<PAGE>
As filed with the Securities and Exchange Commission on February 15, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
PERICOM SEMICONDUCTOR CORPORATION
(Exact Name of Registrant as Specified in its Charter)
---------------
California 3674 77-0254621
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code No.) Identification No.)
Incorporation or
Organization)
2380 Bering Drive
San Jose, California 95131
(408) 435-0800
(Address and telephone number of registrant's principal executive offices)
---------------
PATRICK B. BRENNAN
Vice President, Finance and Administration
Pericom Semiconductor Corporation
2380 Bering Drive
San Jose, California 95131
(408) 435-0800
(Name, address and telephone number of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
STEPHEN J. SCHRADER, ESQ. BLAIR W. WHITE, ESQ.
CORI M. ALLEN, ESQ. JASON M. VENNER, ESQ.
LULU YEN, ESQ. Pillsbury Madison & Sutro LLP
Morrison & Foerster LLP 50 Fremont Street
755 Page Mill Road San Francisco, CA 94105
Palo Alto, CA 94304-1018 (415) 983-1000
(650) 813-5600
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of
Shares Proposed Maximum Proposed Maximum
to be Amount to Aggregate Aggregate Amount of
Registered be Registered(1) Price Per Share(2) Offering Price(2) Registration Fee
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common
Stock,
no par
value.. 2,530,000 $37.75 $95,507,500 $25,214
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes 330,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) based on the average of the high
and low reported sales prices on the Nasdaq National Market on February
10, 2000.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+Pericom may not sell these securities until the registration statement filed +
+with the Securities and Exchange Commission is effective. This prospectus is +
+not an offer to sell these securities and it is not soliciting an offer to +
+buy these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION -- February 15, 2000
PROSPECTUS
- --------------------------------------------------------------------------------
2,200,000 Shares
[LOGO] PERICOM
Common Stock
- --------------------------------------------------------------------------------
Pericom Semiconductor Corporation is offering 2,200,000 shares of common stock.
The shares of Pericom are quoted in the Nasdaq National Market under the symbol
"PSEM". On February 14, 2000, the last reported sale price in the Nasdaq
National Market was $34.94 per share.
Pericom designs, develops and markets high-performance interface integrated
circuits used in advanced electronic systems.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price............................... $ $
Underwriting discounts and commissions.............. $ $
Proceeds, before expenses, to Pericom............... $ $
</TABLE>
See "Risk Factors" on pages 7 to 15 for factors that you should consider before
investing in the shares of Pericom.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
- --------------------------------------------------------------------------------
The underwriters may, under certain circumstances, purchase up to 180,000
additional shares from us and 150,000 additional shares from the selling
shareholders at the public offering price, less underwriting discounts and
commissions. Delivery and payment for the shares will be on . , 2000.
Prudential Volpe Technology
a unit of Prudential
Securities
CIBC World Markets
Wit SoundView
C.E. Unterberg, Towbin
. , 2000
<PAGE>
Set forth on the left hand side of the inside front cover page are graphics
arrayed around the text "INTERNET", showing:
. a multi-processor board above the caption "Embedded Computing",
. a laser printer above the caption "Laser Printing",
. two computer servers above the caption "Servers",
. a network switch above the caption "Network Switches and Routers",
. a laptop computer above the caption "Laptop Computing",
. a memory module above the caption "Memory Modules", and
. four Pericom IC products of various types.
Below these graphics is the heading "Pericom Product Classifications" and
below that the following text: "SiliconInterface Logic--High-performance 5- to
1.8-volt interface logic products that provide logic functions to handle data
transfer between microprocessors and memory, and input/output devices where
high-speed, low-power, low-noise and high-output drive characteristics are
essential. SiliconSwitch--Full line of 3- and 5-volt high-performance ICs which
are used for switching digital and analog signals with minimal delay and signal
distortion. SiliconClock--Broad range of high-performance 3- and 5-volt clock
generation and distribution products which provide all the precise timing
signals needed to ensure reliable data transfer at high speeds.
SilliconConnect--High integration mixed signal products that support high-speed
serial data transmission and input/output expansion on high-performance data
buses." To the right of the foregoing text are graphics of three Pericom IC
devices of various types and below these graphics are a stylized letter "P" in
a circle and the name "PERICOM".
<PAGE>
Set forth on the inside cover gatefold is the heading "Enabling Higher System
Bandwidth for Internet Applications through Advanced Interface Technology" and
graphic diagrams consisting of rectangular boxes arrayed around the words
"Internet Backbone"Customer Service RepresentativeFinancial Printing GroupSet
forth on the inside cover gatefold is the heading "Enabling Higher System
Bandwidth for Internet Applications through Advanced Interface Technology" and
graphic diagrams consisting of rectangular boxes arrayed around the words
"Internet Backbone". The rectangular boxes are captioned "Cell Phone/PDA",
"Telecom Switch", "PC Server", "DDR Memory Module", "Network Switch/Router",
"Notebook Computer", "Docking Station" and "Laser Printer". Within each box are
smaller boxes representing certain elements of the item identified in the
caption, with the interconnection of such elements shown by lines. The
following elements offered by Pericom are marked with a Pericom logo:
. a "switch" and a "clock" in the box representing a cell phone/PDA;
. three "logic" boxes, three "switch[es]", a "clock", a "clock buffer", a
"PCI bridge" and a "LAN switch" in the box representing a
telecommunications switch;
. ""hot plug switch[es]", two "clock[s]", "DIMM switch[es]", "termination
switch[es]" in the box representing a PC server;
. ""switch[es]", a "clock" and two "logic" boxes in the box representing a
DDR memory module;
. a "switch", a "PCI bridge", "logic", a "clock", a "clock buffer" and "LAN
switch[es]" in the box representing a network switch/router;
. a "clock", "logic" and "switch" in the box representing a notebook
computer;
. a "switch" in the box representing a docking station; and
. a "clock", "switch", "logic" and "LVDS" in the box representing a laser
printer.
A "clock", the "DIMM switches" and "chipsets" in the box representing a PC
server are connected to the box representing the DDR memory module by lines.
The box representing the notebook computer is connected to the box representing
the docking station by a line, and the box representing the docking station is
connected to the laser printer by a line. In the background are the following
graphics:
. below the box representing a telecommunications switch is a graphic of a
controller board for a telecommunications switch;
. to the right of the box representing a network switch/router is a graphic
of a LAN switch;
. to the right of the box representing a PC server is a graphic of two
enterprise servers;
. below the box representing a notebook computer is a graphic of a notebook
computer;
. above the box representing a laser printer is a graphic of a laser
printer; and
. above the box labeled "Cell Phone/PDA" is a graphic of a cellular phone.
At the bottom right corner of the cover gatefold are a stylized "P" in a
circle and the name "PERICOM".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 7
Forward-Looking Statements.......... 15
Use of Proceeds..................... 16
Price Range of Common Stock and
Dividend Policy.................... 16
Capitalization...................... 17
Selected Financial Data............. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information contained in
this prospectus is accurate as of any date other than the date on the front
cover of this prospectus.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business........................... 24
Management......................... 35
Certain Transactions............... 37
Principal and Selling Sharehold-
ers............................... 38
Underwriting....................... 40
Legal Matters...................... 42
Experts............................ 42
Where You Can Find More Informa-
tion.............................. 42
Information Incorporated by Refer-
ence.............................. 43
Index to Financial Statements...... F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
investors should consider before investing in the common stock of Pericom.
Investors should read the entire prospectus carefully.
Pericom
We design, develop and market high-performance interface integrated circuits,
or ICs, used in advanced electronic systems. Interface ICs manage the transfer
of electrical signals among a system's components and between systems. High-
performance interface ICs enable high signal quality and are essential for the
full use of the speed and bandwidth of advanced microprocessors, memory ICs,
local area networks, or LANs, and wide area networks, or WANs.
We focus on the high-performance segments of the notebook computer, computer
server and network equipment markets, in which advanced system designs require
interface ICs with high speed, low power consumption, low-voltage operation,
small size and high integration. In addition, we sell our products in other
markets, including the printer and copier markets. The current high demand for
bandwidth to support the growth of the Internet will require continual
improvements in the performance of interface products. Our interface products
increase system bandwidth in applications such as notebook computers, servers,
network switches and routers, storage area networks and wireless base stations.
We have combined our extensive design technology and applications knowledge
with our responsiveness to the specific needs of electronic systems developers
to become a leading supplier of interface ICs. We have grown from one product
line in fiscal 1992 to four currently: SiliconInterface, SiliconSwitch,
SiliconClock and SiliconConnect. Our goal is to provide an increasing breadth
of interface IC solutions to our customers. We currently offer over 400
products, of which 37 were introduced during the six months ended December 31,
1999.
Our customers and end-users of our products include a number of leading
original equipment manufacturers, or OEMs, in each market:
. Acer, Compaq, Dell, IBM and Toshiba in the notebook computing market;
. Compaq, Dell and Intel in the server market;
. Cabletron Systems, Cisco Systems, Lucent, Newbridge Networks and Nortel
Networks in the network equipment market; and
. Canon, Lexmark and Xerox in the printer and copier market.
We use independent suppliers to manufacture our products in order to gain
access to a broad range of advanced process technologies without incurring
substantial capital investments. We have a long-standing relationship with
Chartered Semiconductor Manufacturing Ltd, recently began using Taiwan
Semiconductor Manufacturing Company, Ltd as a supplier, and qualified Hyundai
Electronics America in 1998.
We pursue a three-tier customer strategy, consisting of:
. establishing relationships with new customers by working with their
system design engineers to have our ICs incorporated into their product
designs;
. solidifying customer relationships through on-time delivery of high-
quality, state-of-the-art, competitively-priced ICs; and
. expanding sales to existing customers by providing increasingly extensive
solutions to their needs.
We market and distribute our products through a worldwide network of
independent sales representatives and distributors.
4
<PAGE>
Our History and Offices
We were incorporated on June 25, 1990. Our principal executive offices are
located at 2380 Bering Drive, San Jose, California 95131, and our telephone
number is (408) 435-0800. Our web site address is www.pericom.com. The
information contained on our web site is not a part of this prospectus.
The Offering
<TABLE>
<S> <C>
Shares offered by Pericom............... 2,200,000 shares
Total shares outstanding after this
offering............................... 11,941,593 shares
Use of proceeds by Pericom.............. General corporate purposes, including
working capital, purchase of capital
equipment and potential acquisitions.
Nasdaq National Market symbol........... PSEM
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of December 31, 1999. The above
information excludes:
. 2,017,364 shares issuable upon exercise of options outstanding as of
December 31, 1999, with a weighted average exercise price of $6.15 per
share;
. 843,833 shares of common stock available for issuance as of December 31,
1999 under our 1995 stock option plan;
. 122,114 shares of common stock available for issuance as of December 31,
1999 under our 1997 employee stock purchase plan;
. 180,000 shares that the underwriters may purchase from us if they
exercise their over-allotment option in full.
In addition, the underwriters may purchase 150,000 currently outstanding
shares from the selling shareholders if they exercise their over-allotment
option in full.
Risk Factors
You should consider the risk factors and the impact of various events that
could harm our business before investing in our common stock.
5
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
Six Months
Fiscal Year Ended June Ended December
30, 31,
----------------------- ---------------
1997 1998 1999 1998 1999
------- ------- ------- ------- -------
(in thousands, except per share
amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net revenues.......................... $33,166 $49,198 $59,797 $29,057 $37,634
Gross profit.......................... 12,180 19,913 24,313 11,455 15,820
Income from operations................ 2,004 7,055 9,162 4,258 7,055
Net income............................ 1,578 5,164 6,772 3,184 4,744
Basic earnings per share.............. $ 0.73 $ 0.73 $ 0.72 $ 0.34 $ 0.49
Diluted earnings per share............ $ 0.22 $ 0.55 $ 0.66 $ 0.32 $ 0.43
Shares used in computing basic
earnings per share................... 2,165 7,083 9,395 9,333 9,663
Shares used in computing diluted
earnings per share................... 7,316 9,412 10,279 10,080 10,924
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------
Actual As Adjusted
----------- --------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and short-term investments....................... $ 27,049 $ 99,568
Working capital....................................... 41,397 113,916
Total assets.......................................... 64,077 136,596
Shareholders' equity.................................. 51,917 124,436
</TABLE>
See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data. Cash
and short-term investments in the above table is comprised of cash and
equivalents and short-term investments. Working capital consists of current
assets minus current liabilities.
The as adjusted amounts above give effect to the sale of the 2,200,000 shares
of common stock by us in this offering at an assumed public offering price of
$34.9375 per share (less underwriting discounts and commissions and estimated
offering expenses).
6
<PAGE>
RISK FACTORS
You should carefully consider the risk factors below in addition to the other
information in this prospectus. Each of these risk factors could adversely
affect our business, financial condition and operating results as well as
adversely affect the value of an investment in our common stock.
Risks Related to our Business
If we do not develop products that our customers and end-users design into
their products, or if their products do not sell successfully, our business
and operating results would be harmed.
We have relied in the past and continue to rely upon our relationships with
our customers and end-users for insights into product development strategies
for emerging system requirements. We generally incorporate new products into a
customer's or end-user's product or system at the design stage. However, these
design efforts, which can often require significant expenditures by us, may
precede product sales, if any, by a year or more. Moreover, the value to us of
any design win will depend in large part on the ultimate success of the
customer's or end-user's product and on the extent to which the system's design
accommodates components manufactured by our competitors. If we fail to achieve
design wins or if the design wins fail to result in significant future
revenues, our operating results would be harmed. If we have problems developing
or maintaining our relationships with our customers and end-users, our ability
to develop well-accepted new products may be impaired.
The trading price of our common stock and our operating results are likely
to fluctuate substantially in the future.
The trading price of our common stock has been and is likely to continue to
be highly volatile. Our stock price could fluctuate widely in response to
factors some of which are not within our control, including:
. quarter-to-quarter variations in operating results;
. announcements of technological innovations or new products by us or our
competitors;
. general conditions in the semiconductor and electronic systems
industries;
. changes in earnings estimates by analysts; and
. price and volume fluctuations in the overall stock market, which have
particularly affected the market prices of many high technology
companies.
In the past, our quarterly operating results have varied significantly and
are likely to fluctuate in the future. A wide variety of factors affect our
operating results. These factors might include the following:
. the timing of new product introductions and announcements by us and by
our competitors;
. customer acceptance of new products introduced by us;
. growth or reduction in the size of the market for interface ICs;
. a decline in the gross margins of our products;
. general conditions in the semiconductor industry;
. changes in our product mix;
. delay or decline in orders received from distributors;
. the availability of manufacturing capacity with our wafer suppliers;
. changes in manufacturing costs;
. fluctuations in manufacturing yields;
7
<PAGE>
. the ability of customers to pay us;
. expenses incurred in obtaining, enforcing, and defending intellectual
property rights; and
. increased research and development expenses associated with new product
introductions or process changes.
All of these factors are difficult to forecast and could seriously harm our
operating results. Our expense levels are based in part on our expectations
regarding future sales and are largely fixed in the short term. Therefore, we
may be unable to reduce our expenses fast enough to compensate for any
unexpected shortfall in sales. Any significant decline in demand relative to
our expectations or any material delay of customer orders could harm our
operating results. In addition, if our operating results in future quarters
fall below public market analysts' and investors' expectations, the market
price of our common stock would likely decrease.
The markets for our products are characterized by rapidly changing
technology, and our financial results could be harmed if we do not
successfully develop and implement new manufacturing technologies or
develop, introduce and sell new products.
The markets for our products are characterized by rapidly changing
technology, frequent new product introductions and declining selling prices
over product life cycles. We currently offer over 400 products. Our future
success depends upon the timely completion and introduction of new products,
across all our product lines, at competitive price and performance levels. The
success of new products depends on a variety of factors, including the
following:
. product performance and functionality;
. customer acceptance;
. competitive pricing;
. successful and timely completion of product development;
. sufficient wafer fabrication capacity; and
. achievement of acceptable manufacturing yields by our wafer suppliers.
We may also experience delays, difficulty in procuring adequate fabrication
capacity for the development and manufacture of new products or other
difficulties in achieving volume production of these products. Even relatively
minor errors may significantly affect the development and manufacture of new
products. If we fail to complete and introduce new products in a timely manner
at competitive price and performance levels, our business would be
significantly harmed.
Intense competition in the semiconductor industry may reduce the demand for
our products or the prices of our products, which could reduce our
revenues.
The semiconductor industry is intensely competitive. Our competitors include
Cypress Semiconductor Corporation, Integrated Circuit Systems, Inc., Integrated
Device Technology, Inc., Maxim Integrated Products, Inc., and Texas
Instruments, Inc. Most of those competitors have substantially greater
financial, technical, marketing, distribution and other resources, broader
product lines and longer-standing customer relationships than we do. We also
compete with other major or emerging companies that sell products to certain
segments of our markets. Competitors with greater financial resources or
broader product lines may have a greater ability to sustain price reductions in
our primary markets in order to gain or maintain market share.
We believe that our future success will depend on our ability to continue to
improve and develop our products and processes. Unlike us, many of our
competitors maintain internal manufacturing capacity for the fabrication and
assembly of semiconductor products. This ability may provide them with more
reliable manufacturing capability, shorter development and manufacturing cycles
and time-to-market advantages. In
8
<PAGE>
addition, competitors with their own wafer fabrication facilities that are
capable of producing products with the same design geometries as ours may be
able to manufacture and sell competitive products at lower prices. Any
introduction of products by our competitors that are manufactured with improved
process technology could seriously harm our business. As is typical in the
semiconductor industry, our competitors have developed and marketed products
that function similarly or identically to ours. If our products do not achieve
performance, price, size or other advantages over products offered by our
competitors, our products may lose market share. Competitive pressures could
also reduce market acceptance of our products, reduce our prices and increase
our expenses.
