<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ELANTEC SEMICONDUCTOR, INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3674 77-0408929
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
675 TRADE ZONE BOULEVARD
MILPITAS, CALIFORNIA 95035
(408) 945-1323
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
EPHRAIM KWOK
VICE PRESIDENT OF FINANCE AND
ADMINISTRATION AND
CHIEF FINANCIAL OFFICER
675 TRADE ZONE BOULEVARD
MILPITAS, CALIFORNIA 95035
(408) 945-1323
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
GORDON K. DAVIDSON, ESQ. PETER T. HEALY, ESQ.
HORACE L. NASH, ESQ. C. BROPHY CHRISTENSEN, ESQ.
ROBERT A. FREEDMAN, ESQ. O'MELVENY & MYERS LLP
FENWICK & WEST LLP EMBARCADERO CENTER WEST
TWO PALO ALTO SQUARE 275 BATTERY STREET, SUITE 2600
PALO ALTO, CALIFORNIA 94306 SAN FRANCISCO, CALIFORNIA 94111
(650) 494-0600 (415) 984-8700
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
/ /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(2) PER SHARE(3) OFFERING PRICE(3) FEE
<S> <C> <C> <C> <C>
Common Stock,
par value $0.01 per share(1).............. 1,840,000 $69.29 $127,493,600 $33,659
</TABLE>
(1) Associated with Elantec common stock are preferred stock purchase rights
that will not be exercisable or evidenced separately from the common stock
prior to the occurrence of specified triggering events.
(2) Includes 240,000 shares that the underwriters have the option to purchase to
cover over-allotments, if any.
(3) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933
which is based upon the average of the high and low prices of the common
stock reported on the Nasdaq National Market on August 11, 2000.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 16, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[ELANTEC SEMICONDUCTOR LOGO]
1,600,000 SHARES
COMMON STOCK
Elantec Semiconductor, Inc. is offering 1,520,000 shares of its common stock
and the selling stockholders are selling an additional 80,000 shares. We will
not receive any proceeds from the sale of shares by the selling stockholders.
Our common stock is traded on the Nasdaq National Market under the symbol
"ELNT." The last reported sale price of the common stock on the Nasdaq National
Market on August 15, 2000 was $80.25 per share.
--------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------- -------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Elantec......................................... $ $
Proceeds to the Selling Stockholders........................ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Elantec has granted the underwriters a 30-day option to purchase up to an
additional 240,000 shares of its common stock to cover over-allotments.
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
--------------------------
ROBERTSON STEPHENS
BANC OF AMERICA SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
ADAMS, HARKNESS & HILL, INC.
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON
STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK.
IN THIS PROSPECTUS, REFERENCES TO "ELANTEC," "WE," "OUR" AND "US" REFER TO
ELANTEC SEMICONDUCTOR, INC. AND ITS SUBSIDIARIES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 5
Special Notice Regarding Forward-Looking Statements......... 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Price Range of Common Stock................................. 17
Capitalization.............................................. 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 29
Management.................................................. 38
Principal and Selling Stockholders.......................... 40
Description of Capital Stock................................ 43
Underwriting................................................ 46
Legal Matters............................................... 50
Experts..................................................... 50
Where You Can Find More Information......................... 50
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
Our logo, Elantec and the names of our products mentioned in this prospectus
are our service marks or trademarks. This prospectus also contains trademarks,
trade names and service marks of other companies. Each trademark, trade name or
service mark of another company appearing in this prospectus is the property of
its owner.
i
<PAGE>
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION, INCLUDING THE INFORMATION IN "RISK FACTORS," CONTAINED IN THIS
PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS,
REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS OFFERING.
ELANTEC SEMICONDUCTOR, INC.
We are a leading designer, manufacturer and marketer of high performance
analog integrated circuits. We provide specific analog solutions to
manufacturers in our targeted high growth markets for video, optical storage,
communications and power management products. Electronic systems manufacturers
in these high growth markets require analog circuits with precision, linearity,
speed, power and signal amplification capabilities specific to their
applications. We deliver application specific standard products to help satisfy
the needs of a broad range of customers within our targeted markets and standard
products to meet the needs of our broad customer base. We presently offer
approximately 150 products, including amplifiers, drivers, faders, transceivers
and multiplexers. We sell our proprietary products to leading original equipment
manufacturers, such as Globespan, Hitachi, Lucent, Lucky Goldstar, Motorola,
Olympus, Philips, Ricoh, Samsung, Sanyo, Toshiba and Yamaha, either directly or
through our distributors, such as Microtek International, Inc. and Insight
Electronics, Inc.
Analog integrated circuits monitor, regulate and control signals associated
with real world phenomena, such as temperature, pressure, weight, speed, sound
and electrical current. The rapid advances in digital technology and increasing
demand for digital integrated circuits are driving the need for high performance
analog integrated circuits that are characterized by high speed, high precision,
low distortion and power efficiencies. For example, flat panel displays, CD
recordable devices, optical camcorders and digital subscriber line transceivers
use both digital and high performance analog circuits. The design of these high
performance analog circuits requires highly skilled engineers, innovative design
strategies and rigorous design methodologies.
We believe our products provide the precision, linearity, speed, power and
signal amplification capabilities required by original equipment manufacturers
in our targeted markets. The key elements of our solution include:
- a research and development team with significant design and manufacturing
process technology expertise in high performance analog integrated
circuits;
- an understanding of systems and subsystems that allows us to develop
application specific standard products which can be easily integrated into
the products of original equipment manufacturers, reducing their time to
market;
- a proprietary manufacturing process technology for selected products; and
- application specific standard products which are highly scalable and
cost-effective that meet the needs of a broad range of customers within
our targeted markets.
Our goal is to be the leading provider of analog integrated circuits for the
high growth video, optical storage, communications and power management markets.
In order to achieve this goal, we are pursuing the following strategies:
- offering market-driven proprietary products;
- strengthening our position in selected high growth commercial markets;
- working closely with leading original equipment manufacturers to develop
products to address specific applications; and
- expanding our design team and continuing to improve design productivity.
1
<PAGE>
RECENT EVENTS
In July 2000, we announced the appointment of Richard Beyer, our new
president and chief executive officer. He also serves as a member of our board
of directors. In connection with his employment, we granted him 86,500 shares of
restricted common stock at nominal cost that vest annually over a five year
period. In addition, we granted him options to purchase 613,500 shares of our
common stock.
------------------------
Our principal executive offices are located at 675 Trade Zone Boulevard,
Milpitas, California 95035, and our telephone number at that address is
(408) 945-1323. Our website address is elantec.com. The information on our
website and on the websites linked to it do not constitute a part of this
prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Elantec...................... 1,520,000 shares
Common stock offered by the selling stockholders..... 80,000 shares
Common stock to be outstanding after this offering... 21,214,668 shares
Use of proceeds...................................... We intend to use the net proceeds of this
offering primarily for general corporate
purposes, including working capital and
capital expenditures, and for potential
strategic investments or acquisitions
Nasdaq National Market symbol........................ ELNT
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of June 30, 2000. This
number does not include:
- 5,605,513 shares of our common stock issuable upon the exercise of stock
options outstanding as of June 30, 2000 at a weighted average exercise
price of $8.04 per share;
- 970,757 shares of our common stock available for issuance under our stock
option plans or reserved for future issuance under our employee stock
purchase plan as of June 30, 2000; and
- 86,500 shares of our common stock, and 613,500 shares of our common stock
issuable upon the exercise of stock options at an exercise price of $58.00
per share, issued to our new president and chief executive officer in
July 2000.
------------------------
Except as otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option. All share and per share
information in this prospectus has been adjusted for the effect of our
two-for-one stock split that occurred on April 21, 2000.
Our fiscal year ends on the Sunday closest to September 30 and our fiscal
quarters end on the Sunday closest to December 31, March 31, June 30 and
September 30. Fiscal 1999 ended on October 3, fiscal 1998 ended on September 27
and fiscal 1997 ended on September 28. For convenience, our consolidated
financial statements have been shown as ending on September 30 for each fiscal
year and our quarters end on December 31, March 31, June 30 and September 30.
Fiscal 1999 included 53 weeks while fiscal 1998 and 1997 included 52 weeks.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Net revenues............................ $26,884 $36,806 $35,388 $46,210 $50,662 $36,379 $64,354
Gross profit............................ 13,928 18,798 15,277 21,379 23,869 15,791 39,368
Income (loss) from operations........... 2,887 4,300 177 4,261 (6,769) (9,325) 18,120
Income (loss) before taxes.............. 2,951 4,761 647 4,522 (6,641) (9,283) 18,860
Net income (loss)....................... 2,713 4,389 566 7,205 (3,875) (5,621) 11,887
Earnings (loss) per share:
Basic:................................ $0.73 $0.26 $0.03 $0.39 $(0.21) $(0.30) $0.62
Diluted:.............................. $0.17 $0.24 $0.03 $0.37 $(0.21) $(0.30) $0.51
Shares used in computing per share
amounts:
Basic:................................ 3,716 17,010 17,762 18,270 18,512 18,460 19,194
Diluted:.............................. 15,700 18,665 18,512 19,272 18,512 18,460 23,199
</TABLE>
Financial data for fiscal 1999 and the nine months ended June 30, 1999
include unusual pre-tax charges of $13.0 million resulting from our conclusion
that projected production volume and related cash flow from our internal
fabrication facility were not sufficient to recover its carrying value.
Financial data for fiscal 1998 includes a reversal of valuation allowance
for certain deferred tax assets resulting in an income tax benefit of
$3.9 million.
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.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $22,078 $137,159
Working capital........................................... 26,508 141,589
Total assets.............................................. 68,608 183,689
Long-term obligations, less current portion............... 3,511 3,511
Total stockholders' equity................................ 43,402 158,483
</TABLE>
The as adjusted amounts reflect the application of the net proceeds from the
sale of 1,520,000 shares of common stock by us in this offering at an assumed
public offering price of $80.25 per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN, OR INCORPORATED BY REFERENCE
INTO, THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW
BEFORE PURCHASING OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY
OCCUR, OUR BUSINESS, OUR FINANCIAL CONDITION AND OUR RESULTS OF OPERATIONS COULD
BE SERIOUSLY HARMED. AS A RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MIGHT LOSE PART OR ALL OF YOUR INVESTMENT.
THE MARKETS IN WHICH WE PARTICIPATE ARE INTENSELY COMPETITIVE, AND IF WE ARE
UNABLE TO COMPETE EFFECTIVELY, OUR OPERATING RESULTS COULD BE HARMED.
The analog semiconductor industry is intensely competitive and is
characterized by rapid technological change, product obsolescence and price
erosion. Competition among analog semiconductor providers is intense at the
design-in stage, when a manufacturer is selecting a component provider for
potential generations of future products. Increased competition has in the past,
and could in the future, result in price reductions, reduced gross margins or
loss of market share, any of which could harm our operating results. In our
primary markets, we compete with Analog Devices, Inc., Burr-Brown Corporation,
Linear Technology Corporation, Maxim Integrated Products, Inc., National
Semiconductor Corporation, Texas Instruments and Toshiba. We also compete
indirectly with the in-house design staffs of some of our customers, which often
provide alternative solutions for individual analog systems requirements. Many
of our current and potential competitors have greater name recognition, larger
customer bases and greater financial, technical, manufacturing, marketing and
other resources than we do. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements,
devote greater resources to the development, promotion, sale and support of
their products, and reduce prices to increase market share. Moreover, there has
been significant merger and acquisition activity among our competitors and
potential competitors. These combinations may provide our competitors and
potential competitors with a competitive advantage over us by enabling them to
expand their product offerings and service capabilities to meet a broader range
of customer needs. In addition, the introduction of new technologies and new
market entrants may increase competitive pressures.
CYCLICALITY IN THE SEMICONDUCTOR INDUSTRY HAS HISTORICALLY LED TO SUBSTANTIAL
DECREASES IN DEMAND FOR OUR PRODUCTS AND TECHNOLOGIES AND MAY DO SO IN THE
FUTURE.
Although the semiconductor industry has recently experienced strong demand,
the industry may experience severe or prolonged downturns in the future. As a
result, our operating results are subject to significant variation. The
semiconductor industry experienced a downturn in 1998 and 1999 that seriously
harmed our operating results during that period. Our business depends upon the
current and anticipated market demand for analog semiconductors and products
using analog semiconductors. Future downturns in the semiconductor industry will
likely lead to proportionately greater downturns in our net income or increases
in net losses.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE, WHICH COULD CAUSE US TO MISS
EXPECTATIONS ABOUT THOSE RESULTS AND CAUSE THE TRADING PRICE OF OUR COMMON STOCK
TO DECLINE.
Our operating results are likely to fluctuate, and if we fail to meet or
exceed the expectations of securities analysts or investors, the trading price
of our common stock could decline. Some of the important factors that could
cause our net revenues and operating results to fluctuate from period to period
include:
- shifts in demand for, and average selling prices of, our products;
- the reduction, rescheduling or cancellation of orders by our customers;
5
<PAGE>
- the timing and success of product introductions and new technologies by
our competitors and us;
- the quantities of our products which we or third parties can manufacture
and deliver in a quarter;
- the timing of our investments in research and development;
- the timing and provision of pricing protections and returns from our
customers;
- competitive pressures on selling prices;
- the length of our sales cycle;
- availability of manufacturing capacity for our products;
- fluctuations in manufacturing yields; and
- changes in product mix.
Although our net revenues have increased in recent quarters, fluctuations in
our net revenues and operating results due to these factors could prevent us
from sustaining these growth rates. As a result, we believe that
period-to-period comparisons of our net revenues and operating results are not
necessarily meaningful and, accordingly, that these comparisons should not be
relied upon as indications of future performance.
WE DEPEND UPON THE CONTINUED DEMAND FOR OUR PRODUCTS IN THE VIDEO AND OPTICAL
STORAGE MARKETS FOR A SIGNIFICANT PORTION OF OUR NET REVENUES.
We have derived, and expect to continue to derive, a significant portion of
our net revenues from products that we sell in the video and optical storage
markets. Therefore, our success depends in part on the continued acceptance of
our products within these markets and our ability to continue to develop and
introduce new products on a timely basis for these markets. In addition,
although the video and optical storage markets have grown rapidly in the last
few years, we cannot be certain that these markets will continue to grow or that
a significant slowdown in these markets will not occur. Any downturn in these
markets could harm our business and operating results.
THE FAILURE TO MANAGE AND SUSTAIN OUR GROWTH MAY HARM OUR BUSINESS.
Our ability to continue to grow successfully requires an effective planning
and management process. Since September 30, 1999, we increased our headcount
substantially, from 175 employees to 254 employees as of June 30, 2000. Our
growth has placed, and the recruitment and integration of additional employees
will continue to place, a significant strain on our infrastructure, internal
systems and other resources. To manage our growth effectively, we must continue
to improve and expand our operational, financial and management information
systems in a timely and efficient manner and invest the necessary capital. We
cannot assure you that those resources will be available when we need them or
that we will have sufficient capital to invest when required. If we are unable
to manage and sustain our growth, our operating results may be harmed.
DIFFICULTIES IN ESTIMATING THE AMOUNT AND TIMING OF SALES TO OUR CUSTOMERS COULD
HARM OUR OPERATING RESULTS.
It is difficult for us to forecast accurately the timing and amount of sales
to our customers, which include distributors and original equipment
manufacturers, or OEMs. Our customers generally take a long time to evaluate our
products and technologies before committing to design our products into their
systems. In addition, some of the OEMs who purchase products from us or our
distributors require a set of related products from multiple manufacturers to be
delivered to them together for a complete bill of materials. Delays in delivery
by other vendors could result in delayed or cancelled sales
6
<PAGE>
of our products. Moreover, our business is characterized by short-term orders
and shipment schedules, and customer orders typically can be canceled or
rescheduled on short notice to us and without significant penalty. We do not
have substantial noncancellable backlog and often we are forced to obtain
inventory and materials from our manufacturing subcontractors in advance of
anticipated customer demand. Because we incur expenses, many of which are fixed,
based in part on our forecasts of future product sales, our operating results
could be harmed if sales levels are below our expectations.
OUR NET REVENUES MAY DECREASE IF WE LOSE ANY OF OUR SIGNIFICANT CUSTOMERS,
THEREBY HARMING OUR OPERATING RESULTS.
A relatively small number of customers account for a significant portion of
our net revenues in any particular period. For the nine months ended June 30,
2000, Microtek International, Inc. accounted for 29% of our net revenues,
Insight Electronics, Inc. accounted for 10%, and Samsung accounted for 10%. In
fiscal 1999, Microtek accounted for 30% of our net revenues and Insight
accounted for 10%. The loss of any significant customer coupled with our
inability to obtain orders from new customers to compensate for such loss could
cause our net revenues to decline, thereby harming our operating results.
We have no long-term purchase commitments with these or any of our other
important customers. These customers, therefore, could cease purchasing our
products with short notice to us and without significant penalty. In addition,
Microtek and Insight are distributors of our products to various OEMs, any of
whom could choose to reduce or eliminate orders that would reduce our
distributor's orders for our products.
Because we anticipate that sales of our products to a relatively small
number of customers will continue to account for a significant portion of our
net revenues, the following may reduce our operating results:
- reduction, delay or cancellation of orders from one or more of our
significant distributors or OEMs;
- development by one or more of our significant customers of other sources
of supply;
- selection by one or more of our significant OEMs of devices manufactured
by one or more of our competitors for inclusion in future product
generations;
- sales of competing products by our distributors; or
- failure of one of our significant customers to make timely payment of our
invoices.
WE MUST ACHIEVE NEW DESIGN WINS, AND THESE DESIGN WINS MUST TRANSLATE INTO
CUSTOMER PURCHASES.
Our success depends in part upon achieving design wins for our products with
current and future customers. Design wins are indications by existing and
potential customers that they intend to incorporate our products into their new
product designs. To achieve design wins, we must continually increase the
performance levels of our products, keep pace with evolving industry standards
and introduce new products in a timely manner. If we fail to achieve design
wins, we may lose potential sales opportunities. Design wins also do not
necessarily result in purchase orders for our products. In addition, it could
take up to several months before a design win translates into a purchase order,
if at all. The value of any design win, moreover, will largely depend upon the
commercial success of our customer's product and on the extent to which the
design of the customer's electronic system accommodates components manufactured
by our competitors.
7
<PAGE>
IF WE FAIL TO DEVELOP AND INTRODUCE NEW PRODUCTS ON A TIMELY BASIS, WE MAY NOT
BE ABLE TO ATTRACT AND RETAIN CUSTOMERS.
We operate in an industry that is characterized by rapidly changing
technology, frequent product introductions, product obsolescence, and ongoing
demands for greater performance and functionality. We, therefore, must
continually design, develop and introduce on a timely basis new products with
improved features to retain and attract customers and be competitive. Successful
product development and introduction on a timely basis requires that we:
- design innovative and performance-enhancing features that differentiate
our products from those of our competitors;
- transition our products to new manufacturing technologies;
- identify emerging technological trends in our target markets, including
new standards for our products;
- accurately identify and design new products to meet market needs;
- bring products to market on a timely basis at competitive prices and
maintain effective marketing strategies;
- maintain a high level of investment in research and development;
- respond effectively to technological changes or product announcements by
others; and
- adjust to changing market conditions as quickly and cost-effectively as
necessary to compete successfully.
