-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GrBJKrVyTyx1ly3HFTThSuxlKORm7OFsF0rtoSOmvtE0+tNDLcBqsFEzjJs2zQ2/ REe4O9gU8EjB0cFQsP3Mdw== 0000922423-02-000374.txt : 20020415 0000922423-02-000374.hdr.sgml : 20020415 ACCESSION NUMBER: 0000922423-02-000374 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILICONIX INC CENTRAL INDEX KEY: 0000090283 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 941527868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-03698 FILM NUMBER: 02598586 BUSINESS ADDRESS: STREET 1: 2201 LAURELWOOD RD CITY: SANTA CLARA STATE: CA ZIP: 95056 BUSINESS PHONE: 4089888000 MAIL ADDRESS: STREET 1: 2201 LAURELWOOD RD CITY: SANTA CLARA STATE: CA ZIP: 95056 10-K 1 kl03039_10k.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ___________ Commission file number 0-3698 SILICONIX INCORPORATED (Exact name of registrant as specified in its charter) Delaware 94-1527868 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 2201 Laurelwood Road Santa Clara, California 95054 (Address of principal executive offices) (408) 988-8000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by nonaffiliates is $175,300,000, based upon the closing price for the registrant's Common Stock on March 28, 2002 ($30). There is no non-voting common stock. The number of shares of the registrant's Common Stock, $0.01 par value, outstanding at March 28, 2002 was 29,879,040. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Siliconix incorporated 2001 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 2002 pursuant to Section 14 of the Securities Exchange Act of 1934 in connection with the 2002 Annual Meeting of Stockholders of Siliconix incorporated are incorporated into Part III. PART I Item 1. Business. General Siliconix incorporated ("Siliconix" or the "Company") designs, markets, and manufactures power and analog semiconductor products. The Company focuses on technologies and products for the communications, computer and automotive markets. Additionally, many of the Company's products are used in instrumentation, industrial and consumer applications. Founded in 1962, Siliconix uses its advanced technology and applications expertise to develop value-added products for power management and conversion. These products serve two types of markets. The first type, represented by the communications and computer markets, features design cycles as short as a few months and product life cycles as short as six to twelve months, thus creating numerous new opportunities for the Company. The other type, represented by the automotive market, features long design cycles, sometimes as much as four or five years, and product life cycles as long or longer. Participation in both types of businesses helps the Company balance growth opportunities with research and development investments required to maintain technology leadership. Siliconix was a member of TEMIC Semiconductors, a division of the Daimler-Benz microelectronics consortium, for several years. On March 2, 1998, Daimler-Benz sold the Semiconductor Division of TEMIC, which included its 80.4% interest in Siliconix, to Vishay Intertechnology, Inc. of Malvern, Pennsylvania ("Vishay"). The Company's products are sold through the Vishay worldwide sales organization. Products The analog and power products produced by Siliconix can be divided into two general classes: Discrete devices and integrated circuits (ICs). Discrete devices are active components that generate, control, regulate and amplify or switch electronics signals or energy. They must be interconnected with passive components (resistors, capacitors, inductors, etc.) or other active components to create an electronic circuit. ICs consist of a number of active and passive components, interconnected on a single chip, that are intended to perform a specific function. The Company's discrete Power MOSFETs (an acronym for "metal oxide semiconductor field effect transistor") and Power ICs are designed for similar applications and can often be used together as chip sets with complementary performance characteristics optimized for a specific application. Power MOSFETs are the Company's largest product line in 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 spectrum (below 200V) mainly for fixed telecom (networking, routers, etc.) applications, where product performance is a very important feature. Advanced process technologies, such as the Company's "Trench" technology, offer very high cell density, very low on-resistance and optimized switching parameters for high frequency DC-DC power conversion. In November 2000, Siliconix announced its achievement and introduced a breakthrough process innovation with a density of 178 million-cells. These process technologies have been coupled with innovative packaging techniques to create surface mount product families, such as LITTLE FOOT(R) and LiteFOOT(R) Power MOSFETs, that provide customers with size and performance benefits as well as manufacturing compatibility with digital ICs. The Company's new package innovation PowerPAK(TM) Power MOSFETs drastically improve thermal performance, giving a higher current capability than other package solutions for a given footprint. This leadless package with ultra thin height profile 2 combined with bond wireless technology such as PowerConnectTM allows for desirable characteristics such as extreme low on-resistance, small size and better power dissipation. Other package innovations are focused on making the overall size of the device smaller, and include the introduction of LITTLE FOOT Power MOSFETs in SC-75A and SC-89 packages. These product platforms provide competitive advantages to the Company's customers by offering better performance and smaller form factors for new product development. Siliconix Power ICs include power conversion, power interface and motor control ICs. In 2000, Siliconix introduced a new line of Low Dropout Regulators (LDOs) to complement its power conversion lines of products. The Company's power conversion and interface ICs are based on low-voltage mixed-signal silicon processes that offer customers higher frequencies without compromising efficiencies compared to competitive products. They are used in applications, such as cellular phone handsets, where an input voltage from a battery or other supply source must be converted to a level that is compatible with logic signals used by power amplifiers, baseband logic, DSPs, CPU I/O and other sub-circuits in the system. The Company's motor control ICs are used to control motion in data storage applications (e.g., optical and hard disk drives) and to control the speed of small motors in office equipment (e.g., printers and copy machines). In addition to these products, the Company offers a line of power conversion ICs for higher-power applications in the fixed telecom market. The balance of the Company's product line includes discrete small-signal transistors and signal processing ICs (e.g., analog switches and multiplexers). The Company's small-signal transistors range from junction field-effect transistors (JFETs), which was Siliconix's original product line and even today remains critical for some applications, to newer transistor processes, such as the Company's double-defused metal oxide transitor (DMOS) processes, which offer performance advantages over competitors' products. The analog switch and multiplexer product family have long been used in instrumentation and industrial equipment that receives and/or outputs real-world analog signals. A recent application for this technology is in broadband communication devices such as xDSL modems. Manufacturing The Company's manufacturing operations are strategically located to support customer manufacturing locations, cultivate growth markets and access cost-effective labor markets. All of the Company's manufacturing sites use Statistical Process Control methods of total quality control and have ISO 9000 certification. In addition, the Company has IS0 14001 certification for manufacturing sites in United States, Germany, Taiwan, and China. The Company manufactures power products in a Class 1 six-inch wafer fabrication facility in Santa Clara, California and subcontracts wafer fabrication through an affiliate in Itzehoe, Germany. The Company completed the process of transferring its power product technology to a subcontractor in Japan and production started there in 2001. However, the transfer of the technology is an on-going process as new technologies are developed. This approach leverages lower manufacturing costs in certain overseas markets to ensure an adequate supply of wafers in the future. The manufacturing of wafers for analog switches and multiplexers is done through an outsourcing arrangement by a foundry in Dresden, Germany. A subcontractor in Beijing, China manufactures small signal transistors. Assembly and test facilities include Company owned facilities in Kaohsiung, Taiwan and Shanghai, China, as well as subcontractors in the Philippines, Taiwan, Israel, China and Japan. In order to secure additional manufacturing capacity, in 1999 the Company signed an agreement with Fraunhofer Gesellschaft ("FHG"), a subsidiary of Vishay, for the use of its wafer fabrication facility in Northern Germany until December 31, 2007. Under this agreement, the Company is committed to pay for operating costs, at FHG's manufacturing location in Itzehoe, Germany, regardless of the extent of actual manufacturing output through the expiration of the agreement. In 1999 operating expenses at this location, for which the Company was responsible, under the agreement were approximately $25.0 million. As of December 31, 2001, the Company was not required to make any additional payment to support FHG's operating expenses. Raw materials used by the Company include single-crystal silicon wafers, chemicals, gases, metal wire, ceramic, plastic and glass-to-metal packages. Although these materials are generally available from two or more sources, the 3 Company experiences difficulties in obtaining supplies of some raw materials from time to time. Accordingly, certain key materials are obtained from a limited group of suppliers, some of which are thinly capitalized independent companies. Difficulties obtaining raw materials in the future could adversely affect the Company's operations. Government regulations impose various environmental controls on the discharge of certain chemicals and gases used in the manufacturing process. The Company believes that its activities substantially conform to present and anticipated regulations and is constantly upgrading its Santa Clara facility to ensure continued compliance with such regulations. In 1990, the Company reached a settlement with the current owner of a site the Company occupied prior to 1972 for cleanup of soil and ground water at the site, and settled a lawsuit against its insurance carriers in 1992 and 1993 with respect to this matter. The Company also established remedial activity to remove soil and groundwater contamination at its Santa Clara site in 1990. For details on these matters, see Item 3, Legal Proceedings. While the Company has experienced only limited effects on its operations from environmental regulations, there can be no assurance that changes in such regulations will not impose the need for additional capital investments or other requirements. Sales Since the acquisition by Vishay of a majority interest in the Company, the Company's products have been sold by the Vishay worldwide sales organization, which consists of much of the same worldwide structure of sales representatives and distributors that was established for TEMIC Semiconductors. The affiliated sales organizations are regionally based, functioning as undisclosed agents that earn a commission as a fixed percentage of sales and perform all sales-related activities. The following table shows net sales and the percentage of the Company's net sales on a geographic basis for the periods indicated (dollars in thousands): Years ended December 31 -----------------------
2001 2000 1999 ---- ---- ---- North America $ 50,911 17% $128,349 27% $ 98,042 26% Europe 52,323 17% 101,221 21% 78,350 20% Japan 36,934 12% 50,022 11% 40,007 10% Taiwan 61,211 20% 58,876 12% 61,983 16% Singapore 38,688 12% 54,531 12% 38,322 10% Asia Pacific 64,298 21% 76,300 16% 63,632 17% All Other 1,201 1% 3,846 1% 2,972 1% -------- -------- -------- -------- -------- -------- $305,566 100% $473,145 100% $383,308 100%
