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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, 2000
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. [ X ]
The aggregate market value of voting stock held by nonaffiliates is
$178,300,000, based upon the closing price for the registrant's Common Stock on
March 22, 2001 ($30-9/16).
The number of shares of the registrant's Common Stock, $0.01 par value,
outstanding at March 22, 2001 was 29,879,040.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Siliconix incorporated 2000 Annual Report to Stockholders are
incorporated into Parts I, II, and IV.
2. Portions of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission in April 2001 pursuant to Section 14 of the
Securities Exchange Act of 1934 in connection with the 2001 Annual Meeting of
Stockholders of Siliconix incorporated are incorporated into 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 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 March 2, 1998,
Daimler-Benz sold the Semiconductor Division of TEMIC, which included its 80.4%
interest in Siliconix, to Vishay Intertechnology, Inc. of Malvern, Pennsylvania
("Vishay"). The Company's products are now marketed with the Siliconix brand
name under the Vishay umbrella. In February 2001, Vishay recommended a proposal
to the Company's Board of Directors to purchase any and all outstanding shares
of the Company not already owned by Vishay. This proposal is currently being
evaluated by a special committee of directors of the Company appointed by the
Board of Directors in March 2001.
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 and
amplify or switch electronics signals or energy. They must be interconnected
with passive components (resistors, capacitors, inductors, etc.) or other active
components 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 largest product line in term of sales. In
this product line, traditionally 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 technology and product packaging. Siliconix extended
its product coverage to the medium voltage (below 200V) spectrum mainly for
fixed telecom (networking, routers, etc.) applications, where product
performance is a very important feature.
Advanced process technologies, such as the Company's "Trench" technology,
offer very high cell density, very low on-resistance and optimized switching
parameters for high frequency DC-DC power conversion. In November 2000,
Siliconix announced the introduction of a breakthrough process innovation with
178 million-cell density achievement.
These process technologies have been coupled with innovative
packaging techniques to create surface mount product families, such as LITTLE
FOOT(R) and LiteFOOT(R) power MOSFETs, that provide customers with size and
2
performance benefits as well as manufacturing compatibility with digital
ICs. The Company's new package innovation PowerPAK(TM) power MOSFETs improve
drastically thermal performance, giving for a footprint area a higher current
capability than other package solutions. This leadless package with ultra thin
height profile combined with bond wireless technology such as PowerConnectTM
brings the best performances such as extreme low Rdson, small size and better
power dissipation. Other package innovations are focused on making the overall
size of the device smaller, and include the introduction of LITTLE FOOT power
MOSFETs in SC-75A and SC-89 packages. These product platforms provide
competitive advantages to the Company's customers with better performance and
smaller form factors for their new product development.
Siliconix Power ICs include power conversion, power interface and motor
control ICs. In 2000, Siliconix introduced a new line of Low Dropout Regulators
(LDOs) to complement its power conversion solutions. 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 balance of the Company's product line includes 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 competitors'
products. The analog switch and multiplexer product family have long been used
in instrumentation and industrial equipment that receives and/or outputs
real-world analog signals. A recent application for this technology is in
broadband communication devices such as xDSL modems.
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.
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 has largely completed, but is still 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 through an
outsourcing arrangement 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 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. As of December 31, 2000, the Company
was not required to make any payment to support FHG's operating expenses.
Raw materials used by the Company include single-crystal silicon wafers,
chemicals, gases, metal wire, and ceramic, plastic and
3
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. Accordingly, certain key
materials are obtained from a limited group of suppliers, some of which are
thinly capitalized independent companies. Difficulties obtaining raw materials
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 with the current owner of a site the Company occupied prior to 1972
for cleanup of soil and ground water at the site, and settled a lawsuit against
its insurance carriers in 1992 and 1993 with respect to this matter. The Company
also established remedial activity to remove soil and groundwater contamination
at its Santa Clara site in 1990. For details on these matters, see Item 3, Legal
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
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
-----------------------
2000 1999 1998
---- ---- ----
North America $128,349 27% $ 98,042 26% $ 78,065 28%
Europe 101,221 21% 78,350 20% 72,168 26%
Japan 50,022 11% 40,007 10% 19,700 7%
Taiwan 58,876 12% 61,983 16% 29,530 10%
Singapore 54,531 12% 38,322 10% 36,425 13%
Asia Pacific 76,300 16% 63,632 17% 45,012 16%
All Other 3,846 1% 2,972 1% 1,446 1%
- ---------------------- -------- -------- -------- -------- -------- --------
$473,145 100% $383,308 100% $282,346 100%
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 representatives. 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 Shelton, Connecticut. Regional sales
offices are located in or near 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.
4
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.
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, 2000, the backlog of orders booked was $117.6 million. The
backlog as of December 31, 1999 was $113.4 million. The Company includes in
backlog only open orders which have been released by the customer for shipment
in the calendar year 2001. 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, due to the recent
slowing of growth in the personal computer and all phone markets, the backlog
for 2001 should be lower than for 2000.
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. However, pricing pressures continue to
be a problem as the economy slows down.
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 $21.0 million in 2000, $17.0 million in 1999 and $17.1 million
in 1998. 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.
5
Patents and Licenses
Siliconix protects its technology leadership by securing patents on
proprietary products and processes. As of December 31, 2000, Siliconix owned 186
U.S. patents, covering primarily semiconductor device structures, processes, and
circuitry. Expiration dates for these patents range from 2001 to 2018. As of
that date, an additional two patents had been allowed but not yet issued. There
were also 18 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.
Employees
In the last three years, the total number of employees has remained
relatively static, with only key positions focused on target growth areas being
added. On December 31, 2000, the Company employed 1,893 people, of whom 720 were
employed in the United States, 1,156 in East Asia, and 17 in Europe. 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
Hamza Yilmaz Executive Vice President
Nick Bacile Executive Vice President
Dr. Owyang, age 55, 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. Yilmaz, age 46, 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 Executive Vice President in
October 1998. Dr. Yilmaz holds B.S., M.S. and Ph.D. degrees in Electrical
Engineering.
