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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 October 3, 1999.
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 000-26690
________________________________________________________________________________
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
________________________________________________________________________________
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
Preferred Stock Purchase Rights
(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. [ X ]
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 October 29,
1999 as reported on the Nasdaq National Market: $201,194,902. 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 October 29,
1999: 9,412,627
_____________
Documents Incorporated By Reference
Items 10, 11, 12 and 13 of Part III incorporate information by reference to
portions of the registrant's definitive proxy statement to be delivered to
stockholders in connection with the annual meeting of stockholders to be held
January 14, 2000.
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ELANTEC SEMICONDUCTOR, INC.
FORM 10-K
For the Fiscal Year Ended September 30, 1999.
Table of Contents
<CAPTION>
PART I
Page
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Item 1. Business........................................................................... 3
Item 2. Properties......................................................................... 14
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.............. 15
Item 6. Selected Financial Data............................................................ 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations...................................................................... 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk......................... 23
Item 8. Financial Statements and Supplementary Data........................................ 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure......................................................................... 26
PART III
Item 10. Directors and Executive Officers of the Registrant................................. 27
Item 11. Executive Compensation............................................................. 27
Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 27
Item 13. Certain Relationships and Related Transactions..................................... 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 28
Signatures ................................................................................... 52
</TABLE>
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PART I
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 the section entitled
"Business" and 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,
optical storage, integrated DC:DC, and xDSL 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 system 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 and 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 approximately 150 products, such as amplifiers, drivers, faders,
transceivers and multiplexers, most of which are available in multiple packaging
configurations. The Company fabricates its products at the Company's internal
manufacturing facility in Milpitas, California as well as third party wafer
foundries.
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
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choose products from the same vendor once the vendor has been qualified as a
producer of reliable products.
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.
Product Markets and Applications
Elantec targets four high growth commercial markets where it believes there is
an increasing demand for analog solutions: video, optical storage, integrated
DC:DC, and xDSL. 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 representative
applications:
------------------------------- ----------------------------------------
Market Typical Applications
------------------------------- ----------------------------------------
Video Overhead Displays
Set Top Converters
Special Effects Generators
Switchers/Routers
Video Cameras
Video Distribution Networks
Video Signal Processing
Workstations
------------------------------- ----------------------------------------
Optical Storage CD Rewritable Drives
DVD Rewritable Drives
DVD Read-Only Drives
Camcorders
Video Digital Recorders
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Integrated DC:DC DSP based Portable Devices
Video Boards
Networking Boards
Internet Appliances
Portable Instruments
Test Equipment
------------------------------- ----------------------------------------
xDSL ADSL Transceivers
HDSL Transceivers
------------------------------- ----------------------------------------
Primary Markets
Video. 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 market, including displays (CRT and flat panels),
set top converters, special effects generators, studio equipment and video
distribution networks.
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Optical Storage. Optical storage, in the form of CD-ROM, has grown significantly
in recent years as the media of choice for software and music. More recently,
optical recordable devices such as CD-R, CD-R/W, and DVD Rewritables are
increasingly being adopted in the marketplace. The Company is currently
providing products that control the laser diode driver for optical disk drives
and products for CD read/write and DVD read/write applications.
Integrated DC:DC. The proliferation of high density, small geometry digital
integrated circuits drive the increasing demands for DC:DC converters. Discrete
components such as PWM, rectifiers, and FET are used to build DC:DC converter
solutions. For portable devices, as the form factor gets smaller and space
becomes a premium, the demands for single chip, integrated converter solution
should increase. The Company's strategy is to provide highly integrated DC:DC
converters in a single chip implementation that is on cost parity to multiple
chip implementation. The Company targets its integrated DC:DC products for DSP
powered portable devices, Personal Digital Assistants, portable instrumentation
and other devices.
xDSL. 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. This is important for emerging communications
applications related to Internet access.
Other Markets
In addition to its primary markets, the Company historically has provided
products to electronic systems manufacturers in the military and automotive
markets.
Military. The Company has historically offered products for a variety of
military applications. On July 1, 1997 the Company announced that it would
discontinue its military hybrid products. This product line accounted for 10.0%,
8.4% and 7.9% of product revenues in 1999, 1998 and 1997, respectively. Orders
for these discontinued products were accepted through the middle of 1998 with
last shipments from the factory ending in the fourth quarter of fiscal 1999.
There will be no more shipments of military hybrid products starting fiscal
2000. However, the Company does not expect the discontinuance of this product
line to have a material impact on the Company's future results from operations.
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 licensed to Aisin certain proprietary Elantec technology to
design and manufacture analog integrated circuits for the automotive market. In
return, the Company received technology license fees and royalty payments upon
the sale of products derived therefrom. The agreement terminated in February
1998 and provided for payments to Elantec totaling $7.0 million. Payments were
received ratably during fiscal 1993-1998 and as of September 30, 1998, all
revenues under the agreement had been received. The Company did not receive any
payments in fiscal 1999. The Company did not renew the license agreement and no
manufacturing relationship with Aisin currently exists.
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Products
The Company offers approximately 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 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 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. For the optical storage market,
laser diode drivers control the performance of the laser diode used in the
read/write mode in optical storage pick-up heads. The Company's Integrated DC:DC
converter circuits convert supply voltages from 5 volts to a lower voltage
required by modern microprocessors and digital signal processors (DSP). In the
xDSL 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 both directly to customers, with the assistance
of independent sales representatives, and 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 offices in Massachusetts, New Hampshire, United
Kingdom and Japan.
In North America, the Company sells its products through approximately 21
independent sales representative organizations having a total of approximately
55 offices and four distributors having a total of approximately 104 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 1999, 1998 and 1997, sales to Insight Electronics, Inc. represented
approximately 10%, 11% and 12% of the Company's net revenues, respectively. See
Note 1 of Notes to Consolidated Financial Statements.
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Outside North America, the Company sells its products through a network of
international distributors. Such international sales represented approximately
57%, 53% and 54% of the Company's net product revenues, excluding Aisin contract
revenues, in fiscal 1999, 1998, and 1997, respectively.
Sales to Microtek International, Inc. in Japan represented approximately 30%,
23% and 14% of net product revenues in fiscal 1999, 1998 and 1997, respectively.
See Note 1 of Notes to Consolidated Financial Statements.
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
certain 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. The Company denominates certain sales
transactions in Japanese Yen. The Company has established a foreign
currency-hedging program, utilizing foreign currency forward exchange contracts,
or forward contracts of various duration to hedge trade receivables denominated
in Japanese Yen. Under this program, gains and losses on the forward contracts
mitigate the risk of material foreign currency transaction gains and losses and
offset increases or decreases in the Company's foreign currency receivables. The
Company does not use forward contracts for trading purposes. The Company
believes that the use of foreign currency financial instruments should reduce
the risks that arise from conducting business in international markets.
Additionally, currency exchange fluctuations could reduce the cost of products
from the Company's foreign competitors and also reduce the amount of revenue
from sales of the Companies products denominated in foreign currencies.
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.
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
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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 and strategic marketing personnel 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 circuit designers and marketing personnel to define ASSPs for the
target markets.
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.
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, 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 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
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manufacturing control. The Company's manufacturing facilities in Milpitas,
California include a four-inch wafer fabrication facility and a 7,840 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 35%, 47% and 67%
of the Company's net product revenues in fiscal 1999, 1998 and 1997
respectively. 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's
dielectric isolation foundry that fabricates certain steps of the process
discontinued supplying this technology in the fourth fiscal quarter of 1998.
Currently, the Company internally processes all dielectric isolated wafer steps
except one out-sourced step. The Company's results of operations would be
materially adversely affected if the supply of this out-sourced process step is
interrupted.
The Company utilizes various external foundries for the production of bipolar
and CMOS wafers. Sales of these products collectively represented approximately
55%, 44% and 23% of the Company's net product revenues in fiscal 1999, 1998 and
1997, respectively. The Company believes that it has good long-term
relationships with its foundries. 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 be subject to adverse political and economic
conditions, 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.
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
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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
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
process engineers, 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 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 technologically advanced products at a lower cost than the current
dielectric isolation complementary bipolar technology. 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. In addition, the bonded
wafer technology being developed by the Company could be supplanted by
alternative new technologies and, the bonded wafer technology, if successful,
may not be successfully transferred to an external foundry. 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 materially adversely affect the Company's
business and results of operations.
In fiscal 1999, 1998 and 1997, the Company spent $7.8 million, $7.2 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 40 United States patents
and five foreign patents, expiring on various dates between the years 2005 and
2017 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
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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.
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 with reasonable 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.
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., Toshiba 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, the ability to introduce new process technologies,
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 and process technologies
rapidly are more important competitive factors than price in its target markets
because the Company competes primarily at the stage
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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.
Employees
At September 30, 1999, the Company had 175 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.
In November 1998, David O'Brien, the Company's President and Chief Executive
Officer resigned from the Company. On April 1, 1999, James V. Diller, Director
and Chairman of the Board, assumed the position of Chairman, President and Chief
Executive Officer, a position he previously held on an interim basis.
Executive Officers and Directors of the Company
The executive officers and directors of the Company are as follows:
Name Age Positions
- ---- --- ---------
James V. Diller (1) 64 President, Chief Executive Officer and Chairman
of the Board
Ephraim Kwok 45 Vice President of Finance & Administration and
Chief Financial Officer
Richard E. Corbin 64 Vice President of Technology
Ralph S. Granchelli, Jr. 44 Vice President of Marketing
Chuck K. Chan (1,2) 49 Director
Alan V. King (1,2) 64 Director
Umesh Padval 42 Director
- ----------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Diller has been the Company's President and Chief Executive Officer since
April 1999 and prior to this served as interim President and Chief Executive
Officer since November 1998. In addition, Mr. Diller has been Chairman of the
Board since 1997 and was previously a Director of the Company since 1986. Mr.
Diller was a Founder of PMC-Sierra, Inc. a communications semiconductor company,
was its President and Chief Executive Officer 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.
12
<PAGE>
Ephraim Kwok has served as Vice President of Finance & Administration and Chief
Financial Officer since January 1998. From June 1996 through December 1997, Mr.
