UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[NO FEE REQUIRED]
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from _____________ to ___________
Commission file number 0-3698
SILICONIX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 94-1527868
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2201 Laurelwood Road
Santa Clara, California 95054
(Address of principal executive offices)
(408) 988-8000 (Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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 non-affiliates is
$212,700,000, based upon the closing price for the registrant's common stock on
June 27, 2003 ($36.40). There is no non-voting common stock.
As of March 9, 2004, registrant had 29,879,040 shares of its common stock,
$0.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Siliconix incorporated 2003 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 2004 pursuant to Section 14 of the
Securities Exchange Act of 1934 in connection with the 2004 Annual Meeting
of Stockholders of Siliconix incorporated are incorporated into Part III.
PART I
Item 1. Business.
General
Siliconix incorporated ("Siliconix") designs, markets, and manufactures
power and analog semiconductor products. We focus on technologies and products
for the communications, computer and automotive markets. Additionally, many of
our 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 us. 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 us 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
interest in Siliconix, to Vishay Intertechnology, Inc. ("Vishay") of Malvern,
Pennsylvania.
Vishay owns an 80.4% interest in Siliconix. Vishay, a Fortune 1,000 company
listed on the New York Stock Exchange, 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). Vishay'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 seventeen countries
employing approximately 25,000 people.
We maintain various agreements, transactions and relationships with Vishay.
Our products are sold by the Vishay worldwide sales organizations. Effective
from January 2001, Vishay Americas Inc., a wholly owned subsidiary of Vishay,
assumed responsibility for collecting our accounts receivable for the North
America Region. Other relationships with Vishay include administrative service
sharing agreements, centralized payment services, a short-term loan agreement,
and management fees for services provided by the Vishay corporate office. All
agreements and relationships with Vishay are reviewed and approved by the
Siliconix Board of Directors.
Products
The power and analog semiconductor 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.
Our 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.
2
Power MOSFETs are our 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 (250 V and below) spectrum mainly for
fixed telecom (networking, routers, etc.) applications, where product
performance is a very important feature.
Advanced process technologies, such as our TrenchFET(R) technology, offer
very high transistor cell density, very low on-resistance and optimized
switching parameters for high frequency dc-to-dc power conversion.
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. Our new package innovation,
PowerPAK(R) 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 PowerConnect(TM) 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 as well as chipscale MIRCO FOOT(R) power MOSFETs in which the
plastic package is eliminated altogether. These product platforms provide
competitive advantages to our customers by offering better performance and
smaller form factors for new product development.
Siliconix power ICs include power conversion, low-dropout regulator, power
interface and motor control ICs. Our power conversion and interface ICs are
based on low-voltage, mixed-signal silicon processes that offer customers higher
frequencies without compromising efficiencies compared to competitive products.
They are used in applications, such as cellular phone handsets, where an input
voltage from a battery or other supply source must be converted to a level that
is compatible with logic signals used by power amplifiers, base-band logic,
DSPs, CPU I/O and other sub-circuits in the system. Our 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, we offer a line of
power conversion ICs for higher-power applications in the fixed telecom market.
The balance of our product line includes discrete small-signal transistors
and signal processing ICs (e.g., analog switches and multiplexers). Our
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 our 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.
3
Manufacturing
Our manufacturing operations are strategically located to support
customer-manufacturing locations, cultivate growth markets and access
cost-effective labor markets. All of our manufacturing sites use Statistical
Process Control methods of total quality control and have ISO 9000
certification. In addition, we have ISO 14001 certification for manufacturing
sites in the United States, Germany, Taiwan, and China.
We manufacture power products in a Siliconix-owned Class 1 six-inch wafer
fabrication facility in Santa Clara, California. We subcontract wafer
fabrication through an affiliate of Vishay in Itzehoe, Germany. A subcontractor
in Japan manufactures our power products. The manufacturing of wafers for analog
switches and multiplexers is done in Santa Clara and through an outsourcing
arrangement with a foundry in Dresden, Germany. A subcontractor in Beijing,
China manufactures small signal transistors. We use additional fabrication
subcontractors in Taiwan and the United States for selected processes. Assembly
and test facilities include a Siliconix-owned facility in Kaohsiung, Taiwan and
a Siliconix-leased facility in Shanghai, China. Additionally, we subcontract
assembly and testing through an affiliate of Vishay in Israel, as well as
independent subcontractors in the Philippines, Taiwan, China, Thailand and
Korea. Our manufacturing strategy is to be able to supply about 80% of the
customer demand from the internal capacity, and to rely on foundries and
subcontractors to meet the other 20% of the business. This strategy enables us
to deal effectively with the fluctuating cycles of the semiconductor industry.
The wafer fabrication that we subcontract through an affiliate of Vishay is
pursuant to an agreement entered in 1996 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. Our
affiliate was acquired by Vishay concurrent with Vishay's acquisition of its
80.4% interest in Siliconix in 1998. Under this agreement, we are 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 we were responsible under
the agreement were approximately $25.0 million. Subsequently, through December
31, 2003, we have not been required to make any additional payment to support
FHG's operating expenses.
Subcontractor fees paid to independent foundries in 2003, 2002, and 2001
were $39.1 million, $35.6 million and $22.9 million. Subcontractor fees paid to
independent subcontractors for assembly and testing in 2003, 2002, and 2001 were
$16.0 million, $17.4 million, and $12.7 million, respectively. Subcontractor
fees paid to Vishay related to the Itzehoe facility in 2003, 2002, and 2001 were
approximately $28.7 million, $23.8 million, and $21.2 million, respectively.
Subcontractor fees paid to Vishay related to assembly and testing in Israel in
2003, 2002, and 2001 were approximately $8.9 million, $5.0 million, and $5.1
million, respectively.
Raw materials used by us 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, we experience
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 our
operations.
Government regulations impose various environmental controls on the
discharge of certain chemicals and gases used in the manufacturing process. We
believe that our activities substantially conform to present and anticipated
regulations and are constantly upgrading our Santa Clara facility to ensure
continued compliance with such regulations. For details on these matters, see
Item 3, Legal Proceedings. While we have experienced only limited effects on our
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 we are taking reasonable steps to ensure compliance with such
regulations, it is conceivable that the failure by us to comply with one or more
of these regulations could have a material adverse effect on our financial
condition or results of operations.
4
Customers and Marketing
We sell our products primarily to original equipment manufacturers (OEMs),
electronic manufacturing services (EMS) companies, which manufacture for OEMs on
an outsourcing basis, and independent distributors that maintain large
inventories of electronic components for resale to OEMs and EMSs.
Since the acquisition by Vishay of a majority interest in Siliconix in 1998,
our products have been sold by the Vishay worldwide sales organization.
Commissions paid to Vishay affiliates were $18.1 million, $16.9 million, and
$15.1 million in 2003, 2002, and 2001, respectively.
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. We market our products in different
geographic areas as follows:
North America: Sales are made by Vishay's North American sales force and the
respective sales representative organizations. Sales representatives are
compensated by commissions. Regional sales directors employed by Vishay
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; Irving,
Texas; Santa Clara, California; Orange County, California; Melville, New York;
Juarez, Mexico; and Guadelajara, Mexico.
