<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K/A
AMENDMENT NO. 1
to
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended June 30, 1996 OR Commission File No. 0-25298
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
OAK TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0161486
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
139 KIFER COURT 94086
SUNNYVALE, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 737-0888
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the Registrant was required
to file such reports, and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $239,501,388 as of August 31, 1996, based upon the
closing price of the Registrant's Common Stock on the Nasdaq National Market
reported for August 30, 1996. Shares of Common Stock held by each executive
officer and Director and by each person who beneficially owns more than 5% of
the outstanding Common Stock have been excluded in that such persons may under
certain circumstances be deemed to be affiliates. This determination of
executive officer or affiliate status is not necessarily a conclusive
determination for other purposes.
40,328,165 shares of the Registrant's $.001 par value Common Stock were
outstanding at August 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or portions thereof) are incorporated by reference into
the Parts of this Form 10-K noted: NONE
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<PAGE>
FORM 10-K/A
AMENDMENT NO. 1
The undersigned Registrant hereby (a) amends footnote 8 to the Financial
Statements filed pursuant to Item 8 of Form 10-K and files such amended
Financial Statements herewith, and (b) files herewith a Consent of Independent
Auditors as Exhibit 23.01 to such Form 10-K.
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Oak Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Oak Technology,
Inc. and subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended June 30, 1996. In connection with our
audits of the consolidated financial statements, we have also audited the
consolidated financial statement schedule, insofar as it relates to the three-
year period ended June 30, 1996. These consolidated financial statements and
consolidated financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and consolidated financial statement schedule
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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Oak Technology, Inc.
and subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Palo Alto, California
July 29, 1996, except as to Notes 7 and 13,
which are as of September 26, 1996
3
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
June 30,
----------------------
1996 1995
--------- ---------
Current assets:
Cash and cash equivalents. . . . . . . . . . . $ 44,934 $ 125,136
Short-term investments . . . . . . . . . . . . 68,350 25,807
Accounts receivable, net of allowance for doubtful
accounts of $916 and $534, respectively. . . 20,172 21,645
Inventories. . . . . . . . . . . . . . . . . . 14,763 5,595
Current portion of foundry deposits. . . . . . 4,595 --
Deferred tax asset . . . . . . . . . . . . . . 13,889 4,008
Prepaid expenses and other current assets. . . 3,809 832
--------- ---------
Total current assets . . . . . . . . . . . . . 170,512 183,023
Property and equipment, net. . . . . . . . . . . 18,212 8,732
Foundry deposits . . . . . . . . . . . . . . . . 52,000 1,200
Investment in joint venture. . . . . . . . . . . 13,696 --
Other assets . . . . . . . . . . . . . . . . . . 1,888 998
--------- ---------
Total assets . . . . . . . . . . . . . . . . . $ 256,308 $ 193,953
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term debt . . . . . . . . . . . . . . . $ 22,062 $ 3,080
Accounts payable . . . . . . . . . . . . . . . 7,887 11,220
Accrued expenses . . . . . . . . . . . . . . . 4,824 6,189
Income taxes payable . . . . . . . . . . . . . -- 6,051
Deferred revenue . . . . . . . . . . . . . . . 1,053 225
--------- ---------
Total current liabilities. . . . . . . . . . . 35,826 26,765
Long-term debt . . . . . . . . . . . . . . . . . 2,858 2,227
Deferred income taxes. . . . . . . . . . . . . . 6,435 2,045
Deferred rent. . . . . . . . . . . . . . . . . . 362 273
--------- ---------
Total liabilities. . . . . . . . . . . . . . . 45,481 31,310
--------- ---------
Stockholders' equity:
Convertible preferred stock, $0.001 par
value; 2,000,000 shares authorized; none
issued and outstanding as of June 30,
1996 and 1995 . . . . . . . . . . . . . . . -- --
Common stock, $0.001 par value; 60,000,000
shares authorized; 40,196,796 shares issues
and outstanding as of June 30, 1996 and
37,588,498 shares issued and outstanding as
of June 30, 1995 . . . . . . . . . . . . . . 40 38
Additional paid-in capital . . . . . . . . . . 155,751 144,702
Retained earnings. . . . . . . . . . . . . . . 55,036 17,903
--------- ---------
Total stockholders' equity . . . . . . . . . . 210,827 162,643
--------- ---------
Total liabilities and stockholders' equity . . $ 256,308 $ 193,953
--------- ---------
--------- ---------
See accompanying notes to consolidated financial statements.
4
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended June 30,
----------------------------------
1996 1995 1994
--------- --------- --------
Net revenues . . . . . . . . . . . . . . $ 247,984 $ 110,982 $ 42,562
Cost of revenues . . . . . . . . . . . . 138,499 56,366 25,990
--------- --------- --------
Gross profit . . . . . . . . . . . . . 109,485 54,616 16,572
Research and development expenses. . . . 30,718 14,646 6,223
Selling, general, and administrative
expenses . . . . . . . . . . . . . . . 16,783 10,530 6,149
In-process research and development
expenses . . . . . . . . . . . . . . . 4,837 -- --
--------- --------- --------
Operating income . . . . . . . . . . . 57,147 29,440 4,200
Nonoperating income (expense), net . . . 6,011 1,651 (74)
--------- --------- --------
Income before income taxes . . . . . . 63,158 31,091 4,126
Income taxes . . . . . . . . . . . . . . 26,025 9,869 303
--------- --------- --------
Net income . . . . . . . . . . . . . . $ 37,133 $ 21,222 $ 3,823
--------- --------- --------
--------- --------- --------
Net income per share . . . . . . . . . . $ 0.87 $ 0.67 $ 0.15
--------- --------- --------
--------- --------- --------
Shares used in computing net income
per share. . . . . . . . . . . . . . 42,614 31,474 25,756
--------- --------- --------
--------- --------- --------
See accompanying notes to consolidated financial statements.
