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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD
ENDED JUNE 30, 2000
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 000-26124
IXYS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 770140882
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
3540 BASSETT STREET
SANTA CLARA, CALIFORNIA 95054-2704
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 982-0700
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 periods 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 [ ]
The number of shares of the Registrant's Common Stock outstanding as of July 31,
2000 was 12,236,348.
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INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION........................................................................... 3
ITEM 1. FINANCIAL STATEMENTS................................................................. 3
CONDENSED CONSOLIDATED BALANCE SHEETS........................................................... 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS................................................. 4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME....................................... 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS................................................. 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................. 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF RISK..................................... 13
PART II. OTHER INFORMATION............................................................................... 14
ITEM 1. LEGAL PROCEEDINGS.................................................................... 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................ 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................................... 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................. 15
ITEM 5. OTHER INFORMATION.................................................................... 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................... 15
SIGNATURES.................................................................................................... 16
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
IXYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
March 31, June 30,
2000 2000
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 9,759 $12,892
Trade accounts receivable, net............................. 16,863 16,512
Inventories, net........................................... 21,477 24,022
Other current assets....................................... 585 751
Deferred income taxes...................................... 1,627 1,627
--------- ---------
Total current assets.................................. 50,311 55,804
--------- ---------
Property and equipment, net................................ 10,175 10,762
Goodwill and other intangible assets, net.................. 231 2,417
Other...................................................... 1,546 1,634
Deferred income taxes...................................... 782 782
--------- ---------
Total assets.......................................... $63,045 $71,399
========= =========
LIABILITIES AND STOCKHOLDERS' LIABILITIES
Current portion, capital leases............................ $ 1,365 $ 1,735
Current portion, long term debt............................ 2,789 2,794
Accounts payable........................................... 5,467 5,167
Other accrued liabilities.................................. 10,345 11,943
--------- ---------
Total current liabilities............................. 19,966 21,639
Long term capital leases................................... 1,783 2,114
Long term debt............................................. 5,544 5,484
Pension obligations........................................ 4,855 4,903
--------- ---------
Total liabilities..................................... 32,148 34,140
--------- ---------
Common stock............................................... 120 120
Additional paid-in capital................................. 43,324 46,286
Notes receivable from employees............................ (861) (861)
Cumulative translation adjustment.......................... (1,988) (2,281)
Accumulated deficit........................................ (9,698) (6,005)
--------- ---------
Total stockholders' equity............................ 30,897 37,259
--------- ---------
Total liabilities and stockholders' equity............ $63,045 $71,399
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------
1999 2000
------------- ------------
(Unaudited)
<S> <C> <C>
Net sales................................................. $17,072 $23,274
Cost of sales............................................. 11,430 15,053
--------- ---------
Gross profit........................................... 5,642 8,221
--------- ---------
Operating expenses
Research and development................................ 1,255 1,164
Selling, general and administrative..................... 2,697 2,897
Amortization of intangibles............................. 116 135
--------- ---------
Total operating expenses............................... 4,068 4,196
--------- ---------
Operating income.......................................... 1,574 4,025
Other, net................................................ (29) 1,933
--------- ---------
Income before income tax provision........................ 1,545 5,958
Income tax provision...................................... (383) (2,264)
--------- ---------
Net income............................................. $ 1,162 $ 3,694
========= =========
Net income available for common stockholders per share:
Basic................................................... $ 0.10 $ 0.31
========= =========
Diluted................................................. $ 0.10 $ 0.28
========= =========
Shares used in computing per share amounts:
Basic................................................... 11,966 11,992
--------- ---------
Diluted................................................. 11,975 13,204