Sales are made directly to original equipment manufacturers and through
distributors at approximately 350 locations throughout the United States and
Canada. Siliconix 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 representative organizations. Sales representatives are
compensated by commissions. Regional sales directors employed by Vishay
coordinate these representatives and the South American sales force. Vishay's
South American sales office is located in Campinas, Brazil.
Sales are made directly to original equipment manufacturers and through
distributors. Siliconix provides certain distributors with contracts to protect
inventory against reductions in published prices and against product
obsolescence.
Europe: Sales of our 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, Heide, and Selb, Germany; Sunderland
and Bracknell, United Kingdom; Paris, Lyon, and Nice, France; Madrid, Spain;
Stockholm, Sweden; Helsinki, Finland; Milan, Italy; Istanbul, Turkey; Warsaw,
Poland; Moscow, Russia; Budapest, Hungary; Voecklabruck, Austria; and Eindhoven,
Netherlands.
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; Beijing, Shanghai, Shenzen and Hong Kong, China;
Seoul and Gumi, Korea; New Delhi, Pune and Bangalore, India; Penang, Malaysia;
and Bangkok, Thailand.
5
In the Asia-Pacific region, as in the United States, sales are made directly
to original equipment manufacturers through field sales engineers. Sales are
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.
The following table shows net sales and the percentage of our net sales on a
geographic basis for the periods indicated (dollars in thousands):
Years ended December 31
2003 2002 2001
---- ---- ----
North America $ 52,163 13% $ 52,456 14% $ 51,510 17%
Europe 43,476 11% 42,388 11% 52,323 17%
Taiwan 68,996 17% 74,582 20% 61,211 20%
Hong Kong 56,776 14% 52,358 14% 19,939 7%
Singapore 45,222 12% 44,972 12% 38,688 12%
South Korea 46,252 12% 36,341 10% 18,626 6%
Japan 33,560 9% 39,282 10% 36,934 12%
Other Asia Pacific 42,923 11% 28,303 8% 25,134 8%
All Other 2,696 1% 2,262 1% 1,201 1%
-------- ---- -------- ---- -------- ----
$392,064 100% $372,944 100% $305,566 100%
Order Backlog
As of December 31, 2003, the backlog of orders booked was $120.6 million.
The backlog as of December 31, 2002 was $62.3 million. We include in the
December 31, 2003 backlog only open orders that have been released by the
customer for shipment in the calendar year 2004. Our customers encounter
uncertain and changing demand for their products. They typically order products
from us based on their forecasts. If demand falls below customers' forecasts, or
if customers do not control their inventory effectively, they may cancel or
reschedule the shipments that are included in our 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 our competitors
are larger companies with greater financial resources and limited dependency on
semiconductor products as their sole source of sales and earnings. We have been
able to compete effectively by being selective in our choice of products and
markets, and by being a technology leader in those areas. Our main competitors
include International Rectifier, Philips, N.V., ON Semiconductor, Rohm Corp.,
Motorola, Inc., and Fairchild Semiconductor Corp. There are many other companies
that produce products in the markets in which we compete.
6
Research and Development
Research and development activities are directed toward expanding our
technology leadership. Our 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 $19.5 million in 2003, $19.3 million in 2002, and $17.2
million in 2001. The increase in annual research and development expenditures
since 2001 was due to our continuing commitment and effort to develop new
products and technologies.
Patents and Licenses
We have made a significant investment in securing intellectual property
protection for our technology and products. We seek to protect our technology
by, among other things, filing patent applications for technology considered
important to the development of our business. We also rely upon trade secrets,
unpatented know-how, continuing technological innovation and the aggressive
pursuit of licensing opportunities to help develop and maintain our competitive
position.
As of December 31, 2003, Siliconix owned 201 U.S. patents, covering
primarily semiconductor device structures, processes, and circuitry. Expiration
dates for these patents range from 2005 to 2020. At December 31, 2003, there
were also 27 U.S. patent applications pending. Foreign counterparts of certain
of these applications have been filed, or may be filed at an appropriate time.
We decide on a case-by-case basis whether, and in what countries, we will file
counterparts of a United States patent application outside the United States.
Our ability to compete effectively with other companies will depend, in
part, on our ability to maintain the proprietary nature of our technology.
Although we have been awarded, have filed applications for, or have 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.
We require all employees and most consultants and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. 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 us is to be kept
confidential and not disclosed to third parties except in specific
circumstances. All of our employees have entered into agreements providing for
the assignment of rights to inventions made by them while employed by us.
Environment, Health and Safety
We have adopted an Environmental Health and Safety Corporate Policy that
commits us to achieve and maintain compliance with applicable environmental
laws, to promote proper management of hazardous materials for the safety of our
employees and the protection of the environment, and to minimize the hazardous
materials generated in the course of our operations. This policy is implemented
with accountability directly to the President and Chief Executive Officer. In
addition, our manufacturing operations are subject to various federal, state and
local laws restricting discharge of materials into the environment.
We are not involved in any pending or threatened proceedings that would
require curtailment of our operations. We continually expend funds to ensure
that our facilities comply with applicable environmental regulations. In regard
to all of our facilities, we have completed our undertaking to comply with
environmental regulations relating to the elimination of chlorofluorocarbons
(CFCs) and ozone depleting substances (ODS) pursuant to the Clean Air Act
amendments of 1990. We have completely eliminated the use of CFCs and ODS in our
manufacturing processes, and all facilities are currently in compliance with the
Clean Air Act.
7
While we believe that we are in material compliance with applicable
environmental laws, we cannot accurately predict future developments and do not
necessarily have knowledge of past occurrences on sites that we currently
occupy. More stringent environmental regulations may be enacted in the future,
and we cannot determine the modifications, if any, in our operations that any
such future regulations might require, or the cost of compliance with such
regulations. Moreover, the risk of environmental liability and remediation costs
is inherent in the nature of our business and, therefore, there can be no
assurance that material environmental costs, including remediation costs, will
not arise in the future.
See also the environmental matters described in more detail in Item 3,
Legal Proceedings.
Employees
On December 31, 2003, we employed 1,731 people, of whom 585 were employed in
the United States, 1,137 in East Asia, and 9 in Europe. Our future success is
substantially dependent on our ability to attract and retain these highly
qualified technical and administrative personnel.
There are no collective bargaining agreements between us and our employees,
and there have been no work stoppages due to labor difficulties. We consider our
relations with our employees to be good.
Company Information and Website
We file 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 we file 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 us,
that file electronically with the SEC. The public can obtain any documents that
we file with the SEC at http://www.sec.gov.
In addition, our company website can be found on the Internet at
http://www.siliconix.com. The website contains information about us and our
operations. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q
and Form 8-K, and all amendments to those reports, can be viewed and downloaded
free of charge as soon as reasonably practicable after the reports and
amendments are electronically filed with or furnished to the SEC. To view the
reports, access http://www.siliconix.com, click on Siliconix financial info, and
then SEC Filings.