5
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Convertible Additional Retained Total
Preferred Stock Common Stock Paid-in Earnings Stockholders'
---------------------- ------------------
Shares Amount Shares Amount Capital (Deficit) Equity
----------- ------ ---------- ------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1993. . . . . . 3,155,657 $ 3 6,902,134 $ 6 $ 10,582 $ (7,142) $ 3,449
Conversion of Series E redeemable
preferred stock to Series F
preferred stock . . . . . . . 184,095 -- -- -- 500 -- 500
Conversion of short-term debt to
Series F preferred stock. . . 338,333 1 -- -- 1,066 -- 1,067
Issuance of Series F preferred
stock . . . . . . . . . . . . 938,665 1 -- -- 2,815 -- 2,816
Exercise of stock options. . . . . -- -- 673,024 2 79 -- 81
Net income . . . . . . . . . . . . -- -- -- -- -- 3,823 3,823
------------- ---- ---------- ---- --------- -------- --------
Balances, June 30, 1994. . . . . . 4,616,750 5 7,575,158 8 15,042 (3,319) 11,736
Conversion of preferred stock
to common stock . . . . . . . (4,616,750) (5) 15,100,650 15 (10) -- --
Issuance of common stock, net
of issuance costs of $1,168 . -- -- 13,625,000 14 128,139 -- 128,153
Exercise of warrants . . . . . . . -- -- 907,630 1 1,102 -- 1,103
Repurchase of common stock . . . . -- -- (80,000) -- (9) -- (9)
Exercise of stock options. . . . . -- -- 460,060 -- 166 -- 166
Tax benefit on exercise of
stock options . . . . . . . . -- -- -- -- 272 -- 272
Net income . . . . . . . . . . . . -- -- -- -- 21,222 21,222
------------- ---- ---------- ---- --------- -------- --------
Balances, June 30, 1995. . . . . . -- -- 37,588,498 38 144,702 17,903 162,643
Exercise of warrants . . . . . . . -- -- 807,430 -- 1,211 -- 1,211
Repurchase of common stock . . . . -- -- (57,780) -- (1,211) -- (1,211)
Exercise of stock options. . . . . -- -- 1,784,508 2 1,469 -- 1,471
Employee stock purchase plan . . . -- -- 74,140 -- 909 -- 909
Tax benefit on exercise of
stock options . . . . . . . . -- -- -- -- 8,671 -- 8,671
Net income . . . . . . . . . . . . -- -- -- -- -- 37,133 37,133
------------- ---- ---------- ---- --------- -------- --------
Balances, June 30, 1996. . . . . . -- $ -- 40,196,796 $ 40 $ 155,751 $ 55,036 $210,827
------------- ---- ---------- ---- --------- -------- --------
------------- ---- ---------- ---- --------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------
1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . $ 37,133 $ 21,222 $ 3,823
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . 3,586 1,502 800
Inventory-related reserves. . . . . . . . . 24,845 1,538 -
Equity in (income) or loss of
unconsolidated affiliates . . . . . . . . (442) (236) 76
In-process research and development . . . . 4,837 -- --
Deferred income taxes . . . . . . . . . . . (5,491) (2,098) 135
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . 2,050 (11,920) (5,238)
Inventories . . . . . . . . . . . . . . . (30,533) (86) (3,833)
Prepaid expenses and other current assets (2,362) (274) (92)
Accounts payable and accrued expenses . . (4,915) 6,340 7,106
Income taxes payable, deferred revenue
and other liabilities . . . . . . . . . 2,008 6,542 (38)
--------- --------- -------
Net cash provided by operating activities. . 30,716 22,530 2,739
--------- --------- -------
Cash flows from investing activities:
Purchases of short-term investments. . . . . . (107,150) (29,537) (4,026)
Proceeds from matured short-term investments . 64,607 4,673 4,410
Additions to property and equipment, net . . . (12,665) (4,167) (2,007)
Acquisition of Pixel Magic, Inc., net of cash
acquired . . . . . . . . . . . . . . . . . . (5,126) -- --
Investment in foundry joint venture. . . . . . (13,696) -- --
Foundry deposits . . . . . . . . . . . . . . . (45,520) -- --
Other assets . . . . . . . . . . . . . . . . . (161) (484) (123)
--------- --------- -------
Net cash used in investing activities. . . . (119,711) (29,515) (1,746)
--------- --------- -------
Cash flows from financing activities:
Issuance of debt . . . . . . . . . . . . . . . 54,865 7,859 6,208
Repayment of debt. . . . . . . . . . . . . . . (48,452) (7,946) (8,582)
Issuance of preferred stock. . . . . . . . . . -- -- 2,816
Issuance of common stock . . . . . . . . . . . 2,380 129,413 81
--------- --------- -------
Net cash provided by financing activities . 8,793 129,326 523
--------- --------- -------
Net increase (decrease) in cash and cash equivalents (80,202) 122,341 1,516
Cash and cash equivalents, beginning of period . 125,136 2,795 1,279
--------- --------- -------
Cash and cash equivalents, end of period . . . . $ 44,934 $ 125,136 $ 2,795
--------- --------- -------
--------- --------- -------
Supplemental information:
Cash paid during the period:
Interest. . . . . . . . . . . . . . . . . . $ 680 $ 402 $ 365
--------- --------- -------
--------- --------- -------
Income taxes. . . . . . . . . . . . . . . . $ 28,514 $ 5,582 $ 193
--------- --------- -------
--------- --------- -------
Noncash investing and financing activities:
Conversion of Series E redeemable
preferred stock to Series F preferred
Stock . . . . . . . . . . . . . . . . . . $ -- $ -- $ 500
--------- --------- -------
--------- --------- -------
Conversion of short-term debt to
Series F preferred stock. . . . . . . . . $ -- $ -- $ 1,067
--------- --------- -------
--------- --------- -------
Conversion of preferred stock to
common stock. . . . . . . . . . . . . . . $ -- $ 14,928 $ --
--------- --------- -------
--------- --------- -------
Tax benefit related to stock plans. . . . . $ 8,671 $ 272 $ --
--------- --------- -------
--------- --------- -------
Accrual of foundry commitments. . . . . . . $ 14,400 $ 1,200 $ --
--------- --------- -------
--------- --------- -------
</TABLE>
7
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Oak Technology, Inc. (the ``Company'') commenced operations in August 1987,
as a California corporation. The Company is engaged in the design,
development and marketing of high performance multimedia semiconductors and
related software to the multimedia PC, digital video consumer electronics
and digital office equipment markets. The Company formed a subsidiary in
Taipei, Taiwan, in January 1989, and in Tokyo, Japan, in January 1991. In
December 1994, the Board of Directors approved the reincorporation of the
Company as a Delaware corporation. In November 1995, the Company acquired
Pixel Magic, Inc.
