ Stock Market under
the symbol SILI. Presented below are the highest and lowest "last trade" stock
prices for the indicated quarters. These prices reflect the three-for-one stock
split that occurred in February 2000.
1999 1998
High Low High Low
4th Quarter $ 48 1/3 $ 15 1/12 4th Quarter $ 7 11/12 $ 4
3rd Quarter 17 3/8 12 1/6 3rd Quarter 9 1/6 4 1/3
2nd Quarter 14 1/6 6 1/6 2nd Quarter 13 13/16 5 2/3
1st Quarter 8 1/12 6 7/12 1st Quarter 15 13 2/3
60
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Stockholders of Siliconix incorporated:
We have audited the accompanying consolidated balance sheets of Siliconix
incorporated as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Siliconix
incorporated as of December 31, 1999 and 1998, and the results of its operations
and cash flows for each of the years in the two-year period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ERNST & YOUNG LLP
San Jose, California
January 20, 2000
61
Independent Auditors Report
To the Board of Directors:
Siliconix incorporated:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Siliconix incorporated for the year
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of Siliconix
incorporated's operations and its cash flows for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/KPMG LLP
Mountain View, California
January 21, 1998
62
EXHIBIT 21
SUBSIDIARIES OF SILICONIX INCORPORATED
Jurisdiction
of Incorporation Percent
Subsidiary or Organization Owned
---------- --------------- -----
1. Siliconix Limited United Kingdom 100%
2. Siliconix (Taiwan) Limited Taiwan 100%
3. Siliconix, Ltd. (Taiwan) Taiwan 100%
4. Siliconix Technology C.V. Netherlands 100%
5. Siliconix Technology B.V. Netherlands 100%
6. Siliconix Semiconductor, Inc. United States (Delaware) 100%
7. Vishay Siliconix, LLC United States (Delaware) 100%
8. Shanghai Simconix Co. Ltd. People's Republic of China 90%
9. Siliconix Israel Israel 100%
63