We cannot assure you that we will be able to meet the design and market
introduction schedules for our new products or enhancements to our existing
products or that these products will achieve market acceptance.
IN ORDER TO REMAIN COMPETITIVE IN THE ANALOG SEMICONDUCTOR INDUSTRY, WE MUST
DEVELOP AND INTRODUCE NEW SEMICONDUCTOR DESIGN AND MANUFACTURING PROCESS
TECHNOLOGIES ON A TIMELY BASIS.
Our future success depends upon our ability to:
- design and develop products that utilize new manufacturing process
technologies;
- secure the availability of our new manufacturing process technologies from
our foundries;
- introduce new manufacturing process technologies to the marketplace
earlier than our competitors do; and
- transfer our product design to multiple foundries efficiently.
Semiconductor design and manufacturing process technologies are subject to
rapid technological change, and require large expenditures for research and
development. We incurred research and development expenses of $10.3 million for
the nine months ended June 30, 2000, $7.8 million for the year ended
September 30, 1999 and $7.2 million for the year ended September 30, 1998. We
expect that our expenses for research and development will continue to increase
because we continuously attempt, on a product-by-product basis, to migrate to
smaller geometry process technologies. Other companies in the industry have
experienced difficulty in transitioning to new manufacturing processes and,
consequently, have suffered reduced yields or delays in product deliveries.
While we believe that transitioning our products to smaller geometries will be
important for us to remain competitive, we cannot be certain that we can make
these transitions successfully and on a cost-effective basis.
8
<PAGE>
DUE TO OUR SIGNIFICANT LEVEL OF INTERNATIONAL NET REVENUES AND THE UTILIZATION
OF FOREIGN MANUFACTURERS AND SUBCONTRACTORS, WE ARE SUBJECT TO INTERNATIONAL
OPERATIONAL, FINANCIAL AND POLITICAL RISKS.
Sales of our products to customers outside the United States have accounted
for a significant part of our net revenues. Our total international net
revenues, as a percentage of our net revenues, were 74% for the nine months
ended June 30, 2000, 57% for the year ended September 30, 1999 and 53% for the
year ended September 30, 1998. We expect our international net revenues,
particularly into Japan, Taiwan and Korea, to continue to account for a
significant percentage of our net revenues in the future. In addition, we expect
to continue to rely on manufacturers and subcontractors located in Taiwan,
Malaysia and Thailand. Accordingly, we will be subject to risks and challenges
that we would not otherwise face if we conducted our business only in the United
States. These include:
- compliance with a wide variety of foreign laws and regulations;
- changes in laws and regulations relating to the import or export of
semiconductor products;
- legal uncertainties regarding taxes, tariffs, quotas, export controls,
export licenses and other trade barriers;
- political and economic instability in or foreign conflicts involving the
countries of our customers, manufacturers and subcontractors causing
delays or reductions in orders for our products;
- difficulties in collecting accounts receivable and longer accounts
receivable payment cycles;
- difficulties in staffing and managing personnel, distributors and
representatives in foreign countries;
- reduced protection for intellectual property rights in some countries,
particularly in Asia;
- currency exchange rate fluctuations, which could increase the price of our
products in local currencies and thereby reduce our net revenues from
these sales;
- seasonal fluctuations in purchasing patterns in other countries; and
- fluctuations in freight rates and transportation disruptions.
Any of these factors could harm our existing international operations and
business or impair our ability to continue expanding into international markets.
To the extent we are unable to expand our international net revenues in a timely
and cost-effective manner, our business could be harmed. We cannot assure you
that we will be able to maintain or increase international market demand for our
products.
WE DEPEND ON A LIMITED NUMBER OF THIRD PARTY FOUNDRIES TO MANUFACTURE MOST OF
OUR PRODUCTS, WHICH REDUCES OUR CONTROL OVER THE PRODUCTION, SUPPLY AND DELIVERY
OF OUR PRODUCTS.
We depend on a limited number of third party foundries for the production of
most of our products. In particular, Lucent Technologies Inc. manufactures all
of our junction isolation complementary bipolar wafers, and American
Microsystems, Inc. and United Microelectronics Corporation manufacture all of
our complementary metal-oxide-semiconductor wafers. In addition, another foundry
provides poly deposition on all of our dielectric isolation wafers and
silicon-on-insulator wafers. Our dependence on third parties to fabricate our
products has significant risks that could potentially harm our operating
results, including:
- We have no long-term contracts with any foundry and we do not have a
guaranteed level of production capacity at any foundry. The ability of
each foundry to provide wafers to us is limited by its available capacity
and our foundry suppliers could provide that limited capacity to its other
customers. In addition, our foundry suppliers could reduce or even
eliminate the capacity
9
<PAGE>
allocated to us on short notice. Moreover, such a reduction or elimination
is possible even after we have submitted a purchase order.
- To obtain foundry capacity, we may be forced to enter into equity and debt
financing arrangements. These arrangements could result in the dilution of
our earnings or in the ownership of our stockholders.
- We provide the foundries with rolling forecasts of our production
requirements; however, our forecasts of production requirements may prove
to be inaccurate.
- We have limited control over product delivery schedules, and we may not
receive products within the time frames and in the volumes required by our
customers.
- We could face delays in obtaining, or we might not be able to obtain,
access to foundries with key fabrication process technologies, such as the
fabrication process necessary to manufacture dielectric isolation wafers
and silicon-on-insulator wafers.
- We have limited control over quality assurance and production costs.
- We have limited control over manufacturing yields and our foundries
occasionally experience lower than anticipated manufacturing yields,
particularly in connection with the introduction of new products and
enhancements to existing products, and the design, installation and
initiation of new process technologies.
We cannot be certain that we will be able to maintain our good relationships
with our existing foundries. In addition, we cannot be certain that we will be
able to form relationships with other foundries as favorable as our current
ones. Moreover, transferring from our existing foundries to another foundry
could require a significant amount of time and loss of revenue, and we cannot
assure you that we could make a smooth and timely transition. If foundries are
unable or unwilling to continue to supply us with these semiconductor devices in
required time frames and volumes or at commercially acceptable costs, our
business may be harmed.
WE ARE RESPONSIBLE FOR THE PRODUCTION OF OUR DIELECTRIC ISOLATION WAFERS AND
SILICON-ON-INSULATOR WAFERS AND OUR RESULTS OF OPERATIONS COULD BE HARMED IF OUR
SUPPLY OF THOSE WAFERS DOES NOT MEET THE DEMAND.
Our own fabrication facilities are the only facilities currently available
to us that are capable of manufacturing dielectric isolation wafers and
silicon-on-insulator wafers for our products. If we experience a reduction or
interruption in the supply, or a degradation in the quality of any of the
wafers, we may be forced to discontinue products based upon those wafers until
we can contract with third party foundries that are qualified to produce those
wafers. As a result, our relationships with our customers could be harmed if we
are unable to deliver sufficient quantities of wafers.
We intend to outsource the high-volume production of silicon-on-insulator
wafers in the future. We intend to transfer the process to a suitable foundry,
but we cannot provide any assurance that a suitable foundry can be qualified for
this production. If we are unable to locate and qualify a suitable foundry, we
will be required to make significant capital investments in our internal foundry
capacity, which is likely to increase our costs of doing business.
IF WE FAIL TO DEVELOP OUR NEXT GENERATION SILICON-ON-INSULATOR TECHNOLOGY IN A
TIMELY MANNER, OUR BUSINESS AND OPERATING RESULTS COULD BE HARMED.
Part of our future product development strategy includes the development of
an advanced silicon-on-insulator technology. As with the development of any
process technology, we cannot assure you that this new technology can be
successfully implemented in a timely manner or that it will provide the desired
improvements over our current technology. In addition, our next generation
10
<PAGE>
silicon-on-insulator technology could be supplanted by alternative new
technologies and may not be able to be transferred to third party foundries.
Significant delays or cancellation of the development of this new generation of
technology or manufacturing problems associated with transferring our current
product line to this technology could harm our business and results of
operations. Significant delays or cancellation of the development of this
technology also could harm our new product development program.
WE RELY ON A LIMITED NUMBER OF PACKAGING SUBCONTRACTORS THAT MAY NOT HAVE
ADEQUATE CAPACITY TO MEET OUR PRODUCT DELIVERY REQUIREMENTS.
We rely on a limited number of packaging subcontractors with whom we do not
have long-term contracts. In general, the wafers we manufacture at our
fabrication facilities and the wafers we purchase from our outside foundries are
tested at our facilities. The wafers are then sent to our packaging
subcontractors for packaging and assembling. Our reliance on these
subcontractors involves significant risks, including a lack of adequate
capacity, the possibility that they may eliminate the necessary manufacturing
process technologies, and reduced control over quality and delivery schedules.
These independent subcontractors may discontinue doing business with us for a
variety of reasons. As a result, we may experience product delivery and quality
assurance problems, which in turn may harm our reputation and operating results.
IF OUR PRODUCTS CONTAIN DEFECTS OR FAIL TO ACHIEVE INDUSTRY RELIABILITY
STANDARDS, OUR REPUTATION MAY BE HARMED, AND WE MAY INCUR SIGNIFICANT UNEXPECTED
EXPENSES AND LOSE SALES OPPORTUNITIES.
Our products have in the past occasionally contained, and may in the future
contain, undetected errors or defects. Any similar problem in the future may:
- cause delays in product introductions and shipments;
- result in increased costs and diversion of development resources;
- cause us to incur increased charges due to obsolete or unusable inventory;
- require design modifications; or
- decrease market acceptance or customer satisfaction with these products,
which could result in product returns.
In addition, we may not find defects or failures in our products until after
commencement of commercial shipments, which may result in loss or delay in
market acceptance and could significantly harm our operating results. Our
current or potential customers also might seek to recover from us any losses
resulting from defects or failures in our products. Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. Any of these claims, whether or not successful, could
seriously damage our reputation and business.
EARTHQUAKES, OTHER NATURAL DISASTERS AND POWER SHORTAGES MAY DAMAGE OUR
FACILITIES OR THE FACILITIES OF THIRD-PARTIES ON WHICH WE DEPEND.
Our corporate headquarters are located in California near major earthquake
faults which have experienced earthquakes in the past. In addition, some of the
foundries, suppliers and other third parties upon which we rely are located near
fault lines. In the event of an earthquake or other natural disaster near one or
more of the facilities of third parties upon which we rely, like the earthquake
in Taiwan in September 1999, could disrupt the operations of those parties.
Additionally, the loss of power, such as the temporary loss of power caused by
power shortages in the grid servicing our facilities in Northern California,
could disrupt our operations or impair our critical systems. None of
11
<PAGE>
these disruptions would be covered by insurance, so the supply of our products
could be limited and our business could be hampered.
IF WE FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR BUSINESS MAY BE
HARMED.
Our future success depends largely upon the continued service of our key
management and technical personnel, and on our continued ability to hire,
integrate and retain qualified management and technical personnel, particularly
engineers. Competition for these employees in the analog semiconductor industry
is intense, and we may not be successful in attracting or retaining these
personnel. In addition, even if we are able to attract qualified personnel, it
is difficult to obtain work visas for foreign professionals trained in the
United States. The loss of any key employee, the failure of any key employee to
perform in his or her current position or our inability to attract and retain
skilled employees as needed could impair our ability to meet customer and
technological demands. The loss of the services of any executive officer or
other key technical or management personnel could harm our business. To help
retain the continued services of some of our key executives, we have entered
into employment agreements with some of them. We do not have key person life
insurance on any of our key personnel.
IF DIGITAL INTEGRATED CIRCUITS REPLACE ANALOG INTEGRATED CIRCUITS, OUR BUSINESS,
WHICH DEPENDS ON THE DEMAND FOR PRODUCTS BASED ON ANALOG TECHNOLOGIES, MAY FAIL.
All of our products are based on analog technologies. However, 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. We
cannot assure you that further advances in digital processing power will not
eventually supplant analog technologies in those new applications, which could
harm our business and results of operations.
IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY, OUR COMPETITORS COULD MARKET
PRODUCTS WITH SIMILAR FEATURES, REDUCING DEMAND FOR OUR PRODUCTS AND HARMING OUR
OPERATING RESULTS.
Our success depends in part on our ability to protect our intellectual
property rights covering our products and technologies. We rely on a combination
of patent, copyright, trademark, trade secret laws and confidentiality
procedures to protect our proprietary rights. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries, and the enforcement of those laws,
do not protect proprietary rights to as great an extent as do the laws of the
United States. We also cannot assure you that:
- our means of protecting our proprietary rights will be adequate;
- patents will issue from our currently pending or future applications;
- our existing patents or any new patents will be sufficient in scope or
strength to provide any meaningful protection or commercial advantage to
us;
- any patent or registered trademark owned by us will not be invalidated,
circumvented or challenged in the United States or foreign countries; or
- others will not misappropriate our proprietary technologies or
independently develop similar technology, duplicate our products or design
around any patent issued to us or other intellectual property rights of
ours.
In addition, we may initiate claims or litigation against third parties for
infringement of our proprietary rights to establish the validity of our
proprietary rights. This litigation, whether or not it is
12
<PAGE>
resolved in our favor, could result in significant expense to us and divert the
efforts of our technical and management personnel.
FROM TIME TO TIME WE MAY BE SUBJECT TO CLAIMS OF INFRINGEMENT OF OTHER PARTIES'
PROPRIETARY RIGHTS, OR TO CLAIMS THAT OUR INTELLECTUAL PROPERTY RIGHTS ARE
INVALID, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL
PROPERTY RIGHTS.
From time to time we have received, and, in the future, may receive claims
that we are infringing third parties' intellectual property rights or claims
that our trademarks, patents or other intellectual property rights are invalid.
The semiconductor industry is characterized by uncertain and conflicting
intellectual property claims and vigorous protection and pursuit of these
rights. The resolution of any claims of this nature, with or without merit,
could be time consuming, result in costly litigation or cause product shipment
delays. In the event of an adverse ruling, we might be required to discontinue
the use of certain processes, cease the manufacture and sale of infringing
products, expend significant resources to develop non-infringing technology or
enter into royalty or licensing agreements. Royalty or licensing agreements, if
required, might not be available on terms acceptable to us or at all. The loss
of access to any intellectual property could harm our business.
OUR FAILURE TO COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS COULD SUBJECT US
TO SIGNIFICANT FINES AND LIABILITIES, AND NEW LAWS AND REGULATIONS OR CHANGES IN
REGULATORY INTERPRETATION OR ENFORCEMENT COULD MAKE COMPLIANCE MORE DIFFICULT
AND COSTLY.
We are subject to a variety of federal, state, local and foreign
governmental laws and regulations related to the use, storage, discharge and
disposal of toxic, volatile or otherwise hazardous chemicals used in our
manufacturing of semiconductor wafers. Our failure to comply with present or
future environmental laws and regulations could result in fines being imposed on
us, suspension of our production or a cessation of our operations. Any failure
by us to comply with these laws and regulations could subject us to significant
liabilities, thereby harming our business and operating results. In addition,
new environmental laws and regulations or changes in regulatory interpretation
and enforcement could render compliance more difficult and costly and require
significant capital expenditures.
WE MAY REQUIRE ADDITIONAL CAPITAL TO FUND OUR CAPITAL EXPENDITURES AND
OPERATIONS, HOWEVER, SUCH CAPITAL MAY NOT BE AVAILABLE.
The operation of our fabrication facility requires the continued investment
of substantial capital. We intend to make capital investments to support
business growth and achieve manufacturing cost reductions and improved yields.
We intend to fund a portion of our future capital expenditures from the net
proceeds of this offering. We may need equity or debt financing to fund further
expansion of our wafer fabrication capacity or to fund other projects. The
timing and amount of these capital requirements cannot be precisely determined
at this time and will depend on a number of factors, including demand for our
products, our product mix, changes in semiconductor industry conditions and
competitive factors. Debt or equity financing may not be available when needed
or, if available, may not be available on terms satisfactory to us.
WE MAY ENGAGE IN FUTURE ACQUISITIONS, WHICH COULD HARM OUR PROFITABILITY, PUT A
STRAIN ON OUR RESOURCES, OR CAUSE DILUTION TO OUR STOCKHOLDERS.
While we have made no acquisitions of businesses in the past, we may make
acquisitions of complementary businesses, products or technologies in the
future. Integrating newly acquired organizations, products or technologies into
our business could be expensive, time consuming and may not be successful.
Future acquisitions could divert our management's attention from other business
concerns and expose our business to unforeseen liabilities or risks associated
with entering new
13
<PAGE>
markets. In addition, we may lose key employees while integrating new
organizations. Consequently, we may not be successful in integrating any
acquired business, products or technologies and may not achieve anticipated
revenue and cost benefits. In addition, future acquisitions could result in
customer dissatisfaction, performance problems with an acquired company,
potentially dilutive issuances of equity securities or the incurrence of debt,
contingent liabilities, amortization expenses related to goodwill and other
intangible assets or other unanticipated events or circumstances, any of which
could harm our business.
OUR TRADING PRICE MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES
AT OR ABOVE THE OFFERING PRICE.
The market for securities of technology companies in general, and of
companies in the semiconductor industry, including us in particular, has been
highly volatile. It is likely that the trading price of our common stock will
continue to fluctuate in the future. Factors affecting the trading price of our
common stock include:
- responses to fluctuations in our operating results;
- announcements of technological innovations, new products or product
enhancements, joint ventures or significant agreements by us or our
competitors;
- our sales of common stock or other securities in the future;
- general conditions in the video, optical storage, communications and power
management markets; and
- changes in financial estimates or recommendations by market analysts
regarding us and our competitors.
In addition, the stock market has experienced substantial price and volume
volatility that has particularly affected the trading prices of equity
securities of many technology companies and that often has been unrelated or
disproportionate to the operating results of these companies. As a result, any
broad market fluctuations may adversely affect the trading price of our common
stock.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS OR DELAWARE LAW MAY
DELAY OR PREVENT A CHANGE OF CONTROL OF ELANTEC OR CHANGES IN OUR MANAGEMENT AND
THEREFORE, DEPRESS THE TRADING PRICE OF OUR COMMON STOCK.
Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could delay, defer or prevent a change in control of our
company or changes in our management that you may deem advantageous. These
provisions could also limit the price that investors might be willing to pay in
the future for shares of our common stock. These provisions:
- authorize the issuance of "blank check" preferred stock, which is
preferred stock that our board of directors can create and issue without
prior stockholder approval with rights senior to those of common stock;
- limit the ability of stockholders to call special meetings of
stockholders;
- prohibit cumulative voting in the election of directors, which would allow
less than a majority of stockholders to elect director candidates; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.