In February 1995, the Company completed an initial public offering of
10,925,000 shares of its common stock, of which 7,425,000 were sold by the
Company. At that time, all of the outstanding convertible preferred stock
automatically converted into approximately 15,100,000 shares of common
stock. In May 1995, the Company completed a secondary public offering of
9,200,000 shares of its common stock, of which 6,200,000 shares were sold
by the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PREPARATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH EQUIVALENTS AND INVESTMENTS
The Company's policy is to invest cash in excess of operating requirements
in interest-bearing investments. Securities purchased with initial
maturities of three months or less are considered to be cash equivalents.
Securities purchased with initial maturities greater than three months are
included in short-term investments.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, effective July 1, 1994. SFAS No. 115 requires entities to
classify investments in debt and equity securities with readily determined
fair values as "held-to-maturity," "available-for-sale" or "trading"
and establishes accounting and reporting requirements for each
classification. In accordance with SFAS No. 115, the Company has
classified all securities held as available-for-sale securities. Such
securities are reported at fair value with unrealized gains or losses, if
material, excluded from earnings and reported as a separate component of
stockholders' equity.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and equivalents, short-
term investments and accounts receivable. The Company's cash equivalents
and short-term investments are primarily in money market accounts,
certificates of deposit, corporate notes, U.S. government obligations and
repurchase agreements backed by U.S. Treasury and U.S. agency obligations.
The Company's short-term investments have maturities ranging from 1996
through 1998. Also included in cash and equivalents as of June 30, 1996,
and 1995, are approximately $9,780,000 and $14,134,000, respectively, in
accounts with Taiwanese and Japanese banks and financial institutions. The
Company periodically discounts
8
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
notes receivable with recourse due from some customers with banks in Japan.
As of June 30, 1996, the Company had discounted notes receivable
outstanding of approximately $4.2 million, all of which were subsequently
settled by the bank.
Generally, the Company requires no collateral on trade receivables,
although a substantial portion of export international sales are guaranteed
by letters of credit. The Company believes that any credit risks are
substantially mitigated by its credit evaluation process and maintains
reserves for estimated credit losses.
INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or
market. The Company periodically reviews its inventories for potential
slow-moving or obsolete items and writes down specific items to net
realizable value as appropriate.
During the fourth quarter of the Company's 1996 fiscal year, the Company
recorded charges to cost of revenues of approximately $21 million to
reflect a deterioration in the net realizable value of excess or obsolete
inventory, the majority of which was comprised of one of the Company's
CD-ROM controller products. As of June 30, 1996, remaining inventory of
this CD-ROM controller product totaled approximately $7.6 million.
Management has developed a program to reduce this inventory to desired
levels over the near term and believes no material loss will be incurred on
its disposition. No estimate can be made of the range of amount of loss
that is reasonably possible should the program not be successful.
DEPRECIATION AND AMORTIZATION
Property and equipment is stated at cost. Depreciation and amortization
are computed using the straight-line method. Useful lives of three to five
years are used for computer equipment, purchased software and furniture and
fixtures; useful lives of up to five years are used for leasehold
improvements and a useful life of 60 years is used for a building.
FOUNDRY DEPOSITS
Deposits paid under agreements to secure additional wafer capacity are
carried at cost.
EQUITY INVESTMENTS
The accounts of majority-owned subsidiaries are included in the
consolidated financial statements. The Company's investments in associated
companies 20% or more owned are accounted for using the equity method.
Investments in companies less than 20% owned are carried at cost.
REVENUE RECOGNITION
Product revenue is generally recognized upon shipment, with provisions for
estimated returns and allowances. Revenue from nonrefundable technology
license fees is recognized upon transfer of the associated technology.
Product design revenue is recognized upon completion of contractual
milestones.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The Company's transactions are generally denominated in U.S. dollars, which
is considered to be the functional currency of the Company. Sales to
customers in Japan and Taiwan are invoiced in local currencies. Assets and
liabilities of the Company's foreign subsidiaries are remeasured at rates
in effect at period-end except for
9
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
inventories, property and equipment, and intangible assets, which are
remeasured at historical rates. Revenues and expenses are remeasured at
average rates during the period. Adjustments arising from the
remeasurement of local currency financial statements are included in
nonoperating income.
The Company enters into forward contracts to hedge certain exposures
related to foreign currency transactions. Gains and losses on contracts
are recognized in the same period as the transactions being hedged and are
charged to operations. As of June 30, 1996 and 1995, the Company had
forward contracts to exchange yen for approximately $1,084,000 and
$21,414,000, respectively.
INCOME TAXES
The Company records income taxes using an asset and liability approach that
results in the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's consolidated financial statements or tax returns. In estimating
future tax consequences, all expected future events other than enactment of
changes in tax laws or rates are considered.
U.S. income taxes are provided on income from foreign subsidiaries to the
extent the Company plans to repatriate such income.
NET INCOME PER SHARE
Net income per share data have been computed using the weighted average
number of shares of common stock, dilutive common equivalent shares from
the convertible preferred stock and dilutive common equivalent shares from
stock options and warrants outstanding (using the treasury stock method).
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common equivalent shares issued during the twelve-month
period prior to the Company's initial public offering in February 1995 have
been included in the calculation as if they were outstanding for all
periods prior to the offering (even if antidilutive, using the treasury
stock method).
