<PAGE>
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
[FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from _____________ to ___________
COMMISSION FILE NUMBER 0-3698
SILICONIX INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 94-1527868
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2201 LAURELWOOD ROAD
SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices)
(408) 988-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by nonaffiliates is
$46,656,000, based upon the closing price for the registrant's Common Stock on
March 14, 1997 ($24.50).
The number of shares of the registrant's Common Stock, $0.01 par value,
outstanding at March 14, 1997 was 9,959,680.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Siliconix incorporated 1996 Annual Report to Shareholders:
Parts I, II, and IV.
2. Portions of the definitive Proxy Statement dated April 25, 1997 to be filed
with the Securities and Exchange Commission on or about April 25, 1997,
pursuant to Section 14 of the Securities Exchange Act of 1934, in
connection with the 1997 Annual Meeting of Shareholders of Siliconix
incorporated: Part III.
1
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PART I
ITEM 1. BUSINESS
GENERAL
Siliconix designs, markets, and manufactures power and analog semiconductor
products. The Company focuses on technologies and products for the computer,
data storage, communications, and automotive markets; additionally, many of the
Company's products are also used in instrumentation, industrial, and hi-rel
(military) applications.
Founded in 1962, Siliconix uses its technology and applications expertise
to develop value-added products for power conversion, power interface, and motor
control. Today, these markets exhibit 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 automotive market, which is also a key
segment for the Company, exhibits very 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 is a member of TEMIC Semiconductors, a division of the
Daimler-Benz microelectronics consortium, which also includes Telefunken
Semiconductors (Germany), Matra MHS, S.A. (France), and Dialog Semiconductor
(United Kingdom). The Company's products are marketed with the Siliconix
brand name under the TEMIC Semiconductors umbrella. Being a part of this
greater organization has broadened the product line available to customers
from a single source and, thus, has brought opportunities to Siliconix that
the Company would not have had available as a single entity.
In 1996, Siliconix changed its management structure to provide a more
cost-effective and focused basis for reaching target markets. Power MOS,
Power IC, and Signal Processing product units were created with profit and
loss responsibilities for their respective product lines. The Power MOS and
Signal Processing product units report jointly to Siliconix and to the
Discrete Components Division of TEMIC Semiconductors. The Power IC product
unit reports jointly to Siliconix and the Integrated Circuits Division of
TEMIC Semiconductors. This reporting structure is intended to maximize the
ability of each product group to better leverage its products and
technologies and to provide them with the business efficiencies of a larger
organization. Functional management areas support the product units and
ensure an integrated approach to managing the overall business. Coincident
with this reorganization, Siliconix President and CEO Richard J. Kulle
assumed responsibility for overall management of the TEMIC Semiconductors
Discrete Components Division, which includes Telefunken's Optoelectronics,
Diode, Bipolar, and Infrared Data Communications product lines in addition to
the Company's Power MOS and Signal Processing products. See Note 2 of Notes
to the Consolidated Financial Statements.
PRODUCTS
All of the analog and power products produced by the Company can be divided
into two general classes: discrete devices and integrated circuits (ICs).
Discrete devices are active components that generate, control, regulate,
amplify, or switch electronic signals or energy. They must be interconnected
with other components (E.G., resistors, capacitors, inductors, etc.) 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.
2
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The Company's discrete devices include small-signal field-effect
transistors (MOSFETs, JFETs, and DMOS FETs), designed to handle less than one
watt of power, and power MOSFETs, designed to handle more than one watt.
Power MOSFETs are the Company's fastest growing products in terms of sales.
In this product line, Siliconix has focused on low-voltage products that are
prevalent in battery-operated products (E.G., notebook computers and cellular
phones) and in automotive systems. Siliconix has maintained technology
leadership in low-voltage surface-mount power MOSFETs through both silicon
technologies and product packaging. Advanced silicon process technologies,
such as the Company's "Trench" technology, offer very high cell densities and
low device on-resistance. These process technologies have been coupled with
innovative packaging techniques to create surface-mount product families,
such as LITTLE FOOT-Registered Trademark- power MOSFETs, that provide
customers with size and performance benefits as well as manufacturing
compatibility with digital integrated circuits.
In the small-signal transistor area, Siliconix is among the market leaders,
offering technologies that range from very mature product lines (E.G., JFETs),
which remain critical for some applications, to proprietary processes, such as
the Company's lateral DMOS process, that offer performance advantages over
competitors' similar product lines.
Siliconix integrated circuits include power conversion and interface ICs,
motor control ICs, and signal processing ICs. The Company's power conversion
and interface ICs are based on low-voltage mixed-signal silicon processes that
offer customers higher frequencies and greater efficiencies than competitive
products. They are used in applications where an input voltage from a battery
or other supply source must be switched or converted to a level that is
compatible with logic signals used by microprocessors and other digital
components 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, such as copy machines.
The signal processing ICs supplied by Siliconix include analog switches and
multiplexers, and bus interface ICs. The analog switches and multiplexers are
primarily used in instrumentation and industrial equipment that receives and/or
outputs real-world analog signals. The Company's bus interface ICs are designed
for automotive applications, such as diagnostic equipment and multiplex systems.
The following table shows net sales and the percentage of the Company's net
sales attributable to the product categories for the periods indicated.
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------------------
(dollars in thousands) 1996 1995 1994
---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Integrated Circuits $ 65,135 24% $ 64,179 26% $ 52,911 27%
Discrete Devices,
LITTLE FOOT and
LITE FOOT 203,799 76% 186,112 74% 143,542 73%
-------- ---- -------- ---- -------- ----
$268,934 100% $250,291 100% $196,453 100%
</TABLE>
3
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MANUFACTURING
The Company's manufacturing operations are strategically located to
support customer manufacturing locations, to cultivate growth markets, and to
access cost-effective engineering talent. Siliconix fabricates wafers for
its advanced power products at its Santa Clara, California manufacturing
headquarters, where the Company maintains a Class 1 (clean room
classification) six-inch wafer fab. Plans are underway to add capacity for
fabrication of power products in Itzehoe, Germany during 1997. The Company's
four-inch wafer fab in Santa Clara will be closed in 1997 and production will
be transferred to third party foundries in Asia. Assembly and testing of the
Company's products are performed in Company facilities in Taiwan and
Shanghai, China, and by subcontractors in the Philippines, India, Taiwan, and
The People's Republic of China. The Shanghai facility is a joint venture
between Siliconix and the Shanghai Institute of Metallurgy. All of the
Company's manufacturing sites use Statistical Process Control-based methods
of total quality control and have ISO 9000 certification.
Raw materials used by the Company include single-crystal silicon wafers,
chemicals, gases, metal wire, and ceramic, plastic, and glass-to-metal
packages. Although these materials are generally available from two or more
sources, the industry has experienced difficulties in obtaining supplies of
some raw materials from time to time; such difficulties 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 for cleanup of soil and groundwater at a site the
Company occupied prior to 1972, with the current owner of that site, and
settled a lawsuit against its insurance carriers in 1992 and 1993 with
respect to this matter. The Company also established a 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 equipment or
other requirements.
SALES
In early 1992, the semiconductor division of the Daimler-Benz
Microelectronics Group, then an informal consortium consisting of Siliconix,
Telefunken Semiconductors, Matra MHS, Dialog Semiconductor, and Eurosil,
concluded that there were efficiencies to be gained by consolidating further
the roles of the members' sales organizations, thus eliminating the
duplication of many functions. Additionally, it was determined that the
unity of these various organizations would bring greater value to the
customers by allowing them to deal with one entity for all of their
purchasing needs. In late 1992, an implementation plan was begun to
consolidate the sales functions of the members, and an announcement was made
that the new name of the Microelectronics Group would be "TEMIC." This
consolidation of the sales organizations was completed in 1993, so that today
the Company's products are sold worldwide by the TEMIC sales organization,
which also manages a worldwide network of sales representatives and
distributors. Specific advantages to Siliconix from this arrangement are
broader market coverage and lower sales costs.
4
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In 1995, to further the goals of TEMIC, four sales companies were
established, TEMIC North America, TEMIC Asia Pacific, TEMIC France, and TEMIC
Germany. These companies were established to fulfill all sales
responsibilities for TEMIC within their respective regions. TEMIC North
America is a wholly owned subsidiary of Siliconix incorporated; TEMIC Asia
Pacific is a division of TEMIC (S) Pte. Ltd., a wholly owned subsidiary of
Siliconix incorporated; TEMIC France is a wholly owned subsidiary of Matra
MHS; and TEMIC Germany is a division of Telefunken. The sales companies
function as agents earning a commission at a fixed percentage of sales and
perform all sales-related functions under their legal names.