Any of the above documents can also be obtained in print by any shareholder
who requests them from our Investor Relations Department at the following
address:
Siliconix incorporated
2201 Laurelwood Road
Santa Clara, CA 95054
8
Item 2. Properties.
We own our principal manufacturing plant and general offices, which are
located in four two-story buildings totaling 220,100 square feet on a 12-acre
site in Santa Clara, California. Siliconix Limited, a subsidiary, currently
occupies, under an agreement with Vishay UK Limited, approximately 2,000 square
feet at Vishay's Bracknell, United Kingdom location, where our European
headquarters are located. Siliconix (Taiwan) Limited, a subsidiary, owns a
50,000-square-foot portion of a building in the Nan-Tse Export Processing Zone,
a suburb of Kaohsiung, Taiwan, which consists of manufacturing and general
office space. Shanghai Simconix Co. Ltd., a joint venture between Siliconix and
the Shanghai Institute of Metallurgy (the "SIM"), leases 85,000 square feet of
manufacturing and general office space in Shanghai from the SIM.
Item 3. Legal Proceedings.
As of December 31, 2003, we remained a party to two environmental
proceedings. The first involves property that we vacated in 1972. In July 1989,
the California Regional Water Quality Control Board ("RWQCB") issued Cleanup and
Abatement Order No. 89-115 both to us and the current owner of the property. The
Order alleged that we 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. We subsequently reached a
settlement of this matter with the current owner of the property. The settlement
provided that the current owner will indemnify us and our 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 we remain nominally
subject.
The second proceeding involves our Santa Clara, California facility, which
we have owned and occupied since 1969. In February 1989, the RWQCB issued
Cleanup and Abatement Order No. 89-27 to us. 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 us to specify and implement
interim remedial actions and to evaluate final remedial alternatives. The RWQCB
issued a subsequent order requiring us to complete the decontamination. We have
substantially complied with the RWQCB's orders.
We are engaged in discussions with various parties regarding patent
licensing and cross patent licensing issues. In addition, we have observed that
in the current semiconductor industry business environment, companies have
become more aggressive in asserting and defending patent claims against
competitors. While we will continue to vigorously defend our intellectual
property rights, we may become party to disputes regarding patent licensing and
cross patent licensing. An unfavorable outcome regarding one of these
intellectual property matters could have a material adverse effect on our
business and operating results.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
9
Item 4A. Executive Officers of the Registrant
The following sets forth the name, age, offices presently held, business
experience, and principal occupation of our executive officers:
Name Office Presently Held
---- ---------------------
King Owyang President & Chief Executive Officer
Nick Bacile Executive Vice President
Dr. Owyang, age 58, joined Siliconix 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 56, joined Siliconix in May 1999 as Senior Vice President of
the Siliconix Standard Products Unit. He became Executive Vice President in
September 2000. Prior to joining Siliconix, 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.
10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of March 9 2004, there were 545 holders of record of our common stock.
Under Delaware law, we may pay dividends only from retained earnings or, if
none, from net profits for the current or preceding fiscal year. We have paid no
dividends since December 1980 in order to retain our 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 fiscal quarters.
2003 2002
High Low High Low
4th Quarter $ 54.88 $ 43.76 4th Quarter $ 30.00 $ 17.89
3rd Quarter 53.79 36.00 3rd Quarter 28.59 16.61
2nd Quarter 36.40 23.80 2nd Quarter 35.80 26.90
1st Quarter 25.75 21.08 1st Quarter 32.09 25.89
Item 6. Selected Financial Data.
The following selected historical information has been derived from the
audited consolidated financial statements of the Company. The financial
information as of December 31, 2003 and 2002 and for each of the three years in
the period ended December 31, 2003 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.
(in thousands, except per share and employment data)
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net sales $392,064 $372,944 $305,556 $473,145 $383,308
Operating income $ 49,008 $ 53,983 $ 14,712 $137,198 $ 92,206
Net income $ 39,361 $ 46,156 $ 15,095 $107,605 $ 66,117
Net income per share (basic and diluted) $ 1.32 $ 1.54 $ 0.51 $ 3.60 $ 2.21
Shares used to compute basic
and diluted net income per share 29,879 29,879 29,879 29,879 29,879
Total assets $601,170 $519,022 $475,798 $503,901 $346,678
Capital expenditures $ 28,984 $ 22,443 $ 29,462 $ 67,905 $ 33,835
Year-end worldwide employment 1,731 1,735 1,631 1,893 1,752
11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
Siliconix incorporated is engaged in designing, manufacturing, and marketing
power and analog semiconductor products. We are 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.
We manufacture power products in a Siliconix-owned Class 1 six-inch wafer
fabrication facility in Santa Clara, California. We subcontract wafer
fabrication through an affiliate of Vishay in Itzehoe, Germany. A subcontractor
in Japan manufactures our power products. The manufacturing of wafers for analog
switches and multiplexers is done in Santa Clara and through an outsourcing
arrangement with a foundry in Dresden, Germany. A subcontractor in Beijing,
China manufactures small signal transistors. We use additional fabrication
subcontractors in Taiwan and the United States for selected processes. Assembly
and test facilities include a Siliconix-owned facility in Kaohsiung, Taiwan and
a Siliconix-leased facility in Shanghai, China. Additionally, we subcontract
assembly and testing through an affiliate of Vishay in Israel, as well as
independent subcontractors in the Philippines, Taiwan, China, Thailand and
Korea.
Vishay Intertechnology, Inc. ("Vishay") owns an 80.4% interest in Siliconix.
Vishay, a Fortune 1,000 company listed on the New York Stock Exchange, 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).
Vishay'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 seventeen countries employing approximately 25,000 people.
We maintain various agreements, transactions and relationships with Vishay. Our
products are sold by the Vishay worldwide sales organizations. Effective from
January 2001, Vishay Americas Inc., a wholly owned subsidiary of Vishay, assumed
responsibility for collecting our accounts receivable for the North America
Region. Other relationships with Vishay include administrative service sharing
agreements, centralized payment services, a short-term loan agreement, and
management fees for services provided by the Vishay corporate office. All
agreements and relationships with Vishay are reviewed and approved by the
Siliconix Board of Directors.
Net income for the year ended December 31, 2003 was $39.4 million, or $1.32 per
share, a decrease of 15% from the $46.2 million, or $1.54 per share, achieved in
2002. Net sales in 2003 were $392.1 million, a 5% increase from net sales of
$372.9 million in 2002. Business growth became more sustainable in the second
half of 2003, and we reached our maximum production level in the third quarter.
We have been expanding our in house manufacturing capacity and plan to more than
double our capital expenditures in 2004. To satisfy the additional customer
demand and the short lead time requests, we substantially increased our
activities with subcontractors in 2003. The gross margin was impacted as a
result of these short term actions as we positioned ourselves for continued
growth in 2004. For 2003, the gross margin was 29%, compared to 31% for 2002, as
cost reductions and materials savings in 2003 could not fully compensate for
price declines and additional subcontracting expenses.