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Three Months Ended
June 30,
----------------------
1999 2000
------- ------
(Unaudited)
Net income......................................... $1,162 $3,694
Other comprehensive income, net of tax:
Foreign currency translation adjustments.......... (1,093) (182)
--------- ---------
Comprehensive income............................... $ 69 $3,512
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
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IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------
1999 2000
----------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 1,162 $ 3,694
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization.................................. 766 819
Provision for bad debts........................................ 1,323 847
Provision for excess and obsolete inventory.................... 310 103
Loss on foreign currency translation........................... 12 (439)
Changes in operating assets and liabilities:
Accounts receivable............................................ (2,257) (276)
Inventories.................................................... 909 (2,289)
Prepaid expenses and other current assets...................... (103) (1,028)
Other assets................................................... 78 768
Accounts payable............................................... (557) (447)
Accrued expenses and other liabilities......................... (1,043) (695)
Income tax payable............................................. 473 2,405
Pension liabilities............................................ - 29
---------- ----------
Net cash provided by operating activities................. 1,073 3,491
---------- ----------
Cash flows used in investing activities:
Acquisition of Directed Energy, Inc., cash acquired............... - 135
Purchase of plant and equipment................................... (640) (1,546)
---------- ----------
Net cash used in investing activities..................... (640) (1,411)
---------- ----------
Cash flows from financing activities:
Proceeds from capital lease obligations........................... 672 671
Proceeds from notes payable....................................... 35 -
Principal payments on capital lease obligations................... (789) -
Repayment of notes payable to bank................................ - (91)
Proceeds from exercise of options................................. - 162
---------- ----------
Net cash provided by financing activities................. (82) 742
---------- ----------
Effect of foreign exchange rate fluctuations on cash and cash
equivalents...................................................... (1,280) 311
---------- ----------
Net increase in cash and cash equivalents................. (929) 3,133
Cash and cash equivalents at beginning of period.................... 8,480 9,759
---------- ----------
Cash and cash equivalents at end of period.......................... $ 7,551 $12,892
========== ==========
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING ACTIVITIES
Common stock issued for Directed Energy, Inc. net assets.......... - $ 2,800
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
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IXYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Restatement
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The consolidated
financial statements include the accounts of IXYS Corporation ("IXYS" or the
"Company") and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. All adjustments of a normal
recurring nature which, in the opinion of management, are necessary for a fair
statement of the results for the interim periods have been made. It is
recommended that the interim financial statements be read in conjunction with
the Company's audited consolidated financial statements and notes thereto for
the fiscal year ended March 31, 2000 contained in the Company's Annual Report on
Form 10-K/A. Interim results are not necessarily indicative of the operating
results expected for later quarters or the full fiscal year.
On September 28, 2000, the Company announced that it was amending its
quarterly report on Form 10-Q for the quarter ended June 30, 2000 for the
purpose of correcting the calculation of diluted earnings per share for such
quarter. The amendment does not restate or affect reported revenues or net
income for the quarter. The diluted earnings per share calculation had been
incorrectly reported because of a computational error in calculating the common
equivalent shares from stock options and warrants, which is used to determine
diluted earnings per share. As a result of this correction, the Company's
diluted earnings per share for the June 30 quarter will now be reported as $0.28
per share, rather than $0.30 per share as previously reported. The Company's
diluted shares will now be reported as 13.204 million shares, rather than 12.193
million shares as previously reported.
For the quarter ended June 30, 2000, the impact is as follows:
Three Months Ended
June 30, 2000
As As
Reported Restated
Net income.................. $ 3,694 $ 3,694
Basic earnings per share.... $ 0.31 $ 0.31
Diluted earnings per share.. $ 0.30 $ 0.28
Basic shares................ 11,992 11,992
Diluted shares.............. 12,193 13,204
2. Foreign Currency Translation
The local currency is considered to be the functional currency of the
operations of IXYS GmbH. Accordingly, assets and liabilities are translated at
the exchange rate in effect at period-end and revenues and expenses are
translated at average rates during the period. Adjustments resulting from the
translation of the accounts of IXYS GmbH into U.S. dollars are included in
cumulative translation adjustment, a separate component of stockholders' equity.
Foreign currency transaction gains and losses are included as a component of
other income and expense.
3. Earnings Per Share:
Basic EPS is computed by dividing net income by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution from the exercise or conversion of other securities into common stock.