The Company markets its products in different geographic areas as follows: North America: Sales are made by Vishay's United States and Canada ("North American") sales force and the respective sales representatives organizations. Sales representatives in North America are compensated by commission on their sales. Area sales managers coordinate these representatives and the North American sales force. Vishay's North American sales headquarters are located in Shelton, Connecticut. Regional sales offices are located in or near Chicago, Illinois; Tampa, Florida; Houston, Texas; Santa Clara, California; and Orange County, California. Sales not made directly to original equipment manufacturers are made through distributors at approximately 350 locations throughout the United States and Canada. The Company provides certain distributors with contracts to protect inventory against reductions in published prices and against product obsolescence. Europe: Sales of the Company's products in Europe are made by Vishay's European sales force and sales representative organizations. As in North America, sales not made directly to the original equipment manufacturers 4 are made through distributors, with approximately 125 locations. European distributors are provided with certain inventory obsolescence and price protections similar to those granted to US distributors. Japan: Sales in Japan are made both by Vishay's Japan sales force and distributors. Asia Pacific: Sales are made in Hong Kong, Korea, the Republic of China (Taiwan), The People's Republic of China and in Southeast Asia by Vishay's Asia-Pacific sales force, headquartered in Singapore. In these locations, as in the United States, sales are made directly to original equipment manufacturers through field sales engineers or through sales representatives. Direct sales agents and representatives are compensated on a commission basis. Sales not made directly to original equipment manufacturers are made through distributors, which currently have approximately 75 locations in the region. Distributors in this region are provided with certain inventory obsolescence and price protections similar to those granted to US distributors. Sales in the rest of the world are made through sales representatives, stocking representatives and distributors. Order Backlog As of December 31, 2001, the backlog of orders booked was $53.9 million. The backlog as of December 31, 2000 was $117.6 million. This decrease was largely due to the downturn in the computer and cellular phone handset markets which resulted in reduced demand for the Company's products in 2001. The Company includes in the December 31, 2001 backlog only open orders that have been released by the customer for shipment in the calendar year 2002. The Company's customers encounter uncertain and changing demand for their products. They typically order products from the Company based on their forecasts. If demand falls below customers' forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in the Company's backlog, in many instances without the payment of any penalty. Therefore, the backlog is not necessarily indicative of results for the following year. Competition The semiconductor industry is highly competitive. Many of the Company's competitors are larger companies with greater financial resources and limited dependency on semiconductor products as their sole source of sales and earnings. The Company has been able to compete effectively by being selective in its choice of products and markets, and by being a technology-leader in those areas. Research and Development Research and development activities are directed toward expanding the Company's technology leadership. The Company's focus is on developing new products and technologies with particular attention to activities that improve the cycle time from new product development to product release. Total research and development expenditures were $17.2 million in 2001, $21.0 million in 2000 and $17.0 million in 1999. The reduction in research and development expenditures in 2001 was due to reduced personnel and other associated costs resulting from lower headcount. See Note 2 of Notes to the Consolidated Financial Statements. Patents and Licenses Siliconix protects its technology leadership by securing patents on proprietary products and processes. As of December 31, 2001, Siliconix owned 193 U.S. patents, covering primarily semiconductor device structures, processes, and circuitry. Expiration dates for these patents range from 2005 to 2020. As of December 31, 2001, an additional two patents had been allowed but not yet issued. There were also 17 U.S. patent applications pending. The Company believes that, as it increasingly utilizes these patents in the design and manufacture of its products, its royalty obligations will decrease significantly. See Note 8 of Notes to the Consolidated Financial Statements. 5 Employees On December 31, 2001, the Company employed 1,631 people, of whom 582 were employed in the United States, 1,039 in East Asia, and 10 in Europe. The Company's future success is substantially dependent on its ability to attract and retain these highly qualified technical and administrative personnel. There are no collective bargaining agreements between the Company and its employees, and there have been no work stoppages due to labor difficulties. The Company considers its relations with its employees to be good. Executive Officers The following sets forth the name, age, offices presently held, business experience, and principal occupation of the Company's executive officers: Name Office Presently Held ---- --------------------- King Owyang President & Chief Executive Officer Nick Bacile Executive Vice President Dr. Owyang, age 56, joined the Company in January 1988 as a divisional Vice President of Research and Development. He assumed additional responsibility for Corporate Reliability and Quality Assurance in April 1990. He became Vice President, Engineering in May 1990; Executive Vice President, Technology and Silicon Operations in April 1992; and President and Chief Executive Officer in March 1998. Dr. Owyang holds B.S. and Ph.D. degrees in Physics. Mr. Bacile, age 54, joined the Company in May 1999 as Senior Vice President of the Siliconix Standard Products Unit. He became Executive Vice President of the Company in September 2000. Prior to joining the Company, Mr. Bacile served as Vice President of Marketing for California Micro Devices Corporation, Milpitas, California, from July 1996 to April 1999. Mr. Bacile holds a Bachelor Degree in Electronics. Item 2. Properties. The Company owns its principal manufacturing plant and general offices, which are located in three two-story buildings totaling 220,100 square feet on a 12-acre site in Santa Clara, California. Siliconix Limited, a subsidiary of the Company, currently occupies, under an agreement with Vishay UK Limited, approximately 2,000 square feet at Vishay's Bracknell, United Kingdom location, where the Company's European Headquarters are located. Siliconix (Taiwan) Limited, a subsidiary of the Company, owns a 50,000-square-foot portion of a building in the Nan-Tse Export Processing Zone, a suburb of Kaohsiung, Taiwan, which consists of manufacturing and general office space. Shanghai Simconix Co. Ltd., a joint venture between the Company and the Shanghai Institute of Metallurgy (the "SIM"), leases 41,000 square feet of manufacturing and general office space in Shanghai from the SIM. In 2000, Simconix leased an additional 39,000 square feet from the SIM. Item 3. Legal Proceedings. In 2001, the Company remained a party to two environmental proceedings. The first involves property that the Company vacated in 1972. In July 1989, the California Regional Water Quality Control Board ("RWQCB") issued Cleanup and Abatement Order No. 89-115 both to the Company and the current owner of the property. The Order alleged that the Company contaminated both the soil and the groundwater on the property by the improper disposal of certain chemical solvents. The RWQCB considered both parties to be liable for the contamination and sought to have them decontaminate the site to acceptable levels. The Company subsequently reached a settlement of this matter with the current owner of the property. The settlement provided that the current owner will indemnify the Company and its employees, officers, and directors against any liability that may arise out of any governmental 6 agency actions brought for environmental cleanup of the subject site, including liability arising out of RWQCB Order No. 89-115, to which the Company remains nominally subject. The second proceeding involves the Company's Santa Clara, California facility, which the Company has owned and occupied since 1969. In February 1989, the RWQCB issued Cleanup and Abatement Order No. 89-27 to the Company. The Order was based on the discovery of contamination of both the soil and the groundwater on the property by certain chemical solvents. The Order called for the Company to specify and implement interim remedial actions and to evaluate final remedial alternatives. The RWQCB issued a subsequent order requiring the Company to complete the decontamination. The Company has substantially completed its compliance with the RWQCB's orders. In February and March 2001, several purported class action complaints were filed in the Court of Chancery in and for New Castle County, Delaware and the Superior Court of the State of California against Vishay, the Company, and the Company's directors in connection with Vishay's announced proposal to purchase all issued and outstanding shares of the Company not already owned by Vishay. The class actions, filed on behalf of all non-Vishay Siliconix shareholders, allege, among other things, that Vishay's proposed offer was unfair and a breach of fiduciary duty. One of the Delaware class actions also contains derivative claims against Vishay on behalf of the Company alleging self-dealing and waste because Vishay purportedly usurped the Company's inventory and patents, appropriated the Company's separate corporate identity, and obtained a below-market loan from the Company. In May 2001, the Delaware Court of Chancery consolidated the several class action complaints described above. On or about May 31, 2001, lead plaintiff Fitzgerald served an amended complaint, an application for a preliminary injunction against proceeding with or taking steps to give effect to Vishay's proposed tender offer or the contemplated short-form merger, and a motion to expedite proceedings and additional discovery requests. In addition to his prior allegations, plaintiff claimed, among other things, that in connection with the proposed offer and short-form merger, defendants allegedly violated (i) their duty to deal fairly from a timing and process perspective with the minority shareholders of Siliconix, (ii) their duties of loyalty and candor, and (iii) Vishay's obligations to pay a fair price to the Siliconix minority shareholders. Following expedited discovery and briefing, on June 19, 2001, the Delaware Court of Chancery issued its order denying Fitzgerald's motion for a preliminary injunction. The Court found that Fitzgerald had not succeeded in demonstrating that he had a reasonable probability of success on the merits of his claims. The Company and Vishay filed motions to dismiss the verified amended complaint on June 6, 2001. Vishay filed a motion for summary judgment on June 25, 2001. The motions to dismiss and for summary judgment are pending. On July 3, 2001, the California Superior Court entered an order staying the California state-court actions that had been filed against the Company and Vishay in connection with Vishay's earlier proposal. On April 25, 2001 the Company initiated a lawsuit against General Semiconductor, Inc. In its complaint, the Company asserted claims that General Semiconductor is infringing United States Letters Patent Nos. 5,072,266 and 5,298,442 relating to certain power MOSFET products. General Semiconductor has denied the material allegations in the Company's complaint and has asserted various affirmative defenses. General Semiconductor also has asserted counterclaims for patent misuse and unfair competition against the Company, seeking a declaratory judgment of non-infringement, invalidity and/or unenforceability and seeking injunctive relief, damages, attorneys' fees and costs. The Company has not yet responded to those Counterclaims. The Company and General Semiconductor tentatively have reached a settlement that will resolve the action without the need for further litigation, and are actively negotiating the details of the proposed settlement. 7 Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- (a) The registrant's Annual Meeting of Stockholders was held on October 24, 2001. (b) Not applicable. (c) There were two matters voted on at the Meeting. A brief description of each of these matters, and the results of the votes thereon, are as follows: 1. Election of Directors Nominee For Abstain ------- --- ------- Owyang 29,544,446 126,445 Arndt 29,350,425 320,466 Heiss 29,579,009 91,882 Lipcaman 29,349,297 321,594 Rosenberg 29,573,409 97,482 Segall 29,579,397 91,494 Smith 29,537,754 133,137 Talbert 29,579,437 91,454 2. Ratification of the appointment of Ernst & Young LLP as the registrant's auditors for the fiscal year ending December 31, 2001. Broker For Against Abstain Nonvotes --- ------- ------- -------- 29,630,471 23,890 16,530 -0- (d) Not applicable 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. As of March 28, 2002, there were 571 holders of record of the Company's Common Stock. Under Delaware law, the Company may pay dividends only from retained earnings or, if none, from net profits for the current or preceding fiscal year. The Company has paid no dividends since December 1980 in order to retain the Company's earnings to fund future growth requirements. No change in such policy is anticipated in the near future. A presentation of the highest and lowest "last trade" price for the Company's Common Stock for each quarterly period during 2000 and 2001 is provided in Note 14 to Consolidated Financial Statements. The Company's Common Stock trades on the Nasdaq Stock Market under the symbol "SILI." Item 6. Selected Financial Data. Selected financial data is set forth in Exhibit 13 hereto. This Annual Report on Form 10-K will be mailed to Stockholders with the Company's Annual Report to Stockholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Managements Discussion and Analysis of Financial Condition and Results of Operations are set forth in Exhibit 13 hereto. This Annual Report on Form 10-K will be mailed to Stockholders with the Company's Annual Report ot Stockholders. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Quantitive and Qualitative Disclosures about Market Risk are set forth in Exhibit 13 hereto. This Annual Report on Form 10-K will be mailed to Stockholders with the Company's Annual Report to Stockholders. Item 8. Financial Statements and Supplementary Data. The financial statements, reports of independent auditors, and quarterly financial data are set forth in Exhibit 13 hereto. This Annual Report on Form 10-K will be mailed to Stockholders with the Company's Annual Report to Stockholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. 9 PART III Item 10. Directors and Executive Officers of the Registrant. The executive officers of the Company are identified in Item 1 of Part I of this Annual Report on Form 10-K. Identification of the directors of the Company is incorporated by reference from the "Election of Directors" section of the Company's definitive Proxy Statement to be mailed to stockholders in connection with the 2002 Annual Stockholders Meeting and filed with the Securities and Exchange Commission in April 2002 (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. Item 13. Certain Relationships and Related Transactions. Incorporated by reference from the "Certain Relationships and Certain Transactions" section of the Proxy Statement. 10 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Documents Filed as Part of Form 10-K 1. Financial Statements The Consolidated Financial Statements are set forth in Exhibit 13 hereto. Independent Auditors Report on the Financial Statements Consolidated Statements of Income for the years ended December 31, 2001, 2000, and 1999 Consolidated Balance Sheets as of December 31, 2001 and 2000 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000, and 1999 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999 Notes to Consolidated Financial Statements 2. Financial Statement Schedule A. Independent Auditors Report on Financial Statement Schedule II. Valuation and Qualifying Accounts All other schedules have been omitted as the required information is reported or incorporated by reference elsewhere in this Annual Report or is not applicable. 