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-
LIVED ASSETS TO BE DISPOSED OF." SFAS No. 121 will be effective for fiscal
years beginning after December 15, 1995, and requires long-lived assets to
be evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company will adopt SFAS No. 121 in fiscal 1997 and does not expect its
provisions to have a material effect on the Company's consolidated results
of operations in the year of adoption.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION." SFAS No. 123 will be
effective for fiscal years beginning after December 15, 1995, and will
require that the Company either recognize in its consolidated financial
statements costs related to its employee stock-based compensation plans,
such as stock option and stock purchase plans, or make pro forma
disclosures of such costs in a footnote to the consolidated financial
statements.
The Company expects to continue to use the intrinsic value-based method of
Accounting Principles Board Option No. 25, as allowed under SFAS No. 123,
to account for all of its employee stock-based compensation plans.
Therefore, in its consolidated financial statements for fiscal 1997, the
Company will make the required pro forma disclosures in a footnote to the
consolidated financial statements. SFAS No. 123 is not expected to have a
material effect on the Company's consolidated results of operations or
financial position.
10
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK SPLIT
In March 1996, the Company completed a two-for-one stock split in the form
of a 100% stock dividend. All share and per share information for all
periods presented has been adjusted to reflect the impact of the stock
split.
RECLASSIFICATIONS
Certain reclassifications were made to the 1995 and 1994 consolidated
financial statements to conform to the 1996 presentation.
(3) BALANCE SHEET AND OPERATING STATEMENT COMPONENTS
INVESTMENTS
As of June 30, 1996, all investments were considered available-for-sale
securities and consisted of the following (in thousands):
<TABLE>
<CAPTION>
Estimated
Accrued Fair
Cost Interest Value
-------- -------- ---------
<S> <C> <C> <C>
Money market funds $ 35,579 $ -- $ 35,579
Repurchase agreements (U.S. Treasury
& Gov't Agency Collateral) 1,843 4 1,847
Certificates of deposit 17,205 -- 17,205
Corporate notes 8,009 191 8,200
U.S. government obligations 43,136 574 43,710
-------- -------- ---------
$105,772 $ 769 $ 106,541
-------- -------- ---------
-------- -------- ---------
</TABLE>
As of June 30, 1996, approximately $55 million of these investments had
contractual maturities within one year and approximately $51 million had
contractual maturities between one and two years. These investments were
classified on the consolidated balance sheet as follows (in thousands):
Cash equivalents $ 37,422
Short-term investments 68,350
---------
$ 105,772
---------
---------
11
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) BALANCE SHEET AND OPERATING STATEMENT COMPONENTS (CONTINUED)
As of June 30, 1995, all investments consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Estimated
Accrued Fair
Cost Interest Value
-------- -------- ---------
<S> <C> <C> <C>
Money market funds $ 84,060 $ -- $ 84,060
Commercial paper 22,434 234 22,668
Certificates of deposit 3,160 -- 3,160
Corporate notes 4,926 98 5,024
U.S. government repurchase obligations 25,525 247 25,772
-------- -------- ---------
$140,105 $ 579 $ 140,684
-------- -------- ---------
-------- -------- ---------
</TABLE>
As of June 30, 1995, all of these investments had contractual maturities
within one year and were classified on the consolidated balance sheet as
follows (in thousands):
Cash equivalents $114,298
Short-term investments 25,807
--------
$140,105
--------
--------
INVENTORIES
Inventories consisted of the following (in thousands):
June 30,
-----------------
1996 1995
------- ------
Purchased parts and work in process $ 5,888 $1,886
Finished goods 8,875 3,709
------- ------
$14,763 $5,595
------- ------
------- ------
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------
1996 1995
------- -------
<S> <C> <C>
Land $ 3,487 $ 2,446
Building and leasehold improvements 2,023 1,392
Computers, equipment and purchased software 17,715 8,369
Furniture and fixtures 970 546
------- -------
24,195 12,753
Less accumulated depreciation and amortization 5,983 4,021
------- -------
$18,212 $ 8,732
------- -------
------- -------
</TABLE>
12
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) BALANCE SHEET AND OPERATING STATEMENT COMPONENTS (CONTINUED)
ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------
1996 1995
------- -------
<S> <C> <C>
Commission and payroll related items $ 3,072 $ 2,848
Royalties 668 381
Other 1,084 2,960
------- -------
$ 4,824 $ 6,189
------- -------
------- -------
</TABLE>
LICENSE FEES
Nonrefundable technology license fees of approximately $3,003,000,
$1,334,000 and $1,502,000 were recorded as revenue in fiscal 1996,
1995 and 1994 respectively.
RESEARCH AND DEVELOPMENT EXPENSE
Reimbursements of approximately $1,100,000 under nonrefundable
cost-sharing development agreements were recorded as offsets to
research and development expenses in fiscal 1994. No such
reimbursements were received in fiscal 1996 or 1995.
NONOPERATING INCOME (EXPENSE), NET
Nonoperating income (expense), net consisted of the following
(in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest income $ 7,299 $ 2,034 $ 136
Interest expense (725) (387) (509)
Foreign currency translation/
transaction gain (loss) (1,082) (186) 333
Income (loss) on equity method
investee 442 236 (76)
Other income (expense) 77 (46) 42
------- ------- ------
$ 6,011 $ 1,651 $ (74)
------- ------- ------
------- ------- ------
</TABLE>
13
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------
1996 1995
------- -------
<S> <C> <C>
Accrued foundry commitments $14,400 $ 1,200
Short-term notes 2,340 1,882
Mortgage notes 2,637 2,028
Short-term bank loans 5,479 197
Capital lease obligations 64 --
------- -------
$24,920 $ 5,307
Less current portion 22,062 3,080
------- -------
$ 2,858 $ 2,227
------- -------
------- -------
</TABLE>
Accrued foundry commitments consist primarily of payments due under
agreements with Taiwan Semiconductor Manufacturing Company and Chartered
Semiconductor Manufacturing Pte. Ltd. to obtain additional wafer capacity
as described in Note 7.
