ITEM 1. BUSINESS:
COMPANY OVERVIEW
Sipex Corporation is a semiconductor company that designs, manufactures and markets precision, high performance, high value-added analog integrated circuits. Virtually all of Sipex products are components. Sipex sells its products across the analog semiconductor market and has targeted high-growth sectors that it believes are especially compatible with its design and process capabilities. Our products are incorporated by original equipment manufacturers (OEM's) in a wide range of equipment for use in: telecommunications, networking, computers, industrial instrumentation, and high performance consumer products. Our products have been incorporated into a broad range of electronic systems and products by more than 4,700 customers worldwide.
ANALOG INDUSTRY
Integrated circuits ("ICs") are the building blocks of all electronic products today. Analog circuits process "real world" signals which monitor, condition, amplify or transform continuous analog signals associated with physical conditions such as temperature, force, speed and pressure, the frequency and wave length of which vary continuously. Analog circuits also provide voltage regulation and power control to electronic systems, especially in handheld battery powered systems.
We believe that the analog/linear integrated circuit market offers certain advantages compared to the digital market. The life cycles of products in the analog integrated circuit market tend to be longer and customer pricing is less volatile than in the digital market. The capital requirements for analog/linear IC manufacturers are lower than those in the digital IC area. In addition, there has been less foreign competition in the analog/linear IC business which is likely a result of its smaller market size as compared with the digital IC area. Unlike products in the digital IC market, the value in the analog IC product is usually the result of design innovation utilizing a variety of manufacturing process technologies to address specific customer applications, many of which are in so-called "niche" markets.
The Semiconductor Industry. The semiconductor industry is characterized by rapid technological change, price erosion, cyclical market patterns, occasional shortages of materials, capacity constraints, variations in manufacturing efficiencies, and significant expenditures for capital equipment and product development. Furthermore, new product introductions and patent protection of existing products are critical for future sales growth and sustained profitability. Although we believe that the high performance segment of the linear circuit market is generally less affected by price erosion, cyclical market patterns and significant expenditures for capital equipment and product development than other semiconductor market sectors, future operating results may reflect substantial period to period fluctuations due to these or other factors.
PRODUCTS AND MARKETS
Requirements for lower power and higher operating frequencies are driving innovation in analog/linear circuitry. Another significant trend in the marketplace is the need to reduce the size and weight of components, particularly for portable and handheld applications in which these features are critical. As a result, more and more functions are designed onto a single chip, requiring both advancements in design and improvements in process technology.
Sipex offers a broad range of innovative, high performance, high value-added analog integrated circuits. Sipex's products are generally broken down into the following categories: networking products, power management products, electroluminescent products, and data converter products. In the fourth quarter of 2000, Sipex adopted an end-of-life strategy for the discontinuance of its line of assembled and ASSP products which were supplied principally to commercial customers.
Sipex believes that its design and manufacturing process capabilities can address customers' needs with regard to product features and functionality, integration and overall solution cost. By working closely and partnering with established market leaders within these areas, Sipex has been able to identify and meet its partners' complex analog IC requirements with tailored products that are developed in conjunction with the customer's own product design team, thus allowing Sipex to address the customer's needs as the customer identifies them. Having addressed the particular needs of market leaders, Sipex is then able to migrate these solutions into standard products available to other equipment or device suppliers.
OUR MAJOR PRODUCT CATEGORIES
Sipex produces a wide range of products for a variety of customers and markets. We emphasize standard products to address larger markets and to reduce the risk of dependency upon a single customer's requirements. We target the high performance segment of the linear circuit market. The high performance segment of the analog IC market consists of innovative, proprietary, niche products which are often tailored for specific applications and differ from commodity analog products in terms of uniqueness, feature set, electrical performance (speed, precision, power, etc.), and system-level integration.
Networking Products. Interface products act as intermediaries to transfer signals between or within electronic systems. A simple example of an interface application is a personal computer connected to a printer via the RS-232 serial interface standard. The computer sends information through the connecting cable which is received by the printer, and additional information can be sent back to the computer. Serial interface is used in many market segments including computers, peripherals, data communications, telecommunications, handheld instrumentation, medical equipment, test equipment and industrial controls.
In the networking area in particular, serial interface products are of critical importance because diverse equipment and peripherals must be linked together to permit data communications across local or remote locations. Because a multiple of communications standards address the diverse requirements of wide area networking, WAN equipment providers must provide compatibility in their equipment with different communications standards. WAN equipment OEMs traditionally addressed this need for systems compatibility through multiple and often redundant board-level approaches, containing analog circuit designs made up of many discrete interface drivers and receivers, along with switches, jumpers or relays to steer the appropriate signals to the connector. Our solution was to develop the first single-chip multi-protocol interface transceiver circuit. These circuits are programmable and dynamically support signals compliant with up to eight different serial interface standards. Our products provide network suppliers with the ability to replace multiple chip and discrete device configurations with a single chip solution, allowing systems designers to reduce space and power requirements in their equipment. Our SP300 series of interface transceivers each support two protocols -- the RS-232 and the RS-485. Additionally, our SP500 series was the industry's first fully integrated transceiver, supporting up to eight of the most popular serial interface standards for WAN interfaces. As +3V based microprocessor systems have become more common, we have introduced families of +3V RS-232 and RS-485. The main product features include fully compliant operation at +3V power supply with +/-15kV of ESD protection. The products are mainly sold into battery powered portable products that have a need to interface to peripheral equipment: including laptop computers, PDAs, cell phones, digital still cameras, and handheld data terminals.
In addition to expanding our line of programmable serial interface products, our future interface product strategy includes working with industry leaders to develop products involving higher speed interfaces supporting high speed data communications, video communications and telecommunications interface requirements. Sipex also offers the SP200 and SP400 series of single protocol serial interface transceiver products, primarily targeted to the personal computer and peripherals and industrial controls markets.
Power Management Products. Our power management products specialize in the areas of voltage control and measurement, voltage conversion and battery charging. The purpose of these products is to monitor the power supplied to digital circuits such as microprocessors and random access memory ("RAM") in battery operated systems. As the main battery voltage to the system is slowly decreased by usage, a backup battery takes over to keep power to the system long enough so that the microprocessor instructions and RAM are saved and powered down in a safe state. If there is no activity from the microprocessor during a period of time, the microprocessor is reset so that it starts-up at a known state in case of errors during power-up, power-down, and intermittent power losses. Any power glitches or faults that can cause harm to the system or data loss at any time can be minimized by implementing a microprocessor supervisory circuit. Any portable equipment that uses microprocessors, microcontrollers, or memory in the system will require some kind of detection circuitry to monitor the power supply and battery output. The power management portfolio expanded this year with the introduction of switching regulator and controller products. These products are targeted at two key applications: (i) portable power applications which is driven by efficiency and low cost, and (ii) distributed power systems where we believe there is a growing demand for high power, low voltage solutions.
Electroluminescent and Application Specific Standard Products. Sipex has targeted the battery powered/portable products market to leverage its design expertise and the process capability provided by Sipex's internal dielectric isolation ("DI") wafer fabrication production line. The DI process allows single chip designs to operate efficiently with both very low voltage (1V) and very high voltage (160V) without interference or breakdown between adjacent circuits. Sipex designers, in cooperation with Timex Corporation ("Timex"), developed a proprietary electroluminescent ("EL") driver device, which provides the enabling technology for the Timex(R) watches with INDIGLO(R) night-light. This custom integrated circuit creates a 100V AC signal from a 3V DC battery within the watch to light the backlight material. Using this technology, under license from Timex, Sipex is providing backlighting solutions for pagers, cell phones and handheld electronic equipment manufacturers. Sipex intends to continue its focus in this area on high volume commercial/consumer markets, in which the attributes of the DI fabrication process or Sipex's design capabilities can add value for the customer.
Data Converter Products. Data converter products are incorporated into systems that translate real world (analog) events into digital data which can be manipulated by a microprocessor. Sipex's analog-to-digital and digital-to-analog products are components that allow microprocessors to monitor real world conditions, and then control responses to the conditions monitored. The main focus of Sipex's product offerings has been high performance 12-bit analog-to-digital and digital-to-analog converters. Sipex believes that the data converter marketplace for 12-bit products is highly fragmented and design wins are characterized by long life cycles. The primary markets served by Sipex are industrial controls, instrumentation and test equipment. Sipex expects sales of data converter products to decline in future years as Sipex continues to focus resources on its target markets.