Kwok served as Vice President of Finance & Administration and Chief Financial
Officer of Ascent Logic Corporation. From September 1989 through June 1996, Mr.
Kwok served as Chief Operating Officer and Chief Financial Officer of KMOS
Semiconductor. Mr. Kwok holds a B.S. degree from the University of California,
Davis and a M.B.A. degree from the University of California, Berkeley.
Richard E. Corbin has served as Vice President of Technology since June 1997 and
previously served as 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 previously served as 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., 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.
Dr. 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. In addition, Dr. Chan serves on the Board of a number of privately held
companies. 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.
Mr. King has been a Director of the Company since December 1997. Mr. King has
been Chairman of the Board and Chief Executive Officer of Volterra Semiconductor
Corporation, a start-up company developing power management integrated circuits,
since September 1996. Mr. King was President and Chief Executive Officer of
Silicon Systems, Inc., a semiconductor company, from September 1991 to November
1994 and was President and Chief Executive Officer of Precision Monolithics,
Inc., a semiconductor company, from September 1987 to September 1991, and from
September 1986 to September 1987 he was its Executive Vice President. Mr. King
holds a B.S. degree in ceramic engineering from the University of Washington.
Mr. Padval was appointed a Director of the Company in November 1999. Mr. Padval
has been the President of C-Cube Microsystem's Semiconductor Division since
October 1998, managing all aspects of C-Cube's semiconductor business, which
focuses on providing digital video solutions into the communications and
consumer markets. Mr. Padval joined C-Cube Microsystems from VLSI Technology,
Inc., where he was Senior Vice President and General Manager of the Digital
Entertainment Division from May 1997 to October 1998. Prior to this role, Mr.
Padval served in several Business Unit Management, Sales and Marketing roles at
VLSI Technology, Inc from September 1987. Mr. Padval holds a B.S. degree in
engineering from the Indian Institute of Mumbai, India; a M.S. degree in
13
<PAGE>
engineering from Pennsylvania State University; and a M.S. degree in engineering
from Stanford University.
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. The Company also leases approximately 1,331 square
feet of space for its sales office in Boston, Massachusetts, approximately 300
square feet for its sales office in Nashua, New Hampshire, approximately 1,112
square feet for its sales office in Wokingham, England, approximately 1,457
square feet for its technical center in Yokohama, Japan, and approximately 4,137
square feet of warehouse space in Milpitas, 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.
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 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, 1999.
14
<PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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. As of September 30, 1999, there were approximately 189 stockholders of
record, and the Company believes there are in excess of 3,400 beneficial
stockholders of its Common Stock. The high and low closing sale prices of
Elantec's Common Stock on the Nasdaq National market for each fiscal quarter for
Elantec's last two fiscal years were as follows:
Common Stock Prices
- --------------------------------------------------------------------------------
HIGH LOW
------------------------------
Quarter ended September 30, 1999 $ 21.250 $ 12.750
Quarter ended June 30, 1999 $ 13.563 6.375
Quarter ended March 31, 1999 $ 6.875 3.625
Quarter ended December 31, 1998 $ 4.750 2.313
Quarter ended September 30, 1998 $ 5.750 $ 3.000
Quarter ended June 30, 1998 10.750 5.000
Quarter ended March 31, 1998 9.750 5.375
Quarter ended December 31, 1997 7.875 5.250
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.
15
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
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)
1999 1998 1997 1996 1995
--------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenues $50,662 $46,210 $35,388 $6,806 $26,884
Gross profit 23,869 21,379 15,277 8,798 13,928
Income (loss) from operations (6,769) 4,261 177 4,300 2,887
Income (loss) before taxes (6,641) 4,522 647 4,761 2,951
Net income (loss) (2) $(3,875) $ 7,205 $ 566 $4,389 $ 2,713
Earnings (loss) per basic share (3) $ (0.42) $ 0.79 $ 0.06 $ 0.52 $ 1.46
Earnings (loss) per diluted share (3) $ (0.42) $ 0.75 $ 0.06 $ 0.47 $ 0.34
Number of shares used in computing:
Basic per share amounts (3) 9,256 9,135 8,881 8,505 1,858
Diluted per share amounts (3) 9,256 9,636 9,323 9,332 7,874
1999 1998 1997 1996 1995
--------------------------------------------------------------------
(in thousands)
Consolidated Balance Sheet Data:
Working capital $21,528 $16,786 $18,287 $17,638 $6,854
Total assets 43,871 47,544 37,091 35,246 20,910
Long-term obligations 4,585 4,354 3,336 1,566 1,313
Total stockholders' equity 29,526 32,277 24,803 24,074 11,142
<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
shown as ending on September 30.
(2) In the first quarter of fiscal 1999, the Company recorded unusual pre-tax
charges of $13.0 million resulting from the Company's conclusion that
projected production volume and related cash flow from the Company's
internal fabrication facility were not sufficient to recover its carrying
value. (See Note 11 of Notes to Consolidated Financial Statements.)
During the fourth fiscal quarter of 1998, the Company reversed its
valuation allowance for certain deferred tax assets in accordance with
Statement of Financial Accounting Standards 109, "Accounting for Income
Taxes." This resulted in an income tax benefit for fiscal 1998 of
$3,930,000 or $0.32 per diluted share.
(3) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in
computing earnings (loss) per share.
</FN>
</TABLE>
16
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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 "Business".
Results of Operations
The following table sets forth, as a percentage of net revenues, certain
consolidated statement of operations data for the periods indicated.
1999 1998 1997
------------------------
Net revenues 100.0% 100.0% 100.0%
Gross profit 47.1 46.3 43.2
Operating expenses:
Research and development 15.4 15.6 17.6
Marketing, sales, general and administrative 21.4 21.4 25.1
Unusual charges 23.7 - -
Income (loss) from operations (13.4) 9.2 0.5
Income (loss) before income taxes (13.1) 9.8 1.8
Net income (loss) (7.6) 15.6 1.6
Net Revenues. Net revenues were $50.7 million in fiscal 1999, an increase of 10%
over net revenues of $46.2 million in fiscal 1998. The increase in net revenues
was due to an increase in unit shipments, while the average selling price for
the Company's products remained relatively constant during the year. The Company
continues to experience strong revenue growth in the optical storage market,
which represented 26% of net revenues, up from approximately 8% of net revenues
in fiscal 1998.
International revenues represented 57% of net revenues, up slightly from 53% of
net revenues in fiscal 1998. Revenues from Japan and other Pacific Rim countries
increased 24% over fiscal 1998 as a result of improvement in the economic and
financial situation in the region.
In fiscal 1999, domestic revenues remained flat in absolute dollars compared to
1998, but as a percentage of revenues decreased to 43% of net revenues compared
to 47% of net revenues in fiscal 1998.
Net revenues were $46.2 million in fiscal 1998, an increase of 31% over net
revenues of $35.4 million in fiscal 1997. The increase in net revenues was due
to an increase in unit shipments, while the average selling price for the
Company's products remained relatively constant during the year. Geographically,
the Company experienced broad revenue growth with U.S. revenues up 38% and
international revenues up 25% over fiscal 1997.
International revenues in fiscal 1998 represented 53% of net revenues, down
slightly from 56% of net revenues in fiscal 1997. Revenues from Japan and other
Pacific Rim countries increased 25% over fiscal 1997 despite the economic and
financial difficulties experienced by Japan and other countries in the region.
In July 1997, the Company announced that it would discontinue its military and
commercial hybrid product. This product line accounted for 10%, 8.4% and 7.9% of
product revenues in fiscal 1999, 1998
17
<PAGE>
and 1997, respectively. Orders for these discontinued products were accepted
through the middle of 1998 and last shipments to customers were made during the
fourth quarter of fiscal 1999. There will be no more shipments of military
hybrid products starting fiscal 2000. The Company does not expect the
discontinuance of this product line to have a material impact on the Company's
fiscal 2000 results from operations.
Gross Margin. Gross margin was $23.9 million or 47.1% of net revenues in fiscal
1999. The increase in gross margin as a percentage of net revenues, as compared
to 46.3% in fiscal 1998, was due primarily to the absorption of fixed costs over
a larger revenue base and improved manufacturing yields and pricing at
third-party foundries. This was partially offset by higher unfavorable overhead
variances relating to internal production and increased provisions for excess
and obsolete inventory of approximately $1.0 million in the first quarter of
fiscal 1999 as product mix shifted towards products manufactured by third party
foundries. During the first quarter of fiscal 1999, the Company implemented a
plan to restructure its manufacturing operations in response to a shift in the
mix of products fabricated internally compared to products fabricated by outside
foundries. During several quarters preceding the restructuring, production
volume and revenue from products fabricated by outside foundries had generally
increased, while the volume and revenue from internally fabricated products
generally declined. As a result, the Company was in a position of significant
over-capacity in its internal fabrication facility located in Milpitas,
California.
In response the Company decided to move gradually toward a primarily outsourced
model through a period of several years. The Company further decided to
discontinue development of future dielectric process technology in favor of the
more state of the art silicon-on-insulator technology, where volume production
is expected to be outsourced. As a result of that decision, it was concluded
that certain quantities of dielectric inventory in excess of known customer
demand might become obsolete. Of the $1.0 million write-down in the first
quarter of fiscal 1999, approximately $0.8 million related to work in process
and approximately $0.2 million related to finished goods. The dielectric
inventory value at December 31, 1998 prior to the write-down consisted of $3.2
million in work in process and $0.6 million in finished goods. The amount of
this inventory on the balance sheet, after the write-down, at September 30, 1999
was $1.2 million in work in process and $0.5 million in finished goods.
Management expects improved overall margins due to changing product mix, new
product introductions, better pricing from subcontractors and utilization of
manufacturing capacity as the Company adjusts production to meet changing
product demands. However, while the Company is working on programs to continue
to improve manufacturing efficiencies, there can be no assurance that the
Company will not encounter difficulties due to delays with technology
introduction, changes in product mix, unfavorable manufacturing yields or other
manufacturing difficulties in the future. Gross margin may continue to fluctuate
from quarter to quarter.