14
<PAGE>
In addition, our board of directors declared a dividend of one preferred
share purchase right for each share of our common stock outstanding, subject to
limitations stated in the stockholder rights plan. These rights may delay, defer
or prevent a change of control of our company.
OUR MANAGEMENT HAS BROAD DISCRETION ON HOW TO USE THE PROCEEDS OF THIS OFFERING
AND MAY NOT APPLY THE PROCEEDS IN A MANNER THAT INCREASES THE VALUE OF YOUR
INVESTMENT.
Our management will have broad discretion in applying the net proceeds of
this offering. Although we expect our management to use the net proceeds from
this offering for general corporate purposes, including working capital and
capital expenditures, and for potential strategic investments or acquisitions,
the net proceeds have not been allocated for specific purposes. You will be
entrusting your funds to our management, upon whose judgment you must depend,
with limited information concerning the specific general corporate purposes to
which the funds will ultimately be applied. Our management may not be able to
yield a significant return, if any, on any investment of the proceeds.
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus and in the documents
incorporated by reference in this prospectus constitute forward-looking
statements that involve substantial risks and uncertainties. In some cases, you
can identify these statements by forward-looking words such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate" or "continue"
and variations of these words or comparable words. In addition, any statements
which refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and situations that
may cause our or our industry's actual results, level of activity, performance
or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these statements.
The risk factors contained in this prospectus and in the documents incorporated
by reference in this prospectus, as well as any other cautionary language in
these documents, provide examples of risks, uncertainties and events that may
cause our actual results to differ from the expectations we describe in our
forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. We do not undertake to update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
15
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of 1,520,000 shares of
common stock we are offering will be approximately $115.1 million, at an assumed
public offering price of $80.25 per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. If the underwriters exercise their over-allotment option in full, we
estimate that our net proceeds will be approximately $133.4 million. We will not
receive any of the net proceeds from the sale of common stock by the selling
stockholders.
We intend to use the net proceeds of this offering primarily for general
corporate purposes, including working capital and capital expenditures. A
portion of the net proceeds may also be used to acquire or invest in
complementary business, products or technologies. However, we have no current
agreements or commitments, and we are not currently engaged in any negotiations
with respect to any acquisition or investment. We cannot specify with certainty
the particular uses for the net proceeds of this offering. Accordingly, our
management will have broad discretion in applying the net proceeds. Pending the
use of the net proceeds of this offering, we intend to invest the net proceeds
in short-term, interest bearing, investment grade marketable securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock, and
we do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance our operations and expansion of our business. Any future determination
to pay cash dividends will be at the discretion of our board of directors in
light of our earnings, financial condition, operating results, capital
requirements and other factors as our board of directors may deem relevant.
16
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"ELNT." The following table sets forth, for the periods indicated, the high and
low sale prices per share of our common stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR 2000:
Fourth Quarter (through August 15, 2000).................. $84.5625 $53.6250
Third Quarter............................................. 75.6250 25.9688
Second Quarter............................................ 47.5000 13.5000
First Quarter............................................. 16.6875 6.9063
FISCAL YEAR 1999:
Fourth Quarter............................................ 10.6250 6.3750
Third Quarter............................................. 6.7813 3.1875
Second Quarter............................................ 3.4375 1.8125
First Quarter............................................. 2.3750 1.1563
FISCAL YEAR 1998:
Fourth Quarter............................................ 2.8750 1.5000
Third Quarter............................................. 5.3750 2.5000
Second Quarter............................................ 4.8750 2.6875
First Quarter............................................. 3.9375 2.6250
</TABLE>
On August 15, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $80.25 per share. As of June 30, 2000, there were
approximately 162 stockholders of record of our common stock.
17
<PAGE>
CAPITALIZATION
The following table sets forth our cash, cash equivalents and short-term
investments and capitalization as of June 30, 2000:
- on an actual basis; and
- on an as adjusted basis to give effect to the sale of 1,520,000 shares of
common stock offered by us in this offering at an assumed public offering
price of $80.25 per share, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us.
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $22,078 $137,159
======= ========
Long-term debt, less current portion........................ $ 3,511 $ 3,511
Stockholders' equity:
Preferred stock, $0.01 par value: 5,000,000 shares
authorized, actual and as adjusted; no shares issued and
outstanding, actual and as adjusted.....................
Common stock, $0.01 par value: 50,000,000 shares
authorized, actual and as adjusted; 19,694,668 shares
issued and outstanding, actual; 21,214,668 shares issued
and outstanding, as adjusted............................ 197 212
Additional paid-in capital.................................. 36,947 152,013
Retained earnings........................................... 6,295 6,295
Accumulated other comprehensive loss........................ (37) (37)
------- --------
Total stockholders' equity.............................. 43,402 158,483
------- --------
Total capitalization.................................... $46,913 $161,994
======= ========
</TABLE>
------------------------
The number of shares of common stock issued and outstanding as of June 30,
2000 does not include:
- 5,605,513 shares of our common stock issuable upon the exercise of stock
options outstanding as of June 30, 2000 at a weighted average exercise
price of $8.04 per share;
- 970,757 shares of our common stock available for issuance under our stock
option plans or reserved for issuance under our employee stock purchase
plan as of June 30, 2000; and
- 86,500 shares of our common stock, and 613,500 shares of our common stock
issuable upon the exercise of stock options at an exercise price of $58.00
per share, issued to our new president and chief executive officer in
July 2000.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes included elsewhere in this prospectus. The consolidated statement
of operations data for the years ended September 30, 1997, 1998 and 1999 and the
consolidated balance sheet data as of September 30, 1998 and 1999, are derived
from our audited consolidated financial statements and related notes, which are
included elsewhere in this prospectus. The consolidated statement of operations
data for the years ended September 30, 1995 and 1996 and the consolidated
balance sheet data as of September 30, 1995, 1996 and 1997 are derived from our
audited consolidated financial statements not included in this prospectus. The
consolidated statement of operations data for the nine months ended June 30,
1999 and 2000 and the consolidated balance sheet data as of June 30, 2000 are
derived from unaudited consolidated financial statements included elsewhere in
this prospectus. The unaudited consolidated financial statements have been
prepared on substantially the same basis as the audited financial statements,
and in the opinion of our management, include all adjustments, consisting of
normal recurring adjustments, which we consider necessary for a fair
presentation of our financial position and results of operations for these
periods. The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full year or future periods.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues......................................... $26,884 $36,806 $35,388 $46,210 $50,662 $36,379 $64,354
Cost of revenues..................................... 12,956 18,008 20,111 24,831 25,785 19,580 24,986
Cost of revenues--inventory write-down............... -- -- -- -- 1,008 1,008 --
------- ------- ------- ------- ------- ------- -------
Gross profit....................................... 13,928 18,798 15,277 21,379 23,869 15,791 39,368
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development........................... 4,806 6,413 6,234 7,228 7,796 5,127 10,261
Marketing, sales, general and administrative....... 6,235 8,085 8,866 9,890 10,833 7,980 10,987
Unusual charges.................................... -- -- -- -- 12,009 12,009 --
------- ------- ------- ------- ------- ------- -------
Total operating expenses......................... 11,041 14,498 15,100 17,118 30,638 25,116 21,248
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........................ 2,887 4,300 177 4,261 (6,769) (9,325) 18,120
Interest and other income, net....................... 195 687 759 674 528 352 967
Interest expense..................................... (131) (226) (289) (413) (400) (310) (227)
------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes........................... 2,951 4,761 647 4,522 (6,641) (9,283) 18,860
Provision for (benefit from) income taxes............ 238 372 81 (2,683) (2,766) (3,662) 6,973
------- ------- ------- ------- ------- ------- -------
Net income (loss).................................... $2,713 $4,389 $566 $7,205 $(3,875) $(5,621) $11,887
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share:
Basic.............................................. $0.73 $0.26 $0.03 $0.39 $(0.21) $(0.30) $0.62
======= ======= ======= ======= ======= ======= =======
Diluted............................................ $0.17 $0.24 $0.03 $0.37 $(0.21) $(0.30) $0.51
======= ======= ======= ======= ======= ======= =======
Shares used in computing per share amounts:
Basic.............................................. 3,716 17,010 17,762 18,270 18,512 18,460 19,194
Diluted............................................ 15,700 18,665 18,512 19,272 18,512 18,460 23,199
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------------------------------------- AS OF
1995 1996 1997 1998 1999 JUNE 30, 2000
-------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 6,009 $16,040 $15,928 $ 9,466 $18,663 $22,078
Working capital........................................... 6,854 17,638 18,287 16,786 21,528 26,508
Total assets.............................................. 20,910 35,246 37,091 47,544 43,871 68,608
Long-term obligations, less current portion............... 1,313 1,566 3,336 4,354 4,585 3,511
Total stockholders' equity................................ 11,142 24,074 24,803 32,277 29,526 43,402
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER FROM THOSE ANTICIPATED IN THOSE
FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING THOSE
SET FORTH IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading designer, manufacturer and marketer of high performance
analog integrated circuits. Through our design expertise, process technology
expertise and specialized application knowledge, we have developed and sell
approximately 150 innovative products, including amplifiers, drivers, faders,
transceivers and multiplexers, to a large and diverse group of customers
worldwide. We target four high growth commercial markets: video, optical
storage, communications and power management.
We were incorporated in California in July 1983 as Elantec, Inc. In
September 1995, we reincorporated in Delaware as Elantec Semiconductor, Inc.,
and in October 1995, we completed our initial public offering. We introduced our
first products in fiscal 1984, and, during the period from fiscal 1984 to fiscal
1989, military and commercial hybrid product sales represented the majority of
our net revenues. Beginning in fiscal 1989, we changed our strategy to focus on
high growth commercial markets. We announced the discontinuance of our military
and commercial hybrid products in July 1997, and shipments of these products
ended in September 1999. Beginning in fiscal 1999, we narrowed our product
focus, concentrating on our current markets where we could exploit our design
and process technology expertise. We opened a design center in the United
Kingdom in the third quarter of fiscal 2000.
In the first quarter of fiscal 1999, we took an unusual charge of
$13.0 million under a plan to restructure our manufacturing operations by moving
towards a primarily outsourced model. We restructured our operations in response
to a shift in the mix of products fabricated internally compared to products
fabricated by outside foundries, which caused significant over-capacity in our
internal fabrication facility.
Our net revenues are derived from the sale of analog integrated circuits. We
have developed a broad range of high performance application specific standard
products, or ASSPs, and standard products for our four target markets. For the
nine months ended June 30, 2000, video represented 44%, optical storage
represented 38%, communications represented 10%, and power management and others
represented 8% of net revenues.
We sell our products both domestically and internationally to a large and
diverse group of original equipment manufacturers, or OEMs, through a
combination of direct sales offices, independent sales representatives and
distributors. For the nine months ended June 30, 2000, sales to Microtek
International in Japan represented 29% of our net revenues, Insight Electronics
in North America represented 10% and Samsung in Korea represented 10%. Both
Microtek and Insight are distributors who sell to a diverse base of OEMs, while
Samsung is one of our direct customers.
We have focused our sales and marketing efforts in Asia, North America and
Europe. During the nine months ended June 30, 2000, and for fiscal 1999 and
fiscal 1998, approximately 74%, 57% and 53% of our net revenues were derived
from customers outside of North America. Our customers are both distributors and
OEMs. The majority of our international net revenues are derived from sales
through our distributors. We work with 11 distributors in Asia and nine
distributors covering Europe, Africa, South America and Australia, each selling
to OEMs within their own territory. We also work
20
<PAGE>
with four distributors and 18 independent sales representatives in North
America. While we are continuing to expand our sales organizations worldwide, we
expect that the majority of our net revenues will continue to be derived from
Asia in the foreseeable future. Some of our net revenues from sales in Japan are
denominated in Japanese Yen while the remaining net revenues from sales
worldwide are denominated in United States Dollars.
We recognize revenue at the time of shipment to direct customers, at the
time of shipment to foreign distributors, and at the time domestic distributors
sell our products to their customers. Allowances are provided for estimated
returns at the time of shipment. Our domestic distributors have rights of return
and price protection privileges on unsold merchandise. Net revenues are stated
net of estimated discounts and allowances.
We work with our customers to achieve design wins whereby our products will
be incorporated into our customers' product. Our customers then complete the
design, testing and evaluation of their products and begin the marketing
process. Several months may elapse between our sales efforts and our realization
of revenues, if any, from volume purchases of our products. The duration of the
actual lapse depends upon the product type and market segment. Our customers are
not obligated by long-term contracts to purchase our products and can generally
cancel or reschedule orders on short notice.
We manufacture semiconductor wafers using our proprietary dielectric
isolation and silicon-on-insulator technologies. In addition, we utilize a
limited number of third party foundries for the manufacture of our junction
isolation complementary bipolar and complementary metal-oxide semiconductor, or
CMOS, wafers. We use third party subcontractors for assembly and packaging
services. We do not have long-term contracts with these suppliers and we place
purchase orders for specific quantities of wafers, and assembly and packaging
services. We test all wafers produced by us and our third party foundries. In
addition, we perform final testing on all packaged units. Accordingly, a
significant portion of our cost of revenues consists of payments to our
manufacturing subcontractors. Costs of revenues also encompass our internal
manufacturing and operations functions and a portion of our information systems
and facilities costs.
Research and development expenses consist primarily of salaries and related
personnel costs, fees paid to consultants and outside service providers,
prototype costs related to the fabrication of our integrated circuits, and
depreciation associated with development tools. We expense our research and
development costs as they are incurred. Several components of our research and
development initiatives require significant expenditures, such as prototype
expenses, the timing of which can cause significant quarterly variability in our
expenses. Because our research and development is critical to our future
success, we expect to continue to increase our research and development
expenditures.
Marketing, sales, general and administrative expenses consist primarily of
salaries and commissions and related expenses for executives, finance,
accounting, information services, human resources, recruiting, professional fees
and other corporate expenses, and costs associated with promotional and other
marketing activities. We expect to continue to expand our direct and indirect
sales operations in an attempt to secure more design wins and increase product
orders. We expect these expenses will increase over the next year as we hire
additional sales and marketing personnel, initiate additional marketing programs
to support our products, establish new sales offices, amortize deferred
compensation associated with the hiring of our new chief executive officer, add
personnel and incur additional costs related to the continued growth of our
business. We will continue to expand our use of independent sales
representatives. In addition, the complexity of integrating our products within
our customer's systems requires highly trained field application engineers,
customer service and support personnel. We plan to continue to expand our field
application engineering and our customer service and support organization.
21
<PAGE>
RESULTS OF OPERATIONS
The following table presents our consolidated statement of operations data
expressed as a percentage of total net revenues for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.......................... 43.2 46.3 47.1 43.4 61.2
Operating expenses:
Research and development.............. 17.6 15.6 15.4 14.1 15.9
Marketing, sales, general and
administrative...................... 25.1 21.4 21.4 21.9 17.1
Unusual charges....................... -- -- 23.7 33.0 --
Income (loss) from operations........... 0.5 9.2 (13.4) (25.6) 28.2
Income (loss) before income taxes....... 1.8 9.8 (13.1) (25.5) 29.3
Net income (loss)....................... 1.6% 15.6% (7.6)% (15.5)% 18.5%
</TABLE>
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
NET REVENUES
For the first nine months of fiscal 2000, net revenues were $64.4 million,
an increase of 76.9% from the $36.4 million reported in the corresponding period
of fiscal 1999. This increase over the prior year was due to a significant
increase in total units shipped despite a decline in average selling prices.
Sales increased in all geographic areas, especially in Asia.
In the first nine months of fiscal 2000, international net revenues were
73.8% compared to 57.4% in fiscal 1999. This increase was due primarily to
strong demand for our video and optical storage products resulting from improved
demand as well as improved conditions in Asia.
Domestic net revenues in the first nine months of fiscal 2000 increased
slightly to $16.8 million from $15.2 million in fiscal 1999 as a result of
increased sales of our products partially offset by the discontinuation of our
military and commercial hybrid product line at the end of fiscal 1999. This
product line accounted for $3.0 million or 8.1% of our product revenues in the
first nine months of fiscal 1999. As a percentage of total net revenues,
domestic net revenues in fiscal 2000 decreased from 42.6% in the first nine
months of fiscal 1999 to 26.1%.
GROSS MARGIN
Gross margin was 61.2% for the first nine months of fiscal 2000 compared to
43.4% in the corresponding period in fiscal 1999. The improvement in gross
margin reflects the allocation of fixed manufacturing costs across a higher
revenue base and improvements in manufacturing efficiencies and yields as well
as the write-down of inventory in the first quarter of fiscal 1999.
During the first quarter of fiscal 1999, we implemented a plan to
restructure our manufacturing operations by moving towards a primarily
outsourced model through a period of several years. We further decided to
discontinue development of future dielectric process technology in favor of the
silicon-on-insulator technology, where volume production is expected to be
outsourced if a suitable foundry is qualified. As a result of that decision, we
concluded that certain quantities of dielectric inventory in excess of known
customer demand might become obsolete. Of the $1.0 million write-down of
inventory 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 amount of dielectric inventory on the
22
<PAGE>
balance sheet, after the write-down, at June 30, 2000 was $2.6 million in work
in process and $0.5 million in finished goods.
While we are working on programs to continue to improve manufacturing
efficiencies, we may 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.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by $5.1 million or 100.1% for
the first nine months of fiscal 2000 as compared to the corresponding period in
fiscal 1999. The increase in research and development expenses in the first nine
months of fiscal 2000 as compared to the same period of fiscal 1999 was due
primarily to an increase in staffing and related compensation of $2.0 million,
particularly design engineering personnel and higher spending of $3.1 million on
new product designs. During the third quarter of fiscal 2000, we also opened a
design center in the United Kingdom.
MARKETING, SALES, GENERAL AND ADMINISTRATIVE EXPENSES
Marketing, sales, general and administrative expenses increased by
$3.0 million or 37.6% for the first nine months of fiscal 2000 as compared to
the corresponding period in fiscal 1999. The increase in these expenses in the
first nine months of fiscal 2000 as compared to the same period of fiscal 1999
was due primarily to an increase in staffing and related compensation of
$1.6 million, particularly sales and marketing personnel and higher commissions
paid to outside manufacturer's representatives of $1.3 million due to the
increase in net revenues.
UNUSUAL CHARGES
Our unusual charges, as discussed in gross margin above, 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 in the first quarter of fiscal 1999. Approximately $0.2 million was
utilized in the first nine months of fiscal 2000.
INTEREST AND OTHER INCOME, NET
Interest and other income, net was $1.0 million in the first nine months of
fiscal 2000, an increase of $0.4 million over the corresponding period of fiscal
1999. The increase in interest and other income was due primarily to higher
levels of cash, cash equivalents and short-term investments and gains from the
sale of foreign exchange forward contracts.
PROVISION FOR (BENEFIT FROM) TAXES ON INCOME
Our effective tax rate for the first nine months of fiscal 2000 was 37.0%
compared to (39.4%) for the comparable prior year period. Provision for income
taxes in the first nine months of fiscal 1999 benefited from the unusual charges
recorded by us in the first quarter of fiscal 1999.