11 3. Exhibits 3.1 Restated Certificate of Incorporation/1 3.2 Certificate of Amendment of Restated Certificate of Incorporation/2 3.3 Bylaws/3 10.2 One-Year Key Professional Incentive Bonus Plan/1 10.5 Amended and Restated License Agreement dated April 10, 1990 between the Company and International Rectifier Corporation/1 10.6 Amendment to Amended and Restated License Agreement dated December 21, 1990 between the Company and International Rectifier Corporation/1 10.15 Amendment No. 1 to Siliconix One-Year Key Professional Incentive Bonus Plan/4 10.16 Amendment No. 2 to Siliconix One-Year Key Professional Incentive Bonus Plan/4 13 Portions of Siliconix incorporated 2001 Annual Report to Stockholders 21 Subsidiaries of the Company - --------------------- 1 Incorporated by reference from Exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, filed with the SEC on April 15, 1991. 2 Incorporated by reference from Exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed with the SEC on March 30, 2000. 3 Incorporated by reference from Exhibits to the Company's Current Report on Form 8-K, filed with the SEC on June 1, 2001. 4 Incorporated by reference to Exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997, filed with the SEC on November 12, 1997. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K in the last quarter of the year ended December 31, 2001. 12 Report of Ernst & Young LLP, Independent Auditors To the Board of Directors and Stockholders of Siliconix incorporated: We have audited the consolidated statements of Siliconix incorporated as of December 31, 2001 and 2000 and for each of the years in the three-year period ended December 31, 2001, and have issued our report thereon dated January 28, 2002 (included elsewhere in this Annual Report on Form 10-K). Our audit also included the financial statement schedule listed in item 14(a)2 of this Annual Report on Form 10-K. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ERNST & YOUNG LLP San Jose, California January 28, 2002 13 SILICONIX INCORPORATED SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------- Balance at Charged to Charged to Deductions (2) Balance at Beginning of Costs and Revenue (1) End of Period Period Expense - ---------------------------------------------------------------------------------------------------------------------------- 1999 Allowance for Doubtful Accounts 2,868 1,487 -- 1,489 2,866 Allowance for Price Adjustments 750 -- 9,698 9,198 1,250 Allowance for Returned Parts and 10,773 -- 19,669 16,188 14,254 distributor adjustments - ---------------------------------------------------------------------------------------------------------------------------- 14,391 1,487 29,367 26,875 18,370 2000 Allowance for Doubtful Accounts 2,866 1,554 -- -- 4,420 Allowance for Price Adjustments 1,250 -- 6,871 6,421 1,700 Allowance for Returned Parts and 14,254 -- 9,664 11,739 12,179 distributor adjustments -- - ---------------------------------------------------------------------------------------------------------------------------- 18,370 1,554 16,535 18,160 18,299 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 12,179 -- 18,368 16,370 14,177 distributor adjustments - ---------------------------------------------------------------------------------------------------------------------------- 18,299 - 28,144 27,453 18,990 - ----------------------------------------------------------------------------------------------------------------------------
(1) Represents reserves made for price adjustments, returned parts and distributor adjustments that are provided for as a part of the Company's distributor agreements. Price adjustment reserves represent the contractual protection against price reductions granted to distributors by the Company. Distributors have a period of time to request a price protection credit, subsequent to the Company's issuance of a new price book, after comparing the most recent price book to their purchase price for on-hand inventory. The Company grants distributors contractual protection against product obsolescence. Distributors may return products in an amount of up to 5% of its purchases for the trailing six months. The returned products must be in good condition for resale "as new". In addition, distributors may exchange inventory from an initial stocking order within certain contractual provisions. (2) Represents actual credits granted to distributors. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 1, 2002 SILICONIX INCORPORATED By: /s/ King Owyang King Owyang President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- Principal Executive Officer /s/ King Owyang -------------------------- President, Chief Executive King Owyang Officer and a Director April 1, 2002 Principal Financial and Accounting Officer /s/ William M. Clancy ----------------------- Principal Accounting Officer William M. Clancy April 1, 2002 /s/ Glyndwr Smith ------------------------ Chairman of the Board of Directors April 1, 2002 Glyndwr Smith /s/ Everett Arndt ------------------------ Director April 1, 2002 Everett Arndt /s/ Christine Heiss ------------------------- Director April 1, 2002 Christine Heiss /s/ Lori Lipcaman ----------------------- Director April 1, 2002 Lori Lipcaman /s/ Michael Rosenberg ----------------------- Director April 1, 2002 Michael Rosenberg /s/ Mark B. Segall ----------------------- Director April 1, 2002 Mark B. Segall /s/ Timothy V. Talbert ------------------------ Director April 1, 2002 Timothy V. Talbert
15 INDEX TO EXHIBITS 3.1 Restated Certificate of Incorporation/1 3.2 Certificate of Amendment of Restated Certificate of Incorporation/2 3.3 Bylaws/3 10.2 One-Year Key Professional Incentive Bonus Plan/1 10.5 Amended and Restated License Agreement dated April 10, 1990 between the Company and International Rectifier Corporation/1 10.6 Amendment to Amended and Restated License Agreement dated December 21, 1990 between the Company and International Rectifier Corporation/1 10.15 Amendment No. 1 to Siliconix One-Year Key Professional Incentive Bonus Plan/4 10.16 Amendment No. 2 to Siliconix One-Year Key Professional Incentive Bonus Plan/4 13 Portions of Siliconix incorporated 2001 Annual Report to Stockholders 21 Subsidiaries of the Company - --------------------- 1 Incorporated by reference from Exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, filed with the SEC on April 15, 1991. 2 Incorporated by reference from Exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed with the SEC on March 30, 2000. 3 Incorporated by reference from Exhibits to the Company's Current Report on Form 8-K, filed with the SEC on June 1, 2001. 4 Incorporated by reference to Exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997, filed with the SEC on November 12, 1997. 16 27 EXHIBIT 13 Five-year Summary of Selected Financial Data
Siliconix incorporated (In thousands, except per share amounts, and employment data) 2001 2000 1999 1998 1997 Net sales $ 305,556 $ 473,145 $ 383,308 $ 282,346 $ 321,551 Operating income $ 14,712 $ 137,198 $ 92,206 $ 5,361 (1) 43,980 $ Net income $ 15,095 $ 107,605 $ 66,117 $ 738 $ 33,012 Per share data: Net income (basic and diluted) $ 0.51 $ 3.60 $ 2.21 $ 0.02 $ 1.10 Shares used to compute basic and diluted net income per share 29,879 29,879 29,879 29,879 29,879 Total assets $ 475,798 $ 503,901 $ 346,678 $ 317,259 $ 281,509 Capital expenditures $ 29,462 $ 67,905 $ 33,835 $ 35,593 $ 40,244 Total long-term debt, including related party $ 2,001 $ 1,813 $ 1,700 $ 51,791 $ 38,457 Year-end worldwide employment 1,631 1,893 1,752 1,642 1,266
(1) Included in operating income for 1998 is a restructuring charge of $19,751 relating to the acquisition on March 2, 1998 of the 80.4% interest in the Company by Vishay. 1 Management's Discussion & Analysis of Financial Condition and Results of Operations The statements in this management's discussion and analysis of financial condition and results of operations that are forward looking reflect management's current opinions, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those stated or implied. Siliconix incorporated assumes no obligations to update this information. Overview Siliconix incorporated (the "Company") is engaged in designing, manufacturing, and marketing power and analog semiconductor products. The Company is a leading manufacturer of Power MOSFETs, Power ICs, and analog Signal Processing devices for computers, cellular phones, fixed communication networks, automobiles and other electronic systems. Power MOSFETs are low-voltage, surface-mount products primarily used in the communication, computer, and automotive markets, as well as other industrial and consumer application. Power ICs are integrated circuits used in communication and data storage applications. Signal Processing products are a wide array of commodity products such as Analog Switches, Low Power MOSFETs, and JFETs used in the industrial and consumer markets. The Company manufactures power products in a Class 1 six-inch wafer fab in Santa Clara, California and subcontracts wafer fabrication through an affiliate in Itzehoe, Germany. The Company completed the process of transferring its power product technology to a subcontractor in Japan and production started in 2001. However, the transfer of the technology is an on-going process as new technologies are developed. This approach leverages the lower manufacturing costs overseas as well as ensures an adequate supply of wafers in the future. The manufacturing of wafers for analog switches and multiplexers is done through an outsourcing arrangement by a foundry in Dresden, Germany. A subcontractor in Beijing, China manufactures small signal transistors. Assembly and test facilities include Company owned facilities in Kaohsiung, Taiwan and Shanghai, China, as well as subcontractors in the Philippines, Taiwan, Israel, China and Japan. Vishay Intertechnology, Inc. ("Vishay"), a Fortune 1000 Company, owns an 80.4% interest in the Company. Vishay is a leading U.S. and European manufacturer of passive electronic components (resistors, capacitors, and inductors) and a leading producer of discrete semiconductor components (diodes, transistors and optoelectronic products). All of these components are vital to the operation of electronic circuits and can be found in computers, telephones, TVs, automobiles, household appliances, medical equipment, satellites, military and aerospace equipment. With headquarters in Malvern, Pennsylvania, Vishay employs over 20,000 people in over 70 facilities in the U.S., Mexico, Germany, Austria, the United Kingdom, France, Portugal, the Czech Republic, Israel, Japan, Taiwan (R.O.C.), China, and the Philippines. The Company's products are sold by the Vishay worldwide sales organizations in three separate regions: 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 duplications of many functions, and bring greater value to end customers by allowing them to deal with one entity for their semiconductor purchasing needs. Vishay sales organizations function as undisclosed agents of the Company, through commission arrangements at a fixed percentage of sales made in each region. Under these agreements, Vishay sales organizations perform all sales functions under Vishay's legal names; however, the ownership of all sales, receivable, inventory, and risk of loss remains with Siliconix except for sales in North America. Effective from January 2001, Vishay Americas Inc., a wholly owned subsidiary of Vishay, assumed responsibility for collecting the Company's accounts receivable for the North America region. Accounts receivable ownership for North America transferred to Vishay Americas Inc. at the gross amount as soon as sales invoices are generated. Vishay Americas Inc. is compensated for accounts receivable collection through a commission arrangement at a fixed percentage of sales. Critical Accounting Policies The following are the Company's critical accounting policies: Revenue recognition The Company records revenues at the time the products are shipped to its customers. Approximately 61% of the shipments are to distributors, who purchase for resale to end-users. The distributors have certain limited rights to return products. They are also entitled to certain price protection benefits, which give them credit for unsold products that they continue to hold in inventory when the Company reduces its book prices for these items. At the time the Company records sales to these distributors, the Company also recognizes allowances against net sales for estimated product returns and price protection allowances. The Company estimates allowances based on historical returns and price adjustments on a consolidated level as well as on the general business and economic climate. 