SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______TO _______
Commission File No. 000-26690
ELANTEC SEMICONDUCTOR, INC.
(Exact Name of registrant as specified in its charter)
Delaware 77-0408929
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
675 Trade Zone Boulevard, Milpitas, California 95035
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 945-1323
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of January 28, 2000, 9,531,234 shares of the Registrant's Common Stock, $0.01
par value, were issued and outstanding.
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TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements........................3
Notes to Condensed Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk........16
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................18
Signatures........................................................19
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ELANTEC SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
---------------------------
December 31 December 31
1999 1998
-------- --------
Net revenues $ 15,712 $ 10,653
Cost of revenues 6,141 6,401
Cost of revenues - inventory write-down -- 1,008
-------- --------
Gross profit 9,571 3,244
Operating expenses:
Research and development 2,407 1,711
Marketing, sales, general and administrative 3,055 2,429
Unusual charges -- 12,009
-------- --------
Total operating expenses 5,462 16,149
-------- --------
Income (loss) from operations 4,109 (12,905)
Interest and other income (expense), net 130 (8)
-------- --------
Income (loss) before taxes 4,239 (12,913)
Provision (benefit) for income taxes 1,479 (4,889)
-------- --------
Net income (loss) $ 2,760 $ (8,024)
======== ========
Earnings (loss) per share:
Basic $ 0.29 $ (0.87)
======== ========
Diluted $ 0.25 $ (0.87)
======== ========
Shares used in computing per share amounts:
Basic 9,432 9,197
======== ========
Diluted 11,181 9,197
======== ========
See accompanying notes to the condensed consolidated financial statements.
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<TABLE>
ELANTEC SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
Dec. 31 Sept. 30
1999(1) 1999(2)
-------- --------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 13,694 $ 17,459
Short-term investments 6,026 1,204
Trade receivables 6,960 4,946
Inventories 3,412 3,300
Deferred income taxes 2,478 3,278
Prepaid expenses and other current assets 1,020 1,101
-------- --------
Total current assets 33,590 31,288
Property and equipment, net 8,791 8,765
Other assets 1,570 946
Non-current deferred income taxes 2,872 2,872
-------- --------
Total assets $ 46,823 $ 43,871
======== ========
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable and accrued liabilities $ 6,286 $ 6,054
Deferred revenue 2,339 2,266
Current portion of capital lease obligations and long-term debt
1,442 1,440
-------- --------
Total current liabilities 10,067 9,760
Long-term capital lease obligations 2,489 2,840
Other long-term liabilities 1,736 1,745
Stockholders' equity:
Common stock 95 94
Additional paid-in capital 35,304 35,061
Accumulated deficit (2,832) (5,592)
Accumulated other comprehensive loss (36) (37)
-------- --------
Total stockholders' equity 32,531 29,526
-------- --------
Total liabilities and stockholders' equity $ 46,823 $ 43,871
======== ========
<FN>
(1) Unaudited
(2) These amounts were derived from the Company's audited consolidated financial statements at
September 30, 1999
</FN>
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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<TABLE>
ELANTEC SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
December 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Operating activities:
Net income (loss) $ 2,760 $ (8,024)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 765 737
Inventory write-down -- 1,008
Asset impairment -- 11,090
Deferred tax benefit 800 (4,889)
Changes in operating assets and liabilities:
Accounts receivable (2,014) 1,309
Inventories (112) 1750
Prepaid expenses and other current assets 75 77
Accounts payable and accrued liabilities 232 (2,356)
Deferred revenue 73 (244)
-------- --------
Net cash provided by operating activities 2,579 458
Investing activities:
Sale/maturity (purchase) of available-for-sale securities (4,822) 419
Purchase of property and equipment (785) (531)
Decrease (Increase) in other assets (624) 118
-------- --------
Net cash provided by (used in) investing activities (6,231) 6
Financing activities:
Payments on capital lease and other debt (358) (431)
Issuance of common stock 244 --
-------- --------
Net cash used in financing activities (114) (431)
Effect of exchange rate changes on cash 1 --
Increase (decrease) in cash and cash equivalents (3,765) 33
Cash and cash equivalents at beginning of period 17,459 5,815
-------- --------
Cash and cash equivalents at end of period $ 13,694 $ 5,848
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 83 $ 113
Taxes paid $ 667 $ 220
<FN>
See accompanying notes to the condensed consolidated financial statements.