We also face competition from the makers of ASICs and other system devices.
These devices may include interface logic functions, which may eliminate the
need or sharply reduce the demand for our products in particular applications.
Product price declines and fluctuations may cause our future financial
results to vary.
Historically, selling prices in the semiconductor industry generally, as well
as for our products, have decreased significantly over the life of each
product. We expect that selling prices for our existing products will continue
to decline over time and that average selling prices for our new products will
decline significantly over the lives of these products. Declines in selling
prices for our products, if not offset by reductions in the costs of producing
these products or by sales of new products with higher gross margins, would
reduce our overall gross margins and could seriously harm our business.
The demand for our products depends on the growth of our end users'
markets.
Our continued success depends in large part on the continued growth of
markets for the products into which our semiconductor products are
incorporated. These markets include the following:
. computers and computer related peripherals;
. data communications and telecommunications equipment;
. electronic commerce and the Internet; and
. consumer electronics equipment.
Any decline in the demand for products in these markets could seriously harm
our business, financial condition and operating results. These markets have
also historically experienced significant fluctuations in demand. We may also
be seriously harmed by slower growth in the other markets in which we sell our
products.
Downturns in the semiconductor industry, rapidly changing technology and
evolving industry standards can harm our operating results.
The semiconductor industry has historically been cyclical and periodically
subject to significant economic downturns--characterized by diminished product
demand, accelerated erosion of selling prices and overcapacity--as well as
rapidly changing technology and evolving industry standards. In the past, our
operating results have been harmed by excess supply in the semiconductor
industry. For example, we believe our net revenues fell from $41.2 million in
fiscal 1996 to $33.2 million in fiscal 1997 primarily due to a cyclical
downturn in the semiconductor industry. Accordingly, we may in the future
experience substantial period-to-period fluctuations in our business and
operating results due to general semiconductor industry conditions, overall
economic conditions or other factors. Our business is also subject to the risks
associated with the effects of legislation and regulations relating to the
import or export of semiconductor products.
Our contracts with our wafer suppliers do not obligate them to a minimum
supply or set prices. Any inability or unwillingness of our wafer suppliers
generally, and Chartered Semiconductor Manufacturing Ltd. in particular, to
meet our manufacturing requirements would delay our production and product
shipments and harm our business.
In fiscal 1999, we purchased approximately 85% of our wafers from Chartered
Semiconductor Manufacturing Ltd. In the second quarter of fiscal 2000,
Chartered accounted for approximately 77% of our
9
<PAGE>
wafer manufacturing. In both fiscal years, only four other suppliers
manufactured the remainder of our wafers. Our reliance on independent wafer
suppliers to fabricate our wafers at their production facilities subjects us to
possible risks such as:
. lack of adequate capacity;
. lack of available manufactured products;
. lack of control over delivery schedules; and
. unanticipated changes in wafer prices.
Any inability or unwillingness of our wafer suppliers generally, and
Chartered in particular, to provide adequate quantities of finished wafers to
meet our needs in a timely manner would delay our production and product
shipments and seriously harm our business.
At present, we purchase wafers from our suppliers through the issuance of
purchase orders based on our rolling six-month forecasts. The purchase orders
are subject to acceptance by each wafer supplier. We do not have long-term
supply contracts which obligate our suppliers to a minimum supply or set
prices. We also depend upon our wafer suppliers to participate in process
improvement efforts, such as the transition to finer geometries. If our
suppliers are unable or unwilling to do so, our development and introduction of
new products could be delayed. Furthermore, sudden shortages of raw materials
or production capacity constraints can lead wafer suppliers to allocate
available capacity to customers other than us or for the suppliers' internal
uses, interrupting our ability to meet our product delivery obligations. Any
significant interruption in our wafer supply would seriously harm our operating
results and our customer relations. Our reliance on independent wafer suppliers
may also lengthen the development cycle for our products, providing time-to-
market advantages to our competitors that have in-house fabrication capacity.
In the event that our suppliers are unable or unwilling to manufacture our
key products in required volumes, we will have to identify and qualify
additional wafer foundries. The qualification process can take up to six months
or longer. Furthermore, we are unable to predict whether additional wafer
foundries will become available to us or will be in a position to satisfy any
of our requirements on a timely basis.
We depend on single or limited source assembly subcontractors with whom we
do not have written contracts. Any inability or unwillingness of our
assembly subcontractors to meet our assembly requirements would delay our
product shipments and harm our business.
We primarily rely on foreign subcontractors for the assembly and packaging of
our products and, to a lesser extent, for the testing of finished products.
Some of these subcontractors are our single source supplier for some of our new
packages. In addition, changes in our or a subcontractor's business could cause
us to become materially dependent on a single subcontractor. We have from time
to time experienced difficulties in the timeliness and quality of product
deliveries from our subcontractors and may experience similar or more severe
difficulties in the future. We generally purchase these single or limited
source components or services pursuant to purchase orders and have no
guaranteed arrangements with these subcontractors. These subcontractors could
cease to meet our requirements for components or services, or there could be a
significant disruption in supplies from them, or degradation in the quality of
components or services supplied by them. Any circumstance that would require us
to qualify alternative supply sources could delay shipments, result in the loss
of customers and limit or reduce our revenues.
We may have difficulty accurately predicting revenues for future periods.
Our expense levels are based in part on anticipated future revenue levels,
which can be difficult to predict. Our business is characterized by short-term
orders and shipment schedules. We do not have long-term purchase
10
<PAGE>
agreements with any of our customers, and customers can typically cancel or
reschedule their orders without significant penalty. We typically plan
production and inventory levels based on forecasts of customer demand generated
with input from customers and sales representatives. Customer demand is highly
unpredictable and can fluctuate substantially. If customer demand falls
significantly below anticipated levels, our gross profit would be reduced.
We compete with others to attract and retain key personnel, and any loss
of, or inability to attract, key personnel would harm us.
To a greater degree than non-technology companies, our future success will
depend on the continued contributions of our executive officers and other key
management and technical personnel. None of these individuals has an employment
agreement with us and each one would be difficult to replace. We do not
maintain any key person life insurance policies on any of these individuals.
The loss of the services of one or more of our executive officers or key
personnel or the inability to continue to attract qualified personnel could
delay product development cycles or otherwise harm our business, financial
condition and results of operations.
Our future success also will depend on our ability to attract and retain
qualified technical, marketing and management personnel, particularly highly
skilled design, process and test engineers, for whom competition is intense. In
particular, the current availability of qualified engineers is limited and
competition among companies for skilled and experienced engineering personnel
is very strong. During strong business cycles, we expect to experience
continued difficulty in filling our needs for qualified engineers and other
personnel.
Our limited ability to protect our intellectual property and proprietary
rights could harm our competitive position.
Our success depends in part on our ability to obtain patents and licenses and
preserve other intellectual property rights covering our products and
development and testing tools. In the United States, we hold 17 patents
covering certain aspects of our product designs and have at least 10 additional
patent applications pending. Copyrights, mask work protection, trade secrets
and confidential technological know-how are also key to our business.
Additional patents may not be issued to us or our patents or other intellectual
property may not provide meaningful protection. We may be subject to, or
initiate, interference proceedings in the U.S. Patent and Trademark Office.
These proceedings can consume significant financial and management resources.
We may become involved in litigation relating to alleged infringement by us of
others' patents or other intellectual property rights. This type of litigation
is frequently expensive to both the winning party and the losing party and
takes up significant amounts of management's time and attention. In addition,
if we lose such a lawsuit, a court could require us to pay substantial damages
and/or royalties or prohibit us from using essential technologies. For these
and other reasons, this type of litigation could seriously harm our business.
Also, although we may seek to obtain a license under a third party's
intellectual property rights in order to bring an end to certain claims or
actions asserted against us, we may not be able to obtain such a license on
reasonable terms or at all.
Because it is important to our success that we are able to prevent
competitors from copying our innovations, we intend to continue to seek patent,
trade secret and mask work protection for our technologies. The process of
seeking patent protection can be long and expensive, and we cannot be certain
that any currently pending or future applications will actually result in
issued patents, or that, even if patents are issued, they will be of sufficient
scope or strength to provide meaningful protection or any commercial advantage
to us. Furthermore, others may develop technologies that are similar or
superior to our technology or design around the patents we own.
We also rely on trade secret protection for our technology, in part through
confidentiality agreements with our employees, consultants and third parties.
However, these parties may breach these agreements. In addition, the laws of
some territories in which we develop, manufacture or sell our products may not
protect our intellectual property rights to the same extent as do the laws of
the United States.
11
<PAGE>
The process technology used by our independent foundries, including process
technology that we developed with our foundries, can generally be used by them
to produce their own products or to manufacture products for other companies,
including our competitors. In addition, we may not have the right to implement
key process technologies used to manufacture some of our products with
foundries other than our present foundries.
We may not provide adequate allowances for exchanges, returns and
concessions.
We recognize revenue from the sale of products when shipped, less an
allowance based on future authorized and historical patterns of returns, price
protection, exchanges and other concessions. We believe our methodology and
approach are appropriate. However, if the actual amounts we incur exceed the
allowances, it could decrease our revenue and corresponding gross profit.
The complexity of our products makes us highly susceptible to manufacturing
problems, which could increase our costs and delay our product shipments.
The manufacture and assembly of our over 400 products are highly complex and
sensitive to a wide variety of factors, including:
. the level of contaminants in the manufacturing environment;
. impurities in the materials used; and
. the performance of manufacturing personnel and production equipment.
In a typical semiconductor manufacturing process, silicon wafers produced by
a foundry are cut into individual die. These die are assembled into individual
packages and tested for performance. Our wafer fabrication suppliers have from
time to time experienced lower than anticipated yields of suitable die. In the
event of such decreased yields, we would incur additional costs to sort wafers,
an increase in average cost per usable die and an increase in the time to
market for our products. These conditions could reduce our net revenues and
gross margin and harm our customer relations.
We do not manufacture any of our products. Therefore, we are referred to in
the semiconductor industry as a "fabless" producer. Consequently, we depend
upon third party manufacturers to produce semiconductors that meet our
specifications. We currently have third party manufacturers that can produce
semiconductors that meet our needs. However, as the industry continues to
progress to smaller manufacturing and design geometries, the complexities of
producing semiconductors will increase. Decreasing geometries may introduce new
problems and delays that may affect product development and deliveries. Due to
the nature of the industry and our status as a "fabless" semiconductor company,
we could encounter fabrication-related problems that may affect the
availability of our products, delay our shipments or increase our costs.
A large portion of our revenues is derived from sales to a few customers,
who may cease purchasing from us at any time.
A relatively small number of customers have accounted for a significant
portion of our net revenues in each of the past several fiscal years. We expect
this trend to continue for the foreseeable future. Techmosa, an international
distributor that in turn ships to many end users, accounted for approximately
15% of net revenues during the first six months of fiscal 2000. Sales to our
top five customers accounted for approximately 40% of net revenues for the
first six months of fiscal 2000.
We do not have long-term sales agreements with any of our customers. Our
customers are not subject to minimum purchase requirements, may reduce or delay
orders periodically due to excess inventory and may discontinue selling our
products at any time. Our distributors typically offer competing products in
addition to
12
<PAGE>
ours. During the first six months of fiscal 2000, sales to domestic and
international distributors represented 61.4% of net revenues. The loss of one
or more significant customers, or the decision by a significant distributor to
carry the product lines of our competitors, could decrease our revenues.
Almost all of our wafer suppliers and assembly subcontractors are located
in southeast Asia, which exposes us to the problems associated with
international operations.
Almost all of our wafer suppliers and assembly subcontractors are located in
southeast Asia, which exposes us to risks associated with international
business operations, including the following:
. disruptions or delays in shipments;
. changes in economic conditions in the countries where these
subcontractors are located;
. currency fluctuations;
. changes in political conditions;
. potentially reduced protection for intellectual property;
. foreign governmental regulations;
. import and export controls; and
. changes in tax laws, tariffs and freight rates.
In particular, there is a potential risk of conflict and further instability
in the relationship between Taiwan and the People's Republic of China. Conflict
or instability could disrupt the operations of one of our principal wafer
suppliers and several of our assembly subcontractors located in Taiwan.
Because we sell our products to customers outside of the United States, we
face foreign business, political and economic risks that could seriously
harm us.
In the first six months of fiscal 2000, approximately 32% of our net revenues
derived from sales in Asia excluding Japan, approximately 6% from sales in
Europe and approximately 10% from sales in Japan. We expect that export sales
will continue to represent a significant portion of net revenues. We intend to
expand our sales efforts outside the United States. This expansion will require
significant management attention and financial resources and further subject us
to international operating risks. These risks include:
. tariffs and other barriers and restrictions;
. unexpected changes in regulatory requirements;
. the burdens of complying with a variety of foreign laws; and
. delays resulting from difficulty in obtaining export licenses for
technology.
We are also subject to general geopolitical risks in connection with our
international operations, such as political and economic instability and
changes in diplomatic and trade relationships. In addition, because our
international sales are denominated in U.S. dollars, increases in the value of
the U.S. dollar could increase the price in local currencies of our products in
foreign markets and make our products relatively more expensive than
competitors' products that are denominated in local currencies. Regulatory,
geopolitical and other factors could seriously harm our business or require us
to modify our current business practices.
Our potential future acquisitions may not be successful because we have not
made acquisitions in the past.
We may use a portion of the net proceeds from this offering to make
acquisitions. We have depended on internal growth in the past and have not made
any acquisitions. As part of our business strategy, we expect to seek
acquisition prospects that would complement our existing product offerings,
improve market coverage or
13
<PAGE>
enhance our technological capabilities. We have no current agreements or
negotiations underway with respect to any acquisitions, and we may not be able
to locate suitable acquisition opportunities. Future acquisitions could result
in the following:
. potentially dilutive issuances of equity securities;
. large one-time write-offs;
. the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets;
. difficulties in the assimilation of operations, personnel, technologies,
products and the information systems of the acquired companies;
. diversion of management's attention from other business concerns; and
. risks of entering geographic and business markets in which we have no or
limited prior experience and potential loss of key employees of acquired
organizations.
We are not certain that we will be able to successfully integrate any
businesses, products, technologies or personnel that may be acquired in the
future. Our failure to do so could seriously harm our business.
Our operations and financial results could be severely harmed by natural
disasters.
Our headquarters and some of our major suppliers' manufacturing facilities
are located near major earthquake faults. One of the foundries we use is
located in Taiwan, which recently suffered a severe earthquake. We did not
experience significant disruption to our operations as a result of that
earthquake. However, if a major earthquake or other natural disaster were to
affect our suppliers, our sources of supply could be interrupted, which would
seriously harm our business.
Risks Related to This Offering
Our principal shareholders have significant voting power and may take
actions that may not be in the best interests of our other shareholders.
Immediately after the offering, our executive officers and directors will, in
the aggregate, own approximately 16% of our outstanding common stock, or
approximately 14% if the underwriters exercise their over-allotment option in
full, based on ownership as of January 31, 2000. Accordingly, these
shareholders acting as a group will have significant influence with respect to
matters requiring approval by our shareholders, including the election of
directors and the approval of significant corporate transactions. This
concentration of ownership may delay, prevent or deter a change of control
transaction in which our shareholders would otherwise have received a premium
for their shares.
You will be relying on the judgment of our management regarding our use of
the proceeds from this offering.
Our management may spend the net proceeds from this offering in ways with
which our shareholders may not agree. We cannot assure you that our investments
and the use of the net proceeds of this offering will yield favorable returns
or results.
We may in the future issue preferred stock without obtaining approval of
the holders of common stock, which could adversely affect the rights of
holders of our common stock.
Our articles of incorporation permit our board of directors to determine the
terms of preferred stock and issue preferred stock with rights senior to those
of the common stock without the approval of holders of our common stock.
Accordingly, the rights of the holders of our common stock could be adversely
affected. These provisions could also have the effect of delaying or preventing
a change in control of Pericom.
14
<PAGE>
Future sales of our common stock may depress our stock price.
Sales of a substantial number of shares of our common stock in the public
market, or the appearance that such shares are available for sale, could
adversely affect the market price for our common stock. Upon completion of this
offering (based upon shares outstanding as of December 31, 1999), we will have
11,941,593 shares of common stock outstanding, or 12,121,593 shares if the
underwriters exercise their over-allotment option. The 1,359,075 shares that
will still be held by our selling shareholders and by other of our executive
officers and directors after completion of this offering, or 1,209,075 shares
if the underwriters exercise their over-allotment option in full, are subject
to a 90-day lock-up agreement and will be available for public resale on
, 2000, the 91st day after the date of this prospectus.
In addition to the shares that are currently outstanding we have:
. 2,017,364 shares issuable upon exercise of options outstanding as of
December 31, 1999, with a weighted average exercise price of $6.15 per
share;
. 843,833 shares of common stock available for issuance as of December 31,
1999 under our 1995 stock option plan; and
. 122,114 shares of common stock available for issuance as of December 31,
1999 under our 1997 employee stock purchase plan.
Shares underlying vested options are eligible for immediate resale in the
public market, unless such shares are held by our directors and executive
officers, in which case the shares will be eligible for sale in the public
market at the expiration of the 90-day lock-up agreement entered into in
connection with this offering.
Prudential Securities Incorporated may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting the financial
condition of our business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions about Pericom, including among
other things:
. general economic and business conditions, both nationally and in our
markets;
. our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;
. anticipated trends in our business;
. existing and future regulations affecting our business; and
. other risk factors set forth under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to Pericom, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-
looking statements.