Aerospace and Assembled Products. In the fourth quarter of 2000, Sipex adopted an end-of-life strategy for the discontinuance of its line of assembled products which were supplied principally to commercial customers for aerospace and military applications. Sipex is not currently designing new products for the military market.
The following table identifies the list of current applications for Sipex's products, identified by end market:
SALES AND DISTRIBUTION
We sell our products to OEM customers either directly through a direct sales force and with the assistance of a network of independent sales representatives, or indirectly through independent distributors. We continually seek to broaden our customer base by increasing sales through our distributor network. Domestic and international distributor sales were 51.8%, 28.8% and 34.9% of net sales in 2000, 1999 and 1998, respectively.
Our direct sales force consists of sales managers and field application engineers who provide technical and applications support to customers, independent sales representatives and distributors. The sales staff and field application engineers are located at our Billerica, Massachusetts headquarters and in field sales offices in Munich, Belgium, Taipei, Tokyo, Shenzhen and California. Our sales staff and field application engineers also manage, train and support our network of distributors and representatives.
In North America, Sipex sells its products through 19 independent sales representative organizations having approximately 43 offices, and 1 distributor having approximately 111 sales locations. These independent entities are selected for their ability to provide effective field sales, marketing communications and technical support to Sipex's customers. Sipex has entered into Sales Representative or Distributor Agreements with each of its independent sales representatives and its distributor. These agreements typically provide for the independent distributor to act as a non-exclusive distributor for one or more products within a specific territory and also permit sales representatives to act as an exclusive or a non-exclusive sales representative in appropriate circumstances. Sales to certain distributors are made under agreement to provide protection against price reduction to the distributor for their inventory of Sipex products. Sipex maintains a separate price list for products sold to distributors, which typically reflects discounts from the prices charged to customers in direct sales transactions. Sales representatives directly solicit orders for Sipex's products, which Sipex fills directly with the customer, generating a commission paid by us to the sales representative. On a semi-annual basis, distributors are permitted to return for credit against product purchases of an equivalent dollar value, up to 10% of their total purchases during the most recent six-month period.
Outside North America, Sipex sells its products through approximately 26 distributors with an aggregate of approximately 173 sales locations. International sales in 2000, 1999 and 1998 were approximately $61.1 million, $45.4 million and $38.4 million, respectively, representing 53.3%, 50.5% and 41.8% of total net sales, respectively. In connection with international sales, substantially all sales are denominated in U.S. dollars. Sipex is subject to the normal risks of conducting business internationally, including exchange rate fluctuations. To date, Sipex has not hedged the risks associated with fluctuations in exchange rates but may undertake such transactions in the future. Sipex currently does not have a policy relating to hedging.
CUSTOMERS
Our customer base is comprised of merchant manufacturers, electronics distributors and customers with captive manufacturing operations. The captive manufacturers use our products as integral components in their equipment and systems. In certain cases, we sell our products to a subcontract-assembly company specified by the captive manufacturer. The merchant manufacturers typically function as original equipment manufacturers ("OEMs") as well as suppliers of sub-systems to other OEMs.
Our end customers, none of which accounted for more than ten percent of net sales in 2000 or 1999, include Cisco Systems, Hewlett-Packard, Nortel, Alcatel, Lucent Technologies, ADC Telecommunications, Dell, Lexmark, Schlumberger, Xerox, Symbol, 3Com, and IBM in the networking/data communications markets; Timex, 3Com, Casio, ETA Swatch, Seiko, Sharp, and Handspring in the consumer markets; Motorola, Garmin, Hyundai, L.G. Information Systems, Samsung, NEC and Cidco in the telecommunications markets; and Andover Controls, Siemens and Honeywell in the industrial controls market. Customers incorporating our high reliability assembled products in military applications include Honeywell, Raytheon, Snecma, BF Goodrich, Space Systems/Loral and Lockheed Martin. For the year ended December 31, 2000, Motorola, Inc. was the most significant direct end customer which accounted for approximately 4.1% of Sipex net sales.
BACKLOG
Our product backlog was approximately $49.1 million at December 31, 2000 compared to $36.0 million at December 31, 1999. We generally include in backlog all orders scheduled for delivery within one year. However, our business, and to a large extent the entire semiconductor industry, is characterized by short-term orders and shipment schedules. Sipex generally permits orders to be canceled or rescheduled without significant penalty to customers, as indicated in our fourth quarter of 2000 results and press releases. As a result, the quantities of our products to be delivered and their delivery schedules may be revised by customers to reflect changes in their needs. Since backlog can be canceled or rescheduled, our backlog at any time is not necessarily indicative of future revenues.
MANUFACTURING
Sipex has wafer fabrication facilities in Milpitas and Fremont, California and has assembly operations in Billerica, Massachusetts. Sipex's wafer fabrication facility located in Milpitas commenced manufacturing operations in the second half of 1999. The Milpitas wafer fabrication facility is used to produce both four-inch and six-inch diameter wafers for use in the production of Sipex's devices. Sipex's facilities have been certified as ISO-9001 compliant. Sipex has completed construction of an additional 35,200 square feet to its Milpitas facility and is currently scheduled to close its Fremont facility in the first quarter of 2001 upon completion of the transition of manufacturing into the Milpitas facility.
Sipex broadens its manufacturing capabilities by using third-party foundries to produce junction isolation BiCMOS processed wafers and CMOS processed wafers. The use of third-party foundries enables Sipex to focus on its design strengths and minimize fixed costs and capital expenditures while providing access to diverse manufacturing technologies without bearing the full risk of obsolescence. Sipex uses three different third-party foundries to supply fully processed semiconductor wafers for its junction isolation BiCMOS and CMOS products; all of these foundries have been certified as ISO-9001 compliant. Sales of these products collectively represented approximately 30.2% of Sipex's net sales in 2000, approximately 35.8% in 1999 and approximately 28.3% in 1998.
In the third and fourth quarters of 1999, our allocation of wafers produced by one third-party foundry was significantly reduced. This shortage continued for most of 2000, resulting in an increased cost of these wafers. We are transitioning production of these wafers into our new facility in Milpitas. During 2000, the ramp-up of this facility was slower than anticipated. We have qualified certain products to begin production in our facility and are continuing the process for the remaining devices. Our basic process technologies include silicon gate complementary metal-oxide semiconductor ("CMOS") and BiCMOS processes. We also have two complementary bipolar processes. Our bipolar processes provide switching characteristics required for many linear circuit functions. The CMOS and BiCMOS processes are typically used in circuits where high voltage, high power and low noise are necessary.
Sipex tests integrated circuits or "die" on the wafers produced by Sipex and its foundries for compliance with performance specifications before assembly. Sipex's commercial products are assembled by a variety of subcontractors in Malaysia, Indonesia, Thailand and other locations in Asia which have been certified as ISO-9002, QS 9000, and ISO 14000. Following assembly, the packaged units are either returned to Sipex for final testing and inspection or are tested and inspected offshore before shipment to customers. Sipex manufactures its precision high-reliability assembled products in Billerica, Massachusetts. Sipex is in conformance with stringent quality and reliability requirements for military and aerospace applications.
Sipex's subcontractors may also be subject to capacity, yield and quality problems or may have difficulty obtaining critical raw materials, which could result in disruptions in the supply of assembled products. Sipex's reliance on third-party foundries and independent subcontractors involves a number of other risks, including reduced control over delivery schedules, quality assurance and costs. The occurrences of any supply or other problems such as the wafer shortages Sipex experienced in the second half of 1999 and through 2000, could have a negative impact on our business revenues and results of operations.
From time to time, the overall semiconductor industry has experienced significant growth which has created industry-wide capacity shortages and extended lead times for contract assembly, raw wafers, capital equipment, foundry wafers and various other products and services that are critical to Sipex's performance. Sipex is seeking to establish and maintain critical inventories and alternate sources to minimize the impact of its vendors' capacity limitations. However, there may be future shortages of key services that harm Sipex's business and results of operations.
