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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1998
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-3698
SILICONIX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 94-1527868
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification No.)
or organization)
2201 Laurelwood Road, Santa Clara, California 95054
(Address of principal executive offices)
Registrant's telephone number including area code (408) 988-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock:
Common stock, $0.01 par value -- 9,959,680 outstanding shares as of May 13,
1998.
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SILICONIX INCORPORATED
TABLE OF CONTENTS TO FORM 10-Q
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<S> <C> <C>
Part I. Financial Information Page No.
Item 1 Financial Statements
Consolidated statements of operations for the
three months ended March 29, 1998 and March 30, 1997 3
Consolidated balance sheets as
of March 29, 1998 and December 31, 1997 4
Consolidated statements of cash flows for the three
months ended March 29, 1998 and March 30, 1997 5
Notes to consolidated financial statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K 10
Signature 11
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SILICONIX INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended
March 29, March 30,
(In thousands, except per share amounts) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 65,250 $ 70,212
Cost of sales 40,139 43,116
-------------------------
Gross profit 25,111 27,096
Operating expenses:
Research and development 5,029 4,129
Selling, marketing, and administration 16,712 13,909
Restructuring 19,751 -
-------------------------
Operating income (loss) (16,381) 9,058
Interest expense 554 589
Other (income) expense - net 529 (206)
-------------------------
Income (loss) before taxes (17,464) 8,675
Income taxes (6,112) 1,735
-------------------------
Net income (loss) $ (11,352) $ 6,940
-------------------------
-------------------------
Net income (loss) per share (basic and diluted) $ (1.14) $ 0.70
-------------------------
-------------------------
Shares used to compute earnings per share 9,960 9,960
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-------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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SILICONIX INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 29, December 31,
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
- --------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 7,236 $ 10,249
Short term investment with affiliate - 8,586
Accounts receivable, less allowances 39,021 52,310
Accounts receivable from affiliates 15,814 8,247
Inventories 54,322 42,356
Other current assets 15,275 11,592
Deferred income taxes 10,865 6,481
-------------------------
Total current assets 142,533 139,821
-------------------------
Property, plant, and equipment, at cost:
Land 1,174 1,174
Buildings and improvements 45,539 45,724
Machinery and equipment 227,352 221,014
-------------------------
274,065 267,912
Less accumulated depreciation 145,139 141,514
-------------------------
Net property, plant, and equipment 128,926 126,398
Other assets 14,496 15,290
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Total assets $ 285,955 $ 281,509
-------------------------
-------------------------
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 32,927 $ 31,421
Accounts payable to affiliates 15,583 11,334
Accrued payroll and related compensation 8,515 13,970
Accrued liabilities 49,465 32,877
-------------------------
Total current liabilities 106,490 89,602
Long-term related party debt 34,570 34,570
Long-term debt, less current portion 3,983 3,887
Deferred income taxes 2,603 3,900
-------------------------
Total liabilities 147,646 131,959
-------------------------
Shareholders' equity:
Common stock 100 100
Additional paid-in-capital 59,532 59,482
Retained earnings 79,195 90,547
Accumulated other comprehensive income (518) (579)
-------------------------
Total shareholders' equity 138,309 149,550
-------------------------
Total liabilities and shareholders' equity $ 285,955 $ 281,509
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</TABLE>
See accompanying notes to consolidated financial statements.
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SILICONIX INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended
March 29, March 30,
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (11,352) $ 6,940
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 6,392 5,027
Deferred income taxes (5,681) -
Undistributed earnings from joint venture (970) (534)
Payment of pension benefits (81) -
Restructuring 17,491 -
Other non-cash expenses 177 124
Changes in:
Accounts receivable 13,289 (2,725)
Accounts receivable from affiliates (7,760) 150
Inventories (11,966) (1,141)
Other current assets (4,694) (2,085)
Accounts payable 1,506 (4,497)
Accounts payable to affiliates 4,293 (232)
Accrued liabilities (4,223) (4,351)
-------------------------
Net cash used in operating activities (3,579) (3,324)
-------------------------
Cash flows from investing activities:
Purchase of property, plant, and equipment (8,335) (6,984)
Short term investment with affiliate 8,586 4,955
Purchase (sale) of other assets 64 (1,694)
-------------------------
Net cash provided (used) by investing activities 315 (3,723)
-------------------------
Effect of exchange rate changes on
cash and cash equivalents 251 (355)
-------------------------
Net decrease in cash and cash equivalents (3,013) (7,402)
Cash and cash equivalents:
Beginning of period 10,249 12,201
-------------------------
End of period $ 7,236 $ 4,799
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-------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
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SILICONIX INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the management of the Company, the consolidated financial
statements appearing herein contain all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for, and as
of the end of, the periods indicated therein. These statements should be read
in conjunction with the Company's December 31, 1997 consolidated financial
statements and notes thereto. The results of operations for the first three
months of 1998 are not necessarily indicative of the results to be expected for
the full year.