Short-term notes consist primarily of borrowings from four Taiwanese
financial institutions, collateralized by land and a building in Taiwan,
and bear interest at rates determined at the time of each borrowing. Under
arrangements with the four financial institutions, as of June 30, 1996, the
Company may borrow up to an aggregate of approximately $9,033,000.
Compensating balances ranging from 20% to 30% of outstanding borrowings are
required for individual balances exceeding established minimums;
compensating balances of approximately $327,000 were included in short-term
investments as of June 30, 1996. Borrowings as of June 30, 1996 bore
interest at 7.90%.
Mortgage notes are payable in monthly installments of principal and
interest totaling approximately $30,572 and are also collateralized by land
and a building in Taiwan. These notes mature at various dates through June
2010 and bear interest at variable rates, based on the Taiwan Bank
reference rate, ranging from 8.30% to 9.30% as of June 30, 1996.
Short-term bank loans consist of borrowings from two Japanese financial
institutions, collateralized by standby letters of credit drawn on U.S.
banks, and bear interest based on the Japanese prime rate. Under
arrangements with these two financial institutions, as of June 30, 1996,
the Company may borrow up to an aggregate of approximately $40 million.
Borrowings as of June 30, 1996, bore interest ranging from 1.06% to 1.625%.
14
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Future principal payments under all outstanding obligations as of June 30,
1996 are as follows (in thousands):
Year Ending
June 30,
--------------
1997 $ 22,062
1998 458
1999 212
2000 210
2001 211
Thereafter 1,767
---------
$ 24,920
---------
---------
(5) ACQUISITION OF PIXEL MAGIC, INC.
In November 1995, the Company acquired all of the outstanding stock of
Pixel Magic, Inc. ("Pixel Magic"), a privately held company based in
Andover, Massachusetts, specializing in the design and manufacture of
compression/decompression and image enhancement technology for the digital
equipment product market, for $10.5 million of which $5.0 million is
contingent upon the achievement of certain performance criteria over a
three year period. As of June 30, 1996, these performance criteria had not
been met and none of this contingent payment has been accrued. At the
point in time when achievement of the performance criteria is beyond a
reasonable doubt, the Company will accrue the associated contingent
liability. Of the $5.5 million initial consideration, $500,000 is held in
escrow and is available to compensate the Company in the event of losses
pursuant to the Plan of Reorganization and Agreement of Merger. The
acquisition was accounted for using the purchase method of accounting and
accordingly, the operating results of Pixel Magic have been included in the
consolidated financial statements of the company from the date of
acquisition. The initial cash payment was allocated as follows (in
thousands):
Net liabilities assumed..................... $ (191)
In-process research and development......... 4,837
Purchased technology........................ 854
-------
$ 5,500
-------
-------
Approximately $4.8 million of the initial cash payment was allocated to in-
process research and development and was charged to operations in the
quarter ended December 31, 1995. The remainder of the cost was allocated
to purchased software and assets and liabilities based upon management's
estimate of their fair market values as of the acquisition date. The
amount allocated to purchased technology will be amortized over 30 months.
The following unaudited pro forma combined results of operations for the
twelve months ended June 30, 1996 and 1995 are presented as if the
acquisition had occurred at the beginning of each period. The one-time
charge for the write-off of in-process research and development has not
been reflected in the following pro forma summary as it is nonrecurring.
This pro forma summary does not necessarily reflect the results of
operations as they would have been if the Company and Pixel Magic had
constituted a consolidated entity during such periods (in thousands, except
per share data):
15
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) ACQUISITION OF PIXEL MAGIC, INC. (CONTINUED)
Year Ended June 30,
-----------------------
1996 1995
-------- --------
Net revenues $249,170 $113,645
Net income $ 39,857 $ 21,155
Net income per share $ 0.94 $ 0.67
(6) INCOME TAXES
The components of the income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Current:
Federal and state $21,622 $11,970 $644
Foreign 1,223 1,050 281
Deferred:
Federal and state (9,984) (4,008) --
Foreign 4,493 1,910 135
Less benefit of net operating loss
carryovers -- (1,325) (757)
Charge in lieu of taxes attributable to
employee stock options plans 8,671 272 --
------- ------- ------
Total tax provision $26,025 $ 9,869 $ 303
------- ------- ------
------- ------- ------
</TABLE>
A reconciliation between the income tax provision computed at the federal
statutory rate and the effective tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Expense at federal statutory tax rate $22,105 $10,882 $ 1,403
State income tax, net of federal benefit 1,209 733 --
Rate differential on foreign income 1,615 -- --
Pixel Magic acquisition 1,773
Valuation allowance adjustment -- (3,770) (1,254)
Other (677) 2,024 154
------- ------- -------
Total tax provision $26,025 $ 9,869 $ 303
------- ------- -------
------- ------- -------
</TABLE>
16
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------
1996 1995
------- -------
<S> <C> <C>
Various reserves and accruals $13,982 $ 3,795
Deferred research and development expenses 73 213
------- -------
Total gross deferred tax assets 14,055 4,008
------- -------
Fixed assets depreciation differences (63) (48)
Other foreign liabilities (6,538) (1,997)
------- -------
Total gross deferred tax liabilities (6,601) (2,045)
------- -------
Net deferred tax assets $ 7,454 $ 1,963
------- -------
------- -------
</TABLE>
As of June 30, 1996 and 1995, the cumulative amount of unremitted earnings
of non-U.S. subsidiaries on which the Company had not provided U.S. taxes
approximated $20,100,000 and $9,400,000, respectively. The additional
taxes that could arise if those earnings were to be remitted to the U.S.
would not be material after consideration of existing foreign taxes. It is
management's intent that these earnings remain indefinitely invested.