The manufacturing processes utilized by Sipex are highly complex and are continuously being modified in an effort to improve yields and product performance. Process changes can result in interruptions in production or significantly reduced yields. In addition, yields can be affected by minute impurities in the environment or other problems that occur in the complex manufacturing process. Many of these problems are difficult to diagnose and are time-consuming or expensive to remedy. From time to time, Sipex has experienced yield variances. In particular, new process technologies or new products can be subject to especially wide variations in manufacturing yields and efficiency. There can be no assurance that yield variances previously experienced by Sipex will not recur or that Sipex and its independent foundries will not experience other manufacturing problems that result in delays of product introduction or delivery which could negatively affect Sipex's business and results of operations.
Sipex received a Notice of Potential Liability from the Environmental Protection Agency ("EPA") in June 1993 concerning a landfill identified as a Superfund Site. Sipex has denied any liability and believes the ultimate outcome of this matter will not have a material impact on Sipex.
PRODUCT QUALITY ASSURANCE AND RELIABILITY
Sipex is committed to customer satisfaction and continuous improvement in all aspects of its business. This is accomplished through a comprehensive quality and reliability system founded on documented procedures. Sipex uses quality tools such as statistical process control, cross-functional teaming and advanced statistical analysis in its qualification, production processes and improvement activities. Sipex maintains strong relationships with its subcontractors and routinely qualifies suppliers to established standards. Sipex is ISO-9001 Registered and has continuously maintained conformance to MIL-PRF-38534.
PATENTS, LICENSES AND TRADEMARKS
Sipex seeks to protect its proprietary technology through patents and trade secret protection. Currently, Sipex holds a number of patents expiring on various dates between the years 2001 and 2018 and has additional pending United States patent applications, although there can be no assurance that any patents will result from these applications. While Sipex intends to continue to seek patent coverage for its products and manufacturing technology where appropriate, Sipex believes that its success depends more heavily on the technical expertise and innovative abilities of its personnel than on its patent position. Accordingly, Sipex also relies on trade secrets and confidential technological know-how in the conduct of its business. There can be no assurance that Sipex's patents or applicable trade secret laws will provide adequate protection for Sipex's technology against competitors who may develop or patent similar technology or reverse engineer Sipex's products. In addition, the laws of certain territories in which Sipex's products are or may be developed, manufactured or sold, including Asia, Europe and Latin America, may not protect Sipex's products and intellectual property rights to the same extent as the laws of the United States.
The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. Although Sipex is not aware of any pending or threatened patent litigation which it considers material, there can be no assurance that third parties will not assert claims against Sipex with respect to existing or future products or technologies and Sipex has been subject to such claims in the past. In litigation to determine the validity of any third-party claims, such litigation, whether or not determined in favor of Sipex, could result in significant expense to Sipex and divert the efforts of Sipex's management personnel from productive tasks. In the event of an adverse ruling in such litigation, Sipex might be required to discontinue the use of certain processes, cease the manufacture, use and sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses to the infringing technology. There can be no
assurance that licenses will be available on acceptable terms, or at all, with respect to disputed third-party technology. In the event of a successful claim against Sipex and Sipex's failure to develop or license a substitute technology at a reasonable cost, Sipex's business, financial condition and results of operations would be materially and adversely affected.
Pursuant to license agreements, Sipex pays a royalty to Timex Corporation for certain electroluminescent product sales, to Maxim Integrated Products for certain interface product sales and to the Lemelson Medical, Education and Research Foundation.
RESEARCH AND DEVELOPMENT
Sipex believes that continued introduction of new products in its target markets is essential to its growth. As performance demands have increased the complexity of analog circuits, the design and development process has become a multi-disciplinary effort, requiring diverse competencies to achieve customers' desired performance. Sipex supports its key designers with an infrastructure of product and test engineers who perform various support functions and allow the designer to focus on the core elements of the design.
In 2000, 1999 and 1998, Sipex spent approximately $13.2 million, $10.6 million and $8.4 million, respectively, on research and development, representing, 11.5%, 11.8% and 9.1%, respectively, of net sales for these periods. Sipex expects that expenditures in support of research and development activity will continue to increase in absolute dollars in the near future.
Sipex's ability to compete depends in part upon its continued introduction of technologically innovative products on a timely basis. Sipex's research and development efforts are directed primarily at designing and introducing new products and technologies. Sipex continually upgrades its internal technology while also working with foundries to develop new technologies for new generations of products. In addition, Sipex continually refines its manufacturing practices and technology to improve yields of its products.
COMPETITION
We compete in the high performance segment of the analog integrated circuit market. The analog integrated circuit segment of the semiconductor industry is intensely competitive and many major semiconductor companies presently compete or could compete with us in some capacity. Our primary competitors have substantially greater financial, technical, manufacturing, marketing, distribution and other resources and broader product lines than us. Our current primary competitors in the high-performance segment of the analog circuit market include Analog Devices, Linear Technology, Semtech, Micrel Semiconductor, National Semiconductor and Maxim Integrated Products. Although foreign companies active in the semiconductor market have not traditionally focused on the high performance analog market, many foreign companies have the financial and other resources to participate successfully in these markets and may become formidable competitors in the future.
We believe that our ability to compete successfully depends on a number of factors, including the ability to develop and introduce new products rapidly, product innovation, product quality and reliability, product performance, the breadth of our product line, price, technical service and support, manufacturing quality and capacity, supply of raw materials, efficiency of production, delivery capabilities and protection of the Company's intellectual property. We believe that product innovation, quality, reliability, performance and the ability to introduce products rapidly are more important competitive factors than price in our target markets because we compete primarily at the stage when system manufacturers design analog products into their systems. At the design-in stage, there is less price competition, particularly when there is only one source for the product. We believe that, by virtue of our analog expertise and rigorous design methodology, we compete favorably in the areas of rapid product introduction, product innovation, quality, reliability and performance, but may be at a disadvantage in comparison to larger companies with broader product lines, greater technical and financial resources and greater service and support capabilities.
ENVIRONMENTAL REGULATION
Sipex is subject to a variety of federal, state and local governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing process. Although Sipex believes that its activities conform to presently applicable environmental regulations, the failure to comply with present or future regulations could result in fines being imposed on Sipex, suspension of production or a cessation of operations. Increasing public attention has been focused on the environmental impact of semiconductor manufacturing operations and there can be no assurance that regulatory changes or changes in regulatory interpretation or enforcement may render compliance more difficult and costly. Any failure of Sipex to control the use of, or adequately restrict the discharge of hazardous substances, or otherwise comply with environmental regulations, could subject Sipex to significant future liabilities. In addition, although Sipex believes that its past operations conformed with then applicable environmental laws and regulations, there can be no assurance that Sipex has not in the past violated applicable laws or regulations, which violations could result in remediation or other liabilities or that past use or disposal of environmentally sensitive materials in conformity with then existing environmental laws and regulations will not result in remediation or other liabilities under current or future environmental laws or regulations.
EMPLOYEES
At December 31, 2000, we had 597 full-time employees. We believe that our future success will depend, in part, on our ability to attract and retain qualified technical and manufacturing personnel. This is particularly important in the areas of product design and development, where competition for skilled personnel is intense. None of our employees is subject to a collective bargaining agreement and we have never experienced a work stoppage. We believe that our relations with our employees are good.
ITEM 2.
ITEM 2. PROPERTIES:
The Company's corporate office is located in Billerica, Massachusetts. Information regarding our principal plants and properties appears below:
- --------------- * Facility planned to be exited on March 15, 2001 and estimated exit costs have been accrued for at December 31, 2000.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS:
Sipex may become involved in various legal actions arising in the ordinary course of business. Sipex is currently not a party to any material legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted to a vote of Sipex's security holders during the quarter ended December 31, 2000.
EXECUTIVE OFFICERS OF SIPEX
Information relating to the executive officers of Sipex is set forth below. All officers held office as of December 31, 2000.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS:
QUARTERLY STOCK MARKET DATA
On December 31, 2000, there were approximately 291 shareholders of record. Sipex believes that the number of beneficial holders of common stock exceeds 3,300. The last reported sale price of the common stock on March 5, 2001 was $10.00 per share. Sipex has never declared or paid a cash dividend on its capital stock. Sipex currently intends to retain all of its earnings to finance future growth and therefore, does not anticipate paying any cash dividends on its common stock in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA:
Selected financial data for the last five years appear below (in thousands, except per share data):
The financial data has been adjusted to reflect the combined operations of Sipex Corporation and Calogic as a result of the November, 1999 merger which was recorded as a pooling of interests (see Note 2 to Consolidated Financial Statements).