4. Reclassifications
Certain reclassifications have been made to prior quarter balances to conform
to current quarter classifications.
5. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement will require us to recognize all derivatives on the balance sheet at
fair value. SFAS No. 133 requires that derivative instruments used to hedge be
identified specifically as to assets, liabilities, firm commitments or
anticipated transactions and measured as to effectiveness and ineffectiveness
when hedging changes in fair value or cash flows. Derivative instruments that do
not qualify as either a fair value or cash flow hedge will be valued at fair
value with the resultant gain or loss recognized in current earnings. Changes
in the effective portion of fair value hedges will be recognized in current
earnings along with the change in fair value of the hedged item. Changes in the
effective portion of the fair value of cash flow hedges will be recognized in
other comprehensive income until realization of the cash flows of the hedged
item through current earnings. Any ineffective portion of hedges will be
recognized in current earnings.
In June 1999, the FASB issued SFAS No. 137, "Deferral of the Effective Date
of FASB Statement No. 133," to defer for one year the effective date of
implementation of SFAS NO. 133. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000, with earlier
application encouraged. We are in the process of evaluating the requirements of
SFAS Nos. 133, but do not expect this pronouncement to materially impact our
financial position or results of operation.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. In March 2000, the SEC issued SAB
No. 101A to defer for
7
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one quarter the effective date of implementation of SAB No. 101 with earlier
application encouraged. We are required to adopt SAB 101 in the second quarter
of fiscal 2000. We do not expect the adoption of SAB 101 to have a material
effect on our financial position or results of operations.
In March 2000, the Financial Accounting Standards Board issued interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an
interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the
definition of an employee for purposes of applying Accounting Practice Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), the
criteria for determining whether a plan qualifies as a noncompensatory plan, the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and the accounting for an exchange of stock
compensation awards in a business combination. This interpretation is effective
July 1, 2000, but certain conclusions in the interpretation cover specific
events that occur after either December 15, 1998, or January 12, 2000.
Management believes that the adoption of this interpretation is not expected
to have a material effect on the financial position or results of operations of
the Company.
6. Comprehensive Income:
The only component of comprehensive income for the three months June 30, 1999
and 2000 was the change in the cumulative translation adjustment.
7. Inventories
Inventories consist of the following (in thousands):
March 31, June 30,
2000 2000
----------- -----------
(Unaudited)
Raw materials...................... $ 3,299 $ 4,277
Work in process.................... 13,943 13,910
Finished goods..................... 9,159 10,880
------------ -----------
26,401 29,067
Less inventory reserve............. (4,924) (5,045)
------------ -----------
$21,477 $24,022
============ ===========
8. Computation of Net Income Per Share:
Basic and diluted earnings per share are calculated as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------
1999 2000
------------ -------------
(Unaudited)
<S> <C> <C>
Basic:
Weighted, average shares outstanding for the period.......... 11,966 11,992
------------ -------------
Shares used in computing per share amounts................... 11,966 11,992
------------ -------------
Net income available for common stockholders................. $ 1,162 $ 3,694
Net income available for common stockholders per share....... $ 0.10 $ 0.31
------------ -------------
Diluted:
Weighted, average shares outstanding for the period.......... 11,966 11,992
Net effective dilutive stock options and warrants based on
the treasury stock method using average market price........ 9 1,212
Shares used in computing per share amounts................... 11,975 13,204
------------ -------------
</TABLE>
8
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<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------
1999 2000
------------ -------------
(Unaudited)
<S> <C> <C>
Net income available for common stockholders................. $ 1,162 $ 3,694
Net income per share available for common stockholders....... $ 0.10 $ 0.28
</TABLE>
9. Acquisition of Directed Energy, Inc.
On May 16, 2000, the Company completed the acquisition of Directed Energy,
Inc. in a stock-for-stock acquisition. In connection with the acquisition, the
Company issued 125,185 shares of the Company's common stock in exchange for all
the issued and outstanding capital stock of Directed Energy, Inc.