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).
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
North America $ 89,596 33% $ 93,613 37% $ 81,383 41%
Europe and Africa 71,739 27% 64,897 26% 49,330 25%
Japan 51,065 19% 31,944 13% 19,347 10%
Asia Pacific 56,534 21% 59,837 24% 46,393 24%
--------- ---- --------- ---- --------- ----
$ 268,934 100% $ 250,291 100% $ 196,453 100%
</TABLE>
In 1996, a Japanese distributor accounted for 19% of the Company's net
sales. The Company markets its products in different geographic areas as
follows.
NORTH AMERICA: Sales are made by the TEMIC North America field sales force
and manufacturer's representative organizations, the latter being compensated by
commissions only. Area sales managers coordinate these representatives and the
TEMIC North America sales force. TEMIC North America has sales offices in or
near Santa Clara, California; Troy, Michigan; Basking Ridge, New Jersey; and
Dallas, Texas.
Sales not made directly to original equipment manufacturers are made
through distributors, which currently have approximately 200 locations
throughout the United States and Canada. TEMIC North America provides certain
distributors with contractual protection for their inventory against reductions
in published prices and against product obsolescence.
EUROPE AND AFRICA: Sales are made by the TEMIC France and TEMIC Germany
sales force and manufacturer's representative organizations. As in North
America, sales not made directly to original equipment manufacturers are
made through distributors, with approximately 30 locations. The distributors
are provided with certain inventory obsolescence and price protections similar
to those granted to domestic distributors.
JAPAN: Sales in Japan are made by TEMIC Asia Pacific.
ASIA PACIFIC: Sales are made in Hong Kong, Korea, Taiwan, The People's
Republic of China and in Southeast Asia, by TEMIC Asia Pacific, headquartered in
Singapore. In these locations, as in the United States, TEMIC Asia Pacific
sells directly to original equipment manufacturers through TEMIC field sales
engineers or through manufacturer's representatives. Direct TEMIC sales agents
and representatives, are compensated by commissions only.
5
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Sales in the rest of the world are made through manufacturer's
representatives, stocking representatives, and distributors.
For further information, see Note 7 of Notes to the Consolidated Financial
Statements, which is incorporated herein by reference.
ORDER BACKLOG
As of December 31, 1996, the backlog of orders booked was $77.2 million.
The backlog as of December 31, 1995 was $92.6 million. The Company includes in
backlog only open orders which have been released by the customer for shipment
in the calendar year 1997. 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 their shipments previously ordered from the Company, in many
instances without the payment of any penalty. Therefore, backlog is not
necessarily indicative of sales for any future period.
COMPETITION
The semiconductor industry is highly competitive. Many of the Company's
competitors are larger companies with greater financial resources and limited
dependency on semiconductor products as their sole source of sales and
earnings. The Company has been able to compete effectively by being selective
in its choice of products and markets, and by being a technology leader in
those areas. Through closely established customer relationships, the Company
acquires in-depth applications know-how for the markets it serves and
develops products that specifically address customer needs.
RESEARCH AND DEVELOPMENT
Research and development activities are directed toward expanding
technology leadership. Focus is on developing new products and processes,
and activities are ongoing to improve the cycle time from new product
development to product release. Total expenditures were $20.8 million in
1996, $19.1 million in 1995, and $15.8 million in 1994. Significant effort
has been expended on new power products and ICs where continued rapid market
growth is expected. See Note 2 of Notes to the Consolidated Financial
Statements.
PATENTS AND LICENSES
Siliconix protects its technology leadership by securing patents on
proprietary products and processes. As of December 31, 1996, Siliconix owned
109 U.S. patents, covering primarily semiconductor device structures,
processes, and circuitry. Expiration dates for these patents range from 1997
to 2016. An additional 15 patents have been allowed but not yet issued.
There were also 54 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.
6
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EMPLOYEES
In the last three years, the total number of employees has remained
relatively flat, with only key positions focused on target growth areas being
added. On December 31, 1996, the Company employed 1,228 people, of whom 822
were employed in the United States, 389 in East Asia, and 17 in Europe.
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 excellent.
7
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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
---- ---------------------
Richard J. Kulle President, Chief Executive Officer,
and a Director
King Owyang Executive Vice President, Technology and
Silicon Operations
Juergen F. Biehn Senior Vice President and Chief
Financial Officer
G. Thomas Simmons Vice President, Marketing
Mr. Kulle, age 52, joined the Company in June 1987 as the Vice President
of Worldwide Manufacturing and became Executive Vice President in August 1989
and President, Chief Executive Officer, and a director in March 1990. He
also became Chairman of the TEMIC Semiconductor Discrete Components Division
and Director of the Infrared Data Communications product unit (a part of the
TEMIC Semiconductors Discrete Components Division) in April 1996. Prior to
joining the Company, he served twenty-one years at General Electric, the last
two years as Manager IC Product Operations of AVLSI products and the previous
years in numerous management positions throughout its semiconductor division.
Mr. Kulle has a B.S. degree in Operations Management Industrial Engineering.
Dr. Owyang, age 51, 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 and Executive Vice
President, Technology and Silicon Operations in April 1992. Prior to joining
the Company, he served fourteen years at General Electric Semiconductor
Division, the last two years as Manager of Research and Development
Engineering of Power Integrated Circuit Products. Dr. Owyang holds B.S. and
Ph.D. degrees in Physics.
Mr. Biehn, age 55, joined the Company in March 1991 as Vice President and
Corporate Controller. He became Chief Financial Officer in October 1991 and
Senior Vice President in October 1996. He also became Chief Financial Officer
of the TEMIC Semiconductor Discrete Components Division in April 1996. Prior
to joining the Company, he was employed by AEG Aktiengesellschaft (an
affiliate of AEG Capital Corporation, which owns 80.4% of the outstanding
common stock of the Company), a German company which then had interests in
rail systems, microelectronics, power distribution, large power generating
systems and automation systems, in a variety of positions, most recently
Manager Departmental Director for controlling in the central administration
headquarters. Mr. Biehn holds a German M.A. degree.
Mr. Simmons, age 55, joined the Company in October 1994 as Vice
President, Marketing. He also became Vice President of Strategic Marketing
and Business Development within the TEMIC Semiconductor Discrete Components
Division in April 1996. Prior to joining the Company, Mr. Simmons served from
April 1993 to October 1994 as Vice President of Marketing and Sales of
Fountain Hills Systems, a company that designs and manufactures ergonomic
keyboards, and from March 1990 to April 1993 as President of Simmons &
Associates, a management consulting firm. Prior to that, he held senior
management positions at Oki Semiconductor, Intel, Fairchild, and Motorola.
Mr. Simmons holds a B.S. degree in Engineering and Economics and an M.B.A.
8
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ITEM 2. PROPERTIES.
The Company owns its principal manufacturing plant and general offices
which are located in four two-story buildings totaling 234,600 square feet on
a 13-acre site in Santa Clara, California. Siliconix Limited, a subsidiary
of the Company, currently occupies, under an agreement with TEMIC UK Limited,
a subsidiary of Matra MHS (an affiliated company), approximately 2,000 square
feet of space in premises located in Bracknell, United Kingdom, where the
Company's European Headquarters are located. TEMIC (S) Pte. Ltd., also a
subsidiary of the Company, occupies approximately 17,300 square feet of
administrative space in premises in Singapore, where the Company's Far East
Administrative Headquarters are located. This space is leased from AEG Pte.
Ltd., an affiliate of the Company. TEMIC (S) Pte. Ltd. also leases
approximately 22,100 square feet of manufacturing and general office space in
Manila from TEMIC Telefunken microelectronic GmbH, an affiliated company.
Siliconix (Taiwan) Limited, a subsidiary of Siliconix (Hong Kong) Limited,
which is 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. TEMIC
Japan KK, another subsidiary of the Company, leases 2,700 square feet of
general office space in Tokyo from Mercedes-Benz Japan. Shanghai Simconix
Co. Ltd., a joint venture between the Company and the Shanghai Institute of
Metallurgy (the "SIM"), leases 34,000 square feet of manufacturing and
general office space in Shanghai from the SIM.
ITEM 3. LEGAL PROCEEDINGS.
In 1996, the Company was a party to two environmental proceedings. The
first involved 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 also 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 is based on the discovery of contamination of both the soil and the
groundwater on the property by certain chemical solvents. The Order calls
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 is
complying with the RWQCB's orders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
9
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of March 14, 1997, there were 875 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 1995 and 1996 is
incorporated by reference from the Company's 1996 Annual Report to
Shareholders, portions of which are filed as Exhibit 13 hereto. The
Company's common stock trades on the Nasdaq Stock Market under the symbol
"SILI."
