10-Q 1 d10q.txt FORM 10-Q FOR PERIOD ENDED 9/30/2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ COMMISSION FILE NUMBER 0-26124 IXYS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 77-0140882 (State or other jurisdiction of (IRS Employer identification No.) incorporation or organization) 3540 BASSETT STREET SANTA CLARA, CALIFORNIA 95054-2704 (Address of principal executive offices) (408) 982-0700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __________ ------- THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, $0.01 PAR VALUE, OUTSTANDING AS OF NOVEMBER 7, 2001 WAS 26,775,699. IXYS CORPORATION INDEX
PAGE NO. -------- PART I - FINANCIAL INFORMATION. ................................................................. 1 ITEM 1. FINANCIAL STATEMENTS .......................................................... 1 CONDENSED CONSOLIDATED BALANCE SHEETS ......................................... 1 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ............................... 2 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...................... 3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ............................... 4 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .......................... 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................................................. 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK ....................... 13 PART II - OTHER INFORMATION ..................................................................... 14 ITEM 1. LEGAL PROCEEDINGS. ............................................................ 14 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ..................................... 16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................................... 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. .......................... 16 ITEM 5. OTHER INFORMATION. ............................................................ 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .............................................. 16 SIGNATURES ...................................................................................... 17
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IXYS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data)
September 30, March 31, 2001 2001 ------------- ---------- ASSETS (unaudited) Current assets: Cash and cash equivalents ................................................................ $ 39,842 $ 44,795 Restricted cash ......................................................................... 337 387 Accounts receivable, net of allowance for doubtful accounts of $2,626 at September 30, 2001 and $2,823 at March 31, 2001 ........................... 20,869 26,303 Inventories, net ......................................................................... 40,144 34,035 Prepaid expenses ......................................................................... 266 309 Deferred income taxes. ................................................................... 2,561 2,561 --------- --------- Total current assets ............................................................... 104,019 108,390 Plant and equipment, net .................................................................. 15,729 13,960 Other assets ............................................................................... 5,227 4,749 Deferred income taxes ...................................................................... 315 315 --------- --------- Total assets ................................................................... $ 125,290 $ 127,414 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of capitalized lease obligations ......................................... $ 1,765 $ 1,737 Current portion of notes payable to bank ................................................. 800 754 Accounts payable ......................................................................... 5,577 10,649 Accrued expenses and other liabilities ................................................... 9,508 13,243 --------- --------- Total current liabilities .......................................................... 17,650 26,383 Capitalized lease obligations, net of current portion ...................................... 4,923 3,425 Pension liabilities ........................................................................ 5,235 4,882 --------- --------- Total liabilities. ............................................................. 27,808 34,690 --------- --------- Commitments and contingencies (Note 9) Stockholders' Equity Preferred stock, $0.01 par value: Authorized: 5,000,000 shares; none issued and outstanding .............................. -- -- Common stock, $0.01 par value: Authorized: 80,000,000 shares; 26,785,520 shares issued and outstanding at September 30, 2001 and 26,662,132 shares issued and outstanding at March 31, 2001 .......................................................... 268 267 Additional paid-in capital ............................................................... 92,342 91,873 Notes receivable from stockholders ....................................................... (823) (823) Retained earnings ........................................................................ 6,516 3,889 Accumulated other comprehensive loss ..................................................... (821) (2,482) --------- --------- Total stockholders' equity ......................................................... 97,482 92,724 --------- --------- Total liabilities and stockholders' equity ..................................... $ 125,290 $ 127,414 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 1 IXYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Three Months Ended Six Months Ended September 30, September 30, 2001 2000 2001 2000 --------- --------- -------- ---------- (unaudited) (unaudited) Net revenues ............................................. $20,739 $26,919 $46,344 $50,193 Cost of goods sold ....................................... 13,706 17,271 31,005 32,325 ------- ------- ------- ------- Gross profit ..................................... 7,033 9,648 15,339 17,868 ------- ------- ------- ------- Operating expenses: Research, development and engineering ................... 1,238 1,217 2,419 2,381 Selling, general and administrative ..................... 3,069 3,515 6,546 6,546 ------- ------- ------- ------- Total operating expenses ......................... 4,307 4,732 8,965 8,927 ------- ------- ------- ------- Operating income ......................................... 2,726 4,916 6,374 8,941 Interest income .......................................... 399 145 740 235 Interest expense ......................................... (48) (63) (243) (129) Other (expense) income ................................... (1,397) (666) (2,635) 1,243 ------- ------- ------- ------- Income before income tax provision ....................... 1,680 4,332 4,236 10,290 Provision for income tax ................................. (639) (1,644) (1,609) (3,908) ------- ------- ------- ------- Net income ............................................... $ 1,041 $ 2,688 $ 2,627 $ 6,382 ======= ======= ======= ======= Net income per share-basic ............................... $ 0.04 $ 0.11 $ 0.10 $ 0.26 ======= ======= ======= ======= Weighted average shares used in per share calculation--basic ...................................... 26,755 24,425 26,734 24,302 ======= ======= ======= ======= Net income per share-diluted ............................. $ 0.04 $ 0.10 $ 0.09 $ 0.24 ======= ======= ======= ======= Weighted average shares used in per share calculation--diluted .................................... 28,837 27,461 28,915 27,075 ======= ======= ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 IXYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
Three Months Ended Six Months Ended September 30, September 30, 2001 2000 2001 2000 ---------- --------- --------- -------- (unaudited) (unaudited) Net income ................................................. $1,041 $2,688 $2,627 $6,382 Other comprehensive income (loss): Foreign currency translation adjustments .................. 1,587 (144) 1,661 (326) ------ ------ ------ ------ Comprehensive income ................................ $2,628 $2,544 $4,288 $6,056 ====== ====== ====== ======