15
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $72.5 million
from the sale of 2,200,000 shares of common stock by us in this offering, or
$78.5 million if the underwriters exercise their over-allotment option from us
in full, at an assumed public offering price of $34.9375, after deducting
underwriting discounts and commissions and estimated offering expenses. We
intend to use the net proceeds for working capital and general corporate
purposes. We expect to use up to $5 million of the net proceeds in calendar
year 2000 to acquire capital equipment for research and development and
testing. We may also use a portion of the net proceeds to fund acquisitions of
complementary businesses, products or technologies. Although we have in the
past reviewed potential acquisition opportunities, we are not currently
negotiating any acquisitions and we have no agreements with any third party for
any acquisition. Our management has broad discretion over the use of proceeds
and may spend the net proceeds from this offering in ways with which our
shareholders may not agree. Pending use of the net proceeds of this offering,
we intend to invest them in short-term, interest-bearing, investment-grade
securities or guaranteed obligations of the U.S. government. We will not
receive any proceeds from the sale of shares of common stock by the selling
shareholders if the underwriters exercise their over-allotment option.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock began trading publicly in the Nasdaq National Market on
October 31, 1997 under the symbol "PSEM". The following table sets forth for
the periods indicated the high and low sales prices of our common stock in the
Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
Fiscal year ended June 30, 1998:
Second Quarter (from October 31, 1997).......................... $10.38 $6.00
Third Quarter................................................... 10.50 6.00
Fourth Quarter.................................................. 10.44 5.88
Fiscal year ended June 30, 1999:
First Quarter................................................... 8.75 4.31
Second Quarter.................................................. 11.81 4.19
Third Quarter................................................... 14.13 6.88
Fourth Quarter.................................................. 12.63 6.13
Fiscal year ending June 30, 2000
First Quarter................................................... 17.63 11.13
Second Quarter.................................................. 30.00 12.75
Third Quarter (through February 14, 2000)....................... 41.38 23.75
</TABLE>
On February 14, 2000, the last reported sales price for our common stock was
$34.94 per share.
We have not declared or paid cash dividends and have no present plans to do
so. It is our policy to reinvest our earnings to finance expansion of our
operations, and we do not expect to declare or pay dividends in the foreseeable
future.
As of December 31, 1999 there were approximately 3,000 holders of record of
our common stock.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999,
on:
. an actual basis; and
. as adjusted to give effect to the sale of the 2,200,000 shares of common
stock by us in this offering at an assumed public offering price of
$34.9375 per share (less underwriting discounts and commissions and
estimated offering expenses).
You should read this table in conjunction with our financial statements and
the notes to those statements, which are included in this prospectus.
<TABLE>
<CAPTION>
As of December
31, 1999
-----------------
As
Actual Adjusted
------- --------
(in thousands,
except share
data)
<S> <C> <C>
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized;
no shares outstanding, actual; no shares outstanding, as
adjusted.................................................. $ -- $ --
Common stock, no par value; 30,000,000 shares authorized;
9,741,593 shares outstanding, actual; 11,941,593 shares
outstanding, as adjusted.................................. 26,448 98,967
Accumulated other comprehensive loss....................... (88) (88)
Retained earnings.......................................... 25,557 25,557
------- --------
Total shareholders' equity................................ 51,917 124,436
------- --------
Total capitalization.................................... $51,917 $124,436
======= ========
</TABLE>
Shares outstanding excludes the following:
. 2,017,364 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999 with a weighted average exercise
price of $6.15 per share;
. 843,833 shares of common stock reserved for future issuance as of
December 31, 1999 under our 1995 stock option plan; and
. 122,114 shares of common stock reserved for future issuance as of
December 31, 1999 under our 1997 employee stock purchase plan as of
December 31, 1999.
17
<PAGE>
SELECTED FINANCIAL DATA
You should read our selected financial data set forth below in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our financial statements and the related notes included in
this prospectus. The statement of income data for the years ended June 30,
1997, 1998 and 1999 and the balance sheet data as of June 30, 1998 and 1999 are
derived from our financial statements included in this prospectus, which have
been audited by Deloitte & Touche LLP, independent accountants. The statement
of income data for the years ended June 30, 1995 and 1996 and the balance sheet
data as of June 30, 1995, 1996 and 1997 are derived from audited financial
statements not included in this prospectus. The statement of income data for
the six-month periods ended December 31, 1998 and 1999 and the balance sheet
data as of December 31, 1999 are derived from unaudited interim financial
statements included in this prospectus. The unaudited interim financial
statements include all adjustments, consisting only of normal recurring
adjustments, which we consider necessary for a fair presentation of the data.
Historical results of operations are not necessarily indicative of results that
may be expected for any future period.
<TABLE>
<CAPTION>
Six Months
Ended
Fiscal Year Ended June 30, December 31,
---------------------------------------- ---------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Net revenues............ $22,732 $41,174 $33,166 $49,198 $59,797 $29,057 $37,634
Cost of revenues........ 12,873 22,797 20,986 29,285 35,484 17,602 21,814
------- ------- ------- ------- ------- ------- -------
Gross profit........... 9,859 18,377 12,180 19,913 24,313 11,455 15,820
Operating expenses:
Research and
development........... 2,942 4,414 4,187 5,065 5,976 2,810 3,493
Selling, general and
administrative........ 4,038 6,471 5,989 7,793 9,175 4,387 5,272
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 6,980 10,885 10,176 12,858 15,151 7,197 8,765
------- ------- ------- ------- ------- ------- -------
Income from operations.. 2,879 7,492 2,004 7,055 9,162 4,258 7,055
Other income (expense),
net.................... 144 (50) 351 738 1,098 566 580
------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 3,023 7,442 2,355 7,793 10,260 4,824 7,635
Provision for income
taxes.................. 982 2,732 777 2,629 3,488 1,640 2,891
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 2,041 $ 4,710 $ 1,578 $ 5,164 $ 6,772 $ 3,184 $ 4,744
======= ======= ======= ======= ======= ======= =======
Basic earnings per
share.................. $ 0.97 $ 2.19 $ 0.73 $ 0.73 $ 0.72 $ 0.34 $ 0.49
======= ======= ======= ======= ======= ======= =======
Diluted earnings per
share.................. $ 0.28 $ 0.63 $ 0.22 $ 0.55 $ 0.66 $ 0.32 $ 0.43
======= ======= ======= ======= ======= ======= =======
Shares used in computing
basic earnings per
share.................. 2,096 2,149 2,165 7,083 9,395 9,333 9,663
======= ======= ======= ======= ======= ======= =======
Shares used in computing
diluted earnings per
share.................. 7,199 7,493 7,316 9,412 10,279 10,080 10,924
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
As of June 30, As of
--------------------------------------- December 31,
1995 1996 1997 1998 1999 1999
------- ------- ------- ------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and short-term
investments............. $ 5,075 $ 8,556 $ 9,566 $25,831 $25,725 $27,049
Working capital.......... 7,999 12,145 12,984 32,751 37,642 41,397
Total assets............. 14,483 19,820 23,581 47,401 55,925 64,077
Shareholders' equity..... 10,352 15,095 16,795 38,611 46,380 51,917
</TABLE>
See Note 1 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used in computing per share data. Cash
and short-term investments in the above table is comprised of cash and
equivalents and short-term investments. Working capital consists of current
assets minus current liabilities.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and our financial statements and the related notes
included in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in the forward-looking statements as a
result of various factors including the risks discussed in "Risk Factors" and
elsewhere in this prospectus.
Overview
Our company was formed in June 1990. We completed our first profitable fiscal
year on June 30, 1993 and have been profitable in each of our last 28 quarters.
We design, manufacture and market high performance digital, analog and mixed-
signal integrated circuits used for the transfer, routing, and timing of
digital and analog signals within and between computer, networking, data
communications and telecommunications systems. Our first volume sales occurred
in fiscal 1993 and consisted exclusively of 5-volt 8-bit interface logic
circuits. Since then we have expanded our product offering by introducing the
following products, among others:
. 3.3-volt 16-bit logic circuits and 8-bit digital switches in fiscal
1994;
. clock generators, 3.3-volt clock synthesizers and buffers, and high-
speed interface products for the networking industry in fiscal 1995;
. 32-bit logic, 16-bit digital switches and Pentium, 56K modem and laser
printer clock synthesizers in fiscal 1996;
. an analog switch family, mixed-voltage logic and a family of clock
generators in fiscal 1997;
. in fiscal 1998, a family of advanced 3.3-volt CMOS logic; clock devices
for Pentium and Pentium II mobile computers; a complete solution for the
PC100 memory module standard; and a 3.3-volt bus switch family offering
the fastest bus switches on the market; and
. in fiscal 1999, three families of 2.5-volt clock drivers for the
networking and telecommunications markets; a family of application-
specific bus switches and integrated clock generators to support the
latest Pentium III and Celeron Intel processors; and a complete
interface solution for the latest memory module standard.
As is typical in the semiconductor industry, we expect selling prices for our
products to decline over the life of each product. Our ability to increase net
revenues is highly dependent upon our ability to increase unit sales volumes of
existing products and to introduce and sell new products in quantities
sufficient to compensate for the anticipated declines in selling prices of
existing products. We seek to increase unit sales volume through increased
wafer fabrication capacity allocations from our existing foundries,
qualification of new foundries, increased number of die per wafer through die
size reductions and improved yields of good die through the implementation of
advanced process technologies. In fiscal 1997 and 1998, approximately 90% of
the wafers for our semiconductor products were manufactured by Chartered.
Chartered manufactured approximately 85% of our wafers in fiscal 1999 and
approximately 77% in the three-month period ended December 31, 1999. We
qualified Austria Mikro Systeme as a wafer supplier in fiscal 1991, NJR in
fiscal 1995, Taiwan Semiconductor in fiscal 1997 and Hyundai Electronics
America in 1998.
Declining selling prices will adversely affect gross margins unless we are
able to offset such declines with the sale of new, higher-margin products or
achieve commensurate reductions in unit costs. We seek to improve our overall
gross margin through the development and introduction of selected new products
that we believe will ultimately achieve higher gross margins. A higher gross
margin for a new product is typically not achieved until some period after the
initial introduction of the product--after start-up expenses for that product
have
19
<PAGE>
been incurred and once volume production begins. In general, costs are higher
at the introduction of a new product due to the use of a more generalized
design schematic, lower economies of scale in the assembly phase and lower die
yield. Our ability to decrease unit cost depends on our ability to shrink the
die sizes of our products, improve yields, obtain favorable subcontractor
pricing, and make in-house test and assembly operations more productive and
efficient. However, these efforts, even if successful, may not be sufficient to
offset declining selling prices.
We recognize revenue from the sale of products when shipped, less an
allowance based on future authorized and historical patterns of returns, price
protection, exchanges and other concessions. We believe our methodology and
approach are appropriate. However, if the actual amounts we incur exceed the
allowances, it could decrease our revenue and corresponding gross profit. We
accrue estimated costs for exchanges, returns, price protection and other
concessions in the period that sales are recognized.
Results of Operations
The following table sets forth certain statement of income data as a
percentage of net revenues for the periods indicated.
<TABLE>
<CAPTION>
Six Months
Fiscal Year Ended Ended
June 30, December 31,
------------------- --------------
1997 1998 1999 1998 1999
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 63.3 59.5 59.3 60.6 58.0
----- ----- ----- ------ ------
Gross margin............................. 36.7 40.5 40.7 39.4 42.0
Operating expenses:
Research and development................. 12.6 10.3 10.0 9.7 9.3
Selling, general and administrative...... 18.1 15.9 15.3 15.1 14.0
----- ----- ----- ------ ------
Total operating expenses............... 30.7 26.2 25.3 24.8 23.3
----- ----- ----- ------ ------
Income from operations..................... 6.0 14.3 15.4 14.7 18.7
Other income, net.......................... 1.1 1.5 1.8 1.9 1.5
----- ----- ----- ------ ------
Income before income taxes................. 7.1 15.8 17.2 16.6 20.3
Provision for income taxes................. 2.3 5.3 5.9 5.6 7.7
----- ----- ----- ------ ------
Net income................................. 4.8% 10.5% 11.3% 11.0% 12.6%
===== ===== ===== ====== ======
</TABLE>
Six Months Ended December 31, 1998 and December 31, 1999
Net Revenues. Net revenues consist primarily of product sales, which are
recognized upon shipment, less an estimate for returns and allowances. Net
revenues increased 29.5% from $29.1 million for the six-month period ended
December 31, 1998 to $37.6 million for the six-month period ended December 31,
1999. The increase in net revenues is attributable to the overall strength in
the semiconductor industry, continued market acceptance of our existing
products and sales of new products in our SiliconInterface, SiliconSwitch and
SiliconClock product lines, partially offset by a decline in the weighted
average selling price of all products. Sales to domestic and international
distributors as a percent of total revenues increased to 61.4% in the first
half of fiscal 2000 from 55.2% in the comparable period in fiscal 1999. Sales
to Techmosa, an international distributor, accounted for approximately 15% of
net revenues in the first half of both fiscal 1999 and fiscal 2000.
Gross Profit. Gross profit increased 38.1% from $11.5 million for the six-
month period ended December 31, 1998 to $15.8 million for the six-month period
ended December 31, 1999. Gross margin for the same six-month periods increased
from 39.4% last year to 42.0% this year. The increase in gross margin
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resulted from the introduction and sale of new products at higher gross
margins, a shift in mix towards higher margin products, and cost reductions
achieved through reduced wafer, assembly and test costs. These margin increases
were partially offset by decreases in average selling prices in our various
product lines.
Research and Development. Research and development expenses increased from
$2.8 million for the six-month period ended December 31, 1998, to $3.5 million
for the six-month period ended December 31, 1999, an increase of 24.3%, but
also decreased as a percent of sales from 9.7% to 9.3% for those periods. The
dollar increase was attributable to development costs for new products in each
of our product lines and expansion of our engineering staff and related
infrastructure as we continued our commitment to new product development. We
believe that continued spending on research and development to develop new
products and improve manufacturing processes is critical to our success and,
consequently, expect to increase research and development expenses as a
percentage of net revenues in future periods.
Selling, General and Administrative. Selling, general and administrative
expenses consist primarily of personnel and related overhead costs for sales,
marketing, finance, human resources and general management. These costs include
advertising, sales materials, sales commissions and other marketing and
promotional expenses. Selling, general and administrative expenses increased
from $4.4 million for the six-month period ended December 31, 1998, to $5.3
million for the six-month period ended December 31, 1999, an increase of 20.2%,
but also decreased as a percent of sales from 15.1% to 14.0% for those periods.
The dollar increase was primarily due to increased staffing levels,
particularly in sales and marketing and increases in commissions due to sales
growth. We anticipate that selling, general and administrative expenses will
increase in future periods due to increased staffing levels, particularly in
sales and marketing, as well as increased commission expense to the extent we
achieve higher sales levels.
Other Income, Net. Other income, net includes interest income and our
allocated portion of net losses of Pericom Technology, Inc., a British Virgin
Islands corporation based in Shanghai, People's Republic of China. Pericom
Technology was formed by Pericom and some of our shareholders in 1994 to
develop and market semiconductors in China and other Asian countries. For more
information regarding Pericom Technology, see Note 4 of Notes to Financial
Statements. Other income, net rose slightly from $566,000 for the six-month
period ended December 31, 1998, to $580,000 for the six-month period ended
December 31, 1999, as our share of the net losses of Pericom Technology
increased from $153,000 to $168,000 and interest income rose from $719,000 to
$748,000 for the same periods.
Provision for Income Taxes. The provision for income taxes was $1.6 million
and the effective tax rate was 34.0% for the six-month period ended December
31, 1998. For the six-month period ended December 31, 1999, the provision for
income taxes was $2.9 million and the effective tax rate was 37.9%. The
increase in the effective tax rate is due to the tax rate structure applied to
the increased taxable income levels and the use of a 40.0% effective tax rate
in the quarter ended September 30, 1999 as a result of the expiration of the
research and development tax credit. The research and development tax credit
has since been extended, which has reduced the annual effective rate. The
provision for income taxes also differed from the federal statutory rate due to
state income taxes.
Comparison of Fiscal 1997, 1998 and 1999
Net Revenues. Net revenues increased 48.3% from $33.2 million in fiscal 1997
to $49.2 million in fiscal 1998. This increase in net revenues was attributable
to increased sales volume in all of our product families, and in particular the
SiliconSwitch product line. Net revenues increased 21.5% from $49.2 million in
fiscal 1998 to $59.8 million in fiscal 1999. The increase in net revenues was
attributable to increased sales volume in our SiliconSwitch and SiliconClock
product lines, partially offset by a decrease in the sales volume of the
SiliconInterface product line and a decline in the weighted average selling
price for all products.
Gross Profit. Gross profit increased 63.5% from $12.2 million in fiscal 1997
to $19.9 million in fiscal 1998. Gross margin increased from 36.7% in fiscal
1997 to 40.5% in fiscal 1998. This increase in gross margin
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resulted from cost reductions in excess of decreases in the average selling
prices in our various product lines and the introduction of new products at
higher gross margins. Cost reductions were achieved in each of our product
lines through reduced wafer costs, lower per unit assembly and test costs, and
increased die per wafer resulting from reduced design geometries. Gross profit
increased 22.1% from $19.9 million in fiscal 1998 to $24.3 million in fiscal
1999. Gross margin rose slightly to 40.7% in fiscal 1999 versus 40.5% in fiscal
1998. This increase is due to the introduction of higher gross margin new
products and ongoing reductions in wafer, assembly and test costs although
these improvements were offset to some extent by decreases in average selling
prices in our various product lines.
