SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
(Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 4, 1999
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
17, 1999.
1
<PAGE>
SILICONIX INCORPORATED
TABLE OF CONTENTS TO FORM 10-Q
Part I. Financial Information Page No.
Item 1 Financial Statements
Consolidated statements of operations for the
three months ended April 4, 1999 and March 29, 1998. 3
Consolidated balance sheets as
of April 4, 1999 and December 31, 1998 4
Consolidated statements of cash flows for the three months
ended April 4, 1999 and March 29, 1998 5
Notes to consolidated financial statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Signature 13
2
<PAGE>
SILICONIX INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Three Months Ended
April 4, March 29,
1999 1998
-------------- ----------------
<S> <C> <C>
Net sales $ 81,041 $ 65,250
Cost of sales 51,068 40,139
-------------- ----------------
Gross profit 29,973 25,111
Operating expenses:
Research and development 4,020 5,029
Selling, marketing, and administration 11,558 16,712
Goodwill amortization 114 -
Restructuring - 19,751
-------------- ----------------
Operating income (loss) 14,281 (16,381)
Interest expense 266 554
Other (income) expense - net 92 529
-------------- ----------------
Income (loss) before taxes and minority interest 13,923 (17,464)
Income taxes 3,973 (6,112)
Minority interest in income of consolidated subsidiary 225 -
-------------- ----------------
Net income (loss) $ 9,725 $ (11,352)
============== ================
Net income (loss) per share (basic and diluted) $ 0.98 $ (1.14)
============== ================
Shares used to compute earnings per share 9,960 9,960
============== ================
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
SILICONIX INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
April 4, December 31,
1999 1998
-------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 15,948 $ 37,694
Accounts receivable, less allowances 36,979 35,559
Accounts receivable from affiliates 13,642 9,917
Inventories 52,724 49,421
Other current assets 7,119 8,867
Deferred income taxes 15,182 15,182
-------------- ----------------
Total current assets 141,594 156,640
-------------- ----------------
Property, plant, and equipment, at cost:
Land 1,715 1,576
Buildings and improvements 47,788 47,962
Machinery and equipment 271,197 266,525
-------------- ----------------
320,700 316,063
Less accumulated depreciation 173,292 165,677
-------------- ----------------
Net property, plant, and equipment 147,408 150,386
Goodwill 8,705 8,820
Other assets 1,393 1,413
-------------- ----------------
Total assets $ 299,100 $ 317,259
-------------- ----------------
Liabilities and Shareholders' Equity Current liabilities:
Accounts payable $ 16,743 $ 23,947
Accounts payable to affiliates 26,312 29,192
Accrued payroll and related compensation 9,860 11,694
Accrued restructuring charge 3,560 5,352
Accrued liabilities 37,425 32,803
-------------- ----------------
Total current liabilities 93,900 102,988
-------------- ----------------
Long-term related party debt 31,570 50,570
Long-term debt, less current portion 1,302 1,221
Deferred income taxes 9,170 9,170
Minority interest 3,225 3,170
-------------- ----------------
Total liabilities 139,167 167,119
-------------- ----------------
Commitment and contingencies
Shareholders' equity
Common stock 100 100
Additional paid-in-capital 59,541 59,536
Retained earnings 101,010 91,285
Accumulated other comprehensive loss (718) (781)
-------------- ----------------
Total shareholders' equity 159,933 150,140
-------------- ----------------
Total liabilities and shareholders' equity $ 299,100 $ 317,259
============== ================
See accompanying Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE>
SILICONIX INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 4, March 29,
(In thousands) 1999 1998
-------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,725 $ (11,352)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 7,730 6,392
Deferred income taxes - (5,681)
Undistributed earnings from joint venture - (970)
Payment of pension benefits - (81)
Restructuring (1,792) 17,491
Other non-cash (income) and expenses 81 177
Changes in operating assets and liabilities:
Accounts receivable (1,420) 13,289
Accounts receivable from affiliates (3,725) (7,760)
Inventories (3,303) (11,966)
Other current assets 1,748 (4,694)
Accounts payable (7,204) 1,506
Accounts payable to affiliates (2,880) 4,293
Accrued liabilities 2,762 (4,223)
-------------- ----------------
Net cash provided (used) by operating activities 1,722 (3,579)
-------------- ----------------
Cash flows from investing activities:
Purchase of property, plant, and equipment (4,637) (8,335)
Short-term investment with affiliate - 8,586
Sale of other assets 20 64
-------------- --- ----------------
Net cash provided (used) in investing activities (4,617) 315
-------------- ----------------
Cash flows from financing activities:
Repayment of long-term debt (19,000) -
Proceeds from long-term debt 81 -
Proceeds from restricted common stock 5 -
-------------- ----------------
Net cash used in financing activities (18,914) -
-------------- ----------------
Effect of exchange rate changes on cash and cash equivalents 63 251
-------------- ----------------
Net decrease in cash and cash equivalents (21,746) (3,013)
Cash and cash equivalents:
Beginning of period 37,694 10,249
-------------- ----------------
End of period $ 15,948 $ 7,236
============== ================