The acquisition was accounted for using the purchase method of accounting, and
accordingly, the recognized purchase price was allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed on the basis of
their fair values on the acquisition date of May 16, 2000. The purchase price in
excess of the fair value of identified tangible and intangible assets and
liabilities assumed in the amount of $2.32 million was allocated to goodwill and
is being amortized over its estimated useful life of 10 years.
10. Legal Proceedings.
On August 12, 1996, IXYS and Robert McClelland, Richard A. Veldhouse and
Chiang Lam (the "Paradigm Defendants") were named (along with others
subsequently dismissed from the case) as defendants in a purported class action
(entitled Bulwa et al. v. Paradigm Technology, Inc. et al., Santa Clara County
Superior Court Case No. CV759991) brought on behalf of stockholders who
purchased IXYS' stock between November 20, 1995 and March 22, 1996 (the "Class
Period"). The complaint asserted violations of California Corporations Code
sections 25400 and 25500 ("Sections 25400 and 25500") along with other causes of
action that have been dismissed.
Plaintiffs have served the Paradigm Defendants with discovery requests for
production of documents and interrogatories, to which the Paradigm Defendants
have responded. Plaintiffs have also subpoenaed documents from various third
parties. Plaintiffs have also taken the depositions of five former employees of
IXYS including Defendant Richard Veldhouse, Defendant Robert McClelland, former
outside director Defendant Chiang Lam and the analyst who covered IXYS for Smith
Barney. Plaintiffs have noticed the depositions of Michael Gulett, IXYS'
auditors and another former employee to take place in August and September of
2000. The Paradigm Defendants have served the plaintiffs with an initial set and
a supplemental set of discovery requests, to which plaintiffs have responded.
The Paradigm Defendants also took the depositions of the named plaintiffs.
On February 9, 1998 the Court certified a class consisting only of California
purchasers of IXYS' stock during the Class Period. Following the California
Supreme Court decision in Diamond Multimedia Systems, Inc. v. Superior Court, 19
Cal. 4th 1036 (1999), plaintiffs moved to modify the prior class certification
ruling to include also non-California purchasers. The Court granted this motion
on April 28, 1999.
There can be no assurance that IXYS will be successful in the defense of this
action. If unsuccessful in the defense of any such claim, IXYS' business,
operating results and cash flows could be materially adversely affected.
On May 19, 1998, the law firm that filed the Bulwa, et al. action described
above filed an additional securities class action lawsuit against IXYS, Michael
Gulett, Robert McClelland, Richard A. Veldhouse and Chiang Lam, this time in the
United States District Court for the Northern District of California. The
complaint alleged violations of section 10(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Commission Rule 10b-5 and section
20(a) of the Exchange Act. Plaintiff alleged the same class and the same
substantive factual allegations that are contained in the Bulwa, et al. action
as amended. Defendants responded to the complaint on July 27, 1998 by filing a
motion to dismiss the complaint for failure to state claims upon which relief
can be granted and for various pleading inadequacies. In lieu of opposing the
motion, plaintiff filed a first amended complaint. Defendants renewed their
motion to dismiss, and on January 20, 1999 the Court issued an order granting
the motion and dismissing plaintiff's action and entered judgment thereon. On
February 3, 1999, the Court entered an amended judgment clarifying that the
judgment is with prejudice. On March 12, 1999, plaintiff filed a notice of
appeal. Plaintiff then agreed to dismiss the appeal in exchange for defendants'
agreement not to seek to recover defendants'
9
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costs incurred in responding to the appeal and agreement not to pursue any
action against the plaintiff for having filed the action. The appeal was
dismissed with prejudice on October 25, 1999.
Discussions of additional details relating to the above-described legal
proceedings may be found in the prior SEC filings and reports of IXYS.
