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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
__X__ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended September 30,
1997.
OR
_____ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Transition Period from
_____________to ________________.
Commission File Number 0-26690
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ELANTEC SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0408929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
675 Trade Zone Boulevard, Milpitas, California 95035
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 945-1323
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Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X__ NO _____
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on November
21, 1997 as reported on the Nasdaq National Market: $51,660,637. This
calculation does not include a determination that persons are affiliates for any
other purpose.
Number of shares outstanding of the registrant's common stock as of November 21,
1997: 9,083,18
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Documents Incorporated By Reference
Part III - Portions of the registrant's definitive proxy statement to be
delivered to stockholders in connection with the annual meeting of stockholders
to be held February 20, 1998.
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ELANTEC SEMICONDUCTOR, INC.
FORM 10-K
For the Fiscal Year Ended September 30, 1997
Table of Contents
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PART I
Page
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Item 1. Business........................................................................... 3
Item 2. Properties......................................................................... 13
Item 3. Legal Proceedings.................................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders................................ 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............. 14
Item 6. Selected Financial Data............................................................ 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations...................................................................... 15
Item 7A. Quantitative and Qualitative Disclosures about Market Risk......................... 21
Item 8. Financial Statements and Supplementary Data........................................ 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure......................................................................... 21
PART III
Item 10. Directors and Executive Officers of the Registrant................................. 22
Item 11. Executive Compensation............................................................. 22
Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 22
Item 13. Certain Relationships and Related Transactions..................................... 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 23
Signatures ................................................................................... 42
</TABLE>
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PART I
Except for the historical information contained herein, the following
discussion contains forward looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section under the
heading entitled "Risk Factors", as well as in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
ITEM 1: BUSINESS
Elantec Semiconductor, Inc. ("Elantec" or the "Company") designs,
manufactures and markets high performance analog integrated circuits primarily
for the video/multimedia, data processing, instrumentation and communications
markets. The Company targets high growth commercial markets in which advances in
digital technology are driving increasing demand for high speed, high precision
and low power consumption analog circuits. Electronic systems manufacturers in
these markets typically have requirements for analog circuits with particular
precision, linearity, speed, power and signal amplification capabilities. The
Company addresses these requirements with standard products that serve several
markets or application specific standard products ("ASSPs") designed for
specific markets and applications. By offering both standard products and ASSPs,
the Company seeks to broaden its customer base with standard products and to
expand product sales to new and existing customers with ASSPs that meet their
specific requirements. The Company offers more than 150 high performance analog
products, such as amplifiers, drivers, faders, transceivers and multiplexers,
most of which are available in multiple packaging configurations. The majority
of the Company's products are manufactured at the Company's internal
manufacturing facility in Milpitas, California.
Industry Overview
Analog circuits operate over a wide range of voltages, which limits the
minimum dimensions that can be used in the device structures of analog
integrated circuits. Thus, the development of successful analog integrated
circuits is generally more dependent on innovative design within technological
constraints rather than on achieving small feature sizes and high densities.
Typically, designers of analog circuits must take into account complex
interrelationships between the manufacturing process, the physical layout of the
circuit elements and the packaging of the end product, all of which can
significantly affect performance. Moreover, the high performance characteristics
required by new and emerging applications for analog circuits involve
increasingly advanced designs, which will in turn require more skilled analog
designers, innovative design strategies and rigorous design methodologies. The
number of design engineers who have the training, creativity and experience to
design complex analog circuits is very limited, and the available computer-aided
design ("CAD") tools for analog circuit design typically require substantial
customization by the user in order to provide adequate utility for complex
analog circuit design.
In order to meet the needs of electronic systems manufacturers, analog
integrated circuit companies offer a wide range of both high performance
standard products and market specific ASSPs. Standard products can serve as
basic building blocks to assist system designers in bringing new products to
market rapidly. ASSPs enhance performance and combine functions to reduce system
size and cost as end-user needs become better defined and system unit volumes
increase. The critical point of competition for analog integrated circuit
companies is at the "design-in" stage when the system designer evaluates various
alternative components for implementing the system architecture. Companies that
offer families of analog standard products and ASSPs that perform a number of
the functions required by the systems design will typically have an advantage at
the design-in stage because systems designers often prefer to choose products
from the same vendor once the vendor has been qualified as a producer of
reliable products.
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The Company believes that the pervasive use of digital integrated
circuits in electronic systems and the rapid advances in digital technology are
driving increasing demand for high performance analog products, particularly in
the video/multimedia, data processing, instrumentation and communications
markets.
Product Markets and Applications
Elantec targets four high growth commercial markets where it believes
there is an increasing demand for analog solutions: video/multimedia, data
processing, instrumentation and communications. In each of its target markets,
the Company offers a family of standard products and ASSPs that are designed to
be used as building blocks by addressing a number of common component
requirements, thereby providing more effective solutions for electronic systems
designers. Most of the Company's standard products are used in more than one of
these markets, while in general each ASSP is used in only one specific market.
The following table sets forth examples of typical applications of the
Company's products in each of the four target commercial markets and a
representative application:
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Market Typical Applications
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Video/Multimedia Overhead Displays
Set Top Converters
Special Effects Generators
Switchers/Routers
Video Cameras
Video Distribution Networks
Video Signal Processing
Workstations
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Data Processing Copiers
Document Scanners
Optical Storage
Personal Computers
Power Supplies
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Instrumentation Analyzers
Automatic Testers
Measuring Instruments
Medical Instrumentation
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Communications ADSL Transceivers
HDSL Transceivers
Video Phones
Video Teleconferencing
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Primary Markets
Video/Multimedia. Video images are increasingly being incorporated into
electronic applications such as multimedia computing and communications. This
trend is creating increasing demand for high speed amplifiers and specialty
analog circuits for the processing and display of video signals. The Company
focuses on several segments of the video/multimedia market, including displays,
set top converters, special effects generators, studio equipment and video
distribution networks.
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Data Processing. The growth of data processing, particularly in
personal computers, has been driven by advances in digital technology, which
have in turn created new applications for analog functions. In this market, the
Company's products include amplifiers for document scanners, copiers and power
management circuits targeted for new generations of microprocessors that operate
at low voltages. An emerging area targeted by the Company is the optical storage
market. The Company is currently providing products that control the laser diode
driver for optical disk drives and plans to produce similar products for CD
read/write and DVD read/write applications.
Instrumentation. The detection and measurement of analog information
such as light, sound, temperature, pressure and speed in industrial, medical and
other measurement systems have been a traditional focus of analog circuits. As
systems grow more complex and information is processed at higher rates, there is
a concomitant requirement for higher speed analog circuits to process the
information in analog format. The Company supplies products for high speed
instrumentation, automatic testers and medical instrumentation, such as
ultrasound scanners.
Communications. The convergence of communications and computers has
also created opportunities for high performance analog circuits. For example,
electronic communications through telephone lines increasingly include both
digital and analog information such as audio, video and data and require digital
and analog circuits to transmit and process them. In this market, the Company
supplies transceivers and high speed amplifiers for Asymmetrical Digital
Subscriber Line ("ADSL") and High Bit Rate Digital Subscriber Line ("HDSL")
techniques for increasing the rate at which data is transmitted over
twisted-pair wires such as conventional telephone lines, which is important for
emerging communications applications related to Internet access.
Other Markets
In addition to its primary markets, the Company provides its products
to electronic systems manufacturers in the military and automotive markets.
Military. The Company has historically offered products for a variety
of military applications and continues to offer certain products to meet the
needs of customers of these products. However, on July 1, 1997 the Company
announced that it would discontinue its military hybrid products. This product
line accounted for 8.9% and 7.9% of product revenues in 1996 and 1997,
respectively. Orders for these discontinued products will be accepted through
mid 1998 with last shipments from the factory expected through Q1 1999.
Automotive. In February 1993, the Company entered into an exclusive
agreement with Aisin Seiki Co., Ltd. ("Aisin"), a manufacturer of automotive
parts in Japan and a member of the Toyota group of companies. Under the terms of
the agreement, Elantec has licensed to Aisin certain proprietary Elantec
technology to design and manufacture analog integrated circuits for the
automotive market, in return for certain license fees and royalty payments upon
the sale of products derived therefrom. Under the agreement, the Company
developed and manufactured certain automotive products for Aisin. The current
agreement continues through February 1998 and provides for payment to Elantec of
a total of $7,000,000 in license fees of which $6,750,000 cash has been received
through 1997. The Company does not expect the license agreement or manufacturing
relationship to extend beyond February 1998.
Products
The Company offers more than 150 high performance analog products, most
of which are available in multiple packaging configurations.
Standard Products. Amplifiers and buffers are used to amplify or
reproduce analog electrical signals (either voltage or current) without
distortion. High power amplifiers provide a large electrical output current or
voltage and are particularly useful in video transmission and communications
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applications. High speed amplifiers and buffers are designed specifically to
process high frequency signals such as video information without distortion.
Comparators are circuits that accurately measure an electrical signal level in
comparison with a predetermined value and indicate the result. Mosfet drivers
are circuits that control the switching functions of mosfet
(metal-oxide-semiconductor field effect transistor) power transistors used in
power control applications.
Application Specific Standard Products. For the video/multimedia market
the Company offers a variety of ASSPs that can be used as standard building
blocks to provide solutions to the video system designer for many common video
circuit designs. Sync separators are timing circuits that control the position
and stability of the video image on a video display. D.C. restoration circuits
restore to the correct voltage level a video signal that has been amplified and
processed in order to ensure accurate transfer of video information. Video
multiplexers allow multiple video inputs to be connected to a single output in a
selected manner. Faders combine separate signals in different ratios for special
effects such as the fading of one video image into another. Power management
circuits effeciently convert supply voltages from 5 volts to a lower voltage
required by modern microprocessors. Laser diode drivers control the performance
of the laser diode used in the read/write mode in optical storage pick-up heads.
In the instrumentation market, pin drivers and receivers are used in automatic
test equipment to generate and detect electrical signals to test electronic
components. In the communications market, transceivers are used to transmit and
receive high speed analog signals containing encoded digital information over
twisted pair telephone lines.
Sales and Distribution
The Company sells its products either directly to customers with the
assistance of independent sales representatives, or indirectly through
independent distributors. The Company's direct sales force consists of sales
managers and field application engineers who support customers, sales
representatives and distributors in each major geographic market. The sales
staff and field application engineers are located at the Company's Milpitas,
California headquarters and in field sales offices in Massachusetts and England.
The Company's sales staff and field application engineers also manage, train and
support the Company's network of distributors.
In North America, the Company sells its products through 22 independent
sales representative organizations having a total of more than 35 offices and
five distributors having a total of more than 90 locations. These distributors
are entitled to price rebates on unsold inventory if the Company lowers the
prices of its products. In addition, on a semi-annual basis, these distributors
are permitted to return for credit, against purchases of an equivalent dollar
value of products, up to 5% of their total product purchases during the most
recent six-month period.
In fiscal 1995, sales to Marshall Industries and Insight Electronics,
Inc. represented approximately 13% and 10% of the Company's net revenues,
respectively. In 1996, no single domestic representative or distributor
accounted for sales in excess of 10% of the Company's net revenues. In fiscal
1997, sales to Insight Electronics, Inc. represented approximately 12% of the
company's net revenues. See Note 1 of Notes to Consolidated Financial
Statements.
Outside North America, the Company sells its products through a network
of international distributors. Such international sales represented
approximately 32%, 48% and 54% of the Company's net product revenues, excluding
Aisin contract revenues, in fiscal 1995, 1996, and 1997, respectively.
