UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended October 29, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from _______________ to ________________
Commission file number 1-6395
SEMTECH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2119684
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) identification No.)
652 Mitchell Road, Newbury Park, California, 91320
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (805) 498-2111
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 has required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes X No ______
-----
Number of shares of Common Stock, $0.01 par value, outstanding at October 29,
2000: 67,222,946.
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PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, 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 accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, these unaudited statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of Semtech Corporation and subsidiaries as
of October 29, 2000, and the results of their operations and their cash flows
for the nine months then ended.
2
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
October 29, October 31, October 29, October 31,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net sales $69,012 $47,072 $187,070 $118,369
Cost of sales 29,553 22,087 82,779 57,141
------- ------- -------- --------
Gross profit 39,459 24,985 104,291 61,228
------- ------- -------- --------
Operating costs and expenses -
Selling, general and administrative 9,546 7,173 26,404 18,882
Product development and engineering 8,615 5,532 23,381 14,176
------- ------- -------- --------
Total operating costs and expenses 18,161 12,705 49,785 33,058
------- ------- -------- --------
Operating income 21,298 12,280 54,506 28,170
Interest and other income, net 2,758 244 6,398 729
------- ------- -------- --------
Income before taxes 24,056 12,524 60,904 28,899
Provision for taxes 7,216 4,133 18,271 9,537
------- ------- -------- --------
Net income $16,840 $ 8,391 $ 42,633 $ 19,362
======= ======= ======== ========
Earnings per share:
Basic $0.25 $0.14 $0.64 $0.32
Diluted $0.22 $0.12 $0.56 $0.28
Weighted average number of shares:
Basic 66,923 61,866 66,120 60,972
Diluted 77,114 71,086 76,585 69,250
3
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share data)
October 29, January 30,
2000 2000
(Unaudited) (Audited)
- ----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $184,411 $ 45,225
Temporary investments 249,612 18,066
Receivables, less allowances 40,935 25,223
Income taxes refundable 519 -
Inventories 30,872 26,581
Other current assets 4,870 1,223
Deferred income taxes 20,498 4,106
-------- --------
Total current assets 531,717 120,424
Property, plant and equipment, net 28,560 24,397
Investments, maturities in excess of 1 year 68,074 -
Other assets 11,834 1,482
Deferred income taxes 4,671 3,047
-------- --------
TOTAL ASSETS $644,856 $149,350
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,281 $ 10,723
Accrued liabilities 14,409 8,869
Income taxes payable 2,467 1,389
Other current liabilities 987 2,756
-------- --------
Total current liabilities 28,144 23,737
Other long-term liabilities 105 131
Convertible Subordinated Debentures 400,000 -
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 100,000,000 authorized
Issued and outstanding 672 641
Additional paid-in capital 102,029 53,564
Retained earnings 114,131 71,498
Accumulated other comprehensive loss (225) (221)
-------- --------
Total stockholders' equity 216,607 125,482
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $644,856 $149,350
======== ========
4
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
-----------------
October 29, October 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 42,633 $ 19,362
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,672 3,009
Deferred income taxes (18,016) (11,447)
Tax benefit from stock option exercises 35,731 9,742
Changes in assets and liabilities, net of acquisition:
Receivables (15,712) (10,666)
Income taxes refundable - 258
Inventories (4,291) (8,542)
Other assets (3,497) (1,006)
Accounts payable and accrued liabilities 5,098 8,714
Income taxes payable 559 10,389
Other current liabilities (1,769) 305
--------- --------
Net cash provided by operating activities 44,408 20,118
--------- --------
Cash flows from investing activities:
Temporary investments, net (231,546) (7,562)
Purchase of long-term investments (68,074) -
Additions to property, plant and equipment (7,835) (5,435)
--------- --------
Net cash used in investing activities (307,455) (12,997)
--------- --------
Cash flows from financing activities:
Exercise of stock options 12,765 8,777
Cash proceeds from issuance of debentures 389,498 -
Stock repurchased - (13,418)
Other long-term liabilities (26) 358
--------- --------
Net cash provided by (used in) financing activities 402,237 (4,283)
--------- --------
Effect of exchange rate changes on cash and cash equivalents (4) (47)
Net increase in cash and cash equivalents 139,186 2,791
Cash and cash equivalents at beginning of period 45,225 41,035
--------- --------
Cash and cash equivalents at end of period $ 184,411 $ 43,826
========= ========
5
SEMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Earnings Per Share
Basic earnings per common share are computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per common
share include the incremental shares issuable upon the assumed exercise of stock
options and assumed conversion of the $400.0 million convertible subordinated
debenture after the date of issuance on February 14, 2000, if dilutive. For the
periods presented, the assumed conversion of the convertible debt is anti-
dilutive.