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from the Company's 1996 Annual Report to
Shareholders, portions of which are filed as Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Incorporated by reference from the Company's 1996 Annual Report to
Shareholders, portions of which are filed as Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of KPMG Peat Marwick LLP on the financial statements for the
years ended December 31, 1996, 1995, and 1994 is found on page 11 of this
Annual Report on Form 10-K. The remainder of the financial statements are
incorporated by reference from the Company's 1996 Annual Report to
Shareholders, portions of which are filed as Exhibit 13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
10
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Independent Auditors' Report
Board of Directors
Siliconix incorporated:
We have audited the accompanying consolidated balance sheets of Siliconix
incorporated as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of
the years in the three-year period ended December 31, 1996. 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 generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Siliconix
incorporated as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Palo Alto, California
January 21, 1997
11
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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 dated April 25, 1997 to be mailed
to shareholders in connection with the 1997 Annual Shareholders Meeting and
filed with the Securities and Exchange Commission on or about April 25, 1997
(the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from the "Compensation of Officers and
Directors," "Compensation and Incentive Plans of the Company," and "Report of
Compensation Committee" sections of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from the "Security Ownership" section of the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from the "Certain Transactions" section of the
Proxy Statement.
12
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF FORM 10-K
1. FINANCIAL STATEMENTS
Independent Auditors' Report on the Financial Statements for the Years
Ended December 31, 1996, 1995, and 1994 (see page 11 hereof)
The remainder of the Financial Statements are incorporated
by reference from the Company's 1996 Annual Report to
Shareholders, portions of which are filed as Exhibit 13
hereto.
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995, and 1994
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
Quarterly Financial Data (unaudited)
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.
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3. EXHIBITS
3.1 Restated Certificate of Incorporation(1)
3.2 Bylaws(2)
10.2 One-Year Key Professional Incentive Bonus Plan(1)
10.3 Key Professional Performance Unit Plan(2)
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)
10.10 Pension Contract dated January 26, 1995 between Richard J.
Kulle and TEMIC TELEFUNKEN microelectronic GmbH(3)
13 Portions of Siliconix incorporated 1996 Annual Report to
Shareholders
21 Subsidiaries of the Company
27 Financial Data Schedule
_____________________
(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, 1995, filed with the SEC
on April 1, 1996.
(3) Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, filed with the SEC
on April 10, 1995.
(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, 1996.
14
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FINANCIAL STATEMENT SCHEDULE
A. Independent Auditors' Report
II. Valuation and Qualifying Accounts
15
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INDEPENDENT AUDITORS' REPORT
Board of Directors
Siliconix incorporated:
Under date of January 21, 1997, we reported on the consolidated balance
sheets of Siliconix incorporated as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
as contained in the annual report on Form 10-K for the year 1996. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule listed in Item 14(a)2. The consolidated financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this consolidated financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Palo Alto, California
January 21, 1997
16
<PAGE>
SILICONIX INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------
Balance
At Charged to Balance
Beginning Costs and Charged to At End
of Period Expenses Revenues Deductions of Period
--------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1994:
Allowance for Doubtful Accounts $ 1,229 $ 326 $ - $ 492 $ 1,063
Allowance for Price Adjustments 735 - 1,248 1,081 902
Allowance for Returned Parts and
Distributor Adjustments 3,584 - 11,734 12,126 3,192
------- ------- -------- -------- --------
$ 5,548 $ 326 $ 12,982 $ 13,699 $ 5,157
1995:
Allowance for Doubtful Accounts $ 1,063 $ 1,075 $ - $ 297 $ 1,841
Allowance for Price Adjustments 902 - 922 1,381 443
Allowance for Returned Parts and
Distributor Adjustments 3,192 - 9,064 9,014 3,242
------- ------- -------- -------- --------
$ 5,157 $ 1,075 $ 9,986 $ 10,692 $ 5,526
1996:
Allowance for Doubtful Accounts $ 1,841 $ 329 $ - $ 69 $ 2,101
Allowance for Price Adjustments 443 - 3,945 4,288 100
Allowance for Returned Parts and
Distributor Adjustments 3,242 - 18,636 15,474 6,404
------- ------- -------- -------- --------
$ 5,526 $ 329 $ 22,581 $ 19,831 $ 8,605
</TABLE>
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 28, 1997
SILICONIX INCORPORATED
By: /s/Richard J. Kulle
------------------------
Richard J. Kulle
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officer
/s/ Richard J. Kulle President, Chief Executive
- ----------------------------- Officer and a Director March 28, 1997
Richard J. Kulle
Principal Financial Officer
/s/ Juergen Biehn Senior Vice President and March 28, 1997
- ---------------------------- Chief Financial Officer
Juergen Biehn
Principal Accounting Officer
/s/Raymond F. Werner Corporate Controller March 28, 1997
- ----------------------------
Raymond F. Werner
/s/Hanspeter Eberhardt Director March 28, 1997
- ----------------------------
Hanspeter Eberhardt
/s/Frank Maier Director March 28, 1997
- ----------------------------
Frank Maier
/s/Gustav Muehlschlegel Director March 28, 1997
- ----------------------------
Gustav Muehlschlegel
/s/Robert L. Wehrli Director March 28, 1997
- ----------------------------
Robert L. Wehrli
</TABLE>
18
<PAGE>
SIGNATURES (CONT'D)
<TABLE>
<S> <C> <C>
/s/ Peter Westrick Director March 28, 1997
- ----------------------------
Peter Westrick
</TABLE>
19
<PAGE>
INDEX TO EXHIBITS
Exhibit
-------
3.1 Restated Certificate of Incorporation(1)
3.2 Bylaws(2)
10.2 One-Year Key Professional Incentive Bonus Plan(1)
10.3 Key Professional Performance Unit Plan(2)
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)
10.10 Pension Contract dated January 26, 1995 between Richard J.
Kulle and TEMIC TELEFUNKEN microelectronic GmbH(3)
13 Portions of Siliconix incorporated 1996 Annual Report to
Shareholders
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, 1995, filed with the SEC
on April 1, 1996.
(3) Incorporated by reference from Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, filed with the SEC
on April 10, 1995.
20
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
(In thousands,
except per share and employment data) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $268,934 $250,291 $196,453
Gross profit $107,109 $ 98,186 $ 74,676
Research and development expense $ 20,823 $ 19,067 $ 15,777
Selling, marketing, and administration expense $ 54,475 $ 50,280 $ 44,751
Interest expense $ 2,390 $ 2,572 $ 2,008
Other (income) expense, net $ (335) $ (267) $ 617
Income before income taxes $ 29,756 $ 26,534 $ 11,523
Income taxes $ 3,779 $ 2,313 $ 900
Net income $ 25,977 $ 24,221 $ 10,623
-------- -------- --------
Net income per share $ 2.61 $ 2.43 $ 1.07
-------- -------- --------
Total assets $238,669 $207,962 $155,035
-------- -------- --------
Shareholders' equity $116,618 $ 90,276 $ 65,882
Year-end worldwide employment 1,228 1,269 1,172
-------- -------- --------
</TABLE>
<PAGE>
Five-Year Summary of Selected Financial Data
Siliconix incorporated
<TABLE>
<CAPTION>
(In thousands, except per
share and employment data) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $268,934 $250,291 $196,453 $170,282 $156,197
Operating income 31,811 28,839 14,148 9,283 8,245
Income before extraordinary gain 25,977 24,221 10,623 6,359 4,612
Extraordinary gain - - - 863 -
Net income $ 25,977 $ 24,221 $ 10,623 $ 7,222 $ 4,612
-------- -------- -------- ------- --------
Per share data:
Income before extraordinary gains $ 2.61 $ 2.43 $ 1.07 $ 0.64 $ 0.46
Extraordinary gain - - - 0.09 -
Net income $ 2.61 $ 2.43 $ 1.07 $ 0.73 $ 0.46
-------- -------- -------- ------- --------
Shares used to compute net income
per share 9,960 9,960 9,960 9,960 9,972
Total assets $238,669 $207,962 $155,035 $130,256 $115,675
Capital expenditures $ 39,511 $ 28,196 $ 25,030 $ 18,454 $ 12,945
Total long-term debt, including related party $ 39,429 $ 40,652 $ 40,834 $ 41,523 $ 46,090
Year-end worldwide employment 1,228 1,269 1,172 1,211 1,202
-------- -------- -------- ------- --------
</TABLE>
An extraordinary gain was recognized in 1993 as a result of the repurchase of
guaranteed floating rate subordinated notes.