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 IXYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Six Months Ended September 30, 2001 2000 --------- --------- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................................................... $ 2,627 $ 6,382 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................................................... 1,755 2,128 Provision for doubtful accounts..................................................... -- 1,194 Provision for excess and obsolete inventory......................................... 1,308 689 (Gain) loss on foreign currency transitions......................................... (407) 148 Changes in operating assets and liabilities: Accounts receivable................................................................. 5,783 (4,671) Inventories......................................................................... (6,939) (5,194) Prepaid expenses ................................................................... 46 420 Other assets........................................................................ (362) (53) Accounts payable.................................................................... (5,233) 452 Accrued expenses and other liabilities.............................................. (2,879) 3,022 Pension liabilities................................................................. 169 56 ------- ------- Net cash (used in) provided by operating activities.......................... (4,132) 4,573 ------- ------- CASH FLOWS USED IN INVESTING ACTIVITIES: Decrease in restricted cash.......................................................... 50 -- Acquisition of Directed Energy, net of cash acquired................................. -- 135 Purchase of plant and equipment...................................................... (731) (3,566) ------- ------- Net cash used in investing activities........................................ (681) (3,431) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from capital lease obligations.............................................. 76 386 Principal payments on capital lease obligations...................................... (1,206) 951 Proceeds from notes payable from bank................................................ 46 -- Repayment of notes payable to bank................................................... (2) (899) Proceeds from exercise of options.................................................... 328 194 Proceeds from issuance of common stock .............................................. 194 41 ------- ------- Net cash (used in) provided by financing activities ......................... (564) 673 ------- ------- Effect of foreign exchange rate fluctuations on cash and cash equivalents........................................................................ 424 431 ------- ------- Net (decrease) increase in cash and cash equivalents................................. (4,953) 2,246 Cash and cash equivalents at beginning of period..................................... 44,795 9,759 ------- ------- Cash and cash equivalents at end of period........................................... $39,842 $12,005 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 IXYS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Condensed Consolidated Financial Statements The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The condensed consolidated financial statements include the accounts of IXYS Corporation ("IXYS" or the "Company") and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. All adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been made. It is recommended that the interim financial statements be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2001 contained in the Company's Annual Report on Form 10-K. Interim results are not necessarily indicative of the operating results expected for later quarters or the full fiscal year. 2. Foreign Currency Translation The local currency is considered to be the functional currency of the operations of IXYS' foreign subsidiaries. Accordingly, assets and liabilities are translated at the exchange rate in effect at period end, and revenues and expenses are translated at average rates during the period. Adjustments resulting from the translation of the accounts of IXYS' foreign subsidiaries into U.S. dollars are included in cumulative translation adjustment, a separate component of stockholders' equity. Foreign currency transaction gains and losses are included as a component of non-operating income and expense. 3. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") adopted the Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 141, all business combinations are to be accounted for using the purchase method of accounting; use of the pooling-of-interest method is prohibited. The provisions of the statement will apply to all business combinations initiated after June 30, 2001. SFAS No. 142 will apply to all acquired intangible assets whether acquired singly, as part of a group, or in a business combination. The statement will supersede Accounting Principles Board ("APB") Opinion No. 17, "Intangible Assets," and will carry forward provisions in APB Opinion No. 17 related to internally developed intangible assets. Adoption of SFAS No. 142 will result in ceasing amortization of goodwill. All of the provisions of the statement should be applied in fiscal years beginning after December 15, 2001, to all goodwill and other intangible assets recognized in the entity's statement of financial position on that date, regardless of when those assets were initially recognized. IXYS is currently assessing, but has not yet determined, the impact of SFAS No. 142 on its financial position and results of operations. In October 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal periods. SFAS No. 144 addresses financial accounting and reporting for the impairment of certain long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes SFAS No. 121 and APB Opinion No. 30; however, SFAS No. 144 retains the requirement of APB Opinion No. 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that has either been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. IXYS does not expect the adoption of SFAS No. 144 to have a material impact on its financial position and results of operations. 4. Inventories Inventories consist of the following (in thousands): September 30, March 31, 2001 2001 ------------- --------- (unaudited) Raw materials ............................. $ 4,027 $ 3,888 Work in process ........................... 25,133 21,114 Finished goods ............................ 10,984 9,033 ------- ------- Total ..................................... $40,144 $34,035 ======= ======= 5 5. Computation of Net Income Per Share Basic earnings per share ("EPS") is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or conversion of other securities into common stock. Basic and diluted earnings per share are calculated as follows (in thousands, except per share amounts):
Three Months Ended Six Months Ended September 30, September 30, 2001 2000 2001 2000 -------- -------- -------- -------- (unaudited) (unaudited) BASIC: Weighted, average shares outstanding for the period ... 26,755 24,425 26,734 24,302 -------- -------- -------- -------- Shares used in computing per share amounts ............ 26,755 24,425 26,734 24,302 -------- -------- -------- -------- Net income available for common stockholders .......... $ 1,041 $ 2,688 $ 2,627 $ 6,382 ======== ======== ======== ======== Net income available for common stockholders per share .............................................. $ 0.04 $ 0.11 $ 0.10 $ 0.26 ======== ======== ======== ======== DILUTED: Weighted, average shares outstanding for the period ... 26,755 24,425 26,734 24,302 Net effective dilutive stock options and warrants based on treasury stock method using average market price ....................................... 2,082 3,036 2,181 2,773 -------- -------- -------- -------- Shares used in computing per share amounts ............ 28,837 27,461 28,915 27,075 -------- -------- -------- -------- Net income available for common stockholders .......... $ 1,041 $ 2,688 $ 2,627 $ 6,382 ======== ======== ======== ======== Net income per share available for common stockholders ....................................... $ 0.04 $ 0.10 $ 0.09 $ 0.24 ======== ======== ======== ========