Gross margin was $21.4 million or 46.3% of net revenues in fiscal 1998. The
increase in gross margin as a percentage of revenues, as compared to 43.2% in
fiscal 1997, was due primarily to the absorption of fixed costs over a larger
revenue base and improved manufacturing yields and pricing at third-party
foundries. This was partially offset by higher unfavorable overhead variances
relating to internal production as product mix shifted towards products
manufactured by third party foundries during the second half of fiscal 1998, and
increased provisions for excess and obsolete inventory. Write-downs of excess
and obsolete inventory were $1.5 million higher in fiscal 1998 over fiscal 1997.
Research and Development Expenses. Research and development (R&D) expenses were
$7.8 million, $7.2 million and $6.2 million in fiscal 1999, 1998 and 1997 or
15.4%, 15.6% and 17.6% of net revenues, respectively. The increase in R&D
expenses in fiscal 1999 as compared to 1998 was due primarily to an increase in
staffing and related compensation of $0.3 million, particularly design
engineering personnel,
18
<PAGE>
and higher spending of $0.3 million on new product designs. The increase in R&D
expenses in fiscal 1998 over 1997 was also due to an increase in staffing,
particularly design engineering personnel and higher spending for test and
prototype materials.
Marketing, Sales, General and Administrative Expenses. Marketing, sales, general
and administrative (SG&A) expenses were $10.8 million, $9.9 million and $8.9
million or 21.4%, 21.4% and 25.1% of net revenues in fiscal 1999, 1998 and 1997,
respectively. The increase in SG&A expenses in fiscal 1999 over 1998 was due
primarily to an increase in staffing and related payroll and benefit costs of
$0.5 million and higher outside services costs of $0.4 million. As a percentage
of net sales, SG&A remained flat in fiscal 1999 as such costs increased at the
same rate as net revenue growth. The increase in SG&A expenses in fiscal 1998 as
compared to 1997 was also due primarily to an increase in staffing and related
payroll and benefit costs, increased legal expenses and higher consulting costs.
Unusual Charges. As discussed in gross margin section above, the Company in the
first quarter of fiscal 1999 implemented a plan to restructure its manufacturing
operations in response to a shift in the mix of products fabricated internally
compared to products fabricated by outside foundries.
The Company's restructuring activities consisted primarily of a write down of
certain equipment, a write-down of inventory, severance costs, and a write-down
of previously capitalized patent costs (see Note 11 of Notes to Consolidated
Financial Statements). These actions resulted in pretax charges of $12.0 million
to operating expenses and $1.0 million to cost of goods sold. Approximately
$12.7 million was utilized in fiscal 1999. Approximately $0.3 million will be
utilized in fiscal 2000.
Interest and Other Income. Interest and other income was $0.5 million, $0.7
million and $0.8 million in 1999, 1998 and 1997, respectively. Interest income
for 1999 decreased from 1998 due to lower rate of return on cash equivalents and
short-term investments. The decrease from fiscal 1997 to 1998 was due to lower
cash equivalents and short-term investments resulting primarily from cash
disbursed and lease payments made in conjunction with the Company's fabrication
facility expansion.
Provision/Benefit for Taxes on Income. The 1999 provision for taxes on income
reflects the benefit from the unusual charges recorded by the Company in the
first quarter of fiscal 1999. In addition, the Company reversed the remaining
valuation allowance of $500,000 due to the conclusion that realization of the
remaining deferred tax assets subject to the valuation allowance is more likely
than not (see Note 7 of Notes to Consolidated Financial Statements).
Results for the fourth fiscal quarter of 1998 included a $3.1 million favorable
tax adjustment resulting primarily from the reversal of the Company's valuation
allowance for certain deferred tax assets at September 30, 1998.
Factors Affecting Future Operating Results
Except for historical information contained herein, the matters set forth in
this Annual Report on Form 10-K, including the statements in the following
paragraphs, are forward-looking statements that are dependent on certain risks
and uncertainties including such factors as, among others, 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 under-
19
<PAGE>
utilization or expansion of production capacity, intellectual property disputes,
litigation, or environmental regulation and other factors described below.
The Company continued to show steady revenue growth in fiscal 1999. However,
over 75% of the Company's revenue in fiscal 1999 were derived from the video and
optical storage markets. This is a market that is highly dependent on consumer
spending. As a result, any significant downturn in the economic climate could
lead to a slowdown of orders from the Company's customers. Also, a significant
portion of the revenue generated from the video and optical storage market is
driven by design wins with application specific standard products ("ASSPs").
Should the Company's ASSP's get designed out by some of the Company's customers,
the Company's operating results could be adversely affected.
The Company sells its products to distributors and manufacturers in Asian
countries that are currently recovering from an economic recession. Sales to
this region represented 45% of the Company's net revenues in fiscal 1999.
Additionally, 30% of 1999 net revenues were to Microtek International, Inc. in
Japan (See Note 1 of Notes to Consolidated Financial Statements). The Company
experienced a slight increase in revenues from these countries during fiscal
1999. However, should the region not be able to sustain this recovery, there can
be no assurance that the Company's results of operations will not be adversely
impacted in the future.
The Company utilizes various external foundries for the production of CMOS and
bipolar wafers as well as certain process steps in the manufacturing of
dielectric isolation wafers. The number of foundries that have the capability to
process dielectrically isolated semiconductor wafers is limited. The Company has
developed internal capability for a number of these dielectric isolation process
steps and has secured an alternate vendor for one key process step. The Company
was informed that the current dielectric isolation foundry would discontinue
supplying this technology in the fourth fiscal quarter of 1998. The Company
converted production of most process steps and secured a vendor for an
additional key process step during the fiscal fourth quarter of 1998.
Manufacturing problems encountered with the new supplier may have a material
adverse effect on the Company's business and results of operations.
The semiconductor industry is extremely capital intensive. To remain
competitive, the Company may have to continue investing in advanced
manufacturing equipment and process technologies. The Company anticipates
significant continuing capital expenditures during the following several years.
There can be no assurance that the Company will not be required to seek debt or
equity 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.
New products and process technology 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 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 SOI wafer technology can be successfully implemented in a timely
manner or that it will provide the desired improvements over the Company's
current technology. Significant delays or
20
<PAGE>
cancellation of the development of the bonded wafer 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. 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 and equipment failures. The Company depends on outside
foundries for majority of its revenue. Any product delivery delays, quality and
manufacturing problems from these foundries could adversely affect the Company's
operating results.
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.
Past performance of the Company may not be a good indicator of future
performance due to factors affecting the Company, its competitors, the
semiconductor industry and the overall economy. The semiconductor industry is
characterized by rapid technological change, price erosion, cyclical markets,
periodic oversupply, occasional shortages of materials, capacity constraints,
variation in manufacturing efficiencies and significant expenditures for capital
equipment and product development. Furthermore, new product introductions and
patent protection of existing products are critical factors for future sales
growth and sustained profitability.
21
<PAGE>
Year 2000 Readiness
The Company utilizes numerous software programs throughout its operations that
include dates and make date-sensitive calculations based on two-digit fields
that are assumed to begin with the year 1900. Software programs written based on
this assumption are vulnerable, as the year 2000 approaches, to miscalculations
and other operational errors that may be significant to their overall
effectiveness. In addition, the Company relies upon products and information
from critical suppliers, large customers and other outside parties, in the
normal course of business, whose software programs are also subject to the same
problem. Should miscalculations or other operational errors occur as a result of
the year 2000 issue, the Company or the parties on which it depends may be
unable to produce reliable information or process routine transactions.
Furthermore, in the worse case, the Company or the parties on which it depends
may, for an extended period of time, be incapable of conducting critical
business activities, which include but are not limited to, manufacturing and
shipping products, invoicing customers and paying vendors.
The Company initiated a year 2000 remediation plan during fiscal 1997 to make
the Company's primary and ancillary information systems year 2000 compliant.
This plan included the implementation of year 2000 compliant financial
application and manufacturing-execution software. The new financial applications
software and upgraded manufacturing-execution software have been implemented.
Based on current information, the Company believes that its internal computer
systems are year 2000 compliant and that the risk of major disruption from these
systems due to year 2000 issues is minimal.
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. However, the Company could be negatively affected to the extent its
major suppliers, vendors and customers have not successfully addressed year 2000
issues. Based on the response that the Company received from a survey of the
major parties, with which the Company conducts business, the Company believes
that the exposure to year 2000 issues is minimal.
The cost of implementing such a plan is being funded by income from operations
and capital leases has not been and is not expected to be material to the
Company's operating results. The cost to address and remedy the Company's
remaining year 2000 issues is estimated to be $0.1 million in fiscal 2000. The
cost of the year 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.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash and short-term investments
of $18.7 million at September 30, 1999. Additionally, at September 30, 1999, the
Company had a revolving credit line of $5.0 million, all of which was unused and
available. The line of credit expires June 30, 2000. The line bears interest at
the bank's prime rate (8.25% at October 3, 1999). Borrowings under this line are
secured by a first priority security interest in virtually all the Company's
assets except for certain capital assets previously acquired under lease
agreements. The agreement contains certain covenants that include a restriction
on the declaration and payment of cash dividends and restrictions on business
mergers, acquisitions and investments. The Company was in compliance with all
covenants at September 30, 1999.
Cash and equivalents at September 30, 1999 increased by $11.6 million from
September 30, 1998. Net cash provided by operations was $12.9 million during
fiscal 1999. Investing activities used $0.8 million
22
<PAGE>
primarily due to the acquisition of $3.2 million in property, equipment and
other assets (net of proceeds from disposition of property and equipment) which
was partially offset by net sales of short-term investments of $2.4 million.
Financing activities used $0.4 million primarily for payments on long-term debt
of $0.1 million and payments on capital lease financing of $1.4 million, which
was partially offset by proceeds from exercise of employee stock options of $1.2
million.
Cash and equivalents at September 30, 1998 decreased by $4.0 million or 41% from
September 30, 1997. Net cash provided by operations was $4.7 million during
fiscal 1998. Investing activities used $7.4 million primarily due to the
acquisition of $9.8 million in property and equipment (net of proceeds from
disposition of property and equipment and capital lease financing) which was
partially offset by net sales of short-term investments of $2.4 million.