<PAGE>
Quarterly Financial Data
<TABLE>
<CAPTION>
Unaudited
(In thousands,
except per share data) 1996 1995
Fourth Third Second First Fourth Third Second First
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $72,761 $62,033 $64,079 $70,061 $71,802 $66,015 $61,125 $51,349
Gross profit $28,065 $24,262 $26,100 $28,682 $29,668 $26,333 $22,909 $19,276
Net income $ 7,016 $ 5,888 $ 6,254 $ 6,819 $ 9,841 $ 7,304 $ 4,542 $ 2,534
Net income per share $ 0.70 $ 0.59 $ 0.63 $ 0.68 $ 0.99 $ 0.73 $ 0.46 $ 0.25
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Siliconix designs, markets, and manufactures power and analog
semiconductor products. The Company focuses on technologies and products for
the computer, data storage, communications, and automotive markets.
REVENUES AND EARNINGS
Fiscal 1996 results represent the seventh consecutive year of record
revenues and the third consecutive year of record earnings for Siliconix. Net
sales in fiscal 1996 of $268.9 million increased 7% from fiscal 1995 and 37%
from fiscal 1994. In fiscal 1996, net income was $26.0 million versus $24.2
million in fiscal 1995 and $10.6 million in fiscal 1994. Fiscal 1996 net
income increased 7% versus fiscal 1995 and 145% versus fiscal 1994. Return on
average shareholders' equity was 25% in fiscal 1996 as compared to 31% in
fiscal 1995 and 18% in fiscal 1994.
In spite of the downturn in the semiconductor industry, fiscal 1996
revenue grew modestly over 1995, with continued growth in Europe and Japan.
Power MOSFET and power IC products grew by over 13% and represented 74% of
total revenues for fiscal 1996. In fiscal 1995 and 1994, these products
represented 70% and 65% of total revenues, respectively. The remaining 26% of
fiscal 1996 revenue is comprised of analog switches and low power discrete
devices. Siliconix is a leader in power MOSFET discrete products and
continues to set the performance standard for the industry in low-voltage
surface-mount power devices. Power MOSFET products in LITTLE FOOT -Registered
Trademark- packages are used in portable computers, cellular phones,
automotive anti-lock braking (ABS) and airbag systems, and other high growth
applications. The Company continues to expand the breadth of this product
line and its manufacturing capacity to produce significantly larger
quantities of its LITTLE FOOT packages. The Company expects to increase
capacity for Trench technology in its six-inch fab in Santa Clara in 1997 as
it transfers production of planar technology power MOSFETS from Santa Clara
to a fab it will be operating in Itzehoe, Germany. The Company's proprietary
Trench technology remains the most advanced power MOSFET technology in the
industry. Demand remains very strong for the Company's power MOSFETS made
with this technology and the number of product offerings based on this
technology continues to grow. In the power IC product line, the Company
continues to achieve design wins for applications such as dc-to-dc conversion
and motor control. The other older product lines experienced a decline of 5%
in fiscal 1996, but the Company believes that these product lines still offer
excellent opportunities for growth, primarily in the Asia-Pacific region and
particularly in the emerging markets of China and India.
Siliconix operates in all major geographic regions of the semiconductor
industry. Sales outside of North America in fiscal 1996 accounted for 67% of
total revenues versus 63% in fiscal 1995 and 59% in fiscal 1994. Japan
continues to be the fastest growing region with a 60% revenue increase from
1995 to 1996, fueled by products used in the telecommunications and computing
markets. Japan grew to 19% of total revenues compared to 13% in 1995 and 10%
in 1994. Europe followed with 11% annual growth over 1995 while Southeast
Asia experienced a decline of 6% over last year. The European and Southeast
Asian regions accounted for 27% and 21% of worldwide sales for fiscal 1996,
respectively, compared with approximately 25% of worldwide sales for both
regions for fiscal 1995 and 1994. Domestic revenues declined 4% since 1995 and
represent 33% of total revenues for fiscal 1996 as compared to 37% and 41%
for fiscal 1995 and 1994, respectively, reflecting a shift to overseas
markets during the past three years. The Company expects that Japan and
Asia-Pacific will be the major opportunities for growth in 1997.
GROSS PROFIT
Gross profit as a percentage of net sales was 40% in fiscal 1996, 39% in
fiscal 1995, and 38% in fiscal 1994. Due to the downturn in the semiconductor
industry in 1996, the Company faced substantial pricing pressures and
experienced average selling price (ASP) degradation during the year. Despite
the difficult market environment, the Company was able to minimize the
effects of the ASP degradation through economies of scale in manufacturing
operations, transfer of assembly and test operations to Asia, institution of
company wide cost reduction programs, and the introduction of cost effective
product designs such as die shrink and mask reduction. During fiscal 1996,
the Company focused on adding capacity for our new technology products,
including our proprietary Trench technology, and by the end of the year, had
increased overall capacity by 15% over 1995. The Company plans to continue
manufacturing expansion in Santa Clara, China, Taiwan, India, and Germany, and
as part of this expansion, plans are underway to add capacity for fabrication
of power MOSFET products in Itzehoe, Germany during 1997. The Company views
the expansion into this leased facility in Germany as a cost effective means
of increasing capacity without the high capital costs of building a new fab;
however, as expected with the start of operations in a new fab, the Company
has planned to experience a gross margin decline of 2% in 1997 related to
this matter. These expansion efforts will solidly position the Company for
future revenue growth in its power MOSFET product line. In fiscal 1996, the
Company continued plans to transfer its 4-inch fab production from Santa
Clara to third party foundries in Asia and expects to close this fab in 1997.
Costs for this fab closure are not expected to materially affect the
Company's results of operations, financial condition, or liquidity. Royalty
expense, as a percentage of sales, has declined slightly in the last three
years due to a shift to newer proprietary technologies and processes, and
this trend is expected to continue into 1997.
RESEARCH AND DEVELOPMENT, SELLING, MARKETING, AND ADMINISTRATION AND OTHER
Research and development investment increased 9% in fiscal 1996 to $20.8
million versus $19.1 million in fiscal 1995 and $15.8 million in fiscal 1994.
Siliconix has continued to invest in power MOSFET and power IC technology and
product development. Fiscal 1995 investment grew 21% versus fiscal 1994. This
growing investment has resulted in one of the most advanced power MOSFET
technology in the industry which is anticipated to fuel future growth.
Selling, marketing, and administration expenses increased 8% over last
year to $54.5 million as compared to $50.3 million in fiscal 1995 and $44.8
million in fiscal 1994. As a percentage of net sales, this represented 20% in
fiscal 1996 versus 20% in fiscal 1995 and 23% in fiscal 1994. Economies of
scale and cost controls have resulted in stable percentages in the past three
years.
Interest expense decreased 7% in fiscal 1996 to $2.4 million from $2.6
million in fiscal 1995. Lower monthly interest rates during 1996 as compared
to 1995 were the primary reason for the decrease. Interest expense for fiscal
1995 increased 28% over fiscal 1994 as short-term interest rates in 1995 were
higher than rates during 1994.
The components of other (income) / expense primarily include interest
income, gain/loss on sale of fixed assets, and bank charges. Other income
for fiscal 1996 remained relatively flat with fiscal 1995 at $.3 million.
Interest income continues
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
to be the main component of other income, with $.9 million of interest income
for both fiscal years 1996 and 1995. Other expense for fiscal 1994 included
only $.2 million of interest income. The increase in interest income can be
attributed to higher cash balances which the Company has maintained over the
past two years.
INCOME TAX
Income tax expense for fiscal 1996 increased $1.5 million over fiscal
1995 and $2.9 million over fiscal 1994 as a result of reductions in available
net operating loss carryforwards and increased earnings before taxes. The
income tax rate for 1997 is expected to increase from 1996 due to the
reductions in available net operating loss carryforwards.
During 1996, management reduced the valuation allowance on deferred
income tax assets to realize an additional $2.1 million net deferred income
tax asset. This decision to recognize additional net deferred income tax
assets was based on management's belief that, it is more likely than not, the
Company will realize deferred income tax benefit of $4.2 million. The primary
positive factors assessed by management in reaching its conclusion about the
Company's net deferred income tax asset include positive earnings and
continued increases in gross profits for the past three years.