6. Segmental Information IXYS operates in a single industry segment comprising power semiconductors used primarily in controlling energy in motor drives, power conversion (including uninterruptible power supplies (UPS) and switch mode power supplies (SMPS)) and medical electronics. IXYS' net revenues by major geographic area (based on destination) were as follows:
Three Months Ended Six Months Ended September 30, September 30, 2001 2000 2001 2000 -------- -------- -------- -------- (unaudited) (unaudited) United States ......................................... $ 7,584 $ 10,987 $ 16,099 $ 19,417 Europe and the Middle East ............................ 10,129 10,742 22,741 21,567 Japan ................................................. 188 195 522 359 Asia Pacific .......................................... 2,838 4,995 6,982 8,850 -------- -------- -------- -------- Total ........................................ $ 20,739 $ 26,919 $ 46,344 $ 50,193 ======== ======== ======== ========
IXYS' foreign operations consist mostly of foreign subsidiaries in Germany. The following tables summarizes the net revenue, net income and total assets of IXYS' U.S. and foreign operations (in thousands): 6 Net Revenue and Net Income by Geographic Location (Origin)
Three Months Ended Six Months Ended September 30, September 30, 2001 2000 2001 2000 -------- -------- -------- -------- (unaudited) (unaudited) Net Revenue: Foreign ........................................... $ 10,873 $ 11,227 $ 24,263 $ 22,415 U.S. .............................................. 9,866 15,692 22,081 27,778 -------- -------- -------- -------- Total ....................................... $ 20,739 $ 26,919 $ 46,344 $ 50,193 ======== ======== ======== ======== Net Income: Foreign ........................................... $ (574) $ 359 $ (251) $ 652 U.S. .............................................. 1,615 2,329 2,878 5,730 -------- -------- -------- -------- Total ....................................... $ 1,041 $ 2,688 $ 2,627 $ 6,382 ======== ======== ======== ========
Total Assets by Geographic Location September 30, March 31, 2001 2001 ------------- --------- (unaudited) Total Assets: Germany .................................... $ 32,845 $ 25,193 Switzerland ................................ 5,783 7,229 U.S. ....................................... 86,662 94,992 ------------- --------- Total ................................... $ 125,290 $ 127,414 ============= ========= 7. Commitments and Contingencies Legal Proceedings On August 12, 1996, IXYS, along with Robert McClelland, Richard A. Veldhouse and Chiang Lam (the "Paradigm Defendants") was named (along with others subsequently dismissed from the case) as a defendant in a purported class action (entitled Bulwa et al. v. Paradigm Technology, Inc. et al., Santa Clara County Superior Court Case No. CV759991) brought on behalf of stockholders who purchased IXYS' common stock between November 20, 1995 and March 22, 1996 (the "Class Period"), prior to the Paradigm merger. The complaint asserted violations of California Corporations Code sections 25400 and 25500 ("Sections 25400 and 25500") along with other causes of action that have been dismissed. On February 9, 1998 the Santa Clara County Court certified a class consisting only of California purchasers of IXYS' stock during the Class Period. Following the California Supreme Court decision in Diamond Multimedia Systems, Inc. v. Superior Court, 19 Cal. 4th 1036 (1999), plaintiffs moved to modify the prior class certification ruling to include also non-California purchasers. The Santa Clara County Court granted this motion on April 28, 1999. On September 20, 2000, IXYS' counsel and counsel for the plaintiffs reached a tentative agreement to settle the class action lawsuit in exchange for the payment of $900,000, which amount is fully covered by insurance. Accordingly, this contemplated settlement agreement would have no impact on IXYS' operating results. IXYS' insurance carrier has deposited the payment into escrow, pending final approval. The settlement was preliminarily approved by the Santa Clara County Court on February 20, 2001. At that time, the Santa Clara County Court also directed Notice of Pendency and Settlement of Class Action and Settlement Hearing Date for Final Approval of Settlement. There were no objections to the settlement and only one individual opted out of the settlement. The Santa Clara County Court approved the settlement at a hearing on the Motion for Final Approval of Settlement on July 2, 2001. The individual defendants were dismissed with prejudice. There can be no assurance that IXYS will be successful in the defense of a newly filed lawsuit should the individual that opted out file suit. On June 22, 2000, International Rectifier Corporation filed an action for patent infringement against IXYS in the United States District Court for the Central District of California, alleging that certain of IXYS' products sold in the United States, including but not limited to four specified power MOSFET parts, infringe five identified U.S. patents owned by International 7 Rectifier (U.S. Patents No. 4,959,699; No. 5,008,725; No. 5,130,767; No. 4,642,666; and No. 4,705,759). International Rectifier has since notified IXYS that it no longer contends that IXYS infringes two of those patents (U.S. Patents No. 4,705,759 and No. 4,642,666), and has refined its allegations of infringement to embrace all of IXYS' power MOSFETs and IGBTs having "elongated octagonal" cells or "non-symmetrical cluster" cells. These designations cover many of IXYS' power MOSFET and IGBT products sold in the United States. International Rectifier's complaint against IXYS contends that IXYS' alleged infringement of International Rectifier's patents has been and continues to be willful and deliberate, seeks to enjoin IXYS from further infringement and requests an award of unspecified, actual monetary damages, but no less than a reasonable royalty (presently contended to be 6.5% of IXYS' net sales) of products that are claimed to infringe International Rectifier's patents. International Rectifier also seeks to have the claimed damages trebled. IXYS has answered the complaint, denied any infringement and asserted that International Rectifier's patents are invalid and unenforceable for, among other reasons, failure of International Rectifier to properly disclose known prior art during its prosecution of the patents in suit, and that International Rectifier's claims are barred by reason of the doctrines of estoppel and laches. IXYS also contends that a reasonable royalty for these patents would be much less than 6.5%. In prior years, International Rectifier has approached IXYS on several occasions and requested that IXYS enter into royalty-bearing license agreements with International Rectifier, under its patents. IXYS has declined to do so, based upon IXYS' belief that its products do not infringe the International Rectifier patents. The case had been scheduled for trial on June 12, 2001. In May 2001, however, in view of newly issued patent claims added to the case by International Rectifier, the U.S. District Court vacated the trial date, set a new discovery cut-off date of July 16, scheduled a further pre-trial conference for August 6, 2001, and deferred setting a new trial date. In view of other newly issued claims that International Rectifier added to the case, the U.S. District Court vacated the prior dates, set a new discovery cut-off date of November 5, 2001, and set a new pre-trial conference date of November 26, 2001. In May 2001, the U.S. District Court also granted motions for summary judgment dismissing IXYS' second and eighth affirmative defenses, relating to its contentions that certain of the patent claims are invalid over a prior invention by Dr. Jean Hoerni, and that claims for alleged infringement by certain products have been released in a settlement between International Rectifier and Samsung Electronics Co., Ltd. ("Samsung"). Samsung fabricates IXYS-designed