Financing activities used $1.3 million primarily for payments on long-term debt
of $0.7 million and payments on capital lease financing of $0.9 million which
was partially offset by proceeds from exercise of employee stock options of $0.3
million.
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 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 RISKS
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
"Factors Affecting Future Results". The Company is exposed to market risk
related to changes in interest rates and foreign currency exchange rates. The
Company does not use derivative financial instruments for speculative or trading
purposes.
Interest Rate Sensitivity. The Company maintains a short-term investment
portfolio consisting mainly of income securities with an average maturity of
less than one year. These available-for-sale securities are subject to interest
rate risk and will fall in value if market interest rates increase. If market
interest rates were to increase immediately and uniformly by 10 percent from
levels at September 30, 1999, the fair value of the approximately $1.2 million
portfolio would decline by an immaterial amount. The Company presently intends
to hold its fixed income investments until maturity, and therefore the Company
would not expect its operating results or cash flows to be affected to any
significant degree by the effect of a sudden short-term change in market
interest rates on its securities portfolio.
At September 30, 1999, the Company had approximately $4.3 million of outstanding
obligations under capital lease arrangements. As the lease payments associated
with these arrangements do not have variable interest rates, an increase of 10
percent in short-term interest rates would not have a material impact on the
Company's net income or cash flows. The Company does not hedge any interest rate
exposures.
Since the Company does not have any significant exposure to changing interest
rates because of the low levels of marketable securities with maturities more
than 90 days, the Company did not undertake any specific actions to cover
exposure to interest rate risk and the Company is not a party to any interest
rate
23
<PAGE>
risk management transactions. The Company did not purchase or hold any
derivative financial instruments for trading purposes.
Foreign Currency Exchange Risk. The Yen is the functional currency of the
Company's subsidiary in Japan and the Company denominates certain sales
transactions in Japanese Yen. The Company has established a foreign
currency-hedging program, utilizing foreign currency forward exchange contracts,
or forward contracts of various duration to hedge trade receivables denominated
in Japanese Yen. Under this program, gains and losses on the forward contracts
mitigate the risk of material foreign currency transaction gains and losses and
offset increases or decreases in the Company's foreign currency receivables. The
Company does not use forward contracts for trading purposes. The Company
believes that the use of foreign currency financial instruments should reduce
the risks that arise from conducting business in international markets.
The Company does not currently enter into foreign exchange forward contracts to
hedge balance sheet exposures of its subsidiary in Japan and intercompany
balances against future movements in foreign exchange rates. However, the
Company does maintain cash balances denominated in Yen. If foreign exchange
rates were to weaken against the U.S. dollar immediately and uniformly by 10
percent from the exchange rate at September 30, 1999, the fair value of these
foreign currency amounts would decline by an immaterial amount.
At the end of each fiscal month, all foreign currency assets and liabilities are
revalued using the month end spot rate and the realized and unrealized gains and
losses are recorded and included in net income as a component of other income,
net.
24
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following Financial Statements are filed as part of this Report.
Page No.
--------
Report of Deloitte & Touche LLP, Independent Auditors............ 30
Report of Ernst & Young LLP, Independent Auditors................ 31
Consolidated Balance Sheets as of September 30, 1999 and 1998.... 32
Consolidated Statements of Operations for each of the three
fiscal years in the period ended September 30, 1999.............. 33
Consolidated Statements of Stockholders' Equity and comprehensive
income (loss) for each of the three fiscal years in the period
ended September 30, 1999......................................... 34
Consolidated Statements of Cash Flows for each of the three fiscal
years in the period ended September 30, 1999..................... 35
Notes to Consolidated Financial Statements....................... 36
2. INDEX TO SUPPLEMENTAL FINANCIAL INFORMATION
Unaudited Interim Financial Information.......................... 50
3. INDEX TO FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of Elantec
Semiconductor, Inc. for the years ended September 30, 1999, 1998
and 1997 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, 1999........ 51
------------------
Schedules other than that listed above have been omitted since
they are either not required, not applicable, or the information
is otherwise included.
25
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 29, 1998, the Board of Directors of the Company approved the dismissal of
the Company's independent accountants, Ernst & Young LLP, and the appointment of
Deloitte & Touche LLP ("Deloitte & Touche") beginning with the fiscal year ended
1998. The report of Ernst & Young LLP for the fiscal year ended 1997 contained
no adverse opinion, disclaimer of opinion or qualification or modification as to
uncertainty, audit scope or accounting principles. During the fiscal year 1997
and the interim period from October 1, 1997 through May 29, 1998, there were no
disagreements between the Company and Ernst & Young LLP on any accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of Ernst & Young LLP would
have caused it to make reference to the subject matter of the disagreement in
connection with its report. No "reportable events" as described in paragraph (a)
(1) (v) of Item 304 of Regulation S-K occurred within the Company's fiscal year
ended 1997, or the period from October 1, 1997 through May 29, 1998.
The Company did not consult with Deloitte & Touche during the fiscal year ended
1997, and the interim period from October 1, 1997 through May 29, 1998, on any
matter which was the subject of any disagreement or any reportable event or on
the application of accounting principles to a specified transaction, either
completed or proposed.
26
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item with respect to Directors and Executive
Officers may be found in Part I hereof in the section captioned "Executive
Officers and Directors of the Company." Information required by this Item with
respect to filings by the Directors and Executive Officers under Section 16 of
the Securities Exchange Act of 1934 may be found in the section captioned
"Section 16(a) Beneficial Ownership Reporting Compliance" appearing in the
definitive Proxy Statement to be delivered to stockholders in connection with
the Annual Meeting of Stockholders to be held on January 14, 2000. Such
information is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information with respect to this Item may be found in the section captioned
"Proposal No. 1 - Election of Directors - Director's Compensation", "Executive
Compensation", "Employment Agreements", "Severance" and "Compensation Committee
Interlocks and Insider Participation" appearing in the definitive Proxy
Statement to be delivered to stockholders in connection with the Annual Meeting
of Stockholders to be held on January 14, 2000. 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 January 14, 2000. 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 January 14, 2000. Such information is incorporated herein by
reference.
27
<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 25 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. (1)
3.02 -- Certificate of Designations specifying the terms of the Series A
Junior Participating Preferred Stock of Registrant, as filed with
the Secretary of State of Delaware o September 15, 1998. (2)
3.03 -- Company's Bylaws. (1)
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. (1)
4.02 -- Rights Agreement dated September 14, 1998 between Registrant, Bank
Boston, N.A., as Rights Agent, which includes as Exhibit A the from
of Certificate of Designations of Series A Junior Participating
Preferred Stock, as Exhibit B the Form of Rights Certificate and as
Exhibit C the Summary of Rights to Purchase Preferred Shares. (2)
10.01 -- Company's 1983 Stock Option Plan, as amended, and related documents.
(1)/+
10.02 -- Company's 1994 Equity Incentive Plan, as amended, and related
documents. (1)/+
10.03 -- Form of Company's 1995 Equity Incentive Plan and related documents.
(3)/+
10.04 -- Form of Company's 1995 Directors Stock Option Plan and related
documents. (3)/+
10.05 -- Form of Company's 1995 Employee Stock Purchase Plan and related
documents. (1)/+
10.06 -- Form of Indemnification Agreement entered into by the Company with
each of its directors and executive officers. (1)
10.07 -- Form of Executive Compensation Agreement dated as of March 22, 1991,
by and between the Company and David O'Brien. (1)/+
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. (1)/+
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. (1)
10.10 -- Distributor Agreement dated December 8, 1986, between the Company
and Insight Electronics, Inc. ("Insight"). (1)
10.11 -- Distributor Agreement dated October 1, 1989, between the Company and
Insight. (1)
10.12 -- Distributor Agreement dated November 1, 1987, between the Company
and Marshall Industries. (1)
10.13 -- Distributor Agreement dated March 7, 1994, between the Company and
Internix, Inc. (1)
10.14 -- Amendment to Standard Industrial/Commercial Single-Tenant Lease
dated June 23, 1993. (4)
10.15 -- Standard Industrial/Commercial Single-Tenant Lease dated February
20, 1996. (4)
10.16 -- Amendment to Standard Industrial/Commercial Single-Tenant Lease
dated February 20, 1996. (4)
10.17 -- Distributor Agreement dated August 1, 1996, between the Company and
Microtek Inc. (5)
10.18 -- Employment Agreement between the Company and Richard Corbin dated
March 15, 1999.
16.01 -- Letter regarding change of certifying accountants (6)
21.01 -- Subsidiaries of the Company.
28
<PAGE>
23.01 -- Consent of Deloitte & Touche LLP, Independent Auditors.
23.02 -- Consent of Ernst & Young LLP, Independent Auditors.
24.01 -- Powers of Attorney (see page 52 of this Report).
27.01 -- Financial Data Schedule.
- --------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, filed August 24, 1995, as amended (File No. 33-96136).
(2) Incorporated by reference to the Company's Registration Statement on
Form 8-A, filed September 16, 1998.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-8, February 26, 1999 (File No. 333-73031).
(4) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the quarter ended September 30, 1996.
(6) Incorporated by reference to the Company's Current Report on Form 8-K
filed on June 5, 1998.
(7) Incorporated by reference to the Company's Current Report on Form 8-K
filed on November 12, 1998.
- --------------------
+ Represents a management contract or compensatory plan or arrangement.
(b) The Company filed no reports on Form 8-K during the last quarter of
this fiscal year.
(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:
The Registrant hereby files as part of this Report the financial
statement schedules listed in Item 14(a)(1), as set forth above.
29
<PAGE>
Independent Auditor's Report
To the Board of Directors and Stockholders of
Elantec Semiconductor, Inc.
Milpitas, California:
We have audited the accompanying consolidated balance sheets of Elantec
Semiconductor, Inc. and subsidiaries ("Company") as of September 30, 1999 and
1998 and the related consolidated statements of operations, stockholders' equity
and comprehensive income (loss), and cash flows for the years then ended. Our
audits also included the financial statement schedule for the years ended
September 30, 1999 and 1998 listed in the index at Item 8(3). These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Elantec Semiconductor, Inc. and
subsidiaries at September 30, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule for the years ended September 30, 1999 and 1998, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
San Jose, California
November 1, 1999
30
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Elantec Semiconductor, Inc.