12
Financial Metrics
We analyze several financial measures and metrics to evaluate the performance
and predict the future direction of our business. These key financial measures
and metrics include sales, backlog, and book-to-bill ratio. We also evaluate
changes in average selling prices, as compared to the corresponding quarter of
the prior year and the sequentially preceding quarter.
End-of-period backlog is one indicator of future sales. Our backlog at December
31, 2003 was at its highest level since the fourth quarter of 2000. However, if
demand falls below customers' forecasts, or if customers do not control their
inventory effectively, they may cancel or reschedule the shipments that are
included in our 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.
Another important indicator of demand in our industry is the book-to-bill ratio,
which is the ratio of the amount of product ordered during a period as compared
with the product that we ship during that period. A book-to-bill ratio that is
greater than one indicates that our orders are building and that we are likely
to see increasing revenues in future periods. Conversely, a book-to-bill ratio
that is less than one is an indicator of declining demand and may foretell
declining sales.
The quarter-to-quarter trends in these financial metrics can also be an
important indicator of the likely direction of our business. The following table
shows sales, the end-of-period backlog and the book-to-bill ratio for our
business during the five quarters beginning with the fourth quarter of 2002 and
through the fourth quarter of 2003.
4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ------------ ----------- ------------ -----------
2002 2003 2003 2003 2003
---- ----- ---- ---- ----
Sales $ 98,258,000 $ 97,826,000 $ 88,208,000 $ 97,411,000 $108,619,000
End-of-Period
Backlog $ 62,300,000 $ 57,000,000 $ 64,600,000 $ 84,700,000 $120,600,000
Book-to-Bill Ratio 0.9 0.9 1.1 1.2 1.3
Management believes that these trends are an encouraging indication of
broad-based demand into 2004, which encompasses all of our major markets and all
geographic areas.
The increased product demand has created longer lead times for manufacturing,
but customers continue to request short-term delivery. Most of our product lines
are at full capacity utilization. We are taking the necessary steps to increase
our capacity to accommodate the increased demand. Our manufacturing strategy is
to be able to supply about 80% of the customer demand from the internal
capacity, and to rely on foundries and subcontractors to meet the other 20% of
the business. This strategy enables us to deal effectively with the fluctuating
cycles of the semiconductor industry.
Pricing in our industry is volatile. During 2003, we realized significant price
declines, particularly in the first half of the year. Prices stabilized in the
second half of the year. We expect relatively stable pricing trends to continue
into 2004.
13
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our consolidated
financial statements. We identify here a number of policies that entail
significant judgments or estimates.
Revenue recognition
We recognize revenue on product sales during the period when the sales process
is complete. This generally occurs when products are shipped to the customer in
accordance with terms of an agreement of sale, title and risk of loss have been
transferred, collectibility is reasonably assured and pricing is fixed or
determinable. We have agreements with distributors that historically provided
limited rights of product return. Beginning in 2002, we modified these
arrangements to allow distributors a limited credit for unsaleable products,
which we term a "scrap allowance." Consistent with industry practice, we also
have a "stock, ship and debit" program whereby we consider, and grant in our
discretion, requests by distributors for credits on previously purchased
products that remain in distributors' inventory, to enable the distributors to
offer more competitive pricing. In addition, we have contractual arrangements
whereby we provide distributors with protection against price reductions
initiated by us after product is sold by us to the distributor and prior to
resale by the distributor.
We record end of period accruals for each of the programs based upon our
estimate of future credits under the programs that will be attributable to sales
recorded through the end of the period. We make our estimates based upon sales
levels to our distributors during the period, inventory levels at the
distributors, current and projected market trends and conditions, recent and
historical activity under the programs, open requests for credits under the
programs and recent changes in program policies. We determine reductions of
revenue attributable to each of the programs during any period by computing the
change in the accruals from the prior period and adding the credits actually
given to distributors during the period under the programs. These procedures
require the exercise of significant judgments, but we believe they enable us to
estimate reasonably future credits for returns and price adjustments.
Accounts Receivable
Our receivables represent a significant portion of our current assets. We are
required to estimate the collectibility of our receivables and to establish
allowances for the amount of receivables that will prove uncollectible. We base
these allowances on our historical collection experience, the length of time our
receivables are outstanding, the financial circumstances of individual
customers, and general business and economic conditions. We also must estimate
product returns, scrap allowances, "stock, ship and debit" credits and price
protection credits which our distributors may claim. As discussed above, we
establish allowances against accounts receivable for amounts which we will
credit to our distributors based on these incentive programs.
Inventories
We value our inventories at the lower of cost or market, with cost determined
under the first-in first-out method and market based upon our estimates of net
realizable value. Our valuation of inventories also requires us to estimate the
amounts of current inventory that will be sold. These estimates are dependent on
management's assessment of current and expected orders from our customers.
Impairment of Long-Lived Assets
We evaluate impairment of our long-lived assets, other than goodwill, to be held
and used when events or changes in circumstances indicate the carrying value may
not be recoverable. The carrying value of a long-lived asset is considered
impaired when the total projected undiscounted cash flows from such asset are
separately identifiable and are less than the carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the projected cash flows from the asset discounted at a rate
commensurate with the risk involved. Losses on long-lived assets held for sale,
other than goodwill, are determined in a similar manner, except that fair market
values are reduced for disposal costs.
14
Results of Operations
Year ended December 31, 2003 compared to Year ended December 31, 2002
Net Sales
Net sales for 2003 were $392.1 million compared to $372.9 million for 2002. This
5% increase is attributable to a volume improvement of 17% versus 2002, offset
by decreases in prices. Pricing pressure was particularly prevalent in the first
half of the year. The outbreak of SARS in Asia was also a significant factor in
the decrease of net sales for the first half of 2003, as our sales into Asia
comprise approximately 75% of our total sales. We experienced a rebound in the
second half of the year, with volumes strong across all product lines. The
business recovery came primarily from Asia, and was particularly driven by
demand for computer components and by distributors restocking inventories. With
the favorable shift in the economic and business environments, prices stabilized
in the second half of the year.
We deduct, from the sales that we record to distributors, allowances for future
credits that we expect to provide for returns, scrapped product and price
adjustments under various programs made available to the distributors. We make
deductions corresponding to particular sales in the period in which the sales
are made, although the corresponding credits may not be issued until future
periods. We estimate the deductions based on sales levels during the period,
inventory at our distributors, general business, economic, competitive and
pricing conditions, and the terms of and our experience with the various
incentive programs. We recorded deductions from gross sales under our
distributor incentive programs of $42.4 million and $32.3 million for the years
ended December 31, 2003 and 2002, respectively. Actual credits issued under the
programs for the years ended December 31, 2003 and 2002, were approximately
$39.9 million and $32.5 million, respectively. The increase in incentive program
activity since 2001 is attributable primarily to the adverse business climate
that developed following 2000 and the resulting pricing pressures affecting our
distributors and the semiconductor industry generally.
Gross Profit
Gross profit as a percentage of net sales in 2003 was 29% compared to 31% in
2002. The lower gross margin for 2003 reflected the effects of price declines
and changing product mix as we secured incremental business in the lower gross
margin commodity products. Additionally, to respond to the demand increase in
2003 and to protect customer satisfaction we substantially increased our
engagement with subcontractors to satisfy the short lead time requests.
