SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
-
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2003
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 (I.R.S. Employer
of incorporation Identification No.)
or organization)
2201 Laurelwood Road, Santa Clara, California 95054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (408) 988-8000
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No _
Indicate the number of shares outstanding of each of the registrant's
classes of common stock:
Common stock, $0.01 par value -- 29,879,040 outstanding shares as of May
8, 2003.
1
SILICONIX INCORPORATED
TABLE OF CONTENTS TO FORM 10-Q
Part I. Financial Information Page No.
Item 1 Financial Statements
Consolidated Statements of Income for the three
months ended March 29, 2003 and March 30, 2002 3
Consolidated Balance Sheets as of March 29, 2003
and December 31, 2002 4
Consolidated Statements of Cash Flows for the
three months ended March 29, 2003 and
March 30, 2002 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 10
Item 4 Disclosure Controls and Procedures 10
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
Certifications 13
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SILICONIX INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts) Three Months Ended
March 29, March 30,
2003 2002
-------- --------
Net sales $ 97,826 $ 83,602
Cost of sales 69,928 59,194
-------- --------
Gross profit 27,898 24,408
Operating expenses:
Research and development 4,687 4,762
Selling, marketing, and administration 10,980 9,625
-------- --------
Operating income 12,231 10,021
Interest income 585 855
Other income (expense) net 67 (22)
-------- --------
Income before taxes and minority interest 12,883 10,854
Income taxes (2,821) (2,590)
Minority interest in income of
consolidated subsidiary (60) (60)
-------- --------
Net income $ 10,002 $ 8,204
======== ========
Net income per share (basic and diluted) $ 0.33 $ 0.27
======== ========
Shares used to compute net income per share 29,879 29,879
======== ========
See accompanying Notes to Consolidated Financial Statements.
3
SILICONIX INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share information) March 29, December 31,
2003 2002
--------- ------------
Assets
Current assets:
Cash and cash equivalents $ 161,086 $ 137,082
Note receivable from affiliate 70,000 75,000
Accounts receivable, less allowances 47,254 42,331
Accounts receivable from affiliates 21,436 10,076
Inventories 63,813 66,553
Other current assets 25,324 23,241
Deferred income taxes 3,148 3,146
--------- ---------
Total current assets 392,061 357,429
--------- ---------
Property, plant, and equipment, at cost:
Land 1,715 1,715
Buildings and improvements 55,924 55,954
Machinery and equipment 372,177 368,232
--------- ---------
429,816 425,901
Less accumulated depreciation 282,183 272,935
--------- ---------
Net property, plant, and equipment 147,633 152,966
Goodwill 7,445 7,445
Other assets 149 195
--------- ---------
Total assets $ 547,288 $ 518,035
========= =========
Current liabilities:
Accounts payable $ 21,389 $ 20,734
Accounts payable to affiliates 27,101 7,385
Accrued payroll and related compensation 7,638 9,395
Other accrued liabilities 29,207 28,803
--------- ---------
Total current liabilities 85,335 66,317
--------- ---------
Long-term debt, less current portion 2,882 2,708
Deferred income taxes 16,258 16,256
Other non-current liabilities 44,540 44,540
Minority interest 3,443 3,383
--------- ---------
Total liabilities 152,458 133,204
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 (100,000,000 shares
authorized, 29,879,040 shares issued and outstanding
at March 29, 2003 and December 31, 2002, respectively) 299 299
Additional paid-in-capital 59,370 59,370
Retained earnings 336,260 326,258
Accumulated other comprehensive loss (1,099) (1,096)
--------- ---------
Total stockholders' equity 394,830 384,831
--------- ---------
Total liabilities and stockholders' equity $ 547,288 $ 518,035
========= =========
See accompanying Notes to Consolidated Financial Statements.
4
SILICONIX INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Three Months Ended
March 29, March 30,
2003 2002
------------ ----------
Cash flows from operating activities:
Net income $ 10,002 $ 8,204
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,694 10,387
Deferred income taxes 2 --
Other non-cash expenses 174 82
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (4,923) (5,137)
Accounts receivable from affiliates (11,360) (16,016)
Inventories 2,740 1,902
Other assets (2,150) (1,489)
Accounts payable 655 2,251
Accounts payable to affiliates 19,716 5,801
Accrued liabilities (1,293) 2,447
Non-current other liabilities 1 --
--------- ---------
Net cash provided by operating activities 23,258 8,432
--------- ---------
Cash flows from investing activities:
Purchase of property, plant, and equipment (4,252) (891)
Proceeds from sale of property, plant,
and equipment 2 26
Proceeds from short-term investment with affiliate 75,000 --
Short-term investment with affiliate (70,000) --
--------- ---------
Net cash provided by (used in) investing
activities 750 (865)
--------- ---------
Effect of exchange rate changes on
cash and cash equivalents (4) (1)
--------- ---------
Net increase in cash and cash equivalents 24,004 7,566
Cash and cash equivalents:
Beginning of period 137,082 167,236
--------- ---------
End of period $ 161,086 $ 174,802
========= =========
See accompanying Notes to Consolidated Financial Statements.
