SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes _X_ No___
The aggregate market value of voting stock held by nonaffiliates is
$161,900,000, based upon the closing price for the registrant's Common Stock on
June 28, 2002 ($27.70). There is no non-voting common stock.
The number of shares of the registrant's Common Stock, $0.01 par value,
outstanding at March 27, 2003 was 29,879,040.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Siliconix incorporated 2002 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 2003 pursuant to Section 14 of the
Securities Exchange Act of 1934 in connection with the 2003 Annual Meeting
of Stockholders of Siliconix incorporated are incorporated into Part III.
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, industrial and consumer 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, features 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, features 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. ("Vishay") of Malvern,
Pennsylvania. The Company's products are sold through the Vishay worldwide sales
organization.
Products
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 electronic 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 terms of sales. In
this product line, Siliconix has traditionally 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 introduced a breakthrough process innovation with a density of 178
million cells per square inch.
These process technologies have been coupled with innovative packaging
techniques to create surface mount product families, such as LITTLE FOOT(R)
power MOSFETs, that provide customers with size and performance benefits as well
as manufacturing compatibility with digital ICs. The Company's new package
innovation, PowerPAK(TM) power MOSFETs, drastically improves thermal
performance, giving a higher current capability than other package solutions for
a given footprint. This leadless package with ultra thin height profile combined
with bond wireless technology such as PowerConnectTM allows for desirable
characteristics such as extreme low on-resistance, 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(R) power MOSFETs
in SC-75A and SC-89 packages. These product platforms provide competitive
advantages to the Company's customers by offering better performance and smaller
form factors for 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 lines of products. The Company's power
conversion and
2
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 Company's 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 double-diffused metal oxide transistor (DMOS) processes, which
offer performance advantages over competitors' products. The analog switch and
multiplexer product family has 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. In addition, the Company has ISO 14001 certification for
manufacturing sites in the United States, Germany, Taiwan, and China.
The Company manufactures power products in a Class 1 six-inch wafer
fabrication facility in Santa Clara, California and subcontracts wafer
fabrication through an affiliate in Itzehoe, Germany. The Company completed the
process of transferring its power product technology to a subcontractor in Japan
and production started there in 2001. However, the transfer of the technology is
an on-going process as new technologies are developed. This approach leverages
lower manufacturing costs in certain overseas markets to ensure an adequate
supply of wafers in the future. The manufacturing of wafers for analog switches
and multiplexers is done in Santa Clara and through an outsourcing arrangement
by a foundry in Dresden, Germany. A subcontractor in Beijing, China manufactures
small signal transistors. The Company uses additional fabrication subcontractors
in Taiwan and the United States for selected processes. Assembly and test
facilities include a Company-owned facility in Kaohsiung, Taiwan; a leased
facility in Shanghai, China; and subcontractors in the Philippines, Taiwan,
Israel, China, Thailand and Korea.
In order to secure additional manufacturing capacity, in 1996 the Company,
through an affiliate, entered into an agreement with Fraunhofer Gesellschaft
("FHG"), an institute partially owned by the German government, for the use of
the FHG wafer fabrication facility in Itzehoe, Germany until December 31, 2007.
Under this agreement, the Company is committed to pay for certain operating
costs at the Itzehoe facility, regardless of the extent of actual manufacturing
output, through the expiration of the agreement. In 1999, operating expenses at
this location for which the Company was responsible under the agreement were
approximately $25.0 million. Subsequently, through December 31, 2002, the
Company has not been required to make any additional payment to support FHG's
operating expenses.
Raw materials used by the Company include single-crystal silicon wafers,
chemicals, gases, metal wire, ceramic, plastic and glass-to-metal packages.
Although these materials are generally available from two or more sources, the
Company experiences 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. 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. In addition, it should be
noted that local regulatory agencies are increasingly emphasizing the necessity
for strict compliance with the local environmental, health, and safety
regulations. Although the Company is taking reasonable steps to ensure
compliance with such regulations, it is conceivable that the failure by the
Company to comply with one or more of these regulations could have a material
adverse effect on the Company's financial condition or results of operations.
3
Sales
Since the acquisition by Vishay of a majority interest in the Company, the
Company's products have been sold by the Vishay worldwide sales organization.
The affiliated sales organizations are regionally based, functioning as
undisclosed 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
2002 2001 2000
---- ---- ----
North America $ 51,083 14% $ 50,911 17% $128,349 27%
Europe 42,302 11% 52,323 17% 101,221 21%
Japan 39,282 10% 36,934 12% 50,022 11%
Taiwan 74,582 20% 61,211 20% 58,876 12%
Singapore 44,972 12% 38,688 12% 54,531 12%
Asia-Pacific 118,474 32% 64,298 21% 76,300 16%
All Other 2,249 1% 1,201 1% 3,846 1%
-------- -------- -------- -------- -------- --------
$372,944 100% $305,566 100% $473,145 100%
The Company markets its products in different geographic areas as follows:
North America: Sales are made by Vishay's United States and Canada ("North
American") sales force and the respective sales representatives organizations.
Sales representatives are compensated by commissions. Regional sales directors
coordinate these representatives and the North American sales force. Vishay's
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.
Sales are made directly to original equipment manufacturers and through
distributors at approximately 350 locations throughout the United States and
Canada. The Company provides certain distributors with contracts to protect
inventory against reductions in published prices and against product
obsolescence.
South America: Sales are made by Vishay's North American sales force and
the respective sales representatives organizations. Sales representatives are
compensated by commissions. Regional sales directors coordinate these
representatives and the South American sales force. Vishay's South American
sales office is located in Sao Paulo, Brazil.