Subcontractor fees paid to independent foundries in 2003 and 2002 were $39.1
million and $35.6 million, respectively. Subcontractor fees paid to independent
subcontractors for assembly and testing in 2003 and 2002 were $16.0 million and
$17.4 million, respectively. Subcontractor fees paid to Vishay in 2003 and 2002
were approximately $37.6 million and $28.8 million, respectively. We
concurrently are investing in expanding our in-house capabilities. Our
successful cost reduction programs helped to mitigate the impact of these
factors. As demand has shown a sharp increase in the second half of the year,
price degradation should be reduced and prices should remain relatively firm in
the near future.
Research and Development
Research and development expenses were $19.5 million in 2003 compared to $19.3
million in 2002. We continued our funding for new technology developments and
new product introductions. During the 2003, we introduced 223 new products and
secured 1,049 design wins worldwide. We have not reduced our funding for new
technology developments and new product introductions, though we have realized
cost savings in other aspects of our research and development programs. We have
dedicated significant resources to our environmentally friendly lead-free
conversion program and now offer over 1,300 devices in this product line. We
believe that our focus on developing the best solutions for customers through
innovation will continue to enhance our leadership in key markets.
15
Selling, Marketing, and Administration
Selling, marketing, and administration expenses were $46.0 million in 2003
compared to $41.9 million in 2002. Our selling, marketing, and administration
expenses as a percentage of net sales in 2003 were 11.7% compared to 11.2% for
2002. The increase in selling, marketing, and administration expenses in 2003
was largely due to increases in spending for directors' and officers' liability
insurance, and legal fees incurred in connection with our efforts to maximize
the benefits from our patent portfolio.
Interest Income
Interest income in 2003 was $2.4 million compared to $3.0 million in the 2002.
The decrease in interest income in 2003 was due to lower interest rates as
compared to 2002. All excess cash not immediately needed to fund our operations
is invested in money market funds.
Other Expense (Income)
Other expense was $0.7 million in 2003 compared to other income of $2.4 million
in 2002. Other income in 2002 includes $1.4 million received from the Chinese
government as an incentive for being a foreign partner in China.
Income Tax Expense
Income tax expense in 2003 was $11.1 million compared to $13.0 million in 2002.
Our effective tax rate was 21.9% in 2003, the same as in 2002.
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 our advantage,
as more of our 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 our sales
growth; however, we 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.
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,
our capacity utilization improved considerably compared to 2001. In an effort to
improve our operating results, we have focused 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.
16
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 our effort and focus on
developing new products and technologies. Our 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 reflected our continuing efforts to balance our plans
for new product introductions against the need to reduce overhead in the current
challenging business environment. We believe that 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 our
customers. New product introductions remain critical to our success. We
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. Our selling, marketing and administration
expenses as a percentage of net sales were 11% and 14% in 2002 and 2001,
respectively. The decrease of selling, marketing and administration expenses in
2002 compared to 2001 was primarily due to our cost control programs.
Amortization of Goodwill
Amortization of goodwill in 2002 and 2001 was $0 and $458,000, respectively. We
adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets" in January 2002. Accordingly, goodwill is deemed to
have an indefinite life is no longer amortized but subject to an annual
impairment test. Prior to the adoption of SFAS No. 142, goodwill was amortized
on a straight-line basis over 20 years. As of December 31, 2001, accumulated
goodwill amortization was $1.7 million and the net book value of goodwill was
$7.4 million. As a result of not amortizing goodwill in 2002, operating income
increased by $458,000. During 2002, we 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 us declined to
1.6% in 2002 as compared to 4.6% in 2001. During December 2002, we invested $75
million of excess cash with Vishay to provide us 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 us 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 our operations is invested in money market
funds. On January 2, 2003, Vishay repaid the $75 million to us.
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 our assets denominated in European and Asian currencies. We received $1.4
million and $0.8 million in 2002 and 2001, respectively, from the Chinese
government as an incentive for being a foreign partner in China through
Simconix, our 95% owned subsidiary.
17
Income Tax Expense
Income tax expense for the year ended December 31, 2002 was $13.0 million as
compared to $4.8 million in 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.
Financial Condition, Liquidity, and Capital Resources
As of December 31, 2003, we had $279.5 million in cash and cash equivalents,
compared to $212.1 million in cash, cash equivalents and short-term note
receivable from affiliate as of December 31, 2002. The increase was primarily
due to cash generated from operations and an increase in the payable balance to
affiliates. Approximately $278.5 million of the cash balance as of December 31,
2003 was mostly invested in foreign money market accounts. Our cash and profits
generated by foreign subsidiaries 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 foreign withholding taxes.
Our financial condition at December 31, 2003, continues to be strong, with a
current ratio (current assets to current liabilities) of 4.3 to 1, compared with
a ratio of 5.4 to 1 at December 31, 2002. The current ratio has declined since
the prior year due primarily to timing-related increases in accounts payable
both to third parties and to affiliates. Our ratio of liabilities to total
assets was 0.29 to 1 at December 31, 2003, compared to a ratio of 0.26 to 1 at
December 31, 2002.
Net cash provided by operating activities was $94.4 million in 2003, as compared
to $67.3 million in 2002. The increase in net cash provided by operating
activities in 2003 was due primarily to timing-related increases in accounts
payable both to third parties and to affiliates. Net affiliate payables as of
December 31, 2003 increased $7.1 million from December 31, 2002, mainly due to
the timing of cash payments made to unconsolidated affiliates. Accounts payable
as of December 31, 2003 increased $10.5 million from December 31, 2002, which
includes approximately $2.0 million related to capital expenditures, mainly due
to the timing of payments to vendors.
Cash provided by investing activities was $48.0 million in 2003, compared to
cash used in investing activities of $97.4 million in 2002. Cash flows related
to investing activities are impacted by our short-term loan agreement with
Vishay under which, we may, from time to time, advance money to Vishay. All
notes under this loan agreement are callable by us at any time. Interest income
related to these loans is included in cash flows from operating activities. For
the year ended December 31, 2002, we had a net outflow of $75 million for
short-term investments pursuant to this agreement. For the year ended December
31, 2003, we had a net inflow of $75 million for short-term investments pursuant
to this agreement. Since July 1, 2003, there have been no amounts outstanding
related to this agreement. Purchases of property, plant, and equipment were
approximately $29.0 million in 2003, of which $2.0 million is included in
accounts payable at December 31, 2003 and is thus excluded from the statement of
cash flows. We continue to invest in expanding our in-house manufacturing
capabilities to meet increasing demand.
For the next twelve months, management expects that cash flows from operations
will be sufficient to meet our normal operating requirements and to fund our
research and development and capital expenditure plans.