Research and Development. Research and development expenses increased 21.0%
from $4.2 million in fiscal 1997 to $5.1 million in fiscal 1998 but decreased
as a percentage of net revenues from 12.6% in fiscal 1997 to 10.3% in fiscal
1998. Research and development expenses increased 18.0% from $5.1 million in
fiscal 1998 to $6.0 million in fiscal 1999 but decreased slightly as a
percentage of net revenues from 10.3% to 10.0%. The increase in absolute
dollars in research and development spending in each year was attributable to
development costs for new products in each of our product lines and expansion
of our engineering staff as we continued our commitment to new product
development.
Selling, General and Administrative. Selling, general and administrative
expenses increased 30.1% from $6.0 million in fiscal 1997 to $7.8 million in
fiscal 1998, but decreased as a percentage of net revenues from 18.1% in fiscal
1997 to 15.9% in fiscal 1998. The increase in expense was attributable to
increased staffing levels, particularly in sales and marketing, as well as
increased commission expense due to higher sales levels. Selling, general and
administrative expenses increased 17.7% from $7.8 million in fiscal 1998 to
$9.2 million in fiscal 1999 but decreased as a percentage of net revenue from
15.9% to 15.3%. The increase in expense in absolute dollars was attributable to
increased staffing levels, particularly in sales and marketing and the addition
of a sales office in Japan.
Other Income, Net. Other income, net increased from $351,000 in fiscal 1997
to $738,000 in fiscal 1998. Interest income increased from $431,000 in fiscal
1997 to $1.1 million in fiscal 1998 as a result of our investment of the net
proceeds from our initial public offering. The increased interest income in
fiscal 1998 was partially offset by an increase of $265,000 in our share of the
net losses of Pericom Technology. Other income, net increased from $738,000 in
fiscal 1998 to $1.1 million in fiscal 1999. Interest income increased from
$1.1 million in fiscal 1998 to $1.4 million in fiscal 1999 as a result of our
investment of the net proceeds from our initial public offering. The proceeds
were invested for the full fiscal year in 1999 versus approximately eight
months in fiscal 1998. Our share of the net losses of Pericom Technology
declined from $345,000 in fiscal 1998 to $288,000 in fiscal 1999.
Provision For Income Taxes. The provision for income taxes was $777,000 in
fiscal 1997, $2.6 million in fiscal 1998 and $3.5 million in fiscal 1999. In
each of these fiscal years, the provision for income taxes differed from the
federal statutory rate primarily due to state income taxes and the utilization
of research and development tax credits.
Liquidity and Capital Resources
Prior to our initial public offering in October 1997, we used proceeds from
the private sale of equity securities, bank borrowings and internal cash flow
to support our operations, acquire capital equipment and finance inventory and
accounts receivable growth. Operating activities generated $1.4 million of cash
during the first half of fiscal 1999 and $3.6 million of cash during the first
half of fiscal 2000.
Net cash used for investing activities increased from $1.7 million for the
six months ended December 31, 1998 to $3.9 million for the six months ended
December 31, 1999. We made capital expenditures of approximately $930,000
during the first six months of fiscal 1999 compared with $2.2 million in the
comparable period of fiscal 2000, and also increased net purchases of short-
term investments by $924,000 during the first half of the current fiscal year
compared to the same period last year.
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As of December 31, 1999, our principal sources of liquidity included cash,
cash equivalents and short-term investments of approximately $27.0 million. We
believe that existing cash balances and cash generated from operations,
together with the net proceeds of this offering, will be sufficient to fund
necessary purchases of capital equipment and to provide working capital at
least through the next 12 months. However, future events may require us to seek
additional capital sooner. If we determine that we need to seek additional
capital, we may not be able to obtain adequate capital on terms acceptable to
us.
Year 2000 Disclosure
The date is now past January 1, 2000 and we have not experienced any
immediate adverse impact from the transition to the year 2000. However, we
cannot provide assurance that our suppliers and customers have not or will not
be affected in a manner that is not yet apparent. We use software, computer
technology and other services internally developed and provided by third-party
vendors that may fail due to the year 2000 phenomenon. This failure may involve
significant time and expense, and uncorrected problems could seriously harm our
business. In addition, the potential failure of our customers to ensure that
their operations are year 2000 compliant could have an adverse effect on them,
which in turn could limit their ability to use our products and services or
process our invoices in a timely manner. Furthermore, customers or potential
customers may delay purchasing our products and services to the extent such
customers or potential customers are required to devote resources to resolving
the year 2000 problem. Therefore, we will continue to monitor year 2000
compliance and the year 2000 compliance of our suppliers and customers.
Market Risk
At December 31, 1999, our investment portfolio consisted of investment-grade
fixed income securities, excluding those classified as cash equivalents, of
$18.2 million. These securities are subject to interest rate risk and will
decline in value if market interest rates increase. For example, if market
interest rates were to increase immediately and uniformly by 10% per annum from
levels as of December 31, 1999, the fair market value of the portfolio would
decrease. However, we do not believe that such a decrease would have a material
effect on our results of operations over the next fiscal year. Due to the short
duration and conservative nature of these instruments, we do not believe that
we have a material exposure to interest rate risk.
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BUSINESS
We design, develop and market high-performance interface ICs used in many of
today's advanced electronic systems. Interface ICs, such as interface logic,
switches and clock management products, transfer, route and time electrical
signals among a system's microprocessor, memory and various peripherals and
between interconnected systems. The current high demand for bandwidth to
support the growth of the Internet will require continual improvements in the
performance of interface products. Our interface products increase system
bandwidth in applications such as notebook computers, servers, network switches
and routers, storage area networks and wireless base stations. We offer
products that increase bandwidth by widening the data path, or bus (enlarging
the pipe), increasing the data rate (increasing the flow rate through the
pipe), or allowing multiple, simultaneous transactions on the bus.
We have combined our extensive design technology and applications knowledge
with our responsiveness to the specific needs of electronic systems developers
to become a leading supplier of high-performance interface ICs. We have evolved
from one product line in fiscal 1992 to four currently--SiliconSwitch,
SiliconInterface, SiliconClock and SiliconConnect--with a goal of providing an
increasing breadth of interface IC solutions to our customers. We currently
offer over 400 products, of which 37 were introduced during the six months
ended December 31, 1999. Our customers include leading OEMs, contract
manufacturers and distributors.
The Pericom Strategy
We are a leading supplier of high-performance interface ICs. While our
products address a wide spectrum of applications, we have focused our resources
on solving bandwidth bottlenecks in customers' systems using our high
performance interface technology. With processing power doubling every 18
months historically, the speed at which microprocessors can access memory
becomes the bandwidth constraint in high speed computing. We have developed
solutions with Intel, IBM and Rambus to support higher-speed processor-memory
interfacing, which support the latest memory standards, on both the system
motherboard and the memory modules. In server applications, we support higher
system bandwidth through the use of high frequency clock products, which
provide timing signals to synchronize data transfer, and bus switches that
isolate a system's memory modules from the bus when they are not being
addressed.
Products are defined in collaboration with the industry-leading OEMs and
industry enablers such as Intel and IBM, and our modular design methodology
shortens our time to market and time to volume relative to our competitors. The
key elements of our strategy are:
Market Focus. Our market strategy is to focus on the high-growth, high-
performance segments of the computing, networking and telecommunications
markets. Currently, we design and sell products for specific high-volume
applications within these target markets, including notebook computers,
computer servers, local area network, or LAN, and wide area network, or WAN,
switches, routers and hubs and multi-function office peripherals such as
printers and copiers. Our customers and end-users of our products include a
number of leading OEMs in each market:
. Acer, Compaq, Dell, IBM and Toshiba in the notebook market;
. Compaq, Dell and Intel in the server market;
. Cabletron Systems, Cisco Systems, Lucent, Newbridge Networks and Nortel
Networks in the network equipment market; and
. Canon, Lexmark and Xerox in the printer and copier market.
We intend to pursue new opportunities in markets where our rapid-cycle IC
design and development expertise and understanding of the product evolution of
our customers gives us the opportunity to become a leading solution supplier.
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Customer Focus. Our customer strategy is to use a superior level of
responsiveness to customer needs to continually expand our customer base as
well as sell a wider range of products to our existing customers. Key elements
of our customer strategy are:
. Penetrate target accounts through joint product development. We approach
prospective customers primarily by working with their system design
engineers at the product specification stage with the goal that one or
more Pericom ICs will be incorporated into a new system design. Our
understanding of our customers' requirements combined with our ability
to develop and deliver reliable, high-performance products within our
customers' product introduction schedules has enabled us to establish
strong relationships with several leading OEMs.
. Solidify customer relationships through superior responsiveness. We
believe that our customer service orientation is a significant
competitive advantage. We seek to maintain short product lead times and
provide our customers with excellent on-schedule delivery, in part by
having available adequate finished goods inventory for anticipated
customer demands. We emphasize product quality for our products and have
been ISO-9001 certified since March 1995.
. Expand customer relationships through broad-based solutions. We aim to
grow our business with existing customers by offering product lines that
provide increasingly extensive solutions for our customers' high-speed
interfacing needs. By providing our customers with superior support in
existing programs and anticipating our customers' needs in next-
generation products, we have often been able to substantially increase
our overall volume of business with those customers. With larger
customers we have also initiated electronic data interchange, or EDI,
and remote warehousing programs, annual purchase and supply programs,
joint development projects and other services intended to enhance our
position as a key vendor.
Technology Focus. Our technology strategy is to maintain a leading position
in the development of new, higher-performance interface ICs by continuing to
design additional core cells that address the more challenging problems of
signal interface as electronic systems become faster and require lower power
and voltages. Our primary efforts are in the creation of additional proprietary
digital, analog and mixed-signal functionalities. We are working closely with
our wafer suppliers to incorporate their advanced CMOS process technologies to
improve our ability to introduce next generation products expeditiously. We
intend to expand our patent portfolio with the goal of providing increasingly
proprietary product lines.
Manufacturing Focus. Our manufacturing strategy is closely integrated with
our focus on customer needs. Central to this strategy is our intent to support
high-volume shipment requirements on short notice from customers. We design
products so that we may manufacture any one of many different ICs from a single
partially-processed wafer. Accordingly, we keep inventory in the form of wafer
banks, from which wafers can be completed to produce a variety of specific ICs
in as little as two to four weeks. This approach has enabled us to reduce our
overall work-in-process inventory while providing increased availability to
produce a variety of finished products. In addition, we keep some inventory in
the form of die banks, which can become finished product in two weeks or less.
We have established relationships with two leading foundries, Chartered and
Taiwan Semiconductor, and have recently qualified Hyundai as a third. We are
maintaining our relationships with Austria Mikro Systeme and NJR for some of
our products that are manufactured in bipolar CMOS, or biCMOS, and high-voltage
CMOS processes.
Strategic and Collaborative Relationships Focus. We pursue a strategy of
entering into new relationships and expanding existing relationships with
companies that engage in the product design, manufacturing and marketing of
ICs. We believe that these relationships have enabled us to access additional
design and application expertise, accelerate product introductions, reduce
costs and obtain additional needed capacity. In product design, we have engaged
Pericom Technology, Inc., an affiliated company, and other design houses to
develop interface ICs as a means of rapidly expanding our product portfolio. We
have established collaborative relationships with leading wafer manufacturers
that have high performance digital core libraries that we can use in our future
products.
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Products
We have used our expertise in high-performance digital, analog and mixed-
signal IC design, our reusable core cell library and our modular design
methodology to achieve a rapid rate of new product introductions. Within each
of our four product lines, the product portfolio has evolved from a standard
building block into both standard products of increasing performance and
application-specific standard products, or ASSPs, which are tailored to meet a
specific high volume application. Within each product family we continue to
address the common trends of decreasing supply voltage, higher integration and
faster speeds.
SiliconSwitch
Through our SiliconSwitch product line, we offer a broad range of high-
performance ICs for switching digital and analog signals. The ability to switch
or route high-speed digital or analog signals with minimal delay and signal
distortion is a critical requirement in many high-speed computers, networking
and multimedia applications. Historically, systems designers have used
mechanical relays, solid-state relays and analog switches, which have
significant disadvantages as compared to IC switches: mechanical relays are
bulky, dissipate significant power and have very low response times; solid-
state relays are expensive and dissipate significant power; and traditional
analog switches have significant signal distortion.
Digital Switches. We offer a family of digital switches in 8-, 16- and 32-bit
densities that address the switching needs of high-performance systems. These
digital switches offer performance and cost advantages over traditional switch
functions, offering low on-resistance (less than 5 ohms), low propagation delay
(less than 250 picoseconds), low standby power (less than 1 microamp) and
series resistor options that support low electromagnetic interference, or EMI,
emission requirements. Applications for our digital switches include 5-volt to
3.3-volt signal translation, high-speed data transfer and switching between
microprocessors and multiple memories, and hot plug interfaces in notebook and
desktop computers, servers and switching hubs and routers. During fiscal 1999,
we introduced two families of 3.3-volt switches offering industry-leading
performance in switching times, and low capacitance for bus isolation
applications.
Analog Switches. We offer a family of analog switches for low-voltage (2- to
5-volt) applications such as multimedia audio and video signal switching with
enhanced characteristics such as low power, high bandwidth, low crosstalk and
low distortion to maintain analog signal integrity. Our analog switches have
significantly lower distortion than traditional analog switches due to our
advanced CMOS switch design. To support space-constrained applications, such as
wireless handsets and global positioning system, or GPS, receivers, several of
these switches have recently been introduced in the tiny SOT-23 and SC70
packages. To complement this low-voltage family we also offer a higher voltage
(17-volt) analog switch family for applications requiring higher signal range,
such as instrumentation, telecommunications and industrial control.
LAN Switches and Video Switches. We offer a line of ASSP switches for
specific applications in LANs and high bandwidth video switches to switch
between different video sources in graphic and multi-media systems.
SiliconInterface
Through our SiliconInterface product line, we offer a broad range of high-
performance 5-volt, 3.3-volt, and 2.5-volt CMOS logic interface circuits. These
products provide logic functions to handle data transfer between
microprocessors and memory, bus exchange, backplane interface, and other logic
interface functions where high-speed, low-power, low-noise and high-output
drive characteristics are essential.
5-Volt Interface Logic. Our high-speed 5-volt interface logic products in 8-,
16- and 32-bit configurations address specific system applications, including a
"Quiet Series" family for high-speed, low-noise, point-to-point data transfer
in computing and networking systems and a "Balanced Drive" family with series
resistors at output drivers to reduce switching noise in high-performance
computers. We recently introduced a new
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5-volt family that achieves lower noise performance at high speeds, which is
particularly useful for large data communications and telecommunications
switches.
3.3-Volt Interface Logic. To support the trend toward lower system voltages
for higher silicon integration, system performance and power savings we offer
four families of 3.3-volt interface logic to address a range of performance and
cost requirements with very lower power consumption. Increasingly, networking,
PC and memory module manufacturers are demanding application specific logic
products. We believe we are well positioned to serve this need using our ASIC
design methodology and existing cell designs to achieve rapid product
development.
2.5-Volt Interface Logic. Our 2.5-volt product families include:
. three new logic families to address 2.5- and 1.8-volt operation;
. a family of products with high output current offering sub-2.5
nanosecond propagation delays and the lowest power consumption in its
class;
. a lower balanced drive with a propagation delay of less than 2
nanoseconds to support high speed processor-memory interfacing; and
. a balanced drive family optimized for low-noise operation.
SiliconClock
In all new high bandwidth systems data transfer needs to be synchronized,
creating a high demand for clock products. Our clock products provide all the
precise timing signals needed to ensure reliable data transfer at high speeds
in applications ranging from notebook computers to network switches. As systems
continue to grow in processing power and complexity, the demand for these
products is expected to accelerate. The demand for precision will also increase
as timing margins shrink in higher bandwidth systems.
Through our SiliconClock product line, we offer a broad range of general-
purpose solutions including clock buffers, zero-delay clock drivers and
frequency synthesizer products for Pentium II, Pentium III and Celeron
processor systems, as well as a number of ASSP clock products for laser
printers, networking, and set-top box applications.
Clock Buffers And Zero-Delay Clock Drivers. Clock buffers receive a digital
signal from a frequency source and create multiple copies of the same frequency
for distribution across system boards. We offer 3.3-volt and 5-volt clock
buffers for high-speed, low-skew applications in computers and networking
equipment. Zero-delay clocks virtually eliminate propagation delays by
synchronizing the clock outputs with the incoming frequency source. Our 5-volt
and 3.3-volt zero-delay clock drivers offer frequencies of up to 134 MHz for
applications in networking switches, routers and hubs, computer servers, and
memory modules. Clock products to support the emerging Rambus and double date
rate, or DDR, memory technologies are also in development.
Clock Frequency Synthesizers. Clock frequency synthesizers generate various
output frequencies using a single input frequency source. Clock frequency
synthesizers are used to provide critical timing signals to microprocessors,
memory and peripheral functions. Our clock synthesizers support Pentium II,
Pentium III and Celeron microprocessors and their associated integrated
chipsets for server, notebook and desktop PC products. We also offer a clock
synthesizer developed specifically for laser printer products.
Programmable Clocks. In large computing and communications systems customers
need to provide precise timing across large printed circuit boards, or PCBs. At
the very high frequencies used today these large PCB traces can result in
significant timing delays and matching these delays (or timing skew) can be a
significant challenge for the system designer. We have responded to this
challenge with the introduction of a family of programmable skew clock
products.
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SiliconConnect
SiliconConnect is our newest product line and offers the highest complexity
and integration among our products. It consists of a family of high-speed
serial drivers, receivers, and transceivers and cross-bar switches. We are also
developing a three-port PCI-to-PCI bridge that serves to expand the number of
input/output ports in systems using the peripheral component interconnect, or
PCI, bus. Applications range from network routers to memory storage and server
applications.