wafers for IXYS in Korea. In July 2001, the U.S. District Court also granted motions for summary judgment, dismissing IXYS' affirmative defense that the claims of U.S. Patent No. 4,959,699 are invalid for non-compliance with the so-called "written description" requirement of Section 112 of the Patent Statute, finding that IXYS' power MOSFET devices having cells shaped like elongated octagons or non-symmetrical clusters infringe claim 1 of U.S. Patent No. 4,959,699 and denying IXYS' countermotions on the same or similar issues. IXYS expects to appeal these rulings. It remains IXYS' intent to vigorously contest the claims of International Rectifier. While IXYS believes its defenses to these various claims are meritorious, there can be no assurance of a favorable outcome. In the event of an adverse outcome, damages or injunctions awarded by the U.S. District Court could be materially adverse to IXYS' financial condition and results of operations. International Rectifier also contends that IXYS' importation of IXYS- designed MOSFET products into the United States having the "elongated octagonal" cells or "non-symmetrical cluster" cells manufactured for IXYS by Samsung is in violation of a consent decree and injunction entered against Samsung in another lawsuit that did not involve IXYS. In February 2001, International Rectifier served Samsung and IXYS with a Post-Judgment Ex Parte Application for OSC Re Contempt seeking, among other things, an enforcement of the injunction for IXYS' importation into the United States of parts designed by IXYS and manufactured for IXYS by Samsung that infringe claim 1 of International Rectifier's U.S. Patent No. 4,959,699 and an appropriate fine. Samsung contends that IXYS is contractually obligated under the terms of IXYS' wafer supply agreement with Samsung to defend it against the contempt claims made by International Rectifier and indemnify and hold Samsung harmless in connection with such claims. IXYS is considering Samsung's request in light of the terms of the wafer supply agreement. While IXYS believes that neither it nor Samsung are or could be in violation of the injunction for various reasons IXYS believes to be meritorious, including an express reservation as to IXYS' designed parts in the consent decree, there can be no assurance of a favorable outcome. Argument in this matter was held May 18, 2001, at which time the U.S. District Court stated interim rulings that IXYS is bound by the Samsung injunction, and that IXYS and Samsung attempted to subvert the injunction by having IXYS take delivery outside the United States of products designed by IXYS and made by Samsung, but deferred decision as to whether IXYS and Samsung violated the injunction until after a decision on the infringement issue in International Rectifier v. IXYS. IXYS expects to appeal these rulings. In the event of an adverse ruling against IXYS on the ultimate issue of contempt, or if IXYS is obligated to defend and indemnify Samsung, any damages or injunction awarded by the U.S. District Court could be materially adverse to IXYS' financial condition and results of operations. In November 2000, IXYS filed a lawsuit for patent infringement against International Rectifier GmbH in the County Court of Mannheim, Germany. The lawsuit charged International Rectifier with infringing at least two of IXYS' German patents. These patents cover key design features of IXYS' proprietary integrated power module technology, which the lawsuit alleged 8 International Rectifier had been infringing in products sold in Germany. The lawsuit sought damages and an injunction prohibiting the continued infringement by International Rectifier. On March 23, 2001, a public hearing took place in Mannheim, Germany and International Rectifier did not deny making use of the above patents. On April 27, 2001, the County Court of Mannheim rendered a judgment in IXYS' favor that enjoined International Rectifier from marketing, utilizing, importing or possessing two of IXYS' German patents, and imposed a fine of up to DM 500,000 to the state or imprisonment of International Rectifier's managing director for each violation of the injunction. In addition, International Rectifier was ordered to disclose to IXYS information about its previous sales activity, offers of sales, advertisements, production costs and profits concerning the infringed patents. International Rectifier was also ordered to pay attorney fees and past and future damages and unjustified enrichment resulting from International Rectifier's infringing practices, as calculated by the information to be provided to IXYS by International Rectifier. International Rectifier appealed the judgment to the Court of Appeals in Karlsruhe, and a hearing on this appeal has been set for February 13, 2002. Notwithstanding this appeal, IXYS is currently enforcing this judgment; in order to do so IXYS was required to pay DM 1,040,000 as a form of bond to be held by the County Court of Mannheim. The funds held by the County Court of Mannheim will be returned to IXYS if final adjudication is in its favor, or will offset any costs that may need to be paid if final adjudication is not in its favor. International Rectifier has begun to disclose information to IXYS pursuant to the judgment. On February 8, 2001, IXYS filed a lawsuit against International Rectifier Italia S.p.A. in the Civil Court of Monza, Italy, for patent infringement of at least two of IXYS' European patents, which correspond to the German patents involved in the above-described legal proceeding in Germany. The lawsuit seeks the seizure of semiconductor modules produced by International Rectifier that infringe on IXYS' patents and an injunction against further production of such modules by International Rectifier in Italy. At a hearing on March 8, 2001, the judge rejected International Rectifier's arguments that the Monza tribunal was not competent to hear the case and nominated an expert to comment on the technical details of the alleged patent infringement. Following the scheduled submission of technical writs by the parties in May 2001, the expert submitted written comments in June 2001. On June 27, 2001, the Civil Court of Monza rendered a preliminary injunction in IXYS' favor with respect to certain claims of infringement by International Rectifier S.p.A. Under the terms of this preliminary injunction, IXYS is permitted to seize, and International Rectifier S.p.A. is prohibited from distributing, certain of the allegedly infringing semiconductor modules. The injunction is an interlocutory measure that remains in effect until there has been a judgment on the merits. The first hearing on the merits of the law suit is scheduled for December 12, 2001. It could be as long as several years before a judgment on the merits is rendered. Discussions of additional details relating to the above-described legal proceedings may be found in IXYS' prior SEC filings and reports. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion contains forward-looking statements, which are subject to certain risks and uncertainties, including without limitation those described in our Annual Report on Form 10-K that has been filed with the Securities and Exchange Commission (the "SEC"). Actual results may differ materially from the results discussed in the forward-looking statements. All forward-looking statements included in this document are made as of the date hereof, based on the information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement. Important factors affecting our ability to achieve future revenue growth include whether and the extent to which demand for our products increases and reflects real end-user demand; whether customer cancellations and delays of outstanding orders increase; and whether we are able to manufacture in a correct mix to respond to orders on hand and new orders received in the future; whether we are able to achieve our new product development and introduction goals, including, without limitation, goals for recruiting, retaining, training, and motivating engineers, particularly design engineers, and goals for conceiving and introducing timely new products that are well received in the marketplace; and whether we are able to successfully