5
SILICONIX INCORPORATED
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the management of the Company, the consolidated
financial statements appearing herein contain all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
results for, and as of the end of, the periods indicated. These statements
should be read in conjunction with the Company's December 31, 2002 consolidated
financial statements and notes thereto. The results of operations for the first
three months of 2003 are not necessarily indicative of the results to be
expected for the full year.
Note 2. Inventories
The components of inventory are as follows:
March 29, December
(In thousands) 2003 31, 2002
---------- ----------
Finished goods $ 19,073 $ 20,044
Work-in-process 38,754 38,560
Raw materials 5,986 7,949
---------- ---------
$ 63,813 $ 66,553
========== =========
Note 3. Contingencies
As of March 29, 2003, 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 management's opinion, based on discussions with legal counsel and other
considerations, the ultimate resolution of the above-mentioned matters is 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 addition, the Company has
observed that in the current semiconductor industry business
6
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.
Note 4. Comprehensive Income
The following are the components of comprehensive income:
(In thousands) Three Months Ended
March 29, March 30,
2003 2002
-------- --------
Net income $ 10,002 $ 8,204
Other comprehensive income (loss):
Foreign currency translation adjustment (4) (1)
Pension liability adjustment 1 --
-------- --------
Total other comprehensive loss (3) (1)
Comprehensive income $ 9,999 $ 8,203
======== ========
Note 5. Segment Reporting
The Company is engaged primarily in the design, marketing, and
manufacturing of power and analog semiconductor products. The Company is
organized into three operating segments, which due to their inter-dependencies,
similar long-term economic characteristics, and shared production processes and
distribution channels have been aggregated into one reportable segment.
Note 6. Earnings Per Share
Basic earnings per common share is computed by using weighted average
common shares outstanding during the period. Diluted earnings per common share
incorporates the incremental shares issuable upon the assumed exercise of stock
options when diluted. Due to the Company's simple capital structure, basic and
diluted earnings per share are the same.
Note 7. 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 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.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Net sales for the first quarter of 2003 were $97.8 million compared to
$83.6 million for the first quarter of 2002, a 17% increase. The increase in net
sales was partially due to the market shift from single-function cellular phones
to feature-rich phones with multiple functions (i.e. digital camera, internet,
email, etc.). The Company's bookings and billings improved in the fourth quarter
as compared to the third quarter of last year and were essentially flat from the
fourth quarter to the first quarter of this year, even though the fourth quarter
had an extra week of working days. The Company still sees no signs of a major
recovery in its primary strategic markets, portable computers and cellular
telephones. In addition, the Company is continuing to observe a trend toward
"smart," multi-functional cellular telephones and away from Personal Data
Assistants and simpler cellular telephones. These smart telephones must utilize
their power more efficiently than simpler devices and thus tend to require more
of the Company's components. The computer market is still driven by consumers
and corporate spending remains slow. The Company does not foresee any
improvement until the second half of this year at the earliest. Customers
continue to place orders for the near term because of lack of visibility from
end markets and the disruption in commercial activities in the Asia-Pacific
region, Canada, and other regions as a result of Severe Acute Respiratory
Syndrome.
Gross profit as a percentage of net sales in the first quarter of 2003 was
28.5% compared to 29.2% for the first quarter of 2002. Despite the Company's
successful cost reduction efforts, the first quarter of 2003 saw increased
pricing pressures and a shift in the product mix towards commodity products that
command lower margins.
Research and development expenses were $4.7 million for the first quarter
of 2003 compared to $4.8 million for the first quarter of 2002. The Company
continues its commitment to the development of new products and technologies.
During the first three months of 2003, the Company introduced 50 new products
and secured 304 new designs. The Company anticipates an increase in research and
development expenses in the second quarter due to additional research and
development projects.
Selling, marketing, and administration expenses were $11.0 million for the
first quarter of 2003 compared to $9.6 million for the first quarter of 2002.
The Company's selling, marketing, and administration expenses as a percentage of
net sales were 11% and remained flat for the first quarter of 2003 compared to
the first quarter of 2002. The Company continues its efforts to manage and
control costs effectively. The Company expects to incur higher selling expenses
in the second quarter due to an anticipated increase in sales activities.
Interest income for the first quarter of 2003 was $0.6 million compared to
$0.9 million for the first quarter of 2002. The decrease in interest income in
the first quarter of 2003 was due to lower interest rates as compared to 2002.