To support higher system bandwidth at acceptable noise and power levels
customers are increasingly moving to serial rather than parallel architectures
and using differential signaling to reduce noise and EMI. We have responded to
this trend with the development of a family of drivers, receivers and
transceivers offering data rates of 400 megabits per second, or mbps, and
allowing point-to-point connections over distances greater than 10 meters. This
new low-voltage differential signaling, or LVDS, standard offers a number of
improvements over the older emitter-coupled logic, or ECL, and pseudo emitter-
coupled logic, or PECL, in applications requiring lower power consumption and
noise.
Another technology recently introduced by us to support higher bandwidth is
cross-bar switching to allow multiple processors and memory modules to
communicate on point-to-point connections across a shared bus. This enables a
significant boost in bandwidth in data communications, telecommunications and
storage area network applications. The first product in this new family is a
10-port, 18-bit crossbar switch that can support a bandwidth of 742 megabytes
per second.
We are continuing to enhance and refine our existing product lines, while
working to add next-generation products that address new market opportunities
on a timely basis.
Targeted Markets and Applications
Our products and technology are applicable to the transfer, routing and
timing of signals in many different system designs. We currently focus on the
high-performance segments of the notebook computer, computer server and
networking equipment markets, which we believe are experiencing high volume and
high growth.
Notebook Computers
Our SiliconInterface, SiliconSwitch and SiliconClock products are currently
used by notebook OEMs for a broad range of applications, including docking
station interface, high-speed transfer and timing of signals among memories and
microprocessors, mixed-voltage translations and audio and video switching. Set
forth below is a simplified block diagram of a typical high-performance
multimedia notebook computer connected to a docking station.
[DIAGRAM OF NOTEBOOK COMPUTER AND DOCKING STATION]
[Inserted in the text are graphics consisting of two rectangular boxes,
labeled "Docking Station" and "Notebook Computer". Within these boxes are
smaller boxes representing elements of a docking station and a notebook
computer, with the interconnection of these elements shown by lines. The
elements offered by Pericom are marked with a Pericom logo:
. a "switch" in the box representing a docking station; and
. "logic", a "switch" and a "clock" in the box representing a notebook
computer.
The box representing the docking station is connected to the box representing
the notebook computer by a line.]
High-performance notebook computers pose unique engineering challenges due to
their small size, the need for long battery life and the desire to achieve
performance levels comparable to desktop computers. To enable higher overall
system speed and support size reduction, we provide clock products that provide
all the system timing signals from a single chip. To reduce power consumption
and extend battery life, we provide a
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variety of 3.3-volt interface logic, clock management and switching ICs. To
provide multimedia options in this demanding environment, we offer low-
distortion, high-bandwidth video switches for high-resolution video and low-
distortion analog switches for high-fidelity audio signal switching. To permit
connection to office networks without turning the power off, we provide digital
switches for implementing hot-plug docking station interface and PCMCIA cards.
Our customers in the notebook computer segment include Acer, Compaq, Dell,
IBM and Toshiba.
Computer Servers
We offer a range of products to support the server market from the single
office home office, or SOHO, class of products to large enterprise servers used
by Internet service providers (ISPs). The diagram below is a simplified
representation of an enterprise server.
[DIAGRAM OF ENTERPRISE SERVER]
[Inserted in the text are graphics consisting of two rectangular boxes,
labeled "PC Server" and "DDR Memory Module". Within these boxes are smaller
boxes representing elements of a PC server and DDR memory module, with the
interconnection of these elements shown by lines. The elements offered by
Pericom are marked with a Pericom logo:
. "hot plug switch[es]", two "clock[s]", "DIMM switch[es]", and two sets of
"termination switch[es]" in the box representing a PC server; and
. "switch[es]", "clock[s]" and "logic" boxes in the box representing a DDR
memory module.]
The latest generation of server products uses a 133MHz processor-memory bus
interface to achieve the highest data throughput. Operating at frequencies this
high requires very accurate timing synchronization to avoid data loss. This
synchronization is provided by a clock generator that also supplies the timing
signals for the memory modules and the other peripheral busses. To support the
need for zero downtime, bus switches are used to isolate and protect the bus
during live insertion of a PCI card. With the need for around-the-clock server
operation in many businesses this feature is becoming more popular to avoid
powering down the system. Another application for bus switches within a server,
which we pioneered, is for accurate bus termination. High density switch
products are also used to isolate each of the memory modules from the main
processor bus when the memory is not being accessed. This isolation reduces the
load on the bus and enables it to operate at its optimum speed.
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To ensure accurate memory transfers at these higher frequencies, designers
are turning to the use of interface logic and clocking on-board the memory
modules with the interface logic used to buffer the memory address lines and
the clock used to ensure zero propagation delay from the module connector to
each of the individual memory chips on the module. Each successive generation
of synchronous memory technology utilizes more interface technology to ensure
reliable memory transfers at ever higher speeds. The next-generation
synchronous memory technology, DDR SDRAM, which will operate at 266 megahertz,
will use bus switches to individually isolate each memory chip from the bus in
order to further improve timing margins and enhance performance.
Our customers in this segment include Compaq, Dell and Intel.
Network Equipment: Networking Hubs, Switches and Routers
We currently supply a broad range of products for high-performance hubs,
switches and routers, servicing applications such as Ethernet and FastEtherent
protocol switching, hub-to-hub connections, clock distribution, backplane drive
and hot plug interface. Set forth below is a simplified block diagram of a
typical network switching hub.
[DIAGRAM OF NETWORK SWITCHING HUB]
[Inserted in the text are graphics consisting of a rectangular box labeled
"Network Switch/Router". Within this box are smaller boxes representing
elements of a network switching hub, with the interconnection of these elements
shown by lines. The elements offered by Pericom are marked with a Pericom logo:
a "switch", a "PCI bridge", "logic", a "clock", a "clock buffer" and "LAN
switch[es]".]
Advanced networking systems require high-bandwidth performance, multi-
protocol processing, ease of maintenance and reliability. We offer numerous
products to address these requirements. To save board space, we integrate the
timing signals for the microprocessor, memory and peripherals into a single
programmable clock synthesizer that eliminates multiple crystal oscillators. To
improve performance and reliability we also offer a range of programmable skew
clock products with zero propagation delay. These products can be used to
synchronize timing signals across large printed circuit boards or across
multiple boards in a rack system. For large switches and routers, backplanes,
or data buses, are used to communicate between multiple processor boards
mounted into a rack. To ensure reliable operation, high speed interface logic
with high output current is used to drive the heavy loaded backplane bus. The
PCI bus standard is increasingly used as the backplane in data communications
and telecommunications switches and routers. A PCI-to-PCI bridge is necessary
to expand the number of PCI slots on the backplane to support a higher number
of boards in the chassis for higher density routers. To support ease of system
maintenance, we offer digital switches for hot-plug interfacing to permit
insertion of additional circuit boards while power remains on. To support
multiple protocol switching, we offer two low-distortion LanSwitches for
selecting multiple LAN protocols.
Our customers in this segment include Cabletron Systems, Cisco Systems,
Lucent, Newbridge Networks and Nortel Networks.
30
<PAGE>
Other Markets
In addition to the notebook computer, computer server and network equipment
markets, our products are also used in other market segments such as printers,
copiers, set top boxes, cellular base stations, cellular handsets and high
performance video editing equipment for the film industry. Customers in these
market segments include Canon, Hewlett Packard, Lexmark, Motorola,
Philips/Grundig, Quantel, S3 and Xerox.
Customers
The following is a list of some of our customers and end-users:
Computer Network Equipment
Acer Alcatel
Apple Cabletron
Asustek Cisco
Compal Lucent
Compaq Newbridge Networks
Dell Nortel Networks
Fujitsu Telecommunications, Peripherals and
Hitachi Others
IBM Adaptec
Intel Canon
Inventec Hewlett Packard
NEC Lexmark
Quanta Motorola
Sony Philips/Grundig Quantel
Toshiba S3
Xerox
Contract Manufacturing
Celestica
Flextronics
Jabil Circuit
Natsteel
SCI
Solectron
Contract manufacturers have also become important customers for us as systems
designers in our target markets are increasingly outsourcing portions of their
manufacturing. In addition, these contract manufacturers are playing an
increasingly vital role in determining which vendors' ICs are incorporated into
new designs.
Design and Process Technology
Our design efforts focus on the development of high-performance digital,
analog and mixed-signal ICs. To minimize design cycle times of high-performance
products, we use a modular design methodology that has enabled us to produce
many new products each year and to meet our customers' need for fast time-to-
market response. This methodology uses state-of-the-art computer-aided design
software tools such as high-level description language, or HDL, logic
synthesis, full-chip mixed-signal simulation, and automated design layout and
verification and uses our library of high-performance digital and analog core
cells. This family of core cells has been developed over several years and
contains high-performance, specialized digital and analog functions not
available in commercial ASIC libraries. Among these cells are our proprietary
mixed-voltage input/output, or I/O, cells, high-speed, low-noise I/O cells,
analog and digital phase-locked loops, or PLLs, charge pumps
31
<PAGE>
and data communication transceiver circuits using low voltage differential
signaling. We have been granted 17 U.S. patents relating to our circuit designs
and have at least 10 U.S. patent applications pending. Another advantage of
this modular design methodology is that it allows the application of final
design options late in the wafer manufacturing process to determine a product's
specific function. This option gives us the ability to use pre-staged wafers,
which significantly reduces the design and manufacturing cycle time and enables
us to respond rapidly to a customer's prototype needs and volume requirements.
We use advanced CMOS processes to achieve higher performance and lower die
cost. Our process and device engineers work closely with our independent wafer
foundry partners to develop and evaluate new process technologies. Our process
engineers also work closely with circuit design engineers to improve the
performance and reliability of our cell library. We currently manufacture a
majority of our products using 0.6-, 0.5- and 0.35-micron CMOS process
technologies and anticipate developing new products using 0.25-micron
technology over the next 12 months. We are also using a high-voltage CMOS
process developed by one of our wafer suppliers in the design of higher voltage
switch products.
Sales and Marketing
We market and distribute our products through a worldwide network of
independent sales representatives and distributors. Sales to domestic and
international distributors represented 36.6% of our net revenues in fiscal
1997, 49.1% of our net revenues in fiscal 1998, and 57.2% of our net revenues
in fiscal 1999. In the first six months of fiscal 2000, sales to domestic and
international distributors represented 61.4% of net revenues. Our major
distributors in the United States include All American Semiconductor, Bell
Microproducts, Future Electronics, Interface Electronics, Nu Horizons
Electronics, and Pioneer Standard. Our major international distributors include
Chin Shang Electronics Corp. (Taiwan), EPCO Technology Co., Ltd (Taiwan),
Desner Electronics (Singapore), Internix (Japan), MCM (Japan) and Techmosa
(Taiwan).
We have four regional sales offices in the United States and sales offices in
Taiwan, Singapore, Japan and Europe. International sales comprised
approximately 37% of our net revenues in fiscal 1997, approximately 45% of our
net revenues in fiscal 1998 and approximately 48% of our net revenues in fiscal
1999. We also support field sales design-in and training activities with
application engineers. All marketing and product management personnel are
located at our corporate headquarters in San Jose, California.
We focus our marketing efforts on product definition, new product
introduction, product marketing, advertising and public relations. We use
advertising both domestically and internationally to market our products
independently and in cooperation with our distributors. Pericom product
information is available on our web site, which contains technical information
on all of our products and offers design modeling support and sample-request
capabilities online. We also publish and circulate technical briefs relating to
our products and their applications.
We believe that contract manufacturing customers are strategically important
and we employ sales and marketing personnel who focus on servicing these
customers and on expanding our product sales via these customers to OEMs. In
addition, we use programs such as EDI bonded inventories and remote warehousing
to enhance our service and attractiveness to contract manufacturers.
Manufacturing
We have adopted a fabless manufacturing strategy by subcontracting our wafer
production to independent wafer foundries. We have established collaborative
relationships with selected independent foundries and target additional foundry
partners with which we can develop a strategic relationship to the benefit of
both parties. We believe that our fabless strategy enables us to introduce high
performance products quickly at competitive cost. To date, our principal
manufacturing relationships have been with Chartered Semiconductor
Manufacturing Pte, Ltd., Taiwan Semiconductor Manufacturing Corporation and
Hyundai Electronics. We provide Chartered with new product designs to be used
for testing and qualifying advanced manufacturing
32
<PAGE>
processes from development to production. In exchange, Chartered provides us
with wafer allocation and early access to process technology. We have also used
Austria Mikro Systeme GmbH as a foundry since 1992.
We rely on foreign subcontractors primarily for the assembly and packaging of
our products and, to a lesser extent, for the testing of our finished products.
Some of these subcontractors are our single source supplier for certain new
packages.
Competition
The semiconductor industry is intensely competitive. Significant competitive
factors in the market for high-performance ICs include the following:
. product features and performance;
. product quality;
. price;
. success in developing new products;
. adequate wafer fabrication capacity and sources of raw materials;
. efficiency of production;
. timing of new product introductions;
. ability to protect intellectual property rights and proprietary
information; and
. general market and economic conditions.
Our competitors include Cypress Semiconductor Corporation, Integrated Circuit
Systems, Inc., Integrated Device Technology, Inc., Maxim Integrated Products,
Inc., and Texas Instruments, Inc. Most of those competitors have substantially
greater financial, technical, marketing, distribution and other resources,
broader product lines and longer-standing customer relationships than we do. We
also compete with other major or emerging companies that sell products to
certain segments of our markets. Competitors with greater financial resources
or broader product lines may have a greater ability to sustain price reductions
in our primary markets in order to gain or maintain market share. We also face
competition from the makers of ASICs and other system devices. These devices
may include interface logic functions, which may eliminate the need or sharply
reduce the demand for our products in particular applications.
Research and Development
We believe that the continued timely development of new interface ICs is
essential to maintaining our competitive position. Accordingly, we have
assembled a team of highly skilled engineers whose activities are focused on
the development of signal transfer, routing and timing technologies and
products. Research and development expenses were $4.2 million in fiscal 1997,
$5.1 million in fiscal 1998, $6.0 million in fiscal 1999, and $3.5 million in
the first six months of fiscal 2000.
We actively seek cooperative relationships in product development. For
example, we recently signed an agreement with Lexmark to license its spread
spectrum technology and with Rambus to develop the Direct Rambus Clock
Generator IC.
Intellectual Property
In the United States, we hold 17 patents covering certain aspects of our
product designs and have at least 10 additional patent applications pending. We
expect to continue to file patent applications where appropriate to protect our
proprietary technologies; however, we believe that our continued success
depends primarily on factors such as the technological skills and innovation of
our personnel, rather than on our patents.
33
<PAGE>
Employees
As of December 31, 1999, we had 203 full-time employees and 3 part-time
employees (29 are temporary employees), including 36 in sales, marketing and
customer support, 96 in manufacturing, assembly and testing, 54 in engineering
and quality assurance and 20 in finance and administration, including
information systems. We have never had a work stoppage and no employee is
represented by a labor organization. We consider our employee relations to be
good.
Properties
We lease approximately 53,400 square feet of space in San Jose, California in
which our headquarters, technology and product development and testing
facilities are located. The facilities are leased through July 2004, with
renewal options. We also have sales offices located in San Jose, California;
Dallas, Texas; Marlborough, Massachusetts; and Cary, North Carolina, as well as
in Taiwan, Japan, Singapore and the United Kingdom. We believe our current
facilities are adequate to support our needs through the end of fiscal 2000.
34
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers and directors and their respective ages as of December
31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- ----------
<S> <C> <C>
Alex Chi-Ming Hui....... 43 Chief Executive Officer, President and Chairman
of the Board of Directors
Chi-Hung (John) Hui,
Ph.D.(1)............... 45 Vice President, Technology and Director
Patrick B. Brennan...... 61 Vice President, Finance and Administration
Tat C. Choi, Ph.D. ..... 45 Vice President, Design Engineering
Mark Downing ........... 39 Vice President, Marketing
Daniel W. Wark ......... 43 Vice President, Operations
Hau L. Lee, Ph.D. (1) .. 47 Director
Millard (Mel) Phelps (1)
....................... 71 Director
Tay Thiam Song (2) ..... 44 Director
Jeffery Young (2) ...... 50 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Alex Chi-Ming Hui has been Chief Executive Officer, President and a director
of Pericom since its inception in June 1990, and was elected chairman of our
board of directors in July 1999. From August 1982 to May 1990, Mr. Hui worked
at LSI Logic Corporation, most recently as its Director of Advanced
Development. From August 1980 to July 1982, Mr. Hui was a member of the
technical staff of Hewlett-Packard Company. Mr. Hui holds a B.S.E.E. from the
Massachusetts Institute of Technology and an M.S.E.E. from the University of
California at Los Angeles.
Chi-Hung (John) Hui, Ph.D., has been Vice President, Technology and a
director of Pericom since its inception in June 1990. From August 1987 to June
1990, Dr. Hui worked at Integrated Device Technology, most recently as Manager
of its Research and Development Department. From August 1984 to August 1987,
Dr. Hui worked at was a member of the technical staff of Hewlett-Packard
Company. Dr. Hui holds a B.S.E.E. from Cornell University and an M.S.E.E. and a
Ph.D. in Electrical Engineering from the University of California at Berkeley.
Patrick B. Brennan has been our Vice President, Finance and Administration
since March 1993. From February 1991 to March 1993, Mr. Brennan worked at
Datacord, Inc., a subsidiary of Newell Research, Inc., as its Vice President,
Finance, and from July 1985 to February 1991, he served as the Vice President,
Finance of SEEQ Technology, Inc. From January 1980 to June 1985, he worked at
National Semiconductor Corporation, most recently as Vice President and
Treasurer. Mr. Brennan holds a B.S. in Business Administration from Arizona
State University.