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
NET REVENUES
Net revenues were $50.7 million in fiscal 1999, an increase of 9.6% 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 our
products remained relatively constant during the year. We
23
<PAGE>
continued to experience strong revenue growth in the optical storage market,
which represented 26.0% of net revenues, up from approximately 8.2% of net
revenues in fiscal 1998.
International net revenues represented 57.4% of net revenues in fiscal 1999,
up slightly from 53.0% of net revenues in fiscal 1998. Net revenues from Japan
and other Pacific Rim countries increased 23.9% over fiscal 1998 as a result of
improvement in the economic and financial situation in the region.
In fiscal 1999, domestic net revenues remained flat in absolute dollars
compared to 1998, but as a percentage of our net revenues decreased to 42.6% of
net revenues compared to 47.0% of net revenues in fiscal 1998.
Net revenues were $46.2 million in fiscal 1998, an increase of 30.6% 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 our
products remained relatively constant during the year. Geographically, we
experienced broad revenue growth with domestic net revenues up 36.3% and
international net revenues up 25.9% over fiscal 1997.
International net revenues in fiscal 1998 represented 53.0% of net revenues,
down slightly from 55.0% of net revenues in fiscal 1997. Net revenues from Japan
and other Pacific Rim countries increased 31.4% over fiscal 1997 despite the
economic and financial difficulties experienced by Japan and other countries in
the region.
In July 1997, we announced that we would discontinue our military and
commercial hybrid products. This product line accounted for 9.8% of net revenues
in fiscal 1999, 8.4% of net revenues in fiscal 1998 and 7.9% of net revenues in
fiscal 1997. We accepted orders for these discontinued products through the
middle of fiscal 1998 and we made final shipments to customers during the fourth
quarter of fiscal 1999.
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 increase 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.
The improvement in gross margin in fiscal 1999 compared to fiscal 1998 also
resulted from our change in strategy, discussed above in gross margin for the
nine months ended June 30, 2000 and 1999, to restructure our manufacturing
operations in response to a shift in the mix of products fabricated internally
compared to products fabricated by outside foundries. We further decided to
discontinue development of future dielectric process technology in favor of
silicon-on-insulator technology, where volume production is expected to be
outsourced if a suitable foundry is qualified. As a result of that decision, we
concluded that 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 is related to work in process
and approximately $0.2 million is 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.
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
24
<PAGE>
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 than in
fiscal 1997.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $7.8 million or 15.4% of net revenues
in fiscal 1999, $7.2 million or 15.6% of net revenues in fiscal 1998 and
$6.2 million or 17.6% of net revenues in fiscal 1997. The increase in research
and development 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, and higher spending of $0.3 million on new product
designs. The increase in research and development 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 expenses were $10.8 million or
21.4% of net revenues in fiscal 1999, $9.9 million or 21.4% of net revenues in
fiscal 1998, and $8.9 million or 25.1% of net revenues in fiscal 1997. The
increase in these expenses in fiscal 1999 over fiscal 1998 was due primarily to
an increase in staffing and related compensation of $0.5 million and higher
outside services costs of $0.4 million. As a percentage of net sales, marketing,
sales, general and administrative expenses remained flat in fiscal 1999 as such
costs increased at the same rate as net revenue growth. The increase in these
expenses in fiscal 1998 as compared to fiscal 1997 was also due primarily to an
increase in staffing and related compensation, increased legal expenses and
higher consulting costs.
UNUSUAL CHARGES
Our unusual charges, as discussed in gross margin for the nine months ended
June 30, 2000 and 1999, 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.
INTEREST AND OTHER INCOME, NET
Interest and other income, net was $0.5 million in fiscal 1999,
$0.7 million in fiscal 1998 and $0.8 million in fiscal 1997. Interest income for
fiscal 1999 decreased from fiscal 1998 due to a lower rate of return on cash
equivalents and short-term investments. The decrease from fiscal 1997 to fiscal
1998 was due to lower cash, cash equivalents and short-term investments
resulting primarily from cash disbursed and lease payments made in conjunction
with our fabrication facility expansion.
PROVISION FOR (BENEFIT FROM) TAXES ON INCOME
The fiscal 1999 provision for taxes on income reflected the benefit from the
unusual charges we recorded in the first quarter of fiscal 1999. In addition, we
reversed the remaining valuation allowance of $0.5 million 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 our valuation
allowance for certain deferred tax assets at September 30, 1998.
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
The following tables set forth our unaudited quarterly consolidated
statements of operations data for each of the seven quarters in the period ended
June 30, 2000, and this data expressed as a
25
<PAGE>
percentage of our net revenues for each of these seven quarters. This quarterly
information is unaudited and has been prepared on the same basis as our annual
consolidated financial statements. In the opinion of management, this quarterly
information reflects all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information for the
periods presented. You should read this information in conjunction with the
consolidated financial statements and the related notes appearing elsewhere in
this prospectus. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1999 1999 1999 1999 2000 2000
-------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues...................................... $ 10,653 $12,721 $13,005 $14,283 $15,712 $20,020 $28,622
Cost of revenues.................................. 6,401 6,995 6,184 6,205 6,141 7,694 11,151
Cost of revenues--inventory write-down............ 1,008 -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Gross profit.................................... 3,244 5,726 6,821 8,078 9,571 12,326 17,471
Operating expenses:
Research and development........................ 1,711 1,569 1,847 2,669 2,407 3,347 4,507
Marketing, sales, general and administrative.... 2,429 2,711 2,840 2,853 3,055 3,748 4,184
Unusual charges................................. 12,009 -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Total operating expenses...................... 16,149 4,280 4,687 5,522 5,462 7,095 8,691
-------- ------- ------- ------- ------- ------- -------
Income (loss) from operations..................... (12,905) 1,446 2,134 2,556 4,109 5,231 8,780
Interest and other income, net.................... 102 83 167 175 213 309 445
Interest expense.................................. (110) (103) (97) (89) (83) (76) (68)
-------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes........................ (12,913) 1,426 2,204 2,642 4,239 5,464 9,157
Provision for (benefit from) taxes on income...... (4,889) 500 727 896 1,479 2,111 3,383
-------- ------- ------- ------- ------- ------- -------
Net income (loss)................................. $ (8,024) $ 926 $ 1,477 $ 1,746 $ 2,760 $ 3,353 $ 5,774
======== ======= ======= ======= ======= ======= =======
Earnings (loss) per share:
Basic........................................... $(0.44) $0.05 $0.08 $0.09 $0.15 $0.18 $0.29
======== ======= ======= ======= ======= ======= =======
Diluted......................................... $(0.44) $0.05 $0.07 $0.08 $0.13 $0.14 $0.24
======== ======= ======= ======= ======= ======= =======
Shares used in computing per share amounts:
Basic........................................... 18,394 18,424 18,560 18,672 18,864 19,144 19,575
Diluted......................................... 18,394 19,210 20,918 21,932 22,362 23,386 23,849
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1999 1999 1999 1999 2000 2000
-------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET REVENUES:
Net revenues...................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................................. 60.1 55.0 47.6 43.4 39.1 38.4 39.0
Cost of revenues--inventory write-down............ 9.4 -- -- -- -- -- --
------ ----- ----- ----- ----- ----- -----
Gross profit.................................... 30.5 45.0 52.4 56.6 60.9 61.6 61.0
Operating expenses:
Research and development........................ 16.1 12.3 14.2 18.7 15.3 16.7 15.7
Marketing, sales, general and administrative.... 22.8 21.3 21.8 20.0 19.4 18.8 14.6
Unusual charges................................. 112.7 -- -- -- -- -- --
------ ----- ----- ----- ----- ----- -----
Total operating expenses...................... 151.6 33.6 36.0 38.7 34.7 35.5 30.3
------ ----- ----- ----- ----- ----- -----
Income (loss) from operations..................... (121.1) 11.4 16.4 17.9 26.2 26.1 30.7
Interest and other income, net.................... 0.9 0.6 1.3 1.2 1.3 1.5 1.5
Interest expense.................................. (1.0) (0.8) (0.7) (0.6) (0.5) (0.4) (0.2)
------ ----- ----- ----- ----- ----- -----
Income (loss) before taxes........................ (121.2) 11.2 17.0 18.5 27.0 27.2 32.0
Provision for (benefit from) taxes on income...... (45.9) 3.9 5.6 6.3 9.4 10.5 11.8
------ ----- ----- ----- ----- ----- -----
Net income (loss)................................. (75.3)% 7.3% 11.4% 12.2% 17.6% 16.7% 20.2%
====== ===== ===== ===== ===== ===== =====
</TABLE>
26
<PAGE>
Net revenues and gross profits have increased in each of the quarters since
the three months ended December 31, 1998 as global industry and economic
conditions, particularly in Asia, have improved. Slight variations in research
and development expenses as a percentage of net revenues have occurred due to
high prototype expenses associated with product introductions.
In the first quarter of fiscal 1999, we recorded unusual pre-tax charges of
$13.0 million resulting from our conclusion that projected production volume and
related cash flow from our internal fabrication facility were not sufficient to
recover its carrying value.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash, and cash equivalents and
short-term investments of $22.1 million at June 30, 2000. Additionally, at
June 30, 2000, we had a revolving credit line of $5.0 million, all of which was
unused and available. We are currently in the process of obtaining a line of
credit that will replace the one which expired on June 30, 2000.
Cash and cash equivalents were $21.0 million at June 30, 2000, representing
an increase of $3.6 million from September 30, 1999. The increase is primarily a
result of cash generated from operations of $12.5 million and proceeds from the
exercise of employee stock options of $2.0 million. These cash inflows were
offset by capital expenditures of approximately $10.0 million primarily for new
process development, assembly and test facilities and payments on capital leases
of approximately $1.1 million.
Cash and cash equivalents at September 30, 1999 increased by $11.6 million
from September 30, 1998 to $17.4 million. The primary source of cash during
fiscal 1999 was $12.9 million from operations. Investing activities used
$0.8 million 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 available for sale
securities 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 the
exercise of employee stock options of $1.2 million.
Cash and cash equivalents at September 30, 1998 decreased by $4.0 million or
40.9% from September 30, 1997 to $5.8 million. The primary source of cash during
fiscal 1998 was $4.7 million from operations. 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.
We believe that our existing cash and cash equivalents, our short-term
investments, cash from operations and the net proceeds from this offering will
be sufficient to support our operating and capital needs for at least the next
12 months. Any major change in the nature of our 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 our
capital requirements. To the extent we require additional cash, we cannot assure
you that we will be able to obtain financing on favorable terms, or at all.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE SENSITIVITY
We maintain a short-term investment portfolio consisting mainly of income
securities with an average maturity of less than one year. These 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
10.0% from levels at June 30, 2000, the fair value of the approximately
$18.3 million
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portfolio would decline by an immaterial amount. We presently intend to hold our
fixed income investments until maturity, and therefore we do not expect our
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 our securities
portfolio.
At June 30, 2000, we had approximately $3.2 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
10.0% in short-term interest rates would not have a material impact on our net
income or cash flows. We do not hedge any interest rate exposures.
Since we do not have any significant exposure to changing interest rates
because of the low levels of marketable securities with maturities more than
90 days, we did not undertake any specific actions to cover exposure to interest
rate risk and we are not a party to any interest rate risk management
transactions. We did not purchase or hold any derivative financial instruments
for trading purposes.
FOREIGN CURRENCY EXCHANGE RISK
The Japanese Yen is the functional currency of our subsidiary in Japan and
we denominate certain sales transactions in Yen. We have established a foreign
currency-hedging program, utilizing foreign currency forward exchange contracts
or forward contracts of various durations to hedge trade receivables denominated
in 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 our foreign currency receivables. We do not use
forward contracts for trading purposes. We believe that the use of foreign
currency financial instruments should reduce the risks that arise from
conducting business in international markets.
We do not currently enter into foreign exchange forward contracts to hedge
balance sheet exposures of our subsidiary in Japan and intercompany balances
against future movements in foreign exchange rates. However, we do maintain cash
balances denominated in Yen. If foreign exchange rates were to weaken against
the United States Dollar immediately and uniformly by 10.0% from the exchange
rate at June 30, 2000, 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 interest
and other income, net.
RECENT ACCOUNTING PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. We are required to adopt SFAS 133, as amended, beginning in the
first quarter of fiscal 2001. Although we have not fully assessed the
implication of SFAS 133, we do not expect the adoption of the statement to have
a significant effect on our consolidated financial position, results of
operations or cash flows.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition", which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met in order to recognize revenue and provides guidance for disclosures related
to revenue recognition policies. We are required to adopt SAB 101, as amended,
in the fourth quarter of fiscal 2001. Although we have not fully assessed the
implications of SAB 101, our management does not believe that adoption of this
bulletin will have a material impact on our consolidated financial position,
results of operations or cash flows.
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BUSINESS
OVERVIEW
We are a leading designer, manufacturer and marketer of high performance
analog integrated circuits, which provide specific analog solutions to
manufacturers in the high growth markets for video, optical storage,
communications and power management products. The rapid advances in digital
technology and increasing demand for digital integrated circuits are driving the
need for high speed, high precision, low distortion and power efficient analog
circuits. Electronic systems manufacturers in these high growth markets require
analog circuits with precision, linearity, speed, power and signal amplification
capabilities specific to their applications. We believe we fulfill these circuit
requirements with our standard line of products and with our application
specific standard products, or ASSPs, which are designed to satisfy the needs of
specific applications within our targeted markets. We presently offer
approximately 150 products, including amplifiers, drivers, faders, transceivers
and multiplexers. We manufacture our products at our facilities in Milpitas,
California and utilize third party wafer foundries.
We sell our proprietary products to leading original equipment
manufacturers, or OEMs, such as Globespan, Hitachi, Lucent, Lucky Goldstar,
Motorola, Olympus, Philips, Ricoh, Samsung, Sanyo, Sony, Toshiba and Yamaha,
either directly or through our distributors, such as Microtek International,
Inc. and Insight Electronics, Inc.
INDUSTRY BACKGROUND
Semiconductors, also known as integrated circuits, can be divided into two
broad categories: digital and analog. Digital circuits, such as memory devices
and microprocessors, function as on and off switches expressed in binary code as
"1's" and "0's." In contrast, analog semiconductors monitor, regulate, amplify
or transform signals associated with physical properties, such as temperature,
pressure, weight, speed, sound and electrical current. Analog circuits play an
important role in bridging the real world phenomena with a variety of electronic
systems. The analog integrated circuit represents these real world properties by
generating continuously varying voltages and currents that better reflect the
items measured. There is a wide variation in the performance characteristics of
analog integrated circuits generally. High performance analog integrated
circuits are characterized by their high speed, high precision, low distortion
and power efficiency.
Demand for analog integrated circuits has increased in recent years as the
use of embedded digital circuits in a wide variety of communications, consumer
and industrial products has accelerated. In turn, this has created the need for
high performance analog products that enable digital circuits, such as
computers, microprocessors, microcontrollers and signal processors, to interact
with electronic signals derived from physical or analog phenomena. For example,
flat panel displays, CD recordable devices, optical camcorders and digital
subscriber line transceivers use both digital and high performance analog
circuits.
The market for analog integrated circuits differs from the digital circuit
market in several significant ways. Analog applications involve more complex
signals than digital applications, with analog signals having continuous
variations in resolution, speed, power, signal amplitude and other
specifications. Competition in analog integrated circuit markets is based
primarily on performance, functionality, quality, reliability and power
consumption. Analog circuits generally have longer life cycles than digital
circuits because customers typically design the analog function block of their
systems to span multiple generations of product. This is because switching
analog components may cause unexpected problems with the rest of the product's
circuitry. As a result, the critical point of competition for analog integrated
circuit manufacturers is at the design-in stage when a systems designer
evaluates various alternative components for implementing the system
architecture.
Designers of analog circuits must typically take into account complex
interrelationships among the physical layout of the circuit elements, the
manufacturing process and the finished product's packaging,
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all of which can significantly affect performance. The high performance
characteristics required by new and emerging applications for analog circuits
involve increasingly advanced designs, which require highly skilled engineers,
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
tools for analog circuit design typically require substantial customization in
order to provide adequate utility for complex analog circuit design.
THE ELANTEC SOLUTION
We design, manufacture and sell high performance analog integrated circuits
primarily to designers and manufacturers of systems and subsystems in our
targeted markets. We believe our products provide the precision, linearity,
speed, power and signal amplification capabilities required by OEMs in these
high growth markets. We provide ASSPs to satisfy the needs of a broad range of
customers within our target markets and standard products to meet the needs of
our broad customer base. The key elements of our solution include:
HIGH PERFORMANCE ANALOG EXPERTISE. Over the past 11 years, we have
accumulated significant design and process technology expertise in producing
high speed, high precision, low distortion and power efficient analog integrated
circuits. We utilize our expertise to deliver high performance solutions that
are cost-efficient and adhere to our customers' demands.
SYSTEM LEVEL EXPERTISE. In addition to our design and process technology
expertise in analog integrated circuits, we have accumulated system level
expertise in our targeted markets whereby we can approach ASSP projects with an
advanced understanding of the system constraints. This understanding facilitates
the design process, allowing us to design optimal ASSP solutions that our
customers can easily integrate into their products, thereby reducing their
time-to-market cycle. Once our integrated circuits are designed into our
customer's products, we maintain a strong position to be considered for our
customers' next generation products.
PROPRIETARY MANUFACTURING PROCESS TECHNOLOGY. We manufacture all of our
digital subscriber line, or DSL, line drivers using our proprietary
silicon-on-insulator, or SOI, technology. We believe our SOI process technology
provides an optimal solution for satisfying the requirements of DSL equipment by
reducing power consumption, while maintaining low distortion transmission
quality.
ASSP DESIGN CAPABILITY. We develop ASSPs that are designed as solutions to
the requirements of particular applications, and because these solutions are not
custom designed for a specific customer, they potentially can be used by
multiple customers in their products. They can therefore be easily integrated
into multiple customers' products with the same or similar application
requirements. As a result, we believe our ASSPs are highly scalable and
cost-efficient and meet the needs of a broad customer base, resulting in high
volume.
THE ELANTEC STRATEGY
Our goal is to be the leading provider of analog integrated circuits for the
high growth video, optical storage, communications and power management markets.
In order to achieve this goal, we are pursuing the following strategies:
OFFER MARKET DRIVEN PROPRIETARY PRODUCTS. We will continue to supply market
driven proprietary products to our target markets and develop general purpose
standard products that are performance driven and address multiple markets with
broad customer bases. Additionally, we will continue to develop ASSPs for
specific high growth applications used in products such as flat panel displays,
optical storage devices and asymmetrical digital subscriber line, or ADSL,
modems.
STRENGTHEN POSITION IN SELECTED HIGH GROWTH COMMERCIAL MARKETS. We focus
our design expertise on specific functions within our four target markets. As a
result, we believe we have acquired a greater
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expertise in these areas and have developed a reputation for high performance
products. We intend to leverage our existing customer relationships to supply
them with successive generations of products for their systems and to identify
new product opportunities within their systems. In addition, we believe there is
significant growth potential within our target markets and we plan to leverage
our systems expertise to penetrate new customer opportunities within these
markets.