2 The Company believes these procedures enable the Company reasonably to estimate and quantify reserves for future returns and price adjustments. Accounts Receivables The Company estimates the collectibility of its receivables and establishes allowances for the amount of receivables that will prove uncollectible. The Company bases these allowances on historical collection experience, the length of time the Company's receivables are outstanding, the financial circumstances of individual customers, and general business and economic conditions. In difficult economic period conditions such as in 2001, it becomes more difficult to accurately assess collectiblity, and the Company increased the size of its collection reserves relative to the amount of receivables outstanding. Because of adverse collection experiences and the uncertainties of the current business climate, the Company increased its receivable allowances from approximately 23% of outstanding receivables at December 31, 2000 to approximately 36% of outstanding receivables at December 31, 2001. Inventories Inventories are stated at the lower of cost or market. Cost is computed on a currently adjusted standard basis (which approximates actual cost, determined on the first-in, first-out method); market is based upon estimated net realizable value. The valuation of inventory at the lower of cost or market requires the use of estimates as to the amounts of current inventory that will be sold. These estimates are dependent on the Company's assessment of current and expected orders from its customers. Results of Operations Year Ended December 31, 2001 compared to Year ended December 31, 2000 Net Sales Net sales for 2001 were $305.6 million compared to $473.1 million in 2000. The decrease of 35% from the prior year was primarily due to the downturn in the computer and cellular phone handset markets which resulted in reduced demand for the Company's products and overly optimistic industry forecasts for the cell phone handset market led to excess handsets inventories. The allowance for price adjustments, returned parts and distributor adjustments as a percentage of net sales were 5% and 3% in 2001 and 2000, respectively. The increase was primarily due to increased credits granted to the distributors for price adjustments as a function of the market conditions. Distributors utilized their maximum stock rotation allowance during 2001 due to the slowdown in the market. However, the Company's book-to-bill ratio started to improve in the third quarter of 2001 and bookings increased in absolute dollars as well. Much of the improvement in the Company's bookings was due to the Pentium 4 rollout and demand increases for components in cell phones. Order rates also improved and cancellations and reschedules decreased during the third and fourth quarter of 2001. In addition, the Company's turns business (that is, orders that are shippable within the same quarter) grew from 3.12 in the third quarter of 2001 to 3.88 in the fourth quarter of 2001. Gross Profit Gross profit as a percentage of net sales was 25% in 2001 compared to 45% in 2000. The decrease in margins for the year ended December 31, 2001 was mainly due to manufacturing overhead in excess of that required to support the reduced demand as well as pricing pressures caused by excess industry capacity. As a result of pricing pressure, the Company reviewed and adjusted prices periodically and these credits granted to the distributors for price adjustments directly impacted the Company's gross margin. The Company took action to reduce manufacturing output in light of the reduced demand during the year. The Company reduced its inventory level by reducing production outputs, which involved increased shutdown schedules. In an effort to improve the Company's operating results, the Company will continue to focus aggressively on the development of new products that tend to have higher margins. Research and Development Research and development expenses were $17.2 million in 2001 as compared to $21.0 million in 2000, an 18% decrease as a result of reduced personnel costs resulting from lower headcount and savings in other associated costs. The Company's research and development expenditures as a percentage of net sales were 5.6% and 4.4% in 2001 and 2000, respectively. The increase in research and development expenses in 2001 as a percentage of net sales reflected the Company's continued commitment to the development of new products and technologies. The Company believes it is critical to continue making investments in research and development to ensure the availability of innovative technology that meets both current and future requirements of the Company's customers. New product introductions remain critical to the Company's success. As a result, the Company introduced 130 new products in 2001 compared to 119 in 2000. 3 Selling, Marketing, and Administration Selling, marketing and administration expenses were $42.8 million in 2001 compared to $54.3 million in 2000. The decrease of selling, marketing and administration expenses in 2001 compared to 2000 was primarily due to lower commission expense as a result of decreased revenues as well as the Company's efforts to control costs as a result of the downturn in the computer and cellular phone handset markets. The Company reduced 5% of its workforce in 2001, which included 70 employees in North America, 17 employees in Asia Pacific, and 1 employee in Europe. The total cost incurred for the workforce reduction was $1.8 million and was recorded in selling, general and administrative expenses. Amortization of Goodwill The Company recorded goodwill of $9.2 million in connection with the acquisition of additional 40% ownership interest of Simconix in 1998. The goodwill was amortized on a straight-line basis over 20 years. Amortization of goodwill in 2001 and 2000 was $458,000, respectively. As of December 31, 2001, accumulated goodwill amortization was $1.7 millon and the net book value of goodwill was $7.4 million. The Company is required to adopt Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (Statement 142) during the first quarter of fiscal 2002. Accordingly, goodwill deemed to have an indefinite life will no longer be amortized but will be subject to annual impairment test in accordance with Statement 142. Application of the non-amortization provisions of the Statement is expected to result in an increase to net income of approximately $458,000 in 2002 as compared with the previous accounting requirements. Interest Income Interest income for the year 2001 was $5.8 million as compared to $5.4 million in 2000. The Company invested cash, not currently needed to fund the Company's operations, in overnight investment accounts as well as money market funds. The Company has increased its cash balance year over year, however, due to interest rate reductions, interest income did not increase during year 2001 over year 2000. Other Expense, net Other expense, net, was $0.5 million for the year ended December 31, 2001 compared to $2.9 million in 2000. The decrease in other expenses, net, in 2001 as compared to 2000 was primarily due to reduction in foreign exchange losses on the Company's assets denominated in European and Asian currencies. In addition, in the second quarter of 2001, the Company received $800,000 from the Chinese government as a result of an additional $10 million capital contribution made by the Company in Simconix in 2001. Income Tax Expense Income tax expense for the year ended December 31, 2001 decreased by $27.1 million as compared to 2000 primarily due to the decrease in earnings before tax. The effective tax rate for the year ended December 31, 2001 was 23.7% as compared to 22.8% for the year ended December 31, 2000. Year Ended December 31, 2000 compared to Year ended December 31, 1999 Net Sales Net sales for 2000 were $473.1 million compared to $383.3 million in 1999. The increase of 23% from the prior year was primarily due to strong sales in North America and Europe as well as an increase in all other geographic regions. In 2000, the Company's net sales increased in every geographic region as compared to 1999. Net sales in the Asia Pacific region (excluding Japan), North America, Europe and Japan were 16%, 31%, 29%, and 25% higher than 1999, respectively. Gross Profit Gross profit as a percentage of net sales was 45% in 2000 compared to 41% in 1999. The increase in margins for the year ended December 31, 2000 was mainly due to economies of scale in manufacturing operations and further productivity improvements, as well as further advances in technologies. Cost reduction programs, such as the conversion of the TrenchFETTM product line to the Company's proprietary 32-million cell process, allowed further migration to the Company's smaller, more profitable products. 4 Research and Development Research and development expenses were $21.0 million in 2000 as compared to $17.0 million in 1999, a 24% increase. The Company's research and development expenditures as a percentage of net sales were 4.4% in 2000 and 1999, respectively. The increase in research and development expenses in 2000 reflected the Company's continued commitment to the development of new products and technologies. New product introductions remain critical to the Company's success. As a result, the Company introduced 119 new products in 2000 compared to 91 in 1999. In the fourth quarter of 2000, the Company announced a new standard in Trench silicon technology with our 178 million-cell per square inch process, which allows performance enhancements for our MOSFETs while also generating significantly more die per wafer than with the Company's 32-million cell per square inch process. The Company also introduced a proprietary leadless Power PAKTM package for space sensitive power applications and unveiled a proprietary chip-scale Power MOSFET packaging technology that will even further reduce the size of the devices required to manage and convert power in cell phones and handheld internet appliances. These MICRO FOOTTM devices will allow designers to obtain the same performance as devices packaged in the standard TSOP-6 in a footprint that is 70% smaller and with a 50% lower height profile. These product platforms will be crucial in the current business environment as these provide competitive advantages to the Company's customers with better performances and smaller form factors for their new product development. Selling, Marketing, and Administration Selling, marketing and administration expenses were $54.3 million in 2000 compared to $48.7 million in 1999. The increase of selling, marketing and administration expenses in 2000 compared to 1999 was primarily due to increased sales and marketing spending, consistent with higher revenues and increased new product introduction. Selling, marketing and administrative expenses, as a percentage of net sales, decreased to 11.5% in 2000 as compared to 12.7 % in 1999. Amortization of Goodwill The Company recorded goodwill of $9.2 million in connection with the acquisition of an additional 40% ownership interest of Simconix in 1998. Goodwill was amortized on a straight-line basis over 20 years. The amortization of goodwill in 2000 was $458,000 as compared to $456,000 in 1999. Interest Expense/Income Interest income for the year 2000 was $5.4 million compared to interest expense of $0.8 million in 1999. The Company repaid all of its outstanding loans as of December 31, 1999 and invested its excess cash during fiscal year 2000. The Company had invested $37 million of its excess cash with Vishay to provide the Company with short-term interest income. The investment with Vishay had an interest rate of 7.5% and was callable by the Company at any time. This rate compared favorably to other investment vehicles that offered similar terms and conditions. All other excess cash not immediately needed to fund the Company's operations was invested in overnight investment accounts as well as money market funds. During December 2000, Vishay repaid the investment of $37 million to the Company. Other Expense, net Other expense, net, was $2.9 million for the year ended December 31, 2000 compared to $0.6 million in 1999. The increase in other expenses, net, in 2000 as compared to 1999 was mainly due to foreign exchange losses on the Company's assets denominated in European currencies. Income Tax Expense Income tax expense for the year ended December 31, 2000 increased by $7.4 million compared to 1999 primarily due to the increase of earnings before tax. The effective tax rate for the year ended December 31, 2000 was 22.8% as compared to 26.9% for the prior year. The decrease in the tax rate for the year ended December 31, 2000 was due to an increase in net earnings in low tax rate jurisdictions. Financial Condition, Liquidity, and Capital Resources As of December 31, 2001, the Company had $167.2 million in cash and cash equivalents, compared to $134.3 million in cash and cash equivalents and short-term note receivable from affiliate at December 31, 2000. The increase of $32.9 million was primarily due to the reduction in capital expenditures. Net cash provided by operating activities was $62.3 million in 2001, compared to $143.8 million in 2000. Accounts receivable decreased $27.8 million in 2001 as a result of lower revenues and shorter collection periods. Effective January 2001, Vishay Americas Inc., a wholly owned subsidiary of Vishay, assumed responsibility for collecting the Company's accounts receivable for the North America region. Accounts receivable ownership is transferred to Vishay Americas, Inc. at the gross amount as soon as sales 5 invoices are generated. In addition, the excess of affiliate payables over affiliate receivables increased by $17.0 million in 2001 compared to 2000 mainly due to slower cash payments to unconsolidated affiliates. Accrued liabilities and contingencies decreased by $20.0 million due to a decrease in management incentive programs and taxes payable. Inventories decreased by $6.0 million for the year ended December 31, 2001 as compared to the prior year. Raw materials as of December 31, 2001 decreased by $4.1 million from December 31, 2000 as the Company decreased its purchase of silicon, piece parts, and foundry wafers as a result of the business slowdown. Work in process as of December 31, 2001 decreased by $1.3 million from December 31, 2000. Finished goods inventory as of December 31, 2001 decreased by $0.7 million from December 31, 2000. The inventory reduction is part of the cost reduction and inventory control measures. The Company reduced its inventory level by reducing production outputs, which involved increased shutdown schedules. The plan did not involve inventory reserves or write-downs. Net cash used in investing activities was $29.4 million in 2001, compared to $36.3 million in 2000. Capital expenditures were $29.5 million in 2001 compared to $67.9 million in 2000, primarily related to new technology. Capital spending in 2001 was substantially less than the 2000 level as the Company slowed down its capacity expansion plans due to reduced demand, however the Company invested significantly in its next generation products and technologies. In December 1999, the Company issued a related party promissory note for $31 million to Vishay, which was callable by the Company at any time and bore an interest rate of 7.5%. During 2000, the Company issued an additional $6 million note receivable to Vishay. The total note receivable to Vishay of $37.0 million was repaid during December 2000. For the next twelve months, management expects that future cash flows from operations will be sufficient to meet its normal operating requirements and to fund its research and development and capital expenditure plans. Commitments As of December 31, 2001, the Company had contractual obligations in the form of non-cancelable operating leases. These are described in further detail in Note 8 of the Consolidated Financial Statements.