See accompanying Notes to Consolidated Financial Statements
</TABLE>
5
<PAGE>
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, 1998 consolidated
financial statements and notes thereto. The results of operations for the first
THREE months of 1999 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:
April 4, December 31,
1999 1998
---- ----
(In thousands)
Finished goods $ 7,595 $ 10,627
Work-in-process 34,989 32,348
Raw materials 10,140 6,446
--------- ----------
$ 52,724 $ 49,421
--------- ----------
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 the 80.4% interest in the
Company by Vishay. Of the total, approximately $12.6 million related to employee
termination costs covering seven key executives and 72 technical, production,
and administrative employees. The remaining $7.2 million restructuring charge
relates to provisions for certain assets, contract cancellations, and other
expenses. As of April 4, 1999, 77 employees have been terminated and the Company
settled $11.5 million in costs, of which, $9.6 million were paid and $1.9
million were written off. In addition, $4.7 million has been charged against the
restructuring liability for the write-down of certain assets and other expenses.
At April 4, 1999, restructuring charges of $3.6 million remain accrued,
primarily relating to employee termination costs and contract cancellations. The
Company anticipates that it will substantially complete the remainder of its
restructuring by the end of 1999.
6
<PAGE>
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 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 are
not expected to have a material adverse effect on the Company's consolidated
financial condition or results of operations.
The Company is engaged in discussions with various parties regarding
patent licensing and cross patent licensing issues. In 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
In June 1998, the FASB released SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that an entity recognizes all derivatives as
either assets or liabilities in the statement of financial position and measures
those instruments at fair value. The statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company is still in
the process of assessing the impact that SFAS No. 133 will have on its financial
statements.
Note 6. Comprehensive Income
As of January 1, 1998, the Company adopted the Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income". SFAS
No. 130 establishes new rules fort he reporting and display of comprehensive
income and its components; however adoption of this statement had no impact on
the Company's net income or shareholders' equity. SFAS No. 130 requires foreign
currency translation adjustments to be included in other comprehensive income.
Prior to adoption, unrealized gains or losses related to foreign currency
translation adjustments were reported as a separate component of shareholders'
equity.
The following are the components of comprehensive income:
<TABLE>
<CAPTION>
(In thousands) April 4, March 29,
1999 1998
<S> <C> <C>
Net income(loss) $ 9,725 $ (11,352)
Foreign currency translation adjustment 63 61
Comprehensive income(loss) 9,788 (11,291)
The component of accumulated other comprehensive income,
is as follows:
Foreign currency translation adjustment $ (718) $ (518)
</TABLE>
7
<PAGE>
Note 7. Segment Reporting
The Company is engaged primarily in the designing, marketing, and
manufacturing of power and analog semiconductor products. The Company is
organized in three operating segments which due to their inter-dependencies,
similar long-term economic characteristics, shared production processes and
distribution channels have been aggregated to one reportable operating segment
under the criteria of Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures about Segments of an Enterprise and Related Information".
8
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Siliconix (the "Company") is engaged in designing, manufacturing, and
marketing power and analog semiconductor products. The Company is a leading
manufacturer of Power MOSFETs, Power ICs, and analog Signal Processing devices
for computers, cell phones, fixed communication networks, automobiles and other
electronic systems. 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.
Siliconix is a global semiconductor manufacturing company with 1998
worldwide sales of $282.3 million. The Company manufactures power products in a
Class-1 six inch wafer fab in Santa Clara, California and through subcontracted
wafer fabrication in Itzehoe, Germany. Analog switches and multiplexer products
are fabricated in the four-inch wafer fab in Santa Clara, California. A
subcontractor in Beijing, China manufactures the Company's small signal
transistor products. The Company also owns assembly and test facilities in
Kaoshiung, Taiwan and Shanghai, China. These Company owned facilities are
supported by additional manufacturing capacity at subcontractors in Germany,
Philippines, China and the United States. The Company's combination of internal
and external manufacturing capacity gives it a truly global manufacturing
presence, allowing the Company to respond quickly to changes in customer demand
as well as allowing the Company added flexibility during economic downturns. The
Company will continue to rely heavily on subcontractors in its manufacturing
strategy as it allows Siliconix to take advantage of incremental capacity
without the burden of a significant increase in the fixed cost infrastructure.