On June 22, 2000, International Rectifier Corporation ("IR") filed an action
for patent infringement against IXYS in the United States District Court for the
Central District of California, alleging that certain IXYS products sold in the
United States, "including but not necessarily limited to" four IXYS Power MOSFET
parts (IXFX55N50; IXFH21N50; IXFH35N30; and IXTH24N50), infringe one or more of
the following IR patents: U.S. Patent Nos. 4,959,699 (Reexamination
Certificates issued October 12, 1993 and January 19, 1999); 5,008,725
(Reexamination Certificates issued January 12, 1993); 5,130,767; 4,642,666
(Reexamination Certificate issued October 7, 1998); and 4,705,759 (Reexamination
Certificate issued February 14, 1995). IXYS is in the process of evaluating
these allegations. IXYS is scheduled to respond to the complaint on August 17,
2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion contains forward-looking statements, which are subject to
certain risks and uncertainties, including without limitation those described in
the Company's Annual Report on Form 10-K, which has been filed with the
Securities and Exchange Commission (the "SEC"). Actual results may differ
materially from the results discussed in the forward-looking statements.
Actual results may differ materially from the results discussed in the
forward-looking statements. Important factors affecting the Company's (as
defined below) ability to achieve future revenue growth include whether, and the
extent to which, demand for the Company's products increases and reflects real
end-user demand; whether customer cancellations and delays of outstanding orders
increase; and whether the Company is able to manufacture in a correct mix to
respond to orders on hand and new orders received in the future; whether the
Company is able to achieve its new product development and introduction goals,
including, without limitation, goals for recruiting, retaining, training, and
motivating engineers, particularly design engineers, and goals for conceiving
and introducing timely new products that are well received in the marketplace;
and whether the Company is able to successfully commercialize its new
technologies, which it has been investing in by designing and introducing new
products based on these new technologies.
Other important factors that could cause actual results to differ materially
from those predicted include overall economic conditions, such as the economic
issues affecting Asian countries; fluctuations in currency exchange ratios as
the Company sells products in currencies other than the U.S. dollar; demand for
electronic products and semiconductors generally; demand for the end-user
products for which the Company's semiconductors are suited; the level of
utilization of the Company's production capacity; timely availability of, and
changes in the cost of, raw materials, equipment, supplies and services;
unanticipated manufacturing problems; problems in obtaining products from
outside foundries that manufacture for the Company; increases in production and
engineering costs associated with initial manufacture of new products;
technological and product development risks; competitors' actions; and other
risk factors described in the Company's filings with the Commission on Form 10-
K.
The impact of these and other factors on the Company's revenues and operating
results in any future period cannot be forecasted with certainty. The Company's
expense levels are based, in part, on its expectations as to future revenues.
Because the Company's sales are generally made pursuant to purchase orders that
are subject to cancellation, modification, quantity reduction or rescheduling on
short notice and without significant penalties, the Company's backlog as of any
particular date may not be indicative of sales for any future period, and such
changes could cause the Company's net sales to fall below expected levels. If
revenue levels are below expectations, operating results are likely to be
materially adversely effected. Net income, if any, and gross margins may be
disproportionately affected by a reduction in net sales because a
proportionately smaller amount of the Company's expenses varies with its
revenues.
10
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All forward-looking statements included in this document are made as of the
date hereof, based on the information available to the Company as of the date
hereof, and the Company assumes no obligation to update any forward-looking
statement.
OVERVIEW
On September 23, 1998, IXYS Corporation, a Delaware corporation ("IXYS"),
merged with Paradigm in a transaction accounted for as a reverse merger. In the
merger, the historic accounting records of IXYS became those of the combined
company, and, accordingly, Paradigm formally changed its name to "IXYS
Corporation" (the combined company of which is referred to in this report as the
"Company" or the "Registrant").
The Company designs, develops and markets power semiconductors used primarily
in controlling energy in motor drives, power conversion (including
uninterruptible power supplies ("UPS") and switch mode power supplies ("SMPS"))
and medical electronics. The Company's power semiconductors convert electricity
at relatively high voltage and current levels to create efficient power as
required by a specific application. The Company's target market includes
segments of the power semiconductor market that require medium to high power
semiconductors, with a particular emphasis on higher power semiconductors, which
the Company considers to be those capable of processing greater than 500 watts
of power. The Company offers a broad line of power semiconductors, including
power MOSFETs, insulated gate bipolar transistors ("IGBTs"), thyristors (silicon
controlled rectifiers or "SCRs") and rectifiers, including fast recovery
epitaxial diodes ("FREDs"). In addition, the Company also designs and markets
high speed, high density static random access memory ("SRAM") semiconductor
devices to meet the needs of advanced telecommunications devices, networks,
workstations, high performance PCs, advanced modems and complex
military/aerospace applications.