commercialize our new technologies, which we have been investing in by designing and introducing new products based on these new technologies. Other important factors that could cause actual results to differ materially from those predicted include overall economic conditions; fluctuations in currency exchange ratios as we sell products in currencies other than the U.S. dollar; demand for electronic products and semiconductors generally; demand for the end-user products for which our semiconductors are suited; the level of utilization of our production capacity; timely 9 availability of, and changes in the cost of, raw materials, equipment, supplies and services; unanticipated manufacturing problems; problems in obtaining products from outside foundries that manufacture for us; increases in production and engineering costs associated with initial manufacture of new products; technological and product development risks; competitors' actions; and other risk factors described in our filings with the SEC on Form 10-K. The impact of these and other factors on our revenues and operating results in any future period cannot be forecast with certainty. Our expense levels are based, in part, on its expectations as to future revenues. Because our sales are generally made pursuant to purchase orders that are subject to cancellation, modification, quantity reduction or rescheduling on short notice and without significant penalties, our backlog as of any particular date may not be indicative of sales for any future period, and such changes could cause our net sales to fall below expected levels. If revenue levels are below expectations, operating results are likely to be materially adversely effected. Net income, if any, and gross margins may be disproportionately affected by a reduction in net sales because a proportionately smaller amount of our expenses varies with its revenues. OVERVIEW We are a leading company in the design, development, manufacture and marketing of high power, high performance power semiconductors. Our power semiconductors improve system efficiency and reliability by converting electricity at relatively high voltage and current levels into the finely regulated power required by electronic products. We focus on the market for power semiconductors that are capable of processing greater than 500 watts of power. We were founded in 1983. In 1989, we acquired from ABB our semiconductor operation in Lampertheim, Germany, now called IXYS Semiconductor GmbH. This acquisition provided us with a strong foothold in Europe. In 1995, we reincorporated in Delaware. Also in 1995, ABB converted approximately $10.5 million in debt owed to it by us into our capital stock. In January 1998, we purchased the Lampertheim facility, which had previously been leased from ABB. In September 1998, IXYS Corporation merged with Paradigm Technology, a Delaware corporation that designed and marketed SRAM products, in a transaction accounted for as a reverse merger. In the merger, Paradigm issued its common stock in exchange for all outstanding shares of our capital stock. At the conclusion of the merger, IXYS stockholders held approximately 96% of the combined company, and the historical accounting records of IXYS became those of the combined company. Accordingly, Paradigm formally changed its name to "IXYS Corporation." In May 2000, we acquired Directed Energy, which gave us added scientific expertise and additional products related to laser diode drives, high voltage pulse generators and modulators. In connection with this acquisition, we issued 250,370 shares of our common stock to the former shareholders of Directed Energy in a transaction that was accounted for under the purchase method. The semiconductor industry is cyclical and has from time to time experienced depressed business conditions. The semiconductor industry has historically experienced a decrease in average selling prices of products over time. From 1996 through 1998, the semiconductor industry experienced worldwide overcapacity, which caused prices to erode and was accompanied by a slowdown in the demand for semiconductors. Additionally, a number of factors can result in quarter to quarter fluctuations in operating results, including: the reduction, rescheduling or cancellation of orders by customers; fluctuations in the timing and amount of customer requests for product shipments; fluctuations in the manufacturing yields and significant yield losses; and availability of production capacity. In the three month period ended September 30, 2001, revenues derived from sales in the United States represented approximately 36.6%, and revenue derived from sales outside the United States represented approximately 63.4%, of our total net revenues. In the six month period ended September 30, 2001, revenues derived from sales in the United States represented approximately 34.7%, and revenue derived from sales outside the United States represented approximately 65.3%, of our total net revenues. Of our international net revenue, in the three month period ended September 30, 2001, approximately 77.0% was derived from sales in Europe and the Middle East and approximately 23.0% was derived from sales in Asia, and in the six month period ended September 30, 2001, approximately 75.2% was derived from sales in Europe and the Middle East and approximately 24.8% was derived from sales in Asia. Revenue recorded by our foreign subsidiaries was $10.9 million in the three month period ended September 30, 2001, or 52.4% of our total net revenues, as compared to $11.2 million, or 41.7% of our total net revenues, in the three month period ended September 30, 2000. Revenue recorded by our foreign subsidiaries was $24.3 million in the six month period ended September 30, 2001, or 52.4% of our total net revenues, as compared to $22.4 million, or 44.7% of our total net revenues in the six month period ended September 30, 2000. We do not hedge our foreign currency transactions. Accordingly, although many of our sales and expenses occur in the same currency, translation of foreign currencies into U.S. dollars may negatively impact us. We relied on external foundries for approximately 45.0% of our wafer fabrication requirements in both the three month period and the six month period ended September 30, 2001. We have arrangements with four external wafer foundries, two of which produce substantially all of the wafers provided to us by external foundries. Our principal external foundry is Samsung 10 Electronics' facility located in Kiheung, South Korea. Our relationship with Samsung extends over 17 years. We provide our foundries forecasts for wafer fabrication six months in advance and make firm purchase commitments one to two months in advance of delivery. Other than these firm commitments, we do not have any obligations to order any minimum quantities. Results of Operations-Three Month and Six Month Periods Ended September 30, 2001 and September 30, 2000 Net Revenues. Net revenues in the three month period ended September 30, 2001 were $20.7 million, a 23.0% decrease from net revenues of $26.9 million in the three month period ended September 30, 2000. Net revenues in the six month period ended September 30, 2001 were $46.3 million, a 7.7% decrease from net revenues of $50.2 million in the six month period ended September 30, 2000. The decrease in net revenues in both the three month period and the six month period ended September 30, 2001, as compared to the respective periods in the prior fiscal year, is primarily related to 10.0 % decrease in units shipped in the three month period ended September 30, 2001, as compared to the three month period ended September 30, 2000, and an approximately 3.8% increase in units shipped in the six month period ended September 30, 2001, as compared to the six month period ended September 30, 2000, offset by an approximately 14.4% decrease in average selling prices across our product line in the three month period ended September 30, 2001 and an approximately 11.0% decrease in average selling prices across our product line in the six month period ended September 30, 2001, as compared to the respective periods in the prior fiscal year. Gross Profit. Gross profit was $7.0 million, or 33.9% of