(in thousands) Three Months Ended Nine months Ended
October 29, October 31, October 29, October 31,
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------
Basic 66,923 61,866 66,120 60,972
====== ====== ====== ======
Diluted 77,114 71,086 76,585 69,250
====== ====== ====== ======
Options to purchase 6,000 and 72,000 shares were not included in the
computation of diluted net income per share for the third quarter and first nine
months of fiscal year 2001, respectively, because such options were anti-
dilutive. For the third quarter and first nine months of fiscal year 2000,
respectively, options to purchase 20,000 and 3,838,000 shares were not included
in the computation of diluted net income per share because such options were
anti-dilutive.
2. Business Segments and Concentrations of Risk
The Company operates in three reportable segments: Standard Semiconductor
Products, Rectifier and Assembly Products, and Other Products. Included in the
Standard Semiconductor Products segment are the power management, protection,
high-performance, advanced communications and human interface devices/system
management product lines. The Rectifier and Assembly Products segment includes
the Company's line of assembly and rectifier products. The Other Products
segment is made up of other custom integrated circuit (IC) and foundry sales.
The Company evaluates segment performance based on net sales and operating
income of each segment. Management does not track segment data or evaluate
segment performance on additional financial information. As such, there are no
separately identifiable segment assets nor is there any separately identifiable
statements of income data (below operating income).
The Company does not track or assign assets to individual reportable segments.
Likewise, depreciation expense and capital additions are also not tracked by
reportable segments.
(In thousands) Three Months Ended Nine Months Ended
Net Sales October 29, October 31, October 29, October 31,
--------- 2000 1999 2000 1999
------------------------------------------------------------------
Standard Semiconductor Products .............. $62,970 $42,366 $169,119 $103,013
Rectifier and Assembly Products .............. 3,852 2,824 11,649 9,161
Other Products ............................... 2,190 1,882 6,302 6,195
------- ------- -------- --------
Total Net Sales ............................ $69,012 $47,072 $187,070 $118,369
======= ======= ======== ========
6
(In thousands) Three Months Ended Nine Months Ended
Operating Income October 29, October 31, October 29, October 31,
---------------- 2000 1999 2000 1999
-----------------------------------------------------------------
Standard Semiconductor Products ............... $19,545 $11,999 $50,418 $26,801
Rectifier and Assembly Products ............... 1,261 105 2,745 519
Other Products ................................ 492 176 1,343 850
------- ------- ------- -------
Total Operating Income ...................... $21,298 $12,280 $54,506 $28,170
======= ======= ======= =======
For the three months ended October 29, 2000 and October 31, 1999, the Company
had no customer that accounted for more than 10 percent of net sales. As of
October 29, 2000 and October 31, 1999, no one customer accounted for more than
10 percent of total accounts receivable. A summary of net external sales by
region follows. The Company does not track customer sales by region for each
individual reporting segment.