We have audited the accompanying consolidated balance sheet of Elantec
Semiconductor, Inc. as of September 30, 1997 and the related accompanying
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. Our audit also included the financial statement schedule
for the year ended September 30, 1997 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 audit.
We conducted our audit 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 audit provides 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 the consolidated results of its
operations and its cash flows for the year then ended, 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.
/s/ Ernst & Young LLP
San Jose, California
October 22, 1997
31
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<CAPTION>
September 30,
1999 1998
---------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 17,459 $ 5,815
Short-term investments 1,204 3,651
Accounts receivable, net of allowances of $1,384 in 1999
and $1,076 in 1998 4,946 5,207
Inventories 3,300 9,059
Deferred income taxes 3,278 3,367
Prepaid expenses and other current assets 1,101 600
---------------------------
Total current assets 31,288 27,699
Property and equipment:
Machinery and equipment 18,225 16,672
Furniture and fixtures 720 652
Leasehold improvements 3,126 1,494
Construction-in-process -- 10,637
---------------------------
22,071 29,455
Accumulated depreciation and amortization (13,306) (10,830)
---------------------------
8,765 18,625
Other assets, net 946 657
Non-current deferred income taxes 2,872 563
---------------------------
Total assets $ 43,871 $ 47,544
===========================
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 3,698 $ 4,108
Income taxes payable -- 779
Accrued salaries and benefits 1,538 1,462
Other accrued liabilities 818 458
Deferred revenue 2,266 2,626
Current portion of capital lease obligations 1,440 1,480
---------------------------
Total current liabilities 9,760 10,913
Long-term capital lease obligations 2,840 4,354
Other long-term liabilities 1,745 --
Commitments and contingencies (Note 4) -- --
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 5,000,000 in 1999 and 1998 -- --
Issued and outstanding shares - none
Common stock, $.01 par value:
Authorized shares - 25,000,000 in 1999 and 1998
Issued and outstanding shares - 9,385,000 in 1999 and 9,188,000 in 1998 94 92
Additional paid-in capital 35,061 33,902
Accumulated deficit (5,592) (1,717)
Accumulated other comprehensive loss (37) --
---------------------------
Total stockholders' equity 29,526 32,277
===========================
Total liabilities and stockholders' equity $ 43,871 $ 47,544
===========================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
32
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
<CAPTION>
September 30,
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 50,662 $ 46,210 $ 35,388
Cost of revenues 25,785 24,831 20,111
Cost of revenues - inventory write-down 1,008 -- --
--------------------------------------------------
Gross profit 23,869 21,379 15,277
Operating expenses:
Research and development 7,796 7,228 6,234
Marketing, sales, general, and administrative 10,833 9,890 8,866
Unusual charges 12,009 -- --
--------------------------------------------------
Total operating expenses 30,638 17,118 15,100
--------------------------------------------------
Income (loss) from operations (6,769) 4,261 177
Interest and other income, net 528 674 759
Interest expense (400) (413) (289)
--------------------------------------------------
Income (loss) before taxes (6,641) 4,522 647
Provision for (benefit from) taxes on income (2,766) (2,683) 81
--------------------------------------------------
Net income (loss) $ (3,875) $ 7,205 $ 566
==================================================
Earnings (loss) per share:
Basic $ (0.42) $ .79 $ 0.06
Diluted $ (0.42) $ .75 $ 0.06
Shares used in computing per share amounts:
Basic 9,256 9,135 8,881
Diluted 9,256 9,636 9,323
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
33
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss)
(in thousands)
<CAPTION>
Accumulate
Common Stock Additional Other Total Total
------------------ Paid-In Accumulated Comprehensive Stockholders' Comprehensive
Shares Amount Capital Deficit Loss Equity Income (Loss)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996 8,745 $ 87 $ 33,475 $ (9,488) - $ 24,074
Exercise of stock options 274 3 160 - - 163
Net income and comprehensive income - - - 566 - 566 $ 566
---------------------------------------------------------------------------=================
Balance at September 30, 1997 9,019 90 33,635 (8,922) - 24,803
Exercise of stock options 169 2 267 - - 269
Net income and comprehensive income - - - 7,205 - 7,205 $ 7,205
--------------------------------------------------------------------------=================
Balance at September 30, 1998 9,188 92 33,902 (1,717) - 32,277
Exercise of stock options 197 2 608 - - 610
Tax benefit of stock option
transactions - - 551 - - 551
Net loss - - - (3,875) - (3,875) $(3,875)
Foreign currency translation
adjustment - - - - $ (37) (37) (37)
-----------------
Total comprehensive loss $(3,912)
--------------------------------------------------------------------------------------------
Balance at September 30, 1999 9,385 $ 94 $ 35,061 $ (5,592) $ (37) $ 29,526
============================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
34
<PAGE>
<TABLE>
Elantec Semiconductor, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
September 30,
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ (3,875) $ 7,205 $ 566
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,134 2,610 2,022
Deferred income tax (2,220) (3,930) --
Loss on disposition of property and equipment -- 389 --
Inventory write-down 1,008 -- --
Asset impairment 11,090 -- --
Changes in operating assets and liabilities:
Accounts receivable 261 (1,892) 860
Inventories 4,751 (1,690) (894)
Prepaid expenses and other current assets (501) 27 (73)
Payables and accrued liabilities (421) 1,440 32
Deferred revenue (360) 532 (1,049)
-----------------------------------------------
Net cash provided by operating activities 12,867 4,691 1,464
Investing activities
Purchase of available for sale investments (78,476) (79,487) (114,576)
Sale and maturity of available for sale investments 80,923 81,925 115,150
Purchase of property and equipment (2,750) (9,756) (425)
Decrease (increase) in other assets (490) (73) 20
-----------------------------------------------
Net cash provided by (used in) investing activities (793) (7,391) 169
Financing activities
Payments on capital lease obligations (1,427) (936) (426)
Payments on long-term debt (127) (657) (908)
Proceeds from exercise of stock options 1,161 269 163
-----------------------------------------------
Net cash used in financing activities (393) (1,324) (1,171)
-----------------------------------------------
Effect of exchange rate changes on cash (37) -- --
-----------------------------------------------
Increase (decrease) in cash and cash equivalents 11,644 (4,024) 462
Cash and cash equivalents at beginning of period 5,815 9,839 9,377
-----------------------------------------------
Cash and cash equivalents at end of period $ 17,459 $ 5,815 $ 9,839
===============================================
Supplemental disclosures of cash flow information
Lease and installment financing for capital equipment $ 0 $ 2,600 $ 3,467
===============================================
Interest paid $ 427 $ 378 $ 285
===============================================
Taxes paid $ 220 $ 808 $ 57
===============================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Significant Accounting Policies
Nature of Business. Elantec Semiconductor, Inc. (the "Company") designs,
manufactures and markets high performance analog integrated circuits used in the
video, optical storage, integrated DC:DC, and xDSL markets. Principal markets
include sales in North America, Asia, Europe and other countries.
Fiscal Year. The Company's fiscal year ends on the Sunday closest to September
30. Fiscal years 1999, 1998, and 1997 ended on October 3, September 27, and
September 28, respectively. For convenience, the accompanying consolidated
financial statements have been shown as ending on September 30 for each fiscal
year. Fiscal year 1999 included 53 weeks while fiscal years 1998 and 1997
included 52 weeks per 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 reported amounts of assets, liabilities,
revenues and expenses during the reporting period. Such estimates include
allowance for potentially uncollectible accounts receivable, inventory reserves,
warranty costs, sales returns and accrued liabilities. Actual results could
differ from those estimates.
Consolidation. The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
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, 1999, short-term investments consisted of corporate
debt of $1,204,000, all maturing within one year. At September 30, 1998,
short-term investments consisted of corporate debt of $1,901,000, auction-rate
securities of $450,000, and US Treasury bills of $1,300,000. The following table
is a summary of debt and money market auction preferred securities by
contractual maturity at September 30, 1998 (in thousands):
Amortized
Cost
------
Maturing within one year $ 552
Maturing after one year and before three years 2,649
Money market auction preferred securities 450
------
Total $3,651
======
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 1999 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.
Significant Risks and Concentration of Credit. The Company participates in a
dynamic high technology industry and believes that changes in any of the
following areas could have a material adverse effect on the Company's future
financial position or results of operations: 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 under-utilization or expansion of production capacity,
intellectual property disputes, litigation, or environmental regulation among
other factors.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and short term investments, trade
receivables and foreign exchange forward contracts.
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.
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. However,
the Company performs ongoing credit evaluations of its customers' financial
condition and requires collateral, primarily letters of credit, if necessary.
Customers comprising 10% or greater of the Company's net revenues are summarized
as follows:
September 30,
1999 1998 1997
-----------------------------------
Microtek International, Inc. - Japan 30% 23% 14%
Insight Electronics, Inc. - United States 10% 11% 12%
As of September 30, 1999 , Microtek International and Insight Electronics
accounted for 44% and 11%, respectively, of the Company's trade receivables. The
same customers accounted for 28% and 14%, respectively, of the Company's trade
receivables at September 30, 1998.
Inventories. Inventories are stated at the lower of cost or market with actual
cost determined using the first-in, first-out method.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
Long-lived Assets. The Company accounts for long-lived assets in accordance with
Statement of Financial Accounting Standards ("FAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
FAS No. 121 requires long-lived assets to be evaluated for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
Stock-Based Compensation. The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees."
Revenue Recognition. Net revenues are stated net of estimated 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.
Foreign Currency. The functional currency of the Company's foreign subsidiaries
is the local currency of that country. Gains and losses resulting from foreign
currency translations and net foreign currency transactions were immaterial in
1999 and 1998. There were no gains or losses resulting from foreign currency
translations or net foreign currency transactions in 1997.
Advertising Expense. The Company expenses the costs of advertising as incurred.
Advertising expense was approximately $671,000, $555,000, and $552,000 for the
fiscal years ended September 30, 1999, 1998, and 1997, respectively.
