SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _______TO _______
Commission File No. 0-26690
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
- --------------------------------------------------------------------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of February 1, 1998, 9,121,271 shares of the Registrant's Common Stock, $0.01
par value, were issued and outstanding.
<PAGE>
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements............................................3
Notes to Condensed Consolidated Financial Statements...................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................13
Signatures............................................................................14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ELANTEC SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
December 31,
--------------------
1997 1996
------- -------
Net revenues $11,234 $ 8,001
Cost of revenues 5,858 4,810
------- -------
Gross profit 5,376 3,191
Operating expenses:
Research and development 1,642 1,283
Marketing, sales, general and administrative 2,587 2,106
------- -------
Total operating expenses 4,229 3,389
------- -------
Income (loss) from operations 1,147 (198)
Interest and other, net 116 87
------- -------
Income (Loss) before taxes 1,263 (111)
Provision for taxes on income 126 (14)
------- -------
Net income (Loss) $ 1,137 $ (97)
======= =======
Net income (Loss) per share:
Basic $ 0.13 $ (0.01)
Diluted $ 0.12 $ (0.01)
======= =======
Shares used in computing per share amounts:
Basic 9,062 8,759
Diluted 9,623 8,759
======= =======
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31 September 30
1997 1997 (1)
------- -------
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents $ 8,036 $ 9,839
Short-term investments 8,308 6,089
Accounts receivable, net 4,097 3,315
Inventories 6,881 7,369
Prepaid expenses and other current assets 598 627
------- -------
Total current assets 27,920 27,239
Property and equipment, net 9,991 9,231
Other assets, net 606 621
------- -------
Total assets $38,517 $37,091
======= =======
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable and accrued liabilities $ 5,386 $ 5,367
Deferred revenue 2,680 2,094
Current portion of long-term debt and capital
lease obligations 1,421 1,491
------- -------
Total current liabilities 9,487 8,952
Long-term debt and capital lease obligations 3,013 3,336
Stockholders' equity 26,017 24,803
------- -------
Total liabilities and stockholders' equity $38,517 $37,091
======= =======
(1) The information in this column was derived from the Company's audited
consolidated financial statements at September 30, 1997.
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
December 31,
------------------
1997 1996
------- -------
Operating activities:
Net income $ 1,137 $ (97)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 618 474
Changes in operating assets and liabilities:
Accounts receivable (782) (380)
Inventories 488 (247)
Prepaid expenses and other current assets 29 (152)
Accounts payable and accrued liabilities 19 (803)
Deferred revenue 586 57
------- -------
Net cash provided by (used in) operating activities 2,095 (1,148)
Investing activities:
Sale/maturity (purchase) of available-for-sale securities (2,219) (347)
Purchase of property and equipment (1,378) (514)
Decrease in other assets 15 6
------- -------
Net cash provided by (used in) investing activities (3,581) (855)
Financing activities:
Payments on capital lease and other debt (393) (302)
Issuance of common stock 77 25
------- -------
Net cash provided by (used in)financing activities (317) (277)
Increase (decrease) in cash and cash equivalents (1,803) (2,280)
Cash and cash equivalents at beginning of period 9,839 9,377
------- -------
Cash and cash equivalents at end of period $ 8,036 $ 7,097
======= =======
Supplemental disclosures of cash flow information:
Lease and installment financing for capital equipment $ 0 $ 929
Interest paid $ 103 $ 59
Taxes paid $ 25 $ 25
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, all adjustments (consisting
of normal recurring items) considered necessary for a fair presentation have
been included. The results of operations for the three months ended December 31,
1997 are not necessarily indicative of the results to be expected for the entire
year. These consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1997.
The Company's fiscal year end is the Sunday closest to September 30. The
Company's fiscal quarters end on the Sunday closest to the end of the calendar
quarter. For convenience, the Company has indicated that its quarters end on
December 31, March 31, June 30 and September 30.
NOTE 2. 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.
NOTE 3. 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 purposes of balance sheet and statement of cash flows presentation. Cash and
cash equivalents are carried at cost, which approximates market value.
NOTE 4. 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 classifies its
available-for-sale portfolio as available for use in its current operations. At
December 31, 1997, there was no significant difference between the fair market
value and the underlying cost of such securities.