(In thousands) Three Months Ended Nine Months Ended
Net Sales October 29, October 31, October 29, October 31,
--------- 2000 1999 2000 1999
----------------------------------------------------------------
Domestic .............................. $32,781 $15,628 $ 85,211 $ 40,973
Asia-Pacific .......................... 27,743 25,795 78,750 62,003
European .............................. 8,488 5,649 23,109 15,393
------- ------- -------- --------
Total Net Sales ..................... $69,012 $47,072 $187,070 $118,369
======= ======= ======== ========
Long lived assets located outside the United States as of the end of the third
quarter of fiscal year 2001 and at January 30, 2000 were approximately $1.5
million, respectively.
3. Temporary and Long-Term Investments
Temporary and long-term investments consist of bank and corporate obligations.
Temporary investments have original maturities in excess of three months, but no
greater than twelve months at the time of purchase. Long-term investments have
original maturities in excess of one year. All investments are classified as
"hold to maturity", thus no unrealized holding gains or losses were reported in
the accompanying financial statements.
4. Inventories
Inventories are stated at the lower of cost or market and consist of material,
labor and overhead. Cost is determined by the first-in, first-out method.
(In thousands) October 29, January 30,
2000 2000
------------------------------------------------------------
Raw materials $ 1,610 $ 1,183
Work in progress 20,510 15,246
Finished goods 8,752 10,152
------- -------
Total net inventories $30,872 $26,581
======= =======
5. Convertible Subordinated Debentures
On February 14, 2000, the Company completed a private offering of $400.0
million principal amount of convertible subordinated debentures that pay an
interest rate of 4 1/2 percent and are convertible into common stock at a
conversion price of $42.23 per share. The notes are due in seven years and
callable by the Company after three years. The Company intends to use the net
proceeds of the offering for general corporate purposes, including
7
working capital, expansion of sales, marketing and customer service
capabilities, and product development. In addition, the Company may use a
portion of the net proceeds to acquire or invest in complementary businesses,
technologies, services or products.
6. Lines of Credit
The Company had a credit arrangement with a financial institution for
borrowings up to $20.0 million at an interest rate of the 30 day commercial
paper plus 2.2 percent. The credit arrangement expired in August 2000 and was
not extended or renewed by the Company. The arrangement was collateralized by
the Company's domestic assets and provides for financial and non-financial
covenants. Through its foreign subsidiary, the Company maintains an overdraft
credit line in the amount of 300,000 pounds sterling. As of October 29, 2000,
the Company had no borrowings outstanding under any credit facility.
7. Commitments and Contingencies
On February 7, 2000, the Company was notified by the United States
Environmental Protection Agency with respect to the Casmalia Disposal Site in
Santa Barbara, California. The Company has been included in the Superfund
program to clean up this disposal site for its involvement in utilizing this
site for waste disposal. As of October 29, 2000, the Company provided
approximately $245,000 for potential settlement under this program, however, the
ultimate resolution and timing of the resolution is unknown at this time. The
Company believes the amount provided is sufficient to cover any liability
existing based on the currently available information.
8. Stock Split
On September 14, 1999, the Company effected a two-for-one stock split in the
form of a 100 percent stock dividend which was payable to shareholders of record
as of August 30, 1999. All shares, per share data, common stock, and stock
option amounts herein have been restated to reflect the effect of this split.
On September 26, 2000, the Company effected a two-for-one stock split in the
form of a 100 percent stock dividend which was payable to shareholders of record
as of September 5, 2000. All shares, per share data, common stock, and stock
option amounts herein have been restated to reflect the effect of this split.
9. Recently Issued Accounting Standards
In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Investments and Hedging
Activities," and SFAS No. 137, which delayed the effective date of SFAS No. 133.
In June 2000, the FASB issued SFAS No. 138, which provides additional guidance
for the application of SFAS No. 133 for certain transactions. The Company will
adopt the statement in February 2001 and does not expect the adoption of this
statement to have a material impact on its financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," and
as amended. SAB 101 summarizes certain of the Securities and Exchange
Commission's views in applying generally accepted accounting principles to
revenue recognition in financial statements. We have applied the provisions of
SAB 101 in the consolidated financial statements. The adoption of SAB 101 did
not have a material impact on the Company's financial condition or results of
operations.