Results of Operations
Revenues for the first quarter of 1999 were $81.0 million, compared
with $65.3 million in the first quarter of 1998. The increase in revenue was
primarily the result of increased sales in the Asia Pacific region for the
Company's Power IC and Power Mosfet products. This increase was driven by the
recovery of the portable communication and computer markets as well as the
successful new product introductions into these markets. Beginning in the fourth
quarter of 1998, the Company has experienced a significant increase in bookings
in all regions except for Europe where bookings remain flat to 1998 levels. The
Company expects this trend to continue through the second quarter as the global
semiconductor market continues to recover from the weakness experienced in 1998.
Additionally, the Company's new product focus on portable communication and
computer markets should serve to solidify the Company's strategic position in
these key markets and serve as launching pad from which to grow the Company's
revenue base in the future.
Gross profit for the first quarter of 1999 was 37%, compared with 39%
in the first quarter of 1998. The two percentage point decline in gross profit
was primarily the result of pricing pressure for Power Mosfet products offset by
material cost reductions and manufacturing efficiencies gained from full
utilization of the Company's existing manufacturing capacity which began in the
fourth quarter of 1998 and will continue through the second quarter of 1999.
While the Company expects continued pricing pressure throughout the year, the
level of price decline is expected to be slower than 1998 due to strong demand
for the Company's higher margin products as well as the short-term capacity
constraints currently facing the Company. In an effort to preserve the Company's
operating results in light of continued downward pressure on prices, the Company
will continue to aggressively implement its cost reduction programs as well as
focus its investment in new products which tend to have higher margins.
9
<PAGE>
Research and development expenses decreased to $4.0 million or 5% of
sales in the first quarter of 1999 from $5.0 million or 8% of sales for the same
quarter of 1998. The decrease was the result of a $0.8 million one-time charge
in the first quarter of 1998 from Daimler-Benz for prior joint development
projects. For the year, research and development expenses are expected to exceed
1998 levels as the Company continues to commit significant resources in support
of its long-term growth objectives and to further develop its PowerConnect (TM)
packaging technology and LITTLE FOOT PLUS (TM) family. The Company believes it
is critical to continue to make significant investments in research and
development to ensure the availability of innovative technology that meets the
current and future requirements of its customers. Accordingly, the Company
expects in future years to continue to devote substantial resources to research
and development programs.
Selling, marketing, and administration expenses decreased to $11.6
million or 14% of sales in the first quarter of 1999 from $16.7 million or 26%
of sales for the same quarter of 1998. The $5.1 million decrease is the result
of the successful execution of the Company's restructuring plan that has reduced
the Company's infrastructure and due to certain cost reduction initiatives that
began in the middle part of 1998 to reduce the Company's overall cost structure
in response to current business conditions. While the Company's selling,
marketing and administration expenses are expected to rise over the year to
support the Company's increasing revenue base, the 1999 expenses are expected to
remain significantly below the 1998 level.
The Company incurred a pre-tax restructuring charge of $19.8 million
relating to the acquisition on March 2, 1998 of the 80.4% interest in the
Company by Vishay. Of the total, approximately $12.6 million related to employee
termination costs covering seven key executives and 72 technical, production,
and administrative employees. The remaining $7.2 million restructuring charge
relates to provisions for certain assets, contract cancellations, and other
expenses. As of April 4, 1999, 77 employees have been terminated and the Company
settled $11.5 million in costs, of which, $9.6 million were paid and $1.9
million were written off. In addition, $4.7 million has been charged against the
restructuring liability for the write-down of certain assets and other expenses.
At April 4, 1999, restructuring charges of $3.6 million remain accrued,
primarily relating to employee termination costs and contract cancellations. The
Company anticipates that it will substantially complete the remainder of its
restructuring by the end of 1999.