Payments Due by Period ---------------------- Less than 1 - 3 4 - 5 After 5 (In thousands) Total 1 year years years years ----------------------------------------------------------------------- Operating Leases $3,385 $1,805 $1,501 $20 $59 ----------------------------------------------------------------------- Total contractual cash obligations $3,385 $1,805 $1,501 $20 $59 =======================================================================
Foreign Currency Forward Exchange Contracts As of the end of March 2000, the Company settled all outstanding foreign currency forward exchange contracts. As of December 31, 2001 and 2000, there were no outstanding foreign currency forward exchange contracts. Recent Accounting Pronouncements On June 29, 2001, the Financial Accounting Standards Board (FASB) unanimously approved the issuance of Statements of Financial Accounting Standards No. 141, "Business Combinations" (Statement 141), and No. 142, "Goodwill and Other Intangible Assets" (Statement 142). These Statements drastically change the accounting for business combinations, goodwill, and intangible assets. Statement 141 eliminates the pooling of interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. The requirements of Statement 141 are effective for any business combination accounted for by the purchase method that was completed after June 30, 2001. Statement 142 supersedes APB Opinion No. 17, "Intangible Assets," which required that goodwill and intangible assets be amortized over a life not to exceed forty years. Under Statement 142, amortization of goodwill is prohibited. Instead, it is tested at least annually for impairment at the reporting unit level. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the amortization provisions of APB Opinion No. 17 will continue to apply to the Company until Statement 142 becomes effective. The Company is required to adopt Statement 142 during the first quarter of fiscal, 2002, and is in the process of evaluating the impact of implementation on its financial position and results of operations. Application of the non-amortization provisions of Statement 142 is 6 expected to result in an increase to net income of approximately $458,000 in 2002 as compared with the previous accounting requirements. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (Statement 144). This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and provides a single accounting model for long-lived assets to be disposed of. Statement 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The Company adopted this statement on January 1, 2002. Risk Factors The Company has in the past, and may in the future, make forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements might be expressed by using words such as "estimates," "assumes," "expects," and "anticipates," and are subject to risks and uncertainties, many of which are beyond the Company's control, that could cause actual results to differ materially from those predicted. Such risks and uncertainties include, but are not limited to, the following: Technological Change and Competition The markets for the Company's products and technologies are characterized by rapidly changing technology, frequent new product introductions, and declining average selling prices over product life cycles. The Company's future success is highly dependent upon the timely completion and introduction of new products and technologies at competitive prices and performance levels, and upon having those products selected for design into products of leading manufacturers. In addition, the Company must respond to competitors in the Company's markets. If the Company is not able to make timely introduction of new products and technologies, or to respond effectively to competition, its business and operating results could be adversely affected. Variable Demand The semiconductor industry has historically been highly cyclical and has been subject to significant downturns characterized by diminished product demand. A material portion of the Company's revenues has recently been derived from the worldwide communication and computer markets. These markets have historically been somewhat volatile, as demand for the end products in these markets has varied widely from time to time. If demand for these end products should decrease significantly, the producers thereof could reduce their purchase of the Company's products that in turn could have a materially adverse effect on the Company's consolidated financial position and results of operations. Political and Economic Considerations In recent years, a large and increasing portion of the Company's net sales, operating profits, manufacturing production, and growth have come from its international operations. As a result, the Company's business activities and its results could be significantly affected by the policies of foreign governments and prevailing political, social, and economic conditions. Dependence on Key Suppliers The Company uses numerous suppliers to supply raw materials for the manufacture and support of its products. Although the Company makes reasonable efforts to ensure that materials are available from multiple suppliers, this is not always possible. Accordingly, certain key materials are obtained from a single supplier or a limited group of suppliers. These suppliers are, in some cases, thinly capitalized, independent companies that generate significant portions of their business from the Company and/or a small group of other companies in the semiconductor industry. The Company has sought and will continue to seek to minimize the risk of production and service interruptions and/or shortages of key materials by: 1) selecting and qualifying alternative suppliers for key materials; 2) monitoring the financial stability of key suppliers; and 3) maintaining appropriate inventories of key materials. There can be no assurance that the Company's results of operations will not be materially and adversely affected if, in the future, the Company does not receive sufficient materials to meet its requirement in a timely and cost-effective manner. Intellectual Property Matters The semiconductor industry is characterized by litigation regarding patent and other intellectual property rights. The Company has on occasion been notified that it may be infringing patent and other intellectual property rights of others. In addition, customers purchasing components from the Company have rights to indemnification under certain circumstances if such components violate the intellectual property rights of others. Although licenses are generally offered in such situations and the Company has successfully resolved these situations in the past, there can be no assurance that the Company will not be subject to future litigation alleging 7 intellectual property rights infringement, or that the Company will be able to obtain licenses on acceptable terms. An unfavorable outcome regarding one of these matters could have an adverse effect on the Company's business and operating results. Euro Conversion On January 1, 1999, 11 of the 15 member countries of the European Union adopted the euro as their common legal currency and established fixed conversion rates between their existing sovereign currencies and the euro. The Company has not experienced any problems by the introduction and initial implementation of the euro on January 1, 1999. The introduction and use of the euro do not have a material adverse effect on its financial condition or results of operations. Interest and Currency Rate Exposure In the normal course of business, the financial position of the Company is routinely subjected to a variety of risks, including market risks associated with interest rate movements, currency rate movements on non-U.S. dollar denominated assets and liabilities, and collectibility of accounts receivable. Due to the short-term nature of the Company's investment portfolio, an immediate 10 percent increase in interest rates will not have a material effect on the Company's near-term financial condition or results of operations. The Company does not use derivative financial instruments for trading or speculative purposes. Net foreign currency gains and losses did not have a material effect on the Company's results of operations for fiscal 2001, 2000 or 1999. 8 Report of Ernst & Young LLP, Independent Auditors To the Board of Directors and Stockholders of Siliconix incorporated: We have audited the accompanying consolidated balance sheet of Siliconix incorporated as of December 31, 2001, and the related consolidated statements of income, stockholder's equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Siliconix incorporated as of December 31, 2001, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP San Jose, California January 28, 2002 9 CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS OF INCOME
Siliconix incorporated Years ended December 31 (In thousands, except per share data) 2001 2000 1999 Net sales $ 305,566 $ 473,145 $ 383,308 Cost of sales 230,404 260,216 224,979 --------- --------- --------- Gross profit 75,162 212,929 158,329 Operating expenses: Research and development 17,209 21,022 16,979 Selling, marketing, and administrative 42,783 54,251 48,688 Amortization of goodwill 458 458 456 --------- --------- --------- Operating income 14,712 137,198 92,206 Interest expense (income) (5,847) (5,434) 769 Other expense 466 2,920 646 --------- --------- --------- Income before income taxes and minority interest 20,093 139,712 90,791 Income taxes 4,761 31,870 24,453 Minority interest in income of consolidated subsidiary 237 237 221 --------- --------- --------- $ 15,095 $ 107,605 $ 66,117 ========= ========= ========= Net income per share (basic and diluted) $ 0.51 $ 3.60 $ 2.21 Shares used to compute basic and diluted earnings per share 29,879 29,879 29,879
See accompanying Notes to Consolidated Financial Statements 10 BALANCE SHEETS
Siliconix incorporated As of December 31 (In thousands) 2001 2000 Assets Current assets: Cash and cash equivalents $ 167,236 $ 134,265 Accounts receivable, less allowances of $18,990 in 2001 and $18,299 in 2000 33,644 61,381 Accounts receivable from affiliates 12,457 26,604 Inventories 61,302 67,384 Other current assets 17,801 14,476 Deferred income taxes 5,058 10,152 --------- --------- Total current assets 297,498 314,262 --------- --------- Property, plant, and equipment, at cost: Land 1,715 1,715 Buildings and improvements 53,946 50,669 Machinery and equipment 352,196 341,271 --------- --------- 407,857 393,655 Less accumulated depreciation 237,378 212,477 --------- --------- Net property, plant, and equipment 170,479 181,178 Goodwill 7,445 7,903 Other assets 376 558 --------- --------- Total assets $ 475,798 $ 503,901 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 17,800 $ 45,441 Accounts payable to affiliates 36,692 33,864 Accrued payroll and related compensation 6,409 10,114 Other accrued liabilities 18,274 34,733 --------- --------- Total current liabilities 79,175 124,152 --------- --------- Long-term debt, less current portion 2,001 1,813 Deferred income taxes 15,010 14,802 Non-current other liabilities 36,976 35,800 Minority interest 3,666 3,488 --------- --------- Total liabilities 136,828 180,055 --------- --------- Commitment and contingencies Stockholders' equity Common stock, par value $0.01; 100,000,000 shares authorized; 29,879,040 shares issued and outstanding in 2001 and 2000 299 299 Additional paid-in-capital 59,370 59,362 Retained earnings 280,102 265,007 Accumulated other comprehensive loss (801) (822) --------- --------- Total stockholders' equity 338,970 323,846 --------- --------- Total liabilities and stockholders' equity $ 475,798 $ 503,901 ========= =========
See accompanying Notes to Consolidated Financial Statements 11 STATEMENTS OF STOCKHOLDERS' EQUITY Siliconix incorporated (In thousands)