18
Contractual Commitments
As of December 31, 2003, we 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
Total 1 year years years years
(In thousands)
Operating Leases $2,434 $1,108 $1,236 $39 $51
-----------------------------------------------
Total contractual cash obligations $2,434 $1,108 $1,236 $39 $51
===============================================
In 1996, in order to secure additional manufacturing capacity, we, 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. This affiliate
was acquired by Vishay concurrent with Vishay's acquisition of its 80.4%
interest in Siliconix in 1998. Under this agreement, we are 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 we were responsible under the
agreement were approximately $25.0 million. Subsequently, through December 31,
2003, we have not been required to make any additional payment to support FHG's
operating expenses.
On December 31, 2003, we announced the signing of a memorandum of understanding
with Tower Semiconductor for a long-term manufacturing and supply arrangement
between the parties. Pursuant to the terms of the memorandum of understanding,
we plan to place with Tower orders valued at approximately $200 million for the
purchase of semiconductor wafers to be manufactured in Tower's Fab 1 over a
seven to ten year period, of which approximately $53 million would be guaranteed
and would be delivered over the three year period starting at the first
anniversary of the definitive agreement. We plan to advance to Tower $20 million
to be used for the purchase of additional equipment required to satisfy
Siliconix's orders, which would be credited towards the purchase price of the
wafers. The transaction is subject to the approval of both companies' boards of
directors, Tower's lending bank and the Israeli investment center and to the
negotiation of definitive documentation. While there can be no assurances that a
definitive agreement will be reached, we expect a definitive agreement to be
signed during the first half of 2004. If a definitive agreement is not reached,
we will have no commitments related to this memorandum of understanding.
We do not have any long-term debt, nor do we guarantee any of Vishay's debt.
Through December 31, 2003, we have not been a party to any of Vishay's debt.
Foreign Currency Forward Exchange Contracts
As of December 31, 2003 and 2002, there were no outstanding foreign currency
forward exchange contracts.
Inflation
Normally, inflation does not have a significant impact on our operations as our
products are not generally sold on long-term contracts. Consequently, we can
adjust our selling prices, to the extent permitted by competition, to reflect
cost increases caused by inflation.
19
Related Party Transactions
We maintain various agreements, transactions and relationships with Vishay. All
agreements and relationships with Vishay are reviewed and approved by the
Siliconix Board of Directors.
Sales organizations
Our 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 active and passive electronic
component purchasing needs. Vishay sales organizations function as our
undisclosed agents, through commission arrangements at a fixed percentage of
sales made in each region for all sales related functions; however, the
ownership of all sales, 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 our accounts receivable for the
North America region. Accounts receivable ownership for the 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, credit risk analysis, bad debt exposure, and selling
expenses through a commission arrangement at a fixed percentage of sales.
Accounts receivable transferred to Vishay Americas Inc. were $53.7 million and
$50.3 million in 2003 and 2002, respectively. Commissions paid to Vishay
affiliates for North America, Europe, and Asia Pacific sales and related
activities were $18.1 million, $16.9 million, and $15.1 million in 2003, 2002,
and 2001, respectively. These commission amounts, averaging less than 5% of
sales, are included in selling, marketing, and administrative expenses in the
consolidated statements of income. Increases in commissions paid to Vishay are
attributable to increased sales, and in 2003, an increase of 1% in the rate paid
related to sales and related activities for the North America region.
Subcontract manufacturing
In 1996, in order to secure additional manufacturing capacity, we, 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. This affiliate
was acquired by Vishay concurrent with Vishay's acquisition of its 80.4%
interest in Siliconix in 1998. During 2003, 2002, and 2001, FHG provided wafer
fabrication subcontract services to us. Subcontractor fees were $28.7 million,
$23.8 million, and $21.2 million, respectively. Subcontractor fees are included
in cost of sales in the consolidated statements of income. The increase in these
subcontractor fees between 2002 and 2003 is attributable to costs incurred to
meet the high demand experienced for our products, particularly in the second
half of the year. According to the agreement entered into in 1996 by us, through
an affiliate, we agreed to pay for certain operating costs at the FHG facility,
regardless of the extent of actual manufacturing output, until December 31,
2007. For the years ended December 31, 2003, 2002, and 2001, we have not been
required to make and have not made any payment to support FHG's operating
expenses.
Beginning in 2001, a wholly owned subsidiary of Vishay in Israel was engaged to
provide assembly and testing subcontract services for us. Subcontractor fees
paid were $8.9 million in 2003, $5.0 million in 2002, and $5.1 million in 2001.
Subcontractor fees are included in cost of sales in the consolidated statements
of income. The increase in these subcontractor fees between 2002 and 2003 is
attributable to costs incurred to meet the high demand experienced for our
products, particularly in the second half of the year.
20
Administrative service sharing agreements
We have certain service sharing agreements with Vishay and certain of its
affiliates. Administrative expenses primarily relate to personnel, insurance,
logistics, other overhead functions, corporate IT support, and network
communications support are shared and then allocated to the appropriate party on
a periodic basis. During 2003, 2002, and 2001 related parties reimbursed
Siliconix $5.4 million, $6.2 million, and $6.0 million, respectively, for
administrative expenses incurred by Siliconix on their behalf. During the same
periods, Siliconix reimbursed related parties $15.8 million, $8.0 million, and
$5.3 million, respectively, for administrative expenses incurred by related
parties on our behalf. These administrative reimbursements and payments are
included in selling, marketing, and administrative expenses in the consolidated
statements of income. These reimbursements in 2003 include increases in various
costs, particularly insurance, and, to a lesser extent, procurement and
marketing.
Centralized payment services
Vishay maintains a centralized payment system for Asian accounts payable. In
2003, Vishay created a centralized payment system for U.S. accounts payable and
U.S. payroll. We reimburse actual amounts paid by Vishay. Amounts reimbursed by
Siliconix were $112.4 million and $108.6 million for Asian accounts payable in
2003 and 2002. Amounts reimbursed by Siliconix were $109.8 million for U.S.
accounts payable and $59.4 million for U.S. payroll in 2003. Additionally, in
2003, Siliconix reimbursed $4.4 million of third-party warehouse costs paid by
Vishay on our behalf. In prior years, these amounts were billed directly to
Siliconix by the third-party warehouse.
Management fees
We pay management fees to Vishay, primarily related to services provided by the
Vishay corporate office, including accounting matters for all SEC filings,
investor relations, tax services, cash management, legal services, and the
handling of insurance coverage on a global basis. Management fees paid by
Siliconix to Vishay were $1.9 million, $1.8 million, and $2.3 million during
2003, 2002, and 2001 respectively.
Sales to affiliates of Vishay
Product sales to Vishay and its affiliates were $0.1 million, $0.1 million and
$0.2 million during 2003, 2002, and 2001, respectively. These amounts are
included in net sales in the consolidated statements of income.
Notes receivable
We have a short-term loan agreement with Vishay under which we may, from time to
time, advance money to Vishay. All notes under this loan agreement are callable
by Siliconix at any time. Interest income related to promissory notes was
$90,000, $25,000, and $0 during 2003, 2002, and 2001, respectively. These
amounts are included in interest income in the consolidated statements of
income. In December 2002, we received a related party promissory note under the
loan agreement for $75 million, which was callable by us at any time and bore an
interest rate of 3.025%. As of December 31, 2002, the entire related-party
promissory note was outstanding. This promissory note was fully repaid on
January 2, 2003.