NOTE 2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
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(In thousands)
<S> <C> <C>
Finished goods $ 13,313 $ 11,758
Work-in-process 34,178 26,432
Raw materials 6,831 4,166
----------- ---------
$ 54,322 $ 42,356
----------- ---------
----------- ---------
</TABLE>
NOTE 3. RESTRUCTURING EXPENSE
The Company incurred a pre-tax restructuring charge of $19.8 million
relating to the acquisition on March 2, 1998 of 80.4% interest in the Company by
Vishay Intertechnology Inc. ("Vishay") of Malvern, Pennsylvania. Of the total,
approximately $10.5 million relates to employee termination costs covering
approximately five key executives and 70 technical, production, and
administrative employees. The remaining $9.3 million of restructuring expense
relates to provisions for certain assets, contract cancellations, and other
expenses. As of March 29, 1998, seven employees have been terminated and $1.5
million of the termination costs were paid. Additionally, $2.9 million has been
charged against the restructuring liability for the write-down of certain assets
and other expenses. Restructuring costs of $15.4 million are included in
accrued liabilities as of March 29, 1998.
In April 1998, the Company borrowed $5.0 million from Vishay to fund part
of these restructuring costs.
NOTE 4. CONTINGENCIES
The Company is party to two environmental proceedings. The first
involves property that the Company vacated in 1972. The California Regional
Water Quality 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
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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 as its
best estimate of future costs related to this matter.
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 parties regarding patent
licensing and cross patent licensing issues. In the opinion of management, the
outcome of these discussions will not have a material adverse effect on the
Company's consolidated financial condition or overall trends in the results of
operations.
NOTE 5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS
No. 130 establishes rules for the reporting and presentation of comprehensive
income and its components. SFAS No. 130 requires accumulated translation
adjustments to be included in other comprehensive income. The accumulated
translation adjustments as of December 31, 1997 have been reclassified to
conform to the requirements of SFAS No. 130. The adoption of SFAS No. 130 did
not impact the Company's net income or total stockholders' equity. For the
three months ended March 29, 1998 and March 30, 1997, total comprehensive
income (loss) amounted to $(11,291,000) and $6,860,000, respectively.
NOTE 6. SUBSEQUENT EVENT
In April 1998, Vishay acquired a 40% interest in Simconix, a joint venture
between the Company and the Shanghai Institute of Metallurgy in The People's
Republic of China. As of March 29, 1998, the Company has a 50% interest in
Simconix and the investment is reported under the equity method of accounting.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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. The Company is organized
into three business units: Power MOSFET, Power IC, and Signal Processing.
Power MOSFET is the producer of low-voltage, surface-mount Power MOSFET products
primarily used for the communication, computer, and automotive markets. Power
IC focuses on Power Integrated Circuits used in communication and data storage
applications. Signal Processing manufactures a wide array of commodity products
such as Analog Switches, Low Power MOSFETS, and JFETs for industrial and
consumer markets.
For the past four years, Siliconix has been a member of TEMIC
Semiconductors, a unit of the Daimler-Benz microelectronics consortium. In
December 1997, Damiler-Benz announced it had agreed to sell the Semiconductor
Division of TEMIC, which included its 80.4% interest in Siliconix, to Vishay
Intertechnology, Inc. ("Vishay") of Malvern, Pennsylvania. The acquisition was
completed on March 2, 1998, and on that date, Vishay became the Company's
largest shareholder.
RESULTS OF OPERATIONS
Revenues in the first quarter of 1998 decreased to $65.3 million, compared
with $70.2 million in the first quarter of 1997. This decline of 7% was
primarily driven by weaker bookings seen during the end of the fourth quarter of
1997 which have persisted throughout the first quarter of 1998. The Company
believes the major reasons for the decline in bookings are high inventory levels
of its commodity products at its customers and distributors, as well as extreme
pricing pressure in Japan. Sales of Power IC products increased 56%, while sales
of the Power MOSFET and Signal Processing product lines decreased 2% and 34%,
respectively. Asia Pacific experienced a 36% revenue increase compared to the
first quarter of 1997. Revenues in North America, Europe, and Japan declined by
7%, 17%, and 47%, respectively, from the first quarter of 1997. Based on current
marketing information, the Company expects bookings to resume growth by the
third quarter of 1998.
Gross profit for the first quarter of 1998 remained flat at 39% in
comparison to the first quarter of 1997. In spite of continued worldwide
pricing pressure and reduced production in the first quarter of 1998, the
Company was able to maintain its gross profit through continuing manufacturing
efficiencies.
Research and development expenses were $5.0 million for the first quarter
of 1998, an increase of 22% from $4.1 million for the first quarter of 1997.
Research and development expenses are expected to increase in 1998 from 1997 as
the Company continues to commit significant resources to the further development
of higher cell density TrenchFET technology.