</FN>
</TABLE>
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ELANTEC SEMICONDUCTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
1. Basis of Presentation
The Company has prepared the unaudited condensed consolidated financial
statements included herein pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, all adjustments (consisting
of normal recurring items) considered necessary for a fair presentation have
been included. The results of operations for the three months ended December 31,
1999 are not necessarily indicative of the results to be expected for the entire
year. These consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1999.
The Company's fiscal year end is the Sunday closest to September 30. The
Company's fiscal quarters end on the Sunday closest to the end of the calendar
quarter. For convenience, the Company has indicated that its quarters end on
December 31, March 31, June 30 and September 30.
2. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
(at the date of purchase) of three months or less to be the equivalent of cash
for purposes of balance sheet and statement of cash flows presentation. Cash and
cash equivalents are carried at cost, which approximates market value.
4. Short-term Investments
The Company's policy is to invest in various short-term instruments with
investment grade credit ratings. All of the Company's marketable investments are
classified as "available-for-sale" and the Company classifies its
available-for-sale portfolio as available for use in its current operations. At
December 31, 1999, there was no significant difference between the fair market
value and the underlying cost of such securities.
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5. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist of the following balances in thousands:
December 31, September 30,
1999 1999
------------ -------------
Raw materials $ 90 $ 45
Work-in-process 2,029 1,645
Finished goods 1,293 1,610
------------ -------------
$ 3,412 $ 3,300
============ =============
6. Earnings (Loss) Per Share
<TABLE>
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 stock options (using the treasury stock method). The
following table sets forth the computation of basic and diluted earnings per
share:
<CAPTION>
Three Months Ended
December 31,
----------------------
1999 1998
------- -------
<S> <C> <C>
Numerator for basic and diluted net income per share:
Net income (loss): $ 2,760 $(8,024)
======= =======
Denominator:
Denominator for basic earnings (loss) per share -
weighted average shares of common stock outstanding 9,432 9,197
Effect of dilutive securities:
Common stock options 1,749 --
------- -------
Denominator for diluted earnings (loss) per share 11,181 9,197
======= =======
Basic earnings (loss) per share $ 0.29 $ (0.87)
======= =======
Diluted earnings (loss) per share $ 0.25 $ (0.87)
======= =======
</TABLE>
At December 31, 1999, outstanding options to purchase 11,043 shares at an
exercise price of $25.38 were excluded from the computation of diluted net
income per share as the option price was greater than the average market price
of the common shares and, therefore, would be antidilutive under the treasury
stock method.
At December 31, 1998, outstanding options to purchase 1,953,391 of common stock
at prices ranging from $0.20 to $9.00 were excluded from the computation of
diluted net loss per share because the effect of the conversion of the options
reduces the loss per share and is therefore, antidilutive.
7
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7. Comprehensive Income
Comprehensive income (loss) consisted of net income (loss) for the periods and
changes in accumulated translation adjustments. Comprehensive income was
$2,761,000 for the three months ended December 31, 1999 and comprehensive loss
was $8,043,000 for the three months ended December 31, 1998.
8. Segment Information
In the fourth quarter of fiscal year 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, " Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 establishes annual and
interim reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
Based upon the criteria of SFAS 131, the Company has a single reportable
segment.
The Company markets its products in the United States and in foreign countries
through its sales personnel, independent sales representatives and distributors.
The Company's geographic sales, as a percentage of net revenues, were as
follows:
Three months ended
December 31,
-------------------
1999 1998
-------------------
Domestic 26% 44%
Export:
Europe 10% 14%
Japan 48% 36%
Other Pacific Rim Countries 16% 6%
===================
100% 100%
===================
The Company's assets located outside the United States are insignificant.