Mr. Bacile, age 53, joined the Company in May 1999 as Executive Vice
President of the Siliconix Standard Products Unit. He became Executive Vice
President of the Company in September 2000. Prior to joining the Company, Mr.
Bacile served as Vice President of Marketing for California Micro Devices
Corporation, Milpitas, California, from July 1996 to April 1999. Prior to that,
he served as Vice President of Marketing and R&D at Dynacraft (a National
Semiconductor Company) from June 1990 to May 1996. Mr. Bacile holds a Bachelor
Degree in Electronics.
Item 2. Properties.
The Company owns its principal manufacturing plant and general offices, which
are located in three two-story
6
buildings totaling 220,100 square feet on a 12-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.
In 2000, Simconix began leasing an additional 39,000 square feet from the SIM as
per a previous agreement. The additional space is utilized to accommodate the
Company's need for additional back-end capacity at that location.
Item 3. Legal Proceedings.
In 2000, the Company remained a party to two environmental proceedings. The
first involves 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 has substantially completed its
compliance with the RWQCB's orders.
In February and March 2001, several purported class action complaints were
filed in the Court of Chancery in and for New Castle County, Delaware and the
Superior Court of the State of California against Vishay, the Company, and the
Company's directors in connection with Vishay's announced proposal to purchase
all issued and outstanding shares of the Company not already owned by Vishay.
The class actions, filed on behalf of all non-Vishay Siliconix shareholders,
allege, among other things, that Vishay's proposed offer is unfair and a breach
of fiduciary duty. One of the Delaware class actions also contains derivative
claims against Vishay on behalf of the Company alleging self-dealing and waste
because Vishay purportedly usurped the Company's inventory and patents,
appropriated the Company's separate corporate identity, and obtained a
below-market loan from the Company. The actions seek injunctive relief, damages
and other relief. Vishay and the Company have not yet responded to these
complaints.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
As of March 22, 2001, there were 608 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 1999 and 2000 is incorporated by
reference from the Company's 2000 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 2000 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 2000 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 2000 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 2000 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
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 2001 Annual Stockholders Meeting and filed with the Securities and
Exchange Commission in April 2001 (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.
9
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' Report on the Financial Statements.
The remainder of the Financial Statements are incorporated by reference
from the Company's 2000 Annual Report to Stockholders, portions of which
are filed as Exhibit 13 hereto.
Consolidated Statements of Operations for the years ended December 31,
2000, 1999, and 1998
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
A. Independent Auditors' Report 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.
10
3. Exhibits
3.1 Restated Certificate of Incorporation1
3.2 Certificate of Amendment of Restated Certificate of Incorporation2
3.3 Bylaw3
10.2 One-Year Key Professional Incentive Bonus Plan1
10.5 Amended and Restated License Agreement dated April 10, 1990 between
the Company and International Rectifier Corporation1
10.6 Amendment to Amended and Restated License Agreement dated December 21,
1990 between the Company and International Rectifier Corporation1
10.15 Amendment No. 1 to Siliconix One-Year Key Professional Incentive
Bonus Plan4
10.16 Amendment No. 2 to Siliconix One-Year Key Professional Incentive
Bonus Plan4
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
10.22 Promissory Note from Siliconix incorporated to Vishay
Intertechnology, Inc. in the principal amount of $16,000,000 dated
May 26, 19985
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, 19985
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, 19992
13 Portions of Siliconix incorporated 2000 Annual Report to Stockholders
21 Subsidiaries of the Company2
- ---------------------
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, 1999, filed with the SEC
on March 30, 2000.
3 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.
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.
11
(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, 2000.
12
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, 2000 and 1999 and for each of the years in the three-year period
ended December 31, 2000, and have issued our report thereon dated January 19,
2001 (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 19, 2001
13
SILICONIX INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Revenue End of
of Period Expense Period
- -----------------------------------------------------------------------------------------------------------
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
2000
Allowance for Doubtful Accounts 2,866 1,554 -- -- 4,420
Allowance for Price Adjustments 1,250 -- 6,871 6,421 1,700
Allowance for Returned Parts and 14,254 -- 9,664 11,739 12,179
Distributor Adjustments --
- -----------------------------------------------------------------------------------------------------------
18,370 1,554 16,535 18,160 18,299
- -----------------------------------------------------------------------------------------------------------
14
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 23, 2001
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 23, 2001
King Owyang
Principal Financial and Accounting Officer
/s/ William M. Clancy Principal Accounting Officer March 23, 2001
- ------------------------------
William M. Clancy
/s/ Everett Arndt Director March 23, 2001
- ------------------------------
Everett Arndt
/s/ Lori Lipcaman Director March 23, 2001
- ------------------------------
Lori Lipcaman
/s/ Michael Rosenberg Director March 23, 2001
- ------------------------------
Michael Rosenberg
/s/ Mark B. Segall Director March 23, 2001
- ------------------------------
Mark B. Segall
/s/ Timothy V. Talbert Director March 23, 2001
- ------------------------------
Timothy V. Talbert
/s/ Glyndwr Smith Director March 23, 2001
- ------------------------------
Glyndwr Smith
15
INDEX TO EXHIBITS
Exhibits
--------
3.1 Restated Certificate of Incorporation1
3.2 Certificate of Amendment of Restated Certificate of Incorporation2
3.3 Bylaw3
10.2 One-Year Key Professional Incentive Bonus Plan1
10.5 Amended and Restated License Agreement dated April 10, 1990 between
the Company and International Rectifier Corporation1
10.6 Amendment to Amended and Restated License Agreement dated December 21,
1990 between the Company and International Rectifier Corporation1
10.15 Amendment No. 1 to Siliconix One-Year Key Professional Incentive
Bonus Plan4
10.16 Amendment No. 2 to Siliconix One-Year Key Professional Incentive
Bonus Plan4
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
10.22 Promissory Note from Siliconix incorporated to Vishay
Intertechnology, Inc. in the principal amount of $16,000,000 dated
May 26, 19985
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, 19985
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, 19992
13 Portions of Siliconix incorporated 2000 Annual Report to Stockholders
21 Subsidiaries of the Company2
- ---------------------
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, 1999, filed with the SEC
on March 30, 2000.