RESULTS OF OPERATIONS
Net Sales. Net sales for the three months ended June 30, 2000 were $23.3
million, an increase of 36.3% from the $17.1 million reported in the three
months ended June 30, 1999. Unit sales volume for the three months ended June
30, 2000 increased over the same period in the prior year and the effect on
revenue was offset partially by a slight decrease in average selling prices.
Future revenue will depend largely upon customer demand, unit shipments and
production volumes.
Gross Profit. Gross profit was 35.3% of net sales for the three months ended
June 30, 2000 as compared to 33.0% for the three months ended June 30, 1999. The
increase in gross margin for the period ended June 30, 2000 as compared to the
same period in 1999 was due to an increase in manufacturing efficiencies and an
increase in units sold by approximately 44%, offset by a decline in average
selling prices by approximately 5%.
Research and Development. Research and development expenses were $1,164,000 in
the three months ended June 30, 2000, compared to $1,255,000 in the same period
in 1999. Research and development expenses stayed at approximately the same
level to support continuing research efforts.
Selling, General and Administrative. Selling, general and administrative
expenses increased approximately $200,000 in the three months ended June 30,
2000 compared to the same period in the prior fiscal year. The increase in
selling, general and administrative expenses was primarily related to increased
selling costs on the higher revenues. The Company anticipates that operating
expenses will fluctuate in absolute dollars and as a percentage of net sales as
headcount is modified to support new product introductions, and due to changes
in levels of production volume and unit shipments.
Other Income, Net. Net other income increased $2.0million during the three
months ended June 30, 2000 compared to the same period in the prior fiscal year.
The increase in other income was caused primarily by a one-time payment for a
technology license received in the three month period ended June 30, 2000,
partially reduced by charges for anticipated legal expenses.
Provision for Income Taxes. The income tax provision for the three months
ended June 30, 2000 reflects the Company's expected effective tax rate for
fiscal 2000.
11
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LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date through the private sale of
equity, lease financing and bank borrowings. As of June 30, 2000, the cash and
cash equivalents were $12.9 million, an increase of $3.1 million from cash and
cash equivalents of $9.8 million at March 31, 2000. The increase in cash and
cash equivalents was primarily due to cash received in payment of a technology
license and cash generated from operations.
Line of credit facilities available to the Company are as follows: A line of
credit with a U.S. bank that as of June 30, 2000 consists of $5.0 million
commitment amount which is available through September, 2000. The line bears
interest at the bank's prime rate (9.5% at June 30, 2000). The line is
collateralized by certain assets and contains certain general and financial
covenants, which include provisions stating that the Company cannot incur
additional debt or pledge assets without the prior approval of such bank. At
June 30, 2000, the Company had drawn $2.1 million against such line of credit.
The accounts receivable at June 30, 2000 were $16.5 million, a decrease of 2%
as compared to March 31, 2000. The inventories at June 30, 2000 were $24.0
million, an increase of 12% as compared to March 31, 2000. Net plant and
equipment at June 30, 2000 were $10.8 million, an increase of 6% as compared to
March 31, 2000.
The Company believes that cash generated from operations, if any, and banking
facilities will be sufficient to meet its cash requirements through fiscal 2001.