NOTE 5. INVENTORIES
Inventories are stated at the lower of standard cost (first-in, first-out
method) or market and consist of the following balances in thousands:
6
<PAGE>
December 31, September 30,
1997 1997
----------------- ------------------
Raw materials $ 302 $ 431
Work-in-process 5,145 5,039
Finished goods 1,434 1,899
----------------- ------------------
$ 6,881 $ 7,369
================= ==================
NOTE 6. EARNINGS (LOSS) PER SHARE
Beginning in the current quarter (Q198), Financial Accounting Standards No. 128
"Earnings Per Share" (FAS 128) required the Company to change the method used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options is excluded. However, diluted earnings per share is analogous to
the methodology the Company used in past earnings per share reporting and is
calculated based on the weighted average number of common and dilutive common
share equivalents outstanding using the treasury stock method. Thus, diluted
income per share is the same number the Company previously reported as income
per share.
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended
December 31,
------------------
1997 1996
--------- -------
Numerator for basic and diluted income per share:
Net income $ 1,137 $ (97)
======= ======
Denominator:
Denominator for basic income per share 9,062 8,759
Effect of dilutive securities:
Common stock options(1) 561 --
------- ------
Denominator for diluted earnings per share 9,623 8,759
------- ------
Basic income per share $ 0.13 $(0.01)
======= ======
Diluted income per share $ 0.12 $(0.01)
======= ======
(1) Effect of common stock options is excluded in 1996 as effect is
antidilutive.
NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS
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 will not have an
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.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for the historical information contained herein, certain matters
discussed in this Form 10-Q, including discussions related to the discontinuance
of the company's military and commercial hybrid products and the development and
use of SOI technology, may contain forward-looking statements that involve risks
and uncertainties. The Company's actual future 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 "Business" in the Company's 1997 Form 10-K filed
with the Securities and Exchange Commission.
The table below states the income statement items for the three months ended
December 31, 1997 and 1996 as a percentage of net revenues and provides the
percentage change in absolute dollars from the previous year:
Three Three Dollar %
Months Ended Months Ended Change
--------------------------------------------------
December 31, 1997 December 31, 1996
------------------ ------------------
Net revenues 100.0% 100.0% 40%
Cost of revenues 52.1% 60.1% 22%
Gross profit 47.9% 39.9% 68%
Operating expenses:
Research and development 14.6% 16.0% 28%
Marketing, sales, general
and administrative 23.0% 26.3% 23%
Results of Operations - During the first fiscal quarter of 1998, the Company
generated net revenues of $11.2 million, an increase of 40% from the $8.0
million reported in the same quarter of the previous year. This increase is
attributed to a shift in sales mix to higher priced market segment products and
an overall increase in unit sales volumes.
Cost of goods sold decreased to 52% of net sales for the first quarter of fiscal
1998 compared to 60% for the first quarter of fiscal 1997. The decrease in cost
and corresponding increase in gross margin for the first quarter of fiscal year
1998 is primarily due to improved manufacturing variances and higher average
selling prices, offset in part by provisions to increase inventory reserves.
Research and development expenses increased by $0.4 million in the first quarter
of fiscal 1998 from the amount reported in the first quarter of fiscal 1997
largely due to increased expenditures for foundry silicon, engineers salaries
and other materials. As the Company moves to the "SOI" technology as
contemplated (see discussion below), absolute dollar research and development
expenses are increasing.
Marketing, selling and general and administrative expenses for the first quarter
of fiscal 1998 increased by $0.5 million, consistent with the increase in net
revenues. Expense increases were primarily due to increased sales representative
commissions, travel expenses, marketing expenses, audit, legal and recruiting
expense.
8
<PAGE>
The Company's provision for income taxes for the first quarter of fiscal 1998 is
lower than the statutory rate, principally due to the benefit of net operating
loss and tax credit carry forwards offset by state taxes and foreign withholding
taxes.
In July 1997, the Company announced that it would discontinue its military and
commercial hybrid product. This product line accounted for 7.8% and 8.0% of
product revenues during the first quarters of 1998 and 1997, respectively.
Orders for these discontinued products will be accepted through the middle of
1998 with last shipments from the factory through Q1 1999. The Company expects
higher revenues and gross margins from last-buy orders during fiscal 1998.
However, the Company does not expect the discontinuance of this product line to
have a material impact on the Company's annual 1999 results from operations.
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 of product 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
under-utilization or expansion of production capacity, intellectual property
disputes, litigation, or environmental regulation.
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 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.
The Company is in the process of 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 could incur 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.