3 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.
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.
16
EXHIBIT 13
Financial Highlights
Siliconix incorporated
(In thousands, except per share and employment data) 2000 1999 1998
Net sales $ 473,145 $ 383,308 $ 282,346
Gross profit $ 212,929 $ 158,329 $ 98,016
Research and development expense $ 21,022 $ 16,979 $ 17,110
Selling, marketing, and administrative expense $ 54,251 $ 48,688 $ 55,451
Restructuring expense $ - $ - $ 19,751
Interest expense/(income) $ (5,434) $ 769 $ 2,795
Other expense $ 2,920 $ 646 $ 1,658
Income before income taxes and minority interest $ 139,712 $ 90,791 $ 908
Income taxes $ 31,870 $ 24,453 $ -
Minority interest in income of consolidated $ 237 $ 221 $ 170
subsidiary
Net income $ 107,605 $ 66,117 $ 738
Net income per share (basic and diluted) (1) $ 3.60 $ 2.21 $ 0.02
Total assets $ 503,901 $ 346,678 $ 317,259
Stockholders' equity $ 323,846 $ 216,301 $ 150,140
Year-end worldwide employment 1,893 1,752 1,642
(1) Earnings per share has been adjusted to give effect to the three-for-one
stock split of the Company's common shares in February 2000.
1
Five-year Summary of Selected Financial Data
Siliconix incorporated
(In thousands, except per share and
employment data) 2000 1999 1998 1997 1996
Net sales $473,145 $383,308 $282,346 $321,551 $268,934
Operating income $137,198 $ 92,206 $ 5,361(1) $ 43,980 $ 31,811
Net income $107,605 $ 66,117 $ 738 $ 33,012 $ 25,977
Per share data: (2)
Net income (basic and diluted) $ 3.60 $ 2.21 $ 0.02 $ 1.10 $ 0.87
Shares used to compute basic and
diluted net income
per share 29,879 29,879 29,879 29,879 29,879
Total assets $503,901 $346,678 $317,259 $281,509 $238,669
Capital expenditures $ 67,905 $ 33,835 $ 35,593 $ 40,244 $ 39,511
Total long-term debt, including related $ 1,813 $ 1,700 $ 51,791 $ 38,457 $ 39,429
party
Year-end worldwide employment 1,893 1,752 1,642 1,266 1,228
(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.
Selected Quarterly Financial Data
Siliconix
incorporated
Unaudited
(In thousands, except per share data)
2000 1999
Fourth Third Second First Fourth Third Second First
Net sales $111,605 $126,738 $120,337 $114,465 $110,132 $101,328 $ 90,807 $ 81,041
Gross profit $ 46,777 $ 57,802 $ 54,766 $ 53,584 $ 49,425 $ 42,906 $ 36,025 $ 29,973
Net income $ 23,731 $ 29,339 $ 27,792 $ 26,743 $ 24,368 $ 18,818 $ 13,206 $ 9,725
Net income per share $ 0.79 $ 0.98 $ 0.93 $ 0.90 $ 0.82 $ 0.63 $ 0.44 $ 0.33
(basic and diluted)(1)
(1) Earnings per share has been adjusted to give effect to the three-for-one
split of the Company's common shares in February 2000.
2
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 MOSFETs are low-voltage, surface-mount products
primarily used in the communication, computer, and automotive markets. Power ICs
are integrated circuits used in communication and data storage applications.
Signal Processing products are 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 has largely completed, but is still 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 through an
outsourcing arrangement 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.
During the fourth quarter of 2000, Siliconix began to experience a slowdown in
the business, which resulted in net sales of $111,605,000 compared to net sales
of $126,738,000 in the third quarter 2000. The Company is currently experiencing
a slowdown in bookings due to a downturn in the computer and cell phone handset
markets. Accordingly, the shipments for the year ended December 31, 2001 are
expected to be less than the shipments recorded for the year ended December 31,
2000.
Vishay Intertechnology, Inc. ("Vishay"), a Fortune 1000 Company, owns an 80.4%
interest in the Company. Vishay is a leading 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.
Results of Operations
Year Ended December 31, 2000 compared to Year ended December 31, 1999
Net Sales
Net sales for 2000 were $473.1 million compared to $383.3 million in 1999. The
increase of 23% from the prior year was primarily due to strong sales in North
America and Europe as well as an increase in all other geographic regions.
Although the backlog as of December 31, 2000 remains strong, the Company is
experiencing a slowdown in bookings due to a slowdown in the computer market,
and overly optimistic industry forecasts for the cell phone handset market has
led to excess inventories of handsets. These inventory adjustments, which are in
all product lines, are larger and have lasted longer than anticipated. These
adjustments are now expected to continue into 2001. In 2000, net sales for the
Company increased in every geographic region when compared to 1999. Net sales in
the Asia Pacific region (excluding Japan), North America, Europe and Japan were
16%, 31%, 29%, and 25% higher than 1999, respectively.
3
Gross Profit
Gross profit as a percentage of net sales was 45% in 2000 compared to 41% in
1999. The increase in margins for the year ended December 31, 2000 was mainly
due to economies of scale in manufacturing operations and further productivity
improvements, as well as further advances in technologies. Cost reduction
programs, such as the conversion of the Trench FET product line to the Company's
proprietary 32-million cell process, allowed further migration to the Company's
smaller more profitable products.
Management expects continued pricing pressures throughout the year 2001. In an
effort to preserve the Company's operating results, the Company will continue to
aggressively implement cost reduction programs as well as focus on the
development of new products, which tend to have higher margins.