Tat C. Choi, Ph.D., joined us in April 1998 as Vice President, Design
Engineering. From September 1996 to March 1998, Dr. Choi worked at Anacor,
Inc., an engineering design service consulting firm that he founded. Prior to
working at Anacor, Inc. Dr. Choi worked at Chrontel, Inc., most recently as its
Vice President, Engineering from September 1989 to August 1996. Dr. Choi served
as a Senior Member of Technical Staff at Advanced Micro Devices from February
1983 to August 1989. Dr. Choi holds a B.S. and M.S. in Electrical Engineering
from the University of Minnesota and a Ph.D. in EECS from the University of
California at Berkeley.
Mark Downing has been our Vice President, Marketing since October 1997. From
March 1988 to October 1997, Mr. Downing worked at National Semiconductor
Corporation, most recently as the Marketing Director for Power Management
Products. Mr. Downing also held other senior marketing management
35
<PAGE>
positions at National Semiconductor Corporation in the Amplifier Products,
Automotive Products and Analog Products divisions. Prior to National
Semiconductor Corporation Mr. Downing worked at Ferranti Electronics Ltd. from
September 1983 to February 1988, most recently as a Senior Product Marketing
Engineer. Mr. Downing holds a B.S. in Physics from Aston University of
Birmingham, England and an MBA from Open University of Milton Keynes, England.
Daniel W. Wark joined us in April 1996 as our Director of Operations and
became our Vice President, Operations in July 1997. From May 1983 to December
1995, Mr. Wark worked at Linear Technology Corporation, most recently as
Director of Corporate Services. Other positions that Mr. Wark held at Linear
included Managing Director of its Singapore Operations and Production Control
Manager. Prior to his employment with Linear, Mr. Wark worked at National
Semiconductor Corporation and Avantek, Inc. Mr. Wark holds a B.S. in Business
Administration from San Jose State University and an APICS certification.
Hau L. Lee, Ph.D, has been a director of Pericom since July 1999. From
February 1997 through the present Dr. Lee has been Kleiner Perkins, Mayfield,
Sequoia Capital Professor in the Department of Industrial Engineering and
Engineering Management and from September 1998 through the present has been
Professor of Operations, Information and Technology Management at the Graduate
School of Business at Stanford University. From September 1992 through the
present he has been Professor of Industrial Engineering and Engineering
Management at Stanford University. He is the founder and a current director of
the Stanford Global Supply Chain Management Forum, and has consulted
extensively for companies such as Hewlett Packard, Sun Microsystems, IBM,
Xilinx Corporation, Motorola, and Andersen Consulting. Dr. Lee is a graduate of
the University of Hong Kong and earned his M.S. in Operational Research from
the London School of Economics and his M.S. and Ph.D. degrees in Operations
Research from the Wharton School at the University of Pennsylvania.
Millard (Mel) Phelps has been a director of Pericom since July 1999. Mr.
Phelps is a retired advisory director of Hambrecht & Quist, a position he held
from September 1994 to July 1997. Prior to joining Hambrecht & Quist in 1984 as
a principal in the firm and Senior Semiconductor Analyst, Mr. Phelps spent 23
years in the semiconductor industry in various management and corporate officer
positions. Mr. Phelps is currently serving as a director of Trident
Microsystems and is also a director of four privately held companies. Mr.
Phelps holds a BSEE degree with honors from Case Reserve University.
Tay Thiam Song has been a director of Pericom since June 1992. Mr. Tay
resides in Singapore, and, since 1985, has been serving as the Executive
Director of various companies in Singapore and Malaysia, including Daiman Group
(a Malaysian public company) and Chye Seng Tannery (Pte) Ltd. Mr. Tay holds a
B.A. in Accounting from the North East London Polytechnic University.
Jeffrey Young has been a director of Pericom since August 1995. Since 1988,
Mr. Young has been a resident of Singapore and from 1990 to the present has
served as the Executive Director of Daiman Roof Tiles Sdn. Bhd., a subsidiary
of the Daiman Group, and from 1989 to the present as a Director of Great Wall
Brick Work Sdn. Bhd., and from 1993 to the present as a director of Daiman
Singapore (Pte) Ltd., and has been a director of Daiman Investments (Australia)
Pty. Ltd. from 1993 to the present. Mr. Young holds a B.S. from the Electronic
College of Canton, People's Republic of China.
Directors serve until the next annual meeting of the shareholders and until
their successors have been duly elected and qualified. Each officer serves at
the discretion of the board of directors. Mr. Hui and Dr. Hui are brothers, and
Mr. Young and Mr. Tay are brothers-in-law. There are no other family
relationships among any of our directors, officers or key employees.
36
<PAGE>
CERTAIN TRANSACTIONS
In April 1994, Pericom, Alex Chi-Ming Hui, our Chief Executive Officer,
President and Chairman of the Board, Chi-Hung (John) Hui, our Vice President,
Technology, and a director, and Dato' Kia Hong Tay and members of his immediate
family, most of whom are principal shareholders of Pericom, formed Pericom
Technology, Inc., a British Virgin Islands corporation, with principal offices
in Shanghai, People's Republic of China. We hold 18.4% of the outstanding
voting stock of Pericom Technology and our directors, officers and principal
shareholders mentioned above hold substantially all of the remaining 81.6% of
the outstanding Pericom Technology voting stock. Each of our directors is a
director of Pericom Technology, and Alex Chi-Ming Hui is the President and
Chief Executive Officer of Pericom Technology. We have entered into an
agreement, dated as of March 17, 1995, with Pericom Technology that provides
for cost reimbursement between us and Pericom Technology for any facility
sharing or personnel time and specified procedures for funding research and
development and joint development projects. We sold $39,000 in services to
Pericom Technology in fiscal 1997, $61,000 in fiscal 1998, $65,000 in fiscal
1999, and $24,000 in the first six months of fiscal 2000. We purchased $61,000
in services from Pericom Technology in fiscal 1998 and $72,000 in fiscal 1999,
and made no purchases from Pericom Technology in the first six months of fiscal
2000. Pericom Technology owed us $846,000 for advances for working capital made
by us to Pericom Technology and administrative expenses incurred by us on
behalf of Pericom Technology as of June 30, 1998, $2,611,000 as of June 30,
1999, and $3,219,000 as of December 31, 1999. Advances from us to Pericom
Technology bear interest at the prime rate, are due on demand and are
guaranteed by the individual shareholders of Pericom Technology. For more
information, see Note 4 of Notes to Financial Statements.
In September 1995, we entered into an international distributorship agreement
with Pericom Technology, under which we appointed Pericom Technology a non-
exclusive, distributor for some of our products in the People's Republic of
China.
While we believe that all of the transactions described above were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties, we cannot assure you that this is the case. We intend that all
future transactions between us and our officers, directors, principal
shareholders and their affiliates, including transactions with Pericom
Technology, will be on terms no less favorable to us than could be obtained
from unaffiliated third parties.
37
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of January 31, 2000, and as
adjusted to reflect the sale of common stock offered by us in this offering,
for:
. each person known by us to own beneficially more than 5% of the
outstanding shares;
. each of our directors;
. each executive officer; and
. all executive officers and directors as a group.
Except as otherwise indicated, the principal address of each of the
shareholders below is c/o Pericom Semiconductor Corporation, 2380 Bering Drive,
San Jose, California 95131. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and includes voting or
investment power with respect to the securities. To our knowledge, except as
indicated by footnote, and subject to applicable community property laws, each
person named in the table has sole voting and investment power with respect to
all shares of common stock shown held by him.
The number of shares of common stock outstanding used in calculating the
percentage for each listed person is based on 9,788,959 shares of common stock
outstanding as of January 31, 2000, and includes shares of common stock
underlying options or warrants held by that person that are exercisable within
60 days of January 31, 2000, but excludes shares of common stock underlying
options or warrants held by any other person. The selling shareholders will
offer shares of common stock only in the over-allotment option, if the over-
allotment option is exercised by the underwriters. The numbers shown in the
table assume the exercise by the underwriters of their over-allotment option in
full.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Shares Beneficially
Owned Prior to Being Owned After
the Offering Offered the Offering
----------------- ------- -----------------
Name of Beneficial Owner Number Percent Number Percent
- ------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Alex Chi-Ming Hui (1).............. 895,654 8.90% 100,000 795,654 6.40%
Wellington Management Company, LLP
(2)............................... 670,200 6.85% -- 670,200 5.51%
75 State Street
Boston, Massachusetts 02109
Chi-Hung (John) Hui (3)............ 628,630 6.31% 50,000 578,630 4.69%
Brookside Capital Partners, Fund,
L.P.(4)
Two Copley Place
Boston, Massachusetts 02116....... 505,000 5.16% -- 505,000 4.15%
Tay Thiam Song (5)................. 183,750 1.87% -- 183,750 1.51%
16 Linden Drive
Singapore 288691
Jeffrey Young (6).................. 81,250 * -- 81,250 *
67 Saraca Road
Singapore 807402
Patrick B. Brennan (7)............. 73,480 * -- 73,480 *
Tat C. Choi (8).................... 32,500 * -- 32,500 *
Daniel W. Wark (9)................. 40,376 * -- 40,376 *
Mark Downing (10).................. 25,417 * -- 25,417 *
Hau L. Lee......................... 5,000 * -- 5,000 *
265 Delphi Circle
Los Altos, California 94022
Millard Phelps (11)................ 5,000 * -- 5,000 *
6798 Griffin Road
Ft. Myers, Florida 33908
All executive officers and
directors as a group (ten persons)
(12).............................. 1,971,057 18.93% 150,000 1,821,057 14.24%
</TABLE>
- --------
*Less than 1% of outstanding common stock.
38
<PAGE>
(1) Includes 272,709 shares issuable upon exercise of stock options exercisable
within 60 days of January 31, 2000.
(2) This information is based on the Schedule 13G filed on February 10, 1999.
(3) Includes 170,000 shares issuable upon exercise of stock options exercisable
within 60 days of January 31, 2000.
(4) This information is based on the Schedule 13G filed on August 31, 1999.
(5) Includes 23,750 shares issuable upon exercise of stock options exercisable
within 60 days of January 31, 2000.
(6) Includes 23,750 shares issuable upon exercise of stock options exercisable
within 60 days of January 31, 2000.
(7) Includes 29,480 shares issuable upon exercise of stock options exercisable
within 60 days of January 31, 2000.
(8) Includes 32,500 shares issuable upon exercise of stock options exercisable
within 60 days of January 31, 2000.
(9) Includes 39,376 shares issuable upon exercise of stock options exercisable
within 60 days of January 31, 2000.
(10) Includes 25,417 shares issuable upon exercise of stock options exercisable
within 60 days of January 31, 2000.
(11) Includes 5,000 shares issuable upon exercise of stock options exercisable
within 60 days of January 31, 2000.
(12) Includes 621,982 shares issuable upon exercise of stock options
exercisable within 60 days of January 31, 2000.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Boston EquiServe LP.
Its address is 150 Royall Street, Canton, Massachusetts 02021, and its
telephone number is (617) 774-5573.
39
<PAGE>
UNDERWRITING
We and the selling shareholders have entered into an underwriting agreement
with the underwriters named below, for whom Prudential Securities Incorporated,
CIBC World Markets Corp., SoundView Technology Group, Inc., and C.E. Unterberg,
Towbin are acting as representatives. We and the selling shareholders are
obligated to sell, and the underwriters are obligated to purchase, all of the
shares offered on the cover page of this prospectus, if any are purchased.
Subject to certain conditions in the underwriting agreement, each underwriter
has severally agreed to purchase the shares indicated opposite its name:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Prudential Securities Incorporated...................................
CIBC World Markets Corp. ............................................
SoundView Technology Group, Inc. ....................................
C.E. Unterberg, Towbin...............................................
Total............................................................
</TABLE>
The underwriters may sell more shares than the total number of shares offered
on the cover page of this prospectus and they have, for a period of 30 days
from the date of this prospectus, an over-allotment option to purchase up to
180,000 additional shares from us and 150,000 additional shares from the
selling shareholders. If any additional shares are purchased, the underwriters
will severally purchase the shares in the same proportion as per the table
above.
The representatives of the underwriters have advised us and the selling
shareholders that the shares will be offered to the public at the offering
price indicated on the cover page of this prospectus. The underwriters may
allow to selected dealers a concession not in excess of $ per share and
these dealers may allow a concession not in excess of $ per share to some
other dealers. After the shares are released for sale to the public, the
representatives may change the offering price and the concessions.
We and the selling shareholders have agreed to pay to the underwriters the
following fees, assuming both no exercise and full exercise of the
underwriters' over-allotment option to purchase additional shares:
<TABLE>
<CAPTION>
Total Fees
-------------------------------------------
Fee
Per Without Exercise of Full Exercise of
Share Over-allotment Option Over-allotment Option
----- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by us............. $ $ $
Fees paid by the selling
shareholders............... $ N/A $
</TABLE>
In addition, we estimate that we will spend approximately $500,000 in
expenses for this offering. We and the selling shareholders have agreed to
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act, or contribute to payments that the underwriters may
be required to make in respect of these liabilities.
We and our executive officers and directors, including the selling
shareholders, will have entered into lock-up agreements under which we and they
agree not to offer or sell any shares of common stock or securities convertible
into or exchangeable or exercisable for shares of common stock for a period of
90 days from the date of this prospectus without the prior written consent of
Prudential Securities Incorporated, on behalf of the underwriters. Prudential
Securities Incorporated may, at any time and without notice, waive the terms of
these lock-up agreements.
40
<PAGE>
Prudential Securities Incorporated, on behalf of the underwriters, may engage
in the following activities in accordance with applicable securities rules:
. Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities may elect to reduce this short
position by exercising some or all of the over-allotment option.
. Stabilizing and short covering; stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.
. Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
These activities, which may be commenced and discontinued at any time, may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise. Also and prior to the pricing of the shares, and until such time
when a stabilizing bid may have been made, some or all of the underwriters who
are market makers in the shares may make bids for or purchases of shares
subject to certain restrictions, known as passive market making activities.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
. the Public Offers of Securities Regulations 1995,
. the Financial Services Act 1986, and
. the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 (as amended).
A prospectus in electronic format is being made available on an Internet web
site maintained by Wit SoundView's affiliate, Wit Capital Corporation. Only the
prospectus in electronic format is part of this prospectus or the registration
statement of which this prospectus forms a part.
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisorsm, a full-service brokerage firm program, may view offering terms and a
prospectus online and place orders through their financial advisors.
41
<PAGE>
LEGAL MATTERS
The validity of the common stock we are offering in this prospectus will be
passed upon for us and the selling shareholders by Morrison & Foerster LLP,
Palo Alto, California. Certain legal matters in connection with this offering
will be passed upon for the underwriters by Pillsbury Madison & Sutro LLP, San
Francisco, California.
EXPERTS
The financial statements as of June 30, 1998 and 1999 and for each of the
three years in the period ended June 30, 1999 included and incorporated by
reference in this prospectus and the related financial statement schedule
incorporated by reference in the registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report herein
and incorporated by reference in the registration statement, and have been
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information with the
Securities and Exchange Commission. You may read our Commission filings over
the Internet at the Commission's website at http://www.sec.gov. You may also
read and copy documents at the Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Full addresses of
the Commission's reference rooms are: Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; 7 World Trade Center, New York, New York
10048; Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms.
We have filed with the Commission a registration statement on Form S-3 under
the Securities Act of 1933, as amended, with respect to the shares of common
stock offered by this prospectus. This prospectus, which is a part of the
registration statement, does not contain all of the information set forth in
the registration statement. For further information about us and our common
stock, you should refer to the registration statement. This prospectus
summarizes material provisions of contracts and other documents to which we
refer you. Since the prospectus may not contain all of the information that you
may find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
You should only rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
42
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The Commission allows us to provide information about our business and other
important information to you by "incorporating by reference" the information we
file with the Commission. This means that we can disclose the information to
you by referring in this prospectus to the documents we file with the
Commission. Under the Commission's regulations, any statement contained in a
document incorporated by reference in this prospectus is automatically updated
and superseded by any information contained in this prospectus, or in any
subsequently filed document of the types described below.
We incorporate into this prospectus by reference the following documents
filed by us with the Commission, each of which should be considered an
important part of this prospectus:
<TABLE>
<CAPTION>
Commission Filing Period Covered or Date of Filing
----------------- --------------------------------
<S> <C>
Annual Report on Form 10-K.................. Year ended June 30, 1999
Quarterly Reports on Form 10-Q ............. Quarters ended October 2, 1999 and
January 1, 2000
Description of our common stock contained in
Registration Statement on Form 8-A and any
amendment or report filed for the purpose
of updating such description............... October 27, 1997
All subsequent documents filed by us under
Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act............................... After the date of this prospectus
</TABLE>
You may request a copy of each of our filings at no cost, by writing or
telephoning us at the following address, telephone or facsimile number:
Pericom Semiconductor Corporation
Attn: Patrick B. Brennan
2380 Bering Drive
San Jose, CA 95131
Phone: (408) 435-0200
Fax: (408) 435-1100
Exhibits to a document will not be provided unless they are specifically
incorporated by reference in that document.
43
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets as of June 30, 1998 and 1999 and December 31, 1999
(unaudited)............................................................. F-3
Statements of Income for the years ended June 30, 1997, 1998 and 1999 and
the six months ended December 31, 1998 and 1999 (unaudited)............. F-4
Statements of Shareholders' Equity and Comprehensive Income for the years
ended June 30, 1997, 1998 and 1999 and the six months ended December 31,
1999 (unaudited)........................................................ F-5
Statements of Cash Flows for the years ended June 30, 1997, 1998 and 1999
and the six months ended December 31, 1998 and 1999 (unaudited)......... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
Pericom Semiconductor Corporation:
We have audited the accompanying balance sheets of Pericom Semiconductor
Corporation as of June 30, 1998 and 1999, and the related statements of income,
shareholders' equity and comprehensive income, and of cash flows for each of
the three years in the period ended June 30, 1999. 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.