Common Accumulated Common Stock at Additional Other Total Stock Par Paid-in- Retained Comprehensive Stockholders Shares Amount Capital Earnings Income(Loss) Equity Balance at December 31, 1998 29,879 $ 299 $ 59,337 $ 91,285 (781) $ 150,140 Proceeds from sale of restricted common stock -- -- 17 -- -- 17 Comprehensive income: Net income -- -- -- 66,117 -- 66,117 Currency translation adjustments -- -- -- -- 27 27 --------- Comprehensive income 66,144 --------- --------- --------- --------- --------- --------- Balance at December 31, 1999 29,879 $ 299 $ 59,354 $ 157,402 $ (754) $ 216,301 Proceeds from sale of restricted common stock -- -- 8 -- -- 8 Comprehensive income: Net income -- -- -- 107,605 -- 107,605 Currency translation adjustments -- -- -- -- (68) (68) --------- Comprehensive income 107,537 --------- --------- --------- --------- --------- --------- Balance at December 31, 2000 29,879 $ 299 $ 59,362 $ 265,007 $ (822) $ 323,846 Proceeds from sale of restricted common stock -- -- 8 -- -- 8 Comprehensive income: Net income -- -- -- 15,095 -- 15,095 Currency translation adjustments -- -- -- -- 21 21 --------- Comprehensive income 15,116 --------- --------- --------- --------- --------- --------- Balance at December 31, 2001 29,879 $ 299 $ 59,370 $ 280,102 $ (801) $ 338,970 ========= ========= ========= ========= ========= =========
See accompanying Notes to Consolidated Financial Statements 12 STATEMENTS OF CASH FLOWS
Siliconix incorporated Years ended December 31 (In thousands) 2001 2000 1999 Cash flows from operating activities: Net income $ 15,095 $ 107,605 $ 66,117 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 40,804 36,686 32,312 Deferred income taxes 5,322 3,517 7,125 Payment of pension benefits -- -- (33) Restructuring -- (2,746) (2,429) Other non-cash expenses 188 253 642 Changes in operating assets and liabilities: Accounts receivable 27,737 (11,750) (14,072) Accounts receivable from affiliates 14,147 (10,476) (6,211) Inventories 6,082 (19,045) 1,082 Other current assets (3,385) (9,174) 3,286 Accounts payable (27,641) 17,917 3,577 Accounts payable to affiliates 2,828 7,620 (9,100) Accrued liabilities (20,006) 10,191 1,197 Non-current other liabilities 1,176 13,200 11,900 --------- --------- --------- Net cash provided by operating activities 62,347 143,798 95,393 --------- --------- --------- Cash flows from investing activities: Purchase of property, plant, and equipment (29,462) (67,905) (33,835) Sale of Asia subsidiaries -- -- 6,152 Proceeds from sale of property, plant, and equipment 57 556 2,995 Short-term investment with affiliate -- (6,000) (31,000) Proceeds from short-term investment with affiliate -- 37,000 -- --------- --------- --------- Net cash used in investing activities (29,405) (36,349) (55,688) --------- --------- --------- Cash flows from financing activities: Repayment of long-term debt -- -- (50,570) Proceeds from sale of restricted common stock 8 8 17 --------- --------- --------- Net cash (used) provided in financing activities 8 8 (50,553) --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents 21 (68) 30 Net increase (decrease) in cash and cash equivalents 32,971 107,389 (10,818) Cash and cash equivalents: Beginning of year 134,265 26,876 37,694 --------- --------- --------- End of year $ 167,236 $ 134,265 $ 26,876 ========= ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 0 $ 58 $ 1,555 Income taxes paid $ 5,063 $ 15,060 $ 3,559
See accompanying Notes to Consolidated Financial Statements 13 Notes to Consolidated Financial Statements Note 1 - Organization and Significant Accounting Policies Organization Siliconix incorporated (the "Company") was founded in 1962 and subsequently reincorporated on March 5, 1987 in Delaware. Vishay Intertechnology, Inc. of Malvern, Pennsylvania ("Vishay") is the record holder of 80.4% of the Company's outstanding common stock as of December 31, 2001. Consolidation The accompanying consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. The 10% minority interest in the Company's non-wholly owned subsidiary, Shanghai Simconix Co. Limited, is shown as a liability in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition The Company records sales to original equipment manufacturers and distributors at the time of shipment. The Company's distributors have limited rights of return. The Company records allowances against revenue for estimated product returns and discounts at the time of shipment. The Company's distribution agreements provide contractual protection against price reductions and product obsolescence. Price adjustment reserves represent the contractual protection against price reductions granted to distributors by the Company. Distributors have a period of time to request a price protection credit, subsequent to the Company's issuance of a new price book, after comparing the most recent price book to their purchase price for on-hand inventory. The Company grants distributors contractual protection against product obsolescence. Distributors may return products in an amount of up to 5% of its purchases for the trailing six months. The returned products must be in good condition for resale "as new". In addition, distributors may exchange inventory from an initial stocking order within certain contractual provisions. The Company adopted SAB 101 in fiscal year 2000 with no impact on financial statements. Shipping and Handling Costs The Company includes shipping and handling costs in the cost of products sold. Cash and Cash Equivalents Cash equivalents consist of short-term financial instruments that are readily convertible to cash and have original maturities of three months or less. Note Receivable from Affiliate At December 31, 2001, there is no outstanding affiliate note receivable balance. Inventories Inventories are stated at the lower of cost or market. Cost is computed on a currently adjusted standard basis (which approximates actual cost, determined on the first-in, first-out method); market is based upon estimated net realizable value. The valuation of inventory at the lower of cost or market requires the use of estimates as to the amounts of current inventory that will be sold. These estimates are dependent on the Company's assessment of current and expected orders from its customers. Depreciation and Amortization Depreciation and amortization are computed for financial reporting purposes using the straight-line method over the estimated useful lives of the respective assets. The estimated lives used are 10 to 30 years for buildings and improvements and 3 to 10 years for machinery and equipment. The Company regularly evaluates the appropriateness of the carrying amount of property, plant and equipment. Depreciation expense was $40,104,000, $35,457,000, and $31,706,000 for the years ended December 31, 2001, 2000, and 1999, respectively. Goodwill Goodwill is amortized on a straight-line basis over the periods estimated to be benefited. The Company continually reviews the recoverability of the carrying value of this asset. The Company is required to adopt Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (Statement 142) during the first quarter of fiscal 2002. Accordingly, goodwill deemed to have an indefinite life will no longer be amortized but will be subject to annual impairment test in accordance with Statement 142. Application of the non-amortization provisions of the Statement is expected to result in an increase to net income of approximately $458,000 in 2002 as compared with the previous accounting requirements. 14 Financial Instruments and Credit Risk Due to the short maturities and/or the variable interest rates of the Company's financial instruments, including cash and cash equivalents, and short-term investments, the carrying amounts approximate the fair value of the instruments. The Company's financial instruments that are subject to concentrations of credit risk consist primarily of trade receivables. The credit risk related to the Company's trade receivables is mitigated by the Company's ongoing credit evaluations of its customers' financial condition, reasonably short collection terms, and the geographical dispersion of sales transactions. The Company generally does not require any collateral from its domestic customers, although letters of credit are used frequently throughout Asia. Bad debt expense has not been significant over the past three years. Effective January 2001, Vishay Americas Inc., a wholly owned subsidiary of Vishay, assumed responsibility for collecting the Company's accounts receivable for the North America region. Accounts receivable ownership is transferred to Vishay Americas Inc. at the gross amount as soon as sales invoices are generated. Commission expense, paid to Vishay Americas Inc. for accounts receivable collection, was recorded in selling, general and administrative expenses. Derivative Financial Instruments In prior years, the Company used financial instruments such as forward exchange contracts to hedge a portion, but not all, of its firm commitments denominated in foreign currencies. The purpose of the Company's foreign currency management is to minimize the effect of exchange rate changes on actual cash flows from foreign currency denominated transactions. Foreign currency forward exchange contracts designated and effective as hedges of firm commitments are treated as hedges for accounting purposes. Gains and losses on forward exchange contracts are deferred and recognized when the transactions being hedged are recognized. As of December 31, 2001 and 2000, the Company had no outstanding forward exchange contracts. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company operates under a tax sharing agreement with Vishay. Under the Vishay Tax Sharing Agreement, the Company computes its income taxes on a separate company basis. For the period ended December 31, 2001, the Company is included in the consolidated federal and certain state tax returns of the Vishay affiliated group. In accordance with the Vishay Tax Sharing Agreement, federal and state taxes are determined as if the Company were associated only with its wholly owned subsidiaries, taking into account all tax credits and all carryback and carryforward items. For purposes of these consolidated financial statements, federal, state, and foreign income taxes have been computed as if the Company's tax provision and related liability had been calculated on a separate return basis (see Note 5 of Notes to Consolidated Financial Statements). Net Income per Share Due to the Company's simple capital structure, basic and diluted EPS are the same. Foreign Currency Translation The financial statements for certain of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Foreign assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Revenues and expenses are translated at the average exchange rate for the year. Translation adjustments do not impact the results of operations and are reported as a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in the results of operations. Use of Estimates The Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates. Reclassifications Certain prior year amounts have been reclassified to conform to the current financial statement presentation. Accounting Pronouncements On June 29, 2001, the Financial Accounting Standards Board (FASB) unanimously approved the issuance of Statements of Financial Accounting Standards No. 141, "Business Combinations" (Statement 141), and No. 142, "Goodwill and Other Intangible Assets" (Statement 142). These Statements drastically change the accounting for business combinations, goodwill, and intangible assets. Statement 141 eliminates the pooling of interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. The requirements of Statement 141 are effective for any business combination accounted for by the purchase method that was completed after June 30, 2001. 15 In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" (Statement 142) which establishes financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." Statement 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition and after they have been initially recognized in the financial statements. The provisions of Statement 142 are effective for fiscal years beginning after December 15, 2001. The Company is required to adopt Statement 142 during the first quarter of fiscal 2002, and is in the process of evaluating the impact of implementation on its financial position and results of operations. Application of the non-amortization provisions of the Statement is expected to result in an increase to net income of approximately $458,000 in 2002 as compared with the previous accounting requirements. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (Statement144). This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and provides a single accounting model for long-lived assets to be disposed of. Statement 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The Company adopted this statement on January 1, 2002. Commitments and Contingencies Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. The costs for a specific environmental clean-up site are discounted if the aggregate amount of the obligation and the amount and timing of the cash payments for that site are fixed or reliably determinable generally based upon information derived from the remediation plan for that site. Recoveries from third parties that are probable of realization and can be reasonably estimated are separately recorded, and are not offset against the related environmental liability. Note 2 - Related Party Transactions Sales organizations The Company's products are sold by the Vishay worldwide sales organizations in three separate regions: North America, Europe and Asia. The aim of the Vishay sales structure is to unify the activities of the member companies, provide efficiencies by eliminating the duplications of many functions, and bring greater value to end customers by allowing them to deal with one entity for their semiconductor purchasing needs. Vishay sales organizations function as undisclosed agents of the Company, through commission arrangements at a fixed percentage of sales made in each region for all sales related functions however, the ownership of all sales, receivable, inventory, and risk of loss remains with Siliconix, with the exception of the exception of the North America region. Effective from January 2001, Vishay Americas Inc., a wholly owned subsidiary of Vishay, assumed responsibility for collecting the Company's accounts receivable for the North America region. Accounts receivable ownership for North America region sales is transferred to Vishay Americas Inc. at the gross amount as soon as sales invoices are generated. Vishay Americas Inc. is compensated for accounts receivable collection through a commission arrangement at a fixed percentage of sales. Commissions paid to Vishay affiliates for North America, Europe, and Asia Pacific sales organizations were $15,121,000, $20,037,000, and $12,819,000 in 2001, 2000, and 1999 respectively. These commission amounts are included in selling, marketing, and administrative expenses in the accompanying statements of income. Subcontract manufacturing During 2001, 2000 and 1999, Fraunhofer Gesellschatt ("FHG"), a wholly owned subsidiary of Vishay in Itzehoe, Germany provided wafer fabrication subcontract services to the Company. Subcontractor fees were $21,195,000, 22,734,000 and $24,206,000, respectively. Subcontractor fees are included in cost of sales in the accompanying statements of operations. According to the agreement signed in 1998 between the Company and FHG, the Company agreed to pay for operating costs, regardless of the extent of actual manufacturing output, until December 31, 2007. As of December 31, 2001 and for all historical periods presented, the Company was not required to make and has 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 to the Company. Subcontractor fees paid were $5,074,000 in 2001. Subcontractor fees are included in cost of sales in the accompanying statements of income. 16 Administrative service sharing agreements The Company entered into certain service sharing agreements with Vishay and certain of its affiliates. Administrative expenses primarily related to personnel, overhead functions, corporate IT support, and network communications support are shared and then allocated to the appropriate party on a periodic basis. During 2001, 2000 and 1999 related parties reimbursed the Company $5,963,000, $8,241,000, and $7,465,000, respectively, for administrative expenses incurred by the Company on their behalf. During the same periods, the Company reimbursed related parties $5,331,000, $3,954,000, and $2,782,000, respectively, for administrative expenses incurred by related parties on the Company's behalf. These administrative reimbursements and payments are included in selling, marketing, and administrative expenses in the accompanying statements of income. Management fee During 1999, management fees received by the Company were $942,000. Fees paid by the Company were $2,349,000, $1,839,000, and $1,885,000 during 2001, 2000, and 1999, respectively. Sales to affiliates of Vishay Product sales to Vishay and its affiliates were $182,000, $328,000, and $464,000 during 2001, 2000, and 1999, respectively. These amounts are included in net sales in the accompanying statements of income. Notes receivable/payable Interest expense related to related party promissory notes repaid in 1999 was $1,555,000. This amount is included with interest expense in the accompanying statements of income. Interest income related to promissory notes extended to Vishay in 2000 and 1999 and repaid in 2000 was $2,575,000 in 2000. This amount included with interest income in the accompanying statements of income. Note 3 - Simconix - ----------------- As of December 31, 2001, the Company held a 95% interest in Simconix, a back-end manufacturing facility in Shanghai, China. The Company originally held a 50% interest in Simconix and acquired an additional 40% interest in 1998. In connection with the acquisition in 1998, the Company recorded goodwill of $9.2 million, which was amortized on a straight-line basis over 20 years until January 1, 2002 when the Company adopted Statement 142. As of December 31, 2001, accumulated goodwill amortization was $1.7 million. Subsequent to the Company's acquisition in 1998, the remaining 10% interest was held by Shanghai Simtek Industrial, Limited, the minority shareholder. As a result of an additional capital contribution of $10 million made by Siliconix in 2001, the Company's interest in Simconix increased to 95%. At the time of the acquisition, the Company and the minority shareholder entered into an agreement that fixed the value of the original 10% interest in Simconix at $3 million regardless of the earnings or losses of Simconix. The minority shareholder has the right to put either all or part of its interest to the Company at any time for a pro rata portion of the $3 million. In exchange for agreeing not to participate in profits or losses, the Company is required to pay minority shareholder a fixed return on its $3 million equal to an annual, compounded rate of LIBOR + 2% payable every six months or such longer period requested by the seller. This amount has been recorded as minority interest expense because it relates to the minority shareholder's ownership of registered capital. The subsidiary's minority interest was recorded as a liability in the Company's financial statements. In second quarter of 2001, the Company received $800,000 from the Chinese government as a result of an additional $10 million capital contribution made by the Company in 2001in Simconix. Interest paid to the minority shareholder in 2001 was $60,000, and $72,000 and $67,000 in 2000 and 1999, respectively. 17 Note 4 - Inventories Inventories consisted of the following: Years Ended December 31 (In thousands) 2001 2000 Finished goods $ 20,985 $ 23,469 Work-in-process 32,963 32,646 Raw materials 7,354 11,269 ----------------- ----------------- $ 61,302 $ 67,384 ================= ================= 18 Note 5 - Income Taxes Earnings before income taxes from foreign operations for the years ended December 31, 2001, 2000, and 1999 consisted of $9,215,000, $87,424,000, and $46,289,000, respectively. Income taxes for the years ended December 31, 2001, 2000, and 1999 consisted of the following: Years ended December 31 (In thousands) 2001 2000 1999 Current: Federal $ (2,449) $ 14,523 $ 5,185 State and local - - 100 Foreign 717 492 154 ------------- ------------- -------------- (1,732) 15,015 5,439 ------------- ------------- -------------- Deferred: Federal 7,752 17,239 18,601 State and local (1,259) (384) 229 Foreign - - 184 ------------- ------------- -------------- 6,493 16,855 19,014 ------------- ------------- -------------- $ 4,761 $ 31,870 $ 24,453 ============= ============= ============== Income tax expense differs from the amounts computed by applying the federal income tax rate to pretax income as a result of the following:
Years ended December 31 (In thousands) 2001 2000 1999 Computed "expected" tax expense $ 6,949 $ 48,816 $ 31,700 Effect of foreign operations 507 (15,193) (6,554) Income tax benefit attributable to foreign sales corporation (758) (880) (662) State taxes, net of federal benefit (818) (250) 214 Business tax credits (1,211) (512) (361) Other 92 (111) 116 ------------- ------------- ------------- $ 4,761 $ 31,870 $ 24,453 ============= ============= =============
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: Years ended December 31 (In thousands) 2001 2000 Deferred tax assets: Accrued expenses and reserves $ 6,534 $ 10,739 Tax credit carryforwards 5,371 2,049 ------------- ------------- Total gross deferred tax assets 11,905 12,788 Less valuation allowance (2,275) - ------------- ------------- Net deferred tax assets 9,630 12,788 Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation (16,907) (14,743) Investment in joint venture (2,675) (2,675) ------------- ------------- Total gross deferred tax liabilities (19,582) (17,418) ------------- ------------- Net deferred tax liability $ (9,952) $ (4,630) ============= =============
19 Note 5, continued - ----------------- At December 31, 2001, the Company had the following carryforwards for tax purposes: (In thousands) Expires ------- Credits: California investment credit $ 6,094 2007 - 2010 California research credit $ 2,169 No Expiration The Company has not provided for U.S. federal and state income taxes on $202.9 million of non-U.S. subsidiaries' undistributed earnings as of December 31, 2001, because such earnings are intended to be reinvested outside the United States indefinitely. The Company's U.S. income tax returns for the years ended 1996 through 1998 are presently under examination by the Internal Revenue Service. Management believes that any potential tax assessment plus related interest and penalties, if any, have been sufficiently provided for in the financial statements. Note 6 - Debt Obligations - ------------------------- The Company's debt obligations were as follows: December 31 (In thousands) 2001 2000 Unfunded retirement costs 2,001 1,813 --------------- ---------------- Total debt 2,001 1,813 --------------- ---------------- Less current portion - - Total long-term borrowings $ 2,001 $ 1,813 =============== ================ At December 31, 2001, the Company had no related party borrowings. Note 7 - Geographic and Industry Segment Reporting - -------------------------------------------------- The Company is engaged primarily in the designing, marketing, and manufacturing of power and analog semiconductor products. The Company is organized in three operating segments, which due to their inter-dependencies, similar long-term economic characteristics, shared production processes and distribution channels have been aggregated into one reportable operating segment. Two Asia distributors each accounted for more than 10% of net sales in 2001. An original equipment manufacturer (OEM) and Japanese distributor each accounted for more than 10% of net sales in 2000 and 1999, respectively. 