In fiscal 1995, sales to Internix, Inc. represented approximately 11%
of the Company's net revenues. During fiscal 1996, approximately 15% of the
Company's net revenues were to Microtek International, Inc. in Japan. In fiscal
1997, approximately 14% of the Company's net revenues were to Microtek
International, Inc. On a semi-annual basis, international distributors are
permitted to return for credit, against purchases of an equivalent dollar value
of products, up to 5% of their total product purchases during the most recent
six-month period.
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In connection with its international sales, the Company is subject to
the normal risks of conducting business internationally. These risks include
unexpected changes in regulatory requirements, changes in legislation or
regulations relating to the import or export of semiconductor products, delays
resulting from difficulty in obtaining export licenses for certain technology,
tariffs, quotas and other barriers and restrictions, and the burdens of
complying with a variety of foreign laws. The Company is also subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships, in connection with its international
operations. Because sales of the Company's products are denominated in United
States dollars, fluctuations in the value of the dollar could increase the
prices in local currencies of the Company's products in foreign markets and make
the Company's products relatively more expensive than competitors' products that
are denominated in local currencies. Additionally, currency exchange
fluctuations could reduce the cost of products from the Company's foreign
competitors.
A substantial portion of the Company's revenues are realized through
independent distributors and independent sales representatives that are not
under the direct control of the Company. These independent sales organizations
generally carry the product lines of a number of companies, are not subject to
any minimum purchase requirements and can discontinue selling the Company's
products at any time. Accordingly, the Company must compete for the focus and
sales efforts of its distributors and independent sales representatives. In
addition, the Company's distributors are permitted to return to the Company a
portion of the products purchased by them, and the Company's business and
results of operations could be materially adversely affected if the amount of
returns exceeds the Company's reserves. There can be no assurance that the
Company will be able to retain the loyalty and attention of its distributors and
representatives. The loss of one or more of the Company's distributors or
representatives could have a material adverse effect on the Company's business
and results of operations.
Backlog
At September 30, 1997, the Company's product backlog was approximately
$12.7 million, compared to $9.7 million at September 30, 1996. The Company
includes all orders scheduled for delivery within six months in backlog. The
Company's business, and to a large extent the entire semiconductor industry, is
characterized by short-term orders and shipment schedules. These orders can
generally be cancelled or rescheduled without significant penalty to the
customers. As a result, the quantities of the Company's products to be delivered
and their delivery schedules are frequently revised by customers to reflect
changes in their needs. Since backlog can be cancelled or rescheduled, the
Company's backlog at any time is not necessarily indicative of future revenues.
Design Methodology and Process Technology
Design Methodology. The Company's designers apply a rigorous,
standardized design methodology intended to accelerate the development and
introduction of new products, maintain consistent quality and promote the
development and sharing of design expertise among the engineering staff. Each
designer utilizes a common set of customized CAD tools on a network of computer
workstations and applies standardized design rules in order to facilitate the
integration of different designs or design elements. The Company promotes design
integrity and sharing of expertise by requiring each designer to subject designs
to a series of peer reviews and simulation and verification tests at different
stages of design development. The Company has developed proprietary computer
models of circuit elements to assist in the modeling, simulation, layout and
verification of circuit designs.
The Company's approach to new product development is driven by specific
market requirements in addition to advances in technology and design
methodology. The Company has adopted a systematic approach of using its field
application engineers to identify market opportunities for new high performance
products, contacting other customers to determine whether there is an
opportunity to develop products that will be applicable to a broad range of
customers in the Company's target markets and consulting with the Company's
analog designers and marketing personnel to define ASSPs for the target markets.
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Process Technology. The Company uses a variety of semiconductor process
technologies for its products in order to meet the particular requirements of
different customers and applications. The Company's process technologies include
dielectric isolation and junction isolation complementary bipolar, junction
isolation bipolar, and CMOS technologies. In addition, the Company utilizes
other manufacturing technologies to produce hybrid semiconductor products,
primarily for military applications.
Complementary Bipolar Technology. The Company uses complementary
bipolar technologies primarily for high speed applications such as video
amplifiers and video ASSPs. Complementary bipolar technology uses two different
types of transistors (referred to as "pnp" and "npn") to process high speed
analog signals efficiently in either positive or negative polarity, which
substantially simplifies the design process by allowing symmetrical design
architectures, permits improved speed and requires less power. For high speed,
high voltage applications, which constitute a majority of the Company's
applications, Elantec uses dielectric isolation complementary bipolar
technology. For low voltage, high speed applications such as certain amplifiers
and video ASSPs, the Company uses junction isolation complementary bipolar
technologies provided by an outside foundry.
Dielectric Isolation Technology. Dielectric isolation is a
silicon-on-insulator (SOI) manufacturing technique that uses insulating oxide to
isolate transistors from each other electrically. This technique has the
inherent advantages of low electrical capacitance, which allows high speed
signal processing and minimizes cross-talk or unwanted interference from other
signals, and higher voltage operation, which is useful for instrumentation and
many other analog applications.
Complementary Metal-Oxide-Semiconductor Technology. Since 1992, Elantec
has pursued a strategy to provide a wider range of products using CMOS
technology. CMOS technology enables the design of circuits with lower power
consumption than bipolar circuits, but with relatively lower speed, and is well
suited for analog switching and mixed signal applications. The Company uses
several third-party foundries to supply wafers for its CMOS products.
The markets for the Company's products are characterized by rapid
technological change and frequent new product introductions. There can be no
assurance that the Company's analog products or the process technologies
utilized by the Company will not become obsolete. In addition, as digital
integrated circuits have become faster and their processing capacity has
expanded, digital circuits have increasingly been used to perform functions in
electronic systems that were previously performed with analog technologies.
There can be no assurance that further advances in digital processing power will
not eventually supplant analog technologies in those new applications, which
could have a material adverse effect on the Company's business and results of
operations.
Manufacturing
The Company manufactures semiconductor wafers for its dielectric
isolation complementary bipolar products in its own facility to optimize the
performance of these products and maintain a high degree of manufacturing
control. The Company also uses a third-party foundry that provides partially
processed dielectric isolation complementary bipolar wafers. The Company's
manufacturing facilities in Milpitas, California include a four-inch wafer
fabrication facility and a 3,500 square foot clean room. The Company broadens
its manufacturing capabilities by using third-party foundries to produce
junction isolation bipolar wafers and CMOS wafers. The use of third-party
foundries enables the Company to focus on its design strengths and minimize
fixed costs and capital expenditures while providing access to diverse
manufacturing technologies without bearing the full risk of obsolescence.
Sales of dieletric isolation products represented approximately 74% of
the Company's net product revenues in fiscal 1996 and 67% in 1997. The process
for manufacturing dielectrically isolated integrated circuits is more complex
than processes for junction isolation bipolar manufacturing, and the number of
foundries that have the capability to produce dielectrically isolated
semiconductor wafers is limited. The Company has been informed that its existing
dielectric isolation foundry will discontinue supplying this technology in late
1998. The company is currently developing an alternative source for this
technology.
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The loss of this foundry prior to locating a second source or developing
alternate technology would have a material adverse effect on the Company's
business and results of operations.
The Company uses different third-party foundries to supply
semiconductor wafers for its complementary bipolar and its CMOS products. Sales
of these products collectively represented approximately 16% and 23% of the
Company's net product revenues in fiscal 1996 and fiscal 1997, respectively. The
Company currently uses a single source of wafers for its complementary bipolar
process, and has two sources for CMOS processes. The Company believes that it
has had good long-term relationships with its foundries and that its
relationships with its foundries are stable. However, any interruption in the
supply of wafers from the Company's foundries would have a negative impact on
the Company's business and results of operations until an alternate source could
be established. Although the Company believes that it could develop alternative
sources of supply, there can be no assurance that the Company could do so in a
timely manner to prevent such a material adverse impact.
The Company's commercial products are assembled by a variety of
subcontractors in Asia. These subcontractors may also be subject to capacity,
yield and quality problems or have difficulty obtaining critical raw materials,
which could result in disruptions in the supply of assembled products. Any delay
or disruption in the supply of assembled products, whether by reason of
manufacturing or assembly delays or other problems, might result in the loss of
customers, limitations or reductions in the Company's revenue or other material
adverse effects on the Company's business and results of operations.
The Company tests each integrated circuit or "die" on the wafers
produced by the Company and its foundries for compliance with performance
specifications before assembly. Following assembly, the packaged units are
returned to the Company for final testing and inspection prior to shipment to
customers. The Company then performs extensive testing on all circuits using
advanced automated test equipment to ensure that the circuits satisfy specified
performance levels. The Company manufactures its military products in
conformance with the stringent quality and reliability requirements of Military
Standard 883, at its military-certified facility in Milpitas, California.
The Company anticipates that it will meet its future growth
requirements by expanding its manufacturing capability at its present location
in Milpitas, California. These plans include expanding wafer fabrication
capability for dielectric isolation and bonded wafers. On October 1, 1996 the
Company signed a lease for a total of approximately 24,000 square feet of space
located adjacent to the Milpitas manufacturing facility and moved administrative
functions to this new facility to facilitate the manufacturing expansion. In
1997 the Company completed an expansion of its test facility, expanding its
analog and mixed signal testing capability.
Environmental Laws
The Company is subject to a variety of federal, state and local
governmental regulations related to the use, storage, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
process. Although the Company believes that its activities conform to presently
applicable environmental regulations, the failure to comply with present or
future regulations could result in fines being imposed on the Company,
suspension of production or a cessation of operations. There can be no assurance
that regulatory changes or changes in regulatory interpretation or enforcement
will not render compliance more difficult and costly. Any failure of the Company
to control the use of, or adequately restrict the discharge of, hazardous
substances, or otherwise comply with environmental regulations, could subject it
to significant future liabilities.
Research and Development
The Company's ability to compete depends, in part, upon its continued
introduction of technologically innovative products on a timely basis. Elantec's
product development strategy emphasizes a broad line of products to address a
diversity of customer applications. The Company's research and development
efforts are directed primarily at designing and introducing new products and
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technologies and, to a lesser extent, developing new testing and packaging
techniques. The Company continually upgrades its internal technology while also
working with foundries to develop new technologies for new generations of
products. In addition, the Company continually refines its manufacturing
practices and technology to improve the yields of its products.
The Company has assembled a team of highly skilled analog design
engineers. As performance demands have increased the complexity of analog
circuits, the design and development process has become a multi-disciplinary
effort, requiring expertise ranging from detailed knowledge of device physics to
expertise in device placement and packaging to avoid unwanted cross-talk and
signal interference. The Company supports its key designers with an
infrastructure of device physicists, product engineers and test engineers who
perform various support functions and allow the designers to focus on the core
elements of the design.
As part of its future bipolar product development strategy, the Company
is developing a form of silicon on insulator (SOI) technology called bonded
wafers. Bonded wafer technology uses two flat oxidized silicon wafers that are
thermally bonded to one another, after which one wafer is precisely ground and
polished to form a thin silicon layer supported by the insulating oxide and the
remaining silicon wafer. This thin silicon layer is suitable for making
individual elements of the semiconductor circuits that are electrically isolated
from each other by insulating oxide to provide performance characteristics
superior to those achievable with other technologies such as dielectric
isolation and junction isolation. The Company believes that, if successful, the
bonded wafer technology could provide many of the same benefits as dielectric
isolation but with lower wafer cost and improved performance due to higher speed
and smaller device size. This technology could provide the Company with the
capability to provide products with higher levels of integration and performance
to the Company's target markets. However, there can be no assurance that the
development of the bonded wafer technology can be successfully accomplished in a
timely manner or that it will provide the desired improvements over the
Company's current technology or that the bonded wafer technology being developed
by the Company will not be supplanted by alternative new technologies.
Significant delays in the development of this bonded wafer technology or
manufacturing problems associated with transferring the Company's current
product line to this technology could have a material adverse effect on the
Company's business and results of operations. In addition, delays in the
development of this technology could materially and adversely affect the
Company's new product development program.