(7) FOUNDRY AGREEMENTS AND INVESTMENT IN JOINT VENTURE
In June and November 1995, the Company entered into agreements with Taiwan
Semiconductor Manufacturing Company and Chartered Semiconductor
Manufacturing Ptd. Ltd. to obtain certain additional wafer capacity through
the year 2001. The agreements call for the Company to deposit funds with
the suppliers as either a portion of the price of the additional wafers in
advance of their delivery or as a non-interest bearing deposit to secure
the availability of additional wafers. The price of such wafers will be
determined in the future periods in which specific orders are actually
placed. Deposits paid under these agreements are recorded at cost. If the
Company is not able to use, assign, or sell the additional wafer
quantities, all or a portion of certain deposits may be forfeited. The
Company recorded $3 million in cost of sales during the fourth quarter of
fiscal 1996 associated with manufacturing cost adjustments related to its
wafer foundry agreements as a result of lower capacity usage during the
calendar year ending December 31, 1996. As of June 30, 1996, deposits
totaling $45.5 million have been paid and an additional $14.4 million has
been accrued.
In October 1995, the Company entered into a series of agreements with
United Microelectronics Corporation to form, along with other investors, a
separate Taiwanese company for the purpose of building and managing a
semiconductor manufacturing facility in the Science Based Industrial Park
in Hsin Chu City, Taiwan, Republic of China. The Company has agreed to
invest approximately $60 million for a 10% equity position in the venture.
In January 1996, the Company made an initial payment of $13.7 million under
this agreement. Cash payments due under these agreements in fiscal 1997
are approximately $30.0 million and $15.0 million in fiscal 1998.
17
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) FOUNDRY AGREEMENTS AND INVESTMENT IN JOINT VENTURE (CONTINUED)
The cash requirements associated with these agreements as of June 30, 1996
are as follows (in thousands):
YEAR ENDING JUNE 30,
--------------------
1997 $74,640
1998 34,200
1999 4,800
2000 4,800
--------
$118,440
--------
--------
Included above are deposits totaling $40 million which, subject to the
satisfaction of certain conditions, are refundable to the Company in fiscal
2001, upon the completion of the agreement with Chartered Semiconductor.
In September 1996, the Company amended its previous agreement with
Chartered. The amendment resulted in a reduction of the Company's future
wafer purchase commitments and the elimination of required future cash
deposits under the original foundry arrangement of approximately $36
million, which includes $12 million recorded as foundry deposits and
related accrued liability as of June 30, 1996. The Company's June 30,
1996, consolidated balance sheet does not reflect this reduction in foundry
deposits and associated liability related to this amendment. The $36
million would have been, subject to the satisfaction of certain conditions,
refundable to the Company in 2001 and is reflected above in the cash
requirements associated with foundry agreements as of June 30, 1996. The
execution of this amendment will not result in any charge to operations.
Under the amended agreement, the required future cash deposits of
approximately $36 million could be reinstated if certain conditions are not
met. The Company currently believes the terms and conditions of the
agreement as amended will be met and that these commitments will not be
reinstated.
(8) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its U.S. headquarters and certain facilities under
noncancelable operating leases. The Company is responsible for its share
of expenses under the terms of certain of the leases.
Future minimum lease payments under noncancelable leases are as follows (in
thousands):
YEAR ENDING JUNE 30,
-------------------
1997 $ 1,674
1998 1,733
1999 1,747
2000 1,698
2001 1,724
Thereafter 737
--------
$ 9,313
--------
--------
Rent expense was approximately $1,720,000, $886,000 and $514,000 for the
years ended June 30, 1996, 1995 and 1994, respectively.
18
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES (CONTINUED)
INVENTORY PURCHASE COMMITMENTS
The Company subcontracts all of its manufacturing to independent foundries.
As of June 30, 1996 and 1995, the Company had approximately $7,415,000 and
$50,428,000, respectively, in noncancelable purchase commitments with
various wafer fabrication, assembly and test subcontractors.
CONTINGENCY
The Company and various of its current and former officers and Directors
are parties to several lawsuits which purport to be class actions filed on
behalf of all persons who purchased or acquired the Company's stock
(excluding the defendants and parties related to them) for the period
July 22, 1995 through May 22, 1996. The first is a state court proceeding
designated as IN RE OAK TECHNOLOGY SECURITIES LITIGATION, in Santa Clara
County Superior Court in Santa Clara, California, which consolidates five
putative class actions filed in Santa Clara County Superior Court from
June 6, 1996 through July 12, 1996. This lawsuit also names as defendants
several of the Company's venture capital fund investors, two of its
investment bankers and two securities analysts. The plaintiffs allege
violations of California securities laws and statutory deceit provisions as
well as breach of fiduciary duty and abuse of control.
The Company and various of its current and former officers and Directors
are also parties to the following putative class actions pending in the
U.S. District Court for the Northern District of California (i) BRUNO V.
OAK TECHNOLOGY, INC., ET AL., (filed July 9, 1996); (ii) ZAND V. TA-LIN
HSU, ET AL., (filed Sept. 4, 1996); (iii) RASKIN V. OAK TECHNOLOGY, INC.,
ET AL., (filed Aug. 22, 1996); and (iv) CORNELLE V. DAVID S. TSANG, ET AL.,
(filed Sept. 5, 1996). These actions allege certain violations of federal
securities law and are brought on behalf of purchasers of the Company's
stock for varying periods of time from July 22, 1995 through May 22, 1996.
Motions to consolidate the federal actions have been filed with the court.
Additionally, various of the Company's current and former officers and
Directors are defendants in three consolidated derivative actions pending
in Santa Clara County Superior Court in Santa Clara, California, entitled
IN RE OAK TECHNOLOGY DERIVATIVE ACTION. This lawsuit asserts a claim for
breach of fiduciary duty and a claim under California securities law based
upon the officers' and Directors' trading in securities of the Company.
In all of the putative state and federal class actions, the plaintiffs are
seeking monetary damages and equitable relief. In the derivative action,
the plaintiffs are also seeking an accounting for the defendants' sales of
Company stock and the payment of monetary damages to the Company. All of
these actions are in the early stages of proceedings and the Company is
currently investigating the allegations. Based on its current information,
the Company believes the suits to be without merit and will defend its
position vigorously. No provision for any liability that may result upon
adjudication has been made in the Company's Consolidated Financial
Statements.
In connection with these legal proceedings, the Company has incurred, and
expects to continue to incur, substantial legal and other expenses.