9
<PAGE>
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 gross margins 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 includes 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. 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 would 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 extremely capital intensive. To remain
competitive, the Company must continue to invest in advanced manufacturing
equipment and process technologies. If the decision to move ahead with the
aforementioned capacity expansion and technology improvement is made, the
Company may be required to expend approximately $12.3 million in capital
expenditures. Additionally, the Company anticipates significant continuing
capital expenditures in the next several years. There can be no assurance that
the Company will not be required to seek financing to satisfy its cash and
capital needs or that such financing will be available on terms satisfactory to
the Company. If such financing is required and if such financing were not
available on terms satisfactory to the Company, its operations would be
materially adversely affected.
Vigorous protection and pursuit of intellectual property rights or positions,
which have resulted in significant and often protracted and expensive
litigation, characterize the semiconductor industry. 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 regulations related to hazardous
materials used in its manufacturing process. Any failure by the Company to
control the use of, or to restrict adequately the discharge of, hazardous
materials under present or future regulations could subject it to substantial
liability or could cause its manufacturing operations to be suspended.
10
<PAGE>
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 during FY 1997 to make
the Company's operating and ancillary systems year 2000 compliant. This plan
included implementing operational and financial application software that is
year 2000 compliant. The software have been purchased and the portion of the
project has already been implemented and full implementation is expected to be
completed during fiscal 1998. The costs of implementing such a plan are not
expected to be material to the Company's operating results.
The Company has initiated formal communications with all its significant
suppliers and will be working with them to ensure that they are year 2000
compliant.
The Company's current revenue is generated from products that will not generate
any product warranty or product defect liability issues related to the year 2000
compliance.
The cost of the 2000 project and the date on which the company believes it will
complete the year 2000 modification are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
Liquidity and Capital Resources - The Company's management believes that its
current cash and equivalents, short-term investments, lines of credit, and cash
generated from operations, if any, will satisfy its expected working capital and
capital expenditure requirements through fiscal 1998. During the first three
months of fiscal 1998, the Company financed its operations primarily from
existing cash and short-term investment balances. At December 31, 1997, the
Company had approximately $16.3 million of cash and short-term investments.
Cash and cash equivalents were $8.0 million at December 31, 1997, a decrease of
$1.8 million from September 30, 1997. The decrease is primarily a result of cash
generated by operations of $2.1 million which was more than offset by cash
outflows from investing activities, including cash outflows of $3.6 million for
capital expenditures.
Accounts receivable increased 24% from September 30, 1997 to December 31, 1997,
while sales grew by 40% over the same period. Inventories decreased 7% between
September 30, 1997 and December 31, 1997, associated with increased inventory
reserves. Inventory management remains an area of focus as the Company balances
the need to maintain strategic inventory levels to ensure competitive lead times
versus the risk of inventory obsolescence because of rapidly changing technology
and customer requirements.
11
<PAGE>
Deferred revenue increased by 28% at September 30, 1997 over December 31, 1997
primarily due to higher deferred revenue on domestic distributor sales.
Capital expenditures were $1.4 million during the three month period ended
December 31, 1997. At December 31, 1997 there was approximately $6.2 million
available credit under lease lines. There were outstanding commitments to
purchase capital assets and leasehold improvements of approximately $8.2 million
at December 31, 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the quarter ended
December 31, 1997.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELANTEC SEMICONDUCTOR, INC.
(Registrant)
Date: February 13, 1998 By: /s/ Ephraim Kwok
-------------------
Ephraim Kwok
Chief Financial Officer
(duly authorized officer and
principal financial officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
27.1 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,036
<SECURITIES> 8,308
<RECEIVABLES> 4,937
<ALLOWANCES> 840
<INVENTORY> 6,881
<CURRENT-ASSETS> 27,920
<PP&E> 27,601
<DEPRECIATION> 11,005
<TOTAL-ASSETS> 38,517
<CURRENT-LIABILITIES> 9,487
<BONDS> 3,013
0
0
<COMMON> 91
<OTHER-SE> 25,926
<TOTAL-LIABILITY-AND-EQUITY> 26,017
<SALES> 10,917
<TOTAL-REVENUES> 11,234
<CGS> 5,858
<TOTAL-COSTS> 5,858
<OTHER-EXPENSES> 4,229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116
<INCOME-PRETAX> 1,263
<INCOME-TAX> 126
<INCOME-CONTINUING> 1,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,137
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.12
</TABLE>