Sales are made directly to original equipment manufacturers and through
distributors. The Company provides certain distributors with contracts to
protect inventory against reductions in published prices and against product
obsolescence.
Europe: Sales of the Company's products in Europe are made by Vishay's
European sales force and sales representative organizations. As in North
America, sales are made directly to the original equipment manufacturers and
through distributors, with approximately 125 locations. European distributors
are provided with certain inventory obsolescence and price protections similar
to those granted to United States distributors. Vishay's European headquarters
are in Selb, Germany. Regional sales offices are in Heilbronn and Selb, Germany;
Sunderland, United Kingdom; Paris and Lyon, France; Madrid, Spain; Stockholm,
Sweden; Helsinki, Finland; Milan, Italy; Istanbul, Turkey; Warsaw, Poland; and
Moscow, Russia.
Japan: Sales in Japan are made both by Vishay's Japan sales force and
distributors. Sales representatives are compensated by commissions. Regional
sales offices are located in Tokyo and Osaka.
Asia-Pacific: Sales are made in Hong Kong, Korea, Taiwan, the People's
Republic of China and in Southeast Asia by Vishay's Asia-Pacific sales force.
Vishay's Asian headquarters are in Singapore. Regional sales offices are located
in Singapore; Taipei, Taiwan; Shanghai and Hong Kong, China; Seoul and Puny,
Korea; and Bangalore, India.
In the Asia-Pacific region, 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 on a commission basis. Sales are
4
made directly to original equipment manufacturers and through distributors,
which currently have approximately 75 locations in the region. The distributors
are provided with certain inventory obsolescence and price protections similar
to those granted to distributors in the United States.
Sales in the rest of the world are made through sales representatives,
stocking representatives and distributors.
Order Backlog
As of December 31, 2002, the backlog of orders booked was $62.3 million.
The backlog as of December 31, 2001 was $53.9 million. The Company includes in
the December 31, 2002 backlog only open orders that have been released by the
customer for shipment in the calendar year 2003. The Company's customers
encounter uncertain and changing demand for their products. They typically order
products from the Company based on their forecasts. If demands fall 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, the backlog is not necessarily indicative of the results to be
expected for the following year.
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.
Research and Development
Research and development activities are directed toward expanding the
Company's 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 $19.3 million in 2002, $17.2 million in 2001,
and $21.0 million in 2000. The increase in research and development expenditures
in 2002 as compared to 2001 was due to the Company's continuing commitment and
effort to develop new products and technologies.
Patents and Licenses
The Company has made a significant investment in securing intellectual
property protection for its technology and products. The Company seeks to
protect its technology by, among other things, filing patent applications for
technology considered important to the development of its business. The Company
also relies upon trade secrets, unpatented know-how, continuing technological
innovation and the aggressive pursuit of licensing opportunities to help develop
and maintain its competitive position.
As of December 31, 2002, Siliconix owned 206 U.S. patents, covering
primarily semiconductor device structures, processes, and circuitry. Expiration
dates for these patents range from 2005 to 2020. At December 31, 2002, there
were also 23 U.S. patent applications pending. Foreign counterparts of certain
of these applications have been filed, or may be filed at an appropriate time.
The Company decides on a case-by-case basis whether, and in what countries, it
will file counterparts of a United States patent application outside the United
States. The Company believes that as it increasingly utilizes its patents in the
design and manufacture of its products, its royalty obligations will decrease
significantly. See Note 7 - Leases and Commitments.
The Company's ability to compete effectively with other companies will
depend, in part, on its ability to maintain the proprietary nature of its
technology. Although the Company has been awarded, has filed applications for,
or has been licensed under numerous patents in the United States and other
countries, there can be no assurance concerning the degree of protection
afforded by these patents or the likelihood that pending patents will be issued.
The Company requires all employees and most consultants and other advisors
to execute confidentiality agreements upon the commencement of employment or
consulting relationships with the Company. These agreements provide that all
confidential information developed or made known to the entity or individual
during the course of the entity's or individual's relationship with the Company
is to be kept confidential and not disclosed to third parties except in specific
circumstances. All of the Company's employees have entered into agreements
providing for the assignment of rights to inventions made by them while employed
by the Company.
5
Employees
On December 31, 2002, the Company employed 1,735 people, of whom 621 were
employed in the United States, 1,105 in East Asia, and 9 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 of the Registrant
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
Nick Bacile Executive Vice President
Dr. Owyang, age 57, 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.
Mr. Bacile, age 55, joined the Company in May 1999 as Senior 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. Mr. Bacile holds a Bachelor
Degree in Electronics.
Company Information and Website
The Company files annual, quarterly, and current reports, proxy statements,
and other documents with the Securities and Exchange Commission ("SEC") under
the Securities Exchange Act of 1934 (the "Exchange Act"). The public may read
and copy any materials that the Company filed with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains
reports, proxy and information statements, and other information regarding
issuers, including the Company, that file electronically with the SEC. The
public can obtain any documents that the Company filed with the SEC at
http://www.sec.gov.
In addition, the Company's website can be found on the Internet at
http://www.siliconix.com. The website contains information about the Company and
its operations. Copies of each of the Company's filings with the SEC on Form
10-K, Form 10-Q and Form 8-K, and all amendments to those reports, can be viewed
free of charge as soon as reasonably practicable after the reports and
amendments are electronically filed with or furnished to the SEC by accessing
http://www.siliconix.com and clicking on Siliconix financial info, then SEC
Filings.