WORK CLOSELY WITH LEADING OEMS. We plan to continue to work closely with
leading OEMs by developing products to address their specific applications. We
plan to apply our systems level expertise and our relationships with the
engineering teams of our OEMs to anticipate opportunities during the design of
their products. We believe that by continuing to achieve reference design
relationships with industry leaders we will further validate our products and
will enhance our ability to accelerate acceptance of our product standards
within the specific markets we target.
EXPAND DESIGN TEAM AND CONTINUE TO IMPROVE DESIGN PRODUCTIVITY. To
capitalize on the growth of our target markets and expand our position with
existing customers, we plan to continue our investment in research and
development. We intend to hire more engineers with experience in the design of
analog integrated circuits and continue to make significant investments in
design tools and other research and development equipment and applications that
will complement the needs of our design teams. This commitment should allow us
to increase the number of new products introduced per year.
MARKETS AND APPLICATIONS
We design and manufacture our products for the four high growth commercial
markets that we believe are increasingly demanding high performance and low
power consumption analog solutions: video, optical storage, communications and
power management. In each of our target markets, we offer a range of standard
products and ASSPs that are designed to provide effective solutions for
electronic systems designers. Most of our 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 our
products in each of our target markets:
<TABLE>
MARKET TYPICAL APPLICATIONS
<S> <C>
Video Cathode Ray Tubes
Flat Panel Displays
Overhead Displays
Set Top Converters
Special Effects Generators
Video Cameras
Video Distribution Networks
Optical Storage CD Rewritable Drives
DVD Read-Only Drives
DVD Rewritable Drives
Optical Camcorders
Video Digital Recorders
Communications ADSL Transceivers
HDSL Transceivers
Power Management Printed Circuit Boards
Test and Measurement Equipment
</TABLE>
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VIDEO. Video images are incorporated into electronic applications such as
multimedia computing and communications. This trend has increased demand for
high speed amplifiers and specialty analog circuits for the processing and
display of video signals. We focus on manufacturing components for several
segments of the video market, including displays such as cathode ray tubes and
flat panels, set top converters, special effects generators, studio equipment
and video distribution networks.
OPTICAL STORAGE. Optical storage, in the form of CD-ROM, has become the
medium of choice for software and music. More recently, optical recordable
devices such as CD read, CD read/write, and DVD read/write are being adopted in
the marketplace. We currently provide products that control the laser diode
contained in the optical pick-up unit of optical disk drives.
COMMUNICATIONS. Higher data transmission rates are important for emerging
communications applications related to Internet access. The convergence of
communications and computers has 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 that
information. In this market, we supply transceivers and high speed amplifiers
for ADSL and high bit rate digital subscriber line, or HDSL, for increasing the
data transmission rate over conventional telephone lines.
POWER MANAGEMENT. The proliferation of high density, small, digital
integrated circuits has increased demand for DC:DC converters which adjust the
input voltages to meet the needs of the various components within the system.
Current solutions for DC:DC converters are mostly comprised of stand alone
components. We believe that the demand for single chip integrated converter
solutions will increase as smaller portable devices become more prevalent. Our
strategy is to provide highly integrated DC:DC converters in a single chip
design that is cost competitive within a multiple chip implementation. Our
integrated DC:DC products are used in products such as printed circuit boards,
test and measurement equipment, and other devices.
PRODUCTS
We offer both ASSPs and standard products for our four target markets. Our
portfolio of approximately 150 high performance analog products, most of which
are available in multiple pin-out configurations, provide our customers with a
comprehensive choice of products in our targeted high growth markets.
APPLICATION SPECIFIC STANDARD PRODUCTS. For the video market we offer 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.
Our ASSPs include sync separators, DC restoration circuits, video multiplexers,
faders, laser diode drivers, DC:DC converter circuits and transceivers. Sync
separators are timing circuits that control the position and stability of the
video image on a video display. DC 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. 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 we offer laser diode drivers that
control the performance of the laser diode used in the read/write mode in
optical storage pick-up heads. In the communications market, we offer
transceivers that are used to transmit and receive high speed analog signals
containing encoded digital information over conventional telephone lines. Our
integrated DC:DC converter circuits convert supply voltages to a lower voltage
required by modern microprocessors and digital signal processors.
STANDARD PRODUCTS. Our standard products consist of amplifiers, buffers,
comparators and metal-oxide-semiconductor field effect transistor, or MOSFET,
drivers. Amplifiers and buffers are used to amplify or reproduce analog
electrical signals, either voltage or current, with minimal distortion. High
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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 with minimal 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 metal-oxide-semiconductor field effect
transistors.
SALES, DISTRIBUTION AND MARKETING
SALES AND DISTRIBUTION. We sell our products directly with the assistance
of independent sales representatives, and indirectly through independent
distributors. Our direct sales force consists of sales managers and field
application engineers who support customers, sales representatives and
distributors in major markets. The sales staff and field application engineers
are located at our Milpitas, California headquarters and in field offices in
Massachusetts, New Hampshire, United Kingdom and Japan.
In North America, we sell our products through our direct sales force,
approximately 18 independent sales representative organizations and four
distributors. These distributors are entitled to price rebates on unsold
inventory if we lower the prices of our 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 five percent of their total
product purchases during the most recent six-month period.
Outside North America, we sell our products through our direct sales force
and approximately 20 international distributors. These distributors are
primarily located in Japan, Korea, Taiwan and Europe. Our international
distributors are entitled to rebates and price protection according to local
practices. International sales have typically represented over half of our net
revenues.
MARKETING. Our marketing strategy is focused on building market awareness
and acceptance of current and future products. Our marketing activities include
advertising in print and Internet media and marketing programs to support our
direct sales force, distributors and independent sales representatives.
Our sales force has a high level of product knowledge and industry
background. Our technical support team is available to provide our distributors
and independent representatives with ongoing technical support through help
desks, detailed technical information on our website, application notes and
technical briefs. We also employ a team of field application engineers to assist
our customers in defining their needs, propose customized solutions and
qualifying our products as part of their product definition.
DESIGN METHODOLOGY AND PROCESS TECHNOLOGY
DESIGN METHODOLOGY. Our 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 computer-aided design tools on a network of computer
workstations and applies standardized design rules in order to facilitate the
integration of different designs or design elements. We promote design integrity
and sharing of expertise by requiring each designer to subject designs to a
series of peer reviews and simulation and verification tests at different stages
of design development. We have developed proprietary computer models of circuit
elements to assist in the modeling, simulation, layout and verification of
circuit designs.
Our approach to new product development is driven by specific market
requirements and by advances in technology and design methodology. We have
adopted a systematic approach of using our field application engineers and
strategic marketing personnel to identify new market opportunities for
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ASSPs applicable to a broad range of customers within our targeted markets. We
then consult with our circuit designers to determine whether it is technically
feasible to develop such ASSPs.
MANUFACTURING PROCESS TECHNOLOGY. We use a variety of semiconductor process
technologies for our products in order to meet the particular requirements of
different customers and applications. Our manufacturing process technologies
include:
- DIELECTRIC ISOLATION (DI) COMPLEMENTARY BIPOLAR 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. We fabricate wafers
for our products using our DI technology at our own facilities.
- JUNCTION ISOLATION COMPLEMENTARY BIPOLAR TECHNOLOGY. We use junction
isolation complementary bipolar technologies primarily for high speed
applications such as video amplifiers and video ASSPs. Junction isolation
complementary bipolar technology uses two different types of transistors
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. We fabricate wafers for our products using junction
isolation complementary bipolar technology at a third party foundry.
- COMPLEMENTARY METAL-OXIDE-SEMICONDUCTOR (CMOS) TECHNOLOGY. Since 1992, we
have 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. We
use several third party foundries to supply wafers for our CMOS products.
- SILICON-ON-INSULATOR (SOI) TECHNOLOGY. We recently introduced a
silicon-on-insulator technology called bonded wafer. Bonded wafer
technology uses two flat oxidized silicon wafers that are thermally bonded
to one another. After the bonding process, 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 most other
technologies. We fabricate wafers for our products using SOI technology at
our own facilities.
MANUFACTURING
FABRICATION. The number of foundries that have the capability to produce DI
wafers is limited. Currently, we manufacture wafers for our DI and SOI products
in our own facilities at Milpitas, California, except for the poly deposition
process step. We supplement our manufacturing capabilities by using third party
foundries to produce junction isolation complementary bipolar wafers and CMOS
wafers. Using third party foundries enables us to focus on our design strengths
and minimize fixed costs and capital expenditures while providing access to
diverse manufacturing technologies without bearing the full risk of
obsolescence.
TESTING AND ASSEMBLY. We initially test each integrated circuit on the
wafers produced by us and our foundries for compliance with performance
specifications before assembly. Our products are then assembled by a variety of
subcontractors in Asia. Following assembly, the packaged units are returned to
us for final testing and inspection prior to shipment to customers. We then
perform extensive testing on all circuits using advanced automated test
equipment to ensure that the circuits satisfy specified
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performance levels. All testing is performed on standard test equipment using
proprietary test programs developed by our test engineers.
QUALITY ASSURANCE. We prequalify each third party foundry and subcontractor
prior to entering into full production. We also participate in quality
monitoring of our wafer manufacturing and assembly subcontractors. We closely
monitor wafer manufacturing production to enhance product quality and yield
levels.
RELIABILITY. Prior to full scale production of new products, we perform a
number of tests to determine the reliability of the production units. For
example, we perform burn-in, scanning electron microscope examination, and
environmental and motion stress tests. During full scale production, we also
audit our products to ensure that they continue to meet our reliability
standards.
RESEARCH AND DEVELOPMENT
Our ability to compete depends, in part, upon our continued introduction of
technologically innovative products on a timely basis. Our product development
strategy emphasizes a family of products for our target markets. Our 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. We continually upgrade our internal technology while also
utilizing the technology from third party foundries to develop new generations
of products. In addition, we continually refine our manufacturing practices and
technology to improve the yields of our products.
We have assembled a team of highly skilled analog design engineers. The
majority of our design engineers work in our Milpitas facilities, while
additional engineers work in our European design facility which we recently
launched in the United Kingdom. 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. We support our
design engineers with an infrastructure of process engineers, product engineers
and test engineers. As of June 30, 2000, our engineering and product development
staff consisted of 65 employees.
Our research and development expenses were $10.3 million or 15.9% of net
revenues for the nine months ended June 30, 2000, $7.8 million or 15.4% of net
revenues for fiscal 1999, $7.2 million or 15.6% of net revenues for fiscal 1998
and $6.2 million or 17.6% of net revenues for fiscal 1997. These expenses
consisted primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers, prototype costs and depreciation
associated with development tools.
PATENTS AND LICENSES
We seek to protect our proprietary technology through patents and trade
secret protection. Currently, we hold 45 United States patents and five foreign
patents, expiring between the years 2008 and 2017. We also have six pending
United States patent applications, although we cannot assure you that any
patents will result from these applications. While we intend to continue seeking
patent coverage for our products and manufacturing technology where appropriate,
we believe that our success depends more heavily on the technical expertise and
innovative abilities of our personnel. Accordingly, we also rely on trade
secrets and confidential technological know-how in the conduct of our business.
We generally enter into confidentiality agreements with our employees,
consultants and other parties. We cannot assure you that our patents or
applicable trade secret laws provide adequate protection for our technology
against competitors who may develop or patent similar technology or reverse
engineer our products. In addition, the laws of certain territories in which our
products are or may be developed, manufactured or sold, including Africa, Asia,
Europe and Latin America, may not protect our products and intellectual property
rights to the same extent as the laws of the United States.
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CUSTOMERS
We sell our products worldwide to OEMs such as Globespan, Hitachi, Lucent,
Lucky Goldstar, Motorola, Olympus, Philips, Ricoh, Samsung, Sanyo, Sony, Toshiba
and Yamaha, both directly and through distributors such as Microtek and Insight.
Our products are used in applications such as CD recordable devices, flat panel
displays, optical camcorders and digital subscriber line transceivers.
We sell our products worldwide through direct sales efforts and independent
distributors. In some countries, it is customary for OEMs to purchase our
products through distributors even though our sales office maintains the
customer relationship. We have direct business relationships with all major
original equipment manufacturers using our products.
Historically, a small number of our customers have accounted for a
significant portion of our net revenues. In the nine months ended June 30, 2000,
Microtek accounted for 29% of our net revenues, Insight accounted for 10% of our
net revenues and Samsung accounted for 10% of our net revenues. Microtek and
Insight accounted for 30% and 10% of our net revenues in the year ended
September 30, 1999, and 23% and 11% of our net revenues in the year ended
September 30, 1998. We have no long-term purchase contracts with these or any of
our other important customers.
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
rapid technological change, product obsolescence and price erosion. 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 our market. Most of these competitors have
substantially greater financial, technical, manufacturing, marketing and other
resources than we do. In addition, many of our competitors have greater name
recognition, broader product lines in some markets than us and greater service
and support capabilities.
Competition within our industry is based on a variety of factors, including:
- product features, including product functionality and performance;
- product quality and reliability;
- price;
- technical support and customer service; and
- manufacturing efficiency and capacity.
We believe that we compete favorably with respect to each of these factors.
We intend to continue to address these competitive factors by working to
introduce product enhancements and new products, seeking to establish our
products as industry standards in their respective markets, and working to
reduce the manufacturing cost of our products.
Competition among analog semiconductor providers is intense at the design-in
stage, when a manufacturer is selecting a component provider for potential
generations of future products. We believe that, by virtue of our design
expertise, manufacturing process technology expertise and specialized
application knowledge, we compete favorably in the areas of rapid product
introduction, product innovation, quality, reliability and performance.
Our primary competitors are Analog Devices, Inc., Burr-Brown Corporation,
Linear Technology Corporation, National Semiconductor Corporation, Maxim
Integrated Products, Inc., Texas Instruments and Toshiba. We also compete
indirectly with the in-house design staffs of some of our customers, which often
provide alternative solutions for individual analog systems requirements. As we
expand our product lines, we expect that competition will increase with these
and other domestic and foreign
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companies. Although foreign companies traditionally have not focused on the high
performance analog market, many foreign companies, particularly Asian companies,
have the financial and other resources to participate successfully in these
markets. These companies may become formidable competitors in the future.
EMPLOYEES
As of June 30, 2000, we had 254 full-time employees. Of the total, 37 are in
sales and marketing, 131 in manufacturing, 65 in engineering and product
development, and 21 in finance and administration. None of our employees are
represented by any collective bargaining agreement, and we have never
experienced a work stoppage. We consider our relations with our employees to be
good.
FACILITIES
Our corporate headquarters, which serve as our principal administrative,
sales, marketing, manufacturing, and research and development offices, are
located in three buildings in Milpitas, California. We lease approximately
39,000 square feet of space in one building for our manufacturing and
engineering functions pursuant to a lease that expires on June 20, 2005. We have
a seven year lease expiring on October 1, 2003 for a total of approximately
21,500 square feet of space located in another building adjacent to our
manufacturing facility for administrative functions. We also have a lease
expiring on May 15, 2005 for a total of approximately 21,000 square feet of
space in a third building adjacent to our manufacturing facility for testing,
quality assurance and product engineering.
In addition to our headquarters and our manufacturing facilities, we have
field offices for some of our sales staff and field application engineers
located in Massachusetts, New Hampshire, United Kingdom and Japan. We lease
approximately 1,331 square feet of space for our sales office in the Boston,
Massachusetts metropolitan area, approximately 300 square feet for our sales
office in Nashua, New Hampshire, approximately 1,112 square feet for our sales
office in Wokingham, United Kingdom, and approximately 1,457 square feet for our
technical sales support center in Yokohama, Japan. We also lease approximately
3,434 square feet for our design center in Harlow, United Kingdom.
We believe that our existing facilities are adequate to meet our current
needs.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
37
<PAGE>
MANAGEMENT
OUR EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Richard Beyer............................. 51 President, Chief Executive Officer and
Director
Ephraim Kwok.............................. 46 Vice President of Finance and
Administration, Chief Financial Officer
and Secretary
Alden J. Chauvin, Jr...................... 54 Vice President of Worldwide Sales
Ralph S. Granchelli, Jr................... 45 Vice President of Marketing
James V. Diller........................... 65 Chairman of the Board of Directors
Chuck K. Chan............................. 49 Director
Alan V. King.............................. 65 Director
Umesh Padval.............................. 42 Director
</TABLE>
RICHARD BEYER has served as our President, Chief Executive Officer and
director since July 2000. From January 1999 through July 2000, Mr. Beyer served
as President and Chief Executive Officer of FVC.COM, Inc. From July 1996 through
August 1998, Mr. Beyer served as President, Chief Operating Officer, and
director of VLSI Technology, Incorporated. From June 1995 through June 1996,
Mr. Beyer served as Executive Vice President and Chief Operating Officer of
National Semiconductor Corporation, and from February 1993 through May 1995 he
held the position of President of the Communications and Computing Group of
National Semiconductor Corporation. Prior to this, Mr. Beyer served in a number
of senior managerial positions in the telecommunications and computer
industries. Richard Beyer served three years as an officer in the United States
Marine Corps. He holds a B.S. degree and a M.S. degree in Russian from
Georgetown University as well as a M.B.A. degree in marketing and international
business from Columbia University.
EPHRAIM KWOK has served as our Vice President of Finance and Administration,
Chief Financial Officer and Secretary since January 1998. From June 1996 through
December 1997, Mr. Kwok served as Vice President of Finance and Administration
and Chief Financial Officer of Ascent Logic Corporation. Prior to that,
Mr. Kwok served as Chief Operating Officer and Chief Financial Officer of KMOS
Semiconductor, from September 1989 through June 1996. Prior to this, Mr. Kwok
held various financial management positions at various high technology
companies. Mr. Kwok holds a B.S. degree in physiology from the University of
California, Davis and a M.B.A. degree from the University of California,
Berkeley.
ALDEN J. CHAUVIN, JR. has served as our Vice President of Worldwide Sales
since April 1999. Prior to this, Mr. Chauvin served as Vice President of
Worldwide Sales (based in Singapore) of Tritech Microelectronics, a division of
Singapore Technologies from August 1997 through July 1998. Prior to this,
Mr. Chauvin served as Vice President of Worldwide Sales for Sierra Semiconductor
(now PMC-Sierra) from April 1995 through June 1997 and previously, he served as
Vice President of North America Sales from June 1986 through March 1995. Prior
to Sierra Semiconductor, Mr. Chauvin held various sales and marketing management
positions over a 17 year period at Texas Instruments, Inc. Mr. Chauvin holds a
B.S. degree in industrial technology from Louisiana State University.
RALPH S. GRANCHELLI, JR. has served as our Vice President of Marketing since
September 1994 and previously served as Vice President of Marketing and Sales
from November 1990 to August 1994. From 1985 to October 1990 he served as our
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
38
<PAGE>
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.