The expectation for the future is that, even with the extremely volatile
environment in which the Company competes, operating income of the Company
will more than likely be sufficient to realize a portion of the deferred
income tax asset; however, due to certain factors beyond management's
control, there can be no assurance that sufficient taxable income will be
generated in each of the Company's taxing jurisdictions to realize recorded
tax benefits. In addition, there can be no assurance that the Company will
generate any earnings or any specific level of continuing earnings in future
years. The primary negative factors assessed by management in reaching its
conclusion about the Company's ability to realize the net deferred income tax
asset are discussed in the section titled "Certain Factors."
OTHER AREAS
The impact of inflation on the Company's business during the past three
years was not significant.
During 1996, the Company adopted SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of."
The provisions of SFAS No. 121 did not have a material effect on the
Company's consolidated financial condition or results of operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents and short-term investment with affiliate were
$24.3 million at the end of 1996 as compared to $27.7 million at the end of
1995, a decrease of 12%. The $3.4 million decrease is attributed to cash
used in investing and financing activities exceeding cash provided by
operating activities. The Company continues to fund all of its investing,
financing, and operating activities from cash flows from operations.
Accounts receivable decreased $4.2 million or 10% compared to 1995 primarily
due to a reduction in days sales outstanding (DSO) to 46 days in 1996
compared to 54 days in 1995. DSO is an indicator of how quickly accounts
receivable are turned into cash and the decrease in accounts receivable is
due mainly to increased collection efforts worldwide.
Inventories increased $3.4 million or 13% over 1995 primarily to support 1997
expected revenue growth.
Capital expenditures were $39.5 million in 1996 and $28.2 million in 1995.
These related mostly to additions for plant capacity expansion, new
technology, and regulatory compliance. Capital spending in 1997, funded from
cash provided by operating activities, is expected to approximate the 1996
level.
Other assets increased $5.5 million over 1995 mainly due to an increase in
the investment in Simconix, the Company's joint venture in the People's
Republic of China (see Note 3 of Notes to the Consolidated Financial
Statements).
Net affiliate receivables/payables increased $5.1 million over 1995
primarily due to increases in sales to unconsolidated affiliates and
selling and administrative expenses incurred on behalf of unconsolidated
affiliates, which are reimbursed at cost.
Current liabilities increased $4.4 million or 6% over fiscal 1995 mainly
due to increases in accounts payable for capital equipment received before
the close of the fiscal year.
Although the Company has available cash and equivalents and short-term
investment with affiliate of $24.3 million at the end of fiscal 1996, cash
and short-term investment with affiliate will decrease in the first quarter
of 1997 to fund capital expenditures, royalty payments, commissions, yearly
management and employee bonuses, the 401(k) Company match, and profit sharing
contributions. Due to the timing of these payments, this decrease in cash
in the first quarter is a normal trend for the Company. Management expects
1997 cash flows from operations to be sufficient to fund investments in
capital expenditures and research and development.
CERTAIN FACTORS
The Company has in the past and may in the future make forward looking
statements. These statements are subject to risks and uncertainties that
could cause actual results to differ materially from those predicted. Such
risks and uncertainties include, but are not limited to, the following:
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
TECHNOLOGICAL CHANGE AND COMPETITION
The markets for the Company's products 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 at
competitive prices and performance levels, and upon having them 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 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 at various times that have been
characterized by diminished product demand. Reduced demand for the Company's
products could have an adverse effect on the Company's business and operating
results.
AVAILABILITY OF RAW MATERIALS
The semiconductor industry has been increasing its manufacturing capacity
over the past several years and is expected to continue to do so in the
future. The Company anticipates that this environment may make it difficult
for semiconductor companies generally to ensure the required supply of
silicon wafers from time to time. The Company's results of operations could
be adversely affected if its wafer suppliers are unwilling or unable to
supply a timely and sufficient supply of product to the Company.
INTELLECTUAL PROPERTY MATTERS
The semiconductor industry is characterized by litigation regarding patent
and other intellectual property rights. The Company has on occasion been
notified that it may be infringing patent and other intellectual property
rights of others. In addition, customers purchasing components from the
Company have rights to indemnification under certain circumstances if such
components violate the intellectual property rights of others. Although
licenses are generally offered in such situations, and the Company has
successfully resolved these situations in the past, there can be no assurance
that the Company will not be subject to future litigation alleging
intellectual property rights infringement, or that the Company will be able
to obtain licenses on acceptable terms. An unfavorable outcome regarding one
of these matters could have an adverse effect on the Company's business and
operating results.
POLITICAL AND ECONOMIC CONSIDERATION
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.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
Siliconix incorporated
<TABLE>
<CAPTION>
Years ended December 31
(In thousands, except per share data) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales $268,934 $250,291 $196,453
Cost of sales 161,825 152,105 121,777
-------- -------- --------
Gross profit 107,109 98,186 74,676
-------- -------- --------
Operating expenses:
Research and development 20,823 19,067 15,777
Selling, marketing, and administration 54,475 50,280 44,751
-------- -------- --------
Operating income 31,811 28,839 14,148
Interest expense 2,390 2,572 2,008
Other (income) expense, net (335) (267) 617
-------- -------- --------
Income before income taxes 29,756 26,534 11,523
Income taxes 3,779 2,313 900
-------- -------- --------
Net income $ 25,977 $24,221 $10,623
-------- -------- --------
Net income per share $ 2.61 $ 2.43 $ 1.07
-------- -------- --------
Shares used to compute earnings per share 9,960 9,960 9,960
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Siliconix incorporated Additional Retained Accumulated Total
Years ended December 31, 1996 Common Stock at Par Paid-in- Earnings Translation Shareholders'
(In thousands) Shares Amount Capital (Deficit) Adjustments Equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 9,960 $ 100 $ 59,013 $ (3,286) $ (1,096) $ 54,731
Net income - - - 10,623 - 10,623
Proceeds from restricted
common stock - - 180 - - 180
Currency translation adjustments - - - 348 348
Balances at December 31, 1994 9,960 100 59,193 7,337 (748) 65,882
Net income - - - 24,221 - 24,221
Proceeds from restricted
common stock - - 230 - - 230
Currency translation adjustments - - - - (57) (57)
Balances at December 31, 1995 9,960 100 59,423 31,558 (805) 90,276
Net income - - - 25,977 - 25,977
Proceeds from restricted
common stock - - 17 - - 17
Currency translation adjustments - - - - 348 348
Balances at December 31, 1996 9,960 $ 100 $ 59,440 $57,535 $ (457) $116,618
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS
Siliconix incorporated
<TABLE>
<CAPTION>
As of December 31
(In thousands, except share data) 1996 1995
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 12,201 $ 10,513
Short-term investment with affiliate 12,136 17,195
Accounts receivable, less allowances of $8,605 in 1996 and $5,526 in 1995 37,044 41,201
Accounts receivable from affiliates 14,802 11,093
Inventories 30,162 26,740
Other current assets 8,044 9,033
Deferred income taxes 5,314 2,024
-------- --------
Total current assets 119,703 117,799
-------- --------
Property, plant, and equipment, at cost:
Land 1,183 279
Buildings and improvements 42,672 40,474
Machinery and equipment 187,791 160,421
-------- --------
231,646 201,174
Less accumulated depreciation 124,524 117,324
-------- --------
Net property, plant, and equipment 107,122 83,850
Other assets 11,844 6,313
-------- --------
Total assets $238,669 $207,962
-------- --------
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of debt obligations $ 1,041 $ 586
Accounts payable 26,286 24,347
Accounts payable to affiliates 11,115 12,465
Accrued payroll and related compensation 13,614 11,613
Accrued liabilities 29,418 28,023
-------- --------
Total current liabilities 81,474 77,034
Long-term related party debt 34,570 34,570
Long-term debt, less current portion 4,859 6,082
Deferred income taxes 1,148 -
-------- --------
Total liabilities 122,051 117,686
-------- --------
Shareholders' equity:
Common stock, par value $0.01; 10,000,000 shares authorized;
9,959,680 shares issued and outstanding in 1996 and 1995 100 100
Additional paid-in-capital 59,440 59,423
Retained earnings 57,535 31,558
Accumulated translation adjustments (457) (805)
-------- --------
Total shareholders' equity 116,618 90,276
-------- --------
Total liabilities and shareholders' equity $238,669 $207,962
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
Siliconix incorporated
<TABLE>
<CAPTION>
Years ended December 31
(In thousands) 1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 25,977 $ 24,221 $ 10,623
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 17,976 13,319 11,895
Deferred income taxes (2,142) (2,024) -
Loss on disposal of property, plant, and equipment - - 314
Other non-cash (income) and expenses (212) 181 -
Changes in operating assets and liabilities:
Accounts receivable 3,274 (10,678) (5,370)
Accounts receivable from affiliates (3,709) (5,781) (1,385)
Inventories (3,453) 4,326 387
Other current assets (1,897) (3,511) (1,345)
Accounts payable 2,027 9,134 2,499
Accounts payable to affiliates (1,350) 7,485 1,899
Accrued liabilities 3,582 12,070 10,004
--------- -------- --------
Net cash provided by operating activities 40,073 48,742 29,521
--------- -------- --------
Cash flows from investing activities:
Purchase of property, plant, and equipment (39,511) (28,196) (25,030)
Proceeds from sale of property, plant, and equipment 81 35 182
Investment in joint venture (2,053) (1,200) -
Purchase of other assets (2,410) (1,708) (1,581)
Short-term investment with affiliate 5,059 (17,195) -
--------- -------- --------
Net cash used in investing activities (38,834) (48,264) (26,429)
--------- -------- --------
Cash flows from financing activities:
Repayment of long-term debt (556) (646) (893)
Repurchase of subordinated notes - (110) (150)
Proceeds from restricted common stock 17 230 180
--------- -------- --------
Net cash used in financing activities (539) (526) (863)
--------- -------- --------
Effect of exchange rate changes on cash and
equivalents 988 (182) (95)
--------- -------- --------
Net increase (decrease) in cash and equivalents 1,688 (230) 2,134
Cash and equivalents:
Beginning of year 10,513 10,743 8,609
--------- -------- --------
End of year $ 12,201 $ 10,513 $ 10,743
--------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
ORGANIZATION Siliconix incorporated (the "Company") was founded in 1962 and
subsequently reincorporated on March 5, 1987 in Delaware. AEG Capital
Corporation (AEG) owns 80.4% of the Company's outstanding common stock.