In March 2000, the FASB issued interpretation No. 44 (FIN 44), "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for certain
issues, including the definition of an employee, the treatment of the
acceleration of stock
8
options and the accounting treatment for options assumed in business
combinations. FIN 44 became effective on July 1, 2000, but is applicable for
certain transactions dating back to December 1998. The adoption of FIN 44 did
not have a significant impact on the Company's financial position or results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
You should read the following discussion of our financial condition and
results of operations together with the condensed financial statements and the
notes to condensed financial statements included elsewhere in this Form 10-Q.
This discussion contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, as more fully described in the
"Forward Looking Statements" section of this Form 10-Q and the "Risk Factors"
section of the Company's annual report on Form 10-K for the year ended January
30, 2000. We undertake no obligation to update any forward-looking statements
for any reason, even if new information becomes available or other events occur
in the future.
Overview
We design, develop, manufacture and market a wide range of analog and mixed-
signal semiconductors for commercial and military applications. Our products are
sold principally to customers in the computer, communications and industrial
markets. Computer market applications include desktop computers, servers,
workstations, laptop computers, personal digital assistants (PDAs) and computer
add-on cards. Products within the communications market include local area
networks, wide area networks, cellular phones and base-stations. Industrial
applications include automated test equipment (ATE), medical devices and factory
automation systems. Our focus on these commercial applications over the past
several years represents a substantial transition from our historical business,
which was predominantly military and aerospace applications.
Sales to customers are made on the basis of individual customer
purchase orders. Many large commercial customers, particularly in the personal
computer industry, include terms in their purchase orders, which provide liberal
cancellation provisions. Recent trends within the industry toward shorter lead-
times and "just-in-time" deliveries have resulted in our reduced ability to
predict future shipments. As a result, we expect the percentage of turns-fill
business (orders received and shipped within the same quarter) to increase as a
percentage of net sales.
With a portion of our sales emanating from retail computer and computer
related applications, our past results have reflected some seasonality, with
demand levels being higher in computer segments during the third and fourth
quarters of the year in comparison to the first and third quarters.
One of our strategies is to expand our business through strategic
acquisitions. Over the past three years, we have made several small acquisitions
in order to increase our pool of skilled technical personnel and penetrate new
market segments such as high performance, advanced communications and system
management devices. These acquisitions include: USAR Systems Incorporated;
Practical Sciences, Inc.; Acapella Limited and Edge Semiconductor. The
acquisitions of USAR, Acapella and Edge were accounted for as poolings of
interests.
Results of Operations
The following table sets forth certain operating data as a percentage of total
net sales for the periods indicated.
9
Three Months Ended Nine Months Ended
October 29, October 31, October 29, October 31,
2000 1999 2000 1999
-----------------------------------------------------------------
As a Percentage of Net Sales:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 42.8 46.9 44.3 48.3
----- ----- ----- -----
Gross profit 57.2 53.1 55.7 51.7
Operating costs and expenses:
Selling, general & administrative 13.8 15.2 14.1 16.0
Product development and
Engineering 12.5 11.8 12.5 12.0
----- ----- ----- -----
Total operating costs and Expenses 26.3 27.0 26.6 27.9
----- ----- ----- -----
Operating income 30.9 26.1 29.1 23.8
Interest and other income, net 4.0 0.5 3.4 0.6
----- ----- ----- -----
Income before taxes 34.9 26.6 32.6 24.4
Provision for taxes 10.5 8.8 9.8 8.1
----- ----- ----- -----
Net income 24.4% 17.8% 22.8% 16.4%
===== ===== ===== =====
Comparison Of The Three Months Ended October 29, 2000 And October 31, 1999
Net Sales. We generally recognize revenue upon shipment of our products. We
defer revenue recognition on shipment of certain products to distributors where
return privileges exist until the products are sold through to end users. Net
sales for the third quarter of fiscal year 2001 were $69.0 million, compared to
$47.1 million for the third quarter of fiscal year 2000, a 46.6 percent
increase. This increase was due in part to favorable market conditions in the
overall semiconductor industry and the growth in sales into two of our main
strategic end markets: communications and industrial.