Earnings (Loss) Per Share. Earnings (loss) per share (EPS) is computed as basic
EPS using the weighted average number of shares of common stock outstanding and
diluted EPS using the weighted average number of shares of common stock and
dilutive common equivalent shares outstanding from convertible preferred stock
(using the if-converted method) and from stock options (using the treasury stock
method).
Comprehensive Income. In the first quarter of fiscal year 1999, the Company
adopted Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (FAS 130 ). FAS 130 establishes new rules for the
reporting and display of comprehensive income (loss) and its components.
Components of comprehensive income (loss) include net income (loss) and certain
transactions that are reported directly to the consolidated statement of
stockholders' equity.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Recent Accounting Pronouncements
Derivative Investments and Hedging Activities. In June 1998, the FASB issued
Statement of Financial Accounting Standards No.133, "Accounting for Derivative
Investments and Hedging Activities" (FAS 133). FAS 133 provides a comprehensive
and consistent standard for the recognition and measurements of derivatives and
hedging activities. The Company is required to adopt FAS 133 as amended during
fiscal 2001 and does not expect the statement to have a significant effect on
the Company's operating results.
3. Inventories
Inventories consisted of the following (in thousands):
September 30,
1999 1998
------------------------------
Raw materials $ 45 $ 498
Work-in-process 1,645 6,481
Finished goods 1,610 2,080
------------------------------
$ 3,300 $9,059
==============================
4. Commitments and Contingencies
The Company leases its principal facilities under operating leases that expire
at various dates through 2005. The Company is generally responsible for taxes,
assessments, maintenance and insurance under its leases. In addition, machinery
and equipment included approximately $7,058,000 and $7,064,000 of equipment
acquired under capital leases and approximately $4,857,000 and $1,662,000 of
related accumulated amortization at September 30, 1999 and 1998, respectively.
Amortization of capital leases is included in depreciation and amortization
expense.
The following is a schedule by year of future minimum lease payments under
capital and operating leases as of September 30, (in thousands):
Operating
Capital Leases Leases
-----------------------------------
2000 $1,727 $ 954
2001 1,591 915
2002 1,073 853
2003 428 740
2004 - 476
Thereafter - 357
-----------------------------------
Total minimum lease payments 4,819 4,295
Amount representing interest (539) -
-----------------------------------
Present value of net minimum lease payments 4,280 $4,295
=================
Current portion (1,440)
------------------
Long-term capital lease obligations $2,840
==================
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Total rental expense on all operating leases was approximately $1,177,000,
$812,000, and $689,000 for the fiscal years ended September 30, 1999, 1998 and
1997, respectively. At September 30 1999, outstanding commitments to purchase
capital equipment totaled approximately $0.8 million. The Company has a
revolving credit line of $5.0 million, all of which was unused and available.
The line of credit expires June 30, 2000. The line bears interest at the bank's
prime rate (8.25% at October 3, 1999).
The Company is a party to a number of legal proceedings arising in the course of
its business. These actions include 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.
5. Stockholders' Equity
Employee Stock Plans. The Company accounts for stock-based awards to employees
using the intrinsic value method in accordance with Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees."
Stockholder Rights Plan. In September 1998, the Company's Board of Directors
adopted a Stockholder Rights Plan under which the Board of Directors declared a
dividend of one preferred share purchase right for each outstanding share of
common stock, par value $0.01 per share, of Elantec stock held as of September
21, 1998. Each preferred share purchase right entitles the registered holder to
purchase one two-hundredth of the Company's Series A Junior Participating
Preferred Stock, par value $0.01 per share, at a price of $25.00. The rights
become exercisable ten days following the announcement that an entity or person
has commenced a tender offer to acquire or has acquired 20% or more of the
Company's outstanding common stock ("the Distribution Date").
After the Distribution Date, the Board may exchange the rights at an exchange
ratio of one common share or one two-hundredth of a preferred share per right.
Otherwise, each holder of a right, other than rights beneficially owned by the
acquiring entity or person (which will thereafter be void), will have the right
to receive upon exercise that number of common shares having a market value of
two times the exercise price of the right. The rights will expire on September
14, 2008.
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, 1999, no shares have been issued under the
Purchase Plan.
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
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. In December 1997, the Board of Directors
approved and in February 1998, 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. In
November 1998, the Board of Directors approved and in January 1999, the
stockholders approved the adoption of an amendment to the 1995 Equity Plan
pursuant to which an additional 1,000,000 shares of the Company's Common Stock
have been reserved for future issuance. Also in November 1998, the Board of
Directors approved and in January 1999, the stockholders approved the adoption
of an amendment to the 1995 Directors' Plan pursuant to which an additional
100,000 shares of the Company's Common Stock has 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.
Option Repricing Programs. 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 of the Board of
Directors 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. In light of substantial declines in
the market price of the Company's common stock in 1997 and 1998, 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.
1998 Employees and Consultants. In August 1998, the Compensation Committee
approved 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 their then
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
outstanding stock options for new stock options having an exercise price of
$3.625 per share (equal to the fair market value on August 28, 1998), with
vesting annually during the subsequent four years.
Approximately 453,900 options were repriced by employees (excluding executive
officers) and consultants.
1997 Employees and Consultants. In April 1997 the Compensation Committee
approved 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 their then outstanding stock
options for new stock options having an exercise price of $4.25 per share (equal
to the fair market value on May 7, 1997), with vesting ratably each month during
the subsequent four years. Approximately 543,000 options were repriced by
employees (excluding executive officers) and consultants.
1997 Executive Officers. The Compensation Committee approved, in June 1997, an
option repricing program for executive officers of the Company. Under this
program, the executive officers were permitted to exchange their then
outstanding stock options for new stock options having an exercise price of
$4.25 per share (equal to the fair market value on July 1, 1997), with vesting
ratably each month during the subsequent four years. Approximately 186,000
options were repriced by executive officers.
Additional information with respect to the Company's stock option plans follows:
Options Outstanding
--------------------------------
Weighted
Shares Number Average Price
Available of Shares Per Share
---------------------------------------------
Balance at September 30, 1996 442,743 1,372,152 $4.60
Additional share reservation 400,000 - $ -
Options granted (1,422,457) 1,422,457 $4.76
Options exercised - (273,772) $0.58
Options canceled 936,251 (936,251) $6.90
Options expired (882) - $ -
---------------------------------------------
Balance at September 30, 1997 355,655 1,584,586 $4.09
Additional share reservation 400,000 - $ -
Options granted (1,195,856) 1,195,856 $5.86
Options exercised - (169,475) $1.62
Options canceled 655,494 (655,494) $7.07
Options expired (375) - $ -
---------------------------------------------
Balance at September 30, 1998 214,918 1,955,473 $4.39
Additional share reservation 1,100,000 -
Options granted (965,500) 965,500 $6.95
Options exercised - (196,932) $3.12
Options canceled 180,918 (180,918) $4.79
Options expired (252) - -
---------------------------------------------
Balance at September 30, 1999 530,084 2,543,123 $5.43
=============================================
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
The following table summarizes information about stock options outstanding at
September 30, 1999:
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.20 - $ 3.63 636,829 7.54 $ 3.23 315,968 $ 2.86
$ 3.75 - $ 4.13 231,500 9.23 $ 4.11 9,613 $ 3.91
$ 4.25 - $ 4.25 579,939 7.67 $ 4.25 323,421 $ 4.25
$ 4.38 - $ 6.38 612,035 8.99 $ 5.74 134,055 $ 5.88
$ 6.44 - $ 21.25 482,820 8.69 $ 9.99 147,857 $ 7.21
- --------------------------------------------------------------------------------------------------------
$ 0.20 - $ 21.25 2,543,123 8.29 $ 5.43 930,914 $ 4.48
- --------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1998 and 1997, 583,502 and 525,807 options were exercisable at
weighted average exercise prices of $3.62 and $2.58, respectively.
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,
"Accounting for Stock-Based Compensation", 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
---------------------------------------------------
1999 1998 1997
---------------------------------------------------
Expected life (years) 6.7 6.7 5.0
Expected volatility 98.0% 80.0% 75.3%
Risk-free interest rate 6.0% 6.0% 6.0%
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The weighted-average fair value of stock options granted during 1999, 1998 and
1997 was $6.95, $3.72 and $3.44, 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,
1999 1998 1997
----------------------------------
Net income (loss):
Historical $ (3,875) $ 7,205 $ 566
Pro Forma $ (6,714) $ 4,980 $ (283)
Diluted Net income (loss) per share:
Historical $ (0.42) $ 0.75 $ 0.06
Pro Forma $ (0.73) $ 0.52 $ (0.03)
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.
6. Earnings (Loss) Per Share
In fiscal 1998 the Company adopted Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" (FAS 128.) In accordance with FAS 128, basic
earnings per share and diluted earnings per share have replaced primary earnings
per share and fully diluted earnings per share previously reported by the
Company. Basic earnings per share is based upon the weighted average number of
shares of common shares outstanding during the period. Diluted earnings per
share includes the dilutive effect of employee stock options (using the treasury
stock method) and outstanding convertible preferred stock (using the
if-converted method). All earnings (loss) per share amounts for the periods
presented have been restated to conform to the requirements of FAS 128.
<TABLE>
The following table sets forth the reconciliation of weighted average common
shares outstanding used in the computation of basic and diluted earnings per
share computations for the years ended September 30:
<CAPTION>
September 30,
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Net income (loss) (Numerator):
Net income (loss) basic and diluted $(3,875) $7,205 $ 566
============================================
Shares (Denominator):
Weighted average shares of common stock outstanding
used in computation of basic earnings (loss) per share 9,256 9,135 8,881
Dilutive effect of stock options - 501 442
--------------------------------------------
Shares used in computation of diluted earnings (loss) per share
9,256 9,636 9,323
============================================
Basic earnings (loss) per share $(0.42) $0.79 $ 0.06
============================================
Diluted earnings (loss) per share $(0.42) $0.75 $ 0.06
============================================
</TABLE>
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Taxes on Income
The provision (benefit) for taxes on income consisted of the following (in
thousands):
September 30,
1999 1998 1997
------------------------------------
Current:
Federal (261) $ 815 $ 24
State (285) 383 7
Foreign -- 50 50
------------------------------------
Total Current (546) 1,248 81
Deferred:
Federal (2,170) (3,685) --
State (50) (245) --
Foreign -- -- --
------------------------------------
Total Deferred (2,220) (3,930) --
------------------------------------
Total Provision (Benefit) $(2,766) $(2,682) $ 81
===================================
Foreign income taxes are incurred on technology transfer fees received from a
foreign third party.