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.
Customers comprising 10% or greater of the Company's net revenues are summarized
as follows:
Three months ended
December 31,
------------------
1999 1998
------------------
Microtek International, Inc. - Japan 37% 32%
Insight Electronics, Inc. - United States 11% 10%
As of December 31, 1999, Microtek International and Insight Electronics
accounted for 41% and 12%, respectively, of the Company's trade receivables. The
same customers accounted for 44% and 11%, respectively, of the Company's trade
receivables at September 30, 1999.
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9. Recent Accounting Pronouncements
Derivative Instruments and Hedging Activities. In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No.133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133 provides a comprehensive and consistent
standard for the recognition and measurements 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
(SEC) released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements." This bulletin summarizes certain interpretations and
practices followed by the Division of Corporation Finance and the Office of the
Chief Accountant of the SEC in administering the disclosure requirements of the
federal securities laws in applying generally accepted accounting principles to
revenue recognition in financial statements. Although we have not fully assessed
the implications of SAB No. 101, our management does not believe adoption of
this bulletin will have a material impact on our consolidated financial
position, results of operations or cash flows.
10. Unusual Charges
During the first quarter of fiscal 1999, the Company implemented a plan to
restructure its manufacturing operations in response to a shift in the mix of
products fabricated internally compared to products fabricated by outside
foundries. During the several quarters preceding the restructuring, production
volume and revenue from products fabricated by outside foundries had generally
increased, while the volume and revenue from internally fabricated products
generally declined. As a result, the Company was in a position of significant
over-capacity in its internal fabrication facility located in Milpitas,
California.
In response to the aforementioned, the Company decided to move gradually toward
a primarily outsourced model through a period of several years. The Company
further decided to discontinue development of future dielectric process
technology in favor of 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.
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The book values of assets, by category, before and after the write-down was as
follows (in thousands):
Balances at December 31, 1998
Before Write-Down After Write-Down
-------------------------------------------
Machinery & equipment $ 5,444 $1,159
Furniture & Fixtures 51 11
Leasehold Improvements 8,595 1,830
-------------------------------------------
Total $14,090 $3,000
===========================================
The Company also believed that its decision to discontinue development of
future-generation products using dielectric isolation technology would obsolete
certain existing products and capitalized patents. Accordingly, the Company
recorded a pretax charge of $1.0 million related to a write-down of inventory
and $0.2 million related to a write-down of patents.
The restructuring also included operating initiatives to improve the Company's
cost structure including a reduction of approximately 10% of the Company's work
force. The Company recorded a pretax charge of $0.6 million related to severance
and $0.1 million related to a legal settlement with AMP Incorporated.
These unusual charges resulted in pretax charges of $12.0 million to operating
expenses and $1.0 million to cost of goods sold in the first quarter of fiscal
1999. Remaining cash payments related to these activities are expected to be
$0.2 million for the remainder of fiscal 2000. The following table summarizes
the restructuring and other charges in thousands:
Total
Restructuring Utilized through Balance at Dec.
Charge Dec. 31, 1999 31, 1999
-------------------------------------------------
Asset impairment $11,090 $11,090 $ -
Write-down of inventory 1,008 1,008 -
Payments to employees
involuntarily terminated 638 409 229
Write-down of patents 174 174 -
Legal settlement 107 107 -
-------------------------------------------------
Total $13,017 $12,788 $229
=================================================
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, as well as in
the section entitled "Business" in our 1999 Form 10-K filed with the Securities
and Exchange Commission.
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Results of Operations
The following table sets forth, as a percentage of net revenues, certain
consolidated statement of operations data for the periods indicated.