Income tax expense for the first quarter of 1999 increased by $10.1
million from the same quarter of 1998 due to the increase in earnings before
tax.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $21.7 million from December 31,
1998 due to large expenditures in the first quarter of 1999 for capital
expenditures, royalty payments, commissions, and yearly management and employee
bonuses. In the first quarter of 1999, the Company repaid a $16 million
promissory note for the purchase of an additional 40% interest in its Simconix
subsidiary as well as $3 million relating to the $34.6 million promissory note
to Vishay. In an effort to further reduce interest expense and improve income,
the Company repaid another $5 million of the promissory note to Vishay at the
end of April 1999. Management believes that the cash flow from operations and
existing lines of credit with Vishay will be sufficient to meet its normal
operating requirements and to fund its research and development, capital and
restructuring activities.
Accounts receivable increased by $1.4 million or 4% from December 31,
1998 primarily due to the increase in revenues of 6%. Revenues for the first
quarter of 1999 were $81.0 million, compared with $76.6 million for the fourth
quarter of 1998.
Net affiliate accounts receivable/payable decreased by $6.6 million
from December 31, 1998 mainly due to the timing of cash received from
unconsolidated affiliates.
10
<PAGE>
Inventories increased by $3.3 million or 7% from December 31, 1998
primarily as a result of an increase in raw materials and work-in-process
inventories required to support the increased capacities in production volumes
called for by the Company's higher revenue levels and the consolidation of the
Simconix inventory.
Capital expenditures were $4.6 million in the first quarter of 1999,
compared to $8.3 million in the first quarter of 1998. These expenditures
related to the continuation of the Company's capacity expansion plan that
resumed in the fourth quarter of 1998 after the downturns in the previous
quarters as well as the investment in equipment to support the Company's new
technology products. The new equipment has assisted in increased manufacturing
capacities that the company has experienced in the first quarter of 1999.
Management believes that these investments are essential to the future growth of
the Company and its ability to respond quickly to increases in customer demand.
Current liabilities decreased by $9.1 million or 9% from December 31,
1998 mainly due to the decrease in accounts payable and restructuring costs
relating to the Vishay acquisition. At April 4, 1999, the Company has $3.6
million of accrued restructuring costs.
Year 2000
The Company has a formal, structured Year 2000 Program and Plan and is
making consistent progress in executing against this plan. The Year 2000 Program
is the responsibility of the Company CFO/Administrative VP who reports to the
Company's CEO. The Year 2000 project team includes all Company facilities,
locations, and organizations as necessary to ensure awareness and readiness, and
includes regular review and reporting on the status of Year 2000 readiness.
The Company's Year 2000 Plan includes Information Technology ("IT")
systems, Facilities and Utilities, Manufacturing equipment and IT interfaces,
and Supply chain management. The Company does not produce products with embedded
systems.
The Company has completed the assessment of Year 2000 issues in all
areas, including testing and initial contingency planning. The Company is
engaged in implementation work, while continuing to test each implementation and
is actively identifying contingency plans as necessary. The Company's objective
is to complete Year 2000 readiness by the third quarter of 1999, while
continuing to monitor and track the effectiveness of the preparation through all
critical date events.
The Company currently estimates total costs of the Year 2000 Readiness
Program to be no more than $1.2 million. At the end of the first quarter of
1999, the Company has not spent any material amount and expenses are covered
through normal operating budgets.
The Company believes that Year 2000 readiness will be largely achieved
by the third quarter of 1999, however, there can be no assurance that there will
be no delay or increased cost associated with the programs described in this
section or that there will be no adverse effects on operations as a result of
Year 2000 readiness.
11
<PAGE>
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.
12
<PAGE>
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, 1999 By: /s/King Owyang
--------------
King Owyang
President and Chief Executive
Officer
By: /s/Jens Meyerhoff
-----------------
Jens Meyerhoff
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-04-1999
<CASH> 15,948
<SECURITIES> 0
<RECEIVABLES> 36,979
<ALLOWANCES> 17,521
<INVENTORY> 52,724
<CURRENT-ASSETS> 141,594
<PP&E> 320,700
<DEPRECIATION> 173,292
<TOTAL-ASSETS> 299,100
<CURRENT-LIABILITIES> 93,900
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 160,033
<TOTAL-LIABILITY-AND-EQUITY> 299,100
<SALES> 81,041
<TOTAL-REVENUES> 81,041
<CGS> 51,068
<TOTAL-COSTS> 51,068
<OTHER-EXPENSES> 15,784
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266
<INCOME-PRETAX> 13,923
<INCOME-TAX> 3,973
<INCOME-CONTINUING> 9,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,725
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>