Shareholder suits of this kind are highly complex and can extend for a
protracted period of time, which can substantially increase the cost of
such litigation and divert the attention of the Company's management.
(9) STOCKHOLDERS' EQUITY
The Company is authorized to issue two classes of stock--preferred stock
and common stock--each with a par value of $0.001 per share.
19
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCKHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK
Upon conversion of all of the outstanding preferred stock at the effective
date of the Company's initial public offering in February 1995, the number
of preferred shares authorized was reduced to 14,760,708 undesignated
shares. In April 1995, the number of preferred shares authorized was
reduced to 4,000,000 undesignated shares. In March 1996, the number of
preferred shares authorized was reduced to 2,000,000 undesignated shares.
The Board of Directors is authorized, subject to any limitations prescribed
by Delaware law, to provide for the issuance of shares of preferred stock
in one or more series, to establish the number of shares to be included in
each series, and to fix the powers, preferences and rights of the shares.
WARRANTS
Warrants to purchase an aggregate of 796,644 shares of Series D preferred
stock at $2.25 per share were outstanding as of June 30, 1994. The
warrants are exercisable at any time on or prior to December 15, 1997.
Following the conversion of Series D preferred stock to common stock upon
the Company's initial public offering, these warrants represented the right
to purchase 1,194,948 shares of common stock at $1.50 per share. Warrants
representing the right to purchase 204,990 shares of common stock were
exercised under the warrants' cashless exercise provisions, resulting in
the issuance of 177,098 shares of common stock in 1995; 807,430 warrants to
purchase common stock resulted in the issuance of 749,650 shares of common
stock in 1996. Warrants representing the right to purchase 182,528 and
989,958 shares of common stock were outstanding as of June 30, 1996 and
1995, respectively.
Warrants to purchase a total of 730,544 shares of Series F preferred stock
were exercised immediately prior to the Company's initial public offering
in February 1995 at a price of $1.50 per share. All such shares of Series
F preferred stock were converted into 730,544 shares of the Company's
common stock upon the initial public offering.
STOCK OPTION PLANS
Upon the reincorporation of the Company in Delaware in February 1995, the
Company assumed the obligations of its predecessor under the 1988 Stock
Option Plan (the "1988 Plan"), as amended and restated. A total of
4,800,136 shares of Common Stock were reserved for issuance upon the
exercise of options outstanding under the 1988 Plan. The Company does not
intend to issue any additional options under the 1988 Plan.
In December 1994, the Board of Directors approved the 1994 Stock Option
Plan (the "1994 Plan") under which 3,000,000 shares of Common Stock were
reserved for issuance; 3,000,000 additional shares were approved in
February 1996. Under the 1994 Plan, either incentive or nonqualified
options to purchase the Company's common stock may be granted to employees
as determined by the Board of Directors at prices not lower than fair
market value at the date of grant for incentive options, or 85% of fair
market value in the case of nonqualified options (110% in certain cases).
Nonqualified options may be granted to consultants as determined by the
Board of Directors at prices not lower than 85% of fair market value at the
date of grant. The Board of Directors also has the authority to set
exercise dates (no longer than ten years from date of grant and no longer
than five years in certain instances), payment terms and other provisions
for each grant.
In December 1994, the Board of Directors also approved the 1994 Outside
Directors' Stock Option Plan (the "Directors Plan"), under which 500,000
shares of Common Stock were reserved for issuance. The Directors Plan
provides for the automatic grant of options to purchase shares of Common
Stock to nonemployee Directors of the Company.
20
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCKHOLDERS' EQUITY (CONTINUED)
Stock options are subject to vesting, generally over 50 months. As of June
30, 1996 outstanding options to purchase a total of 1,192,709 shares,
1,704,666 shares and 18,000 shares were not vested under the 1988 Plan, the
1994 Plan, and the Directors Plan, respectively. Under the 1988 Plan,
shares could be purchased prior to vesting and held in escrow until vested;
however, unvested shares are subject to a right of repurchase by the
Company, at their original purchase price, upon termination of employment.
Unexercised options expire three months after termination of employment
with the Company.
Activity under all the stock option plans is set forth below:
<TABLE>
<CAPTION>
Shares Options
Available Outstanding Price Range
----------- ----------- -----------------------
<S> <C> <C> <C> <C>
Balances, June 30, 1993 1,122,386 2,556,120 $ .0375 - .4675
Shares authorized 2,000,000
Options granted (2,345,600) 2,345,600 .6000 - 1.5000
Options exercised -- (673,024) .0375 - .6000
Options cancelled 197,696 (197,696) .1125 - 1.5000
----------- -----------
Balances, June 30, 1994 974,482 4,031,000 .1125 - 1.5000
Shares authorized 3,500,000
Options granted (1,443,200) 1,443,200 2.0000 - 14.3750
Options exercised -- (460,060) .1125 - 1.5000
Options cancelled 318,660 (318,660) .1438 - 13.8125
----------- -----------
Balances, June 30, 1995 3,349,942 4,695,480 .1125 - 14.3750
Shares authorized 3,000,000
Options granted (1,576,400) 1,576,400 12.7500 - 28.5000
Options exercised -- (1,784,508) .1125 - 10.9063
Options cancelled 495,862 (495,862) .4250 - 27.3750
----------- -----------
Balances, June 30, 1996 5,269,404 3,991,510 $ .1125 - 28.5000
----------- -----------
----------- -----------
</TABLE>
STOCK PURCHASE PLAN
In December 1994, the Board of Directors approved the 1994 Stock Purchase
Plan (the "Stock Purchase Plan") under which 600,000 shares of common stock
were reserved for issuance. The Stock Purchase Plan permits eligible
employees to purchase shares at a price equal to 85% of the lower of the
fair market value at the beginning or end of each six-month offering
period. In fiscal 1996, 74,140 shares were issued under the plan at an
average price of $12.27.