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
OVERVIEW
Sipex Corporation is a semiconductor company that designs, manufactures and markets precision high performance and high value added analog integrated circuits using standard BiCMOS, bipolar, and dielectrically isolated BiCMOS technologies. Analog integrated circuits address a wide range of real-world signal processing applications associated with such naturally occurring physical phenomena as temperature, pressure, weight, position, light and sound. These circuits play a fundamental and important role in coupling the real world to the digital computer and vice versa. Sipex's products include single, dual and multi-protocol serial interface circuits, linear and switching power management products, data converters, and electroluminescent driver circuits.
For the periods indicated, the following table sets forth the percentage of net sales represented by the respective line items in the Company's consolidated statements of operations.
Fiscal Year Ended December 31, 2000 compared to Fiscal Year Ended December 31,
Net sales increased 27.6% to $114.6 million for the year ended December 31, 2000 compared to $89.8 million for the year ended December 31, 1999. The increase in net sales was primarily due to greater demand for our products and increased design wins. The increase in sales was offset by $5.1 million for a change in the timing of recognizing revenue on sales to certain distributors and $1.7 million for additional reserves for distributor returns necessitated by the elimination of certain distributors. The $5.1 million is the result of changing the timing of recognizing revenue from when the product is shipped to certain distributors to when the distributor sells the Company's product through to the OEM. We made this change effective October 1, 2000 when we concluded we could no longer reasonably estimate reserves for returns and price concessions due to a change in our relationship with these certain distributors. At December 31, 2000, there was approximately $4.5 million of inventory shipped into distribution for which revenue was recognized prior to October 1, 2000 that will reduce sell-through revenue in the first quarter of 2001. Demand in fiscal year 2000 started out strong and declined in the fourth quarter due to a cyclical downturn in the industry. As a result of the reduced demand, the Company took order cancellations of approximately $8.0 million in the fourth quarter of 2000 from its distributors. Approximately 53% of Sipex's net sales were derived from international
customers in 2000 compared to 51% in 1999. Geographically, in 2000, Sipex experienced sales growth of 38% in Japan and the Pacific Rim countries, 28% growth in Europe and 20% growth in the U.S.
Gross profit was $36.5 million or 31.8% of net sales in 2000 compared to $32.6 million or 36.3% of net sales in 1999. The 4.5% reduction in gross profit as a percentage of net sales in 2000 from 1999 was primarily due to continued high wafer pricing from subcontract manufacturers, lower capacity utilization, additional reserves for distributor returns of $1.7 million necessitated by the elimination of certain distributors in the fourth quarter and a $3.1 million increase in inventory reserves mainly due to an end-of-life strategy for our legacy product lines, assembled products and ASSP, adopted in the fourth quarter of 2000.
Research and development ("R&D") expenses were $13.2 million and $10.6 million in 2000 and 1999, respectively, or 11.5% and 11.8% of net sales, respectively. The increase in R&D expense in 2000 as compared to 1999 was due primarily to process development as well as an increase in staffing, particularly design engineering personnel and higher spending for development of mask sets and test wafers.
Marketing and selling expenses were $10.8 million and $9.7 million in 2000 and 1999, respectively, or 9.4% and 10.9% of net sales, respectively. The dollar increase in marketing and selling expenses in 2000 over 1999 was due primarily to an increase in staffing, particularly sales personnel in our Asian operations and field application engineering.
General and administrative expenses were $9.6 million and $7.9 million in 2000 and 1999, respectively, or 8.4% and 8.8% of net sales, respectively. The dollar increase in general administration expense was due primarily to increased staffing, legal, accounting and other related professional expenses.
In the fourth quarter of 1999, management of Sipex and the Board of Directors approved a plan to close certain manufacturing facilities in California, which were acquired through the merger with Calogic, and accounted for as a pooling-of-interests. Total estimated costs of $1.9 million associated with the closure of the Calogic facilities included facility related costs of $930,000, costs of the write-down to net realizable value of less efficient and duplicate machinery and equipment of $300,000 and facilities exit costs related to severance of $640,000. All of these costs were accrued as of December 31, 1999 and were estimated to be paid by the end of 2000, except for lease costs which were expected to be paid over a two-year period until the closed facilities could be subleased.
The following table summarizes the activity in facility exit costs from the date of the original approval of the plan in the fourth quarter of 1999 through December 31, 2000 (in thousands):
In accordance with the plan, Sipex has closed the Calogic manufacturing, sales and administration facility in Pleasanton, California and as of December 31, 2000 has incurred all people related costs and is incurring the lease costs for the closed facility as originally planned, with the exception of one building which was subleased unexpectedly. However, the slower than anticipated ramp-up of our new Milpitas wafer fabrication facility during 2000 delayed the transition of manufacturing of the Calogic products to our new facility and hence delayed the closure of the Calogic Fremont wafer fabrication facility, which will be closed by the end of the first quarter of 2001. The delay in the closure of the Fremont facility reduced facility costs by shortening the period in which the leased fabrication facility would be vacant. Consequently, we reduced the facility related portion of the accrual to adjust for the unexpected sublease and the delay in closing this facility. Additionally, the equipment related accrual was adjusted to reflect the continued use of the fab machinery and equipment resulting from the delay in the closure of the fab. As of December 31, 2000, $506,000 of the restructuring accrual remains which is estimated to be paid by the end of the first quarter of 2001, except for lease termination costs which we expect to incur through the end of the second quarter of 2001.
Other income, net was $2.1 million and $1.4 million in 2000 and 1999, respectively. The increase in other income was due primarily to lower interest expense due to the payoff of Calogic bank obligations in December 1999.
We recorded an income tax expense of $1.6 million for 2000 compared to an income tax benefit of $2.4 million for 1999, resulting in an effective income tax expense rate of 29.3% in 2000 compared to an effective tax benefit rate of 65.7% in 1999. The 2000 effective rate differs from the statutory rate due to federal research credits and state tax credits including California manufacturer's investment tax credit. The 1999 effective rates differed from the statutory rate due to the reduction of the valuation allowance for net operating loss carryforwards utilized and deferred tax benefits expected to be realized in the future.
Fiscal Year Ended December 31, 1999 compared to Fiscal Year Ended December 31,
Net sales decreased 2.3% to $89.8 million for the year ended December 31, 1999 compared to $92.0 million for the year ended December 31, 1998. The decrease in net sales was primarily due to the lower than planned deliveries of sub-contracted wafers announced by our primary third-party wafer supplier in September of 1999. The average selling price for the Company's products also declined slightly during the year. Approximately 51% of Sipex's net sales were derived from international customers in 1999 compared to 42% in 1998. Geographically, in 1999, Sipex experienced sales growth of 25% in Japan and the Pacific Rim countries and an additional 6% growth in Europe while sales declined 17% in the U.S.
Gross profit was $32.6 million or 36.3% of net sales in 1999 compared to $39.8 million or 43.2% of net sales in 1998. The 6.9% reduction in 1999 from 1998 was primarily due to the lack of absorption of certain fixed costs over a reduced sales base caused by the closing of our original Milpitas wafer fabrication facility and the commencing of our new Milpitas wafer fabrication facility. Additionally, we received significant price increases from one of our subcontract wafer manufacturers.
Research and development ("R&D") expenses were $10.6 million and $8.4 million in 1999 and 1998, respectively, or 11.8% and 9.1% of net sales, respectively. The increase in R&D expense in 1999 as compared to 1998 was due primarily to process development as well as an increase in staffing, particularly design engineering personnel and higher spending for development of mask sets and test wafers.
Marketing and selling expenses were $9.7 million and $8.9 million in 1999 and 1998, respectively, or 10.9% and 9.7% of net sales, respectively. The increase in marketing and selling expenses in 1999 over 1998 was due primarily to an increase in staffing, particularly sales personnel.
General and administrative expenses were $7.9 million and $5.9 million in 1999 and 1998, respectively, or 8.8% and 6.4% of net sales, respectively. The increase in general and administrative expenses were due primarily to increased staffing, legal and other related professional expenses. Included in the general and administrative costs were charges for sales and marketing restructuring of $400,000.