Research and Development
Research and development expenses were $21.0 million in 2000 as compared to
$17.0 million in 1999, a 24% increase. The Company's research and development
expenditures as a percentage of net sales were 4.4% in 2000 and 1999,
respectively. The increase in research and development expenses in 2000
reflected the Company's continued commitment to the development of new products
and technologies. New product introductions remain critical to the Company's
success. As a result, the Company introduced 119 new products in 2000 compared
to 91 in 1999. In the fourth quarter of 2000, the Company announced a new
standard in Trench silicon technology with our 178 million-cell per square inch
process, which allows performance enhancements for our MOSFETs while also
generating significantly more die per wafer than with the Company's 32-million
cell per square inch process. The Company also introduced a proprietary leadless
Power PAKTM package for space sensitive power applications and unveiled a
proprietary chip-scale power MOSFET packaging technology that will even further
reduce the size of the devices required to manage and convert power in cell
phones and handheld internet appliances. These MICRO FOOTTM devices will allow
designers to obtain the same performance as devices packaged in the standard
TSOP-6 in a footprint that is 70% smaller and with a 50% lower height profile.
These product platforms will be crucial in the current business environment as
these provide competitive advantages to the Company's customers with better
performances and smaller form factors for their new product development.
Selling, Marketing, and Administration
Selling, marketing and administration expenses were $54.3 million in 2000
compared to $48.7 million in 1999. The increase of selling, marketing and
administration expenses in 2000 compared to 1999 was primarily due to increased
sales and marketing spending, consistent with higher revenues and increased new
product introduction. Selling, marketing and administrative expenses, as a
percentage of net sales, decreased to 11.5% in 2000 as compared to 12.7 % in
1999.
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. At
December 31, 1999, 78 employees had been terminated and the Company charged
$17.1 million in cost, of which $10.8 million was paid and $6.3 million was
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. At
December 31, 2000, the restructuring plan was completed.
Interest Expense
Interest income for the year 2000 was $5.4 million compared to interest expense
of $0.8 million in 1999. The Company repaid all of its outstanding loans as of
December 31, 1999 and invested its excess cash during fiscal year 2000. The
Company had invested some of its excess cash ($37 million) with Vishay, to
provide the Company with short-term interest income. The investment with Vishay
had an interest rate of 7.5% and was callable by the Company at any time. This
rate compared favorably to other investment vehicles that offered similar terms
and conditions. All other excess cash not immediately needed to fund the
Company's operations is invested in overnight investment accounts as well as
money market funds. During December 2000, Vishay repaid the $37 million loan to
the Company.
Other Expense, net
Other expense was $2.9 million for the year ended December 31, 2000 compared to
$0.6 million in 1999. The increase in expenses in 2000 compared to 1999 was
mainly due to foreign exchange losses on the Company's assets denominated in
European currencies.
4
Income Tax Expense
Income tax expense for the year ended December 31, 2000 increased by $7.4
million compared to 1999 primarily due to the increase of earnings before tax.
The effective tax rate for the year ended December 31, 2000 was 22.8% as
compared to 26.9% for the prior year. The decrease in the tax rate for the year
ended December 31, 2000 was due to an increase in net earnings in low tax rate
jurisdictions.
Year ended December 31, 1999 compared to Year ended December 31, 1998
Net Sales
Net sales for 1999 were $383.3 million compared to $282.3 million in 1998. 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. In
1999, the Company recovered from the downturn experienced in the semiconductor
industry in 1998 and transitioned to a period of capacity expansion and
investment in advanced technology. Demand for Power MOSFET products in
telecommunication and computer applications, including portable phones,
notebooks and desktop computers 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 its products.
In 1999, net sales in the Asia Pacific region (excluding Japan), North America,
Europe, and Japan were 48%, 26%, 9% and 103% higher than in 1998, respectively.
Net sales 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 the Company's major OEM customers
to shift their manufacturing to this region from North America in order to
leverage the region's lower labor costs.
Gross Profit
Gross profit as a percentage of net sales was 41% in 1999 compared to 35% in
1998. The increase in margins in 1999 was primarily due to 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.
In 1999, the Company continued to experience pricing pressures in its key
markets. While the level of price erosion slowed from the level experienced in
1998, the Company continued to try to preserve its margins by 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 as compared to
$17.1 million in 1998. The Company's research and development expenditures as a
percentage of net sales decreased to 4.4% in 1999 from 6.1% in 1998, primarily
due to the Company's strong sales volume. While research and development
expenditures in absolute were similar to the prior year, the Company was able to
release 91 new products in 1999 compared to 68 in 1998 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
included: the release of the first products utilizing the Company's new
ChipFETTM 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
the Company's 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 its customers will need in their end
applications; and the release of optimized pulse - with modulation MOSFETS for
DC/DC applications allowing for more efficient battery usage. Other significant
accomplishments included the release of our SC70 packaged products and the
establishment of our first offshore design center in the United Kingdom.
Selling, Marketing, and Administration
Selling, marketing, and administration expenses were reduced to $48.7 million in
1999 compared to $55.5 million in 1998. In response to the increasing
competitive business environment, the Company executed its restructuring plan
and implemented certain cost reduction initiatives that reduced the Company's
overall cost structure. As a result, the Company's selling, marketing, and
administration expenses continued to decline, decreasing $6.8 million in 1999
compared to 1998. These expenses declined to 12.7% of net sales in 1999,
compared to 19.6% in 1998.
5
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. Of the
$19.8 million 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
related 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
cost, of which $10.8 million was paid and $6.3 million was 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.
Interest Expense
Interest expense for 1999 decreased 72% 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.
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 was 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 primarily due to
the increase of earnings before tax.
Financial Condition, Liquidity, and Capital Resources
As of December 31, 2000, the Company had $134.3 million in cash and cash
equivalents, compared to $57.9 million in cash and cash equivalents and
short-term note receivable from affiliate at December 31, 1999. The significant
increase from the prior year relates to the Company's strong operating cash
flows driven by its increasing revenues.