net revenues, in the three month period ended September 30, 2001, as compared to $9.6 million, or 35.8% of net revenues, in the three month period ended September 30, 2000. Gross profit was $15.3 million, or 33.1% of net revenues, in the six month period ended September 30, 2001, as compared to $17.9 million, or 35.6% of net revenues, in the six month period ended September 30, 2000. The decrease in margins in both the three month period and the six month period ended September 30, 2001, as compared to the respective periods in the prior fiscal year, was primarily due to a 14.4% decrease in average selling prices from the three month period ended September 30, 2000 and an 11.0% decrease in average selling prices from the six month period ended September 30, 2000, as well as a change in the mix of products sold. Research, Development and Engineering. During the three month period ended September 30, 2001, and the three month period ended September 30, 2000, research, development and engineering ("R&D") expense was $1.2 million for each respective period, representing 6% of net revenues in the three month period ended September 30, 2001, as compared to 4.5% of net revenues in the three month period ended September 30, 2000. During the six month period ended September 30, 2001, and the six month period ended September 30, 2000, research, development and engineering ("R&D") expense was $2.4 million for each respective period, representing 5.2% of net revenues in the six month period ended September 30, 2001, as compared to 4.7% of net revenues in the six month period ended September 30, 2000. The absolute dollar amount of R&D expenses remained relatively flat between the three month period and six month period ended September 30, 2001 and the respective three month period and six month period ended September 30, 2000. Selling, General and Administrative. During the three month period ended September 30, 2001, selling, general and administrative ("SG&A") expense was $3.1 million, or 14.8% of net revenues, as compared to $3.5 million, or 13.1% of net revenues, in the three month period ended September 30, 2000. During the six month period ended September 30, 2001, SG&A expense was $6.5 million, or 14.1% of net revenues, as compared to $6.5 million, or 13.0% of net revenues, in the six month period ended September 30, 2000. The absolute dollar amount of SG&A expenses remained relatively flat between the three month period and six month period ended September 30, 2001 and the respective three month period and six month period ended September 30, 2000. Interest Income (Expense), Net. During the three month period ended September 30, 2001, interest income, net was $351,000, as compared to interest income, net of $81,800 in the three month period ended September 30, 2000. During the six month period ended September 30, 2001, interest income, net was $497,000, as compared to interest income, net of $106,000 in the six month period ended September 30, 2000. The increase in interest income, net in the three month period and the six month period ended September 30, 2001, relative to the same periods in the prior fiscal year, is mainly due to interest received from the investment of the net proceeds from our secondary public offering which was completed in October 2000. Other Income (Expense), Net. Other income (expense), net, including gain on foreign currency transactions, in the three month period ended September 30, 2001 was $1.4 million of other expense, as compared to $700,000 of other expense in the three month period ended September 30, 2000. Other income (expense), net, including gain on foreign currency transactions, in the 11 six month period ended September 30, 2001 was $2.6 million of other expense, as compared to $1.2 million of other income in the six month period ended September 30, 2000. The decrease in other income (expense), net in the three month period and the six month period ended September 30, 2001, relative to the same periods in the prior fiscal year, is primarily due to legal expenses of $1.1 million for the three month period and $2.5 million for the six month period ended September 30, 2001. Provision For Income Taxes. The provision for income taxes in the three month period and the six month period ended September 30, 2001, reflects an effective tax rate of 38.0%, which has not changed from the same periods in the prior fiscal year. Liquidity and Capital Resources As of September 30, 2001, cash and cash equivalents were $39.8 million, a decrease of $5.0 million from cash and cash equivalents of $44.8 million at March 31, 2001. The decrease in cash and cash equivalents was primarily due to cash used in operations. Cash flows from operating activities. Net cash used in operating activities in the six month period ended September 30, 2001 was $4.1 million, which represents a decrease of $8.7 million from net cash provided by operating activities of $4.6 million in the six month period ended September 30, 2000. The decrease in net cash provided by operating activities was primarily attributable to larger levels of inventory on hand. Cash flows from investing activities. Net cash used in investing activities in the six month period ended September 30, 2001 was $675,000, a decrease of $2.8 million from $3.4 million in the six month period ended September 30, 2000. The decrease in net cash used in investing activities is primarily due to a lower level of capital expenditure. Cash flows from financing activities. During the six month period ended September 30, 2001, net cash used in financing activities was $564,000, a decrease of $1.2 million from net cash provided by financing activities of $673,000 during the six month period ended September 30, 2000. The increase in net cash used in financing activities is primarily due to principal repayment of capital lease obligations. There are three lines of credit facilities available to us. We have one line of credit with a U.S. bank that consists of a $5.0 million commitment amount, which was available through September 2002. The line bears interest at the bank's prime rate (6.0% at September 30, 2001). The line is collateralized by certain assets and contains certain general and financial covenants. At September 30, 2001, we had drawn $700,000 against such line of credit. We have another line of credit with a U.S. bank that consists of a $100,000 commitment, which was available through September 2002. The line bears interest at a fixed rate of 4.0%. The line is collateralized by a $100,000 certificate of deposit that we have with the bank. At September 30, 2001, we had a drawn $100,000 against such line of credit. In Germany, at September 30, 2001, we had a $5.0 million line of credit with a German bank with no outstanding balance. This line supports a letter of credit facility. A German bank issued to us a commitment letter for a DM 7.5 million equipment lease facility. Our existing equipment leases, DM 3.1 million at September 30, 2001, were charged against the facility. The equipment leases provide financing at varying pricing for periods up to 48 months. In addition to the rights to the equipment, the bank holds a security interest in other assets and up to DM 1.0 million deposited with the bank. In the same commitment letter discussed above, the bank also committed to issue a credit line to us up to DM 9.9 million for a wafer fabrication facility in Germany, including leasehold improvements, clean room construction and fabrication, computer and office equipment. At September 30, 2001, we had drawn DM 610,000 under this commitment. The security interest of the bank under the equipment lease facility also collateralizes this line. Our accounts receivable at September 30, 2001 were $20.9 million, a decrease of 20.7% as compared to $26.3 million at March 31, 2001. Our inventories at September 30, 2001 were $40.1 million, an increase of 17.9% as compared to $34.0 million at March 31, 2001. Net plant and equipment at September 30, 2001 were $15.7 million, an increase of 12.7% as compared to $14.0 million at March 31, 2001. From time to time, we consider acquisitions and strategic investments. To the extent that our available funds are insufficient to meet our capital requirements, we