Any of the above documents can also be obtained in print by any shareholder
who requests them from the Company's Investor Relations Department at the
following address:
Siliconix incorporated
2201 Laurelwood Road
Santa Clara, CA 95054
Item 2. Properties.
The Company owns its principal manufacturing plant and general offices,
which are located in three two-story 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-
6
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 80,000 square feet of manufacturing
and general office space in Shanghai from the SIM.
Item 3. Legal Proceedings.
As of December 31, 2002, 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 complied 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 Intertechnology, Inc.
("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, alleged, among other things, that Vishay's
proposed offer was unfair and a breach of fiduciary duty. One of the Delaware
class actions also contained 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.
In May 2001, the Delaware Court of Chancery consolidated the several class
action complaints described above. On or about May 31, 2001, lead plaintiff
Fitzgerald served an amended complaint, an application for a preliminary
injunction against proceeding with or taking steps to give effect to Vishay's
proposed tender offer or the contemplated short-form merger, and a motion to
expedite proceedings and additional discovery requests. In addition to his prior
allegations, plaintiff claimed, among other things, that in connection with the
proposed offer and short-form merger, defendants allegedly violated (i) their
duty to deal fairly from a timing and process perspective with the minority
shareholders of Siliconix, (ii) their duties of loyalty and candor, and (iii)
Vishay's obligations to pay a fair price to the Siliconix minority shareholders.
Following expedited discovery and briefing, on June 19, 2001, the Delaware Court
of Chancery issued its order denying Fitzgerald's motion for a preliminary
injunction. The Court found that Fitzgerald had not succeeded in demonstrating
that he had a reasonable probability of success on the merits of his claims. The
Company and Vishay filed motions to dismiss the verified amended complaint on
June 6, 2001. Vishay filed a motion for summary judgment on June 25, 2001. On
December 18, 2002, based largely on the June 2001 Delaware Court of Chancery
ruling, the case was dismissed without prejudice.
On July 3, 2001, the California Superior Court entered an order staying the
California state-court actions that had been filed against the Company and
Vishay in connection with Vishay's earlier proposal.
On April 25, 2001, the Company initiated a lawsuit against General
Semiconductor, Inc. In its complaint, the Company asserted that General
Semiconductor was infringing United States Letters Patent Nos. 5,072,266 and
5,298,442 relating to certain power MOSFET products. General Semiconductor
denied the material allegations in the Company's complaint and asserted various
affirmative defenses. General Semiconductor also asserted counterclaims for
patent misuse and unfair competition, seeking a declaratory judgment of
non-infringement, invalidity and/or unenforceability, and seeking injunctive
relief, damages, attorneys' fees and costs. The Company did not respond to those
counterclaims. On November 2, 2001, General Semiconductor was acquired by
Vishay, which owns 80.4% of the Company. The lawsuit was settled in the third
quarter of 2002.
On November 2, 1999, the Company initiated a lawsuit against Fairchild
Semiconductor Corporation. In its complaint, the Company asserted claims that
Fairchild is infringing United States Letters Patent Nos. 5,072,266 and
5,298,442 relating to certain power MOSFET products. Fairchild denied the
material allegations in the Company's complaint and asserted various affirmative
7
defenses. On July 24, 2002, the Company and Fairchild Semiconductor
International, Inc., announced a settlement on mutually agreeable terms. The
settlement was reached due to the parties' desire to establish a long-term
cooperative business relationship and to avoid future litigation. As part of the
settlement, the Company granted Fairchild a license to the two patents. The
specific terms of the license and other details of the settlement are
confidential.
The Company is engaged in discussions with various parties regarding patent
licensing and cross patent licensing issues. In addition, the Company has
observed that in the current semiconductor industry business environment,
companies have become more aggressive in asserting and defending patent claims
against competitors. While the Company will continue to vigorously defend its
intellectual property rights, the Company may become party to disputes regarding
patent licensing and cross patent licensing. An unfavorable outcome regarding
one of these matters could have a material adverse effect on the Company's
business and operating results.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of March 27, 2003, there were 561 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.
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.
2002 2001
High Low High Low
4th Quarter $ 30.00 $ 17.89 4th Quarter $ 29.41 $ 20.70
3rd Quarter 28.59 16.61 3rd Quarter 32.70 19.96
2nd Quarter 35.80 26.90 2nd Quarter 36.80 28.44
1st Quarter 32.09 25.89 1st Quarter 32.38 21.25
Item 6. Selected Financial Data.
The following selected historical information has been derived from the
audited financial statements of the Company. The financial information as of
December 31, 2002 and 2001 and for each of the three years in the period ended
December 31, 2002 are derived from audited financial statements and are included
elsewhere in this Form 10-K. The table should be read in conjunction with Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8, Financial Statements and Supplementary Data.
2002 2001 2000 1999 1998
Net sales $ 372,944 $ 305,556 $473,145 $ 383,308 $ 282,346
Operating income $ 53,983 $ 14,712 $137,198 $ 92,206 $ 5,361(1)
Net income $ 46,156 $ 15,095 $107,605 $ 66,117 $ 738
Net income per share (basic and diluted) $ 1.54 $ 0.51 $ 3.60 $ 2.21 $ 0.02
Shares used to compute basic and diluted net
income per share 29,879 29,879 29,879 29,879 29,879
Total assets $ 518,035 $ 475,798 $503,901 $ 346,678 $ 317,259
Capital expenditures $ 22,443 $ 29,462 $ 67,905 $ 33,835 $ 35,593
Total long-term debt, including related party $ 2,708 $ 2,001 $ 1,813 $ 1,700 $ 51,791
Year-end worldwide employment 1,735 1,631 1,893 1,752 1,642
(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.