Net cash provided by operating activities was $143.8 million in 2000, compared
to $95.4 million in 1999. Accounts receivable increased $11.8 million in 2000 as
a result of higher revenues. In addition, net affiliate payables and receivables
decreased by $2.9 million in 2000 compared to 1999 mainly due to timing of cash
payments to unconsolidated affiliates. Accrued liabilities and contingencies
increased by $10.2 million due to an increase in management incentive programs
and taxes payable.
Inventories increased by $19.0 million for the year ended December 31, 2000 as
compared to the prior year. Raw materials as of December 31, 2000 increased by
$5.9 million from December 31, 1999 as the Company began to increase its
purchases of silicon, piece parts and foundry wafers to support higher
production requirements and to avoid bottlenecks in its supply chain. Work in
process as of December 31, 2000 decreased by $1.4 million from December 31, 1999
due to a decrease in the Company's die bank as a result of increased sales
volume. In light of product shortages and ongoing customer forecasts, the
Company made a strategic decision to build finished goods product ahead of
demand. Therefore, finished goods inventory as of December 31, 2000 increased by
$14.5 million from December 31, 1999.
Net cash used in investing activities was $36.3 million in 2000, compared to
$55.7 million in 1999. Capital expenditures were $67.9 million in 2000 compared
to $33.8 million in 1999, primarily related to additions for plant capacity
expansion, new technology, and regulatory compliance. Capital spending in 2000
substantially exceeded the 1999 level as the Company continued its capacity
expansion plans and invested significantly in 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). During 2000,
the Company had an additional $6 million note receivable from affiliate. This
investment was callable by Siliconix at any time and bore an interest rate of
6.25% per annum. The note receivable from affiliate in total amount of $37.0
million was repaid during December 2000.
Net cash used in financing activities in 1999 includes the repayment by the
Company to Vishay of two loans in the aggregate amount of $50.6 million (see
Note 6 of Notes to Consolidated Financial Statements).
For the next twelve months, management expects that future cash flows from
operations will be sufficient to meet its normal operating requirements and to
fund its research and development and capital expenditure plans.
6
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.
As of the end of March 2000, the Company settled all outstanding foreign
currency forward exchange contracts. As of December 31, 2000, there are no
outstanding foreign currency forward exchange contracts.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This Statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. In July 1999, the
FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date of
SFAS 133 until fiscal years beginning after June 15, 2000. In June 2000, the
FASB issued Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" ("SFAS 138").
SFAS 138 addresses a limited number of issues causing implementation
difficulties for entities applying SFAS 133. We will adopt SFAS No. 133 during
our year ending December 31, 2001. To date, we have not engaged in derivative or
hedging activities. We are unable to predict the impact of adopting SFAS 133 if
we were to engage in derivative and hedging activity in the future.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions involving Stock Compensation - an Interpretation of Accounting
Principles Board (APB) Opinion No. 25" ("FIN 44"). FIN 44 clarifies the
application of APB Opinion No. 25. FIN 44 was effective July 1, 2000. The
adoption of FIN 44 did not have a material effect on our financial position or
results of operations.
Risk Factors
The Company has in the past, and may in the future, make forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements might be expressed by using words such as "estimates,"
"assumes," "expects," and "anticipates," and are subject to risks and
uncertainties, many of which are beyond the Company's control, 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.
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.
7
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, these financial instruments are 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 2000, 1999 or 1998.
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, 2000 and 1999, and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of the
years in the three-year period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
San Jose, California
January 19, 2001
9
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
Siliconix incorporated
Years ended December 31
(In thousands, except per share data) 2000 1999 1998
Net sales $ 473,145 $ 383,308 $ 282,346
Cost of sales 260,216 224,979 184,330
--------- --------- ---------
Gross profit 212,929 158,329 98,016
Operating expenses:
Research and development 21,022 16,979 17,110
Selling, marketing, and administrative 54,251 48,688 55,451
Amortization of goodwill 458 456 343
Restructuring -- -- 19,751
--------- --------- ---------
Operating income 137,198 92,206 5,361
Interest expense (income) (5,434) 769 2,795
Other expense 2,920 646 1,658
--------- --------- ---------
Income before income taxes and minority interest 139,712 90,791 908
Income taxes 31,870 24,453 --
Minority interest in income of consolidated subsidiary 237 221 170
--------- --------- ---------
$ 107,605 $ 66,117 $ 738
========= ========= =========
Net income per share (basic and diluted) $ 3.60 $ 2.21 $ 0.02
Shares used to compute basic and diluted earnings per share 29,879 29,879 29,879
See accompanying Notes to Consolidated Financial Statements
10
BALANCE SHEETS
Siliconix incorporated
As of December 31
(In thousands, except share data) 2000 1999
Assets
Current assets:
Cash and cash equivalents $ 134,265 $ 26,876
Note receivable from affiliate -- 31,000
Accounts receivable, less allowances of $18,299 in 2000 and $18,370
in 1999 61,381 49,631
Accounts receivable from affiliates 26,604 16,128
Inventories 67,384 48,339
Other current assets 14,476 6,023
Deferred income taxes 10,152 10,286
--------- ---------
Total current assets 314,262 188,283
--------- ---------
Property, plant, and equipment, at cost:
Land 1,715 1,715
Buildings and improvements 50,669 48,027
Machinery and equipment 341,271 284,496
--------- ---------
393,655 334,238
Less accumulated depreciation 212,477 184,812
--------- ---------
Net property, plant, and equipment 181,178 149,426
Goodwill 7,903 8,361
Other assets 558 608
========= =========
Total assets $ 503,901 $ 346,678
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 45,441 $ 27,524
Accounts payable to affiliates 33,864 26,244
Accrued payroll and related compensation 10,114 9,998
Accrued restructuring charge -- 2,746
Other accrued liabilities 34,733 24,842
--------- ---------
Total current liabilities 124,152 91,354