will be required to raise additional funds. There can be no assurance that additional 12 financing will be available on acceptable terms. The lack of such financing, if needed, would have a material adverse effect on our business, financial condition and results of operations. New Accounting Standards In July 2001, the Financial Accounting Standards Board ("FASB") adopted the Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 141, all business combinations are to be accounted for using the purchase method of accounting; use of the pooling-of-interest method is prohibited. The provisions of the statement will apply to all business combinations initiated after June 30, 2001. SFAS No. 142 will apply to all acquired intangible assets whether acquired singly, as part of a group, or in a business combination. The statement will supersede Accounting Principles Board ("APB") Opinion No. 17, "Intangible Assets," and will carry forward provisions in APB Opinion No. 17 related to internally developed intangible assets. Adoption of SFAS No. 142 will result in ceasing amortization of goodwill. All of the provisions of the statement should be applied in fiscal years beginning after December 15, 2001, to all goodwill and other intangible assets recognized in the entity's statement of financial position on that date, regardless of when those assets were initially recognized. We are currently assessing, but have not yet determined, the impact of SFAS No. 142 on our financial position and results of operations. In October 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal periods. SFAS No. 144 addresses financial accounting and reporting for the impairment of certain long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes SFAS No. 121 and APB Opinion No. 30; however, SFAS No. 144 retains the requirement of APB Opinion No. 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that has either been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. We do not expect the adoption of SFAS No. 144 to have a material impact on our financial position and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK We are exposed to the impact of interest rate changes, foreign currency fluctuations, and change in the market values of our investments. Interest Rate Risk. Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial instruments in our investment portfolio. We invest our excess cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers and, by policy, limit the amount of credit exposure to any one issuer. We protect and preserve our invested funds by limiting default, market and reinvestment risk. Investments in both fixed rate and floating rate interest-earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. Foreign Currency Risk. International revenues from our foreign subsidiaries were approximately 52.4% of total revenues. International sales are made mostly from our German subsidiary and are typically denominated in the local currency of Germany. Our German subsidiary also incurs most of its expenses in the local currency. Accordingly, our foreign subsidiaries use their respective local currencies as their functional currency. Our international business is subject to risks typical of an international business including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors. 13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 12, 1996, we, along with Robert McClelland, Richard A. Veldhouse and Chiang Lam (the "Paradigm Defendants") were named (along with others subsequently dismissed from the case) as a defendant in a purported class action (entitled Bulwa et al. v. Paradigm Technology, Inc. et al., Santa Clara County Superior Court Case No. CV759991) brought on behalf of stockholders who purchased our common stock between November 20, 1995 and March 22, 1996 (the "Class Period"), prior to the Paradigm merger. The complaint asserted violations of California Corporations Code sections 25400 and 25500 ("Sections 25400 and 25500") along with other causes of action that have been dismissed. On February 9, 1998 the Santa Clara County Court certified a class consisting only of California purchasers of our stock during the Class Period. Following the California Supreme Court decision in Diamond Multimedia Systems, Inc. v. Superior Court, 19 Cal. 4th 1036 (1999), plaintiffs moved to modify the prior class certification ruling to include also non-California purchasers. The Santa Clara County Court granted this motion on April 28, 1999. On September 20, 2000, our counsel and counsel for the plaintiffs reached a tentative agreement to settle the class action lawsuit in exchange for the payment of $900,000, which amount is fully covered by insurance. Accordingly, this contemplated settlement agreement would have no impact on our operating results. Our insurance carrier has deposited the payment into escrow, pending final approval. The settlement was preliminarily approved by the Santa Clara County Court on February 20, 2001. At that time, the Santa Clara County Court also directed Notice of Pendency and Settlement of Class Action and Settlement Hearing Date for Final Approval of Settlement. There were no objections to the settlement and only one individual opted out of the settlement. The Santa Clara County Court approved the settlement at a hearing on the Motion for Final Approval of Settlement on July 2, 2001. The individual defendants were dismissed with prejudice. There can be no assurance that we will be successful in the defense of a newly filed lawsuit should the individual that opted out file suit. On June 22, 2000, International Rectifier Corporation filed an action for patent infringement against us in the United States District Court for the Central District of California, alleging that certain of our products sold in the United States, including but not limited to four specified power MOSFET parts, infringe five identified U.S. patents owned by International Rectifier (U.S. Patents No. 4,959,699; No. 5,008,725; No. 5,130,767; No. 4,642,666; and No. 4,705,759). International Rectifier has since notified us that it no longer contends that we infringe two of those patents (U.S. Patents No. 4,705,759 and No. 4,642,666), and has refined its allegations of infringement to embrace all of our power MOSFETs and IGBTs having "elongated octagonal" cells or "non- symmetrical cluster" cells. These designations cover many of our power MOSFET and IGBT products sold in the United States. International Rectifier's complaint against us contends that our alleged infringement of International Rectifier's patents has been and continues to be willful and deliberate, seeks to enjoin us from further infringement and requests an award of unspecified, actual monetary damages, but no less than a reasonable royalty (presently contended to be 6.5% of our net sales) of products that are claimed to infringe International Rectifier's patents. International Rectifier also seeks to have the claimed damages trebled. We have answered the complaint, denied any infringement and asserted that International Rectifier's patents are invalid and unenforceable for, among other reasons, failure of International Rectifier to properly disclose known prior art during its prosecution of the patents in suit, and that International Rectifier's claims are barred by reason of the doctrines of estoppel and laches. We also contend that a reasonable royalty for these patents would be much less than 6.5%. In prior years, International Rectifier has approached us on several occasions and requested that we enter into royalty-bearing license agreements with International Rectifier, under its patents. We have declined to do so, based upon our belief that our products do not infringe the International Rectifier patents. The case had been scheduled for trial on June 12, 2001. In May 2001, however, in view of newly issued patent claims added to the case by International Rectifier, the U.S. District Court vacated the trial date, set a new discovery cut-off date of July 16, scheduled a further pre-trial conference for August 6, 2001, and deferred setting a new trial date. In view of other newly issued claims that International Rectifier added to the case, the U.S. District Court vacated the prior