In fiscal 1995, fiscal 1996 and fiscal 1997, the Company spent $4.8
million, $6.4 million and $6.2 million, respectively, on research and
development. The Company expects that it will continue to spend substantial
funds on research and development activities.
Patents and Licenses
The Company seeks to protect its proprietary technology through patents
and trade secret protection. Currently, the Company holds 32 United States
patents and three foreign patents, expiring on various dates between the years
2005 and 2014 and has additional pending United States patent applications,
although there can be no assurance that any patents will result from these
applications. While the Company intends to continue to seek patent coverage for
its products and manufacturing technology where appropriate, the Company
believes that its success depends more heavily on the technical expertise and
innovative abilities of its personnel than on its patent position. Accordingly,
the Company also relies on trade secrets and confidential technological know-how
in the conduct of its business. There can be no assurance that the Company's
patents or applicable trade secret laws provide adequate protection for the
Company's technology against competitors who may develop or patent similar
technology or reverse engineer the Company's products. In addition, the laws of
certain territories in which the Company's products are or may be developed,
manufactured or sold, including Asia, Europe and Latin America, may not protect
the Company's products and intellectual property rights to the same extent as
the laws of the United States.
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The Company has not been involved in any intellectual property
litigation to date. However, the semiconductor industry is characterized by
frequent litigation regarding patent and other intellectual property rights.
There can be no assurance that third parties will not assert claims against the
Company with respect to existing or future products or technologies. In the
event of litigation to determine the validity of any third-party claims, such
litigation, whether or not determined in favor of the Company, could result in
significant expense to the Company and divert the efforts of the Company's
technical and management personnel from productive tasks. In the event of an
adverse ruling in such litigation, the Company might be required to discontinue
the use of certain processes, cease the manufacture, use and sale of infringing
products, expend significant resources to develop non-infringing technology or
obtain licenses to the infringing technology. There can be no assurance that
licenses will be available on responsible commercial terms, or at all, with
respect to disputed third-party technology. In the event of a successful claim
against the Company and the Company's failure to develop or license a substitute
technology at a reasonable cost, the Company's business and results of
operations would be materially and adversely affected.
The Company has licensed to Aisin certain of the Company's proprietary
technology to design and manufacture analog semiconductor products for the
automotive market. See "Product Markets and Applications -- Other Markets."
Competition
The semiconductor industry is intensely competitive and is
characterized by rapid technological change, product obsolescence and price
erosion in many markets. The analog integrated circuit segment of the
semiconductor industry is also intensely competitive, and many major
semiconductor companies presently compete or could compete in some segment of
the Company's market. Most of these competitors have substantially greater
financial, technical, manufacturing, marketing, distribution and other resources
and broader product lines than Elantec. The Company also competes indirectly
with the in-house design staffs of certain of its customers, which often provide
alternative solutions to individual analog systems requirements. The Company's
current primary competitors are Analog Devices, Inc., Linear Technology
Corporation, Maxim Integrated Products, Inc., and National Semiconductor
Corporation. As the Company expands its product line, it expects that
competition will increase with these and other domestic and foreign companies.
Although foreign companies have not traditionally focused on the high
performance analog market, many foreign companies, particularly certain Asian
companies, have the financial and other resources to participate successfully in
these markets, and there can be no assurance that they will not become
formidable competitors in the future.
The Company believes that its ability to compete successfully depends
on a number of factors, including the breadth of its product line, the ability
to develop and introduce new products rapidly, product innovation, product
quality and reliability, product performance, price, technical service and
support, adequacy of manufacturing capacity and sources of raw materials,
efficiency of production, delivery capabilities and protection of the Company's
products by intellectual property laws. The Company believes that product
innovation, quality, reliability, performance and the ability to introduce
products rapidly are more important competitive factors than price in its target
markets because the Company competes primarily at the stage when system
manufacturers design analog products into their systems. At the design-in stage,
there is less price competition, particularly where there is only one source of
an application specific product. The Company believes that, by virtue of its
analog expertise and rigorous design methodology, it competes favorably in the
areas of rapid product introduction, product innovation, quality, reliability
and performance, but it may be at a disadvantage in comparison to larger
companies with broader product lines, greater technical and financial resources
and greater service and support capabilities. There can be no assurance that the
Company will be able to compete successfully in the future.
11
<PAGE>
Employees
At September 30, 1997, the Company had 161 full time employees. The
Company believes that its future success will depend, in part, on its ability to
attract and retain qualified technical and manufacturing personnel. This is
particularly important in the areas of product design and development, where
competition for skilled personnel, particularly those with analog experience, is
intense. None of the Company's employees is subject to a collective bargaining
agreement, and the Company has never experienced a work stoppage. The Company
believes that its relations with its employees are good.
Executive Officers and Directors of the Company
The executive officers and directors of the Company are as follows:
Name Age Positions
---- --- ---------
David O'Brien 58 President, Chief Executive
Officer, Chief Financial
Officer and Director
Richard E. Corbin 62 Vice President of Technology
Ralph S. Granchelli, Jr. 42 Vice President of Marketing
Donald T. Valentine (1) 65 Director and Chairman of the
Board
Chuck K. Chan (2) 47 Director
James V. Diller (2) 62 Director
B. Yeshwant Kamath (1) 49 Director
- ----------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
David O'Brien has served as President, Chief Executive Officer and a
director of the Company since September 1987, and served as Chief Financial
Officer from August 1997 to present and previously from August 1995 to December
1995. From 1982 to September 1987, he served as President and Chief Executive
Officer of Precision Monolithics, Inc. ("Precision Monolithics"), a
semiconductor company. From 1979 to 1982, he was Vice President of Engineering
and Senior Vice President of Operations at Precision Monolithics. Previously,
Dr. O'Brien was employed by Fairchild Semiconductor Corporation ("Fairchild
Semiconductor") from 1973 to 1979, where he served in several managerial
positions in engineering and operations. Dr. O'Brien holds a B.S. degree in
physics and M.S. and Ph.D. degrees in electrical engineering from the University
of Swansea, United Kingdom, and a M.B.A. degree from the University of Santa
Clara, California.
Richard E. Corbin has served as Vice President of Technology since
June 1997 and Vice President of Bipolar Design Engineering from September 1992
to May 1997. From October 1987 to August 1992, he served as the Company's Vice
President of Operations. From 1981 to 1987, Mr. Corbin was employed at Precision
Monolithics, in a variety of management positions including Director of CMOS
Operations and Vice President of New Product Development. From 1976 to 1980, Mr.
Corbin held various positions at Fairchild Semiconductor including Division
Operations Manager of CMOS. Mr. Corbin holds a B.S. degree in mathematics and
physics from Arizona State University.
Ralph S. Granchelli, Jr. has served as Vice President of Marketing
since September 1994 and Vice President of Marketing and Sales of the Company
from November 1990 to August 1994. From 1985 to October 1990 he served as the
Company's Vice President of Sales. From 1983 to 1985, Mr. Granchelli was
National Sales Manager of Teledyne Semiconductor, Inc., a division of Teledyne
Industries, Inc. Previously, Mr. Granchelli held senior sales positions with
Micro Power Systems, Inc.,
12
<PAGE>
an analog semiconductor company, and the Advanced Analog Division of Intech,
Inc., an analog hybrid semiconductor company, and an engineering position at
Teledyne Philbrick, a division of Teledyne Industries, Inc. Mr. Granchelli holds
an A.S. degree in Electronics Engineering from Wentworth Institute of Technology
and attended the University of Massachusetts, Amherst from 1976 to 1979, where
he studied electrical engineering and marketing.
Donald T. Valentine has been a director of the Company since January
1992 and Chairman of the Board since March 1994. Mr. Valentine has been a
general partner of Sequoia Capital, a venture capital firm, since 1974. He is
also Chairman of the Board of C-Cube Microsystems Inc., a semiconductor video
compression company, Vice Chairman of Cisco Systems, Inc., an internetworking
communications company, and Chairman of the Board of Network Appliance
Corporation, a company in the network file server business.
Chuck K. Chan has been a director of the Company since January 1992 and
also served as a director from 1983 to 1984. Dr. Chan has been a partner in
Alpine Technology Ventures, a venture capital firm, since December 1994 and was
a partner in Associated Venture Investors, a venture capital firm from 1982 to
1996. Dr. Chan holds B.S., M.S. and Ph.D. degrees in physics from the
Massachusetts Institute of Technology and a M.B.A. degree from Harvard
University.
James V. Diller has been a director of the Company since 1986. Mr.
Diller was a founder of Sierra Semiconductor Corporation, a communications
semiconductor company, was its President from 1983 to 1997 and is currently its
Chairman of the Board. Mr. Diller holds a B.S. degree in physics from the
University of Rhode Island.
B. Yeshwant Kamath has been a director of the Company since July 1993.
Dr. Kamath is the Division President of the KUB division of Videonics Inc.. KUB
Systems, a company that manufactures video special effects equipment, was
founded by Dr. Kamath in February 1992 and acquired by Videonics in May 1996.
Previously, Dr. Kamath was a founder of Abekas Video Systems, Inc., a subsidiary
of Carlton Communications PLC, where he was President from 1982 to August 1990.
Dr. Kamath is also a director of Euphonix, Inc., a company that manufactures
digitally controlled analog audio consoles for the music industry. Dr. Kamath
holds a B.Tech. degree in electrical engineering from the Indian Institute of
Technology, and M.S. and Ph.D. degrees in electrical engineering from the
University of California, Berkeley.
Each director holds office until the next annual meeting of
stockholders and until his successor has been elected and qualified or until his
earlier resignation or removal. Each officer was chosen by the Board of
Directors and serves at the pleasure of the Board of Directors until his
successor is appointed or until his earlier resignation or removal.
ITEM 2: PROPERTIES
The Company leases approximately 39,000 square feet of space located in
Milpitas, California for its manufacturing and engineering functions pursuant to
a lease that expires on June 30, 2005. In addition, the Company has a seven year
lease expiring on October 1, 2003 for a total of approximately 24,000 square
feet of space located adjacent to the Milpitas manufacturing facility for
administrative functions. This seven year lease expires on October 1, 2003. The
company also leases 2,443 square feet of space for its sales offices in
Massachusetts and Wokingham, England, and approximately 4,137 square feet of
warehouse space in San Jose, California. The Company believes that its current
facilities are adequate to meet its current requirements for the near term. See
Notes to Consolidated Financial Statements.
13
<PAGE>
ITEM 3: LEGAL PROCEEDINGS
The Company is a party to a number of legal proceedings arising in the
ordinary course of its business. These actions include patent liability,
warranty of merchantability and employee-related issues. While it is not
feasible to predict or determine the outcome of these maters, the Company
believes that the ultimate resolution of these claims will not have a material
adverse effect on its financial position or results of operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
September 30, 1997.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
Price Range Of Common Stock
Elantec's Common Stock has been traded on the Nasdaq National Market
under the Nasdaq symbol "ELNT" since the Company's initial public offering on
October 11, 1995. The high and low closing sales prices indicated below are as
reported on the Nasdaq National Market. As of September 30, 1997, there were
approximately 260 stockholders of record.
<CAPTION>
Common Stock Prices
---------------------------------------------------------------------------------------
HIGH LOW
-------------------------------
<S> <C> <C> <C>
Quarter ended September 30, 1997 $ 7.250 $ 4.000
Quarter ended June 30, 1997 $ 4.625 $ 3.125
Quarter ended March 31, 1997 $ 6.125 $ 3.125
Quarter ended December 31, 1996 $ 7.000 $ 4.750
Quarter ended September 30,1996 $ 9.125 $ 5.500
Quarter ended June 30,1996 $13.250 $ 6.750
Quarter ended March 31,1996 $10.250 $ 7.125
Quarter ended December 31,1995 (Starting on 10/11/95) $11.875 $ 7.000
</TABLE>
Dividend Policy
The Company has never paid cash or declared dividends on its stock.