(10) EMPLOYEE BENEFIT PLAN
In July 1990, the Company adopted a 401(k) Profit Sharing Plan (the "401(k)
Plan") which is intended to qualify under section 401(k) of the Internal
Revenue Code of 1986, as amended. The 401(k) Plan covers substantially all
of the Company's U.S. employees. Participants may elect to contribute a
percentage of their compensation to this plan, up to the statutory maximum
amount. The Company makes contributions to the 401(k) Plan based on 25% of
an employee's contribution up to a maximum of 1.25% of total compensation;
21
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) EMPLOYEE BENEFIT PLAN (CONTINUED)
$226,844 in matching contributions were recorded during fiscal 1996, no
matching contributions were made in prior years.
(11) INDUSTRY SEGMENT AND MAJOR CUSTOMERS
The Company designs, develops and markets high performance multimedia
semiconductors and related software to original equipment manufacturers
worldwide who serve the multimedia PC, digital video consumer electronics
and digital office equipment markets.
The following table summarizes the annual percentage contribution to net
revenues by customers when sales to such customers exceeded 10% of net
revenues and the percentage of total accounts receivable due from these
customers.
Percentage of Net Revenues
Year Ended June 30,
----------------------------------
1996 1995 1994
---- ---- ----
BTC 1% 4% 18%
Mitsumi 26% 29% 4%
Kanematsu 19% 13% 3%
NEC 13% 9% 14%
Percentage of Total Accounts Receivable
as of June 30,
---------------------------------------
1996 1995 1994
---- ---- ----
BTC 2% 2% 23%
Mitsumi 31% 32% 5%
Kanematsu 7% 21% 1%
NEC 20% 20% 23%
Sales of the Company's CD-ROM controller products comprised 91%, 74%, and
33% of the net revenues in 1996, 1995, and 1994, respectively.
(12) GEOGRAPHIC SEGMENT REPORTING
The Company maintains significant operations in the United States, Taiwan
and Japan. Activities in the United States consist of corporate
administration, product development, logistics and worldwide sales
management. Foreign operations consist of regional sales and limited
board-level manufacturing.
22
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) GEOGRAPHIC SEGMENT REPORTING (CONTINUED)
The following is a summary of operations by geographic areas (in
thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue from unaffiliated customers
originating from:
United States $ 37,142 $ 25,224 $ 17,793
Taiwan 47,963 28,368 15,185
Japan 162,879 57,390 9,584
-------- -------- -------
$247,984 $110,982 $ 42,562
-------- -------- -------
-------- -------- -------
Transfers between geographic areas
(eliminated in consolidation):
United States $180,569 $ 72,483 $ 20,774
Taiwan 4,175 5,523 5,371
Japan 233 7,161 141
-------- -------- -------
$184,977 $ 85,167 $ 26,286
-------- -------- -------
-------- -------- -------
Income before income taxes:
United States $ 48,349 $ 27,579 $ 3,384
Taiwan 2,536 3,069 602
Japan 8,574 3,844 428
Eliminations 3,699 (3,401) (288)
-------- -------- -------
$ 63,158 $ 31,091 $ 4,126
-------- -------- -------
-------- -------- -------
Identifiable assets:
United States $226,039 $178,262 $ 19,897
Taiwan 14,778 20,096 12,139
Japan 22,848 28,118 4,942
Eliminations (7,357) (32,523) (9,565)
-------- -------- -------
$256,308 $193,953 $ 27,413
-------- -------- -------
-------- -------- -------
Export sales from United States to
unaffiliated customers:
Canada $ 50 $ 207 $ 177
Taiwan 9 59 2,125
Japan 1,273 6 970
Other Asia 26,189 13,594 5,183
Europe 3,668 2,134 1,261
-------- -------- -------
$ 31,189 $ 16,000 $ 9,716
-------- -------- -------
-------- -------- -------
</TABLE>
23
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) SUBSEQUENT EVENT
During July 1996, the Company offered option holders under the 1994 Stock
Option Plan, other than Directors and Officers, the opportunity to have
outstanding options repriced to the then current fair market value of the
Company's common stock of $6.50 per share. Vesting schedules for repriced
options remain unchanged; however, repriced options cannot be exercised
before April 30, 1997. On August 1, 1996, the Company cancelled and
reissued 1,800,370 options pursuant to this repricing.
24
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OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SCHEDULE II
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Charged to
Beginning Costs and Deductions- Ending
Allowance for Doubtful Accounts Balance Expenses Write-Offs Balance
- ------------------------------- ------- -------- ---------- -------
Year ended June 30, 1996 $ 534 $ 866 $ (484) $ 916
Year ended June 30, 1995 218 458 (142) 534
Year ended June 30, 1994 212 260 (254) 218
25
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: October 1, 1996 OAK TECHNOLOGY, INC.
By: /s/ SIDNEY S. FAULKNER
-------------------------------------
Sidney S. Faulkner
Vice President, Finance,
Chief Financial Officer
and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
President, Chief Executive Officer October 1, 1996
- ---------------------- and Director
David D. Tsang* (Principal Executive Officer)
/s/ SIDNEY S. FAULKNER Vice President, Finance, October 1, 1996
- ---------------------- Chief Financial Officer and
Sidney S. Faulkner Secretary
(Principal Financial and Accounting
Officer)
Executive Vice President, October 1, 1996
- ---------------------- Chief Operating Officer and Director
Donald R. Bryson*
Director October 1, 1996
- ----------------------
Richard B. Black*
Director October 1, 1996
- ----------------------
Ta-Lin Hsu
Director October 1, 1996
- ----------------------
Timothy Tomlinson*
* By Sidney S. Faulkner, attorney-in-fact
26
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EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Oak Technology, Inc.:
We consent to incorporation by reference in the registration statements
(Nos. 33-89446 and 333-04334) on Form S-8 of Oak Technology, Inc. of our report
dated July 29, 1996, except as to Notes 7 and 13, which are as of September 26,
1996, relating to the consolidated balance sheets of Oak Technology, Inc. and
subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended June 30, 1996, and related schedule, which
report appears in the June 30, 1996 annual report on Form 10-K/A of Oak
Technology, Inc.
KPMG Peat Marwick LLP
Palo Alto, California
October 1, 1996
27