Significant components of the Company's net deferred tax assets for federal and
state income taxes were as follows (in thousands):
September 30,
1999 1998
--------------------
Net deferred tax asset
Restructuring Reserves $ 1,779 $ --
Tax credit carryforwards -- 1,085
Distributor reserves 289 1,067
Deferred revenue 990 248
Depreciation (203) (133)
Capitalized research and development cost 239 185
Inventory Reserves 1,622 1,442
General Reserves 474 --
Other accruals and reserves not currently 960 536
--------------------
Total net deferred tax assets 6,150 4,430
Less valuation allowance -- (500)
--------------------
Net deferred tax asset $ 6,150 $ 3,930
====================
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The valuation allowance decreased by approximately $500,000 and $4,389,000 in
fiscal 1999 and 1998, respectively. Management determined that a full valuation
allowance was not necessary at September 30, 1998 as it was concluded that it
was more likely than not that certain deferred tax assets will be recovered in
the future. Accordingly, the Company reversed the valuation allowance for those
deferred tax assets at September 30, 1998. The effect of such reversal resulted
in the recognition in fiscal 1998 of a non-recurring income tax benefit of
$3,930,000, or $0.32 per diluted share. In fiscal 1999, management determined
that realization of the remaining deferred tax assets subject to the valuation
allowance is more likely than not and reversed the related allowance of
$500,000.
The provisions (benefit) 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,
1999 1998 1997
-------------------------------
Expected provisions at statutory rates $(2,266) $ 1,538 $ 220
State taxes, net of federal benefit (399) 262 4
Foreign taxes -- 50 33
General business credits (230) -- --
Benefit of net operating loss
Carryforwards -- -- (190)
Other 629 (143) 14
Reversal of valuation allowance (500) (4,389) --
-------------------------------
$(2,766) $(2,682) $ 81
===============================
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, 1999, 1998, and 1997 were
approximately $241,000, $133,000, and $18,000 respectively.
9. Fair Value of Financial Instruments
The Company has evaluated the estimated fair value of its financial instruments
which consist primarily of cash and cash equivalents and short-term investments
and determined that the carrying amounts approximate fair value due to their
short-term maturities.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In the normal course of business, the Company has exposures to foreign currency
fluctuations arising from foreign currency sales. The Company uses foreign
exchange forward contracts to limit its exposure to foreign exchange losses
arising from nonfunctional currency trade receivables. The Company evaluates its
net exposure therefrom and enters into forward contracts to hedge the net
exposure over a specified amount. These contracts are executed with credit
worthy financial institution and are denominated in Japanese Yen. Gains and
losses on these contracts serve as hedges in that they offset fluctuations that
would otherwise impact financial results. Costs associated with entering into
such contracts are generally amortized over the life of the instruments and are
not material to the Company's financial results.
At September 30, 1999 the Company had foreign currency forward contracts
outstanding to hedge foreign currency trade receivables. These contracts have
maturities, which typically range from 35 to 90 days and are intended to reduce
exposure to foreign currency exchange risk. The aggregate fair value and
unrealized loss of foreign exchange contracts are $2.5 million and $80,000,
respectively.
10. Segment Information
In the fourth quarter of fiscal year 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, " Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 establishes annual and
interim reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
Based upon the criteria of SFAS 131, the Company has a single reportable
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,
1999 1998 1997
-----------------------------
Domestic 43% 47% 44%
Export:
Europe 12% 13% 14%
Japan 35% 32% 21%
Other Pacific Rim Countries 10% 8% 21%
-----------------------------
100% 100% 100%
=============================
The Company's assets located outside the United States are insignificant.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Unusual Charges
During the first quarter of fiscal 1999, the Company implemented a plan to
restructure its manufacturing operations in response to a shift in the mix of
products fabricated internally compared to products fabricated by outside
foundries. During the several quarters preceding the restructuring, production
volume and revenue from products fabricated by outside foundries had generally
increased, while the volume and revenue from internally fabricated products
generally declined. As a result, the Company was in a position of significant
over-capacity in its internal fabrication facility located in Milpitas,
California.
In response to the aforementioned, the Company decided to move gradually toward
a primarily outsourced model through a period of several years. The Company
further decided to discontinue development of future dielectric process
technology in favor of the more state of the art silicon-on-insulator
technology, where volume production will be outsourced. Based on the change in
manufacturing strategy, the Company estimated the future nondiscounted cash
flows relating to the internal wafer fabrication facility and concluded under
FAS No. 121 that impairment was indicated.
The Company engaged independent valuation consultants to assist in evaluating
the fair value of these assets to be held and used in the facility. The Company,
based on the valuations wrote-down the carrying value of the equipment by $4.3
million and leasehold improvements by $6.8 million.
The book values of assets, by category, before and after the write-down was as
follows (in thousands):
Balances at December 31, 1998
Before Write-Down After Write-Down
----------------------------------------------
Machinery & equipment $ 5,444 $1,159
Furniture & Fixtures 51 11
Leasehold Improvements 8,595 1,830
----------------------------------------------
Total $14,090 $3,000
==============================================
The Company also believed that its decision to discontinue development of
future-generation products using dielectric isolation technology would obsolete
certain existing products and capitalized patents. Accordingly, the Company
recorded a pretax charge of $1.0 million related to a write-down of inventory
and $0.2 million related to a write-down of patents.
The restructuring also included operating initiatives to improve the Company's
cost structure including a reduction of approximately 10% of the Company's work
force. The Company recorded a pretax charge of $0.6 million related to severance
and $0.1 million related to a legal settlement with AMP Incorporated.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
These unusual charges resulted in pretax charges of $12.0 million to operating
expenses and $1.0 million to cost of goods sold in the first quarter of fiscal
1999. Remaining cash payments related to these activities are expected to be
$0.3 million in fiscal 2000. The following table summarizes the restructuring
and other charges in thousands:
Total
Restructuring Utilized through Balance at
Charge Sep. 30, 1999 Sep. 30, 1999
---------------------------------------------------
Asset impairment $11,090 $11,090 $ -
Write-down of inventory 1,008 1,008 -
Payments to employees
involuntarily terminated 638 353 285
Write-down of patents 174 174 -
Legal settlement 107 107 -
---------------------------------------------------
Total $13,017 $12,732 $285
===================================================
49
<PAGE>
Elantec Semiconductor, Inc.
Unaudited Interim Financial Information
<TABLE>
Selected Quarterly Financial Data:
<CAPTION>
1999 1st 2nd 3rd 4th
-----------------------------------------------------------
(Unaudited, in thousands except per share data)
<S> <C> <C> <C> <C>
Revenue $10,653 $12,721 $13,005 $14,283
Gross profit 3,244 5,726 6,821 8,078
Income (loss) from operations (12,905) 1,446 2,134 2,556
Net income (loss) (1) (8,024) 926 1,477 1,746
Earnings (loss) per share:
Basic $ (0.87) $ 0.10 $ 0.16 $ 0.19
Diluted $ (0.87) $ 0.10 $ 0.14 $ 0.16
Shares used in computing per share amounts:
Basic 9,197 9,212 9,280 9,336
Diluted 9,197 9,605 10,459 10,966
1998 1st 2nd 3rd 4th
-----------------------------------------------------------
(Unaudited, in thousands except per share data)
Revenue $11,234 $11,660 $11,815 $11,501
Gross profit 5,376 5,661 5,692 4,650
Income from operations 1,147 1,343 1,255 516
Net income (2) 1,137 1,373 1,168 3,527
Earnings per share:
Basic $ 0.13 $ 0.15 $ 0.13 $ 0.38
Diluted $ 0.12 $ 0.14 $ 0.12 $ 0.37
Shares used in computing per share amounts:
Basic 9,062 9,124 9,170 9,183
Diluted 9,623 9,805 9,769 9,347
<FN>
- ---------------------
1. In the first quarter of fiscal 1999, the Company recorded unusual pre-tax charges of $13.0 million resulting
from the Company's conclusion that projected production volume and related cash flow from the Company's
internal fabrication facility were not sufficient to recover its carrying value.
2. During the fourth quarter of fiscal 1998, the Company reversed its valuation allowance for certain deferred tax
assets in accordance with Statement of Financial Accounting Standards 109, "Accounting for Income Taxes". This
resulted in an income tax benefit for fiscal 1998 of $3,930,000 or $0.32 per diluted share.
</FN>
</TABLE>
50
<PAGE>
<TABLE>
Schedule II
Elantec Semiconductor, Inc.
Valuation And Qualifying Accounts
Year ended September 30, 1999, 1998, and 1997
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning of Cost and End of
Year Expense Deductions Year
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended September 30, 1999
Allowance for doubtful accounts and product returns
(deducted from accounts receivable) $ 1,076 $ 475 $ (167) $1,384
===========================================================
Year ended September 30, 1998
Allowance for doubtful accounts and product returns
(deducted from accounts receivable) $ 840 $ 242 $ (6) $1,076
===========================================================
Year ended September 30, 1997
Allowance for doubtful accounts and product returns
(deducted from accounts receivable) $ 340 $ 1,447 $ (947) $ 840
===========================================================
</TABLE>
51
<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 6th day of December, 1999.
ELANTEC SEMICONDUCTOR, INC.