Elantec anticipates that it will continue to retain its earnings to finance the
growth of its business.
14
<PAGE>
<TABLE>
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data is qualified by
reference to and should be read in conjunction with the consolidated financial
statements and related notes thereto and the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information included elsewhere in this Annual Report on Form
10-K.
<CAPTION>
September 30 (1)
1993 1994 1995 1996 1997
---------------------------------------------------------------------
(in thousands, except per share data)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net revenues $18,477 $22,937 $26,884 $36,806 $35,388
Gross profit 9,510 10,819 13,928 18,798 15,277
Income from operations 1,588 1,859 2,887 4,300 177
Income before taxes 1,553 1,568 2,951 4,761 647
Net income $ 1,270 $ 1,125 $ 2,713 $ 4,389 $ 566
Net income per share (2) $ 0.18 $ 0.15 $ 0.34 $ 0.47 $ 0.06
Number of shares used in computing per share
amounts (2) 7,495 7,736 7,874 9,332 9,323
September 30, (1)
1993 1994 1995 1996 1997
---------------------------------------------------------------------
(in thousands)
Balance Sheet Data:
Working capital $ 5,537 $ 6,018 $ 6,854 $17,638 $18,287
Total assets 11,058 14,919 20,910 35,246 37,091
Long-term debt and capital lease obligations 298 517 1,313 1,566 3,336
Total stockholders' equity 7,064 8,318 11,142 24,074 24,803
<FN>
- -------------------
(1) The Company's fiscal periods end on the Sunday closest to the end of the
calendar period. For ease of presentation, each fiscal period has been
presented as though it ended on the final day of the calendar period.
(2) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in
computing net income per share.
</FN>
</TABLE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Except for the historical information contained herein, the following
discussion contains forward looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, as well as in
the section entitled "Risk Factors".
15
<PAGE>
Results of Operations
The following table sets forth, as a percentage of net revenues,
certain consolidated statement of operations data for the periods indicated.
September 30,
1995 1996 1997
------------------------------------
Net revenues 100.0% 100.0% 100.0%
Gross profit 51.8% 51.1% 43.2%
Income from operations 10.7% 11.7% 0.5%
Income before income taxes 11.0% 12.9% 1.8%
Net income 10.1% 11.9% 1.6%
Net Revenues. The Company's net revenues increased 36.9% from $26.9
million in fiscal 1995 to $36.8 million in fiscal 1996 and decreased 3.9% to
$35.4 million in fiscal 1997. Net product revenues increased 40.0% from $25.2
million in fiscal 1995 to $35.3 million in fiscal 1996 and decreased 3.4% to
$34.1 million in fiscal 1997. The increase in net product revenues in 1995 and
1996 was primarily a result of increases in commercial product revenues. The
decrease in net product revenues in 1997 was due to decreased commercial product
revenues combined with a continued decrease in the Company's military business.
License fees and technology transfer revenue from Aisin Seiki Co., Ltd. (Aisin)
was $1.5 million in 1995 and declined by $195,000 and $160,000 in fiscal 1996
and 1997, respectively. The Company does not expect this license agreement and
manufacturing relationship with Aisin to extend beyond February 1998.
Commercial product revenues, driven by increased unit sales, increased
57.0% from $20.7 million in fiscal 1995 to $32.1 million in fiscal 1996 and
decreased 2.2% to $31.4 million in fiscal 1997. Increases in unit volumes in
each period resulted from stronger demand for the Company's products primarily
in the video/multimedia, communications and data processing markets. The
Company's commercial product average selling prices remained flat from 1995 to
1996, but decreased by 14.4% during 1997. The Company expects the average
selling prices of its commercial products to continue to decrease over time.
The Company's military product revenues decreased 28.9% from $4.5
million in fiscal 1995 to $3.2 million in fiscal 1996, and decreased 15.6% to
$2.7 million in fiscal 1997. The decrease in military product revenues between
1995 and 1996 was a result of a 54% unit volume decrease which was partially
offset by an increase in average selling prices. The decrease in product
revenues between 1996 and 1997 was due to a 6.8% unit volume decrease combined
with an 8.2% decrease in average selling prices. On July 1, 1997 the Company
announced that it would discontinue its military hybrid product. This product
line accounted for 17.9%, 8.9% and 7.9% of product revenues in 1995, 1996 and
1997, respectively. Orders for these discontinued products will be accepted
through mid 1998 with last shipments from the factory expected through Q1, 1999.
Sales of dieletric isolation products represented approximately 74% of
the Company's net product revenues in fiscal 1996 and 67% in 1997. The process
for manufacturing dielectrically isolated integrated circuits is more complex
than processes for junction isolation bipolar manufacturing, and the number of
foundries that have the capability to produce dielectrically isolated
semiconductor wafers is limited. The Company has been informed that its existing
dielectric isolation foundry will discontinue supplying this technology in late
1998. The company is currently developing an alternative source for this
technology.
16
<PAGE>
The loss of this foundry prior to locating a second source or developing
alternate technology would have a material adverse effect on the Company's
business and results of operations.
Export revenues were 43.7%, 52.3% and 55.5% of net revenues in fiscal
1995, 1996 and 1997, respectively. The increase in export sales was primarily
the result of the development of Japanese, Taiwanese and Korean markets for the
Company's products. See Note 9 of Notes to Consolidated Financial Statements.
Gross Margin. The Company's gross margin decreased from 51.8% in 1995
to 51.1% in 1996 and decreased slightly to 43.2% in 1997. The decrease in gross
margin from fiscal 1995 to 1996 resulted from reductions in average selling
prices and increases in unfavorable manufacturing yield variances associated
with third party foundry services. The decrease in gross margin from fiscal 1996
to 1997 resulted from continued reductions in average selling prices combined
with increasingly unfavorable manufacturing yield and overhead variances and
increased provisions for excess and obsolete inventory. Manufacturing yield
variances are primarily associated with third-party foundries while overhead
variances are predominantly due to capacity utilization. While the Company is
working on programs to reduce these manufacturing variances, there can be no
assurance that the Company will not encounter similar difficulties in the
future, and gross margin may continue to fluctuate from quarter to quarter.
Research and Development Expenses. Research and development expenses
increased 33.4% from $4.8 million in fiscal 1995 to $6.4 million in fiscal 1996
and decreased 2.8% to $6.2 million in fiscal 1997. The increases in research and
development from 1995 to 1996 was primarily the result of costs associated with
additional employees and consultants and, to a lesser extent, increased
expenditures for mask sets, silicon and other materials. The decrease in
research and development expenses in 1997 was due to lower spending on prototype
materials, consulting services and contract services. The Company expects to
incur higher absolute research and development expenses in the future, although
these expenses are expected to remain relatively constant as a percentage of net
revenues. There can be no assurance, however, that net revenues will grow at the
same rate as the anticipated research and development expenses.
Marketing, Sales, General and Administrative Expenses. Marketing,
sales, general and administrative expenses increased 29.7% from $6.2 million in
fiscal 1995 to $8.1 million in fiscal 1996 and increased an additional 9.9% to
$8.9 million in fiscal 1997. For 1995, selling and administrative expenses
included added compensation expenses for additional personnel, increased sales
commissions due to increased sales, increases in the level of advertising
expenses, and, higher absolute marketing, sales, general and administrative
expenses due to reporting and other requirements of a public company. In 1996,
selling and administrative expenses increased due to added compensation expenses
for additional personnel, increased sales commissions due to increased sales and
increases in the level of advertising expenses. In 1997, selling and
administrative expenses increased primarily due to costs related to the
Company's new administrative offices.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net was $64,000 in fiscal 1995, $461,000 in fiscal 1996 and $470,000
in 1997. The increase of interest income in each year resulted from investing
proceeds from the Company's initial public offering in October 1995 in cash
equivalents and short-term investments. See Note 1 of Notes to Consolidated
Financial Statements.
Provision for Taxes on Income. Provisions for taxes on income for
fiscal 1995, 1996 and 1997 were lower than the statutory rate principally due to
the benefit of net operating loss carryforwards offset by alternative minimum
taxes, state taxes and foreign withholding taxes. At September 30, 1997, the
Company had federal net operating loss carryforwards of approximately $3,680,000
that expire in the years 2004 through 2005. In addition, the Company had federal
general business credit carryforwards of
17
<PAGE>
approximately $739,000 that expire in the years 1999 through 2011 and foreign
tax credit carryforwards of $625,000 that expire in 1998 through 2001.
Under certain provisions of the Internal Revenue Code of 1986, as
amended, the availability of the Company's net operating loss and tax credit
carryforwards may be subject to limitation if it should be determined that there
has been a change in ownership of more than 50% of the value of the Company's
stock. See Note 7 of Notes to Consolidated Financial Statements.
Factors Affecting Future Results
Elantec's operating results have been, and in the future may be,
subject to fluctuations due to a wide variety of factors including the timing of
or delays in new product and process technology announcements and product
introductions by the Company or its competitors, competitive pricing pressures,
fluctuations in manufacturing yields, changes in the mix or markets in which
products are sold, availability and costs of raw materials, reliance on
subcontractors, the cyclical nature of the semiconductor industry, industry-wide
wafer processing capacity, political and economic conditions in various
geographic areas, and costs associated with other events, such as
underutilization or expansion of production capacity, intellectual property
disputes, litigation, or environmental regulation.
The semiconductor industry is highly cyclical and has been subject to
significant economic fluctuations at various times that have been characterized
by rapidly fluctuating product demand, periods of over and under capacity, and
accelerated erosion of average selling prices. A material change in
industry-wide production capacity, shift in industry capacity toward products
competitive with the Company's products, rapidly fluctuating demand, or other
factors could result in a rapid decline in product pricing or unit volumes which
could adversely affect the Company's operating results.
From time to time, the Company has experienced production difficulties
that have caused delivery delays and quality problems. There can be no assurance
that the Company will not experience manufacturing problems and product delivery
delays in the future as a result of, among other things, changes to its process
technologies, ramping production, installing new equipment at its facilities and
constructing new facilities in Milpitas, California.
The Company has initiated an extensive production expansion at its
primary manufacturing facility in Milpitas, California. The expansion, when
completed, will result in a significant increase in fixed and operating
expenses. These additional expenses could reduce gross margins. Specifically,
the Company would anticipate incurring substantial operating costs and
depreciation expense relating to the expanded facility before production of
substantial volume is achieved. If revenue levels do not increase sufficiently
to offset these additional expense levels, or if the Company is unable to
achieve gross margin greater than or comparable to the Company's current
products, the Company's future results of operations could be adversely
impacted. Additionally, the project faces a number of substantial risks
including, but not limited to, project termination, delays in construction, cost
overruns, equipment delays or shortages, manufacturing start-up or process
problems, or difficulties in hiring key managers and technical personnel.
New products, process technology and start-up costs associated with the
Milpitas wafer fabrication facility will require significant research and
development expenditures. However, there can be no assurance that the Company
will be able to develop and introduce new products in a timely manner, that new
products will gain market acceptance or that new process technologies can be
successfully implemented. If the Company is unable to develop new products in a
timely manner, and to sell them at
18
<PAGE>
gross margins at least comparable to the Company's current products, the future
results of operations could be adversely impacted.
Part of the Company's future bipolar product development strategy may
include the development of an alternative form of silicon-on-insulator ("SOI")
technology called bonded wafers. The Company currently believes that, if
successful, the bonded wafer technology could provide technologically advanced
products at a lower cost than the current dielectric isolation complementary
bipolar technology. However, there can be no assurance that bonded wafer
technology can be successfully accomplished in a timely manner or that it will
provide the desired improvements over the Company's current technology.