To the extent that funds generated from operations, together with bank
facilities are insufficient to meet its capital requirements, the Company will
be required to raise additional funds. No assurances can be given that
additional financing will be available on acceptable terms. The lack of such
financing if needed, would have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, the
Company evaluates the acquisition of business, products or technologies that
complement the Company's business. Any such transactions, if consummated, may
use a portion of the Company's working capital or require the issuance of equity
securities, which may result in further dilution to the Company's stockholders.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement will require us to recognize all derivatives on the balance sheet at
fair value. SFAS No. 133 requires that derivative instruments used to hedge be
identified specifically as to assets, liabilities, firm commitments or
anticipated transactions and measured as to effectiveness and ineffectiveness
when hedging changes in fair value or cash flows. Derivative instruments that do
not qualify as either a fair value or cash flow hedge will be valued at fair
value with the resultant gain or loss recognized in current earnings. Changes
in the effective portion of fair value hedges will be recognized in current
earnings along with the change in fair value of the hedged item. Changes in the
effective portion of the fair value of cash flow hedges will be recognized in
other comprehensive income until realization of the cash flows of the hedged
item through current earnings. Any ineffective portion of hedges will be
recognized in current earnings.
In June 1999, the FASB issued SFAS No. 137, "Deferral of the Effective Date
of FASB Statement No. 133," to defer for one year the effective date of
implementation of SFAS NO. 133. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000, with earlier
application encouraged. We are in the process of evaluating the requirements of
SFAS Nos. 133, but do not expect this pronouncement to materially impact our
financial position or results of operation.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. In March 2000, the SEC issued SAB
No. 101A to defer for one quarter the effective date of implementation of SAB
No. 101 with earlier application encouraged. We are required to adopt SAB 101 in
the second quarter of fiscal 2000. We do not expect the adoption of SAB 101 to
have a material effect on our financial position or results of operations.
In March 2000, the Financial Accounting Standards Board issued interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an
interpretation of APB Opinion No. 25" ("FIN 44"). FIN
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44 clarifies the definition of an employee for purposes of applying Accounting
Practice Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"), the criteria for determining whether a plan qualifies as a noncompensatory
plan, the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and the accounting for an exchange of
stock compensation awards in a business combination. This interpretation is
effective July 1. 2000, but certain conclusions in the interpretation cover
specific events that occur after either December 15, 1998, or January 12, 2000.
Management believes that the adoption of this interpretation is not expected to
have a material effect on the financial position or results of operations of the
Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF RISK
There has been no change to the disclosure made in the Company's Report on
Form 10-K/A for the fiscal year ended March 31, 2000.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On August 12, 1996, IXYS and Robert McClelland, Richard A. Veldhouse and
Chiang Lam (the "Paradigm Defendants") were named (along with others
subsequently dismissed from the case) as defendants in a purported class action
(entitled Bulwa et al. v. Paradigm Technology, Inc. et al., Santa Clara County
Superior Court Case No. CV759991) brought on behalf of stockholders who
purchased IXYS' stock between November 20, 1995 and March 22, 1996 (the "Class
Period"). The complaint asserted violations of California Corporations Code
sections 25400 and 25500 ("Sections 25400 and 25500") along with other causes of
action that have been dismissed.
Plaintiffs have served the Paradigm Defendants with discovery requests for
production of documents and interrogatories, to which the Paradigm Defendants
have responded. Plaintiffs have also subpoenaed documents from various third
parties. Plaintiffs have also taken the depositions of five former employees of
IXYS including Defendant Richard Veldhouse, McClelland, former outside director
Defendant Chiang Lam and the analyst who covered IXYS for Smith Barney.
Plaintiffs have noticed the depositions of Michael Gulett, IXYS' auditors and
another former employee to take place in August and September of 2000. The
Paradigm Defendants have served the plaintiffs with an initial and supplemental
set of discovery requests, to which plaintiffs have responded. The Paradigm
Defendants also took the depositions of the named plaintiffs.
On February 9, 1998 the Court certified a class consisting only of California
purchasers of IXYS' stock during the Class Period. Following the California
Supreme Court decision in Diamond Multimedia Systems, Inc. v. Superior Court, 19
Cal. 4th 1036 (1999), plaintiffs moved to modify the prior class certification
ruling to include also non-California purchasers. The Court granted this motion
on April 28, 1999.