Item 7. Management's Discussion and 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
9
materially from those stated or implied. Siliconix incorporated assumes no
obligation 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, as well
as other industrial and consumer applications. Power ICs are integrated circuits
used in communication and data storage applications. The 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 fabrication
facility in Santa Clara, California and subcontracts wafer fabrication through
an affiliate in Itzehoe, Germany. The Company completed the process of
transferring its power product technology to a subcontractor in Japan and
production started there in 2001. However, the transfer of the technology is an
on-going process as new technologies are developed. This approach leverages
lower manufacturing costs in certain overseas markets to ensure an adequate
supply of wafers in the future. The manufacturing of wafers for analog switches
and multiplexers is done in Santa Clara and through an outsourcing arrangement
by a foundry in Dresden, Germany. A subcontractor in Beijing, China manufactures
small signal transistors. The Company uses additional fabrication subcontractors
in Taiwan and the United States for selected processes. Assembly and test
facilities include a Company-owned facility in Kaohsiung, Taiwan; a leased
facility in Shanghai, China; and subcontractors in the Philippines, Taiwan,
Israel, China, Thailand and Korea.
Vishay Intertechnology, Inc. ("Vishay") owns an 80.4% interest in the Company.
Vishay, a Fortune 1,000 Company listed on the NYSE, is one of the world's
largest manufacturers of discrete semiconductors (diodes, rectifiers,
transistors, optoelectronics, and selected ICs) and passive electronic
components (resistors, capacitors, inductors, and transducers). The Company's
components can be found in products manufactured in a very broad range of
industries worldwide. Vishay is headquartered in Malvern, Pennsylvania, and has
plants in sixteen countries employing over 25,000 people.
The Company's products are sold by the Vishay worldwide sales organizations that
operate as three regionally-based legal entities. The three regions consist of
North America, Europe and Asia. The aim of the Vishay sales structure is to
unify the activities of the member companies, provide efficiencies by
eliminating the duplications of many functions, and bring greater value to end
customers by allowing them to deal with one entity for their semiconductor
purchasing needs. Vishay sales organizations function as undisclosed agents of
the Company, through commission arrangements at a fixed percentage of sales made
in each region for all sales related functions; however, the ownership of all
sales, accounts receivable, inventory, and risk of loss remains with Siliconix,
with the exception of the North America region. Effective from January 2001,
Vishay Americas Inc., a wholly owned subsidiary of Vishay, assumed
responsibility for collecting the Company's accounts receivable for the North
America region. Accounts receivable ownership for North America region sales is
transferred to Vishay Americas Inc. at the gross amount as soon as sales
invoices are generated. Vishay Americas Inc. is compensated for accounts
receivable collection through a commission arrangement at a fixed percentage of
sales.
Critical Accounting Policies
The following are the Company's critical accounting policies:
Revenue recognition
The Company records revenues at the time that it ships products to its
customers. Many of its shipments are to distributors, who purchase for resale to
end-users. The distributors have certain limited rights to return products. They
are also entitled to certain price protection benefits, which give them credit
for unsold products that they continue to hold in inventory when the Company
reduces its book prices for these items. At the time the Company records sales
to these distributors, the Company also recognizes allowances against net sales
for estimated product returns and price protection. To estimate these
allowances, the Company reviews historical returns and price adjustments on both
a consolidated level and on an individual distributor level as well as the
general business and economic climate. These procedures require the exercise of
significant judgments and they enable the Company to estimate reasonably future
credits for returns and price adjustments.
Accounts Receivable
10
The Company's receivables represent a significant portion of its current assets.
The Company is required to estimate the collectability of its receivables and to
establish allowances for the amount of receivables that will prove
uncollectible. The Company bases these allowances on its historical collection
experience, the length of time the receivables are outstanding, the financial
circumstances of individual customers, and general business and economic
conditions.
Inventories
The Company values its inventories at the lower of cost or market, with cost
determined under the first-in first-out method and market based upon net
realizable value. The valuation of its inventories requires management to make
market estimates. 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.
Results of Operations
Year ended December 31, 2002 compared to Year ended December 31, 2001
Net Sales
Net sales for 2002 were $372.9 million compared to $305.6 million in 2001. A
significant factor in the increase of 22% from the prior year was a shift from
single-function cellular phones to feature-rich phones with multiple functions
(i.e. digital camera, internet, email, etc.). This trend works to the Company's
advantage, as more of the Company's components are required for these more
complex telephones. The improvement in market conditions, which began in the
fourth quarter of 2001 and continued into the second quarter of 2002, slowed in
the third and fourth quarter of 2002. During 2002, increase in demand
contributed to the Company's sales growth; however, the Company continued to
experience a reduction in the average selling price from 2001 caused by the slow
economy. The allowances for price adjustments, returned parts and distributor
adjustments as a percentage of net sales were 4% and 5% in 2002 and 2001,
respectively. Distributors utilized their maximum scrap allowance during 2002.
The Company has not seen signs of a major recovery in its primary strategic
markets, portable computers and cellular telephones. The computer market is
still consumer-driven and corporate spending remains slow. With the uncertainty
in the economy, corporations continue to be hesitant to make significant capital
expenditures in the area of IT. While the Company expects that corporate
spending in this market will resume, the Company is unable to predict when. The
Company remains vigilant and conservative in managing its resources. Customers
continue to place orders for the near term as they control their inventory.