20 Note 7, continued - ----------------- The Company maintains foreign subsidiaries in the Netherlands, United Kingdom, China, and Taiwan. The Company has manufacturing operations in the United States, Taiwan, China and through both affiliated and independent subcontractors in Germany, Israel, and various countries throughout Asia. Information about the Company's operations by geographic area is shown in the following table: Year ended December 31 (In thousands) Net Sales (1) 2001 2000 1999 - ------------- North America $ 50,911 $ 128,349 $ 98,042 Europe 52,323 101,221 78,350 Japan 36,934 50,022 40,007 Taiwan 61,211 58,876 61,983 Singapore 38,688 54,531 38,322 Asia Pacific 64,298 76,300 63,632 All Other 1,201 3,846 2,972 ---------------- ---------------- --------------- $ 305,566 $ 473,145 $ 383,308 (1) Revenue is attributed to countries based on the sold-to location. Long-Lived Assets at December 31 - -------------- United States $ 146,582 $ 153,585 $ 115,440 Asia Pacific 31,718 36,054 42,955 ---------------- ---------------- --------------- $ 178,300 $ 189,639 $ 158,395 21 Note 8 - Leases and Commitments - ------------------------------- At December 31, 2001, the future minimum commitments for all non-cancelable operating leases were as follows: (In thousands) 2002 $ 1,805 2003 1,323 2004 158 2005 20 2006 20 Thereafter 59 ------------ Total minimum lease payments $ 3,385 ============ The Company leases land, office facilities, and equipment under operating leases. Operating lease expenses were $3,237,000, $3,362,000, and $4,219,000 in 2001, 2000, and 1999, respectively. The Company has entered into product license agreements, which provide, among other things, that the Company makes royalty payments based on sales of certain products at royalty rates specified in the agreements. The product license agreements either have a fixed term or terminate upon expiration of the licensors' underlying patents. There is no contractual limit to royalty payments. Royalty expenses under these royalty agreements were $3,262,000, $5,439,000, and $5,000,000 in 2001, 2000, and 1999, respectively. Included in accrued liabilities are royalties payable of $1,699,000 and $2,949,000 at December 31, 2001 and 2000, respectively. Note 9 - Employee Benefit Plans - ------------------------------- The profit sharing element of the Siliconix incorporated Retirement Plan Trust (the "Plan") provides for annual contributions by the Company of up to 10% of consolidated income before taxes (as defined). Vesting in the profit sharing element of the Plan occurs ratably over a five-year period. Upon employee termination, non-vested contributions are forfeited and reduce the Company's current and/or future contributions to the Plan. The Company's contributions under the plan were $1,382,000, $7,246,000, and $5,982,000 in 2001, 2000, and 1999, respectively. The tax deferred savings element of the Plan allows eligible employees to contribute up to 15% of their compensation. The Company matches a portion of each participating employee's contribution. The Company's matching contributions were $976,896, $1,115,000, and $1,188,000, in 2001, 2000, and 1999, respectively. The Company's U.S. defined benefit pension plan was terminated in 1998. The Company's subsidiary in Taiwan has a defined benefit pension plan that covers substantially all of its employees. The Company's accrued pension benefit related to the plan was $2,001,000 and $1,813,000 at December 31, 2001 and 2000, respectively. Note 10 - Employee Stock Plan - ----------------------------- From 1973 through the fourth quarter of 1990, the Company's Board of Directors authorized the sale of restricted common stock to certain key employees and directors for initial payments below market values. Vested shares are subject to the Company's lifetime right of first refusal to purchase the shares. In the event the Company declines to purchase the shares, a fixed amount of $1.02 (the "delta") determined by the Company's plan of reorganization is paid to the Company. Fully vested shares outstanding under this plan at a delta of $1.02 per share at December 31, 2001, 2000, and 1999 were 163,666, 171,549, and 179,577, respectively. There were no shares issued under this plan during 2001, 2000, and 1999. The number of vested shares exercised by employees during 2001, 2000, and 1999 were 7,883, 8,028, and 16,500, respectively, resulting in payments of $8,041, $8,189, and $16,830, respectively, to the Company which are included in additional paid-in-capital. During 2001, 2000, and 1999, no vested shares were sold to the Company. 22 Note 11 - Contingencies - ----------------------- In 2001, the Company remained a party to two environmental proceedings. The first involves property that the Company vacated in 1972. In July 1989, the California Regional Water Quality Control Board ("RWQCB") issued Cleanup and Abatement Order No. 89-115 both to the Company and the current owner of the property. The Order alleged that the Company contaminated both the soil and the groundwater on the property by the improper disposal of certain chemical solvents. The RWQCB considered both parties to be liable for the contamination and sought to have them decontaminate the site to acceptable levels. The Company subsequently reached a settlement of this matter with the current owner of the property. The settlement provided that the current owner will indemnify the Company and its employees, officers, and directors against any liability that may arise out of any governmental agency actions brought for environmental cleanup of the subject site, including liability arising out of RWQCB Order No. 89-115, to which the Company remains nominally subject. The second proceeding involves the Company's Santa Clara, California facility, which the Company has owned and occupied since 1969. In February 1989, the RWQCB issued Cleanup and Abatement Order No. 89-27 to the Company. The Order was based on the discovery of contamination of both the soil and the groundwater on the property by certain chemical solvents. The Order called for the Company to specify and implement interim remedial actions and to evaluate final remedial alternatives. The RWQCB issued a subsequent order requiring the Company to complete the decontamination. The Company has substantially complied with the RWQCB's orders. In management's opinion, based on discussion with legal counsel and other considerations, the ultimate resolution of the above-mentioned matters are not expected to have a material adverse effect on the Company's consolidated financial condition or results of operations. In February and March 2001, several purported class action complaints were filed in the Court of Chancery in and for New Castle County, Delaware and the Superior Court of the State of California against Vishay, the Company, and the Company's directors in connection with Vishay's announced proposal to purchase all issued and outstanding shares of the Company not already owned by Vishay. The class actions, filed on behalf of all non-Vishay Siliconix shareholders, allege, among other things, that Vishay's proposed offer was unfair and a breach of fiduciary duty. One of the Delaware class actions also contains derivative claims against Vishay on behalf of the Company alleging self-dealing and waste because Vishay purportedly usurped the Company's inventory and patents, appropriated the Company's separate corporate identity, and obtained a below-market loan from the Company. In May 2001, the Delaware Court of Chancery consolidated the several class action complaints described above. On or about May 31, 2001, lead plaintiff Fitzgerald served an amended complaint, an application for a preliminary injunction against proceeding with or taking steps to give effect to Vishay's proposed tender offer or the contemplated short-form merger, and a motion to expedite proceedings and additional discovery requests. In addition to his prior allegations, plaintiff claimed, among other things, that in connection with the proposed offer and short-form merger, defendants allegedly violated (i) their duty to deal fairly from a timing and process perspective with the minority shareholders of Siliconix, (ii) their duties of loyalty and candor, and (iii) Vishay's obligations to pay a fair price to the Siliconix minority shareholders. Following expedited discovery and briefing, on June 19, 2001, the Delaware Court of Chancery issued its order denying Fitzgerald's motion for a preliminary injunction. The Court found that Fitzgerald had not succeeded in demonstrating that he had a reasonable probability of success on the merits of his claims. The Company and Vishay filed motions to dismiss the verified amended complaint on June 6, 2001. Vishay filed a motion for summary judgment on June 25, 2001. The motions to dismiss and for summary judgment are pending. On July 3, 2001, the California Superior Court entered an order staying the California state-court actions that had been filed against the Company and Vishay in connection with Vishay's earlier proposal. On April 25, 2001 the Company initiated a lawsuit against General Semiconductor, Inc. In its complaint, the Company asserted claims that General Semiconductor is infringing United States Letters Patent Nos. 5,072,266 and 5,298,442 relating to certain power MOSFET products. General Semiconductor has denied the material allegations in the Company's complaint and has asserted various affirmative defenses. General Semiconductor also has asserted counterclaims for patent misuse and unfair competition against the Company, seeking a declaratory judgment of non-infringement, invalidity and/or unenforceability and seeking injunctive relief, damages, attorneys' fees and costs. The Company has not yet responded to those Counterclaims. The Company and General Semiconductor tentatively have reached a settlement that will resolve the action without the need for further litigation, and are actively negotiating the details of the proposed settlement. 23 The Company is engaged in discussions with various parties regarding patent licensing and cross patent licensing issues. In the opinion of management, the outcome of these discussions will not have a material adverse effect on the Company's consolidated financial condition or overall trends in the results of operations. Note 12 - Comprehensive Income The following are the components of comprehensive income (in thousands):
2001 2000 1999 Net income $ 15,095 $ 107,605 $ 66,117 Foreign currency translation adjustment 21 (68) 27 -------------- --------------- ------------- Comprehensive income 15,116 107,537 66,144 The component of accumulated other comprehensive loss is as follows: Foreign currency translation adjustment $ (801) $ (822) $ (754)
Note 13 - Foreign Currency Forward Exchange Contracts - ----------------------------------------------------- In September of 1999, the Company entered into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments and balance sheet positions. Foreign currency forward exchange contracts designated and effective as hedges of firm commitments are treated as hedges for accounting purposes. Gains and losses related to qualified accounting hedges of firm commitments are deferred and recognized in income when the hedged transaction occurs. At December 31, 1999, the notional amount of outstanding foreign currency forward exchange contracts was $6,438,000. All of the total outstanding contracts at December 31, 1999 were to hedge yen denominated commitments for product sales from customers in Japan. In March 2000, the Company settled all outstanding foreign currency forward exchange contracts and there were no such contracts as of December 31, 2001 or 2000. Note 14 - Selected Quarterly Statements of Operations (Unaudited) - ----------------------------------------------------------------- Siliconix incorporated (In thousands, except per share data)
2001 2000 Fourth Third Second First Fourth Third Second First Net sales $ 76,663 $ 67,478 $ 73,288 $ 88,137 $111,605 $126,738 $120,337 $114,465 Gross profit $ 13,978 $ 13,612 $ 19,246 $ 28,325 $ 46,777 $ 57,802 $ 54,766 $ 53,584 Net income (loss) $ 649 $ (877) $ 5,090 $ 10,233 $ 23,731 $ 29,339 $ 27,792 $ 26,743 Net income (loss) per share $ 0.02 $ (0.03) $ 0.17 $ 0.34 $ 0.79 $ 0.98 $ 0.93 $ 0.90 (basic and diluted)
24 Siliconix incorporated common stock is traded on the NASDAQ Stock Market under the symbol SILI. Presented below are the highest and lowest "last trade" stock prices for the indicated quarters. These prices reflect the three-for-one stock split that occurred in February 2000.
2001 2000 High Low High Low 4th Quarter $ 29.41 $ 20.70 4th Quarter $ 46.50 $ 19.69 3rd Quarter 32.70 19.96 3rd Quarter 72.19 44.25 2nd Quarter 36.80 28.44 2nd Quarter 95.75 51.50 1st Quarter 32.38 21.25 1st Quarter 144.50 39.38
25 EX-21 3 kl03039_ex21.txt EXHIBIT 21 LIST OF SUBSIDIARIES Exhibit 21 SUBSIDIARIES OF SILICONIX INCORPORATED Jurisdiction of Incorporation Percent Subsidiary or Organization Owned ---------- --------------- ----- 1. Siliconix Limited United Kingdom 100% 2. Siliconix (Taiwan) Limited Taiwan 100% 3. Siliconix, Ltd. (Taiwan) Taiwan 100% 4. Siliconix Technology C.V. Netherlands 100% 5. Siliconix Technology B.V. Netherlands 100% 6. Siliconix Semiconductor, Inc. United States (Delaware) 100% 7. Vishay Siliconix, LLC United States (Delaware) 100% 8. Shanghai Simconix Co. Ltd. People's Republic of China 95% 9. Siliconix Israel Israel 100% -----END PRIVACY-ENHANCED MESSAGE-----