All excess cash not immediately needed to fund the Company's operations is
invested in money market funds.
Other income was $67,000 for the first quarter of 2003 compared to $22,000
of expense for the first quarter of 2002.
Income tax expense for the first three months of 2003 was $2.8 million
compared to $2.6 million for the first three months of 2002. The increase in
income tax expense in 2003 was due to the increase in earnings before tax. The
Company's effective tax rate was 22.0% in the first quarter of 2003 compared to
21.9% in the first quarter of 2002. The Company expects that the effective tax
rate for 2003 will be 22.0%.
Liquidity and Capital Resources
At March 29, 2003, the Company had $231.1 million in cash, cash
equivalents and short-term note receivable from affiliate, compared to $212.1
million in cash, cash equivalents and short-term note receivable from affiliate
at December 31, 2002. The increase of $19.0 million was mainly due to the cash
generated by operations in the first quarter. The cash balance of $161.1 million
as of March 29, 2003 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.
8
Net cash provided by operating activities was $23.3 million in the first
three months of 2003 compared to $8.4 million in the same period of 2002. The
increase in net cash provided by operating activities for the first three months
of 2003 was primarily due to a decrease in payments to settle affiliate
balances. Net affiliate payables as of March 29, 2003 increased by $8.4 million
from December 31, 2002, mainly due to the timing of cash payments made to
unconsolidated affiliates. Accounts payable as of March 29, 2003 increased by
$0.7 million from December 31, 2002, mainly due to an increase in business
volume. Accrued liabilities and contingencies as of March 29, 2003 decreased by
$2.3 million from December 31, 2002, mainly due to the payout of profit sharing,
401(k) contributions, and management incentive bonuses.
Inventories as of March 29, 2003 decreased by $2.7 million from December
31, 2002. Raw materials as of March 29, 2003 decreased by $1.9 million from
December 31, 2002 as the Company improved its management of raw material
purchases. Work-in-process as of March 29, 2003 increased by $0.2 million from
December 31, 2002. Finished goods inventory as of March 29, 2003 decreased by
$1.0 million from December 31, 2002, mainly due to higher sales and better
inventory control.
Net cash provided by investing activities was $0.8 million in the first
three months of 2003 compared to $0.9 million used in investing activities in
the same period of 2002. The Company spent $4.3 million on capital expenditures
in the first three months of 2003, primarily related to machinery and equipment.
In December 2002, the Company signed a loan agreement with Vishay. The borrowing
is on a revolving basis and the agreement expires in January 2005. In March
2003, the Company received a related party promissory note under the loan
agreement for $70 million from Vishay, which was callable by the Company at any
time and bore an interest rate of 3.0%. As of March 29, 2003, the entire
related-party promissory note was outstanding. The promissory note was fully
repaid on April 2, 2003.
For the next twelve months, management expects that cash flows from
operations will be sufficient to meet the Company's normal operating
requirements and to fund its research and development and capital expenditure
plans.
SAFE HARBOR STATEMENT
Statements contained herein that relate to the Company's future
performance, including statements with respect to anticipated improvements in
the Company's business and business climate, future product innovation and
implementation of cost savings strategies, are forward-looking statements within
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Such statements are based on current expectations only, and are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. Among the factors that could cause actual results to materially
differ include: general business and economic conditions, particularly in the
markets that the Company serves, cancellation of orders in the Company's
backlog, difficulties in new product development, and other factors affecting
the Company's operations, markets, products, services and prices that are set
forth in its December 31, 2002 Report on Form 10-K filed with the Securities and
Exchange Commission. You are urged to refer to the Company's Form 10-K for a
detailed discussion of these factors. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4. Disclosure Controls and Procedures.
An evaluation was performed as of a date within 90 days prior to the
filing date of this quarterly report, 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 quarterly 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.
10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 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
Exhibit 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
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 29, 2003.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILICONIX INCORPORATED
Date: May 12, 2003 By: /s/ King Owyang
----------------------------
King Owyang
President and Chief
Executive Officer
By: /s/ William M. Clancy
----------------------------
William M. Clancy
Principal Accounting Officer
12
CERTIFICATIONS
I, King Owyang, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Siliconix
incorporated (the "Company");
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The Company's other certifying officers 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 we 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 quarterly
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 quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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 officers 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 officers and I have indicated in this
quarterly 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 our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003 By: /s/ King Owyang
-------------------------
King Owyang
President and Chief
Executive Officer
13
I, William M. Clancy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Siliconix
incorporated (the "Company");
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The Company's other certifying officers 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 we 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 quarterly
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 quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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 officers 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 officers and I have indicated in this
quarterly 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 our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003 By: /s/ William M. Clancy
-----------------------------
William M. Clancy
Principal Accounting Officer
14