Gross Profit
Gross profit as a percentage of net sales was 31% in 2002 compared to 25% in
2001. An improved product mix, continuing cost reduction programs and more
efficient capacity utilization mitigated ongoing pricing pressures. During 2002,
the Company's capacity utilization improved considerably compared to 2001. In an
effort to improve the Company's operating results, the Company will continue to
focus aggressively on the development of new products that tend to have higher
margins. The sales of products with above average margins increased by 67% in
2002 compared to 2001.
Research and Development
Research and development expenses were $19.3 million in 2002 as compared to
$17.2 million in 2001, a 12% increase as a result of the Company's effort and
focus on developing new products and technologies. The Company's research and
development expenditures as a percentage of net sales were 5% and 6% in 2002 and
2001, respectively. The decrease in research and development expenses in 2002 as
a percentage of net sales reflects the Company's continuing efforts to balance
its plans for new product introductions against the need to reduce overhead in
the current challenging business environment. The Company believes it is
critical to continue making investments in research and development to ensure
the availability of innovative technology that meets both current and future
requirements of the Company's customers. New product introductions remain
critical to the Company's success. The Company introduced 127 new products in
2002.
Selling, Marketing, and Administration
Selling, marketing and administration expenses were $41.9 million in 2002
compared to $42.8 million in 2001. The Company's selling, marketing and
administration expenses as a percentage of net sales were 11% and 14% in 2002
and 2001, respectively. The
11
decrease of selling, marketing and administration expenses in 2002 compared to
2001 was primarily due to the Company's cost control programs.
Amortization of Goodwill
Goodwill is amortized on a straight-line basis over 20 years. Amortization of
goodwill in 2002 and 2001 was $0 and $458,000, respectively. As of December 31,
2001, accumulated goodwill amortization was $1.7 million and the net book value
of goodwill was $7.4 million. The Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (Statement
142) in January 2002. Accordingly, goodwill deemed to have an indefinite life is
no longer amortized but is subject to an annual impairment test. As a result of
not amortizing goodwill in 2002, operating income increased by $458,000. During
2002, the Company performed an impairment test of the goodwill and determined no
impairment related to goodwill.
Interest Income
Interest income for the year 2002 was $3.0 million as compared to $5.8 million
in 2001. The decrease of interest income in 2002 compared to 2001 was primarily
due to lower interest rates. The average interest rate earned by the Company
reduced to 1.6% in 2002 as compared to 4.6% in 2001. During December 2002, the
Company had invested $75 million of excess cash with Vishay to provide the
Company with short-term interest income at a higher interest rate. The
investment with Vishay had an interest rate of 3.025% 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 money market funds. On
January 2, 2003, Vishay repaid the $75 million to the Company.
Other Expense (Income)
Other expense (income) was $2.4 million of income for the year ended December
31, 2002 compared to $0.5 million of expense in 2001. The increase in other
income in 2002 as compared to 2001 was primarily due to foreign exchange gains
on the Company's assets denominated in European and Asian currencies. The
Company received $0.8 million and $1.4 million in 2002 and 2001, respectively,
from the Chinese government as an incentive for being a foreign partner in China
through Simconix, the Company's 95% owned subsidiary.
Income Tax Expense
Income tax expense for the year ended December 31, 2002 increased by $8.2
million as compared to 2001, primarily due to the increase in earnings before
tax. The effective tax rate for the year ended December 31, 2002 was 21.9% as
compared to 23.7% for the year ended December 31, 2001. The reduced tax rate for
2002 was primarily due to a reduction in interest income that was subject to tax
at a higher rate.
Year Ended December 31, 2001 compared to Year ended December 31, 2000
Net Sales
Net sales for 2001 were $305.6 million compared to $473.1 million in 2000. The
decrease of 35% from the prior year was primarily due to the downturn in the
computer and cellular phone handset markets which resulted in reduced demand for
the Company's products, and overly optimistic industry forecasts for the cell
phone handset market which led to excess handset inventories. The allowances for
price adjustments, returned parts and distributor adjustments as a percentage of
net sales were 5% and 3% in 2001 and 2000, respectively. The increase was
primarily due to increased credits granted to distributors for price adjustments
as a function of market conditions. Distributors utilized their maximum stock
rotation allowance during 2001 due to the slowdown in the market. The Company's
book-to-bill ratio started to improve in the third quarter of 2001, however, and
bookings increased in absolute dollars as well. Much of the improvement in the
Company's bookings was due to the Pentium 4 rollout and demand increases for
components in cell phones. Order rates also improved and cancellations and
reschedules decreased during the third and fourth quarter of 2001. In addition,
the Company's turns business (that is, orders that are shippable within the same
quarter) grew from 3.12 in the third quarter of 2001 to 3.88 in the fourth
quarter of 2001.
Gross Profit
Gross profit as a percentage of net sales was 25% in 2001 compared to 45% in
2000. The decrease in margins for the year ended December 31, 2001 was mainly
due to manufacturing overhead in excess of that required to support the reduced
demand as well as pricing pressures caused by excess industry capacity. As a
result of pricing pressure, the Company reviewed and adjusted prices
12
periodically, and credits granted to the distributors for price adjustments
directly impacted the Company's gross margin. The Company took action to reduce
manufacturing output in light of the reduced demand during the year. The Company
reduced its inventory level by reducing production outputs, which involved
increased shutdown schedules. In an effort to improve the Company's operating
results, the Company will continue to focus aggressively on the development of
new products that tend to have higher margins.