JAMES V. DILLER has been Chairman of the Board since 1997 and a director of
Elantec since 1986. From November 1998 to July 2000, he served as our President
and Chief Executive Officer. Mr. Diller was a Founder of PMC-Sierra, Inc. a
communications semiconductor company, was its President and Chief Executive
Officer from 1983 to June 1997 and is currently its Vice Chairman of the Board.
Mr. Diller is a director of Sierra Wireless, a provider of wireless data
communications hardware and software products, since 1993. Mr. Diller holds a
B.S. degree in physics from the University of Rhode Island.
CHUCK K. CHAN has been a director of Elantec 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 directors 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.
ALAN V. KING has been a director of Elantec 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 1987 to 1991, and was
its Executive Vice President from 1986 to 1987. Mr. King holds a B.S. degree in
engineering from the University of Washington.
UMESH PADVAL has been a director of Elantec since November 1999. Mr. Padval
has been the President of C-Cube Microsystem's Semiconductor Division since
October 1998 and was named Chief Executive Officer and Director of C-Cube
Microsystem Incorporated in May 2000. Prior to joining C-Cube, Mr. Padval served
as Senior Vice President and General Manager of the Consumer Digital
Entertainment Division at VSLI Technology, Inc. from May 1997 to October 1998,
and as Senior Vice President and General Manager for VSLI's Computing Solution
Division from 1987 to April 1997. Before joining VLSI Technology, Mr. Padval
worked for Advanced Micro Devices, where he held a variety of marketing and
engineering positions. Mr. Padval holds a B.S. degree in engineering from the
Indian Institute of Mumbai, India, a M.S. degree in 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.
Chuck K. Chan, Alan V. King and Umesh Padval are members of the Audit
Committee, and Chuck K. Chan and Alan V. King are members of the Compensation
Committee.
39
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership by the following persons of our common stock as of June 30, 2000 and
as adjusted to reflect our sale of shares of common stock in this offering:
- each person known by us to own beneficially more than five percent of our
common stock;
- each of our directors;
- each person who served as the chief executive officer in fiscal 1999 and
the other four most highly compensated executive officers in fiscal 1999;
- each of the selling stockholders; and
- all directors and executive officers as a group.
Unless indicated below, to our knowledge, the persons named in the table
below have sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where applicable
or as otherwise indicated below. The percentage of beneficial ownership for each
stockholder is based on 19,694,668 shares of common stock outstanding as of
June 30, 2000 before the offering and 21,214,668 shares after the offering,
together with that stockholder's options. Shares of common stock issuable upon
exercise of options and other rights beneficially owned are deemed outstanding
for the purpose of computing the percentage beneficial ownership of the person
holding those options and other rights, but are not deemed outstanding for
computing the percentage beneficial ownership of any other person. If the
underwriters' over-allotment option is exercised in full, we will sell up to an
aggregate of 240,000 additional shares of common stock and up to 21,454,668
shares of common stock will be outstanding after the completion of this
offering.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under these rules, beneficial ownership includes any shares as to which
the individual or entity has sole or shared voting or investment power and any
shares as to which the individual or entity has the right to acquire beneficial
ownership within 60 days after June 30, 2000 through the exercise of any stock
option or any other right. The inclusion of these shares in the table below,
however, does not constitute an admission that the named stockholder is a direct
or indirect beneficial owner of, or receives the economic benefit from, these
shares.
40
<PAGE>
Unless indicated below, each person named below has an address in care of
Elantec Semiconductor, Inc., 675 Trade Zone Boulevard, Milpitas, California
95035.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED
OFFERING NUMBER OF AFTER THE OFFERING
-------------------- SHARES BEING --------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
---------------- --------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
James V. Diller(1)........................ 869,393 4.4% -- 869,393 4.0%
David O'Brien(2).......................... 236,040 1.2 -- 236,040 1.1
Ralph S. Granchelli, Jr.(3)............... 156,073 * 20,000 136,073 *
Chuck K. Chan(4).......................... 132,878 * -- 132,878 *
Ephraim Kwok(5)........................... 91,162 * -- 91,162 *
Richard Beyer(6).......................... 86,500 * -- 86,500 *
Alan V. King(7)........................... 69,998 * -- 69,998 *
Alden J. Chauvin, Jr.(8).................. 67,914 * 20,000 47,914 *
Umesh Padval(9)........................... 10,416 * -- 10,416 *
All current executive officers and
directors as a group (8 persons)(10).... 1,484,334 7.5 40,000 1,444,334 6.5
OTHER SELLING STOCKHOLDERS:
Richard Corbin(11)........................ 403,732 2.0 15,000 388,732 1.8
Owen Bevan(12)............................ 97,933 * 25,000 72,933 *
</TABLE>
------------------------
* Represents beneficial ownership less than 1.0% of the outstanding common
stock.
(1) Represents 316,480 shares held by Mr. Diller and 552,913 shares subject to
options exercisable within 60 days of June 30, 2000. Mr. Diller is the
Chairman of the Board of Directors.
(2) Represents 219,748 shares held by Dr. O'Brien and 16,292 shares subject to
options exercisable within 60 days of June 30, 2000. Dr. O'Brien resigned
his positions as president, chief executive officer and director in
November 1998.
(3) Represents 39,492 shares held by Mr. Granchelli and 116,581 shares subject
to options exercisable within 60 days of June 30, 2000. Mr. Granchelli is
our vice president of marketing.
(4) Represents 54,962 shares held by Dr. Chan's family trust and 20,000 shares
held by Dr. Chan's retirement account and 57,916 shares subject to options
exercisable within 60 days of June 30, 2000. Dr. Chan is a director of
Elantec.
(5) Represents 65,955 shares held by Mr. Kwok and 25,207 shares subject to
options exercisable within 60 days of June 30, 2000. Mr. Kwok is our vice
president of finance and administration, chief financial officer and
secretary.
(6) Mr. Beyer became our president, chief executive officer and a director in
July 2000. He received 86,500 shares of common stock. We have a right of
repurchase on these shares that expires ratably over a five year period.
(7) Represents 20,000 shares held by Mr. King and 49,998 shares subject to
options exercisable within 60 days of June 30, 2000. Mr. King is a director
of Elantec.
(8) Represents 19,907 shares held by Mr. Chauvin, 165 shares held by or in the
name of Mr. Chauvin's children and 47,842 shares subject to options
exercisable within 60 days of June 30, 2000. Mr. Chauvin is our vice
president of worldwide sales.
(9) Mr. Padval does not hold any shares but has 10,416 shares subject to
options exercisable within 60 days of June 30, 2000. Mr. Padval is a
director of Elantec.
41
<PAGE>
(10) Includes the shares subject to options exercisable within 60 days of
June 30, 2000 described in footnotes (1), (3) through (5) and (7) through
(9).
(11) Represents 118,442 shares held by Mr. Corbin's family trust, 176,775
shares held by Mr. Corbin and 108,515 shares subject to options
exercisable within 60 days of June 30, 2000. Mr. Corbin is our vice
president of technology.
(12) Represents 44,184 shares held by Mr. Bevan and 53,749 shares subject to
options exercisable within 60 days of June 30, 2000. Mr. Bevan is our vice
president of manufacturing.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our amended certificate of incorporation authorizes the issuance of up to
50,000,000 shares of common stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $0.01 per share, the rights and preferences
of which may be established from time to time by our board of directors. As of
June 30, 2000, 19,694,668 shares of common stock were outstanding, held by 162
stockholders of record, and options to purchase 5,605,513 shares of common stock
were outstanding.
COMMON STOCK
Each holder of our common stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences to which holders of preferred stock issued
after the sale of the common stock in this offering may be entitled, holders of
common stock will be entitled to receive ratably any dividends that may be
declared from time to time by the board of directors out of funds legally
available for that purpose. In the event of our liquidation, dissolution or
winding up, holders of common stock will be entitled to share in our assets
remaining after the payment of liabilities and the satisfaction of any
liquidation preference granted to the holders of any outstanding shares of
preferred stock. Holders of common stock have no preemptive or conversion rights
or other subscription rights and there are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are, and the shares of common stock offered by us in this offering, when
issued and paid for, will be, fully paid and nonassessable. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series
of preferred stock that we may designate in the future.
PREFERRED STOCK
The board of directors has the authority, subject to any limitations
prescribed by law, without stockholder approval, from time to time to issue up
to an aggregate of 5,000,000 shares of preferred stock, par value $0.01 per
share, in one or more series, each series to have rights and preferences,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as may be determined by the board of
directors. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, a majority
of our outstanding voting stock. We have no present plans to issue any shares of
preferred stock.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers, which prohibits a Delaware corporation from
engaging in any business combination with an "interested stockholder," unless:
- prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder;
- upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85.0% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors
43
<PAGE>
and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to the date of the transaction, the business combination
is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that
is not owned by the interested stockholder.
Except as otherwise specified in Section 203, an "interested stockholder" is
defined to include any person that is the owner of 15.0% or more of the
outstanding voting securities of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15.0% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the date of determination and the affiliates and associates
of any such person.
CHARTER AND BYLAW PROVISIONS
Some provisions of our certificate of incorporation and bylaws may have the
effect of discouraging potential takeover attempts and making more difficult
attempts by stockholders to change our management. These provisions:
- authorize the issuance of "blank check" preferred stock, which is
preferred stock that our board of directors can create and issue without
prior stockholder approval with rights senior to those of common stock;
- limit the ability of stockholders to call special meetings of
stockholders;
- prohibit cumulative voting in the election of directors, which would allow
less than a majority of stockholders of elect director candidates; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.
STOCKHOLDER RIGHTS PLAN
On September 9, 1998, our board of directors declared a dividend of one
preferred share purchase right for each share of our common stock outstanding on
September 21, 1998. In addition, subsequent to September 21, 1998, one right
will be issued with each newly issued and outstanding share of our common stock,
except in certain circumstances.
The rights may have anti-takeover effects as they may delay, deter or
prevent a change of control of our company by a person or group that acquires
the outstanding shares of our common stock without the rights having been
redeemed. The rights should not interfere with any merger, consolidation or
other business combination approved by our board of directors and our
stockholders, because our board of directors has the right to redeem the rights
at any time prior to their distribution, or later in certain circumstances.
Each right entitles the holder to buy one four-hundredth of a share of a
newly-designated Series A Junior Participating Preferred Stock at an exercise
price of $12.50 per one four-hundredth of a share of the Preferred Stock,
subject to customary anti-dilution adjustments. The Preferred Stock has been
structured so that the value of the one four-hundredth interest in a share of
the Preferred Stock purchasable upon exercise of each right will approximate the
value of one common share. Each share of Preferred Stock will be entitled to a
quarterly dividend of 400 times the dividend declared per share of our common
stock, a $2.00 liquidation preference, an aggregate payment of 400 times the
aggregate payment made per common share after the liquidation and 400 votes,
voting together with our common stock. In addition, in the event of a merger,
consolidation or other transaction in which common stock
44
<PAGE>
is exchanged, each share of Preferred Stock will be entitled to receive 400
times the amount received per common share. These entitlements are protected by
customary anti-dilution provisions.
The rights will become exercisable only if a person or a group acquires
20.0% or more of our common stock or announces an intention to make a tender
offer or exchange offer for our common stock. At this time, holders of the
rights, other than the acquiring person, will have the right to acquire shares
of the Preferred Stock or shares of our common stock at a substantially
discounted price, in lieu of the Preferred Stock. Additionally, if after the
distribution of these rights, our company is acquired in a merger or other
business combination, or 50.0% or more of our consolidated assets or earning
power are sold in a transaction with an acquiring person, the holders of rights,
other than the acquiring person, will have the right to receive shares of common
stock of the acquiring company at a substantially discounted price. Our board of
directors may, at its option, require the exchange of outstanding rights, other
than those held by the acquiring person, for our common stock at an exchange
ratio of one share of our common stock per right.
The rights will expire on September 14, 2008, unless this date is extended
or the rights are earlier redeemed or exchanged by us. The terms of the rights,
including the period to redeem the rights, may be amended by our board of
directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services.
45
<PAGE>
UNDERWRITING
GENERAL. We and the selling stockholders are offering the shares of common
stock described in this prospectus through a number of underwriters. FleetBoston
Robertson Stephens Inc., Banc of America Securities LLC, Thomas Weisel Partners
LLC and Adams, Harkness & Hill, Inc. are the representatives of the
underwriters. We and the selling stockholders entered into an underwriting
agreement with the representatives. Subject to the terms and conditions of the
underwriting agreement, we and the selling stockholders agreed to sell to the
underwriters, and each underwriter separately agreed to purchase, the number of
shares of common stock listed next to its name below at the public offering
price, less the underwriting discount described on the cover page of this
prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
Banc of America Securities LLC..............................
Thomas Weisel Partners LLC..................................
Adams, Harkness & Hill, Inc.................................
---------
Total....................................................... 1,600,000
=========
</TABLE>
The underwriting agreement provides that the underwriters must buy all of
these shares from us and the selling stockholders if they buy any of them. The
underwriters will sell these shares to the public when and if the underwriters
buy them from us and the selling stockholders. The underwriters are offering the
common stock subject to a number of conditions, including:
- the underwriters' receipt and acceptance of the common stock from us and
the selling stockholders; and
- the underwriters' right to reject orders in whole or in part.
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
OVER-ALLOTMENT OPTION. We have granted the underwriters an option to buy up
to 240,000 additional shares of our common stock at the same price per share as
they are paying for the shares shown in the table above. The underwriters may
exercise this option only to the extent that they sell more than the total
number of shares shown in the table above. The underwriters may exercise this
option at any time within 30 days after the date of this prospectus. To the
extent that the underwriters exercise this option, the underwriters will be
obligated to purchase additional shares from us in the same proportions as they
purchased the shares shown in the table above. If purchased, these additional
shares will be sold by the underwriters on the same terms as those on which the
other shares are sold.
STOCK MARKET LISTING. Our common stock is quoted on the Nasdaq National
Market under the symbol "ELNT."
UNDERWRITING DISCOUNTS AND COMMISSIONS. The underwriting discount is the
difference between the price the underwriters pay to us and the selling
stockholders and the price at which the underwriters initially offer the shares
to the public. The size of the underwriting discount is determined through an
arms-length negotiation between us and the representatives. The following table
shows the per share and total underwriting discount we and the selling
stockholders will allow to the underwriters. These
46
<PAGE>
amounts are shown assuming no exercise and full exercise of the underwriters'
over-allotment option described above:
<TABLE>
<CAPTION>
TOTAL
---------------------------
NO EXERCISE FULL EXERCISE
PER SHARE OF OPTION OF OPTION
--------- ----------- -------------
<S> <C> <C> <C>
Public offering price....................... $ $ $
Underwriting discounts and commissions
payable by us............................. $ $ $
Underwriting discounts and commissions
payable by the selling stockholders....... $ $ $
</TABLE>
The expenses of this offering, not including the underwriting discounts and
commissions, are estimated to be approximately $800,000 and will be paid by us.
Expenses include the SEC filing fee, the NASD filing fee, Nasdaq listing fees,
printing expenses, legal and accounting fees, transfer agent and registrar fees
and other miscellaneous fees and expenses payable by us.
LOCK-UP AGREEMENTS. We and our executive officers, directors and some of
our stockholders, have agreed, with exceptions, not to sell or transfer any
shares of our common stock for 90 days after the date of this prospectus without
first obtaining the written consent of FleetBoston Robertson Stephens Inc.
Specifically, we and these other individuals have agreed not to, directly or
indirectly:
- offer to sell, contract to sell, or otherwise sell or dispose of any
shares of our common stock;
- loan, pledge or grant any rights with respect to any shares of our common
stock;
- engage in any hedging or other transaction that might result in a
disposition of shares of our common stock by anyone;
- execute any short sale, whether or not against the box; or
- purchase, sell or grant any put or call option or other right with respect
to our common stock or with respect to any security other than a
broad-based market basket or index that includes, relates to or derives
any significant part of its value from our common stock.
These lock-up agreements apply to shares of our common stock and also to any
options or warrants to purchase any shares of our common stock or any securities
convertible into or exchangeable for shares of our common stock. These lock-up
agreements apply to all such securities that are owned or later acquired by the
persons executing the agreements, except for securities acquired on the open
market after signing the lock-up agreement. However, FleetBoston Robertson
Stephens Inc. may release any of us from these agreements at any time during the
90 day period, in its sole discretion and without notice, as to some or all of
the shares covered by these agreements. Currently, there are no agreements
between the representatives and us or any of our stockholders to release any of
us from the lock-up agreements during such 90 day period.
INDEMNIFICATION OF THE UNDERWRITERS. We and the selling stockholders will
indemnify the underwriters against some civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of our
representations and warranties contained in the underwriting agreement. If we or
the selling stockholders are unable to provide this indemnification, we and the
selling stockholders will contribute to payments the underwriters may be
required to make in respect of those liabilities.
DEALERS' COMPENSATION. The underwriters initially will offer our shares to
the public at the price specified on the cover page of this prospectus. The
underwriters may allow to selected dealers a concession of not more than $
per share. The underwriters may also allow, and any other dealers may reallow, a
concession of not more than $ per share to some other dealers. If all the
shares
47
<PAGE>
are not sold at the public offering price, the underwriters may change the
public offering price and the other selling terms. A change in the public
offering price will not affect the amount of proceeds that we receive.
ONLINE ACTIVITIES. A prospectus in electronic format may be made available
on the internet sites or through other online services maintained by one or more
of the underwriters of this offering, or by their affiliates. In those cases,
prospective investors may view offering terms online and, depending upon the
particular underwriter, prospective investors may be allowed to place orders
online. The underwriters may agree with us to allocate a specific number of
shares for sale to online brokerage account holders. Any such allocation for
online distributions will be made by the representatives on the same basis as
other allocations. Other than the prospectus in electronic format, information
on these web sites is not a part of this prospectus and you should not rely on
other information on these web sites in making a decision to invest in our
shares.
In particular, FleetBoston Robertson Stephens Inc. has informed us that it
will allocate for distribution by E*TRADE Securities, Inc. a portion of the
shares that it is underwriting in this offering. Copies of the prospectus in
electronic format will be made available on Internet websites maintained by
E*OFFERING Corp. and E*TRADE Securities, Inc. Customers of E*TRADE
Securities, Inc. who complete and pass an online eligibility profile may place
conditional offers to purchase shares in this offering through E*TRADE's
Internet website. In the event that the demand for shares from the customers of
E*TRADE exceeds the amounts allocated to E*TRADE, E*TRADE will use a random
allocation methodology to distribute shares in even lots of 100 shares per
customer.
STABILIZATION AND OTHER TRANSACTIONS. The rules of the SEC generally
prohibit the underwriters from trading in our common stock on the open market
during this offering. However, the underwriters are allowed to engage in some
open market transactions and other activities during this offering that may
cause the market price of our common stock to be above or below that which would
otherwise prevail in the open market. These activities may include
stabilization, short sales and over-allotments, syndicate covering transactions
and penalty bids.