Three months ended
Dec. 31,
---------------------
1999 1998
---------------------
Net revenues 100.0% 100.0%
Gross profit 60.9 30.5
Operating expenses:
Research and development 15.3 16.1
Marketing, sales, general and administrative 19.4 22.8
Unusual charges -- 112.7
Income (loss) from operations 26.2 (121.1)
Income (loss) before income taxes 27.0 (121.2)
Net income (loss) 17.6 (75.3)
Net Revenues. Net revenues were $15.7 million in the first quarter of fiscal
2000, an increase of 47% over net revenues of $10.7 million in fiscal 1999. The
increase in net revenues was due to an approximately 95% increase in unit
shipments despite a decline of approximately 26% in the average selling price of
our products when compared to the unit shipments and average selling price from
the first quarter of fiscal 1999. We continue to experience strong revenue
growth in the optical storage market, which represented 40% of net revenues, up
from approximately 26% of net revenues in the first quarter of fiscal 1999.
International revenues represented 74% of net revenues, up significantly from
56% of net revenues in the first quarter of fiscal 1999. Revenues from Japan and
other Pacific Rim countries increased 22% over the first quarter of fiscal 1999
as a result of improvement in the economic and financial situation in the
region.
In the first quarter of fiscal 2000, domestic revenues declined slightly in
absolute dollars compared to the first quarter of 1999 because we discontinued
our military and commercial hybrid product line in fiscal 1999. This product
line accounted for 4% of product revenues in the first quarter of fiscal 1999.
We do not expect the discontinuance of this product line to have a material
impact on our fiscal 2000 operating results. As a percentage of revenues,
domestic revenues decreased to 26% of net revenues compared to 44% of net
revenues in the first quarter of fiscal 1999 because of a higher revenue base.
Gross Margin. Gross margin was $9.6 million or 60.9% of net revenues in the
first quarter of fiscal 2000. The increase in gross margin as a percentage of
net revenues, as compared to 30.5% in the first quarter of fiscal 1999, was due
primarily to the absorption of fixed costs over a larger revenue base, improved
manufacturing yields, pricing at third-party foundries and the prior year
inventory write-down.
During the first quarter of fiscal 1999, we implemented a plan to restructure
our manufacturing operations in response to a shift in the mix of products
fabricated internally compared to products fabricated by outside foundries.
During several quarters preceding the restructuring, production
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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, we were in a position of significant
over-capacity in our internal fabrication facility located in Milpitas,
California.
In response we decided to move gradually toward a primarily outsourced model
through a period of several years. We also decided to discontinue development of
future dielectric process technology in favor of silicon-on-insulator
technology, where volume production is expected to be outsourced. As a result of
that decision, it was concluded that certain quantities of dielectric inventory
in excess of known customer demand might become obsolete. Of the $1.0 million
write-down in the first quarter of fiscal 1999, approximately $0.8 million
related to work in process and approximately $0.2 million related to finished
goods. The dielectric inventory value at December 31, 1998 prior to the
write-down consisted of $3.2 million in work in process and $0.6 million in
finished goods. The amount of this inventory on the balance sheet, after the
write-down, at December 31, 1999 was $1.2 million in work in process and $0.7
million in finished goods.
Our management is working on programs to continue to improve manufacturing
efficiencies, however, there can be no assurance that we will not encounter
difficulties due to delays with technology introduction, changes in product mix,
unfavorable manufacturing yields or other manufacturing difficulties in the
future. Gross margin may continue to fluctuate from quarter to quarter.
Research and Development Expenses. Research and development (R&D) expenses of
$2.4 million increased $0.7 million or 40% in the first quarter of 2000 when
compared to the first quarter of 1999. The increase in R&D expenses in the first
quarter of fiscal 2000 as compared to the first quarter of fiscal 1999 was due
primarily to an increase in staffing and related compensation of $0.4 million,
particularly design engineering personnel, and higher spending of $0.3 million
on new product designs. As a percentage of revenues, research and development
expenses decreased from 16.1% to 15.3% for the first quarter of 2000 primarily
due to higher revenues during the first quarter of fiscal 2000.