Significant delays or cancellation of the development of the bonded wafer
technology and/or manufacturing problems associated with transferring the
Company's current product line to this technology could have a material adverse
affect on the Company's business and results of operations. In addition, delays
or cancellation of the development of this technology could adversely affect the
Company's new product development program.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which have resulted in
significant and often protracted and expensive litigation. In recent years,
there has been a growing trend of companies to resort to litigation to protect
their semiconductor technology from unauthorized use by others. The Company
believes its products do not infringe upon any valid patents. However, there can
be no assurance that the Company's position in these matters will prevail. There
can be no assurance that additional future claims alleging infringement of
intellectual property rights will not be asserted against the Company. The
intellectual property claims that have been made, or may be asserted against the
Company in the future, could require that the Company discontinue the use of
certain processes or cease the manufacture, use and sale of infringing products.
Additionally, the Company may incur significant litigation costs and damages to
develop noninfringing technology. There can be no assurance that the Company
would be able to obtain such licenses on acceptable terms or to develop
noninfringing technology without a material adverse effect on the Company.
The Company is subject to a variety of federal, state and local
governmental regulations related to the use, storage, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
process. Although the Company believes that its activities conform to presently
applicable environmental regulations, the failure to comply with present or
future regulations could result in fines being imposed on the Company,
suspension of production or a cessation of operations. There can be no assurance
that regulatory changes or changes in regulatory interpretation or enforcement
will not render compliance more difficult and costly. Any failure of the Company
to control the use of, or adequately restrict the discharge of, hazardous
substances, or otherwise comply with environmental regulations, could subject it
to significant future liabilities.
The Company's Common Stock has experienced substantial price volatility
and such volatility may occur in the future, particularly as a result of
quarter-to-quarter variations in the actual or anticipated financial results of
the Company, the companies in the semiconductor industry or in the markets
served by the Company, or announcements by the Company or its competitors
regarding new product introductions. In addition, the stock market has
experienced extreme price and volume fluctuations that have affected the market
price of many technology companies' stock in particular. These factors may
adversely affect the price of the Common Stock.
The Company has initiated a year 2000 remediation plan which is
expected to make the Company's operating and ancillary systems year 2000
compliant. This plan includes implementing financial application software that
is year 2000 compatible. The software has been purchased and the
19
<PAGE>
project is expected to be complete during fiscal 1998. The costs of implementing
such a plan are not expected to be material to the Company's operating results.
However, failure to implement the year 2000 remediation plan prior to the year
2000 could have a material adverse affect on the Company.
Liquidity and Capital Resources
From fiscal 1995 through fiscal 1997, the Company financed its
operations primarily from cash provided by operating activities and lease
financing.
Net cash provided by operating activities was $2.8 million, $5.1
million and $1.5 million in fiscal 1995, 1996 and 1997, respectively. Net cash
provided by operating activities in fiscal 1995 resulted primarily from net
income of $2.7 million and depreciation of $1.2 million, offset in part by
increased working capital, principally from increased accounts receivable and
inventories. Net cash provided by operating activities in fiscal 1996 resulted
primarily from net income of $4.4 million and depreciation of $1.7 million,
offset in part by increased working capital, again principally from increased
accounts receivable and inventories. Net cash provided by operating activities
in fiscal 1997 resulted primarily from net income of $0.6 million and
depreciation of $2.0 million, offset in part by increased working capital,
principally from increased inventories and decreased deferred revenue.
Net cash used in investing activities was $2.2 million in fiscal 1995
and $8.6 million in fiscal 1996. Net cash provided by investing activities was
$0.2 million in 1997. The Company's investing activities in fiscal 1995 was
principally the purchase of property and equipment. In addition to property and
equipment purchases, $6.7 million of net cash was invested in available for sale
investments in 1996. In 1997, purchases of property and equipment were more than
offset from net sales of available for sale investments of $0.6 million. Cash
purchases of property and equipment totaled $1.7 million in fiscal 1995, $2.1
million in fiscal 1996 and $0.4 million in 1997. At September 30, 1997, there
were outstanding commitments for capital expenditures of approximately $2.4
million. The Company plans to spend approximately $8.0 million on capital
expenditures during fiscal 1998, primarily on expanding manufacturing
capabilities in Milpitas, California.
Net cash used in financing activities was $355,000 in fiscal 1995.
Financing activities in fiscal 1995 were primarily repayments on capital lease
obligations and long-term debt. Net cash provided by financing activities was
$6.8 million in fiscal 1996. In October 1995 (fiscal 1996), the Company raised
net proceeds of approximately $8.2 million by issuing common stock in its
initial public offering. This financing activity was partially offset by
payments on long-term debt during 1996 of $1.6 million, primarily on long-term
notes and capital leases. In 1997, net cash used in financing activities was
$1.2 million due to repayments on capital lease obligations and long-term debt.
At September 30, 1997, the Company had working capital of $18.3 million
and cash and cash equivalents and short-term investments of $15.9 million. At
September 30, 1997 the Company also had non-revolving lease credit lines for up
to $10 million that can be utilized to finance up to 100% of certain capital
equipment. The non-revolving lease lines of credit expire in December 1997 and
March 1998. Three, 3 to 5 year capital leases have been negotiated under the
lines. At September 30, 1997, $4,042,000 was outstanding, and approximately
$5,958,000 remained available under the lines. See footnote 3 to the
consolidated financial statements. The Company believes that its existing cash
and cash equivalents, its current line of credit and cash from operations will
be sufficient to support its operating and capital needs for at least the next
twelve months. Any major change in the nature of the Company's business, such as
the acquisition of products, the design of products not currently under
development or the need for significant unplanned capital expenditures, could
change the Company's capital requirements. To the extent the Company
20
<PAGE>
requires additional cash, there can be no assurance that the Company will be
able to obtain such financing on terms favorable to the Company, or at all.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
<TABLE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following Financial Statements are filed as part of this
Report.
<CAPTION>
Page No.
<S> <C> <C>
Report of Ernst & Young LLP, Independent Auditors.................................. 25
Consolidated Balance Sheets as of September 30, 1997 and 1996...................... 26
Consolidated Statements of Income for each of the three fiscal years
in the period ended September 30, 1997............................................. 27
Consolidated Statements of Stockholders' Equity for each of the three
fiscal years in the period ended September 30, 1997................................ 28
Consolidated Statements of Cash Flows for each of the three fiscal
years in the period ended September 30, 1997....................................... 29
Notes to Consolidated Financial Statements......................................... 30
2. INDEX TO SUPPLEMENTAL FINANCIAL INFORMATION
Unaudited Interim Financial Information............................................ 40
3. INDEX TO FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of Elantec
Semiconductor, Inc. for the years ended September 30, 1997, 1996
and 1995 is filed as part of this report and should be read in
conjunction with the Consolidated Financial Statements of Elantec
Semiconductor, Inc.
Schedule II - Valuation and Qualifying Accounts for each of the
three fiscal years in the period ended September 30, 1997...................... 41
Schedules other than that listed above have been omitted since
they are either not required, not applicable, or the information
is otherwise included.
</TABLE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
21
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item with respect to Directors may be found
in the section captioned "Election of Elantec Directors" appearing in the
definitive Proxy Statement to be delivered to stockholders in connection with
the Annual Meeting of Stockholders to be held on February 20, 1998. Such
information is incorporated herein by reference. Information required by this
Item with respect to executive officers may be found in Part I hereof in the
section captioned "Executive Officers of the Company." Such information is
incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information with respect to this Item may be found in the section
captioned "Executive Compensation" appearing in the definitive Proxy Statement
to be delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held on February 20, 1998. Such information is incorporated
herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this Item may be found in the section
captioned "Security Ownership of Certain Beneficial Owners and Management"
appearing in the definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held on February 20,
1998. Such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this Item may be found in the section
captioned "Certain Transactions" appearing in the definitive Proxy Statement to
be delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held on February 20, 1998. Such information is incorporated
herein by reference.
22
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements and Financial Statement Schedule -- See Index to
Consolidated Financial Statements and Financial Statement Schedule at
Item 8 on page 21 of this Report.
2. Exhibits. The following exhibits are filed as part of, or incorporated
by reference into, this Report:
Exhibit
Number Exhibit Title
- ------ --------------
3.01 -- Company's Certificate of Incorporation.*
3.02 -- Company's Bylaws.*
4.01 -- Registration Rights Agreement dated August 12, 1988 by and among
the Company and certain stockholders and warrantholders, as amended
January 12, 1990 and as of August 4, 1995.*
10.01 -- Company's 1983 Stock Option Plan, as amended, and related documents.
*/+
10.02 -- Company's 1994 Equity Incentive Plan, as amended, and related
documents.*/+
10.03 -- Form of Company's 1995 Equity Incentive Plan and related documents.
**/+
10.04 -- Form of Company's 1995 Directors Stock Option Plan and related
documents.*/+
10.05 -- Form of Company's 1995 Employee Stock Purchase Plan and related
documents.*/+
10.06 -- Form of Indemnification Agreement to be entered into by the Company
with each of its directors and executive officers.*
10.07 -- Form of Executive Compensation Agreement dated as of March 22, 1991,
by and between the Company and David O'Brien.*/+
10.08 -- Form of Executive Compensation Agreement dated as of March
22, 1991, by and between the Company and each of Ralph
Granchelli, Richard Corbin, and Barry Siegel.*/+
10.09 -- Standard Industrial/Commercial Single-Tenant Lease dated June 23,
1993, by and between the Company and Robert Ruggles, including
amendments one through five thereto.*
10.10 -- Technology Transfer Agreement dated February 24, 1993, between the
Company and Aisin Seiki Co., Ltd. ("Aisin").*
10.11 -- Product Development Agreement No. 1 dated March 24, 1993, between the
Company and Aisin.*
10.12 -- Product Development Agreement No. 2 dated March 24, 1995, between the
Company and Aisin.*
10.13 -- Distributor Agreement dated December 8, 1986, between the Company and
Insight Electronics, Inc. ("Insight").*
10.14 -- Distributor Agreement dated October 1, 1989, between the Company and
Insight.*
10.15 -- Distributor Agreement dated November 1, 1987, between the Company and
Marshall Industries.*
10.16 -- Distributor Agreement dated March 7, 1994, between the Company and
Internix, Inc.*
10.17 -- Amendment to Standard Industrial/Commercial Single-Tenant Lease dated
June 23, 1993.***
10.18 -- Standard Industrial/Commercial Single-Tenant Lease dated February 20,
1996.***
10.19 -- Amendment to Standard Industrial/Commercial Single-Tenant Lease dated
February 20, 1996.***
10.20 -- Distributor Agreement dated August 1, 1996, between the Company and
Microtek Inc.****
23
<PAGE>
11.01 -- Statement re computation of per share earnings.
21.01 -- Subsidiary of the Company.*
23.01 -- Consent of Ernst & Young LLP, Independent Auditors (see page 46 of
this Report).
24.01 -- Powers of Attorney (see page 47 of this Report).
27.01 -- Financial Data Schedule.
- ---------------------
* Incorporated by reference to the Company's Registration Statement on
Form S-1, filed August 24,
1995, as amended (File No. 33-96136).
** Incorporated by reference to the Company's Registration Statement on
Form S-8, filed November 5,
1997 (File No. 333-39613).
*** Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
**** Incorporated by reference to the Company's Annual Report on Form 10-K
for the quarter ended September 30, 1996.
+ Represents a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No current reports on Form 8-K were filed during the fiscal quarter
ended September 30, 1997.
(c) Exhibits:
The Registrant hereby files as part of this Report the exhibits listed
in Item 14(a)(2), as set forth above.
(d) Financial Statement Schedules:
No such financial statement schedules are required to be filed in
accordance with Regulation S-X.
24
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Elantec Semiconductor, Inc.