--------- ---------
Long-term debt, less current portion 1,813 1,700
Deferred income taxes 50,602 33,999
Minority interest 3,488 3,324
--------- ---------
Total liabilities 180,055 130,377
--------- ---------
Commitment and contingencies
Stockholders' equity
Common stock, par value $0.01; 100,000,000 shares authorized;
29,879,040 shares issued and outstanding in 2000 and 1999 299 299
Additional paid-in-capital 59,362 59,354
Retained earnings 265,007 157,402
Accumulated other comprehensive loss (822) (754)
--------- ---------
Total stockholders' equity 323,846 216,301
--------- ---------
Total liabilities and stockholders' equity $ 503,901 $ 346,678
========= =========
See accompanying Notes to Consolidated Financial Statements
11
STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Siliconix incorporated Number of Common Additional Other Total
Years ended December 31 Common Stock at Paid-in- Retained Comprehensive Stockholders
(In thousands) Shares Par Amount Capital Earnings Income(Loss) Equity
Balances at December 31, 1997 29,879 $ 299 $ 59,283 $ 90,547 $ (579) $ 149,550
Net income -- -- -- 738 -- 738
Currency translation adjustments -- -- -- -- (202) (202)
---------
Comprehensive income 536
Proceeds from sale of restricted common stock -- -- 54 -- -- 54
---------
Balances at December 31, 1998 29,879 299 59,337 91,285 (781) 150,140
Net income -- -- -- 66,117 -- 66,117
Currency translation adjustments -- -- -- -- 27 27
---------
Comprehensive income 66,144
Proceeds from sale of restricted common stock -- -- 17 -- -- 17
---------
Balances at December 31, 1999 29,879 299 59,354 157,402 (754) 216,301
Net income -- -- -- 107,605 -- 107,605
Currency translation adjustments -- -- -- -- (68) (68)
---------
Comprehensive income 107,537
Proceeds from sale of restricted common stock -- -- 8 -- -- 8
---------
Balances at December 31, 2000 29,879 $ 299 $ 59,362 $ 265,007 $ (822) $ 323,846
=========
See accompanying Notes to Consolidated Financial Statements
12
STATEMENTS OF CASH FLOWS
Siliconix incorporated
Years ended December 31
(In thousands) 2000 1999 1998
Cash flows from operating activities:
Net income $ 107,605 $ 66,117 $ 738
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 36,686 32,312 27,379
Deferred income taxes 16,717 19,025 (3,431)
Payment of pension benefits -- (33) (84)
Restructuring (2,746) (2,429) 11,099
Undistributed earnings from joint venture -- -- (970)
Other non-cash expenses 253 642 750
Changes in operating assets and liabilities:
Accounts receivable (11,750) (14,072) 22,586
Accounts receivable from affiliates (10,476) (6,211) (1,676)
Inventories (19,045) 1,082 (5,732)
Other current assets (9,174) 3,286 (909)
Accounts payable 17,917 3,577 (7,799)
Accounts payable to affiliates 7,620 (9,100) 17,865
Accrued liabilities 10,191 1,197 (3,565)
Net cash provided by operating activities 143,798 95,393 56,251
Cash flows from investing activities:
Purchase of property, plant, and equipment (67,905) (33,835) (35,593)
Sale of Asia subsidiaries -- 6,152 --
Cash acquired from purchase of business -- -- 977
Proceeds from sale of property, plant, and equipment 556 2,995 381
(Purchase) sale of other assets -- -- 111
Short-term investment with affiliate (6,000) (31,000) 8,586
Proceeds from short-term investment with affiliate 37,000 -- --
Net cash used in investing activities (36,349) (55,688) (25,538)
Cash flows from financing activities:
Repayment of long-term debt -- (50,570) (3,117)
Proceeds from sale of restricted common stock 8 17 54
Net cash used/provided in financing activities 8 (50,553) (3,063)
Effect of exchange rate changes on cash and cash equivalents (68) 30 (205)
Net increase (decrease) in cash and cash equivalents 107,389 (10,818) 27,445
Cash and cash equivalents:
Beginning of year 26,876 37,694 10,249
End of year $ 134,265 $ 26,876 $ 37,694
Supplemental disclosure of cash flow information:
Interest paid $ 58 $ 1,555 $ 3,370
Income taxes paid $ 15,060 $ 3,559 $ 3,218
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
13
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, 2000.
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. The Company adopted SAB 101 in fiscal year 2000 with no impact on
financial statements.
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, 2000, there are no outstanding
related party note receivables balances.
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.
Inventories are presented using the FIFO method.
Depreciation and amortization Depreciation and amortization are 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 regularly evaluates the appropriateness of the carrying
amount of property, plant and equipment. Depreciation expense was $35,457,000,
$31,706,000, and $26,444,000 for the years ended December 31, 2000, 1999, and
1998, respectively.
Goodwill and Other Intangibles Goodwill and other intangibles are amortized on a
straight-line basis over the periods estimated to be benefited. The Company
continually reviews the recoverability of the carrying value of these assets.
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 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 2000, 1999,
and 1998 was 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 In prior years, the Company has used 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
14
Note 1, continued
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. As of December 31, 2000, the Company
had no outstanding forward exchange contracts.
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 of 80.4% of the
Company 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, 2000, 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 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 prior year amounts have been reclassified to conform
to the current financial statement presentation.
Accounting Pronouncements In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). This Statement
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments imbedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. In July 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133" ("SFAS 137"). SFAS 137 deferred the effective date of SFAS 133 until fiscal
years beginning after June 15, 2000. In June 2000, the FASB issued Statement of
Financial Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" ("SFAS 138"). SFAS 138 addresses a
limited number of issues causing implementation difficulties for entities
applying SFAS 133. We will adopt SFAS 133 during our year ending December 31,
2001. We are unable to predict the impact of adopting SFAS 133 if we were to
engage in derivative and hedging activity in the future.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions involving Stock Compensation - an Interpretation of Accounting
Principles Board (APB) Opinion No. 25" ("FIN 44"). FIN 44 clarifies the
application of APB Opinion
15
Note 1, continued
No. 25. FIN 44 was effective July 1, 2000. The adoption of FIN 44 did not have a
material effect on our financial position or results of operations.