We conducted our audits 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, such financial statements present fairly, in all material
respects, the financial position of Pericom Semiconductor Corporation at June
30, 1998 and 1999, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1999, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
San Jose, California
July 23, 1999
F-2
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30,
--------------- December 31,
1998 1999 1999
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents........................... $ 8,773 $ 8,328 $ 8,810
Short-term investments......................... 17,058 17,397 18,239
Accounts receivable:
Trade (net of allowances of $1,599, $2,570,
and $3,730)................................. 5,437 9,719 11,519
Other........................................ 193 346 337
Inventories.................................... 8,917 9,835 13,340
Prepaid expenses and other current assets...... 153 582 332
Deferred income taxes.......................... 510 356 356
------- ------- -------
Total current assets......................... 41,041 46,563 52,933
Property and equipment--net...................... 5,121 6,509 7,585
Investment in and advances to investee........... 1,046 2,611 3,219
Other assets..................................... 193 242 340
------- ------- -------
Total........................................ $47,401 $55,925 $64,077
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 6,117 $ 7,295 $ 8,667
Accrued liabilities............................ 1,855 1,604 1,779
Income taxes payable........................... 318 22 1,090
------- ------- -------
Total current liabilities.................... 8,290 8,921 11,536
Commitments and contingencies (Notes 8 and 9)
Deferred income taxes............................ 500 624 624
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized;
none issued and outstanding................... -- -- --
Common stock, 30,000,000 shares authorized;
shares outstanding: 1999, 9,519,241; 1998,
9,286,399;
December 31, 1999, 9,741,593................. 24,570 25,600 26,448
Accumulated other comprehensive loss........... -- (33) (88)
Retained earnings.............................. 14,041 20,813 25,557
------- ------- -------
Total shareholders' equity................... 38,611 46,380 51,917
------- ------- -------
Total........................................ $47,401 $55,925 $64,077
======= ======= =======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months
Years Ended June 30, Ended December 31,
------------------------- -----------------
1997 1998 1999 1998 1999
------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues................. $33,166 $49,198 $59,797 $29,057 $37,634
Cost of revenues............. 20,986 29,285 35,484 17,602 21,814
------- ------- ------- ------- -------
Gross profit............... 12,180 19,913 24,313 11,455 15,820
Operating expenses:
Research and development... 4,187 5,065 5,976 2,810 3,493
Selling, general and
administrative............ 5,989 7,793 9,175 4,387 5,272
------- ------- ------- ------- -------
Total.................... 10,176 12,858 15,151 7,197 8,765
------- ------- ------- ------- -------
Income from operations....... 2,004 7,055 9,162 4,258 7,055
Equity in net loss of joint
venture..................... (80) (345) (288) (153) (168)
Interest income.............. 431 1,083 1,386 719 748
------- ------- ------- ------- -------
Income before income taxes... 2,355 7,793 10,260 4,824 7,635
Provision for income taxes... 777 2,629 3,488 1,640 2,891
------- ------- ------- ------- -------
Net income................... $ 1,578 $ 5,164 $ 6,772 $ 3,184 $ 4,744
======= ======= ======= ======= =======
Basic earnings per share..... $ 0.73 $ 0.73 $ 0.72 $ 0.34 $ 0.49
======= ======= ======= ======= =======
Diluted earnings per share... $ 0.22 $ 0.55 $ 0.66 $ 0.32 $ 0.43
======= ======= ======= ======= =======
Shares used in computing
basic earnings per share.... 2,165 7,083 9,395 9,333 9,663
======= ======= ======= ======= =======
Shares used in computing
diluted earnings per share.. 7,316 9,412 10,279 10,080 10,924
======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Preferred Stock Common Stock Other Total
--------------- --------------- Retained Comprehensive Shareholders' Comprehensive
Shares Amount Shares Amount Earnings Income Equity Income
------- ------- ------ -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30,
1996................... 9,225 $7,717 2,165 $ 79 $ 7,299 -- $ 15,095
Net income and
comprehensive income... -- -- -- -- 1,578 -- 1,578 $1,578
======
Exercise of employee
stock options.......... -- -- 181 122 -- -- 122
------- ------- ----- -------- -------- ---- --------
Balances, June 30,
1997................... 9,225 7,717 2,346 201 8,877 -- 16,795
Net income and
comprehensive income... -- -- -- -- 5,164 -- 5,164 $5,164
======
Initial public offering
of common stock, net of
issuance
costs of $740.......... -- -- 2,000 16,000 -- -- 16,000
Conversion of preferred
stock to common stock.. (9,225) (7,717) 4,612 7,717 -- -- --
Issuance of common stock
under employee stock
plans.................. -- -- 328 495 -- -- 495
Tax benefit resulting
from stock option
transactions........... -- -- -- 157 -- -- 157
------- ------- ----- -------- -------- ---- --------
Balances, June 30,
1998................... -- -- 9,286 24,570 14,041 -- 38,611
Net income.............. -- -- -- -- 6,772 -- 6,772 $6,772
Unrealized Gain/(loss)
on investments......... -- -- -- -- -- (33) (33) (33)
------
Comprehensive Income.... -- -- -- -- -- -- -- $6,739
======
Issuance of common stock
under employee stock
plans.................. -- -- 233 737 -- -- 737
Tax benefit resulting
from stock option
transactions........... -- -- -- 293 -- -- 293
------- ------- ----- -------- -------- ---- --------
Balances, June 30,
1999................... -- -- 9,519 25,600 20,813 (33) 46,380
Net Income*............. -- -- -- -- 4,744 -- 4,744 $4,744
Unrealized Gain/(loss)
on
Investments*........... -- -- -- -- -- (55) (55) (55)
------
Comprehensive Income*... -- -- -- -- -- -- -- $4,689
======
Issuance of common stock
under employee stock
plans*................. -- -- 223 848 -- -- 848
------- ------- ----- -------- -------- ---- --------
Balances, December 31,
1999*.................. -- -- 9,742 $ 26,448 $ 25,557 $(88) $ 51,917
======= ======= ===== ======== ======== ==== ========
</TABLE>
- --------
* Unaudited
See notes to financial statements.
F-5
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended June 30, December 31,
------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income..................... $ 1,578 $ 5,164 $ 6,772 $ 3,184 $ 4,744
Adjustments to reconcile net
income to net cash provided by
(used for) operating
activities:
Depreciation and
amortization................ 966 1,144 1,601 724 1,097
Loss on disposal of assets... -- 10 -- -- --
Equity in net loss of joint
venture..................... 80 345 288 153 168
Deferred income taxes........ 130 141 278 -- --
Changes in assets and
liabilities:
Accounts receivable........ (1,423) (2,284) (4,435) (1,903) (1,790)
Inventories................ (713) (2,735) (918) 273 (3,505)
Prepaid expenses and other
current assets............ (67) (4) (429) (341) 251
Accounts payable........... 1,701 1,133 1,178 (574) 1,373
Accrued liabilities........ (107) 652 (252) (233) 174
Income taxes payable....... 706 64 (3) 142 1,068
------- ------- ------- -------- --------
Net cash provided by
operating activities.... 2,851 3,630 4,080 1,425 3,580
------- ------- ------- -------- --------
Cash flows from investing
activities:
Additions to property and
equipment................... (2,001) (2,857) (2,988) (930) (2,173)
Purchase of short-term
investments................. -- (25,203) (13,054) (11,507) (5,299)
Maturities of short-term
investments................. -- 8,145 12,682 11,532 4,400
(Increase) decrease in other
assets...................... 56 (260) (49) (8) (98)
Advances to investee......... (25) (747) (1,853) (777) (776)
Proceeds from sale of
property and equipment...... 7 4 -- -- --
------- ------- ------- -------- --------
Net cash used for
investing activities.... (1,963) (20,918) (5,262) (1,690) (3,946)
------- ------- ------- -------- --------
Cash flows from financing
activities:
Sale of common stock......... 122 16,495 737 316 848
------- ------- ------- -------- --------
Net increase (decrease) in cash
and equivalents............... 1,010 (793) (445) 51 482
Cash and equivalents:
Beginning of period.......... 8,556 9,566 8,773 8,773 8,328
------- ------- ------- -------- --------
End of period................ $ 9,566 $ 8,773 $ 8,328 $ 8,824 $ 8,810
======= ======= ======= ======== ========
Supplemental disclosure of cash
flow information:
Cash paid during the period
for:
Income taxes............... $ 50 $ 2,381 $ 3,210 $ 1,498 $ 870
------- ------- ------- -------- --------
Supplemental noncash financing
activities:
Tax benefit from stock option
transactions ............... -- $ 157 $ 293 -- --
======= ======= ======= ======== ========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(Information as of December 31, 1999 and the six months
ended December 31, 1998 and 1999 is unaudited)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Pericom Semiconductor Corporation (the "Company") was incorporated in June
1990. The Company designs, manufactures and markets high performance digital,
analog and mixed-signal integrated circuits used for the transfer, routing, and
timing of digital and analog signals within and between computer, networking,
datacom and telecom systems.
Financial Statement Estimates--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,
liabilities, revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash Equivalents--The Company considers all highly liquid debt instruments
purchased with a remaining maturity of three months or less to be cash
equivalents. The recorded carrying amounts of the Company's cash and cash
equivalents approximate their fair market value.
Short-Term Investments--The Company's policy is to invest in short-term
instruments with investment grade credit ratings. Generally, such investments
have contractual maturities of up to three years. The Company classifies its
short-term investments as "available-for-sale" securities and the cost of
securities sold is based on the specific identification method. As of June 30,
1999 there were no significant differences between the fair market value and
the underlying cost of such investments. At June 30, 1999 short-term
investments consisted of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Corporate bonds and notes.............. $ 4,139 -- (33) $ 4,106
U.S. government securities............. 5,992 -- (1) 5,991
Certificates of deposit................ 7,299 1 -- 7,300
------- --- --- -------
$17,430 1 (34) $17,397
======= === === =======
</TABLE>
At December 31, 1999 short-term investments consisted of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Corporate bonds and notes.............. $ 8,930 -- (101) $ 8,829
U.S. government securities............. 5,897 12 -- 5,909
Certificates of deposit................ 3,500 1 -- 3,501
------- --- ---- -------
$18,327 13 (101) $18,239
======= === ==== =======
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of three to
five years.
Investment in Joint Venture is accounted for using the equity method (see
Note 4).
F-7
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENT--(Continued)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(Information as of December 31, 1999 and the six months
ended December 31, 1998 and 1999 is unaudited)
Long-Lived Assets--The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company's policy is to review the
recoverability of all intangible assets based upon undiscounted cash flows on
an annual basis at a minimum, and in addition, whenever events or changes
indicate that the carrying amount of an asset may not be recoverable.
Income Taxes--The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach
to recording deferred taxes.
Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Revenue Recognition--Revenue from product sales is recognized upon shipment.
Estimated costs for sales returns, price protection, stock rotation and other
allowances are accrued in the period that sales are recognized. Domestic
distributors are permitted a return allowance of 10% of their net purchases
every six months. Revenue from design services, included in net revenues, is
recognized on the completion of project milestones set forth in the related
agreements.
Fiscal Period--The Company's fiscal years in the accompanying financial
statements have been shown as ending on June 30. Fiscal years 1997, 1998 ended
on June 28, 1997 and June 27, 1998, respectively, and each included 52 weeks.
Fiscal year 1999 ended on July 3, 1999 and included 53 weeks.
Concentration of Credit Risk and Certain Significant Risks and
Uncertainties--The Company sells its products primarily to large organizations
and generally does not require its customers to provide collateral or other
security to support accounts receivable. The Company maintains allowances for
estimated bad debt losses.
The Company participates in a dynamic high technology industry and believes
that changes in any of the following areas could have a material adverse effect
on the Company's future financial position or results of operations: advances
and trends in new technologies; competitive pressures in the form of new
products or price reductions on current products; changes in product mix;
changes in the overall demand for products and services offered by the Company;
changes in customer relationships; litigation or claims against the Company
based on intellectual property, patent, product, regulatory or other factors;
risks associated with changes in domestic and international economic and/or
political conditions or regulations; availability of necessary components; and
the Company's ability to attract and retain employees necessary to support its
growth.
Comprehensive Income--In fiscal year 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", which requires an enterprise to report, by major components and as a
single total, the change in net assets during the period from nonowner sources.
Comprehensive income for the years ended June 30, 1997, 1998 and 1999 have been
disclosed within the statement of shareholders' equity and comprehensive
income.
Recently Issued Accounting Standards--In June 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities", was issued which defines
derivatives, requires all derivatives be carried at fair value, and provides
for hedging accounting when certain conditions are met. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. Although the Company has not fully
F-8
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENT--(Continued)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(Information as of December 31, 1999 and the six months
ended December 31, 1998 and 1999 is unaudited)
assessed the implications of this new statement, the Company does not believe
adoption of this statement will have a material impact on the Company's
financial statements.
Reclassifications--Certain items in the 1997 and 1998 financial statements
have been reclassified to conform with the 1999 presentation. Such
reclassifications had no impact on net income or sharesholders' equity.
Earnings Per Share--Basic earnings per share is based upon the weighted
average number of common shares outstanding. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Basic and diluted earnings per share for each of the three years in the
period ended June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Six Months
Ended
Years Ended June 30, December 31,
--------------------- ---------------
1997 1998 1999 1998 1999
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income.............................. $1,578 $5,164 $ 6,772 $ 3,184 $ 4,744
====== ====== ======= ======= =======
Computation of common shares
outstanding--basic earnings per share:
Weighted average common stock......... 2,165 7,083 9,395 9,333 9,663
====== ====== ======= ======= =======
Basic earnings per share................ $ 0.73 $ 0.73 $ 0.72 $ 0.34 $ 0.49
====== ====== ======= ======= =======
Computation of common shares
outstanding--diluted earnings per
share:
Weighted average common stock......... 2,165 7,083 9,395 9,333 9,663
Weighted average preferred shares..... 4,612 1,572 -- -- --
Dilutive options using the treasury
stock method......................... 539 757 884 747 1,261
------ ------ ------- ------- -------
Shares used in computing diluted
earnings per share..................... 7,316 9,412 10,279 10,080 10,924
====== ====== ======= ======= =======
Diluted earnings per share.............. $ 0.22 $ 0.55 $ 0.66 $ 0.32 $ 0.43
====== ====== ======= ======= =======
</TABLE>
Options to purchase 571,553 and 224,000 shares of Common Stock at prices
ranging from $2.40 to $3.80 and $8.13 to $9.63 were outstanding as of June 30,
1997 and 1998, respectively, but not included in the computation of diluted net
income per share because the options' exercise prices were greater that the
average market price of the common shares as of such dates and therefore, would
be anti-dilutive under the treasury stock method. There were no anti-dilutive
options at June 30, 1999.
Unaudited interim financial information--The unaudited interim financial
information as of December 31, 1999 and for the six months ended December 31,
1998 and 1999 has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of this interim information. Operating results for the six
months ended December 31, 1999 are not necessarily indicative of the results
that may be expected for the year ending June 30, 2000.
F-9
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENT--(Continued)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(Information as of December 31, 1999 and the six months
ended December 31, 1998 and 1999 is unaudited)
2. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
As of June 30, As of
--------------- December 31,
1998 1999 1999
------- ------- ------------
<S> <C> <C> <C>
Finished goods............................... $ 1,752 $ 2,620 $ 3,078
Work-in-process.............................. 5,671 5,972 7,688
Raw materials................................ 1,494 1,243 2,574
------- ------- -------
$8,917 $ 9,835 $13,340
======= ======= =======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
<TABLE>
<CAPTION>
As of June 30, As of
---------------- December 31,
1998 1999 1999
------- ------- ------------
<S> <C> <C> <C>
Machinery and equipment...................... $ 4,336 $ 5,705 $ 7,324
Computer equipment and software.............. 2,101 3,631 5,000
Furniture and fixtures....................... 332 413 447
Leasehold improvements....................... 137 332 393
Construction-in-progress..................... 1,881 1,383 481
------- ------- -------
Total........................................ 8,787 11,464 13,645
Accumulated depreciation and amortization.... (3,666) (4,955) (6,060)
------- ------- -------
Property and equipment--net.................. $ 5,121 $ 6,509 $ 7,585
======= ======= =======
</TABLE>
Construction-in-progress is primarily implementation costs of an enterprise-
wide EDP system that is not fully in use, leasehold improvements in process,
and machinery and equipment that has not been accepted.