Research and Development
Research and development expenses were $17.2 million in 2001 as compared to
$21.0 million in 2000, an 18% decrease as a result of reduced personnel costs
resulting from lower headcount and savings in other associated costs. The
Company's research and development expenditures as a percentage of net sales
were 6% and 4% in 2001 and 2000 respectively. The increase in research and
development expenses in 2001 as a percentage of net sales reflected the
Company's continued commitment to the development of new products and
technologies. The Company believes it is critical to continue making investments
in research and development to ensure the availability of innovative technology
that meets both current and future requirements of the Company's customers. New
product introductions remain critical to the Company's success. As a result, the
Company introduced 130 new products in 2001 compared to 119 in 2000.
Selling, Marketing, and Administration
Selling, marketing and administration expenses were $42.8 million in 2001
compared to $54.3 million in 2000. The decrease of selling, marketing and
administration expenses in 2001 compared to 2000 was primarily due to lower
commission expense as a result of decreased revenues as well as the Company's
efforts to control costs as a result of the downturn in the computer and
cellular phone handset markets. The Company reduced 5% of its workforce in 2001,
which included 17 employees in North America, 33 employees in Asia Pacific, and
1 employee in Europe. The total cost incurred for the workforce reduction was
$1.8 million and was recorded in selling, general and administrative expenses.
Amortization of Goodwill
The Company recorded goodwill of $9.2 million in connection with the acquisition
of an additional 40% ownership interest of Simconix in 1998. The goodwill was
amortized on a straight-line basis over 20 years. Amortization of goodwill in
both 2001 and 2000 was $458,000. As of December 31, 2001, accumulated goodwill
amortization was $1.7 million and the net book value of goodwill was $7.4
million.
Interest Income
Interest income for the year 2001 was $5.8 million as compared to $5.4 million
in 2000. The Company invested cash, not currently needed to fund the Company's
operations, in overnight investment accounts as well as money market funds. The
Company has increased its cash balance year over year; however, due to interest
rate reductions, interest income did not increase during year 2001 over year
2000 as much as the increase in cash.
Other Expense (Income)
Other expense (income) was $0.5 million of expense for the year ended December
31, 2001 compared to $2.9 million of expense for the year ended December 31,
2000. The decrease in other expense (income) in 2001 as compared to 2000 was
primarily due to reduction in foreign exchange losses on the Company's assets
denominated in European and Asian currencies. In addition, in the second quarter
of 2001, the Company received $800,000 from the Chinese government as a result
of its reinvestment of $10 million retained earnings in Simconix, the Company's
95% owned subsidiary.
Income Tax Expense
Income tax expense for the year ended December 31, 2001 decreased by $27.1
million as compared to 2000, primarily due to the decrease in earnings before
tax. The effective tax rate for the year ended December 31, 2001 was 23.7% as
compared to 22.8% for the year ended December 31, 2000.
Financial Condition, Liquidity, and Capital Resources
As of December 31, 2002, the Company had $212.1 million in cash, cash
equivalents and short-term note receivable from affiliate, compared to $167.2
million in cash and cash equivalents at December 31, 2001. The increase was
primarily due to the reduction in
13
capital expenditures and strong cash flows driven by increasing revenue and
earnings. The cash balance of $137.1 million as of December 31, 2002 was mostly
invested in money markets overseas. The Company's cash and profits are expected
to be reinvested indefinitely. Any repatriation of earnings and cash back to the
United States would be deemed to be a dividend and would be subject to U.S.
income taxes, state income taxes, and any withholding taxes payable.
Net cash provided by operating activities was $67.3 million in 2002, as compared
to $62.3 million in 2001. Accounts receivable increased by $8.7 million in 2002
as a result of higher revenues. In addition, the excess of affiliate receivables
over affiliate payables increased by $27.0 million in 2002 compared to 2001
mainly due to timely cash settlement with unconsolidated affiliates. Accrued
liabilities and contingencies increased by $13.2 million due to an increase in
management incentive programs and taxes payable.
Inventories increased by $5.3 million for the year ended December 31, 2002 as
compared to the prior year. Raw materials as of December 31, 2002 increased by
$0.6 million from December 31, 2001 as the Company increased its purchase of
silicon, piece parts, and foundry wafers as a result of increased demand. Work
in process as of December 31, 2002 increased by $5.6 million from December 31,
2001 as a result of an increase in production levels. Finished goods inventory
as of December 31, 2002 decreased by $0.9 million from December 31, 2001.
Net cash used in investing activities was $97.4 million in 2002, compared to
$29.4 million in 2001. Capital expenditures were $22.4 million in 2002 compared
to $29.5 million in 2001, primarily related to new technology. Capital spending
in 2002 was less than the 2001 level as the Company slowed down its capacity
expansion plans due to the uncertainty of market condition; however, the Company
invested significantly in its next generation products and technologies. In
December 2002, the Company received a related party promissory note for $75
million from Vishay, which was callable by the Company at any time and bore an
interest rate of 3.025%. As of December 31, 2002, the entire related-party
promissory note was outstanding. The promissory note was fully repaid on January
2, 2003.
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.
Commitments
As of December 31, 2002, the Company had contractual obligations in the form of
non-cancelable operating leases. These are described in further detail in Note 7
- - Leases and Commitments.
Payments Due by Period
Less than 1 - 3 4 - 5 After 5
(In thousands) Total 1 year years years years
-------------------------------------------------------------------
Operating Leases $1,606 $1,325 $214 $17 $50
-------------------------------------------------------------------
Total contractual cash obligations $1,606 $1,325 $214 $17 $50
-------------------------------------------------------------------
In order to secure additional manufacturing capacity, in 1996 the Company,
through an affiliate, entered into an agreement with Fraunhofer Gesellschaft
("FHG"), an institute partially owned by the German government, for the use of
the FHG wafer fabrication facility in Itzehoe, Germany until December 31, 2007.