Marketing, Sales, General and Administrative Expenses. Marketing, sales, general
and administrative (SG&A) expenses of $3.1 million increased $0.6 million or 26%
in the first quarter of 2000 when compared to the first quarter of 1999. The
increase in SG&A expenses in the first quarter of fiscal 2000 as compared to the
first quarter of fiscal 1999 was due primarily to an increase in staffing and
related payroll and benefit costs of $0.5 million and higher outside services
costs of $0.1 million. As a percentage of revenues, SG&A expenses decreased from
22.8% to 19.4% for the first quarter of 2000 primarily due to higher revenues
during the first quarter of fiscal 2000.
Unusual Charges. As discussed in gross margin section above, in the first
quarter of fiscal 1999, we implemented a plan to restructure our manufacturing
operations in response to a shift in the mix of products fabricated internally
compared to products fabricated by outside foundries.
Our restructuring activities consisted primarily of a write down of certain
equipment, a write-down of inventory, severance costs, and a write-down of
previously capitalized patent costs (see Note 10 of Notes to Condensed
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 $0.1 million was utilized in the
first quarter of fiscal 2000.
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Interest and Other Income. Interest and other income was $0.1 million in the
first quarter of fiscal 2000. Interest income for the first quarter of fiscal
2000 increased from the comparable period in fiscal 1999 due to higher cash
equivalents and short-term investments.
Provision/Benefit for Taxes on Income. The first quarter of 1999 provision for
taxes on income reflects the benefit from the unusual charges recorded by us in
the first quarter of fiscal 1999. Income tax provision for the first quarter of
2000 approximates the federal statutory rate.
Factors Affecting Future Results
Except for historical information contained herein, the matters set forth in
this Form 10-Q, including the statements in the following paragraphs, are
forward-looking statements that are dependent on certain risks and uncertainties
including such factors as, among others, delays in new product and process
technology announcements and product introductions by us or our 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 and other factors
described below.
We continued to show steady revenue growth in the first quarter of fiscal 2000,
especially in the optical storage and video markets. Over 89% of our revenue in
the first quarter of fiscal 2000 were derived from the video and optical storage
markets. These markets are highly dependent on consumer spending. As a result,
any significant downturn in the economic climate could lead to a slowdown of
orders from our customers. Also, a significant portion of the revenue generated
from the video and optical storage market is driven by design wins with
application specific standard products ("ASSPs"). Should our ASSP's get designed
out by some of the our customers, our operating results could be adversely
affected.
We sell our products to distributors and manufacturers in Asian countries that
are recovering from an economic recession. Sales to this region represented 64%
of our net revenues in the first quarter of fiscal 2000 compared to 42% in the
first quarter of fiscal 1999. Additionally, 37% of the net revenues in the first
quarter of fiscal 2000 were to Microtek International, Inc. in Japan (See Note 8
of Notes to Condensed Consolidated Financial Statements). Should the region not
be able to sustain this recovery, there can be no assurance that our results of
operations will not be adversely impacted in the future. In addition, we give
most of our customers in Asia extended credit terms, should any of these
customers (especially Microtek International, Inc.) fail to make timely payment
of our invoices, our operating results could be adversely affected.
We use various external foundries for the production of CMOS and bipolar wafers
as well as certain process steps in the manufacturing of dielectric isolation
wafers. The number of foundries with capability to process bipolar wafers is
limited. Additionally, we rely on an external vendor for a key process step in
our dielectric isolation process. Manufacturing problems encountered with our
outside foundries may have a material adverse effect on our business and results
of operations.
The semiconductor industry is extremely capital intensive. To remain
competitive, we may have to continue investing in advanced manufacturing
equipment and process technologies. Our
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management anticipates significant continuing capital expenditures during the
following several years. There can be no assurance that we will not be required
to seek debt or equity financing to satisfy our cash and capital needs or that
such financing will be available on terms satisfactory to us. If such financing
is required and if such financing were not available on terms satisfactory to
us, our operations would be materially adversely affected.
New products and process technology require significant research and development
expenditures. However, there can be no assurance that we will be able to develop
and introduce new products in a timely manner, that new products will gain
market acceptance or that new process technologies can be successfully
implemented. If we are unable to develop new products in a timely manner, and to
sell them at gross margins comparable to our current products, the future
results of operations could be adversely impacted.