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 environmental 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.
Note 2 - Related Party Transactions
As of March 2, 1998 the Company became a majority owned subsidiary of Vishay.
During 2000 and 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., a wholly owned subsidiary
of Vishay, started its business on May 1, 1999, replacing TEMIC North America, a
wholly owned subsidiary of Siliconix incorporated; Vishay Asia Pacific is a
division of Vishay Asia Pte. Ltd. ("VAPL"), then a wholly owned subsidiary of
the Company; and TEMIC Germany is a division of Vishay Semiconductors. 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 remains
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 2000, 1999, and 1998.
Under the Vishay sales structure, 2000 and 1999 commissions received by the
Company pertaining to the sale of affiliate products in the North America and
Asia Pacific regions were $0 and $2,866,000, respectively. Commissions paid by
the Company in 2000 and 1999 for the North America, Europe, and Asia Pacific
regions were $20,037,000 and $12,819,000, respectively. These commission amounts
are included in selling, marketing, and administrative expenses in the
accompanying statements of operations.
Prior to the acquisition by Vishay, 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. Interest rates on the investment were based on the one
month LIBOR. Interest income earned in 1998 totaled $28,000. The interest income
amount is 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 1998, the Company paid $847,000 for research and development costs to
Daimler-Benz. These amounts are included in research and development expenses in
the accompanying statement of operations.
During 2000, 1999 and 1998, a related party in Itzehoe, Germany ("FHG") was
engaged to provide subcontract services to the Company. The fees for these
services were $22,734,000, 24,206,000 and $35,219,000, respectively. The company
paid operating costs associated with the startup for the Itzehoe facility of
$1,540,000 for 1998. 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. As of December 31, 2000, the
Company was not required to make any payment to support FHG's operating
expenses.
16
Note 2, continued
The Company has 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 2000, 1999 and 1998 the
Company was reimbursed by related parties for $8,241,000, $7,465,000, and
$7,948,000, respectively, for selling and administrative expenses incurred by
the Company on their behalf. During the same periods, the Company reimbursed
related parties $2,226,000, $2,782,000, and $2,293,000, 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 by Vishay. Subsequent to the
acquisition, management fee arrangements have been entered into by the Company
and related parties to cover occupancy and administrative costs. During 2000,
1999, and 1998, management fees received by the Company were $0, $942,000, and
$565,000, respectively, and fees paid by the Company were $1,839,000,
$1,885,000, and $1,389,000, respectively.
Product sales to unconsolidated affiliates were $328,000, $464,000, and
$1,369,000 during 2000, 1999, and 1998, respectively. These amounts are included
in net sales in the accompanying statement of operations.
Long-term debt in 1998 includes two related party promissory notes aggregating
$50,570,000 from Vishay. 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 with DBCI in 1998 was $340,000. These
amounts are included in interest expense in the accompanying statement 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. The Company invested an additional $6.0 million in the first quarter of
2000 with Vishay. This investment was made to provide the Company with
short-term interest income on its excess cash balances. The investment with
Vishay was in the form of a note receivable bearing an interest rate of 7.5% and
was callable by the Company at any time. This rate compared favorably to other
investment vehicles that offered similar terms and conditions. As of the end of
December 2000, the related party promissory note of $37,000,000, together with
the interest thereon, were fully paid.
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 in its consolidated statement of operations as its share of profits for
the first three months of 1998. 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.
17
Note 4 - Inventories
Inventories consisted of the following:
December 31, 2000
(In thousands)
2000 1999
Finished goods $ 23,469 $ 8,976
Work-in-process 32,646 34,015
Raw materials 11,269 5,348
------------ ---------------
$ 67,384 $ 48,339
============ ===============
18
Note 5 - Income Taxes
Earnings before income taxes from foreign operations for the years ended
December 31, 2000, 1999, and 1998 consisted of $87,424,000, $46,289,000 and
$16,316,000, respectively. Income taxes for the years ended December 31, 2000,
1999, and 1998 consisted of the following:
Years ended December 31
(In thousands) 2000 1999 1998
Current:
Federal $ 14,523 $ 5,185 $ 1,908
State and local -- 100 --
Foreign 492 154 1,410
-------- -------- --------
15,015 5,439 3,318
-------- -------- --------
Deferred:
Federal 17,239 18,601 (3,150)
State and local (384) 229 --
Foreign -- 184 (168)
-------- -------- --------
16,855 19,014 (3,318)
-------- -------- --------
$ 31,870 $ 24,453 $ --
======== ======== ========
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) 2000 1999 1998
Computed "expected " tax expense $ 48,816 $ 31,700 $ 318
Change in valuation allowance -- -- 1,608
Foreign income taxable at different tax rate (15,685) (6,554) (1,789)
Income tax benefit attributable to foreign
sales corporation (880) (662) --
State taxes, net of federal benefit (250) 214 --
Business tax credits (512) (361) (217)
Other 381 116 80
-------- -------- --------
$ 31,870 $ 24,453 $ --
======== ======== ========
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) 2000 1999
Deferred tax assets:
Accrued expenses and reserves $ 10,739 $ 10,870
Tax credit carryforwards 2,049 6,740
-------- --------
Total gross deferred tax assets 12,788 17,610
Less valuation allowance -- (1,950)
-------- --------
Net deferred tax assets 12,788 15,660
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation (14,743) (14,098)
Investment in joint venture (2,675) (2,675)
-------- --------
Total gross deferred tax liabilities (17,418) (16,773)
-------- --------
Net deferred tax asset (liability) $ (4,630) $ (1,113)
-------- --------
19
Note 5, continued
At December 31, 2000, the Company had the following carryforwards for tax
purposes:
(In thousands)
Expires
Credits:
California investment credit $ 2,773 2005-2007
California research credit $ 380 No Expiration
The Company has not provided for U.S. federal and state income taxes on $201.2
million of non-U.S. subsidiaries' undistributed earnings as of December 31,
2000, 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 penalties, if any,
have been sufficiently provided for in the financial statements.