Gross Profit. Gross profit is equal to our net sales less our cost of sales.
Our cost of sales includes materials, direct labor and overhead. Cost of
inventory is determined by the first-in, first-out method. Gross profit for the
third quarter of fiscal year 2001 was $39.5 million, compared to $25.0 million
for the comparable period in the prior year, a 57.9 percent increase. Our gross
margins (defined as gross profit as a percentage of net sales) are generally
affected by price changes over the life of the products and the overall mix of
products sold. Higher gross margins are generally expected from new products and
improved production efficiencies as a result of increased utilization.
Conversely, prices for existing products generally will continue to decrease
over their respective life cycles. Our gross margin was 57.2 percent for the
third quarter of fiscal year 2001. This compared to a gross margin of 53.1
percent for the third quarter of fiscal year 2000. The improvement is attributed
to increased operating efficiencies associated with higher shipment levels,
higher revenue contribution from new products and a favorable shift in product
mix toward higher margin product lines.
Operating Costs and Expenses. Operating costs and expenses generally consist
of selling, general and administrative, product development and engineering
costs, costs associated with acquisitions, and other operating related charges.
Operating costs and expenses were $18.2 million, or 26.3 percent of net sales,
for the third quarter ended October 29, 2000. Operating costs and expenses for
the prior year third quarter were $12.7 million, or 27.0 percent of net sales.
Current year operating costs and expenses, as a percentage of net sales, are
lower than previous levels due to higher shipment rates and greater
efficiencies.
SG&A expenses for the third quarter of fiscal year 2001 were $9.5 million, or
13.8 percent of net sales, compared to $7.2 million, or 15.2 percent of net
sales for the prior year third quarter. The increase in expenditures was due
primarily to the overall growth of our business, while the decrease in
percentage of net sales reflects higher revenue contributions from newer
products. R&D expense as a percentage of net sales was $8.6 million, or 12.5
percent of net sales, for the third quarter of fiscal year 2001, compared to
$5.5 million, or 11.8 percent of net sales, for the third quarter of fiscal year
2000. We continue to invest heavily in areas deemed critical for developing and
10
marketing new products, which are generally targeted at broadening our customer
base, product lines and end-product applications.
Interest and Other Income. Net interest and other income of $2.8 million was
realized in the third quarter of fiscal year 2001. For the third quarter of
fiscal year 2000, interest and other income was $244,000. Other income and
expenses for the third quarter of fiscal year 2001 is primarily interest income,
net of $4.9 million of interest expense associated with the outstanding
convertible subordinated debentures. For the prior year third quarter, interest
and other income is primarily interest income. The significant increase in
interest and other income is attributable to cash provided by the February 2000
issuance of convertible subordinated debentures.
Provision for Taxes. Expense for income taxes was $7.2 million in the third
quarter fiscal year 2001, compared to $4.1 million in the third quarter of
fiscal year 2000. The effective tax rate for the third quarter of fiscal year
2001 was 30 percent and for the comparable quarter of fiscal year 2000 was 33
percent. The decline is due to increased sales through foreign-based
subsidiaries that are in lower tax jurisdictions.
Comparison Of The Nine Months Ended October 29, 2000 And October 31, 1999
Net Sales. Net sales for the first nine months of fiscal year 2001 were
$187.1 million, compared to $118.4 million for the first nine months of fiscal
year 2000, a 58.0 percent increase. The increase in net sales for the first half
of fiscal year 2001 reflects the overall strength in demand for semiconductors
and successful penetration into targeted end market applications.
Gross Profit. Gross profit for the first nine months of fiscal year 2001 was
$104.3 million, compared to $61.2 million for the comparable period in the prior
year, a 70.3 percent increase. Our gross margin was 55.7 percent for the first
nine months of fiscal year 2001. This compared to a gross margin of 51.7
percent for the first nine months of fiscal year 2000. The improvement is
attributed to increased operating efficiencies associated with higher shipment
levels, higher revenue contribution from new products and a favorable shift in
product mix toward higher margin product lines.