- Stabilizing transactions consist of bids or purchases made by the lead
representative for the purpose of preventing or slowing a decline in the
market price of our common stock while this offering is in progress.
- Short sales and over-allotments occur when the representatives, on behalf
of the underwriting syndicate, sell more of our shares than they purchase
from us in this offering. "Covered" shorts are short sales made in an
amount not greater than the underwriters' option to purchase additional
shares from us in the offering. The underwriters may close out any covered
short position either by exercising that option to purchase shares from us
or by purchasing shares in the open market. In determining the source of
shares to close out a covered short position, the underwriters will
consider, among other things, the prevailing market price per share
compared to the exercise price per share of their option. "Naked" shorts
are any short sales by the underwriters in excess of their option. The
underwriters must close out any naked short position by purchasing shares
in the open market, potentially including purchases made as stabilizing
transactions. For this reason, a naked short position is more likely to be
created if the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market after pricing
that could adversely affect investors who purchase in the offering.
- Syndicate covering transactions are bids for or purchases of our common
stock on the open market by the representatives on behalf of the
underwriters in order to reduce a short position incurred by the
representatives on behalf of the underwriters. Similar to other purchase
transactions, syndicate covering transactions may have the effect of
raising or maintaining the market price of our common stock or preventing
or retarding a decline in the market price of
48
<PAGE>
our common stock. As a result, the price of our common stock may be higher
than the price that might otherwise exist in the open market.
- A penalty bid is an arrangement permitting the representatives to reclaim
the selling concession that would otherwise accrue to an underwriter if
the common stock originally sold by that underwriter was later repurchased
by the representatives and therefore was not effectively sold to the
public by such underwriter.
If the underwriters commence these activities, they may discontinue them at any
time without notice. The underwriters may carry out these transactions on the
Nasdaq National Market, in the over-the-counter market or otherwise.
PASSIVE MARKET MAKING. Prior to the pricing of this offering, and until the
commencement of any stabilizing bid, underwriters and dealers who are qualified
market makers on the Nasdaq National Market may engage in passive market making
transactions. Passive market making is allowed during the period when the SEC's
rules would otherwise prohibit market activity by the underwriters and dealers
who are participating in this offering. Passive market makers must comply with
applicable volume and price limitations and must be identified as such. In
general, a passive market maker must display its bid at a price not in excess of
the highest independent bid for our common stock; but if all independent bids
are lowered below the passive market maker's bid, the passive market maker must
also lower its bid once it exceeds specified purchase limits. Net purchases by a
passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in our common stock during a
specified period and must be discontinued when such limit is reached.
Underwriters and dealers are not required to engage in passive market making and
may end passive market making activities at any time.
CONFLICTS OF INTEREST. Some of the underwriters may in the future perform
financial advisory services for us.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
175 filed public offerings of equity securities, of which 139 have been
completed, and has acted as a syndicate member in an additional 114 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
pursuant to the underwriting agreement entered into in connection with this
offering.
49
<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the common stock we are selling in this offering. O'Melveny & Myers LLP, San
Francisco, California will pass upon legal matters for the underwriters.
EXPERTS
The consolidated financial statements as of September 30, 1999 and 1998, and
for each of the two years in the period ended September 30, 1999 included and
incorporated by reference in this prospectus and the related financial statement
schedule incorporated by reference in the registration statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing elsewhere in this prospectus and incorporated by reference in
the registration statement, and have been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements for the year ended September 30, 1997 as set forth in their
report. We have included and incorporated by reference our financial statements
in the prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's report, given upon their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. You may read and copy any document we file at the
public reference facilities of the SEC in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms. Our SEC filings are also available
to the public over the Internet at the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until our
offering is complete:
- our Annual Report on Form 10-K for the year ended September 30, 1999;
- our Quarterly Reports on Form 10-Q for the quarters ended December 31,
1999, March 31, 2000 and June 30, 2000;
- our Current Report on Form 8-K filed on July 27, 2000;
- our Proxy Statement filed on December 9, 1999 for the 2000 Annual Meeting
of Stockholders;
- the description of our common stock in our Registration Statement on
Form 8-A filed on August 29, 1995; and
- the description of our preferred stock purchase rights in our Registration
Statement on Form 8-A filed on September 16, 1998.
Any statement contained in a document that is incorporated by reference will
be modified or superseded for all purposes to the extent that a statement
contained in this prospectus, or in any other document that is subsequently
filed with the SEC and incorporated by reference, modifies or is contrary to
that previous statement. Any statement so modified or superseded will not be
deemed a part of this prospectus except as so modified or superseded.
You may request a copy of these filings, at no cost, by writing or
telephoning our chief financial officer at the following address:
Elantec Semiconductor, Inc.
675 Trade Zone Boulevard
Milpitas, California 95035
(408) 945-1323
50
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Report of Independent Auditors.............................. F-3
Consolidated Balance Sheets as of September 30, 1998 and
1999 and June 30, 2000 (unaudited)........................ F-4
Consolidated Statements of Operations*...................... F-5
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss)*.............................. F-6
Consolidated Statements of Cash Flows*...................... F-7
Notes to Consolidated Financial Statements*................. F-8
</TABLE>
------------------------
* For the fiscal years ended September 30, 1997, 1998 and 1999, and the nine
months ended June 30, 1999 and June 30, 2000 (unaudited).
F-1
<PAGE>
INDEPENDENT AUDITORS' 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. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 accounting
principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
November 1, 1999 (April 21, 2000 as to the fourth paragraph of Note 1)
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Elantec Semiconductor, Inc.
We have audited the consolidated statements of operations, stockholders' equity,
and cash flows of Elantec Semiconductor, Inc. for the year ended September 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 results of operations and
cash flows of Elantec Semiconductor, Inc. for the year ended September 30, 1997
in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
San Jose, California
October 22, 1997, except for the fourth paragraph
of Note 1, as to which the date is August 15, 2000
F-3
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,815 $ 17,459 $ 21,042
Short-term investments.................................... 3,651 1,204 1,036
Accounts receivable, net allowances of $1,076(1998),
$1,384(1999), and $2,344(2000).......................... 5,207 4,946 14,772
Inventories............................................... 9,059 3,300 7,621
Deferred income taxes..................................... 3,367 3,278 2,478
Prepaid expenses and other current assets................. 600 1,101 1,254
-------- -------- --------
Total current assets........................................ 27,699 31,288 48,203
Property and equipment:
Machinery and equipment................................... 16,672 18,225 31,847
Furniture and fixtures.................................... 652 720 900
Leasehold improvements.................................... 1,494 3,126 10,432
Construction-in-process................................... 10,637 -- --
-------- -------- --------
29,455 22,071 43,179
Accumulated depreciation and amortization................. (10,830) (13,306) (26,593)
-------- -------- --------
18,625 8,765 16,586
Other assets, net........................................... 657 946 947
Non-current deferred income taxes........................... 563 2,872 2,872
-------- -------- --------
Total assets................................................ $ 47,544 $ 43,871 $ 68,608
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,108 $ 3,698 $ 12,158
Income taxes payable...................................... 779 -- 1,215
Accrued salaries and benefits............................. 1,462 1,538 2,717
Other accrued liabilities................................. 458 818 967
Deferred revenue.......................................... 2,626 2,266 3,180
Current portion of capital lease obligations.............. 1,480 1,440 1,458
-------- -------- --------
Total current liabilities................................... 10,913 9,760 21,695
Long-term capital lease obligations......................... 4,354 2,840 1,752
Other long-term liabilities................................. -- 1,745 1,759
Commitments and contingencies (Note 4)...................... -- -- --
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 5,000,000 in 1998, 1999 and 2000
Issued and outstanding shares -- none................... -- -- --
Common stock, $.01 par value:
Authorized shares -- 25,000,000 in 1998 and 1999 and
50,000,000 in 2000
Issued and outstanding shares -- 18,376,000 (1998)
18,770,000 (1999) 19,695,000 (2000)................... 184 188 197
Additional paid-in capital................................ 33,810 34,967 36,947
(Accumulated deficit)/Retained earnings................... (1,717) (5,592) 6,295
Accumulated other comprehensive loss...................... -- (37) (37)
-------- -------- --------
Total stockholders' equity.................................. 32,277 29,526 43,402
-------- -------- --------
Total liabilities and stockholders' equity.................. $ 47,544 $ 43,871 $ 68,608
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------ -------------------
SEPTEMBER 30, JUNE 30,
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.................................. $35,388 $46,210 $50,662 $36,379 $64,354
Cost of revenues.............................. 20,111 24,831 25,785 19,580 24,986
Cost of revenues -- inventory write-down...... -- -- 1,008 1,008 --
------- ------- ------- ------- -------
Gross profit.................................. 15,277 21,379 23,869 15,791 39,368
Operating expenses:
Research and development.................... 6,234 7,228 7,796 5,127 10,261
Marketing, sales, general and
administrative............................ 8,866 9,890 10,833 7,980 10,987
Unusual charges............................. -- -- 12,009 12,009 --
------- ------- ------- ------- -------
Total operating expenses.................. 15,100 17,118 30,638 25,116 21,248
------- ------- ------- ------- -------
Income (loss) from operations................. 177 4,261 (6,769) (9,325) 18,120
Interest and other income, net................ 759 674 528 352 967
Interest expense.............................. (289) (413) (400) (310) (227)
------- ------- ------- ------- -------
Income (loss) before taxes.................... 647 4,522 (6,641) (9,283) 18,860
Provision for (benefit from) taxes on
income...................................... 81 (2,683) (2,766) (3,662) 6,973
------- ------- ------- ------- -------
Net income (loss)............................. $ 566 $ 7,205 $(3,875) $(5,621) $11,887
======= ======= ======= ======= =======
Earnings (loss) per share: (1)
Basic....................................... $ 0.03 $ 0.39 $ (0.21) $ (0.30) $ 0.62
Diluted..................................... $ 0.03 $ 0.37 $ (0.21) $ (0.30) $ 0.51
Shares used in computing per share amounts:
(1)
Basic....................................... 17,762 18,270 18,512 18,460 19,194
Diluted..................................... 18,512 19,272 18,512 18,460 23,199
</TABLE>
------------------------
(1) Share and per share amounts have been retroactively adjusted to reflect the
two-for-one stock split which was effective April 21, 2000.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999 AND
THE NINE MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
(ACCUMULATED) ACCUMULATED
COMMON STOCK ADDITIONAL (DEFICIT) OTHER TOTAL TOTAL
------------------- PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS LOSS EQUITY INCOME (LOSS)
-------- -------- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1996..................... 17,490 $174 $33,388 $(9,488) -- $24,074
Exercise of stock
options................ 548 6 157 -- -- 163
Net income and
comprehensive income... -- -- -- 566 -- 566 $ 566
------ ---- ------- ------- ---- ------- -------
Balance at September 30,
1997..................... 18,038 180 33,545 (8,922) -- 24,803
Exercise of stock
options................ 338 4 265 -- -- 269
Net income and
comprehensive income... -- -- -- 7,205 -- 7,205 $ 7,205
------ ---- ------- ------- ---- ------- -------
Balance at September 30,
1998..................... 18,376 184 33,810 (1,717) -- 32,277
Exercise of stock
options................ 394 4 606 -- -- 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..................... 18,770 188 34,967 (5,592) (37) 29,526
Exercise of stock
options*............... 925 9 1,980 -- -- 1,989
Net income and
comprehensive income*.. 11,887 11,887 $11,887
------ ---- ------- ------- ---- ------- -------
Balance at June 30,
2000*.................... 19,695 $197 $36,947 $ 6,295 $(37) $43,402
====== ==== ======= ======= ==== =======
</TABLE>
--------------------------
* Unaudited
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------- ---------------------
SEPTEMBER 30, JUNE 30,
1997 1998 1999 1999 2000
--------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)................................ $ 566 $ 7,205 $ (3,875) $ (5,621) $ 11,887
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................. 2,022 2,610 3,134 2,136 2,218
Deferred income tax............................ -- (3,930) (2,220) (4,889) 800
Loss on disposition of property and
equipment.................................... -- 389 -- -- --
Inventory write-down........................... -- -- 1,008 1,008 --
Asset impairment............................... -- -- 11,090 11,090 --
Changes in operating assets and liabilities:
Accounts receivable.......................... 860 (1,892) 261 393 (9,826)
Inventories.................................. (894) (1,690) 4,751 4,848 (4,321)
Prepaid expenses and other current assets.... (73) 27 (501) 254 (170)
Payables and accrued liabilities............. 32 1,440 (421) (67) 11,003
Deferred revenue............................. (1,049) 532 (360) 409 913
--------- -------- -------- --------- ---------
Net cash provided by operating activities........ 1,464 4,691 12,867 9,561 12,504
--------- -------- -------- --------- ---------
Investing activities
Purchase of available-for-sale investments....... (114,576) (79,487) (78,476) (47,628) (84,039)
Sale and maturity of available-for-sale
investments.................................... 115,150 81,925 80,923 50,287 84,208
Purchase of property and equipment............... (425) (9,756) (2,750) (1,291) (10,021)
Decrease (increase) in other assets.............. 20 (73) (490) 145 (2)
--------- -------- -------- --------- ---------
Net cash provided by (used in) investing
activities..................................... 169 (7,391) (793) 1,513 (9,854)
--------- -------- -------- --------- ---------
Financing activities
Payments on capital lease obligations............ (426) (936) (1,427) (1,133) (1,056)
Payments on long-term debt....................... (908) (657) (127) -- --
Proceeds from exercise of stock options.......... 163 269 1,161 290 1,989
--------- -------- -------- --------- ---------
Net cash (used in) provided by financing
activities..................................... (1,171) (1,324) (393) (843) 933
--------- -------- -------- --------- ---------
Effect of exchange rate changes on cash.......... -- -- (37) -- --
--------- -------- -------- --------- ---------
Increase (decrease) in cash and cash
equivalents.................................... 462 (4,024) 11,644 10,231 3,583
Cash and cash equivalents at beginning of
period......................................... 9,377 9,839 5,815 5,815 17,459
--------- -------- -------- --------- ---------
Cash and cash equivalents at end of period....... $ 9,839 $ 5,815 $ 17,459 $ 16,046 $ 21,042
========= ======== ======== ========= =========
Supplemental disclosures of cash flow information
Lease and installment financing for capital
equipment...................................... $ 3,467 $ 2,600 $ -- $ -- $ --
========= ======== ======== ========= =========
Interest paid.................................... $ 285 $ 378 $ 427 $ 316 $ 227
========= ======== ======== ========= =========
Taxes paid....................................... $ 57 $ 808 $ 220 $ 220 $ 4,958
========= ======== ======== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
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, communications and power management. Principal markets
include sales in North America, Asia, and Europe.
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 1999 included 53 weeks while fiscal 1998 and 1997
included 52 weeks.
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 and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of 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.
BASIS OF PRESENTATION. All share amounts and per share calculations in the
accompanying consolidated financial statements give effect to the two-for-one
stock split effected on April 21, 2000.
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 June 30, 2000 short-term investments consisted of
corporate debt of $1,036,000, all maturing within one year. 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
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
is a summary of debt and money market auction preferred securities by
contractual maturity at September 30, 1998 (IN THOUSANDS):
<TABLE>
<CAPTION>
AMORTIZED
COST
---------
<S> <C>
Maturing within one year.................................... $ 552
Maturing after one year and before three years.............. 2,649
Money market auction preferred securities................... 450
------
Total....................................................... $3,651
======
</TABLE>
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 introduction 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, cash equivalents, and short term
investments, trade receivables and foreign exchange forward contracts.
The Company's policy is to place its cash, cash equivalents, 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.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Customers comprising 10% or greater of the Company's net revenues are
summarized as follows:
<TABLE>
<CAPTION>
NINE
MONTHS
YEAR ENDED ENDED
------------------------------ -------------------
SEPTEMBER 30, JUNE 30,
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Microtek International, Inc.--Japan..................... 14% 23% 30% 30% 29%
Samsung--Korea.......................................... --* --* --* --* 10%
Insight Electronics, Inc.--United States................ 12% 11% 10% 9% 10%
</TABLE>
------------------------
* less than 10%
At June 30, 2000, Microtek International, Samsung and Insight Electronics
accounted for 31%, 16% and 6%, respectively, of the Company's trade receivables.
The same customers accounted for 44%, 4% and 11%, respectively, of the Company's
trade receivables at September 30, 1999. Microtek International and Insight
Electronics 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.
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 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.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 transactions or net foreign currency transactions in 1997.
INCOME TAXES. The Company accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences of temporary differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. A valuation
allowance is established to reduce the deferred tax asset if it is "more likely
than not" that the related tax benefits will not be realized in the future.
UNAUDITED INTERIM FINANCIAL INFORMATION. The unaudited interim financial
information as of June 30, 2000 and for the nine months ended June 30, 1999 and
June 30, 2000 has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of this interim information. Operating results for the nine
months ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending September 30, 2000.
ADVERTISING EXPENSE. The Company expenses the costs of advertising as
incurred. Advertising expense was approximately $552,000, $555,000, and $671,000
for the fiscal years ended September 30, 1997, 1998, and 1999, 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 1999, the Company
adopted FAS No. 130, "Reporting Comprehensive Income." 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.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
2. RECENT ACCOUNTING PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June 1998, the Financial
Accounting Standards Board issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." FAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. We are required to adopt FAS 133, as amended, beginning in
the first quarter of fiscal 2001. Although we have not fully assessed the
implication of FAS 133, we do not expect the adoption of the statement to have a
significant effect on our consolidated financial position, results of operations
or cash flows.
REVENUE RECOGNITION. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB No. 101
outlines the basic criteria that must be met in order to recognize revenue and
provides guidance for disclosures related to revenue recognition policies. We
are required to adopt SAB No. 101, as amended, in the fourth quarter of fiscal
2001. Although we have not fully assessed the implications of SAB No. 101, our
management does not believe that adoption of this bulletin will have a material
impact on our consolidated financial position, results of operations or cash
flows.
3. INVENTORIES
Inventories consisted of the following (IN THOUSANDS):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
Raw materials............................................... $ 498 $ 45 $ 215
Work-in-process............................................. 6,481 1,645 6,022
Finished goods.............................................. 2,080 1,610 1,384
------ ------ ------
$9,059 $3,300 $7,621
====== ====== ======
</TABLE>
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 $7,064,000 and $7,058,000 of
equipment acquired under capital leases and approximately $1,622,000 and
$4,857,000 of related accumulated amortization at September 30, 1998 and 1999,
respectively. Amortization of capital leases is included in depreciation and
amortization expense.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The following is a schedule by year of future minimum lease payments under
capital and operating leases as of September 30, 1999 (IN THOUSANDS):
<TABLE>
<CAPTION>
OPERATING
CAPITAL LEASES LEASES
-------------- ---------
<S> <C> <C>
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
=======
</TABLE>
Total rental expense on all operating leases was approximately $689,000,
$812,000, and $1,177,000 for the fiscal years ended September 30, 1997, 1998 and
1999, 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
normal 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
STOCK SPLIT. On April 21, 2000, the Company effected a two-for-one stock
split of the outstanding shares of common stock. All share and per share amounts
in these consolidated financial statements have been adjusted to give effect to
the stock split.