Note 6 - Debt Obligations
The Company's debt obligations were as follows:
December 31
(In thousands) 2000 1999
Unfunded retirement costs 1,813 1,700
----- -----
Total debt 1,813 1,700
----- -----
Less current portion -- --
Total long-term borrowings $1,813 $1,700
====== ======
At December 31, 2000, the Company had no related party borrowings.
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. An original
equipment manufacturer (OEM) and a Japanese distributor each accounted for more
than 10% of net sales in 2000, 1999, and 1998. Information in relation to these
two customers is as follows:
Year ended December 31
(In thousands)
OEM Customer 2000 1999 1998
% of net revenue contributed by the OEM customer 11% 15% 11%
Account Receivable Balance as of December 31 $ 4,117 $ 6,108 $ 3,625
Japanese Distributor
% of net revenue contributed by the Japanese distributor 11% 10% 7%
Account Receivable Balance as of December 31 $ 6,242 $ 5,353 $ 3,037
20
Note 7, continued
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:
Year ended December 31
(In thousands)
Net Sales 2000 1999 1998
- ---------
North America $128,349 $ 98,042 $ 78,065
Europe 101,221 78,350 72,168
Japan 50,022 40,007 19,700
Taiwan 58,876 61,983 29,530
Singapore 54,531 38,322 36,425
Asia Pacific 76,300 63,632 45,012
All Other 3,846 2,972 1,446
-------- -------- --------
$473,145 $383,308 $282,346
Long-Lived Assets at December 31
United States $153,585 $115,440 $117,102
All other 36,054 42,955 43,517
-------- -------- --------
$189,639 $158,395 $160,619
21
Note 8 - Leases and Commitments
At December 31, 2000, the future minimum commitments for all non-cancelable
operating leases were as follows:
(In thousands)
2001 $ 974
2002 548
2003 439
2004 26
2005 24
Thereafter 72
----------
Total minimum lease payments $ 2,083
----------
The Company leases land, office facilities, and equipment under operating
leases. Operating lease expenses were $3,362,000, $4,219,000, and $6,252,000 in
2000, 1999, and 1998, respectively.
The Company has 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 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 $5,439,000,
$5,000,000, and $4,463,000 in 2000, 1999, and 1998, respectively. Included in
accrued liabilities are royalties payable of $2,949,000 and $2,855,000 at
December 31, 2000 and 1999, respectively.
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 $7,246,000, $5,982,000, and $845,000 in 2000, 1999, and
1998, 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 $1,115,000, $1,188,000, and $1,064,000, in 2000, 1999, and
1998, 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 Company's accrued pension benefit
related to the plan was $1,813,000 and $1,700,000 at December 31, 2000 and 1999,
respectively.
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, 2000, 1999, and 1998 were 171,549, 179,577, and 196,077,
respectively. There were no shares issued under this plan during 2000, 1999, and
1998. The number of vested shares exercised by employees during 2000, 1999, and
1998 were 8,028, 16,500, and 53,037, respectively, resulting in payments of
$8,189, $16,830, and $54,098, respectively, to the Company which are included in
additional paid-in-capital. During 2000, 1999, and 1998, no vested shares were
sold to the Company.
22
Note 11 - Contingencies
In 2000, the Company was a party to two environmental proceedings. The first
involves 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 has substantially complied 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.
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. Of the
$19.8 million 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
related to the closure of a manufacturing facility, termination of certain
distributors, write down of certain assets and other expenses. At December 31,
2000, the restructuring plan was completed.
Note 13 - Comprehensive Income
The following are the components of comprehensive income (in thousands):
2000 1999 1998
Net income $ 107,605 $ 66,117 $ 738
Foreign currency translation adjustment (68) 27 (202)
Comprehensive income 107,537 66,144 536
The component of accumulated other comprehensive
loss is as follows:
Foreign currency translation adjustment $ (822) $ (754) $ (781)
23
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.
In March 2000, the Company settled all outstanding foreign currency forward
exchange contracts and there were no such contracts as of December 31, 2000.
Note 15 - Subsequent Events (Unaudited)
On February 22, 2001, Vishay announced its proposal to purchase any and all
outstanding shares of common stock of Siliconix Incorporated not already owned
by Vishay at a price of $28.82 per share in cash. This amount (approximately
$169,000,000) would be financed through borrowings under Vishay's revolving line
of credit. The purchase would be made through a tender offer, subject to
customary conditions, in accordance with the rules of the Securities and
Exchange Commission. Vishay also indicated that it might offer to exchange the
Siliconix shares for shares of Vishay's common stock. Depending upon whether the
exchange would be tax free to Siliconix stockholders, Vishay would expect that
the value per share of Siliconix in an exchange offer would be somewhat less
than the cash price.
Vishay also stated that, if it holds at least 90% of the outstanding Siliconix
shares following the completion of the offer, it may effect a "short form"
merger of Siliconix with a Vishay subsidiary. If such a merger takes place
promptly after the offer, the consideration given to the stockholders in the
merger would be the same as the consideration received by tendering stockholders
in the offer.
This proposal is currently being evaluated by a special committee of directors
of Siliconix appointed by the Board of Directors in March 2001.
Following the announcement of Vishay's proposal, several purported class action
complaints were filed against Vishay, Siliconix and the Siliconix directors,
alleging, among other things, that the proposed transaction is unfair and a
breach of fiduciary duty, and seeking, among other things, to enjoin the
transaction. Vishay and the Company have not yet responded to the complaints.
24
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.
2000 1999
High Low High Low
4th Quarter $ 461/2 19 11/16 4th Quarter $ 48 1/3 $ 15 1/12
3rd Quarter 72 3/16 441/4 3rd Quarter 17 3/8 12 1/6
2nd Quarter 953/4 511/2 2nd Quarter 14 1/6 6 1/6
1st Quarter 1441/2 39 3/8 1st Quarter 8 1/12 6 7/12
25