Operating Costs and Expenses. Operating costs and expenses were $49.8
million, or 26.6 percent of net sales, for the first nine months ended October
29, 2000. Operating costs and expenses for the prior year first nine months were
$33.1 million, or 27.9 percent of net sales. Current year operating costs and
expenses, as a percentage of net sales, are lower than previous levels due to
higher shipment rates and greater efficiencies.
SG&A expenses for the first nine months of fiscal year 2001 were $26.4
million, or 14.1 percent of net sales, compared to $18.9 million, or 16.0
percent of net sales for the prior year first nine months. The increase in
expenditures was due primarily to the overall growth of our business, while the
decrease in percentage of net sales reflects higher revenue contributions from
newer products. R&D expense as a percentage of net sales was $23.4 million, or
12.5 percent of net sales, for the first half of fiscal year 2001, compared to
$14.2 million, or 12.0 percent of net sales, for the first nine months of fiscal
year 2000.
Interest and Other Income. Net interest and other income of $6.4 million was
realized in the first nine months of fiscal year 2001, compared to interest and
other income of $729,000 for the first three quarters of fiscal year 2000. Other
income and expenses for the first nine months of fiscal year 2001 is primarily
interest income, net of $13.9 million of interest expense associated with the
outstanding convertible subordinated debentures. For the prior year first nine
months, interest and other income is primarily interest income. The significant
increase in interest and other income is attributable to cash provided by the
February 2000 issuance of convertible subordinated debentures.
Provision for Taxes. Expense for income taxes was $18.3 million in the first
nine months fiscal year 2001, compared to $9.5 million in the first nine months
of fiscal year 2000. The effective tax rate for the first nine months of fiscal
year 2001 was 30 percent and for the comparable quarter of fiscal year 2000 was
33 percent. The decline is due to increased sales through foreign-based
subsidiaries that are in lower tax jurisdictions.
Liquidity and Capital Resources
11
On February 14, 2000, we completed a private offering of $400.0 million
principal amount of convertible subordinated debentures that pay an interest
rate of 4 1/2 percent and are convertible into our common stock at a conversion
price of $42.23 per share. The notes are due in seven years. We intend to use
the net proceeds of the offering for general corporate purposes, including
working capital, expansion of sales, marketing and customer service
capabilities, and product development. In addition, we may use a portion of the
net proceeds to acquire or invest in complementary businesses, technologies,
services or products.
On October 29, 2000, we had working capital of $503.6 million, compared with
$96.7 million at January 30, 2000. The ratio of current assets to current
liabilities at October 29, 2000 was 18.9 to 1, compared to 5.1 to 1 at January
30, 2000. A majority of the increase was due to cash generated by the issuance
of convertible subordinated debentures.
Cash provided by operating activities was $44.4 million for the first nine
months of fiscal year 2001, compared to $20.1 million for the first nine months
of fiscal year 2000. Net income for the first nine months of fiscal year 2001
was reduced by non-cash charges for depreciation and amortization of $3.7
million. Net operating cash flows were favorably impacted by net income of $42.6
million compared to $19.4 million in the prior year period. Net cash provided by
operating activities for the first nine months of fiscal year 2001 was
positively impacted by an increase in accounts payable, accrued liabilities,
deferred income taxes and income tax liability. These items were partially
offset by increases in receivables and other assets as well as a reduction in
other current liabilities.
Cash provided by operating activities for the first nine months of fiscal year
2000 was favorably impacted by net income, non-cash charges for depreciation and
amortization of $3.0 million and increases in accounts payable, accrued
liabilities and income taxes payable. These items were partially offset by
increases in receivables, inventories and other assets.