In March 2003, we received a related party promissory note under the loan
agreement for $70 million, which was callable by us at any time and bore an
interest rate of 3.0%. This promissory note was fully repaid on April 2, 2003.
In June 2003, we received a related party promissory note under the loan
agreement for $70 million, which was callable by us at any time and bore an
interest rate of 2.75%. This promissory note was fully repaid on July 1, 2003.
There have been no related party promissory notes outstanding since July 1,
2003.
21
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 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 adoption of EITF 00-21 did not have a
material impact on our consolidated financial statements.
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. In addition to other technical
provisions, this statement rescinds SFAS No. 4, which required all gains and
losses from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of tax. The provisions of SFAS No. 145 were
adopted on January 1, 2003, and did not have a material impact on our
consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This statement nullifies 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). SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred rather than at the date of
an entity's commitment to an exit plan. The provisions of SFAS No. 146 were
adopted for exit or disposal activities initiated after December 31, 2002. There
were no such activities initiated during the year ended December 31, 2003.
In November 2002, the FASB issued Interpretation No. 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"). The interpretation
requires that upon issuance of a guarantee, the entity must recognize a
liability for the fair value of the obligation it assumes under that obligation.
This interpretation is intended to improve the comparability of financial
reporting by requiring identical accounting for guarantees issued with
separately identified consideration and guarantees issued without separately
identified consideration. The recognition and measurement provisions of FIN 45
are applicable to guarantees issued or modified after December 31, 2002. The
future impact will depend upon whether Siliconix enters into or modifies any
material guarantee arrangements. The adoption of FIN 45 did not have a material
impact on our consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), Consolidation
of Variable Interest Entities, an interpretation of ARB 51. The primary
objectives of this interpretation are to provide guidance on the identification
of entities for which control is achieved through means other than through
voting rights ("variable interest entities") and how to determine when and which
business enterprise (the "primary beneficiary") should consolidate the variable
interest entity. This new model for consolidation applies to an entity in which
either (i) the equity investors (if any) do not have a controlling financial
interest; or (ii) the equity investment at risk is insufficient to finance that
entity's activities without receiving additional subordinated financial support
from other parties. In addition, FIN 46 requires that the primary beneficiary,
as well as all other enterprises with a significant variable interest in a
variable interest entity, make additional disclosures. Certain disclosure
requirements of FIN 46 were effective for financial statements issued after
January 31, 2003. In December 2003, the FASB issued FIN 46 (revised December
2003), Consolidation of Variable Interest Entities ("FIN 46-R") to address
certain FIN 46 implementation issues. The effective dates and impact of FIN 46
and FIN 46-R are as follows: (i) Special-purpose entities ("SPEs") created prior
to February 1, 2003: We must apply either the provisions of FIN 46 or early
adopt the provisions of FIN 46-R at the end of the first interim or annual
reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to
February 1, 2003: We are required to adopt FIN 46-R at the end of the first
interim or annual reporting period ending after March 15, 2004. (iii) All
entities, regardless of whether an SPE, that were created subsequent to January
31, 2003: The provisions of FIN 46 were applicable for variable interests in
entities obtained after January 31, 2003. The adoption of the provisions
applicable to SPEs and all other variable interests obtained after January 31,
2003 did not have a material impact on our financial position, results of
operations, or liquidity. We do not expect the adoption of FIN 46-R provisions
22
applicable to Non-SPEs created prior to February 1, 2003, to have a material
impact on our financial position, results of operations or liquidity.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which is effective for contracts
entered into or modified after June 30, 2003, with certain exceptions, and for
hedging relationships designated after June 30. The guidance is to be applied
prospectively. The adoption of this standard did not have a material impact on
our financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. The standard
specifies that instruments within its scope embody obligations of the issuer and
that, therefore, the issuer must classify them as liabilities. We have not
issued any such financial instruments.
Safe Harbor Statement
From time to time, information provided by us, including but not limited
to statements in this report, or other statements made by or on our behalf, may
contain "forward-looking" information within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements involve a number of
risks, uncertainties and contingencies, many of which are beyond our control,
which may cause actual results, performance or achievements to differ materially
from those anticipated. Set forth below are important factors that could cause
our results, performance or achievements to differ materially from those in any
forward-looking statements made by us or on our behalf.
Majority Shareholder
Vishay owns an 80.4% interest in Siliconix. We maintain various agreements,
transactions and relationships with Vishay. While management believes that
these agreements, transactions and relationships provide administrative and
operating efficiencies, the existence of these arrangements limits our
autonomy.
Technological Change and Competition
The markets for our products and technologies are characterized by rapidly
changing technology, frequent new product introductions, and declining
average selling prices over product life cycles. Our 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, we must respond to competitors in our markets.
If we are not able to make timely introduction of new products and
technologies, or to respond effectively to competition, our 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 our 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 our products that in turn could have a materially adverse
effect on our consolidated financial position and results of operations.
Conversely, during periods of a rising economy, we may experience intense
demand for our products. During such periods, we may have difficulty
expanding our manufacturing to satisfy demand. Factors which could limit
such expansion include delays in procurement of manufacturing equipment,
shortages of skilled personnel and capacity constraints at our facilities.
If we are unable to meet our customers' requirements and our competitors
sufficiently expand production, we could lose customers and/or market share.
This loss could have an adverse effect on our financial condition and
results of operations.
23
Political and Economic Considerations
In recent years, a large and increasing portion of our net sales, operating
profits, manufacturing production, and growth has come from our
international operations. As a result, our business activities and financial
results could be significantly affected by the policies of foreign
governments and prevailing political, social, and economic conditions.
Dependence on Key Suppliers
We use numerous suppliers to supply raw materials for the manufacture and
support of our products. Although we make 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 us and/or a small group of other companies
in the semiconductor industry. We have 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 our results of operations will not be materially and
adversely affected if, in the future, we do not receive sufficient materials
to meet our 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. We have on occasion been notified
that we may be infringing patent and other intellectual property rights of
others. In addition, customers purchasing components from us have rights to
indemnification under certain circumstances if such components violate the
intellectual property rights of others. Further, we have observed that in
the current semiconductor industry business environment, companies have
become more aggressive in asserting and defending patent claims against
competitors. While we continue to vigorously defend our intellectual
property rights, we may become party to disputes regarding patent licensing
and cross patent licensing. Although licenses are generally offered in such
situations and we have successfully resolved these situations in the past,
there can be no assurance that we will not be subject to future litigation
alleging intellectual property rights infringement, or that we will be able
to obtain licenses on acceptable terms. An unfavorable outcome regarding one
of these matters could have a material adverse effect on our business and
operating results.
Interest and Currency Rate Exposure
In the normal course of business, our financial position 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 our investment portfolio, an
immediate 10 percent increase in interest rates will not have a material
effect on our near-term financial condition or results of operations. We do
not use derivative financial instruments for trading or speculative
purposes. Net foreign currency gains and losses did not have a material
effect on our results of operations for fiscal 2003, 2002, or 2001.