We have audited the accompanying consolidated balance sheets of Elantec
Semiconductor, Inc. as of September 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1997. Our audits also
included the financial statement schedule listed in the index at Item 14(a)(1).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and 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 consolidated financial position of Elantec
Semiconductor, Inc. at September 30, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Jose, California
October 22, 1997
25
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<CAPTION>
September 30,
1997 1996
--------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 9,839 $ 9,377
Short-term investments 6,089 6,663
Accounts receivable, net of allowances of $840 in 1997
and $340 in 1996 3,315 4,175
Inventories 7,369 6,475
Prepaid expenses and other current assets 627 554
--------------------
Total current assets 27,239 27,244
Property and equipment:
Machinery and equipment 16,085 13,005
Furniture and fixtures 563 314
Leasehold improvements 2,970 2,407
--------------------
19,618 15,726
Accumulated depreciation and amortization (10,388) (8,366)
--------------------
9,230 7,360
Other assets, net 622 642
--------------------
Total assets $ 37,091 $ 35,246
====================
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 3,368 $ 3,749
Income taxes payable 339 315
Accrued salaries and benefits 1,231 1,027
Other accrued liabilities 429 244
Deferred revenue 2,094 3,143
Current portion of long-term debt and capital lease obligations 1,491 1,128
--------------------
Total current liabilities 8,952 9,606
Long-term debt and capital lease obligations 3,336 1,566
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 5,000,000 in 1997 and 1996 -- --
Issued and outstanding shares - none
Common stock, $.01 par value: Authorized shares - 25,000,000 in 1997 and 1996
Issued and outstanding shares - 9,019,000 in 1997 and
8,745,000 in 1996 90 87
Additional paid-in capital 33,635 33,475
Accumulated deficit (8,922) (9,488)
--------------------
Total stockholders' equity 24,803 24,074
====================
Total liabilities and stockholders' equity $ 37,091 $ 35,246
====================
<FN>
See accompanying notes.
</FN>
</TABLE>
26
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
Consolidated Statements of Income
(in thousands, except per share amounts)
<CAPTION>
September 30,
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Net revenues $ 35,388 $ 36,806 $ 26,884
Cost of revenues 20,111 18,008 12,956
--------------------------------
Gross profit 15,277 18,798 13,928
Operating expenses:
Research and development 6,234 6,413 4,806
Marketing, sales, general, and administrative 8,866 8,085 6,235
--------------------------------
Total operating expenses 15,100 14,498 11,041
--------------------------------
Income from operations 177 4,300 2,887
Interest and other income, net 759 687 195
Interest expense (289) (226) (131)
--------------------------------
Income before taxes 647 4,761 2,951
Provision for taxes on income 81 372 238
--------------------------------
Net income $ 566 $ 4,389 $ 2,713
================================
Net income per share $ 0.06 $ 0.47 $ 0.34
================================
Shares used in computing per share amounts 9,323 9,332 7,874
================================
<FN>
See accompanying notes.
</FN>
</TABLE>
27
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Total
---------------------------------------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 4,937 $ 24,543 1,779 $ 18 $ 347 $(16,590) $ 8,318
Exercise of stock options -- -- 239 2 129 -- 131
Exercise of warrants -- -- 3 -- -- -- --
Repurchase of common stock -- -- (4) -- (20) -- (20)
Net income -- -- -- -- -- 2,713 2,713
-------------------------------------------------------------------------------------
Balance at September 30, 1995 4,937 24,543 2,017 20 456 (13,877) 11,142
Conversion of preferred stock (4,937) (24,543) 4,937 49 24,494 -- --
Proceeds from IPO, net of -- -- 1,400 14 8,189 -- 8,203
offering expenses of $911
Exercise of stock options -- -- 369 4 293 -- 297
Exercise of warrants -- -- 22 -- 43 -- 43
Net income -- -- -- -- -- 4,389 4,389
-------------------------------------------------------------------------------------
Balance at September 30, 1996 -- -- 8,745 87 33,475 (9,488) 24,074
Exercise of stock options -- -- 274 3 160 -- 163
Net income -- -- -- -- -- 566 566
-------------------------------------------------------------------------------------
Balance at September 30, 1997 -- $ -- 9,019 $ 90 $ 33,635 $ (8,922) $ 24,803
=====================================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
28
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
September 30,
1997 1996 1995
-----------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 566 $ 4,389 $ 2,713
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,022 1,677 1,182
Changes in operating assets and liabilities:
Accounts receivable 860 (50) (1,971)
Inventories (894) (1,885) (765)
Prepaid expenses and other current assets (73) 31 (179)
Payables and accrued liabilities 32 1,217 1,657
Deferred revenue (1,049) (273) 207
-----------------------------
Net cash provided by operating activities 1,464 5,106 2,844
Investing activities
Sale (purchase) of available for sale investments, net 574 (6,663) --
Purchase of property and equipment (425) (2,144) (1,673)
Decrease (increase) in other assets 20 238 (524)
-----------------------------
Net cash provided by (used in) investing activities 169 (8,569) (2,197)
Financing activities
Payments on capital lease obligations (426) (145) (176)
Payments on long-term debt (908) (1,567) (290)
Issuances of common stock 163 8,543 111
-----------------------------
Net cash provided by (used in) financing activities (1,171) 6,831 (355)
-----------------------------
Increase in cash and cash equivalents 462 3,368 292
Cash and cash equivalents at beginning of period 9,377 6,009 5,717
=============================
Cash and cash equivalents at end of period $ 9,839 $ 9,377 $ 6,009
=============================
Supplemental disclosures of cash flow information
Lease and installment financing for capital equipment $ 3,467 $ 2,172 $ 1,769
Interest paid $ 285 $ 202 $ 117
Taxes paid $ 57 $ 236 $ 86
<FN>
See accompanying notes.
</FN>
</TABLE>
29
<PAGE>
1. Business and Summary of Significant Accounting Policies
Basis of Presentation. Elantec Semiconductor, Inc. (the "Company") designs,
manufactures and markets high performance analog integrated circuits used in the
video/multimedia, data processing, instrumentation and communications markets.
Principal markets include sales in North America, Asia, Europe and other
countries.
On October 11, 1995, the Company effected an initial public offering of its
shares pursuant to which it issued 1,400,000 common shares for net proceeds of
approximately $8,203,000. Upon the closing of the initial public offering, each
outstanding share of Series 1 preferred stock was converted to common stock on a
share-for-share basis.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Elantec Government Products, Inc., which is
currently inactive.
Fiscal Year. The Company's fiscal year ends on the Sunday closest to September
30. Fiscal years 1997, 1996, and 1995 ended on September 28, September 29, and
October 1, respectively. The Company also follows a 4/4/5 week quarterly cycle.
For convenience, the accompanying financial statements have been shown as ending
on September 30 for each fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company considers all highly liquid investments
with an original maturity (at the date of purchase) of three months or less to
be the equivalent of cash for the purposes of the balance sheet and statement of
cash flows presentation. Cash and cash equivalents are carried at cost which
approximates market value.
Short-Term Investments. The Company's policy is to invest in various short-term
instruments with investment grade credit ratings. Generally such investments
have contractual maturities of less than one year. All of the Company's
marketable investments are classified as "available-for-sale" and the Company
views its available-for-sale portfolio as available for use in its current
operations. At September 30, 1997, short-term investments consisted of corporate
debt of $3,888,000, auction-rate securities of $901,000, and US Treasury bills
of $1,300,000. At September 30, 1996, short-term investments consisted of
corporate debt of $2,152,000, auction-rate securities of $3,200,000, and US
Treasury bills of $1,311,000.
The following table is a summary of debt and money market auction preferred
securities by contractual maturity at September 30, 1997 (in thousands):
Amortized Cost
--------------
Maturing within one year $ 1,281
Maturing after one year and before three years 2,649
Maturing after three years and before 15 years 1,258
Money market auction preferred securities 901
--------------
Total $ 6,089
==============
30
<PAGE>
In accordance with Statement of Financial Accounting Standards (FAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," 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. At
September 30, 1997 there was no significant difference between the fair market
value, determined by quoted market prices, and the underlying cost of such
investments. Realized gains and losses were immaterial.
Inventories. Inventories are stated at the lower of standard cost (which
approximates actual cost using the first-in, first-out method) or market.
Property and Equipment. Machinery and equipment as well as furniture and
fixtures are stated at cost and depreciated over the estimated useful lives of
the assets (three to ten years) using the straight-line method. Leasehold
improvements are stated at cost and amortized on a straight-line basis over the
shorter of the useful lives of the assets or the remaining lease term. Assets
under capital leases are recorded at the present value of the related lease
obligations and amortized on a straight-line basis over the lease term.
Employee Stock Plans. The Company accounts for its stock option plans and its
employee stock purchase plan in accordance with provisions of the Accounting
Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." In October 1995, the Financial Accounting Standards Board released
the Statements of Financial Accounting Standards No. 123 (FAS 123), "Accounting
for Stock Based Compensation." FAS 123 provides an alternative to APB 25 and is
effective for fiscal years beginning after December 15, 1995. As allowed under
FAS 123, the Company continues to account for its employee stock plans in
accordance with the provisions of APB 25.
See footnote 6.
Revenue Recognition. Net revenues are stated net of discounts and allowances.
Revenue from product sales direct to customers and foreign distributors is
generally recognized upon shipment. However, the Company defers the recognition
of revenue and the related cost of revenue on shipments to domestic distributors
that have certain rights of return and price protection privileges on unsold
merchandise until the merchandise is sold by the distributor.
In fiscal 1993, the Company entered into an agreement with a third party for the
transfer of certain proprietary process technology and technical information,
training and, if requested by the third party, engineering assistance with the
design of integrated circuits. The agreement also provides for the payment of
royalties to the Company upon the sale by the third party of products that
utilize the transferred technology. The initial term of the agreement is five
years with optional renewal for an additional five successive one-year periods.
Revenue related to the transfer of technical information is recognized over the
life of the agreement in proportion to the total effort expected to be incurred,
which the Company expects will occur ratably. Training revenue is recognized as
performed. Fees for engineering services are recognized over the development
periods. The unearned portion of technology transfer and engineering services
fees are included in deferred revenue ($278,000 and $1,064,000 at September 30,
1997 and 1996, respectively).
Advertising Expense. The Company expenses the costs of advertising as incurred.
Advertising expense was approximately $552,000, $617,000, and $576,000 for the
fiscal years ended September 30, 1997, 1996, and 1995, respectively.
Concentration of Credit Risk. Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of cash investments
and trade receivables.
The Company's policy is to place its cash and short-term investments with high
credit quality institutions and limit the amount invested with any one
institution or in any type of financial instrument. The company does not hold or
issue financial instruments for trading purposes.
31
<PAGE>
The Company's products are sold to a wide variety of original equipment
manufacturers through a direct sales force and to a network of distributors. The
Company generally does not require collateral from its trade creditors. The
concentration of credit risk in the Company's trade receivables is substantially
mitigated by the Company's credit evaluation process and the geographical
dispersion of sales transactions. Bad debt write-offs have been insignificant.
Customers comprising 10% or greater of the Company's net revenues are summarized
as follows:
September 30,
1997 1996 1995
-------------------------------
Microtek International, Inc. 14% 15% *
Marshall Industries * * 13%
Internix, Inc. * * 11%
Insight Electronics, Inc. 12% * 10%
*indicates net revenues below 10%
Net Income Per Share. Net income per share is computed using the weighted
average number of shares of common stock and dilutive common equivalent shares
from convertible preferred stock (using the if-converted method) and from stock
options (using the treasury stock method).