dates, set a new discovery cut-off date of November 5, 2001, and set a new pre-trial conference date of November 26, 2001. In May 2001, the U.S. District Court also granted motions for summary judgment dismissing our second and eighth affirmative defenses, relating to our contentions that certain of the patent claims are invalid over a prior invention by Dr. Jean Hoerni, and that claims for alleged infringement by certain products have been released in a settlement between International Rectifier and Samsung Electronics Co., Ltd. ("Samsung"). Samsung fabricates IXYS-designed wafers for us in Korea. In July 2001, the U.S. District Court also granted motions for summary judgment, dismissing our affirmative defense that the claims of U.S. Patent No. 4,959,699 are invalid for non-compliance with the so-called "written description" requirement of Section 14 112 of the Patent Statute, finding that IXYS' power MOSFET devices having cells shaped like elongated octagons or non-symmetrical clusters infringe claim 1 of U.S. Patent No. 4,959,699 and denying our countermotions on the same or similar issues. We expect to appeal these rulings. It remains our intent to vigorously contest the claims of International Rectifier. While we believe our defenses to these various claims are meritorious, there can be no assurance of a favorable outcome. In the event of an adverse outcome, damages or injunctions awarded by the U.S. District Court could be materially adverse to our financial condition and results of operations. International Rectifier also contends that our importation of IXYS-designed MOSFET products into the United States having the "elongated octagonal" cells or "non-symmetrical cluster" cells manufactured for us by Samsung is in violation of a consent decree and injunction entered against Samsung in another lawsuit that did not involve us. In February 2001, International Rectifier served Samsung and us with a Post-Judgment Ex Parte Application for OSC Re Contempt seeking, among other things, an enforcement of the injunction for our importation into the United States of parts designed by us and manufactured for us by Samsung that infringe claim 1 of International Rectifier's U.S. Patent No. 4,959,699 and an appropriate fine. Samsung contends that we are contractually obligated under the terms of our wafer supply agreement with Samsung to defend it against the contempt claims made by International Rectifier and indemnify and hold Samsung harmless in connection with such claims. We are considering Samsung's request in light of the terms of the wafer supply agreement. While we believe that neither we nor Samsung are or could be in violation of the injunction for various reasons we believe to be meritorious, including an express reservation as to our designed parts in the consent decree, there can be no assurance of a favorable outcome. Argument in this matter was held May 18, 2001, at which time the U.S. District Court stated interim rulings that we are bound by the Samsung injunction, and that we and Samsung attempted to subvert the injunction by having us take delivery outside the United States of products designed by us and made by Samsung, but deferred decision as to whether we and Samsung violated the injunction until after a decision on the infringement issue in International Rectifier v. IXYS. We expect to appeal these rulings. In the event of an adverse ruling against us on the ultimate issue of contempt, or if we are obligated to defend and indemnify Samsung, any damages or injunction awarded by the U.S. District Court could be materially adverse to our financial condition and results of operations. In November 2000, we filed a lawsuit for patent infringement against International Rectifier GmbH in the County Court of Mannheim, Germany. The lawsuit charged International Rectifier with infringing at least two of our German patents. These patents cover key design features of our proprietary integrated power module technology, which the lawsuit alleged International Rectifier had been infringing in products sold in Germany. The lawsuit sought damages and an injunction prohibiting the continued infringement by International Rectifier. On March 23, 2001, a public hearing took place in Mannheim, Germany and International Rectifier did not deny making use of the above patents. On April 27, 2001, the County Court of Mannheim rendered a judgment in our favor that enjoined International Rectifier from marketing, utilizing, importing or possessing two of our German patents, and imposed a fine of up to DM 500,000 to the state or imprisonment of International Rectifier's managing director for each violation of the injunction. In addition, International Rectifier was ordered to disclose to us information about its previous sales activity, offers of sales, advertisements, production costs and profits concerning the infringed patents. International Rectifier was also ordered to pay attorney fees and past and future damages and unjustified enrichment resulting from International Rectifier's infringing practices, as calculated by the information to be provided to us by International Rectifier. International Rectifier has appealed the judgment to the Court of Appeals in Karlsruhe, and a hearing on this appeal has been set for February 13, 2002. Notwithstanding this appeal, we are currently enforcing this judgment; in order to do so we were required to pay DM 1,040,000 as a form of bond to be held by the County Court of Mannheim. The funds held by the County Court of Mannheim will be returned to us if final adjudication is in our favor, or will offset any costs that may need to be paid if final adjudication is not in our favor. International Rectifier has begun to disclose information to us pursuant to the judgment. On February 8, 2001, we filed a lawsuit against International Rectifier Italia S.p.A. in the Civil Court of Monza, Italy, for patent infringement of at least two of our European patents, which correspond to the German patents involved in the above-described legal proceeding in Germany. The lawsuit seeks the seizure of semiconductor modules produced by International Rectifier that infringe on our patents and an injunction against further production of such modules by International Rectifier in Italy. At a hearing on March 8, 2001, the judge rejected International Rectifier's arguments that the Monza tribunal was not competent to hear the case and nominated an expert to comment on the technical details of the alleged patent infringement. Following the scheduled submission of technical writs by the parties in May 2001, the expert submitted written comments in June 2001. On June 27, 2001, the Civil Court of Monza rendered a preliminary injunction in our favor with respect to certain claims of infringement by International Rectifier S.p.A. Under the terms of this preliminary injunction, we are permitted to seize, and International Rectifier S.p.A. is prohibited from distributing, certain of the allegedly infringing semiconductor modules. The injunction is an interlocutory measure that remains in effect until there has been a judgment on the merits. The first hearing on the merits of the law suit is scheduled for December 12, 2001. It could be as long as several years before a judgment on the merits is rendered. 15 Discussions of additional details relating to the above-described legal proceedings may be found in our prior SEC filings and reports. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Index to Exhibits. (b) None. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IXYS CORPORATION By: /s/ Arnold P. Agbayani ------------------------------------------- Arnold P. Agbayani, Senior Vice President of Finance and Administration and Chief Financial Officer (Principal Financial Officer) Date: November 14, 2001 EXHIBIT INDEX Exhibit No. Description -------------------- -------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of the Registrant. (1) 3.2 Amended and Restated Bylaws of the Registrant. (2) (1) Filed as Exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2001 and incorporated herein by reference. (2) Filed as Exhibit 3.2 to the Quarterly Report on Form 10-Q for the period ended June 30, 2001 and incorporated herein by reference.