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 the Company stock held as
of September 21, 1998. In addition subsequent to September 21, 1998, one right
will be issued with each newly issued and outstanding share of our common stock
issued, except in certain circumstances. Each preferred share purchase right
entitles the registered holder to purchase one four-hundredth of the Company's
Series A Junior Participating Preferred Stock, par value $0.01 per share, at a
price of $12.50. The rights become exercisable ten days following the
announcement
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
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 rights may be exchanged at an exchange
ratio of one common share or one four-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 450,000 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 Equity
Incentive Plan (the Predecessor Plan), pursuant to which 1,100,000 shares of the
Company's common stock, plus the number of shares remaining unissued and not
subject to outstanding options under the Predecessor Plan and any shares
issuable upon exercise of options granted under the Predecessor Plan that expire
or become unexercisable for any reason without having been exercised in full,
have been reserved for future issuance, and (ii) the adoption of the 1995
Directors' Stock Option Plan (the 1995 Directors' Plan) pursuant to which
300,000 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 800,000 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 800,000 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 2,000,000 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
200,000 shares of the Company's Common Stock have been reserved for future
issuance.
Under the 1995 Equity Plan, incentive stock options may be granted to
employees only at the price per share that is not less than the fair market
value of common stock on the date of grant. Nonqualified options may be granted
to employees or others at a price per share not less than 85% of
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
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 outstanding stock
options for new stock options having an exercise price of $1.81 per share (equal
to the fair market value on August 28, 1998), with vesting annually during the
subsequent four years.
Approximately 907,800 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 $2.13 per share (equal
to the fair market value on May 7, 1997), with vesting ratably each month during
the subsequent four years. Approximately 1,086,000 options were repriced by
employees (excluding executive officers) and consultants.
1997 EXECUTIVE OFFICERS. In June 1997, the Compensation Committee approved
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
$2.13 per share (equal to the fair market value on July 1, 1997), with vesting
ratably each
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
month during the subsequent four years. Approximately 372,000 options were
repriced by executive officers.
Additional information with respect to the Company's stock option plans
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------
WEIGHTED
SHARES NUMBER OF AVERAGE PRICE
AVAILABLE SHARES PER SHARE
---------- ---------- -------------
<S> <C> <C> <C>
Balance at September 30, 1996............................ 885,486 2,744,304 $ 2.30
Additional share reservation........................... 800,000 -- --
Options granted........................................ (2,844,914) 2,844,914 $ 2.38
Options exercised...................................... -- (547,544) $ 0.29
Options canceled....................................... 1,872,502 (1,872,502) $ 3.45
Options expired........................................ (1,764) -- --
---------- ---------- ------
Balance at September 30, 1997............................ 711,310 3,169,172 $ 2.05
Additional share reservation........................... 800,000 -- --
Options granted........................................ (2,391,712) 2,391,712 $ 2.93
Options exercised...................................... -- (338,950) $ 0.81
Options canceled....................................... 1,310,988 (1,310,988) $ 3.54
Options expired........................................ (750) -- --
---------- ---------- ------
Balance at September 30, 1998............................ 429,836 3,910,946 $ 2.20
Additional share reservation........................... 2,200,000 --
Options granted........................................ (1,931,000) 1,931,000 $ 3.48
Options exercised...................................... -- (393,864) $ 1.56
Options canceled....................................... 361,836 (361,836) $ 2.40
Options expired........................................ (504) -- --
---------- ---------- ------
Balance at September 30, 1999............................ 1,060,168 5,086,246 $ 2.72
========== ========== ======
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
--------------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10-$1.82 1,273,658 7.54 $1.62 631,936 $1.43
$1.88-$2.07 463,000 9.23 $2.05 19,226 $1.95
$2.13-$2.13 1,159,878 7.67 $2.13 646,842 $2.13
$2.19-$3.19 1,224,070 8.99 $2.87 268,110 $2.94
$3.22-$10.63 965,640 8.69 $4.99 295,714 $3.60
--------------------- --------- ---- ----- --------- -----
$0.10-$10.63 5,086,246 8.29 $2.72 1,861,828 $2.24
--------------------- --------- ---- ----- --------- -----
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
At September 30, 1997 and 1998, 1,051,614 and 1,167,004 options were
exercisable at weighted average exercise prices of $1.29 and $1.81 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:
<TABLE>
<CAPTION>
OPTIONS
------------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Expected life (years)....................................... 5.0 6.7 6.7
Expected volatility......................................... 75.3% 80.0% 98.0%
Risk-free interest rate..................................... 6.0% 6.0% 6.0%
</TABLE>
The weighted-average fair value of stock options granted during 1997, 1998
and 1999 was $1.72, $1.86 and $3.48, respectively. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to pro forma
earnings (loss) over the options' vesting period. The Company's historical and
pro forma information follows (IN THOUSANDS, EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
SEPTEMBER 30
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net income (loss):
Historical................................................ $ 566 $7,205 $(3,875)
Pro Forma................................................. $ (283) $4,980 $(6,714)
Diluted earnings (loss) per share:
Historical................................................ $ 0.03 $ 0.37 $ (0.21)
Pro Forma................................................. $(0.02) $ 0.26 $ (0.37)
</TABLE>
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 2000.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
6. EARNINGS (LOSS) PER SHARE
In fiscal 1998 the Company adopted FAS No. 128 "Earnings Per Share." 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 stock 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.
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 (IN THOUSANDS, EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------ -------------------
SEPTEMBER 30, JUNE 30,
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss)(Numerator):
Net income (loss)............................ $ 566 $ 7,205 $(3,875) $(5,621) $11,887
------- ------- ------- ------- -------
Shares (Denominator):
Weighted average shares of common stock
outstanding used in computation of basic
earnings (loss) per share.................. 17,762 18,270 18,512 18,460 19,194
Dilutive effect of stock options............. 750 1,002 -- -- 4,005
------- ------- ------- ------- -------
Shares used in computation of diluted
earnings (loss) per share.................. 18,512 19,272 18,512 18,460 23,199
------- ------- ------- ------- -------
Basic earnings (loss) per share................ $ 0.03 $ 0.39 $ (0.21) $ (0.30) $ 0.62
------- ------- ------- ------- -------
Diluted earnings (loss) per share.............. $ 0.03 $ 0.37 $ (0.21) $ (0.30) $ 0.51
------- ------- ------- ------- -------
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
7. TAXES ON INCOME
The provision (benefit) for taxes on income consisted of the following (IN
THOUSANDS):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 24 $ 814 $ (261)
State.................................................... 7 383 (285)
Foreign.................................................. 50 50 --
----- ------- -------
Total Current.............................................. 81 1,247 (546)
Deferred:
Federal.................................................. -- (3,685) (2,170)
State.................................................... -- (245) (50)
Foreign.................................................. -- -- --
----- ------- -------
Total Deferred............................................. -- (3,930) (2,220)
----- ------- -------
Total Provision (Benefit).................................. $ 81 $(2,683) $(2,766)
===== ======= =======
</TABLE>
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):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Net deferred tax asset
Restructuring reserves.................................... $ -- $1,779
Tax credit carryforwards.................................. 1,085 --
Distributor reserves...................................... 1,067 289
Deferred revenue.......................................... 248 990
Depreciation.............................................. (133) (203)
Capitalized research and development cost................. 185 239
Inventory reserves........................................ 1,442 1,622
General reserves.......................................... -- 474
Other accruals and reserves not currently deductible...... 536 960
------ ------
Total net deferred tax assets............................... 4,430 6,150
Less valuation allowance.................................... (500) --
------ ------
Net deferred tax asset...................................... $3,930 $6,150
====== ======
</TABLE>
The valuation allowance decreased by approximately $4,389,000 and $500,000
in fiscal 1998 and 1999, 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
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
7. TAXES ON INCOME (CONTINUED)
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 $0.20 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):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Expected provisions at statutory rates..................... $ 220 $ 1,538 $(2,266)
State taxes, net of federal benefit........................ 4 261 (399)
Foreign taxes.............................................. 33 50 -
General business credits................................... -- -- (230)
Benefit of net operating loss carryforwards................ (190) -- --
Other...................................................... 14 (143) 629
Reversal of valuation allowance............................ -- (4,389) (500)
----- ------- -------
$ 81 $(2,683) $(2,766)
===== ======= =======
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan that covers substantially all
full-time employees. Eligible employees are permitted to make fully vested tax
deferred contributions of up to 15% of their annual gross compensation, subject
to certain Internal Revenue Service limitations. The plan provides for employer
contributions at the discretion of the Board of Directors. Contributions made by
the Company for the years ended September 30, 1997, 1998, and 1999 were
approximately $18,000, $133,000, and $241,000 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.
In the normal course of business, the Company has exposure 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
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 1999, the Company adopted FAS 131,
"Disclosures about Segments of an Enterprise and Related Information." 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 FAS 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:
<TABLE>
<CAPTION>
NINE
MONTHS
YEARS ENDED ENDED
SEPTEMBER 30, JUNE 30
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Domestic.................................................... 44% 47% 43% 42% 26%
Export:
Europe.................................................... 14% 13% 12% 13% 10%
Japan..................................................... 21% 32% 35% 39% 37%
Other Pacific Rim Countries............................... 21% 8% 10% 6% 27%
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
The Company's assets located outside the United States are insignificant.
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.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
11. UNUSUAL CHARGES (CONTINUED)
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):
<TABLE>
<CAPTION>
BALANCES AT DECEMBER 31, 1998
------------------------------------
BEFORE WRITE-DOWN AFTER WRITE-DOWN
----------------- ----------------
<S> <C> <C>
Machinery & equipment................................ $ 5,444 $1,159
Furniture & Fixtures................................. 51 11
Leasehold Improvements............................... 8,595 1,830
------- ------
Total................................................ $14,090 $3,000
======= ======
</TABLE>
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.
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
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999,
AND THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 2000 IS UNAUDITED)
11. UNUSUAL CHARGES (CONTINUED)
these activities are expected to be $0.3 million in fiscal 2000. The following
table summarizes the restructuring and other charges (IN THOUSANDS):
<TABLE>
<CAPTION>
TOTAL UTILIZED
RESTRUCTURING THROUGH BALANCE AT
CHARGE SEP. 30, 1999 SEP. 30, 1999
------------- -------------- --------------
<S> <C> <C> <C>
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
======= ======= ====
<CAPTION>
TOTAL UTILIZED
RESTRUCTURING THROUGH BALANCE AT
CHARGE JUNE 30, 2000 JUNE 30, 2000
------------- -------------- --------------
<S> <C> <C> <C>
Asset impairment.............................. $11,090 $11,090 $ --
Write-down of inventory....................... 1,008 1,008 --
Payments to employees involuntarily
terminated.................................. 638 598 40
Write-down of patents......................... 174 174 --
Legal settlement.............................. 107 107 --
------- ------- ----
Total......................................... $13,017 $12,977 $ 40
======= ======= ====
</TABLE>
12. SUBSEQUENT EVENT
On July 24, 2000, we announced the appointment of our new President and
Chief Executive Officer. He also serves as a member of the Board of Directors.
In connection with his employment, we granted him 86,500 shares of restricted
common stock at nominal cost that vest annually over a five year period. These
restricted shares which had a market value of approximately $5,000,000 based on
the trading price of the shares on the date of the grant will be charged to
expense over the vesting period. In addition, we granted him options to purchase
613,500 shares of our common stock.
F-23
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
UNAUDITED INTERIM FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA:
<TABLE>
<CAPTION>
DEC 31, MARCH 31, JUNE 30, SEPT 30,
1998 1999 1999 1999
1999 -------- --------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues................................. $ 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)............................ (8,024) 926 1,477 1,746
Earnings (loss) per share:
Basic...................................... $ (0.44) $ 0.05 $ 0.08 $ 0.09
Diluted.................................... $ (0.44) $ 0.05 $ 0.07 $ 0.08
Shares used in computing per share amounts:
Basic...................................... 18,394 18,424 18,560 18,672
Diluted.................................... 18,394 19,210 20,918 21,932
</TABLE>
<TABLE>
<CAPTION>
DEC 31, MARCH 31, JUNE 30,
1999 2000 2000
2000 -------- --------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues................................. $ 15,712 $20,020 $28,622
Gross profit................................. 9,571 12,326 17,471
Income from operations....................... 4,109 5,231 8,780
Net income................................... 2,760 3,353 5,774
Earnings per share:
Basic...................................... $ 0.15 $ 0.18 $ 0.29
Diluted.................................... $ 0.13 $ 0.14 $ 0.24
Shares used in computing per share amounts:
Basic...................................... 18,864 19,144 19,575
Diluted.................................... 22,362 23,386 23,849
</TABLE>
------------------------
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.
F-24
<PAGE>
[ELANTEC SEMICONDUCTOR LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The aggregate estimated expenses (other than the registration fee) to be
paid by the Registrant in connection with this offering are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 33,659
NASD filing fee............................................. 13,250
Nasdaq additional listing fee............................... 17,500
Accounting fees and expenses................................ 175,000
Legal fees and expenses..................................... 275,000
Printing and engraving expenses............................. 125,000
Road show expenses.......................................... 80,000
Transfer agent, registrar and custodian fees and expenses... 15,000
Miscellaneous............................................... 65,591
--------
Total..................................................... $800,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law regarding unlawful dividends or redemptions or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the Bylaws of the Registrant provide that: (i) the Registrant is required to
indemnify its directors and officers to the fullest extent permitted by the
Delaware General Corporation Law, (ii) the Registrant may indemnify other
officers, employees and agents as set forth in the Delaware General Corporation
Law, (iii) to the fullest extent permitted by the Delaware General Corporation
Law, the Registrant is required to advance expenses, as incurred, to its
directors and executive officers in connection with a legal proceeding subject
to certain exceptions, (iv) the rights conferred in the Bylaws are not
exclusive, (v) the Registrant is authorized to enter into indemnification
agreements with its directors, officers, employees and agents and (vi) the
Registrant may only amend the Bylaw provisions relating to indemnification
matters prospectively.
The Registrant has entered into indemnity agreements with each of its
directors and executive officers. The indemnity agreements provide that
directors and executive officers will be indemnified and held harmless to the
fullest possible extent permitted by law including against all expenses
(including attorneys' fees), judgments, fines and settlement amounts paid or
reasonably incurred by them in any action, suit or proceeding, including any
derivative action by or in the right of the Registrant, on account of their
services as directors, officers, employees or agents of the Registrant or as
directors, officers, employees or agents of any other company or enterprise when
they are serving in such capacities at the request of the Registrant. The
Registrant will not be obligated pursuant to the agreements to indemnify or
advance expenses to an indemnified party with respect to proceedings or claims
(i) initiated by the indemnified party and not by way of defense, except with
respect to a proceeding authorized by the Board of Directors and successful
proceedings brought to enforce a right to indemnification under the indemnity
agreements, (ii) for any amounts paid in settlement of a proceeding unless the
Registrant consents to such settlement, (iii) on account of any suit in which
judgment is rendered against the indemnified party for an accounting of profits
made from the
II-1
<PAGE>
purchase or sale by the indemnified party of securities of the Registrant
pursuant to the provisions of 16(b) of the Securities Exchange Act of 1934, as
amended, and related laws, (iv) on account of conduct by an indemnified party
that is finally adjudged to have been in bad faith or conduct that the
indemnified party did not reasonably believe to be in, or not opposed to, the
best interests of the Registrant, (v) on account of any criminal action or
proceeding arising out of conduct that the indemnified party had reasonable
cause to believe was unlawful, or (vi) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
The indemnity agreements require a director or executive officer to
reimburse the Registrant for expenses advanced only to the extent it is
ultimately determined that the director or executive officer is not entitled,
under Delaware law, the Bylaws, his or her indemnity agreement or otherwise to
be indemnified for such expenses. The indemnity agreements provide that they are
not exclusive of any rights a director or executive officer may have under the
Certificate of Incorporation, Bylaws, other agreements, any majority-in-interest
vote of the stockholders or vote of disinterested directors, the Delaware law,
or otherwise.
Reference is also made to the form of underwriting agreement to be entered
into between the Registrant and the underwriters, which will provide for the
indemnification of officers, directors and controlling persons of the Registrant
against certain liabilities by the several underwriters.
The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its directors and executive officers,
may be sufficiently broad to permit indemnification of the Registrant's
directors and executive officers for liabilities arising under the Securities
Act of 1933, as amended. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 --Form of Underwriting Agreement.*
4.01 --Registrant's Certificate of Incorporation (incorporated by
reference from Exhibit 3(i).01 to the Registrant's
Registration Statement on Form S-1, filed on August 24,
1995, as amended (Reg. No. 33-96136)).
4.02 --Registrant's Certificate of Amendment to its Certificate
of Incorporation (incorporated by reference from
Exhibit 4.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).
4.03 --Registrant's Certificate of Designation (incorporated by
reference from Exhibit 3.2 to the Registrant's
Registration Statement on Form 8-A, filed on
September 16, 1998 (Reg. No. 000-26690)).
4.04 --Registrant's Bylaws (incorporated by reference from
Exhibit 3(ii).02 to the Registrant's Registration
Statement on Form S-1, filed on August 24, 1995, as
amended (Reg. No. 33-96136).
4.05 --Specimen Certificate for Registrant's Common Stock.
5.01 --Opinion of Fenwick & West LLP regarding legality of the
securities being issued.
23.01 --Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 --Consent of Deloitte & Touche LLP, Independent Auditors.
23.03 --Consent of Ernst & Young LLP, Independent Auditors.
24.01 --Power of Attorney (See page II-5 of the Registration
Statement).
27.01 --Financial Data Schedule (incorporated by reference from
Exhibit 27.01 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).
</TABLE>
----------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement
II-3
<PAGE>
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Milpitas, State of California, on this 15th day of
August, 2000.
<TABLE>
<S> <C> <C>
ELANTEC SEMICONDUCTOR, INC.
By: /s/ RICHARD BEYER
-----------------------------------------
Richard Beyer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below hereby constitutes and appoints, jointly and severally, Richard
Beyer and Ephraim Kwok, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
sign any registration statement for the same offering covered by this
registration statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done or by
virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ RICHARD BEYER Officer and Director
------------------------------------------- (Principal Executive August 15, 2000
Richard Beyer Officer)
Vice President of Finance and
Administration and Chief
/s/ EPHRAIM KWOK Financial Officer (Principal
------------------------------------------- Financial Officer and August 15, 2000
Ephraim Kwok Principal Accounting
Officer)
/s/ JAMES V. DILLER
------------------------------------------- Director August 15, 2000
James V. Diller
/s/ CHUCK K. CHAN
------------------------------------------- Director August 15, 2000
Chuck K. Chan
/s/ ALAN V. KING
------------------------------------------- Director August 15, 2000
Alan V. King
/s/ UMESH PADVAL
------------------------------------------- Director August 15, 2000
Umesh Padval
</TABLE>
II-5