Facility exit costs for 1999 consisted of $1.9 million estimated costs of closing several of the manufacturing facilities acquired as a result of the Calogic acquisition that are duplicate facilities, offset by $1.1 million from the sale in the third quarter of 1999 of the tangible assets of our semiconductor wafer fab located in Milpitas California, a portion of which had been written down in the fourth quarter of 1998. In the fourth quarter of 1999, the management of Sipex and its Board of Directors approved a plan to close its California manufacturing facilities which were acquired through the merger with Calogic. As part of the plan, we will be vacating these leased facilities and moving operations to our newly completed facility in Milpitas, California. Total estimated costs of $1.9 million associated with the closure of the facilities includes $930,000 of rent, real estate taxes, and utility costs which will be paid over an estimated two year period after the buildings are vacated and until they can be subleased or the lease terminates. Additionally, we have recorded $300,000 as a charge to current operations for the write-down to net realizable value of less efficient and duplicate machinery and equipment not needed in the combined restructured manufacturing operations. Additionally, the Company recorded $640,000 of facility exit costs related to employee severance.
In 1998, the facility exit costs of $1.1 million represented the estimated cost of the closure of the manufacturing facility in Milpitas, California and the sales office in France. The charge for property, plant and
equipment represents the write-down to the net realizable value of less efficient and duplicate machinery and equipment not needed in the combined restructured manufacturing operations. Severance and other employee related costs totaling $200,000 were also included relating to the closing of an international office. In the third quarter of 1999, the Company realized net proceeds of $1.1 million from the unanticipated sale of the tangible assets of our semiconductor wafer fab located in Milpitas, California which had been written off as part of facility exit costs. This recovery of $1.1 million has been recorded as a credit to facility exit costs on the statement of operations for 1999 resulting in the reporting of net facility exit costs for 1999 of approximately $817,000.
Other income, net was $1.4 million and $1.2 million in 1999 and 1998, respectively. The increase in other income was due primarily to higher interest income arising from increased yields on cash, cash equivalents and investments.
We recorded an income tax benefit of $2.4 million for 1999 compared to an income tax benefit of $2.8 million for 1998, resulting in an effective income tax benefit rate of 65.7% in 1999 compared to an effective rate of 17.1% in 1998. These effective rates differed from the statutory rate due to our utilization of net operating loss carryforwards which were previously reserved, and additionally to the reduction of the valuation allowance for future tax benefits expected to be realized in the future.
Liquidity and Capital Resources
At December 31, 2000, Sipex had working capital of $44.8 million and available funds of $1.7 million consisting of cash and cash equivalents. Sipex has pledged up to $36.8 million of cash and cash equivalents and investment securities as security for a lease which Sipex entered into for the construction and lease of our new wafer fabrication facility in Milpitas, California. The facility was completed in the first quarter of 1999. Sipex has classified the amount pledged as restricted long-term assets on the consolidated balance sheets at December 31, 2000 and 1999. Net cash used in operating activities was $1.0 million, $3.6 million, and $10.4 million in 2000, 1999 and 1998, respectively. Net cash used in operating activities in 2000 resulted primarily from an $8.3 million increase in accounts receivable, a $10.2 million increase in inventories and a $3.2 million increase in deferred income tax assets and was partially offset by net income of $3.9 million and an increase in accounts payable of $3.9 million. The significant increase in the Company's inventories consists mainly of the buildup of the wafer work-in-process due to the ramp-up of the new wafer fabrication facility in Milpitas. The increase in accounts receivable over the prior year is mainly the result of the increased sales level in 2000. The increase in accounts payable over the prior year is mainly the result of inventory purchases and capital expenditures in 2000. In 1999, net cash used in operating activities resulted primarily from a $2.3 million increase in inventories, $6.7 million increase in deferred income tax assets and a $12.4 million increase in restricted cash associated with the pledge discussed above which was partially offset by net income of $6.1 million and a $1.2 decrease in accounts receivable.
Net cash used in investing activities for property, plant and equipment was $19.5 million, $9.2 million and $4.7 million in 2000, 1999 and 1998, respectively. The growth in 2000 capital investment related principally to the expansion of our wafer manufacturing facility in Milpitas, California and the purchase of machinery and equipment for the facility which was financed substantially through our bank line of credit.
Net cash provided by (used in) financing activities was $15.3 million, ($5.9) million and $1.0 million in 2000, 1999 and 1998, respectively. In 2000, $8.7 million was provided by the issuance of common stock upon the exercise of options or pursuant to the Company's stock plans and $7.1 million receipts from long term debt which was partially offset by the repayment of approximately $413,000 of debt obligations. In 1999, $654,000 was provided by the issuance of common stock upon the exercise of options or pursuant to Sipex's stock plans, offset by the repayment of $6.6 million of debt obligations. In 1998, $1.6 million was provided by the issuance of common stock upon the exercise of options or pursuant to the Company's stock plans offset partially by the repayment of approximately $578,000 of other debt obligations.
At December 31, 2000, Sipex has U.S. net operating loss carryforwards of approximately $33.7 million, which are available to offset future Federal taxable income. These losses expire during the years 2005 through 2020. As of December 31, 2000, utilization of $22.7 million of the net operating loss carryforwards is subject to
an annual limitation of approximately $7.4 million as a result of an ownership change which occurred on September 30, 1996.
Sipex anticipates that the available funds, bank loans and cash provided from operations will be sufficient to meet cash and working capital requirements for the foreseeable future. At December 31, 2000, Sipex was in default of the quick ratio covenant on its bank line of credit, which was waived by the lender. Sipex has negotiated with the bank for an increased line of credit with new covenants.
Factors Affecting Future Results
From time to time, information provided by Sipex, statements made by its employees or information included in its filings with the Securities and Exchange Commission (including in this Form 10-K) may contain statements which are not historical facts, so called "forward-looking statements", and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and releases of the Securities and Exchange Commission. In particular, certain statements contained in the Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical facts (including, but not limited to, statements concerning anticipated availability of capital for working capital and for capital expenditures) constitute "forward-looking" statements. Sipex's actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below and the other risks discussed in Sipex's other filings with the Securities and Exchange Commission.
Sipex's quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect net sales and profitability from period-to-period, including competitive pressures on selling prices; the timing and cancellation of customer orders; availability of foundry capacity and raw materials; fluctuations in yields; changes in product mix; Sipex's ability to introduce new products and technologies on a timely basis; introduction of products and technologies by Sipex's competitors; market acceptance of Sipex's and its customers' products; the level of orders received which can be shipped in a quarter; the ability of Sipex to manufacture in the correct mix to respond to orders on hand and new orders received in the future; the timing of investments in research and development, including tooling expenses associated with product development, process improvements and production; and the cyclical nature of the semiconductor industry. Due to the absence of substantial noncancellable backlog, Sipex typically plans its production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. Because Sipex is continuing to increase its operating expenses for personnel and new product development and for inventory in anticipation of increasing sales levels, operating results would be adversely affected if increased sales are not achieved. In addition, Sipex is limited in its ability to reduce costs quickly in response to any revenue shortfalls. As a result of the foregoing or other factors, Sipex may experience material fluctuations in future operating results on a quarterly or annual basis which could substantially harm its business, financial condition and operating results.
Capital Requirements
In order to remain competitive, Sipex must continue to make significant investments in facilities and capital equipment. Accordingly, Sipex may seek additional equity or debt financing from time to time and cannot be certain that additional financing will be available on favorable terms, if at all. Moreover, any future equity or convertible debt financing will decrease the percentage of equity ownership of existing stockholders and may result in dilution, depending on the price at which the equity is sold or the debt is converted.
Fluctuations in Operating Results
Sipex's expense levels are based, in part, on expectations of future revenues and are, to a large extent, fixed in the short term. Sipex's future revenues are difficult to predict and at times in the past Sipex has failed to achieve revenue expectations. Sipex may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. If revenue levels are below expectations for any reason, operating results are likely to be harmed. Because Sipex is continuing to increase operating expenses for personnel and new product
development and for inventory in anticipation of increasing sales levels, operating results would be harmed if increased sales are not achieved. In addition, Sipex is limited in its ability to reduce costs quickly in response to any revenue shortfalls.