Investing activities used $307.5 million for the first nine months of fiscal
year 2001 compared to $13.0 million in the first nine months of fiscal year
2000. Investing activities for the first half of fiscal year 2001 consists of
increases in temporary investments, purchases of long-term investments, and
capital expenditures of $231.5 million, $68.1 million and $7.8 million,
respectively. Cash used in investing activities for the comparable prior year
period reflects a $5.4 million addition to property and equipment and $7.6
million increase in temporary investments.
Our financing activities provided $402.2 million during the first nine months
of fiscal year 2001 and used $4.3 million in the prior year first three
quarters. Financing activities for the first three quarters of fiscal year 2001
reflect the proceeds, net of related fees, from the issuance of $400.0 million
of convertible subordinated debentures and cash provided by stock option
exercises and other long term financing items. Financing activities for the
comparable prior period represent primarily cash from stock option exercises and
cash used to repurchase our stock.
We had a credit arrangement with a financial institution for borrowings up to
$20.0 million at an interest rate of the 30 day commercial paper plus 2.2
percent. Our credit arrangement expired in August 2000, and we did not extend
or renew this credit facility. The arrangement was collateralized by our
domestic assets and provided for financial and non-financial covenants. Through
our foreign subsidiary, we maintain an overdraft credit line in the amount of
300,000 pounds sterling. As of October 29, 2000, we had no borrowings
outstanding under any credit facility.
In order to develop, design and manufacture new products, we had to make
significant expenditures during the past five years. These investments aimed at
developing new products, including the hiring of many design and applications
engineers and related purchase of equipment, will continue. We fully intend to
continue to invest in those areas that have shown potential for viable and
profitable market opportunities. Certain of these expenditures, particularly the
addition of design engineers, do not generate significant payback in the short-
term. We plan to finance these expenditures with cash generated by operations
and cash on-hand.
Purchases of new capital equipment were made primarily to expand manufacturing
capacity and improve efficiency. Funding for these purchases was made from our
operating cash flows and cash reserves. We have made significant investments in
product and process technology. We believe that sales generating cash flows,
together with
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the proceeds of the debt offering, cash reserves and existing credit facilities,
are sufficient to fund operations and capital expenditures for the foreseeable
future.
Inflation
Inflationary factors have not had a significant effect on our performance over
the past several years. A significant increase in inflation would affect our
future performance.
Recently Issued Accounting Standards
In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Investments and Hedging
Activities," and SFAS No. 137, which delayed the effective date of SFAS No. 133.
In June 2000, the FASB issued SFAS No. 138, which provides additional guidance
for the application of SFAS No. 133 for certain transactions. We will adopt the
statement in February 2001 and does not expect the adoption of this statement to
have a material impact on its financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," and
as amended. SAB 101 summarizes certain of the Securities and Exchange
Commission's views in applying generally accepted accounting principles to
revenue recognition in financial statements. We have applied the provisions of
SAB 101 in the consolidated financial statements. The adoption of SAB 101 did
not have a material impact on our financial condition or results of operations.
In March 2000, the FASB issued interpretation No. 44 (FIN 44), "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for certain
issues, including the definition of an employee, the treatment of the
acceleration of stock options and the accounting treatment for options assumed
in business combinations. FIN 44 became effective on July 1, 2000, but is
applicable for certain transactions dating back to December 1998. The adoption
of FIN 44 did not have a significant impact on our financial position or results
of operations.
Year 2000 Compliance
As of the date of this Form 10-Q, we have not experienced any significant
disruptions or computer processing errors or failures related to any Year 2000
issues. A significant percentage of the software that runs most of the computers
in the United States relies on two-digit date codes to perform a number of
computation and decision making functions. Commencing on January 1, 2000 these
computer programs had the potential to fail from an inability to interpret date
codes properly, misreading "00" for the year 1900 instead of the year 2000. No
adverse effects were encountered and no future expense is expected as a result
of Year 2000.