24
Environmental Regulations
To date, our 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 our 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, we could be subject to fines, suspension of production, alteration
of our manufacturing processes, or even cessation of our operations if we
fail 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 our manufacturing processes.
Earthquakes
Our 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, that
in the event of a major earthquake, the resulting damage would not
materially impact or even interrupt our production, either of which could
materially adversely affect our financial condition and results of
operations.
Severe Acute Respiratory Syndrome
The outbreak of severe acute respiratory syndrome, or SARS, that began in
the People's Republic of China adversely affected our business during the
first six months of 2003, particularly in Asia where we derived
approximately 75% of our revenue in 2003 and 2002. This impact included
disruptions in the operations of our customers, a slowdown in customer
orders and reduced sales in certain end markets. If an outbreak of SARS or
like disease were to recur on a comparable scale in Asia, we could
experience similar disruptions to our business.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
In the normal course of business, our financial position 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 our investment portfolio, an immediate 10 percent increase
in interest rates will not have a material effect on our near-term financial
condition or results of operations. We do not use derivative financial
instruments for trading or speculative purposes. Net foreign currency gains and
losses did not have a material effect on our results of operations for fiscal
2003, 2002, or 2001.
Item 8. Financial Statements and Supplementary Data.
The consolidated 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 our Annual Report to
Stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
25
Item 9A. Controls and Procedures.
An evaluation was performed under the supervision and with the participation
of our management including the CEO and Principal Accounting Officer (PAO), of
the effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation, our CEO and PAO concluded that our
disclosure controls and procedures are effective as of the end of the fourth
quarter of 2003, including for purposes of ensuring that all material
information required to be filed in this report has been made known to the
Company's management, including the CEO and PAO, in a timely fashion.
There has not been any change in our internal controls over financial
reporting during the fourth quarter of fiscal 2003 that has materially affected,
or is reasonably likely to materially affect, the Company's internal controls
over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The executive officers of Siliconix are identified in Item 4A of Part I of
this Annual Report on Form 10-K. Identification of the directors of Siliconix is
incorporated by reference from the "Election of Directors" section of our
definitive Proxy Statement to be mailed to stockholders in connection with the
2004 Annual Stockholders Meeting and filed with the Securities and Exchange
Commission in April 2004 (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.
Incorporated by reference from the "Security Ownership" section of the Proxy
Statement. We do 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. Principal Accountants Fees and Services.
Incorporated by reference from the "Ratification of Appointment of
Independent Public Accountant - Fees Paid to Ernst & Young LLP" section of the
Proxy Statement.
26
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 Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2003 and 2002
Consolidated Statements of Income for the years ended December 31,
2003, 2002, and 2001
Consolidated Statements of Cash Flows for the years ended December
31, 2003, 2002, and 2001
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2003, 2002, and 2001
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.
27
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)
10.17 Intercompany Loan Agreement dated December 26, 2002 between
Vishay Intertechnology, Inc., as borrower, and Siliconix
incorporated, as lender.
10.18 Amendment No.1 to Intercompany Loan Agreement dated June 25,
2003 to Intercompany Loan Agreement dated December 26, 2002
between Vishay Intertechnology, Inc., as borrower, and
Siliconix incorporated, as lender.
13 Portions of Siliconix incorporated 2003 Annual Report to
Stockholders
21 Subsidiaries of the Company
31.1 Certification pursuant to Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 - President and
Chief Executive Officer
31.2 Certification pursuant to Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 - Principal
Accounting Officer
32.1 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
32.2 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 our 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 our 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 our Current Report on Form 8-K,
filed with the SEC on June 1, 2001.
4 Incorporated by reference to Exhibits to our Quarterly Report on Form 10-Q
for the quarter ended September 28, 1997, filed with the SEC on November 12,
1997.
28
(b) Reports on Form 8-K
On October 29, 2003, we filed a current report under Item 12 of Form
8-K, reporting the financial results for the fiscal quarter and nine
fiscal months ended September 27, 2003.
29
SILICONIX INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
Balance at Charged to
Beginning of Costs and Charged to Balance at
Period Expense Revenue (1) Deductions(2) End of Period
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
2003
Allowance for Doubtful Accounts 1,582 (212) - - 1,370
Allowance for Price Adjustments 10,894 - 27,384 26,695 11,583
Allowance for Returned Parts and
distributor adjustments 5,383 - 14,989 13,155 7,217
- ---------------------------------------------------------------------------------------------------------------------
17,859 (212) 42,373 39,850 20,170
- ---------------------------------------------------------------------------------------------------------------------
(1) The Company has agreements with distributors that historically provided
limited rights of product return. Beginning in 2002, the Company modified
these arrangements to allow distributors a limited credit for unsaleable
products, which it terms a "scrap allowance." Consistent with industry
practice, the Company also has a "stock, ship and debit" program whereby
it considers requests by distributors for credits on previously purchased
products that remain in distributors' inventory, to enable the
distributors to offer more competitive pricing. In addition, the Company
has contractual arrangements whereby it provides distributors with
protection against price reductions initiated by the Company after product
is sold by the Company to the distributor and prior to resale by the
distributor. The Company records a reduction of revenue during each
period, and records a related reduction to accounts receivable for the
period, based upon its estimate of product returns, scrap allowances,
"stock, ship and debit" credits and price protection credits that will be
attributable to sales recorded through the end of the period. The Company
makes these estimates based upon sales levels to its distributors during
the period, inventory levels at the distributors, current and projected
market conditions and historical experience under the programs.
(2) Represents actual credits granted to distributors.
30
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 15, 2004
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 March 15, 2004
- ----------------------- Officer and a Director
King Owyang
Principal Financial and
Accounting Officer:
/s/ William M. Clancy Principal Accounting Officer March 15, 2004
- -----------------------
William M. Clancy
/s/ Glyndwr Smith Chairman of the Board March 15, 2004
- ----------------------- of Directors
Glyndwr Smith
/s/Christine P. Heiss Director March 15, 2004
- -----------------------
Christine P. Heiss
/s/ Mark B. Segall Director March 15, 2004
- -----------------------
Mark B. Segall
/s/ Timothy V. Talbert Director March 15, 2004
- -----------------------
Timothy V. Talbert
31
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)
10.17 Intercompany Loan Agreement dated December 26, 2002 between Vishay
Intertechnology, Inc., as borrower, and Siliconix incorporated, as
lender.
10.18 Amendment No.1 to Intercompany Loan Agreement dated June 25, 2003 to
Intercompany Loan Agreement dated December 26, 2002 between Vishay
Intertechnology, Inc., as borrower, and Siliconix incorporated, as
lender.
13 Portions of Siliconix incorporated 2003 Annual Report to Stockholders
21 Subsidiaries of the Company
31.1 Certification pursuant to Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 - President and Chief Executive
Officer
31.2 Certification pursuant to Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 - Principal Accounting Officer
32.1 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
32.2 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 our 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 our 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 our Current Report on Form 8-K,
filed with the SEC on June 1, 2001.
4 Incorporated by reference to Exhibits to our Quarterly Report on Form 10-Q
for the quarter ended September 28, 1997, filed with the SEC on November 12,
1997.
32