Under this agreement, the Company is committed to pay for certain operating
costs at the Itzehoe facility, regardless of the extent of actual manufacturing
output, through the expiration of the agreement. In 1999, operating expenses at
this location for which the Company was responsible under the agreement were
approximately $25.0 million. Subsequently, through December 31, 2002, the
Company has not been required to make any additional payment to support FHG's
operating expenses.
Foreign Currency Forward Exchange Contracts
As of the end of March 2000, the Company settled all outstanding foreign
currency forward exchange contracts. As of December 31, 2002 and 2001, there
were no outstanding foreign currency forward exchange contracts.
Recent Accounting Pronouncements
In November 2002, the Emerging Issues Task Force (EITF) issued EITF Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables", which provides
guidance on the timing and method of revenue recognition for sales arrangements
that include the
14
delivery of more than one product or service. EITF 00-21 is effective
prospectively for arrangements entered into in fiscal periods beginning after
June 15, 2003. The Company does not expect that the adoption of EITF 00-21 will
have a significant impact on its consolidated financial statements.
In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(Statement No. 146). Statement No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". Statement No. 146 states
that a liability for a cost associated with an exit or disposal activity shall
be recognized and measured initially at its fair value in the period in which
the liability is incurred, except for a liability for one-time termination
benefits that are incurred over a period of time. The standard will apply to the
Company effective for exit or disposal activities initiated after December 31,
2002. The Company does not believe there will be a material effect on its
financial condition or results of operations from the adoption of this new
standard.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34". FIN
45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies",
relating to the guarantor's accounting for, and disclosure of, the issuance of
certain types of guarantees. The disclosure provisions of FIN 45 are effective
for financial statements of periods that end after December 15, 2002. However,
the provisions for initial recognition and measurement are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002. The Company has no guarantees of indebtedness that would be affected by
FIN 45. FIN 45 also incorporates accounting for indemnities given in connection
with licensing of intellectual property and the Company is still assessing the
potential impact this may have on its future results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003 to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. FIN 46 applies to public enterprises as of the
beginning of the applicable interim or annual period. The Company does not
believe there will be a material effect on its financial condition or results of
operations from the adoption of the provisions of FIN 46.
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. A material portion of the Company's revenues has recently been
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 that in turn could
have a materially adverse effect on the Company's consolidated financial
position and results of operations.
15
Political and Economic Considerations
In recent years, a large and increasing portion of the Company's net sales,
operating profits, manufacturing production, and growth has 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.
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 requirements 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. Further, the
Company has observed that in the current semiconductor industry business
environment, companies have become more aggressive in asserting and
defending patent claims against competitors. While the Company will
continue to vigorously defend its intellectual property rights, the Company
may become party to disputes regarding patent licensing and cross patent
licensing. 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 a material adverse effect
on the Company's business and operating results.
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 of the Company's
investment portfolio, an immediate 10 percent increase in interest rates
will not have a material effect on the Company's near-term financial
condition or results of operations. 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 2002, 2001 or 2000.
Environmental Regulations
To date, the Company's compliance with federal, state and local laws or
regulations that have been enacted to regulate the environment has not had
a material adverse effect on the Company's capital expenditures, earnings,
or competitive or financial position. For more information, see Item 3,
"Legal Proceedings" and Note 10, "Contingencies" in the Consolidated
Financial Statements. However, the Company could be subject to fines,
suspension of production, alteration of its manufacturing processes, or
even cessation of its operations if it fails to comply with present or
future government regulations related to the use, storage, handling,
discharge, or disposal of toxic, volatile or otherwise hazardous chemicals
used in its manufacturing processes.
Earthquakes
The Company's principal manufacturing facility and executive offices are
located in Santa Clara, California. A number of earthquakes have occurred
in this region, some of them severe. No material retrofitting is required
to bring the buildings comprising the Santa Clara facility into compliance
with current applicable seismic codes. No assurance can be given, however,
16
that in the event of a major earthquake, the resulting damage
would not materially impact or even interrupt the Company's production,
either of which could materially adversely affect the Company's financial
condition and results of operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
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 of the Company's investment portfolio, an immediate
10 percent increase in interest rates will not have a material effect on the
Company's near-term financial condition or results of operations. 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 2002, 2001 or 2000.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the report of independent auditors
thereon, are set forth in Exhibit 13 hereto. This Annual Report on Form 10-K
will be mailed to Stockholders with the Company's Annual Report to Stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
17
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 2003 Annual Stockholders Meeting and filed with the Securities and
Exchange Commission in April 2003 (the "Proxy Statement"). Further information
regarding the directors is incorporated by reference from the "Compliance with
Section 16 of the Securities Exchange Act of 1934" section of 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 and
Related Stockholder Matters.
Incorporated by reference from the "Security Ownership" section of the
Proxy Statement.
The Company does not have any equity compensation plans.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference from the "Certain Relationships and Related
Transactions" section of the Proxy Statement.
Item 14. Controls and Procedures.
An evaluation was performed as of a date within 90 days prior to the filing
date of this Annual Report on Form 10-K, under the supervision of and with the
participation of the Company's management including the CEO and Principal
Accounting Officer (PAO), of the effectiveness of the design and operation of
the Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the CEO and PAO, have concluded that the
Company's disclosure controls and procedures are effective in ensuring that all
material information required to be filed in this Annual Report has been made
known to them in a timely fashion. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to the date management completed their evaluation.