Supply and Manufacturing Risks
Sipex's manufacturing processes are highly complex and are continuously being modified in an effort to improve yields and product performance. Process changes can result in interruptions in production or significantly reduced yields that could result in product introduction or delivery delays. In addition, yields can be adversely affected by minute impurities in the environment or other problems that occur in the complex manufacturing process. Many of these problems are difficult to diagnose and time-consuming or expensive to remedy. From time to time Sipex has experienced yield variances. Sipex cannot be assured that its foundry or those of its suppliers will not experience yield variances or other manufacturing problems that result in delayed product introduction or delivery delays.
Sipex currently relies on three outside foundries to supply fully processed semiconductor wafers. There are significant risks associated with reliance on outside foundries, including the lack of assured wafer supply and control over delivery schedules, the unavailability of or delays in obtaining access to key process technologies and limited control over quality assurance, manufacturing yields and production costs. The occurrence of any of these problems would negatively impact Sipex's business and results of operations.
In the past, Sipex has experienced decreased allocations of wafer supplies from some of its suppliers which reduced its capacity to ship products, and thus, recognize revenue. Additionally, any sudden reduction or elimination of any primary source or sources of fully processed wafers could result in a material delay in Sipex's shipment of products. If any other delays or shortages occur in the future Sipex's revenues and business will be harmed.
In an effort to reduce Sipex's reliance on outside fabricators for its wafers, Sipex has built an in-house fabrication facility in Milpitas, California. Sipex is in the process of bringing wafer production in-house and transitioning certain products to the new fab. The new facility is a sophisticated, highly complex, state-of-the-art factory. Actual production rates depend upon the reliable operation and effective integration of a variety of hardware and software components. Sipex cannot be sure that all of these components will be fully functional or successfully integrated within the currently projected schedule or that the facility will achieve the forecasted yield targets. Sipex has experienced and may continue to experience unexpected delays and problems in qualifying and ramping up production at this new facility. The failure of Sipex to implement the new fab successfully and in a timely fashion may impact future revenue growth and operating results. In addition, the amount of capital expenditures required to bring the facility to full operating capacity could be greater than currently anticipated. Higher costs to bring the facility to full operating capacity will reduce margins and could harm our business and results of operations.
Intellectual Property Rights
Sipex relies on certain intellectual property protections to preserve its intellectual property rights. Any invalidation of these intellectual property rights or lengthy and expensive defense of these rights could negatively impact Sipex's business and results of operations.
Dependence on New or Enhanced Products
Sipex's future success will depend, in part, upon its ability to anticipate changes, to enhance its current products and to develop and introduce new products that keep pace with technological advancements and address the increasingly sophisticated needs of its customers. Sipex's products may be rendered obsolete if Sipex fails to anticipate or react to change, and, as a result, revenues and cash flow may be negatively impacted. Sipex's success depends on its ability to develop new semiconductor devices for existing and new markets, to introduce these products in a timely manner and to have these products selected for design into new products of customers. The development of these new devices is highly complex and from time to time Sipex has experienced delays in completing the development of new products. Successful product develop-
ment and introduction depends on a number of factors, including accurate new product definition, timely completion and introduction of new product designs, availability of foundry capacity, achievement of manufacturing yields and market acceptance of Sipex's and Sipex's customer's products.
Sipex's success also depends upon the ability to accurately specify and certify the conformance of its products to applicable standards and to develop its products in accordance with its customer's requirements. Sipex cannot be sure that it will be able to adjust to changing market conditions as quickly and cost-effectively as necessary to compete successfully. Furthermore, Sipex cannot be sure that it will be able to introduce new products in a timely and cost-effective manner or in sufficient quantities to meet customer demand or that these products will achieve market acceptance.
Competition: The Semiconductor Industry
Sipex competes with several domestic semiconductor companies, most of which have substantially greater financial, technical, manufacturing, marketing, distribution and other resources and broader product lines than Sipex. Sipex believes that its ability to compete successfully depends on a number of factors, including the breadth of its product line, the ability to develop and introduce new products rapidly, product innovation, product quality and reliability, product performance, price, technical service and support, adequacy of manufacturing quality and capacity and sources of raw materials, efficiency of production, delivery capabilities and protection of Sipex's products by intellectual property laws. The semiconductor industry has been highly cyclical and is subject to significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices and production over-capacity. Sipex may experience substantial period-to-period fluctuation in future operating results due to general semiconductor industry conditions and overall economic conditions.
International Sales
Sipex derives a significant portion of its net sales from international sales, including Asia, which are subject to certain risks, including unexpected changes in legal and regulatory requirements, changes in tariffs, exchange rates and other barriers, political and economic instability, difficulties in accounts receivable collection, difficulties in managing distributors or representatives, difficulties in staffing and managing international operations, difficulties in protecting Sipex's intellectual property overseas, seasonality of sales and potentially adverse tax consequences. There can be no assurance that economic troubles in any geographic portion of the world will not have a material adverse effect on Sipex's business, results of operations and financial condition.
Stock Price Volatility
The trading price of Sipex's common stock is subject to wide fluctuations in response to quarter-to-quarter variations in operating results, announcements of technological innovations or new products by Sipex or its competitors, general conditions in the semiconductor manufacturing and electronic markets, changes in earnings estimates by analysts, or other events or factors. In addition, the public stock markets have experienced extreme price and trading volume volatility in recent months. This volatility has significantly affected the market prices of securities of many technology companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of Sipex's common stock.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
Sipex owns financial instruments that are sensitive to market risks as part of its investment portfolio. The investment portfolio is used to preserve Sipex's capital until it is required to fund operations, including Sipex's research and development activities. None of these market-risk sensitive instruments are held for trading purposes. Sipex does not own derivative financial instruments in its investment portfolio. The investment portfolio contains instruments that are subject to the risk of a decline in interest rates.
Investment Rate Risk -- Sipex's investment portfolio includes debt instruments that are primarily United States government bonds of less than one year in duration. These bonds are subject to interest rate risk and could decline in value if interest rates fluctuate. Sipex's investment portfolio also consists of certain commercial paper which is also subject to interest rate risk. Due to the short duration and conservative nature of these instruments, Sipex does not believe that it has a material exposure to interest rate risk.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Sipex's Consolidated Financial Statements and related Independent Auditors' Reports are presented in the following pages.
Independent Auditors' Reports Consolidated Financial Statements: Consolidated Balance Sheets at December 31, 2000 and 1999 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
The information required by this item, with respect to the directors of the registrant and the filing of reports under Section 16(a) of the Securities Exchange Act of 1934, is incorporated by reference from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 18, 2001, to be filed with the Commission not later than 120 days after the close of the fiscal year ended December 31, 2000, in the table under the captions "Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION:
The information required by this item is incorporated by reference from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 18, 2001, to be filed with the Commission not later than 120 days after the close of the fiscal year ended December 31, 2000, under the caption "Compensation and Other Information Concerning Directors and Officers."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The information required by this item is incorporated by reference from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 18, 2001, to be filed with the Commission not later than 120 days after the close of the fiscal year ended December 31, 2000, in the tables under the caption "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The information required by this item is incorporated by reference from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 18, 2001, to be filed with the Commission not later than 120 days after the close of the fiscal year ended December 31, 2000, under the caption "Certain Transactions."
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Consolidated Financial Statements. The following consolidated financial statements of the Company and Reports of Independent Accountants are incorporated in Item 8 of this report.
Independent Auditors' Reports Consolidated Balance Sheets at December 31, 2000 and 1999 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Shareholders' Equity and Comprehensive Income for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules. Consolidated financial statement schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements or the notes thereto.
3(a). The exhibits listed in the Exhibit Index immediately preceding the Exhibits are filed as a part of this Annual Report on Form 10-K.
3(b). Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the fiscal quarter ended December 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIPEX CORPORATION
March 15, 2001 By: /s/ JAMES E. DONEGAN ------------------------------------ James E. Donegan Chairman of the Board of Directors, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
- --------------- * Confidential treatment as to certain portions has been requested pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
SIPEX CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
INDEPENDENT AUDITORS' REPORT
The Board Of Directors and Shareholders Sipex Corporation:
We have audited the accompanying consolidated balance sheets of Sipex Corporation (the "Company") as of December 31, 2000 and 1999 and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
The consolidated financial statements of Sipex Corporation as of December 31, 1998 and for the year then ended reflect the pooling-of-interests transaction with Calogic as described in Note 2 to the consolidated financial statements. We did not audit the 1999 financial statements of Calogic, which statements reflect total net sales constituting 28.7 percent, of the related consolidated total net 1998 sales. Those statements were audited by the other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Calogic for the year ended December 31, 1998, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditor, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sipex Corporation as of December 31, 2000 and 1999 and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with generally accepted accounting principles in the United States of America.