FORWARD LOOKING STATEMENTS
In addition to historical information, this Form 10-Q contains statements
relating to our future results. These statements include certain projections and
business trends, which are "forward-looking" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
made only as of the date of this Form 10-Q. We do not undertake to update or
revise the forward-looking statements, whether as a result of new information,
future events or otherwise.
Actual results may differ materially from projected results as a result of
certain risks and uncertainties. These risks and uncertainties include, without
limitation, those described under the "Risk Factors" section of the annual
report on Form 10-K for the year ended January 30, 2000, including those set
forth below:
. successful development and timing of new products;
. ability to attract or retain specialized technical personnel;
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. cyclical nature of the semiconductor industry due to global and market
conditions;
. availability of manufacturing capacity;
. fluctuation of quarterly operating results;
. loss of a significant customer or customer order;
. our ability to manage and integrate our expanding and more diverse
operations;
. our ability to integrate strategic acquisitions;
. our ability to compete against larger, more established entities;
. fluctuations in manufacturing yields;
. our ability to protect our intellectual property rights;
. uncertainties of litigation; and
. other risks and uncertainties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
-----------------------------------------------------------
Foreign Currency Risk
As a global enterprise, we face exposure to adverse movements in foreign
currency exchange rates. Our foreign currency exposures may change over time as
the level of activity in foreign markets grows and could have a adverse impact
upon financial results.
Certain of our assets, including certain bank accounts and accounts
receivable, exist in nondollar-denominated currencies, which are sensitive to
foreign currency exchange rate fluctuations. The nondollar-denominated
currencies are principally German Deutschmarks, British Pounds Sterling and
French Francs. Additionally, certain of our current and long-term liabilities
are denominated principally in British Pounds Sterling currencies, which are
also sensitive to foreign currency exchange rate fluctuations.
Because of the relatively small size of each individual currency exposure, we
do not employ hedging techniques designed to mitigate foreign currency
exposures. Likewise, we could experience unanticipated currency gains or losses.
Interest Rate Risk
As of October 29, 2000, we had $400.0 million in long-term debt outstanding at
a fixed interest rate of 4 1/2 percent. We do not currently hedge any
potential interest rate exposure.
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PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company has periodically become subject to legal proceedings in the
ordinary course of our business. Other than the action detailed below, the
Company is not currently involved in any proceedings, which are believed to
have a material and adverse affect.
On February 7, 2000, the Company was notified by the United States
Environmental Protection Agency with respect to the Casmalia Disposal Site in
Santa Barbara, California. The Company has been included in the Superfund
program to clean up this disposal site for its involvement in utilizing this
site for waste disposal. As of October 29, 2000, the Company has provided
approximately $245,000 for potential settlement under this program, however,
the ultimate resolution and timing of the resolution is unknown at this time.
The Company believes the amount provided is sufficient to cover any liability
existing based on the currently available information.
ITEM 2. CHANGES IN SECURITIES
---------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
(a) The Fiscal Year 2000 Annual Meeting of Shareholders of the Company was duly
held on June 8, 2000.
(b) Inapplicable, as (i) proxies for the meeting were solicited pursuant to
Regulation 14 under the Act; (ii) there was no solicitation in opposition to
the management's nominees as listed in the Proxy Statement; and (iii) all of
such nominees were duly elected.
(c) Not applicable.
(d) Not applicable.
ITEM 5. OTHER INFORMATION
-----------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
11.1 - Computation of per share earnings - See Note 1 of Notes to Unaudited
Consolidated Condensed Financial Statements.
27 - Financial Data Schedule, Article 5
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on February 3, 2000 and February 15,
2000 relating to its private placement of $400.0 million of 4 1/2 percent
Convertible Subordinated Notes due 2007.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SEMTECH CORPORATION
-------------------
Registrant
Date: December 12, 2000 /S/ John D. Poe
--------------------------------
John D. Poe
Chairman of the Board
and Chief Executive Officer
Date: December 12, 2000 /S/ David G. Franz, Jr.
--------------------------------
David G. Franz, Jr.
Vice President Finance, Chief
Financial Officer, and
Secretary
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