Part of our future bipolar product development strategy includes the development
of silicon-on-insulator ("SOI") technology. Currently, we believe that, if
successful, the SOI technology could provide technologically advanced products
at a lower cost than our current dielectric isolation complementary bipolar
technology. However, there can be no assurance that SOI wafer technology can be
successfully implemented in a timely manner or that it will provide the desired
improvements over our current technology. Significant delays or cancellation of
the development of the SOI technology could have a material adverse affect on
our business and results of operations. In addition, delays or cancellation of
the development of this technology could adversely affect our new product
development program.
From time to time, we have experienced production difficulties that have caused
delivery delays and quality problems. There can be no assurance that we will not
experience manufacturing problems and product delivery delays in the future as a
result of, among other things, changes to our process technologies, ramping
production and equipment failures. We depend on outside foundries for majority
of our revenue. Any product delivery delays, quality and manufacturing problems
from these foundries could adversely affect our operating results.
Vigorous protection and pursuit of intellectual property rights or positions,
which have resulted in significant and often protracted and expensive
litigation, characterize the semiconductor industry. In recent years, there has
been a growing trend of companies to resort to litigation to protect their
semiconductor technology from unauthorized use by others. We believe our
products do not infringe upon any valid patents. However, there can be no
assurance that our position in these matters will prevail. There can be no
assurance that additional future claims alleging infringement of intellectual
property rights will not be asserted against us. The intellectual property
claims that have been made, or may be asserted against us in the future, could
require that we discontinue the use of certain processes or cease the
manufacture, use and sale of infringing products. Additionally, we may incur
significant litigation costs and damages to develop noninfringing technology.
There can be no assurance that we will be able to obtain such licenses on
acceptable terms or to develop noninfringing technology without a material
adverse effect on us.
We are subject to a variety of federal, state and local governmental regulations
related to the use, storage, discharge and disposal of toxic, volatile or
otherwise hazardous chemicals used in its manufacturing process. Although we
believe that our activities conform to presently applicable environmental
regulations, the failure to comply with present or future regulations could
result in fines being imposed on us, suspension of production or a cessation of
operations. There can be no assurance that regulatory changes or changes in
regulatory interpretation or enforcement will not render compliance more
difficult and costly. Any failure on our part to control the use of, or
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adequately restrict the discharge of, hazardous substances, or otherwise comply
with environmental regulations, could subject us to significant future
liabilities.
Our Common Stock has experienced substantial price volatility and such
volatility may occur in the future, particularly as a result of
quarter-to-quarter variations in the actual or anticipated financial results,
the companies in the semiconductor industry or in the markets served by us, or
announcements by us or our competitors regarding new product introductions. In
addition, the stock market has experienced extreme price and volume fluctuations
that have affected the market price of many technology companies' stock in
particular. These factors may adversely affect the price of our Common Stock.
Our past performance may not be a good indicator of future performance due to
factors affecting us, our competitors, the semiconductor industry and the
overall economy. The semiconductor industry is characterized by rapid
technological change, price erosion, cyclical markets, periodic oversupply,
occasional shortages of materials, capacity constraints, variation in
manufacturing efficiencies and significant expenditures for capital equipment
and product development. Furthermore, new product introductions and patent
protection of existing products are critical factors for future sales growth and
sustained profitability.
Liquidity and Capital Resources
Our primary sources of liquidity are cash and short-term investments of $19.7
million at December 31, 1999. Additionally, at December 31, 1999, we had a
revolving credit line of $5.0 million, all of which was unused and available.
The line of credit expires June 30, 2000. The line bears interest at the bank's
prime rate. Borrowings under this line are secured by a first priority security
interest in virtually all our assets except for certain capital assets
previously acquired under lease agreements. The agreement contains certain
covenants that include a restriction on the declaration and payment of cash
dividends and restrictions on business mergers, acquisitions and investments. We
were in compliance with all covenants at December 31, 1999.