Selling, marketing, and administration expenses increased to $16.7 million
for the first quarter of 1998 from $13.9 million for the first quarter of 1997.
However, selling, marketing, and administration spending declined by $3.1
million from the fourth quarter of 1997 due to cost reduction efforts that have
already been implemented. Selling, marketing, and administration expenses for
1998 are expected to further decline as a result of the restructuring plan.
The Company incurred a pre-tax restructuring charge of $19.8 million.
Of the total, approximately $10.5 million relates to employee termination
costs covering approximately five key executives and 70 technical,
production, and administrative employees. The remaining $9.3 million of
restructuring expense relates to provisions for certain assets, contract
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cancellations, and other expenses. As of March 29, 1998, seven employees
have been terminated and $1.5 million of the termination costs were paid.
Additionally, $2.9 million has been charged against the restructuring
liability for the write-down of certain assets and other expenses.
Restructuring costs of $15.4 million are included in accrued liabilities as
of March 29, 1998.
When fully implemented, the restructuring plan is expected to reduce the
Company's operating costs by approximately $10.0 million per year over the first
quarter run-rate.
Income tax expense for the first quarter of 1998 decreased $7.8 million
from the first quarter of 1997 due to the income tax benefit recorded as a
result of the net loss incurred for the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investment with affiliate
decreased $11.6 million from December 31, 1997 due to large expenditures in the
first quarter of 1998. These included capital expenditures, royalty payments,
commissions, and yearly management and employee bonuses.
Accounts receivable decreased $13.3 million or 25% from December 31, 1997
primarily due to the decrease in revenues. Revenues for the first quarter of
1998 were $65.3 million, compared with $90.4 million for the fourth quarter of
1997.
Net affiliate accounts receivable/payable increased $3.3 million from
December 31, 1997 mainly due to timing of cash received from unconsolidated
affiliates.
Inventories increased $12.0 million or 28% from December 31, 1997 due to
the addition of manufacturing capacity, including the leased fabrication
facility in Itzehoe, Germany, to support 1998 expected revenue growth.
Other current assets increased $3.7 million or 32% from December 31, 1997
due to purchases of equipment and supplies on behalf of the Company's
subcontractors in Asia Pacific and Germany, which are reimbursed at cost.
Capital expenditures were $8.3 million in the first quarter of 1998,
compared to $7.0 million in the first quarter of 1997. These related mostly to
additions for plant capacity expansion and new technology. Capital spending in
1998 is expected to exceed the 1997 level.
Current liabilities increased $16.9 million or 19% from December 31, 1997
primarily due to the restructuring costs relating to the Vishay acquisition. At
March 29, 1998, $15.4 million of restructuring costs are included in accrued
liabilities.
Management expects that 1998 cash flow from operations and existing lines
of credit with Vishay will be sufficient to meets its normal operating
requirements and to fund its research and development, capital, and
restructuring expenditures. In April 1998, the Company borrowed $5.0 million
from Vishay to fund a portion of the restructuring costs.
SAFE HARBOR STATEMENT
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: With the exception of historical information, the matters discussed in
this Form 10-Q are forward-looking statements that involve risks and
uncertainties including, but not limited to, economic conditions, product demand
and industry capacity, competitive products and pricing, manufacturing
efficiencies, new product development, availability of raw materials and
critical manufacturing equipment, the regulatory and trade environment, and
other risks indicated in filings with the Securities and Exchange Commission.
9
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PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
27 Financial Data Schedule
(b) The registrant filed one report on Form 8-K during the quarter
ended March 29, 1998. The Form 8-K was dated March 2, 1998 and
filed on March 16, 1998. The only item reported on said
Form 8-K was Item 1, Changes in Control of Registrant. No
financial statements were filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILICONIX INCORPORATED
Date: May 18, 1998 By: /s/King Owyang
------------------------
King Owyang
President and Chief Executive
Officer
By: /s/Jens Meyerhoff
------------------------
Jens Meyerhoff
Principal Financial and
Accounting Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-29-1998
<CASH> 7,236
<SECURITIES> 0
<RECEIVABLES> 49,861
<ALLOWANCES> 10,840
<INVENTORY> 54,322
<CURRENT-ASSETS> 142,533
<PP&E> 274,065
<DEPRECIATION> 145,139
<TOTAL-ASSETS> 285,955
<CURRENT-LIABILITIES> 106,490
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 138,209
<TOTAL-LIABILITY-AND-EQUITY> 285,955
<SALES> 65,250
<TOTAL-REVENUES> 65,250
<CGS> 40,139
<TOTAL-COSTS> 40,139
<OTHER-EXPENSES> 42,021
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 554
<INCOME-PRETAX> (17,464)
<INCOME-TAX> (6,112)
<INCOME-CONTINUING> (11,352)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,352)
<EPS-PRIMARY> (1.14)
<EPS-DILUTED> (1.14)
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