CONSOLIDATION The accompanying consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION The Company records sales to original equipment
manufacturers and distributors at the time of shipment. The Company records
allowances against revenue for its standard distributor agreements which
permit stock rotation and which provide price protection for distributors'
inventory on hand when the Company reduces its published list prices.
CASH AND EQUIVALENTS Cash equivalents consist of short-term financial
instruments which are readily convertible to cash and have maturities of
three months or less at the time of acquisition.
SHORT-TERM INVESTMENTS Short-term investments consist of cash invested with
Daimler Benz Capital Incorporated, an affiliated company, within its cash
concentration system, whereby cash is pooled and invested on a short-term
basis.
INVENTORIES Inventories are stated at the lower of cost (first in,
first out) or market.
PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at
cost. Depreciation is computed for financial reporting purposes using
primarily 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.
OTHER ASSETS The investment in Simconix (a 50% joint venture with the
Shanghai Institute of Metallurgy) is reported and presented under the equity
method of accounting.
LONG-LIVED ASSETS During 1996, the Company adopted SFAS No. 121 "Accounting
for the Impairment of Long-Lived assets and for Long-Lived Assets to Be
Disposed of." The provisions of SFAS No. 121 did not have a material effect
on the Company's consolidated financial condition or results of operations.
RESEARCH AND DEVELOPMENT Expenditures for research and development are
charged to expense in the year incurred.
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 equivalents, short-term investments, accounts receivable, debt
obligations, accounts payable, and accrued liabilities, the carrying amounts
approximate the fair value of the instruments. The investment in Simconix is
carried using the equity method since a reasonable estimate of the fair value
could not be made without incurring excessive costs.
The Company's financial instruments that are subject to concentrations of
credit risk consist primarily of trade receivables. The credit risk related
to the Company's trade receivables is mitigated by the Company's ongoing
credit evaluations of its customers' financial condition, reasonably short
collection terms, and the geographical dispersion of sales transactions. The
Company generally does not require any collateral from its domestic customers
although letters of credit are used frequently throughout Asia. Bad debt
expense has not been significant over the past three years.
A material portion of the Company's revenues in 1996, 1995, and 1994 were
derived from the hard disk drive and personal computer markets. These
markets have been historically somewhat volatile, as demand for the
end-products in these markets has varied widely from time to time. If demand
for these end-products should decrease significantly, the producers thereof
could reduce their purchase of the Company's products which in turn could
have a materially adverse effect on the Company's consolidated financial
condition and results of operation.
INCOME TAXES Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases as well as operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Income taxes have not been provided on undistributed earnings of the
Company's foreign subsidiaries as it is intended that these earnings will be
indefinitely invested in operations outside the United States.
The Company is included in the consolidated federal and certain state tax
returns of an affiliated company. In accordance with the income tax
allocation policy of the affiliated company, federal and state taxes are
determined as if the Company was 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 allocated as if the
Company's tax provision and related liability had been calculated on a
separate return basis.
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 sheet 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 shareholders' equity. Foreign
currency transaction gains and losses are included in the results of
operations.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
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
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 which are
probable of realization are separately recorded, and are not offset against
the related environmental liability.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. RELATED PARTY TRANSACTIONS
The Company is a member of the semiconductor division of the Daimler-Benz
Microelectronics Group, a consortium of affiliated companies referred to as
TEMIC Semiconductors. In addition to the Company, the other members of TEMIC
Semiconductors are Telefunken Semiconductors, Matra MHS, and Dialog
Semiconductor. The aim of TEMIC Semiconductors is to unify the activities of
the member companies to provide efficiencies by eliminating the duplication of
many functions and to bring greater value to end customers by allowing them to
deal with one entity for their semiconductor purchasing needs. In order to
achieve these goals, four sales companies were established in 1995, TEMIC North
America, TEMIC Asia Pacific, TEMIC France, and TEMIC Germany. These companies
were established to fulfill all sales responsibilities for TEMIC Semiconductors
within their respective regions. TEMIC North America is a wholly owned
subsidiary of Siliconix incorporated; TEMIC Asia Pacific is a division of TEMIC
(S) Pte. Ltd., a wholly owned subsidiary of Siliconix incorporated; TEMIC France
is a wholly owned subsidiary of Matra MHS; and TEMIC Germany is a division of
Telefunken Semiconductors. The sales companies function as agents of the
manufacturing companies, namely Siliconix incorporated, Matra MHS, and
Telefunken Semiconductors, through commission arrangements at a fixed percentage
of sales. Under these agreements, the sales companies perform all sales related
functions under their legal names; however, the sales companies function only in
an agency role and the ownership of all sales, receivables, inventory, and risk
of loss remains with the manufacturing companies.
During 1996, TEMIC reorganized its semiconductors business unit into two
operating product divisions, Discrete Components and Integrated Circuits.
The new operating structure is based on product groups and market segments
and should allow TEMIC to manage the market's requirements more effectively.
The Discrete Components division headquarters are located in Santa Clara,
California, USA and the Integrated Circuits division is located in Heilbronn,
Germany. The legally and financially autonomous subsidiaries of the TEMIC
semiconductor business unit remained intact.
Several significant transactions and agreements entered into between the
Company and these affiliates are disclosed elsewhere in these consolidated
financial statements and related notes. In addition, the following are other
transactions between the Company and its affiliates during 1996, 1995, and
1994.
Under the TEMIC sales structure, commissions received pertaining to the sale
of affiliate products in the North America and Asia Pacific regions were
$16,040,000 and $15,191,000 in 1996 and 1995, respectively, while commissions
paid pertaining to the sale of the Company's products in Europe were
$4,361,000 and $4,232,000 in 1996 and 1995, respectively. During 1994, the
Company entered into selling arrangements of a similar nature with related
parties. Commissions received under these agreements were $10,944,000 while
commissions paid were $3,777,000.
During 1995, the Company began to participate in the cash concentration
system established by Daimler-Benz North America (DBNA), an affiliated
company, whereby cash is pooled and invested on a short-term basis with
Daimler-Benz Capital Incorporated (DBCI), an affiliate of DBNA, to obtain a
higher rate of return. At December 31, 1996 and 1995, cash balances of
$12,136,000 and $17,195,000, respectively, were invested with DBCI. There
are no restrictions related to the usage or withdrawal of these funds.
Interest rates on the investment is based on the one-month LIBOR. Interest
income earned for 1996 and 1995 totaled $421,000 and $410,000, respectively.
During 1994, the Company received $300,000 from a related party under the terms
of a joint research and development contract which expired at the end of the
calendar year. For 1994, significant terms of the agreement included, but were
not limited to, inspection of the project by the related party, assurance to the
related party concerning the confidentiality of the technical information, and
assurance that the results of the work provided do not affect any intellectual
property rights of other third parties. There were no joint research and
development contracts in 1996 or 1995.