By: /s/ James V. Diller
-----------------------------------------
James V. Diller
President and Chief Executive Officer,
Chairman of the Board of Directors
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James V. Diller and Ephraim Kwok, 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
---- ----- ----
Principal Executive Officer:
<S> <C> <C>
/s/ James V. Diller President and Chief Executive Officer, December 6, 1999
- -------------------------------------------- Chairman of the Board of Directors
James V. Diller
Principal Financial Officer:
/s/ Ephraim Kwok Vice President of Finance and Administration December 6, 1999
- -------------------------------------------- and Chief Financial Officer
Ephraim Kwok
Additional Directors:
/s/ Chuck K. Chan Director December 6, 1999
- --------------------------------------------
Chuck K. Chan
/s/ Alan V. King Director December 6, 1999
- --------------------------------------------
Alan V. King
/s/ Umesh Padval Director December 6, 1999
- --------------------------------------------
Umesh Padval
</TABLE>
52
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
EXHIBITS
to
Form 10-K
Under
THE SECURITIES ACT OF 1933
-----------
ELANTEC SEMICONDUCTOR, INC.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
- --------------------------------------------------------------------------------
10.18 Employment Agreement between the Company and Richard Corbin
21.01 Subsidiaries of the Company
23.01 Consent of Deloitte & Touche LLP, Independent Auditors
23.02 Consent of Ernst & Young LLP, Independent Auditors
27.01 Financial Data Schedule
Exhibit 10.18
SETTLEMENT AGREEMENT AND GENERAL RELEASE
THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE ("Agreement") is made and entered
into by and between Richard Corbin (hereinafter referred to as "Mr. Corbin") and
Elantec Semiconductor, Inc. (hereinafter referred to as "Elantec").
RECITALS
A. Mr. Corbin has been employed by Elantec as Vice President of Technology
since September 1987.
B. On the terms and subject to the conditions described in this Agreement, Mr.
Corbin and Elantec now desire to discontinue the employment relationship
between them.
Now, therefore, in consideration of the premises and mutual promises herein
contained, and in consideration of the terms set forth herein, it is agreed as
follows:
1. Mr. Corbin hereby resigns as Vice President of Technology and Elantec
hereby accepts such resignation, effective March 31, 1999 (the
"Resignation Date"); however, Elantec has the right to delay the
Resignation Date to May 31, 1999. The other provisions of this
Agreement will take effect on the date that is seven days after the
Resignation Date (the "Closing Date").
2. Elantec agrees to continue to employ Mr. Corbin at his current salary
rate of approximately $11,667 per month for a period of 12 months
after the Closing Date (the "Payment Period"), to be paid (less
regular payroll deductions and applicable withholdings) on Elantec's
normal payroll dates. During the Separation Period (defined below),
Mr. Corbin will continue to make himself available up to 20 days over
the 12 month Separation Period at mutually agreeable times to consult
with Elantec. Elantec will also continue, at its expense, to the
extent possible, Mr. Corbin's ongoing medical (including Seciton 125
plan benefits), dental and life insurance benefits under the terms of
Elantec's benefit programs during the Payment Period. If Mr. Corbin
accepts employment with another employer during the Payment Period and
Mr. Corbin qualifies for comparable insurance benefits from such
employer, Elantec will pay in one lump sum the balance of the salary
that would become due for the remainder of the Payment Period under
this Agreement and Mr. Corbin will no longer be entitled to such
medical, dental and life benefits from Elantec. In addition, Mr.
Corbin may elect at any time during the Payment Period to receive
payment in one lump sum the balance of the salary that would become
due for the remainder of the Payment Period under this Agreement,
provided that he waives all further rights to such medical, dental and
life insurance benefits after the date of payment.
<PAGE>
3. In addition, Elantec agrees that Mr. Corbin's total outstanding
options at his Resignation Date will continue to vest in accordance
with their terms during the 12 months following the Closing Date (the
"Separation Period") regardless of whether Mr. Corbin accepts
employment with another employer so long as Mr. Corbin complies with
his obligations under this Agreement. Those options will expire in
accordance with their terms three months after the end of such 12
month period. Mr. Corbin will have no other options or rights to
purchase any shares of Elantec stock.
4. Effective as of the Resignation Date, Mr. Corbin is no longer
authorized to incur any expenses, obligations or liabilities on behalf
of Elantec. Mr. Corbin agrees to submit to Elantec no later than the
Closing Date, all documentation then available to him reflecting
reasonable expenses incurred by Mr. Corbin on behalf of Elantec.
Elantec agrees to reimburse Mr. Corbin for such reasonable expenses on
the Closing Date. Should documentation for any additional such
reasonable expenses come to Mr. Corbin's attention thereafter, he will
have up to one month after the Closing Date to submit those expenses
to Elantec, and will be reimbursed for any such additional expenses
within one week after they are submitted.
5. Mr. Corbin understands and agrees that on or before the Closing Date
he will identify to Elantec and turn over to Elantec all files,
memoranda, records (and copies thereof), and other physical or
personal property which Mr. Corbin received from Elantec and which are
the property of Elantec.
6. Mr. Corbin agrees to be bound by the terms of his Employee Invention
Assignment and Confidentiality Agreement, a copy of which is attached
hereto as Exhibit A (the "Employee Agreement"). In addition, Mr.
Corbin agrees that during the Separation Period he will not (a) as a
consultant, employee, officer or director or in any other capacity
solicit or actively recruit any employee of Elantec to leave his or
her employment with Elantec, or (b) disparage Elantec.
7. Except for breach of this Agreement, and any claims for vested
benefits under Elantec's 401(k) plan, Mr. Corbin hereby releases and
discharges Elantec, its successors, subsidiaries, employees, officers,
directors, agents, attorneys, representatives and shareholders from
all claims, liabilities, demands and causes of action, known or
unknown, fixed or contingent, which Mr. Corbin has or may hereafter
have occurring on or prior to his Resignation Date and arising out of
or in any way connected with his employment with or position as an
officer of Elantec. Except for breach of this Agreement, Elantec
hereby releases and discharges Mr. Corbin from all claims,
liabilities, demands and causes of action, known or unknown, fixed or
contingent, which Elantec has or may hereafter have occurring on or
prior to his Resignation Date and arising out of or in any way
connected with Mr. Corbin's employment with, or position as an officer
of Elantec, except for any breach by Mr. Corbin of
<PAGE>
his Employee Agreement. Mr. Corbin represents that he has not breached
any of the terms or conditions of the Employee Agreement.
8. Elantec and Mr. Corbin represent and agree with each other to keep the
terms and amount of this Agreement completely confidential, and not to
disclose any information concerning this Agreement to anyone, except
that Mr. Corbin may disclose the terms of this Agreement to his
spouse, attorney and tax preparer, if any, and Elantec may disclose
the terms of this Agreement to its accountants, attorneys and tax
preparers, and either party may disclose the terms of this Agreement
to the extent required by law.
9. Mr. Corbin presents and acknowledges that he has carefully read and
fully understands all of the provisions of this Agreement which sets
forth the entire agreement between the parties. This Agreement
supersedes and all prior agreements or understandings between the
parties, including but not limited to any Employee Agreement (except
for paragraphs 7 and 14 thereof), and all corporate policies,
practices or procedures pertaining to the subject matter of this
Agreement.
10. This Agreement is governed by, and is to be interpreted according to,
the laws of the State of California (excluding that body of law
governing choice of law). The parties hereto agree that any action
relating to or arising out of this Agreement shall be brought in
California State Courts in Santa Clara County, California, or in the
Federal District Court for the Northern District of California, and
each party hereby consents to the jurisdiction of such courts.
ELANTEC SEMICONDUCTOR, INC.
/s/ James V. Diller /s/ Richard Corbin
- --------------------------- --------------------------------
James V. Diller
President &
Chief Executive Officer
<PAGE>
Employment Agreement
March 15, 1999
This Employment Agreement is made and entered into by and between Richard
Corbin (hereinafter referred to as "Mr. Corbin") and Elantec Semiconductor, Inc.
(hereinafter referred to as "Elantec").
1. Mr. Corbin hereby agrees to remain a regular full-time employee of
Elantec for a minimum of 12 months, commencing March 15, 1999 through
March 15, 2000.
2. Elantec has the option to extend Mr. Corbin's employment with the
Company for two additional six-month periods to commence on:
a) March 16, 2000 through September 16, 2000
b) September 16, 2000 - March 16, 2001
3. Elantec will provide Mr. Corbin with thirty days advance notice if the
Company decides to terminate his employment prior to utilizing the
extension option outlined in Item 2.
4. Upon termination of Mr. Corbin's employment, the attached Separation
Agreement (Exhibit A) will then become effective.
i. The resignation date in Paragraph 1 of the Separation
Agreement shall be amended to reflect Mr. Corbin's actual
termination date.
/s/ Richard Corbin /s/ James V. Diller
- --------------------------------- ---------------------------
Richard Corbin James V. Diller
President &
Chief Executive Officer
Exhibit 21.01
Subsidiaries of Elantec Semiconductor, Inc.
Name of Corporation: Elantec Semiconductor Japan Limited
Registered Office: Yokohama, Japan
Percentage of Ownership: 100%
- --------------------------------------------------------------------------------
Name of Corporation: Elantec Semiconductor International Limited
Registered Office: Hamilton, Bermuda
Percentage of Ownership: 100%
Exhibit 23.01
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement No.
333-73031 of Elantec Semiconductor, Inc. on Form S-8 of our report dated
November 1, 1999, appearing in this Annual Report on Form 10-K of Elantec
Semiconductor, Inc. for the year ended September 30, 1999.
/s/ Deloitte & Touche LLP
San Jose, California
December 6, 1999
Exhibit 23.02
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 in 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,
1999.
/s/ Ernst & Young LLP
San Jose, California
December 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-03-1999
<PERIOD-START> SEP-29-1998
<PERIOD-END> OCT-03-1999
<CASH> 17,459
<SECURITIES> 1,204
<RECEIVABLES> 6,330
<ALLOWANCES> 1,384
<INVENTORY> 3,300
<CURRENT-ASSETS> 31,288
<PP&E> 22,071
<DEPRECIATION> 13,306
<TOTAL-ASSETS> 43,871
<CURRENT-LIABILITIES> 9,760
<BONDS> 2,840
0
0
<COMMON> 94
<OTHER-SE> 29,432
<TOTAL-LIABILITY-AND-EQUITY> 43,871
<SALES> 52,661
<TOTAL-REVENUES> 50,662
<CGS> 26,793
<TOTAL-COSTS> 26,793
<OTHER-EXPENSES> 30,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 400
<INCOME-PRETAX> (6,641)
<INCOME-TAX> (2,766)
<INCOME-CONTINUING> (3,875)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,875)
<EPS-BASIC> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