There can be no assurance that IXYS will be successful in the defense of this
action. If unsuccessful in the defense of any such claim, IXYS' business,
operating results and cash flows could be materially adversely affected.
On May 19, 1998, the law firm that filed the Bulwa, et al. action described
above filed an additional securities class action lawsuit against IXYS, Michael
Gulett, Robert McClelland, Richard A. Veldhouse and Chiang Lam, this time in the
United States District Court for the Northern District of California. The
complaint alleged violations of section 10(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Commission Rule 10b-5 and section
20(a) of the Exchange Act. Plaintiff alleged the same class and the same
substantive factual allegations that are contained in the Bulwa, et al. action
as amended. Defendants responded to the complaint on July 27, 1998 by filing a
motion to dismiss the complaint for failure to state claims upon which relief
can be granted and for various pleading inadequacies. In lieu of opposing the
motion, plaintiff filed a first amended complaint. Defendants renewed their
motion to dismiss, and on January 20, 1999 the Court issued an order granting
the motion and dismissing plaintiff's action and entered judgment thereon. On
February 3, 1999, the Court entered an amended judgment clarifying that the
judgment is with prejudice. On March 12, 1999, plaintiff filed a notice of
appeal. Plaintiff then agreed to dismiss the appeal in exchange for defendants'
agreement not to seek to recover defendants' costs incurred in responding to the
appeal and agreement not to pursue any action against the plaintiff for having
filed the action. The appeal was dismissed with prejudice on October 25, 1999.
Discussions of additional details relating to the above-described legal
proceedings may be found in the prior SEC filings and reports of IXYS.
On June 22, 2000, International Rectifier Corporation ("IR") filed an action
for patent infringement against IXYS in the United States District Court for the
Central District of California, alleging that certain IXYS products sold in the
United States, "including but not necessarily limited to" four IXYS Power MOSFET
parts (IXFX55N50; IXFH21N50; IXFH35N30; and IXTH24N50), infringe one or more of
the
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following IR patents: U.S. Patent Nos. 4,959,699 (Reexamination Certificates
issued October 12, 1993 and January 19, 1999); 5,008,725 (Reexamination
Certificates issued January 12, 1993); 5,130,767; 4,642,666 (Reexamination
Certificate issued October 7, 1998); and 4,705,759 (Reexamination Certificate
issued February 14, 1995). IXYS is in the process of evaluating these
allegations. IXYS is scheduled to respond to the complaint on August 17, 2000.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
On May 16, 2000, IXYS acquired Directed Energy, Inc. ("DEI") in a stock-for-
stock acquisition. In connection with the acquisition of DEI, IXYS issued
125,185 shares of IXYS Common Stock to the former shareholders of DEI in
exchange for all of the issued and outstanding capital stock of DEI. The merger
was intended to qualify as a tax-free reorganization under the Internal Revenue
Code of 1986, as amended, and was to be accounted for as a purchase. DEI is a
supplier of innovative high-speed, pulsed-power instruments and components.
DEI's standard product line includes high-voltage pulse generators and
modulators, laser diode drivers, pulsed current sources, and high-speed/high
frequency power MOSFET transistors. DEI's pulsed technology spans many fields,
including lasers and electro-optics, electro-acoustics, dielectric testing,
component characterization, and basic R&D.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11 Computation of Per Share Earnings as set forth in Note 7 of the Notes
to Condensed Consolidated Financial Statements in Part I of the Form
10-Q
27 Financial Data Schedule
99.1 Press Release
(b) The Company did not file a Current Report on Form 8-K during this fiscal
period.
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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.
IXYS CORPORATION
By: /s/ Arnold Agbayani
-----------------------------------------
Arnold Agbayani, Vice President,
Finance and Chief Financial Officer
(Principal Financial Officer)
Date: September 28, 2000
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Exhibit Index
-------------
11 Computation of Per Share Earnings as set forth in Note 7 of the Notes
to Condensed Consolidated Financial Statements in Part I of the Form
10-Q
27 Financial Data Schedule
99.1 Press Release
17