4. INVESTMENT IN JOINT VENTURE
In fiscal 1994, the Company purchased 1,500,000 shares of Series A
Convertible Preferred Stock issued by Pericom Technology, Inc. ("PTI") for
$750,000 (an 18.4% equity investment). Such preferred stock is convertible at
the option of the Company into 1,500,000 shares of PTI common stock, does not
bear dividends, has a liquidation preference up to the purchase price and votes
based on the number of common shares into which it is convertible. PTI was
incorporated in 1994 and in 1995 established a design center and sales office
to pursue opportunities and participate in joint ventures in China. The
investment in PTI is accounted for using the equity method due to the Company's
significant influence over its operations. In addition, several of the
directors of the Company are also directors of PTI, and certain shareholders of
the Company are also shareholders of PTI. During the years ended June 30, 1997,
1998 and 1999, the Company sold $39,000, $61,000 and $65,000, respectively, in
services to PTI. During the years ended June 30, 1998 and 1999 the Company
purchased $61,000 and $72,000 in services from PTI, respectively. At June 30,
1997, 1998 and 1999, $99,000, $846,000 and $2,611,000, respectively, was owed
to the Company by PTI for reimbursement of certain administrative expenses
incurred by the Company on behalf of PTI and for advances made to PTI by
F-10
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENT--(Continued)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(Information as of December 31, 1999 and the six months
ended December 31, 1998 and 1999 is unaudited)
the Company. Advances from the Company to PTI are guaranteed by the individual
shareholders of PTI. Condensed financial information of the joint venture at
June 30, 1999 is as follows (in thousands):
<TABLE>
<S> <C>
Total assets....................................................... $ 2,065
Total liabilities.................................................. 2,815
Total equity....................................................... (750)
Revenue............................................................ $ 531
Cost of revenues................................................... 229
-------
Gross profit....................................................... 302
Expenses........................................................... 1,741
-------
Operating Loss..................................................... (1,439)
Interest and other income/(expense)................................ (77)
-------
Net Loss........................................................... $(1,516)
=======
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
As of June 30, As of
--------------- December 31,
1998 1999 1999
------- ------- ------------
<S> <C> <C> <C>
Accrued compensation........................... $ 1,059 $ 908 $1,036
External sales representative commissions...... 636 572 580
Other accrued expenses......................... 160 124 163
------- ------- ------
$1,855 $ 1,604 $1,779
======= ======= ======
</TABLE>
6. SHAREHOLDERS' EQUITY
In October 1997, the Company completed an initial public offering of
2,000,000 shares of its common stock (selling shareholders sold an additional
500,000 shares in the offering) at a price of $9.00 per share. Concurrent with
the offering, 9,225,000 shares of convertible preferred stock were converted,
at a 2-for-1 ratio, into 4,612,000 shares of common stock.
PREFERRED STOCK
The number of shares of preferred stock authorized to be issued is 5,000,000.
The Board of Directors is authorized to issue the preferred stock from time to
time in one or more series and to fix the rights, privileges and restrictions
of the shares of such series. As of June 30, 1999, no shares of preferred stock
were outstanding.
STOCK OPTION PLANS
Under the Company's 1990 Stock Option Plan and 1995 Stock Option Plans,
incentive and nonqualified stock options to purchase up to 3,480,029 shares of
common stock have been reserved at June 30, 1999 for issuance to employees,
officers, directors, independent contractors and consultants of the Company.
The options may be granted at not less than the fair value, as determined by
the Board of Directors, and not less than 85% of the fair value on grant date
for incentive stock options and nonqualified stock options, respectively.
Options vest over periods of up to 48 months as determined by the Board.
Options granted under the Plans expire 10 years from grant date.
F-11
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENT--(Continued)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(Information as of December 31, 1999 and the six months
ended December 31, 1998 and 1999 is unaudited)
Activity in the Company's option plans is summarized below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
--------- --------
<S> <C> <C>
Balance June 30, 1996 (698,956 exercisable at a weighted
average price of $0.84).................................. 1,204,969 $ 1.56
Granted (weighted average fair value of $0.94 per
share)................................................. 488,825 2.48
Exercised............................................... (180,700) 0.64
Canceled................................................ (316,479) 3.08
--------- ------
Balance June 30, 1997 (698,308 exercisable at a weighted
average price of $1.14).................................. 1,196,615 1.70
Granted (weighted average fair value of $2.59 per
share)................................................. 835,539 6.34
Exercised............................................... (299,314) 0.97
Canceled................................................ (138,516) 3.33
--------- ------
Balance June 30, 1998 (639,000 exercisable at a weighted
average price of $2.05).................................. 1,594,324 4.13
Granted (weighted average fair value of $4.23 per
share)................................................. 1,292,675 6.21
Exercised............................................... (137,904) 2.06
Canceled................................................ (826,250) 7.14
--------- ------
Balance, June 30, 1999 (884,917 exercisable at a weighted
average price of $3.00).................................. 1,922,845 4.40
Granted (weighted average fair value of $11.72 per
share)................................................. 375,900 14.28
Exercised............................................... (168,233) 3.52
Canceled................................................ (113,148) 7.42
--------- ------
Balance, December 31, 1999................................ 2,017,364 $ 6.15
========= ======
</TABLE>
At December 31, 1999, 843,833 shares were available for future issuance under
the option plans.
In fiscal 1997, the Company canceled options to purchase 160,700 shares of
common stock with an exercise price of $3.80 per share and issued replacement
options with an exercise price of $2.40 per share.
In fiscal 1999, the Company canceled options to purchase 638,975 shares of
common stock with exercise prices ranging from $5.25 to $9.63 per share and
issued replacement options with an exercise price of $4.80 per share.
Additional information regarding options outstanding as of June 30, 1999 is
as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.20--1.44 294,597 5.14 $ 0.96 294,597 $ 0.96
$2.40--4.00 398,142 7.39 2.97 276,024 2.94
$4.40--4.69 197,250 8.09 4.41 99,324 4.40
$4.80 610,656 8.72 4.80 165,022 4.80
$4.88--6.75 209,700 9.06 6.25 43,657 6.37
$7.06--$12.44 212,500 9.74 8.89 6,293 8.78
- --------------- --------- ---- ------ ------- ------
$0.20--12.44 1,922,845 7.98 $ 4.40 884,917 $ 3.00
=============== ========= ==== ====== ======= ======
</TABLE>
F-12
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENT--(Continued)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(Information as of December 31, 1999 and the six months
ended December 31, 1998 and 1999 is unaudited)
1997 Employee Stock Purchase Plan
In 1997, the Company approved the 1997 Employee Stock Purchase Plan (the
"Stock Purchase Plan"), which allows eligible employees of the Company to
purchase shares of Common Stock through payroll deductions. A total of 300,000
shares of the Company's Common Stock has been reserved for issuance under the
Stock Purchase Plan. The Stock Purchase Plan permits eligible employees to
purchase Common Stock at a discount through payroll deductions, during 24-month
purchase periods, except that the first purchase period will be 27 months. Each
purchase period will be divided into eight consecutive three-month accrual
periods, except that the first accrual period will be six months. The price at
which stock is purchased under the Stock Purchase Plan is equal to 85% of the
fair market value of the Common Stock on the first day of the purchase period
or the last day of the accrual period, whichever is lower. The initial purchase
period commenced upon the effective date of the Company's initial public
offering of Common Stock in October 1997 and will end on January 30, 2000. The
maximum number of shares of Common Stock that any employee may purchase under
the Stock Purchase Plan during any accrual period is 500 shares. During fiscal
year 1998 and 1999, respectively, the Company issued 28,829 and 94,938 shares
of common stock under the Stock Purchase Plan at a weighted average price of
$7.11 and $4.78 per share, respectively. The weighted average fair value of the
fiscal 1998 and 1999 awards was $2.99 and $2.30 per share, respectively.
Additional Stock Plan Information
As discussed in Note 1, the Company continues to account for its stock-based
awards using the intrinsic value method in accordance with Accounting
Principles Board No. 25, "Accounting for Stock Issued to Employees," and its
related interpretations. Accordingly, no compensation expense has been
recognized in the financial statements for employee stock arrangements.
SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS 123), requires
the disclosure of pro forma net income as if the Company had adopted the fair
value method as of the beginning of fiscal 1996. Under SFAS 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the terms of the Company's stock
option awards. These models also require subjective assumptions, including
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions for the Company's stock option
grants:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Expected life..................................... 5 years 5 years 5 years
Risk-free interest rate........................... 6.3% 5.5% 5.25%
Volatility........................................ -- 75% 83%
Dividend yield.................................... 0.00% 0.00% 0.00%
</TABLE>
The following weighted average assumptions are included in the estimated
grant date fair value calculations for rights to purchase stock under the Stock
Purchase Plan:
<TABLE>
<CAPTION>
1998 1999
---------- --------
<S> <C> <C>
Expected life.......................................... 3-6 months 3 months
Risk-free interest rate................................ 5.5% 4.3--4.7%
Volatility............................................. 76% 66%--88%
Dividend yield......................................... 0.00% 0.00%
</TABLE>
F-13
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENT--(Continued)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(Information as of December 31, 1999 and the six months
ended December 31, 1998 and 1999 is unaudited)
Pro Forma Net Income and Earnings Per Share
Had the Company amortized to expense the computed fair values of the 1997,
1998 and 1999 awards under the 1990 Stock Option Plan, 1995 Stock Option Plan
and Employee Stock Purchase Plan, the Company's pro forma net income and
earnings per share for the three fiscal years in the period ended June 30, 1999
would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma net income....................... $1,398,000 $4,863,000 $5,734,000
Pro forma earnings per share:
Basic earnings per share................. $ 0.65 $ 0.69 $ 0.61
Diluted earnings per share............... $ 0.19 $ 0.52 $ 0.56
</TABLE>
However, the impact of outstanding nonvested stock options granted prior to
fiscal 1996 has been excluded from the pro forma calculation; accordingly, the
1997 and 1998 pro forma adjustments are not indicative of future period pro
forma adjustments, when the calculation will apply to all applicable stock
options.
7. INCOME TAXES
The provision for income taxes consists of (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30,
--------------------
1997 1998 1999
---- ------ ------
<S> <C> <C> <C>
Federal:
Current............................................. $652 $2,256 $2,774
Deferred............................................ 104 174 235
---- ------ ------
756 2,430 3,009
State:
Current............................................. (5) 75 143
Deferred............................................ 26 (33) 43
---- ------ ------
21 42 186
Charge is lieu of taxes attributable to employee stock
plans................................................ -- 157 293
---- ------ ------
Provision for income taxes............................ $777 $2,629 $3,488
==== ====== ======
</TABLE>
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30,
-------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Tax at federal statutory rate.............................. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit................. (0.3) 2.7 1.5
Research and development tax credits....................... (7.1) (2.9) (2.7)
Other...................................................... 5.4 (1.1) .2
----- ----- -----
Provision for income taxes................................. 33.0% 33.7% 34.0%
===== ===== =====
</TABLE>
F-14
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENT--(Continued)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(Information as of December 31, 1999 and the six months
ended December 31, 1998 and 1999 is unaudited)
The components of the net deferred tax assets (liabilities) were as follows
(in thousands):
<TABLE>
<CAPTION>
As of June 30,
---------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves recognized in different periods....... $ 410 $ 356
Other....................................................... 113 96
------ -------
523 452
------ -------
Deferred tax liabilities:
Tax basis depreciation...................................... (259) (172)
Capitalized research and development costs.................. (207) (404)
Other....................................................... (47) (144)
------ -------
(513) (720)
------ -------
Net deferred tax assets (liabilities)......................... $ 10 $ (268)
====== =======
</TABLE>
8. LEASES
The Company leases certain facilities under operating leases through July
2004, with two options to extend for an additional three years each upon
termination of the original, and extended, lease term. The future minimum
operating lease commitments at June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year:
------------
<S> <C>
2000.................................................................. $ 632
2001.................................................................. 700
2002.................................................................. 900
2003.................................................................. 928
2004.................................................................. 957
2005.................................................................. 81
------
$4,198
======
</TABLE>
Rent expense for operating leases for the years ended June 30, 1997, 1998 and
1999 was $366,000, $481,000 and $623,000, respectively.
9. CONTINGENCIES
The semiconductor industry is characterized by frequent claims and related
litigation regarding patent and other intellectual property rights. The Company
settled the only outstanding claim of this nature in fiscal 1999 without
material adverse effect on the Company's financial position or results of
operations.
10. INDUSTRY AND SEGMENT INFORMATION
In fiscal year 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which establishes annual
and interim reporting standards for an enterprise's business segments and
related disclosures about its products, services, geographical areas and major
customers. The Company operates in one reportable segment.
F-15
<PAGE>
PERICOM SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENT--(Continued)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(Information as of December 31, 1999 and the six months
ended December 31, 1998 and 1999 is unaudited)
11. MAJOR CUSTOMERS AND GEOGRAPHIC OPERATING INFORMATION
In fiscal 1999 one customer represented 14% of net revenues, and three
customers each represented 11% of trade accounts receivable at June 30, 1999.
In fiscal 1998, one customer accounted for 11% of net revenues and three
customers represented 12%, 11%, and 10% of trade accounts receivable,
respectively, at June 30, 1998. In fiscal 1997, two customers accounted for 17%
and 14% of net revenues, respectively, and two customers represented 12% and
11% of trade accounts receivable, respectively, at June 30, 1997.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales to geographic regions:
United States..................................... $ 20,895 $ 27,059 $ 31,094
Europe............................................ 3,648 4,920 4,784
Asia.............................................. 8,623 17,219 23,919
-------- -------- --------
Total Net Sales..................................... $ 33,166 $ 49,198 $ 59,797
======== ======== ========
</TABLE>
12. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) tax-deferred savings plan under which eligible
employees may elect to have a portion of their salary deferred and contributed
to the plan. Employer matching contributions are determined by the Board of
Directors and are discretionary. There were no employer matching contributions
in fiscal 1997, 1998 or 1999.
F-16
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
Prudential Volpe Technology
a unit of Prudential Securities
CIBC World Markets
Wit SoundView
C.E. Unterberg, Towbin
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with the distribution
of the securities being registered, other than underwriting discounts and
commissions, are as follows:
<TABLE>
<CAPTION>
Amount*
--------
<S> <C>
Securities and Exchange Commission Filing Fee.................. $ 25,214
NASD Filing Fee................................................ 9,284
Nasdaq Listing of Additional Shares Fee........................ 17,500
Accounting Fees and Expenses................................... 100,000
Blue Sky Fees and Expenses..................................... 5,000
Legal Fees and Expenses........................................ 150,000
Transfer Agent and Registrar Fees and Expenses................. 25,000
Printing Expenses.............................................. 100,000
Miscellaneous Expenses......................................... 68,002
--------
Total...................................................... $500,000
========
</TABLE>
- --------
* All amounts are estimates except the SEC filing fee and the NASD filing fee.
15. Indemnification of Directors and Officers
Under Section 317 of the California Corporations Code, the Registrant has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Registrant's Bylaws also provide for mandatory indemnification of its
directors, officers, employees and agents, to the fullest extent permissible
under California law.
The Registrant's Articles of Incorporation provide that the liability of its
directors for monetary damages shall be eliminated to the fullest extent
permissible under California law. Pursuant to California law, this includes
elimination of liability for monetary damages for breach of the directors'
fiduciary duty of care to the Registrant and its shareholders. These provisions
do not eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under California law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Registrant, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction from
which the director derived an improper personal benefit, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under California law. The provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Registrant has entered into agreements with its directors and certain of
its executive officers that require the Registrant to indemnify such persons
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Registrant or any of its affiliated entities, provided such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the Registrant and, with respect
to any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The indemnification agreements also set forth certain
procedures that will apply in the event of a claim for indemnification
thereunder.
II-1
<PAGE>
The Registrant maintains liability insurance for its directors and officers.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
Item 16. Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement
5.1 Opinion of Morrison & Foerster LLP
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Morrison & Foerster LLP (contained in Exhibit 5.1)
24.1 Powers of Attorney (included on Signature Page)
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plans annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report,
to security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation
S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
in Item 15 or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer, or controlling person of
the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(4) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed be part of this
registration statement as of the time it was declared effective.
II-2
<PAGE>
(5) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California on the 14th day of February, 2000.
Pericom Semiconductor Corporation
By: _________/s/ Alex C. Hui_________
Alex C. Hui
Chief Executive Officer,
President and Chairman of the
Board of Directors
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alex Hui, John Chi-Hung Hui and Patrick B.
Brennan, and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by the
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933 and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alex C. Hui Chief Executive Officer, February 14, 2000
______________________________________ President and Chairman of
Alex C. Hui the Board of Directors
(Principal Executive
Officer)
/s/ Patrick B. Brennan Vice President, Finance & February 14, 2000
______________________________________ Administration (Principal
Patrick B. Brennan Financial and Accounting
Officer)
/s/ John Chi-Hung Hui Vice President, Technology February 14, 2000
______________________________________ and Director
John Chi-Hung Hui
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Jeffrey Young Director February 14, 2000
______________________________________
Jeffrey Young
/s/ Tay Thiam Song Director February 14, 2000
______________________________________
Tay Thiam Song
/s/ Millard Phelps Director February 14, 2000
______________________________________
Millard Phelps
/s/ Hau L. Lee Director February 14, 2000
______________________________________
</TABLE> Hau L. Lee
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
1.1* Form of Underwriting Agreement
5.1 Opinion of Morrison & Foerster LLP
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Morrison & Foerster LLP (contained in Exhibit 5.1)
24.1 Powers of Attorney (included on Signature Page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MORRISON & FOERSTER APPEARS HERE]
February 15, 2000
Pericom Semiconductor Corporation
2380 Bering Drive
San Jose, CA 95131
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-3 filed
by Pericom Semiconductor Corporation, a California corporation (the "Company"),
with the Securities and Exchange Commission on February 15, 2000 (the
"Registration Statement") relating to the registration under the Securities Act
of 1933, as amended, of up to 2,530,000 shares of the Company's common stock, no
par value (the "Stock"), being offered by the Company and by certain selling
shareholders specified therein (the "Selling Shareholders").
As counsel to the Company, we have examined the proceedings taken by the
Company and the Selling Shareholders in connection with the sale by Company and
the Selling Shareholders of up to 2,530,000 shares of Stock.
It is our opinion that the 2,530,000 shares of Stock that may be sold will be
legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
/s/ Morrison & Foerster
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Pericom Semiconductor Corporation on Form S-3 of our reports dated July 23,
1999, included in the Annual Report on Form 10-K of Pericom Semiconductor
Corporation for the year ended July 3, 1999, and to the use of our report dated
July 23, 1999, appearing in the prospectus, which is part of the Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such prospectus.
Deloitte & Touche LLP
San Jose, California
February 14, 2000
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