18
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents Filed as Part of Form 10-K
1. Financial Statements
The Consolidated Financial Statements are set forth in Exhibit 13
hereto. This Annual Report on Form 10-K will be mailed to Stockholders
with the Company Annual Report to Stockholders
Independent Auditors Report on the Financial Statements
Consolidated Statements of Income for the years ended December 31,
2002, 2001 and 2000
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001 and 2000
Notes to Consolidated Financial Statements
2. 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.
19
3. Exhibits
3.1 Restated Certificate of Incorporation(1)
3.2 Certificate of Amendment of Restated Certificate of
Incorporation(2)
3.3 Bylaws(3)
10.2 One-Year Key Professional Incentive Bonus Plan(1)
10.5 Amended and Restated License Agreement dated April 10, 1990
between the Company and International Rectifier Corporation(1)
10.6 Amendment to Amended and Restated License Agreement dated
December 21, 1990 between the Company and International
Rectifier Corporation(1)
10.15 Amendment No. 1 to Siliconix One-Year Key Professional
Incentive Bonus Plan(4)
10.16 Amendment No. 2 to Siliconix One-Year Key Professional
Incentive Bonus Plan(4)
13 Portions of Siliconix incorporated 2002 Annual Report to
Stockholders
21 Subsidiaries of the Company
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
President and Chief Executive Officer
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
Principal Accounting Officer
- --------------------------------------------------------
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 Current Report on
Form 8-K, filed with the SEC on June 1, 2001.
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.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K in the fourth quarter of
the year ended December 31, 2002.
20
SILICONIX INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Deductions (2) Balance at
Beginning of Costs and Revenue (1) End of Period
Period Expense
- --------------------------------------------------------------------------------------------------------------------
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
distributor adjustments 14,254 - 9,664 11,739 12,179
- --------------------------------------------------------------------------------------------------------------------
18,370 1,554 16,535 18,160 18,299
2001
Allowance for Doubtful Accounts 4,420 - - 1,976 2,444
Allowance for Price Adjustments 1,700 - 9,776 9,107 2,369
Allowance for Returned Parts and
distributor adjustments 12,179 - 18,368 16,370 14,177
- --------------------------------------------------------------------------------------------------------------------
18,299 - 28,144 27,453 18,990
2002
Allowance for Doubtful Accounts 2,444 (862) - - 1,582
Allowance for Price Adjustments 2,369 - 31,057 22,532 10,894
Allowance for Returned Parts and
distributor adjustments 14,177 - 1,193 9,987 5,383
- --------------------------------------------------------------------------------------------------------------------
18,990 (862) 32,250 32,519 17,859
(1) Represents reserves made for price adjustments, returned parts and
distributor adjustments that are provided for as a part of the Company's
distributor agreements.
Price adjustment reserves represent the contractual protection against
price reductions granted to distributors by the Company. Distributors have
a period of time to request a price protection credit, subsequent to the
Company's issuance of a new price book, after comparing the most recent
price book to their purchase price for on-hand inventory.
The Company grants distributors contractual protection against product
obsolescence. Distributors may return products in an amount of up to 3% of
their purchases for the trailing six months. The products can be scrapped
by distributors or returned to the Company.
(2) Represents actual credits granted to distributors.
21
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 31, 2003
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
King Owyang Officer and a Director March 31, 2003
Principal Financial and Accounting Officer
/s/ William M. Clancy
----------------------- Principal Accounting Officer
William M. Clancy March 31, 2003
/s/ Glyndwr Smith
------------------------ Chairman of the Board of Directors March 31, 2003
Glyndwr Smith
/s/ Christine Heiss
------------------------- Director March 31, 2003
Christine Heiss
/s/ Lori Lipcaman
----------------------- Director March 31, 2003
Lori Lipcaman
/s/ Mark B. Segall
----------------------- Director March 31, 2003
Mark B. Segall
/s/ Timothy V. Talbert
------------------------ Director March 31, 2003
Timothy V. Talbert
22
CERTIFICATIONS
I, King Owyang, certify that:
1. I have reviewed this annual report on Form 10-K of Siliconix incorporated
(the "Company");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of the Company's most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date : March 31, 2003 By: /s/King Owyang
--------------
King Owyang
President and Chief Executive Officer
23
I, William M. Clancy, certify that:
1. I have reviewed this annual report on Form 10-K of Siliconix incorporated
(the "Company");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of the Company's most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date : March 31, 2003 By: /s/William M. Clancy
--------------------
William M. Clancy
Principal Accounting Officer
24
INDEX TO EXHIBITS
Exhibits
--------
3.1 Restated Certificate of Incorporation(1)
3.2 Certificate of Amendment of Restated Certificate of
Incorporation(2)
3.3 Bylaws(3)
10.2 One-Year Key Professional Incentive Bonus Plan(1)
10.5 Amended and Restated License Agreement dated April 10, 1990
between the Company and International Rectifier Corporation(1)
10.6 Amendment to Amended and Restated License Agreement dated
December 21, 1990 between the Company and International
Rectifier Corporation(1)
10.15 Amendment No. 1 to Siliconix One-Year Key Professional
Incentive Bonus Plan(4)
10.16 Amendment No. 2 to Siliconix One-Year Key Professional
Incentive Bonus Plan(4)
13 Portions of Siliconix incorporated 2002 Annual Report to
Stockholders
21 Subsidiaries of the Company
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
President and Chief Executive Officer
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
Principal Accounting Officer
- --------------------------------------------------------
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 Current Report on
Form 8-K, filed with the SEC on June 1, 2001.
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.
25