Cash and equivalents were $13.7 million at December 31, 1999, representing a
decrease of $3.8 million from September 30, 1999. The decrease is primarily a
result of purchases of available for sale securities of approximately $4.8
million, capital expenditures of approximately $0.8 million, payment of
estimated income taxes of $0.6 million, and payments on capital leases of
approximately $0.4 million. These cash outflows were partially offset by cash
generated from operations of $2.6 million and proceeds from exercise of employee
stock options of $0.2 million.
Accounts receivable increased 41% from September 30, 1999 to December 31, 1999
while revenues increased by only 10% during the same period. This increase is a
reflection of the increased shipments to our customers in Asia. These customers
typically require extended credit terms. Inventories remained flat from
September 30, 1999 to December 31, 1999. Inventory management remains an area of
focus as management balances the need to maintain strategic inventory levels to
ensure competitive lead times versus the risk of inventory obsolescence because
of rapidly changing technology and customer requirements.
Our management believes that our current cash and equivalents, short-term
investments, line of credit, borrowing capacity, and cash generated from
operations will satisfy our expected working capital and capital expenditure
requirements for the next twelve months.
15
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those discussed here. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in this section, as well as in the section entitled "Factors
Affecting Future Results". We are exposed to market risks related to changes in
interest rates and foreign currency exchange rates. We do not use derivative
financial instruments for speculative or trading purposes.
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 available-for-sale securities are subject to interest rate risk and
will fall in value if market interest rates increase. If market interest rates
were to increase immediately and uniformly by 10 percent from levels at December
31, 1999, the fair value of the approximately $6.0 million portfolio would
decline by an immaterial amount. We 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 December 31, 1999, we had approximately $3.9 million of outstanding
obligations under capital lease arrangements. As the lease payments associated
with these arrangements do not have variable interest rates, an increase of 10
percent in short-term interest rates would not have a material impact on 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 Yen is the functional currency of our
subsidiary in Japan and we denominate certain sales transactions in Japanese
Yen. We have established a foreign currency-hedging program, utilizing foreign
currency forward exchange contracts, or forward contracts of various duration to
hedge trade receivables denominated in Japanese Yen. Under this program, gains
and losses on the forward contracts mitigate the risk of material foreign
currency transaction gains and losses and offset increases or decreases in 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.
Currently we do not 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 maintain cash
balances denominated in Yen. If foreign exchange rates were to weaken against
the U.S. dollar immediately and uniformly by 10 percent from the exchange rate
at December 31, 1999, the fair value of these foreign currency amounts would
decline by an immaterial amount. At the end of each fiscal month, all foreign
currency assets and liabilities are revalued using the month end spot rate and
the realized and unrealized gains and losses are recorded and included in net
income as a component of other income, net.
16
<PAGE>
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K:
We did not file any reports on Form 8-K during the quarter.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to report to be signed on its behalf
by the undersigned thereunto duly authorized.
ELANTEC SEMICONDUCTOR, INC.
(Registrant)
Date: February 4, 2000 By: /s/ Ephraim Kwok
------------------
Ephraim Kwok
Chief Financial Officer (duly authorized
officer and principal financial officer)
18
<PAGE>
EXHIBIT INDEX
Exhibit
27.1 Financial Data Schedule
19
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,694
<SECURITIES> 6,026
<RECEIVABLES> 8,643
<ALLOWANCES> 1,683
<INVENTORY> 3,412
<CURRENT-ASSETS> 33,590
<PP&E> 22,854
<DEPRECIATION> 14,063
<TOTAL-ASSETS> 46,823
<CURRENT-LIABILITIES> 10,067
<BONDS> 2,489
0
0
<COMMON> 95
<OTHER-SE> 32,436
<TOTAL-LIABILITY-AND-EQUITY> 46,823
<SALES> 16,447
<TOTAL-REVENUES> 15,712
<CGS> 6,141
<TOTAL-COSTS> 6,141
<OTHER-EXPENSES> 5,469
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> 4,239
<INCOME-TAX> 1,479
<INCOME-CONTINUING> 2,760
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,760
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.25
</TABLE>