During 1996, 1995, and 1994, a related party was engaged to provide subcontract
manufacturing services to the Company. Fees for these services were $4,467,000,
$4,591,000, and $3,019,000, respectively.
During 1996, 1995, and 1994, the Company entered into certain arrangements with
related parties whereby the Company or the related party paid certain selling
and administrative expenses. These expenses were then billed back on a periodic
basis. During 1996, 1995, and 1994, the Company was reimbursed at cost,
$14,740,000, $12,214,000, and $6,400,000, respectively, for selling and
administrative expenses for related parties. During the same period, the
Company reimbursed related parties at cost, $2,256,000, $2,223,000, and
$2,702,000, respectively, for selling and administrative expenses. Management
fee arrangements have been entered into by the Company and related parties to
cover occupancy and administrative costs. During 1996, 1995, and 1994,
management fees received by the Company were $712,000, $555,000, and $401,000,
respectively, and fees paid by the Company were $1,853,000, $139,000, and
$125,000, respectively. The management fee paid by the Company in 1996
included $1,670,000 related to legal, patent and licensing, and setup costs
related to our Itzehoe plant in Germany.
During 1996, the Company began to incur costs in connection with the set-up of
the new Discrete Components division pertaining to the product lines of a
related party. Costs for 1996 which were billed back to a related party totaled
$1,768,000.
Product sales to unconsolidated affiliates were $15,527,000, $8,358,000, and
$5,022,000 during 1996, 1995, and 1994, respectively.
Long-term debt includes a related party note of $34,570,000 with Daimler-Benz
Capital Inc. (see Note 6). Interest expense for 1996, 1995, and 1994 was
$2,005,000, $2,076,000, and $1,550,000, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Simconix Joint Venture
The Company continued to maintain the equal partnership with the Shanghai
Institute of Metallurgy involving the assembly and test of LITTLE FOOT
product in The People's Republic of China. Simconix exclusively assembles and
tests die provided by the Company. In accordance with the joint venture
agreement, which expires in the year 2003, the Company recognized $2,188,000
as its share of profits in Simconix in 1996 under the equity method of
accounting. In fiscal 1995, the first year the Company recognized its share
of profits in Simconix, $472,000 was recognized under the equity method of
accounting. During 1996, an additional $2,053,000 was invested in the
joint venture, increasing the carrying amount of the joint venture to
$7,346,000. In order to obtain the best pricing, the Company acts as the
purchasing agent of manufacturing equipment for Simconix and pays the vendors
directly, with full reimbursement from Simconix.
4. Inventories
Inventories consisted of the following:
December 31
(In thousands) 1996 1995
-------- --------
Finished goods $ 6,105 $ 5,931
Work-in-process 18,838 17,449
Raw materials 5,219 3,360
-------- --------
$30,162 $26,740
-------- --------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income Taxes
Income before taxes for the years ended December 31, 1996, 1995, and 1994
included earnings from foreign operations of $13,172,000, $12,242,000, and
$7,329,000, respectively.
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
Years ended December 31
(In thousands) 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 5,847 $ 5,670 $ 3,410
State and local 54 148 1,031
Foreign 719 1,542 1,289
Less Benefit of net operating losses (699) (3,023) (4,830)
---------- ---------- ----------
5,921 4,337 900
---------- ---------- ----------
Deferred:
Federal 2,138 (2,024) -
State and local (3,394) -
Foreign (886) -
---------- ---------- ----------
$ (2,142) $ (2,024) -
---------- ---------- ----------
$ 3,779 $ 2,313 $ 900
---------- ---------- ----------
</TABLE>
Income tax expense differs from the amounts computed by applying the
federal statutory income tax rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
Years ended December 31
(In thousands) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense $ 10,415 $ 9,287 $ 3,918
State taxes, net of federal benefit (2,171) - -
Reduction in beginning of the year valuation allowance (3,743) (4,345) (2,046)
Foreign income taxable at different tax rate (291) (2,743) (1,203)
Income tax benefit attributable to foreign sales corporation (614) (675) -
Other 183 789 231
--------- --------- ---------
$3,779 $2,313 $ 900
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
December 31
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Accrued expenses and reserves $ 10,284 $ 10,409
Net operating loss carryforwards - 2,591
Tax credit carryforwards 8,900 7,000
-------- ---------
Total gross deferred tax assets 19,184 20,000
Less valuation allowance (3,780) (10,242)
-------- ---------
Net deferred tax assets 15,404 9,758
-------- ---------
Deferred tax liability:
Plant and equipment, principally due to differences in depreciation (10,227) (7,734)
Investment in joint venture (1,011) -
-------- ---------
Total gross deferred tax liability (11,238) (7,734)
-------- ---------
Net deferred tax asset $ 4,166 $ 2,024
-------- ---------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net change in the total valuation allowance for the years ended December
31, 1996, and 1995, was a decrease of $6,462,000 and $3,979,000, respectively.
At December 31, 1996 the Company had the following carryforwards for income tax
purposes:
<TABLE>
<CAPTION>
(In thousands) Expires
-------------
<S> <C> <C>
Credits:
Federal research and other business credits $4,200 1998-2010
California research and other business credits $3,500 No expiration
Alternative minimum tax credits $1,200 No Expiration
</TABLE>
Utilization of the federal credit carryforwards incurred prior to 1991 is
limited on an annual basis under the Tax Reform Act of 1986 as a result of the
ownership change in 1990.
The Company has not provided for U.S. federal income taxes on $32.0 million
of non U.S. subsidiaries' undistributed earnings as of December 31, 1996,
because such earnings are intended to be reinvested indefinitely. If these
earnings were distributed, the resulting U.S. income tax liability is
currently not material.
6. Debt Obligations
<TABLE>
<CAPTION>
The Company's debt obligations were as follows:
December 31
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Related party borrowings $34,570 $34,570
Trade deferrals 1,041 1,597
Guaranteed floating rate subordinated notes 3,117 3,117
Unfunded retirement costs 1,742 1,954
-------- --------
Total debt 40,470 41,238
Less current portion 1,041 586
-------- --------
Long-term portion 39,429 40,652
Related party borrowings 34,570 34,570
-------- --------
Amounts due to other $4,859 $ 6,082
-------- --------
</TABLE>
Borrowings from a related party are at a floating interest rate based on
DBCI's cost of securing commercial paper, 5.81% at December 31, 1996. The
related party note is due in 1999.
The Company issued $3,601,000 long-term trade deferral notes bearing
interest at the 12-month London Interbank Offered Rate (LIBOR) plus .5%
(6.22% at December 31, 1996). The trade deferrals are guaranteed by an
affiliated party, principal payments commenced in 1992, and the deferrals
mature in 1997. These notes were issued as partial compensation for trade
claims.
The guaranteed floating rate subordinated notes bear interest at the 3-month
LIBOR plus .5% and are due in 2005. The interest rate is fixed annually
(5.32% at December 31, 1996). The notes are guaranteed by an affiliated
party, are subordinated to all other obligations of the Company, and are
redeemable at the Company's option.
Debt (excluding unfunded retirement costs) at December 31, 1996,
matures according to the following schedule:
(In thousands)
1997 $1,041
1998 -
1999 34,570
2000 -
2001 -
Thereafter 3,117
-------
Total $38,728
-------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Geographic and Industry Segment Reporting
The Company is engaged primarily in the designing, marketing, and
manufacturing of power and analog semiconductor products. No other separate
class of products or services constitutes more than 10% of net sales. Sales
to the mass storage and computer market represented approximately 16% of net
sales in 1996, 24% in 1995, and 29% in 1994. Sales to the communication
market increased to 13% of net sales in 1996, compared with 12% in 1995. A
Japanese distributor accounted for 19% of net sales in fiscal 1996. The same
distributor accounted for 13% of net sales in fiscal 1995. At December 31,
1996, accounts receivable from this distributor totaled $8,187,000.
The Company maintains manufacturing operations in the United States, Hong
Kong (through subcontractors), and Taiwan as well as a joint venture in China
and subsidiaries in the United Kingdom, Singapore, and Japan.
Intercompany sales consist of products and services similar to those sold
to external customers. Such sales are accounted for at amounts that are above
cost and consistent with governing tax regulations. Identifiable assets are
those assets used in each geographic area. Corporate assets are principally
cash and equivalents and other miscellaneous corporate assets.