/s/ KPMG LLP
Boston, Massachusetts February 9, 2001
INDEPENDENT AUDITORS' REPORT
To the Board Of Directors and Shareholders Calogic and Subsidiary Fremont, California
We have audited the consolidated statements of income, accumulated deficits and cash flows of Calogic and Subsidiary for the year ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of the operations of Calogic and Subsidiary and its cash flows for the year ended June 30, 1999 in conformity with generally accepted accounting principles.
SALLMANN, YANG & ALAMEDA An Accountancy Corporation
Percy S. Yang Certified Public Accountant
September 24, 1999, except for Note 14 Dated January 14, 2000
SIPEX CORPORATION
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements
SIPEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements
SIPEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
See accompanying notes to consolidated financial statements
SIPEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Sipex Corporation (the "Company") designs, manufacturers and markets precision high performance and high value added standard analog integrated circuits. Applications for the Company's products include telecommunications, including personal computers and peripherals, battery powered handheld devices, cellular telephones, test equipment, factory automation networking, process controls and satellites. The Company sells its products across the analog semiconductor market and has targeted high-growth sectors that it believes are especially compatible with its design and process capabilities. The Company's product lines are networking/data communications, consumer electronics, industrial controls, instrumentation and power management. In the fourth quarter of 2000, the Company adopted an end-of-life strategy for its aerospace and military product lines which are being discontinued.
Basis of Presentation
The consolidated financial statements include the accounts of Sipex Corporation and all of its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Beginning in the fourth quarter of 2000, the Company began deferring revenue on shipments to the Company's largest distributor until the product is resold by the distributor to the end user (sell-through) because the arrangement with this distributor includes returns and price concessions which the Company can no longer reasonably estimate. For all other product sales, revenue is recognized at the time of shipment. For product sales recognized at the time of shipment, the Company accrues for estimated sales returns and price concessions upon shipment. Revenue from engineering service contracts is recorded as performance is completed.
Short-Term Investments
Short-term investments consist of U.S. Government securities. The Company's investments in debt securities were classified as held to maturity which means that the Company has the ability and intent to hold securities until maturity.
Restricted Cash Equivalents and Securities
Restricted cash equivalents and securities represent amounts pledged for an operating lease which the Company entered into for the construction and lease of a new wafer fabrication facility in Milpitas, California. The lease agreement is for a five-year period, including a one-year construction period.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and accounts receivable. Cash equivalents consist of deposits with, or guaranteed by, major commercial banks, the maturities of which are three months or less from date of purchase. With respect to accounts receivable, the Company performs periodic credit evaluations of the financial condition of its customers and typically does not require collateral from them. Management
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assesses the need for allowances for potential credit losses by considering the credit risk of specific customers, historical trends and other information.
Fair values of financial assets and financial liabilities
The carrying values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the relatively short periods to maturity of the instruments. Long-term debt approximates fair value due to the interest rate being based on the bank's base rate.
Inventories
Inventories are stated at the lower of cost or market. Costs are determined using the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided by using the straight-line method over their useful lives as follows:
Intangible Assets
Intangible assets, which represents the excess of the purchase price over the fair value of net assets acquired, are amortized on a straight-line basis over the period expected to be benefited of ten years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the balance over its remaining life can be recovered through undiscounted future operating cash flows of the related acquired operation. The amount of impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability is impacted if estimated future operating cash flows are not achieved.
Impairment of Long-lived Assets and Long-lived Assets to be Disposed of
The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.
Foreign Currency Translation
Foreign currency assets and liabilities are translated into dollars at current rates, and revenues, costs and expenses are translated at average rates during each reporting period. Gains or losses resulting from foreign currency transactions are included in earnings currently, while those resulting from translation of financial
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements are shown as a separate component of other comprehensive income in the statement of shareholders' equity.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.
Net Income Per Share
Basic income per share is based upon the weighted average number of common shares outstanding. Income per share assuming dilution is based upon the weighted average number of common and common equivalent shares outstanding assuming dilution.
A reconciliation of basic weighted average common shares with weighted average shares assuming dilution is as follows (in thousands):
2. CALOGIC MERGER
On November 23, 1999, the Company completed its merger of Calogic. In connection with the merger, the Company issued 3.6 million shares of its common stock. The merger was accounted for on a pooling-of-interests basis. Accordingly, the Company's consolidated financial statements include the accounts and operations of Calogic for all periods presented. The shares issued included 300,000 shares issued in a separate transaction for the purchase of the minority interest in a subsidiary of Calogic, which was accounted for using the purchase method of accounting and resulted in approximately $3.8 million of goodwill. The Company recorded combined merger-related transaction costs of $1.2 million which was primarily for professional services, such as investment banking, legal, and accounting fees.
The fiscal year end for Calogic is June 30. In preparing these financial statements, the calendar 1999 financial statements of the Company were combined with the financial statements of Calogic for the same twelve month period. Due to the different fiscal year-ends of the Company and Calogic, prior-year financial information for different fiscal periods have been combined. The Company's statements of operations and cash flows for its fiscal year ended December 31, 1998 are combined with Calogic's statements of operations and cash flows for the fiscal year ended June 30, 1999. Calogic's revenue and net loss for the six-month period ended June 30, 1999 was $12.2 million and $1.0 million, respectively. An adjustment has been made to shareholders' equity as of December 31, 1999 to eliminate the effect of including Calogic's results of operations for the six months ended June 30, 1999, in both the years ended December 31, 1999 and 1998. Calogic's net cash flows for the six-month period ended June 30, 1999 were $1.0 million and an adjustment has been made in the Company's combined fiscal year 1999 statement of cash flows.
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table represents a reconciliation of separate net sales and net income previously reported by the combining companies to those presented in the accompanying consolidated financial statements (in thousands):
3. FACILITY EXIT COSTS
In the fourth quarter of 1999, management of Sipex and the Board of Directors approved a plan to close certain manufacturing facilities in California, which were acquired through the merger with Calogic and accounted for as a pooling-of-interests. Total estimated costs of $1.9 million associated with the closure of the Calogic facilities included facility related costs of $930,000, costs of the write-down to net realizable value of less efficient and duplicate machinery and equipment of $300,000 and facilities exit costs related to severance of $640,000. All of these costs were accrued as of December 31, 1999 and were estimated to be paid by the end of 2000 except for lease costs which were expect to be paid over a two-year period until the closed facilities could be subleased.
The following table summarizes the activity in facility exit costs from the date of the original approval of the plan through December 31, 2000 (in thousands):
In accordance with the plan, Sipex has closed the Calogic manufacturing, sales and administration facility in Pleasanton, California and as of December 31, 2000 has incurred all people related costs and is incurring the lease costs for the closed facility as originally planned, with the exception of one building which was subleased unexpectedly. However, the slower than anticipated ramp-up of our new Milpitas wafer fabrication facility during 2000 delayed the transition of manufacturing of the Calogic products to our new facility and hence delayed the closure of the Calogic Fremont wafer fabrication facility, which will be closed by the end of the first quarter of 2001. The delay in the closure of the Fremont facility reduced facility costs by shortening the period in which the leased fabrication facility would be vacant. Consequently, we reduced the facility related portion of the accrual to adjust for the unexpected sublease and the delay in closing this facility. Additionally, the equipment related accrual was adjusted to reflect the continued use of the fab machinery and equipment resulting from the delay in the closure of the fab. As of December 31, 2000, $506,000 of the restructuring accrual remains which is estimated to be paid by the end of the first quarter of 2001, except for lease termination costs which we expect to incur through the end of the second quarter of 2001.