In March 1997 the Financial Accounting Standards Board (FASB) released Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (FAS 128), which
is required to be adopted on December 31, 1997. At that time, the Company will
be required to change the method currently used to compute earnings per share
and to restate all prior periods. Under the new requirements for calculating
primary net income per share (basic earnings per share), the dilutive effect of
stock options will be excluded. The Company's basic and diluted earnings per
share as calculated according to FAS 128 would have been as follows:
September 30,
1997 1996 1995
------------------------------
Basic Earnings Per Share $ 0.06 $ 0.52 $ 1.46
Diluted Earnings Per Share $ 0.06 $ 0.47 $ 0.34
Capital Structure. In February 1997, the FASB released Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" (FAS 129). FAS 129 consolidates the existing guidance regarding
disclosure relating to a company's capital structure and is effective for fiscal
years beginning after December 15, 1997. Adoption of FAS 129 is not expected to
have a material impact on the Company's consolidated financial statements.
Comprehensive Income. In June 1997, the FASB released Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS
130 establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements and is
effective for fiscal years beginning after December 15, 1997. The Company
believes that adoption of FAS 130 will not have a material impact on the
Company's consolidated financial statements
Segment Information. In June 1997, the FASB released Statement of Financial
Accounting Standards No. 131, " Disclosures about Segments of an Enterprise and
Related Information" (FAS 131). FAS 131 will change the way companies report
selected segment information in annual financial statements and also requires
those companies to report selected segment information in interim financial
reports to stockholders. FAS 131 is effective for fiscal years beginning after
December 15, 1997. The Company has not completed the determination of the impact
of the new rule on the Company's consolidated financial statements.
32
<PAGE>
2. Inventories
Inventories consisted of the following (in thousands):
September 30,
1997 1996
-------------------------
Raw materials $ 431 $ 800
Work-in-process 5,039 4,266
Finished goods 1,899 1,409
-------------------------
$7,369 $6,475
=========================
3. Borrowing Arrangements
At September 30, 1997 the Company had a non-revolving lease line of credit for
up to $5,000,000, which can be utilized for up to 100% of the value of the
equipment financed. Amounts drawn under this line represent five-year capital
leases. The non-revolving lease line of credit expires in December 1997. At
September 30, 1997, $2,100,000 was outstanding, and approximately $2,900,000
remained available under the line. Amounts drawn under this line bear interest
at a rate equal to five year Treasury notes plus 2.25% (8.24% at September 30,
1997).
At September 30, 1997 the Company had a second non-revolving lease line of
credit for up to $5,000,000, which can be utilized for up to 100% of the value
of the equipment financed. Amounts drawn under this line include three and five
year leases. The non-revolving lease line of credit expires in March 1998. At
September 30, 1997, $1,942,000 was outstanding, and approximately $3,058,000
remained available under the line. Amounts drawn under this line bear interest
at a rate equal to three year Treasury notes plus 1.95% and five year Treasury
notes plus 2.10% depending on the lease term (7.84% and 8.09%, respectively at
September 30, 1997).
In addition, as of September 30, 1997, the Company had four outstanding notes
payable totaling $785,000. These three-year notes bear interest at rates ranging
from prime plus 0.25% to prime plus 1.75% (8.75% to 10.25% at September 30,
1997). These notes originated from previously expired nonrevolving equipment
lines of credit. These notes contain financial covenants which were fully
complied with at September 30, 1997.
Future payments on notes payable at September 30, 1997 were as follows (in
thousands):
1998 $ 657
1999 128
After 2000 --
-----
Total $ 785
=====
4. Obligations Under Capital Leases
Machinery and equipment included approximately $4,491,000 and $1,024,000 of
equipment acquired under capital leases and approximately $705,000 and $114,063
of related accumulated amortization at September 30, 1997 and 1996,
respectively. Amortization of capital leases is included in depreciation and
amortization expense.
33
<PAGE>
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of September 30, 1997 (in thousands):
1998 $1,134
1999 1,117
2000 1,094
2001 985
2002 464
------
Total minimum lease payments 4,794
Amount representing interest (752)
------
Present value of net minimum lease payments $4,042
======
5. Commitments
The Company leases its principal facilities under operating leases that expire
at various dates through the year 2005. The Company is generally responsible for
taxes, assessments, maintenance, and insurance under its leases.
Future minimum lease payments under operating leases that have initial or
remaining noncancelable lease terms in excess of one year, as of September 30,
1997, were approximately as follows (in thousands):
1998 $ 738
1999 725
2000 710
2001 714
2002 733
Thereafter 1,571
-----
Total $5,191
======
Total rental expense on all operating leases was approximately $689,000,
$339,000, and $401,000 for the fiscal years ended September 30, 1997, 1996, and
1995, respectively. At September 30, 1997, there were outstanding cancelable
commitments for capital expenditures of approximately $2.4 million.
6. Stockholders' Equity
Preferred Stock. Upon the closing of the initial public offering in October
1995, all 4,936,648 outstanding shares of Series 1 Convertible Preferred Stock
of the Company (the "Convertible Preferred") were automatically converted into
4,936,648 shares of Common Stock.
Employee Stock Purchase Plan. The Company has reserved and the stockholders
approved 225,000 shares of common stock for issuance to eligible employees under
the 1995 Purchase Plan (the Purchase Plan). Under the Purchase Plan, eligible
employees, subject to certain restrictions, may purchase shares of common stock
at a price equal to the lesser of 85% of the fair market value at either the
beginning of each six-month offering period or the end of each six-month
offering period. As of September 30, 1997, no shares have been issued under the
Purchase Plan.
34
<PAGE>
Stock Option Plans. In August 1995, the Board of Directors approved and in
September 1995, the stockholders approved (i) the adoption of the 1995 Equity
Incentive Plan (the 1995 Equity Plan) as the successor to the 1994 Incentive
Plan (the Predecessor Plan), pursuant to which 550,000 shares of the Company's
common stock, plus the number of shares remaining unissued and not subject to
outstanding options under the Predecessor Plan and any shares issuable upon
exercise of options granted under the Predecessor Plan that expire or become
unexercisable for any reason without having been exercised in full, have been
reserved for future issuance, and (ii) the adoption of the 1995 Directors' Stock
Option Plan (the 1995 Directors' Plan) pursuant to which 150,000 shares of the
Company's common stock have been reserved for future issuance. Each outstanding
option under the Predecessor Plan will continue to be governed by the terms and
conditions of such plan; no additional options will be granted under the
Predecessor Plan. In December 1996, the Board of Directors approved and in
February 1997, the stockholders approved the adoption of an amendment to the
1995 Equity Plan pursuant to which an additional 400,000 shares of the Company's
Common Stock have been reserved for future issuance.
Under the 1995 Equity Plan, incentive stock options may be granted to employees
only at the price per share that is not less than the fair market value of
common stock on the date of grant. Nonqualified options may be granted to
employees or others at a price per share not less than 85% of fair market value
of the common stock on the date of grant. Options are exercisable to the extent
vested. Vesting, as established by the Board of Directors, generally accrues
monthly over four years from the date of grant. The Company may also grant stock
bonuses and issue restricted stock to employees and others. The Company has made
no such grants since the 1995 Equity Plan's inception. The 1995 Equity Plan
expires ten years after adoption.
Under the 1995 Directors' Plan, nonqualified options may be granted to
nonemployee directors only at the price per share that is not less than the fair
market value of common stock on the date of grant. Vesting under the 1995
Directors' Plan accrues monthly over four years from the date of grant. The 1995
Directors' Plan expires ten years after adoption.
1997 Option Repricing Program. Competition for skilled engineers and other key
employees in the semiconductor industry is intense and the use of significant
stock options for retention and motivation of such personnel is widespread in
the high technology industries. The Compensation Committee believes that stock
options are a critical component of the compensation offered by the Company to
promote long-term retention of key employees, motivate high levels of
performance and recognize employee contributions in the success of the Company.
The market price of the Company's common stock decreased substantially from a
high of $13.25 on April 30, 1996 to a low of $3.125 on April 2, 1997. In light
of this substantial decline in the market price, the Compensation Committee
believed that the large numbers of outstanding stock options with an exercise
price in excess of the actual market price were no longer an effective tool to
encourage employee retention or to motivate high levels of performance. Many of
these options were granted prior to the Company's initial public offering.
Employees and Consultants. The Compensation Committee approved, on April 25,
1997, an option repricing program for all employees and consultants to the
Company who were not executive officers of the Company. Under this program, the
eligible optionees were permitted to exchange one or more of their existing
stock options ("Old Options") for new stock options ("Repriced Options")
covering a number of shares equal to the number of unexercised shares covered by
the applicable Old Option under the Elantec Semiconductor, Inc. 1995 Equity
Incentive Plan or the Elantec, Inc. 1994 Equity Incentive Plan that (a) was
exercisable at a per share price that was greater than the last reported sales
price of the Company's Common Stock on the Nasdaq National Market on May 7, 1997
and (b) was held by an optionee who was not an executive officer. In
consideration of receiving a Repriced Option, the optionee forfeited all accrued
vesting on Old Options and recommenced vesting on May 7, 1997 as to 2.0833% of
the shares subject to such Repriced Options at the end of each full succeeding
month thereafter. Each exchanged Old Option was cancelled. Approximately 543,000
options were repriced by employees (excluding executive officers) and
consultants. The exercise price of the Repriced Options was equal to the closing
market price ($4.25) on May 7, 1997.
35
<PAGE>
Executive Officers. The Compensation Committee approved, on June 25, 1997, an
option repricing program for executive officers of the Company who were eligible
to participate in the program. Under this program, the executive officers were
permitted to exchange one or more of their existing stock options ("Old
Options") for new stock options ("Repriced Options") covering a number of shares
equal to the number of unexercised shares covered by the applicable Old Option
under the Elantec Semiconductor, Inc. 1995 Equity Incentive Plan or the Elantec,
Inc. 1994 Equity Incentive Plan that (a) is exercisable at a per share price of
$4.25 or the last reported sales price of the Company's Common Stock on the
Nasdaq National Market on July 1, 1997, whichever is higher. In consideration of
receiving a Repriced Option, the optionee forfeited all accrued vesting on Old
Options and recommenced vesting on July 1, 1997 as to 2.0833% of the shares
subject to such Repriced Options at the end of each full succeeding month
thereafter. Each exchanged Old Option was cancelled. A total of 186,000 options
were repriced by executive officers. The exercise price of the Repriced Options
($4.25) was above the closing market price ($4.0625) on July 1, 1997.
<TABLE>
Additional information with respect to the Company's stock option plans follows:
<CAPTION>
Options Outstanding
--------------------------------------
Shares Number Price
Available of Shares Per Share
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1994 185,380 1,413,727 $0.20 - $6.00
Additional share reservation 860,000 - $ -
Options granted (562,387) 562,387 $6.00 - $9.00
Options exercised - (238,517) $0.20 - $7.00
Options canceled 52,740 (52,740) $0.20 - $7.00
Options expired (12,590) - $ -
--------------------------------------------------------
Balance at September 30, 1995 523,143 1,684,857 $0.20 - $9.00
Options granted (204,000) 204,000 $5.75 - $11.25
Options exercised - (369,240) $0.20 - $9.00 Weighted
Options canceled 147,465 (147,465) $0.20 - $11.25 Average Price
Options expired (23,865) - - Per Share
---------------------------------------------------------------------------
Balance at September 30, 1996 442,743 1,372,152 $0.20 - $11.25 $4.60
Additional share reservation 400,000 - $ - $ -
Options granted (1,422,457) 1,422,457 $3.75 - $6.75 $4.76
Options exercised - (273,772) $0.20 - $5.00 $0.58
Options canceled 936,251 (936,251) $0.20 - $11.25 $6.90
Options expired (882) - $ - $ -
---------------------------------------------------------------------------
Balance at September 30, 1997 355,655 1,584,586 $0.20 - $11.25 $4.09
===========================================================================
</TABLE>
<TABLE>
The following table summarizes information about stock options outstanding at
September 30, 1997:
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------- ----------------------------------
Number Weighted Average Weighted Average Number Weighted Average
Range of Exercise Outstanding at Remaining Contractual Exercise Price Exercisable Exercise Price
Prices 9/30/97 Life (Years) at 9/30/97
- --------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
$0.20 - $ 1.00 240,082 2.98 $ 0.51 240,082 $ 0.51
$1.50 - $ 5.75 1,074,839 9.06 $ 4.18 231,146 $ 3.70
$6.00 - $ 8.75 251,186 9.22 $ 6.76 45,425 $ 6.55
$9.00 - $10.00 18,479 8.01 $ 9.05 9,154 $ 9.04
----------------------------
$ 0.20-$10.00 1,584,586 8.15 $ 4.09 525,807 $ 2.58
============================
</TABLE>
At September 30, 1997 and 1996, 525,807, and 794,891 options were exercisable,
respectively.