<TABLE>
<CAPTION>
Information about the Company's operations
by geographic area is shown in the following table:
Years ended December 31
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales to External Customers:
North America $ 89,596 $ 93,613 $ 81,383
Europe and Africa 71,739 64,897 49,330
Japan 51,065 31,944 19,347
Asia Pacific 56,534 59,837 46,393
---------- ---------- ---------
$ 268,934 $ 250,291 $ 196,453
---------- ---------- ---------
Intercompany Sales (Eliminated in Consolidation):
North America $ 141,390 $ 134,764 $ 117,300
Europe 2,716 1,398 1,133
Japan 2,587 2,613 2,206
Asia Pacific 103,318 100,234 88,786
---------- ---------- ---------
$ 250,011 $ 239,009 $ 209,425
---------- ---------- ---------
Operating Income:
North America $ 14,571 $ 18,019 $ 7,480
Europe and Africa 2,274 1,716 1,120
Japan (194) 97 105
Asia Pacific 12,073 10,413 6,647
Eliminations and adjustments 3,087 (1,406) (1,204)
---------- ---------- ---------
$ 31,811 $ 28,839 $ 14,148
---------- ---------- ---------
Identifiable Assets at December 31:
North America $ 155,213 $ 133,232 $ 124,853
Europe 14,929 18,679 13,875
Japan 351 342 646
Asia Pacific 64,639 58,063 44,596
---------- ---------- ---------
235,132 210,316 183,970
Eliminations and adjustments (24,343) (36,343) (42,095)
Corporate assets 27,880 33,989 13,160
---------- ---------- ---------
Total assets $ 238,669 $ 207,962 $ 155,035
---------- ---------- ---------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Leases and Commitments
At December 31, 1996, the future minimum commitments for
all non-cancelable operating leases are as follows:
(In thousands)
1997 $2,216
1998 1,365
1999 434
2000 115
2001 5
Thereafter 211
------
Total minimum lease payments $4,346
------
The Company leases land, office facilities, and equipment under operating
leases. Operating rent expense was $4,599,000, $4,511,000, and $3,147,000 in
1996, 1995, and 1994, respectively.
The Company entered into product license agreements which provide, among
other things, that the Company make royalty payments based on sales of
certain products at royalty rates as specified in the agreement. The product
license agreements either have a fixed term or terminate upon expiration of
the patents. There is no contractual limit to royalty payments. Royalty
expense under these royalty agreements was $7,692,000, $7,467,000, and
$6,208,000 in 1996, 1995, and 1994, respectively. Included in accrued
liabilities are royalties payable of $2,454,000 and $2,900,000 at December
31, 1996 and 1995, respectively.
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 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 were $2,525,000,
$2,242,000, and $986,000 in 1996, 1995, and 1994, 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 contributions were
$1,266,000, $1,112,000, and $967,000 in 1996, 1995, and 1994, respectively.
The Company maintains defined benefit pension plans in the United States
and Taiwan. The Company's U. S. defined benefit pension plan is for
employees who met specified age and service eligibility requirements on
January 1, 1983. The Company's subsidiary in Taiwan has a defined benefit
pension plan that covers substantially all of its employees.
During 1994, the Europe Defined Benefit Plan was terminated. Per an
agreement with the participants of the Plan, all vested benefits as well as
40% of the surplus (the amount by which plan assets exceeded the accumulated
benefit obligation) were paid out to the participants with the remainder
remitted to the Company, net of a 40% excise tax imposed by the UK's Inland
Revenue Service.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the Plan's funded status and amounts
recognized in the Company's balance sheets:
December 31
(In thousands) 1996 1995
-------- --------
Actuarial present value of benefit obligations:
Vested benefits obligation $ (590) $ (659)
Accumulated benefit obligation (1,954) (1,955)
Projected benefit obligation (PBO) (3,458) (3,369)
Plan assets at fair value 1,257 1,104
Plan assets less PBO (2,201) (2,265)
Unrecognized net loss 66 174
Adjustment to recognize minimum liability (196) (450)
Unrecognized net transition asset at:
January 1, 1987, recognized over 15 years 181 217
January 1, 1989, recognized over 15 years 485 532
-------- --------
Accrued pension cost (1,665) (1,792)
-------- --------
<TABLE>
<CAPTION>
Plan assets consist primarily of guaranteed insurance contracts
and managed trusts. Net pension cost included the following components:
Years ended December 31
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the year $ 209 $ 204 $ 229
Interest cost on PBO 239 241 585
Actual (gain) loss on plan assets (67) (68) 205
Net amortization and deferral 99 96 (832)
Loss on plan termination - - 692
-------- -------- --------
Net pension expense $ 480 $ 473 $ 879
-------- -------- --------
Assumptions used were:
Discount rates 6.5%-7% 7 - 7.5% 6 - 7%
Rates of increase in compensation levels 5% 6% 5 - 8%
Expected long-term rate of return on assets 6.5%-7% 7 - 7.5% 6 - 9%
-------- -------- --------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, the difference between the fair market value at the date of issue and
the price paid by the employee or director (the "delta") is paid to the
Company. Fully vested shares outstanding under this plan at a delta of $3.06
per share at December 31, 1996, 1995, and 1994, were 96,945, 102,389, and
177,603, respectively. There were no shares issued under this plan during
1996, 1995, and 1994. Vested shares sold by employees during 1996, 1995, and
1994 were 5,444, 75,214, and 58,795, respectively, resulting in payments of
$16,659, $230,155, and $179,913, respectively, to the Company which are
included in additional paid-in-capital. During 1996, 1995, and 1994, no
vested shares were sold to the Company.
11. Contingencies
The Company is party to two environmental proceedings. The first
involves property that the Company vacated in 1972. The California Regional
Water Quality Control Board (RWQCB) issued a cleanup and abatement order to
both the Company and the current owner of the property. The Company
subsequently reached a settlement of this matter with the current owner in
which the current owner indemnifies the Company against any liability that
may arise out of any governmental agency actions brought for environmental
cleanup of the site, including liability arising out of the current cleanup
and abatement order. The second proceeding involves the Company's current
facility in Santa Clara. The RWQCB issued a clean up and abatement order
based on the discovery of contamination of both the soil and the groundwater
on the property by certain chemical solvents. The Company is currently
engaged in certain remedial action and has accrued $750,000 for the estimated
future costs related to this matter at December 31, 1996.
In management's opinion, based on discussion with legal counsel and other
considerations, the ultimate resolution of the above-mentioned matters will
not have a material adverse effect on the Company's consolidated financial
condition or results of operations.
The Company is engaged in discussions with various other 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.
12. Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Years ended December 31
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flow information:
Interest paid $ 1,988 $ 2,322 $ 1,691
------- ------- -------
Income taxes paid $ 1,470 $ 2,583 $ 293
------- ------- -------
</TABLE>
13. History of Stock Price Ranges
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.
1996 1995
High Low High Low
4th Quarter $ 24 1/2 $ 17 4th Quarter $ 40 1/2 $ 21 1/2
3rd Quarter 23 1/2 14 3/4 3rd Quarter 34 1/2 18 3/4
2nd Quarter 34 1/2 21 1/2 2nd Quarter 19 1/4 12
1st Quarter 45 29 1st Quarter 14 11 1/2
<PAGE>
SUBSIDIARIES OF SILICONIX INCORPORATED
Jurisdiction Percent
Subsidiary of Incorporation Owned
---------- ---------------- -------
1. Siliconix Limited United Kingdom 100%
2. Siliconix (Hong Kong) Hong Kong 100%
Limited
3. Siliconix (Taiwan) Taiwan 100%
Limited
4. TEMIC Japan K.K. Japan 100%
5. TEMIC (S) Pte. Ltd. Singapore 100%
6. TEMIC North America, United States 100%
Inc. (New Jersey)
7. Siliconix Technology Netherlands 100%
C.V.
8. Shanghai Simconix People's Republic 50%
Co. Ltd. of China
EXHIBIT 21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,201
<SECURITIES> 0
<RECEIVABLES> 45,649
<ALLOWANCES> 8,605
<INVENTORY> 30,162
<CURRENT-ASSETS> 119,703
<PP&E> 231,646
<DEPRECIATION> 124,524
<TOTAL-ASSETS> 238,669
<CURRENT-LIABILITIES> 81,474
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 116,518
<TOTAL-LIABILITY-AND-EQUITY> 238,669
<SALES> 268,934
<TOTAL-REVENUES> 268,934
<CGS> 161,825
<TOTAL-COSTS> 75,298
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,390
<INCOME-PRETAX> 29,756
<INCOME-TAX> 3,779
<INCOME-CONTINUING> 25,977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,977
<EPS-PRIMARY> 2.61
<EPS-DILUTED> 2.61
</TABLE>