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the fourth quarter of 1998, Management of the Company and the Board of Directors approved a plan to close its manufacturing facility in Milpitas, California and its sales office in France. Total recorded costs of $938,000 associated with the closure of the facility included $220,000 for rent, real estate taxes, electricity, heat and water expenses. The balance of $718,000 represented a charge to current operations for the write-down to net realizable value of less efficient and duplicate machinery and equipment not needed in the combined restructured manufacturing operations. Additionally, the Company's plan included the closure of its France sales operation and relocation of these activities to the Company's new site in Belgium. As a result of this action, the Company recorded $200,000 of facility exit costs related to severance and other related employee benefit costs all of which were incurred in 1999. In the third quarter of 1999, the Company realized net proceeds of $1.1 million from the unanticipated sale of the tangible assets of our semiconductor wafer fab located in Milpitas, California which had been written off as part of facility exit costs. This recovery of $1.1 million has been recorded as a credit to facility exit costs on the statement of operations for 1999 resulting in the reporting of net facility exit costs for 1999 of approximately $817,000.
4. INVENTORIES
Inventories were as follows (in thousands):
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were as follows (in thousands):
6. ACCRUED EXPENSES
Accrued expenses were as follows (in thousands):
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. NOTES PAYABLE AND LONG-TERM DEBT
As of December 31, 2000, the Company had long-term debt consisting primarily of $7.1 million borrowed under a $10.0 million line of credit at the bank's base rate minus 0.5% (9.0% at December 31, 2000). Funds advanced under the line are due June 1, 2002 and are collateralized by accounts receivable, inventory and cash deposited at the bank. The loan agreement requires compliance with certain minimum tangible net worth and financial ratios. For the year ended December 31, 2000, the Company was not in compliance with this debt covenant by not maintaining a quick ratio in excess of 1.0. The Company has obtained a waiver from the lender as of December 31, 2000 and has negotiated with the bank for an increased line of credit with new covenants. As of December 31, 1999, the Company had notes payable consisting principally of a note payable to an officer of Calogic.
8. INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 2000, 1999 and 1998 was allocated as follows (in thousands):
Total federal, state and foreign income tax expense (benefit), consists of the following (in thousands):
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The actual tax expense (benefit) differs from the "expected" tax expense as follows (in thousands):
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2000 and 1999 are as follows (in thousands):
At December 31, 2000, the Company has U.S. net operating loss carryforwards of approximately $33.7 million, which are available to offset future Federal taxable income. These losses expire during the years 2005 through 2020. As of December 31, 2000, utilization of $22.7 million of the net operating loss carryforwards is subject to an annual limitation of approximately $7.4 million as a result of such an ownership change which occurred on September 30, 1996.
At December 31, 2000, the Company had Federal and California research and development credits of approximately $2.0 million and $400,000, respectively, which will expire from 2001 to 2020. The Company also has approximately $1.7 million of California manufacturer's investment credit carryforwards and $100,000 of Massachusetts investment tax credit carryforwards, which will expire from 2006 to 2008.
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The valuation allowance decreased by $7.2 million during the year ended December 31, 1999. The Company believes that it is more likely than not that the deferred tax assets at December 31, 2000 will be realized in the future.
9. SHAREHOLDERS' EQUITY
The Company currently maintains eight stock option plans. The 1991 Non-Statutory, 1993 Incentive Stock Option Plan, 1994 Stock Option and Incentive Plan, 1996 Stock Option Plan, 1996 Non-Employee Director Stock Option Plan, 1997 Stock Option Plan, the 1999 Stock Plan and the 2000 Non-Qualified Stock Option Plan have had 744,308, 265,818, 1,187,900, 1,200,000, 300,000, 1,200,000, 1,200,000 and 1,000,000 shares reserved for issuance, respectively. All plans allow for options which vest ratably over five years from the date of grant and expire ten years from the date of grant. In addition to stock options plans, 1,675,000 shares of the Company's stock has been reserved for issuance pursuant to options which have been granted to new employees outside of the option plans. Options for 3,137,304 shares are outstanding as of December 31, 2000.
In January 1996, the Board of Directors approved the 1996 Employee Stock Purchase Plan, pursuant to which the Company is authorized to issue up to 500,000 shares of common stock to its full-time employees, nearly all of whom are eligible to participate. Under the terms of the Plan, employees can choose each year to have up to 10 percent of their annual base earnings withheld to purchase the Company's common stock. The purchase price of stock is 85 percent of the lower of its beginning-of-period or end-of-period market price. Under the Plan, the Company sold 72,158 shares to employees since inception of the plan.
The Company applies APB Opinion 25 and related interpretations in accounting for these plans. Accordingly, no compensation cost has been recognized. Had compensation cost been determined pursuant to SFAS No. 123, the Company's net income and net income per share would have been adjusted to the pro forma amounts indicated in the table below. The effects on pro forma net income obtained from applying SFAS No. 123 may not be representative of the effects on reported net income for future years (in thousands, except per share amounts).
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2000, 1999 and 1998, respectively; no dividend yield; expected volatility of 95 percent for 2000 and 1999, and 77 percent for 1998, and expected option lives of six years. The risk free interest rate assumed was 5.0% for 2000, 6.25% for 1999 and 4.95% for 1998. The weighted-average fair value of options granted during 2000, 1999 and 1998 was $23.14, $10.91 and $16.88, respectively.
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's stock option plans as of December 31, 2000, 1999 and 1998, and changes during the years then ended, is presented below (in thousands, except per share amounts):
The following table summarizes information about the Company's stock options outstanding at December 31, 2000:
10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution retirement plan, 401(k), covering substantially all employees. The Company matches 50% of the contributions made by employees up to 6% of their annual compensation. The Company can also make a discretionary contribution to the plan. Employee contributions vest immediately and employer contributions vest ratably over five years. Participants are entitled, upon termination or retirement, to their vested portion of retirement fund assets which are held by a corporate trustee. During 2000, 1999 and 1998, Company contributions to the plan were approximately $468,000, $297,000, and $230,000, respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company leases facilities under operating leases expiring through 2009. Rent expense was approximately $3.1 million, $3.0 million and $746,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum lease payments under operating leases are approximately as follows (in thousands):
In March, 1998 the Company entered into a five-year operating lease agreement, including a one-year construction period, with one five year renewal option for the construction and lease of a wafer manufacturing facility, including all necessary machinery and equipment ("the facility"). The total cost of the facility financed under the lease was $35,000,000. The lease provides for a substantial residual value guarantee by the Company at the end of the initial lease term and includes a purchase option equal to the total cost of the facility. As part of the lease agreement, the Company has pledged $36.8 million of government debt securities and other government backed securities as security under the lease. The lease provides for quarterly lease payments of approximately $615,000. At the end of the lease term, the Company is obligated to purchase the facility or remarket it for the benefit of the lessor. The Company expects the fair market value of the facility, subject to the purchase option or sale to a third party, to substantially reduce the Company's payment under the residual value guarantee. The Company accrues a charge to rent expense and other long term liabilities of approximately $800,000 annually over the life of the lease based upon an estimate of its expected future obligation under the residual value guarantee. The residual value guarantee relative to the assets to be leased is expected to approximate 85% of their total cost.
The Company received a Notice of Potential Liability from the Environmental Protection Agency ("EPA") in June 1993 concerning a landfill identified as a Superfund Site. The Company has denied any liability and believes the ultimate outcome of this matter will not have a material impact on the consolidated financial statements.
Also, the Company is party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, all such matters are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material effect on the consolidated financial position of the Company.
12. EXPORT SALES AND MAJOR CUSTOMERS
During 1998, the Company adopted Financial Accounting Standards Board Statement of Financial Standards No. 131 ("SFAS 131", "Disclosures about Segments of an Enterprise and Related Information"). The Company's operations are classified into one reportable segment. Substantially all of the Company's operations and long-lived assets reside in the United States although the Company has sales operations in Munich, Belgium, Taipei, Tokyo and Shenzhen.
SIPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues by geographic area are summarized as follows (in thousands):
For the years ended December 31, 2000, 1999 and 1998, no individual customer represented more than 10% of the Company's sales.
13. QUARTERLY DATA (UNAUDITED)
Following is a summary of quarterly operating results and share data. Quarterly information shown below does not vary from amounts reported on any Form 10-Q previously filed by the Company.
Net income (loss) per share amounts are based on the weighted average common and common equivalent shares outstanding during the quarter. Therefore, the total of net income (loss) per share for the four quarters may differ slightly from net income per share for the year.
QUARTERLY RESULTS AND STOCK MARKET DATA