36
<PAGE>
Stock-Based Compensation. Under APB 25, the Company generally recognizes no
compensation expense with respect to stock-based awards to employees. Pro forma
information regarding net income and earnings per share is required by FAS 123
for awards granted in fiscal years that begin after December 31, 1994, as if the
Company had accounted for its stock-based awards to employees under the fair
value method of FAS 123. The fair value of the Company's stock-based awards to
employees was estimated using a Black-Scholes option pricing model. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. The Black-Scholes model requires the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock-based awards to employees have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair value
of the Company's stock-based awards to employees was estimated assuming no
expected dividends and the following weighted-average assumptions:
Options
1997 1996
----------------
Expected life (years) 5.0 5.0
Expected volatility 75.3% 75.3%
Risk free interest rate 6.0% 6.0%
The weighted-average fair value of stock options granted during 1997 and 1996
was $3.44 and $5.68, respectively For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to pro forma net income (loss)
over the options vesting period. The Company's historical and pro forma
information follows (in thousands, except for per share information):
September 30,
1997 1996
------------------
Net income (loss):
Historical $ 566 $ 4,389
Pro Forma $ (283) $ 4,111
Net income (loss) per share:
Historical $ 0.06 $ 0.47
Pro Forma $ (0.03) $ 0.44
Because FAS 123 is applicable to awards granted in fiscal years that begin
subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until approximately fiscal year 2000.
7. Taxes on Income
The provision for taxes on income consisted of the following (in thousands):
September 30,
1997 1996 1995
---------------------------------------
Current:
Federal $24 $207 $178
State 7 90 10
Foreign 50 75 50
---------------------------------------
Total $81 $372 $238
=======================================
Foreign income taxes are incurred on technology transfer fees received from a
foreign third party.
37
<PAGE>
Significant components of the Company's deferred tax assets for federal and
state income taxes were as follows (in thousands):
September 30,
1997 1996
----------------------
Deferred tax assets:
Net operating loss carryforwards $ 1,253 $ 1,201
Tax credit carryforwards 1,581 1,269
Distributor reserves 776 722
Deferred revenue 107 669
Other 1,142 389
Total deferred tax assets 4,859 4,250
Less valuation allowance (4,859) (4,250)
----------------------
Net deferred tax $ -- $ --
======================
The valuation allowance increased by approximately $609,000 in 1997 and
decreased by approximately $1,701,000 in 1996. Management has concluded that a
full valuation allowance is necessary due to the Company's limited earnings
history and volatility of the industry.
The provisions for taxes on income differed from the provisions calculated by
applying the federal statutory rate to income before taxes as follows (in
thousands):
September 30,
1997 1996 1995
----------------------------
Expected provisions at statutory rates $ 220 $1,619 $1,003
State taxes, net of federal benefit 4 59 --
Foreign taxes 33 75 50
Benefit of net operating loss
carryforwards (190) (1,418) (993)
Other 14 37 178
----------------------------
$ 81 $ 372 $ 238
============================
At September 30, 1997, the Company had federal net operating loss carryforwards
of approximately $3,680,000 that expire in the years 2004 through 2005. In
addition, the Company had federal general business credit carryforwards of
approximately $739,000 that expire in the years 1999 through 2011 and foreign
tax credit carryforwards of $625,000 that expire in 1998 through 2001.
Under certain provisions of the Internal Revenue Code of 1986, as amended, the
availability of the Company's net operating loss and tax credit carryforwards
may be subject to limitation if it should be determined that there has been a
change in ownership of more than 50% of the value of the Company's stock. Such
determination could limit the utilization of net operating loss and tax credit
carryforwards.
8. Employee Benefit Plan
The Company has a 401(k) savings plan that covers substantially all full-time
employees. Eligible employees are permitted to make fully vested tax deferred
contributions of up to 15% of their annual gross compensation, subject to
certain Internal Revenue Service limitations. The plan provides for employer
contributions at the discretion of the Board of Directors. Contributions made by
the Company for the years ended September 30, 1997, 1996, and 1995 were
approximately $18,000, $20,000, and $14,000, respectively.
38
<PAGE>
9. Industry and Geographic Information
The Company operates in a single industry segment. The Company markets its
products in the United States and in foreign countries through its sales
personnel, independent sales representatives, and distributors. The Company's
geographic sales, as a percentage of net revenues, were as follows:
September 30,
1997 1996 1995
--------------------------------
Domestic 44% 48% 56%
Export:
Europe 14 13 11
Asia 42 39 33
--------------------------------
100% 100% 100%
===============================
10. Contingencies
The Company is a party to a number of legal proceedings arising in the ordinary
course of its business. These actions include patent liability, warranty of
merchantability and employee-related issues. While it is not feasible to predict
or determine the outcome of these matters, the Company believes that the
ultimate resolution of these claims will not have a material adverse effect on
its financial position or results of operations.
11. Fair Value of Financial Instruments
The Company has evaluated the estimated fair value of financial instruments. The
amounts reported as cash and cash equivalents, accounts receivable, short-term
borrowings, accounts payable, and accrued expenses approximate fair value due to
their short-term maturities. The fair value for long-term debt was estimated
using discounted cash flow analysis based on estimated interest rates for
similar types of borrowing arrangements and the resulting fair value was not
significantly different from the amounts reported.
39
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
Unaudited Interim Financial Information
Selected Quarterly Financial Data:
<CAPTION>
1997 1st 2nd 3rd 4th
----------------------------------------
(Unaudited, in thousands except per share data)
<S> <C> <C> <C> <C>
Revenue $ 8,001 $ 8,494 $ 9,195 $ 9,698
Gross profit 3,191 3,791 3,972 4,323
Income (loss) from operations (198) (39) (11) 425
Net income (97) 67 98 498
Net income per share $ (0.01) $ 0.01 $ 0.01 $ 0.05
1996 1st 2nd 3rd 4th
----------------------------------------
(Unaudited, in thousands except per share data)
Revenue $ 8,567 $ 9,597 $ 9,782 $ 8,860
Gross profit 4,505 5,040 5,155 4,098
Income from operations 1,111 1,199 1,325 665
Net income 1,121 1,213 1,323 732
Net income per share $ 0.12 $ 0.13 $ 0.14 $ 0.08
</TABLE>
40
<PAGE>
<TABLE>
Schedule II
Elantec Semiconductor, Inc.
Valuation And Qualifying Accounts
Year ended September 30, 1997, 1996, and 1995
<CAPTION>
Additions
Balance at Charged to
Beginning Cost and Balance at
of Year Expense Deductions End of Year
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended September 30, 1997
Allowance for doubtful accounts and product
returns (deducted from accounts receivable) $340 $1,447 ($947) $840
=============================================================
Year ended September 30, 1996
Allowance for doubtful accounts and product
returns (deducted from accounts receivable) $265 $566 ($491) $340
=============================================================
Year ended September 30, 1995
Allowance for doubtful accounts and product
returns (deducted from accounts receivable) $287 $776 ($798) $265
=============================================================
</TABLE>
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Milpitas, State of California, on the 26th day of December, 1997.
ELANTEC SEMICONDUCTOR, INC.
By: /s/ David O'Brien
----------------------------
David O'Brien
President, Chief Executive Officer,
Chief Financial Officer and Director
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David O'Brien, his true and lawful
attorneys-in-fact, each with the power of substitution, for him in any and all
capacities, to sign amendments to this Report on Form 10-K, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and conforming all
that said attorneys-in-fact, or his or her substitute or substitutes, may do or
cause to be done by virtue thereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
Principal Executive/Financial Officer:
/s/ David O'Brien President, Chief Executive Officer, December 29, 1997
- -------------------------------------------- Chief Financial Officer and Director
David O'Brien
Additional Directors:
/s/ Donald T. Valentine Chairman of the Board of Directors December 29, 1997
- --------------------------------------------
Donald T. Valentine
/s/ Chuck K. Chan Director December 29, 1997
- --------------------------------------------
Chuck K. Chan
/s/ James V. Diller Director December 29, 1997
- --------------------------------------------
James V. Diller
/s/ B. Yeshwant Kamath Director December 29, 1997
- --------------------------------------------
B. Yeshwant Kamath
</TABLE>
42
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
EXHIBITS
to
Form 10-K
Under
THE SECURITIES ACT OF 1933
-----------
ELANTEC SEMICONDUCTOR, INC.
43
<PAGE>
INDEX TO EXHIBITS
Exhibit Description Page
Number ----------- No.
- ------ ---
11.01 Statement Re Computation of Per Share Earnings. 45
23.01 Consent of Ernst & Young LLP, Independent Auditors. 46
24.01 Powers of Attorney. 47
27.01 Financial Data Schedule 48
44
<TABLE>
Exhibit 11.01
Elantec Semiconductor, Inc.
Statement Re Computation of Per Share Earnings
<CAPTION>
September 30,
1997 1996 1995
------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income $ 566 $4,389 $2,713
========================
Common and common equivalent shares outstanding:
Common stock 8,881 8,505 1,858
Convertible preferred stock -- -- 4,937
Common stock options 442 827 1,055
------------------------
9,323 9,332 7,850
Common and common equivalent shares related to stock
and option issuances in accordance with SAB Nos. 55,
64, and 83 -- -- 24
------------------------
Common and common equivalent shares used in computing per
share amounts 9,323 9,332 7,874
========================
Net income per share $ 0.06 $ 0.47 $ 0.34
========================
</TABLE>
45
Exhibit 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-39613) pertaining to the 1995 Equity Incentive Plan and to the
Registration Statement (Form S-8 No. 33-98880) pertaining to the 1995 Employee
Stock Purchase Plan, the 1995 Directors Stock Option Plan, the 1995 Equity
Incentive Plan, the 1994 Equity Incentive Plan and the 1983 Stock Option Plan of
Elantec Semiconductor, Inc., of our report dated October 22, 1997, with respect
to the consolidated financial statements and schedule of Elantec Semiconductor,
Inc. included in the Annual Report (Form 10-K) for the year ended September 30,
1997.
ERNST & YOUNG LLP
San Jose, California
December 26 , 1997
46
Exhibit 24.01
POWERS OF ATTORNEY
(See page 40 of this Report)
47
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 9,839
<SECURITIES> 6,089
<RECEIVABLES> 4,155
<ALLOWANCES> 840
<INVENTORY> 7,369
<CURRENT-ASSETS> 27,239
<PP&E> 19,618
<DEPRECIATION> 10,388
<TOTAL-ASSETS> 37,091
<CURRENT-LIABILITIES> 8,952
<BONDS> 3,336
<COMMON> 90
0
0
<OTHER-SE> 24,713
<TOTAL-LIABILITY-AND-EQUITY> 37,091
<SALES> 34,091
<TOTAL-REVENUES> 35,388
<CGS> 20,111
<TOTAL-COSTS> 20,111
<OTHER-EXPENSES> 15,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 759
<INCOME-PRETAX> 647
<INCOME-TAX> 81
<INCOME-CONTINUING> 566
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 566
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
