SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended July 30, 1995 Commission File Number 1-6395
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SEMTECH CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2119684
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
652 Mitchell Road, Newbury Park, California 91320
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (805) 498-2111
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N/A
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(Former name, former address and former fiscal year,
if changed since last report.)
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
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Number of shares of Common Stock,
$ .01 par value, outstanding at July 30, 1995: 5,003,690.
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1
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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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 generally accepted accounting principles 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 July 30, 1995, and the results of their operations and the changes in their
cash flow for the three and six month periods then ended.
2
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE FIGURES)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
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JULY 30, JULY 31, JULY 30, JULY 31,
1995 1994 1995 1994
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NET SALES $10,601 $6,593 $19,916 $12,240
Cost of sales 6,125 4,581 11,874 8,463
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Gross profit 4,476 2,012 8,042 3,777
Operating expenses 2,325 1,600 4,322 3,155
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Operating income 2,151 412 3,720 622
Interest and other (income)
expense (20) 15 (28) 22
------- ------ ------- -------
Income before taxes 2,171 397 3,748 600
Provision for taxes 624 124 1,113 177
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NET INCOME $ 1,547 $ 273 $ 2,635 $ 423
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NET INCOME PER SHARE:
Primary $ 0.29 $ 0.06 $ 0.49 $ 0.09
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Fully diluted $ 0.28 $ 0.05 $ 0.47 $ 0.08
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3
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
JULY 30, JANUARY 29,
1995 1995
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,018 $ 2,837
Temporary investments 411 821
Receivables, net 6,336 4,501
Income taxes refundable 80 71
Inventories 7,005 6,662
Other current assets 396 181
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TOTAL CURRENT ASSETS 18,246 15,073
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PROPERTY, PLANT AND EQUIPMENT, NET 4,348 3,446
OTHER ASSETS 393 443
DEFERRED INCOME TAXES 214 39
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TOTAL ASSETS $23,201 $19,001
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit $ - $ 175
Current maturities of long-term debt 297 268
Accounts payable 2,382 1,721
Accrued liabilities 1,550 1,253
Income taxes payable 510 286
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TOTAL CURRENT LIABILITIES 4,739 3,703
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LONG-TERM DEBT, LESS CURRENT MATURITIES 547 799
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 par value,
15,000,000 authorized 65 64
Additional paid-in capital 9,064 8,242
Retained earnings 9,046 6,411
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18,175 14,717
Cumulative translation adjustment (260) (218)
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TOTAL SHAREHOLDERS' EQUITY 17,915 14,499
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $23,201 $19,001
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4
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
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JULY 30, JULY 31,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES -
Net income $ 2,635 $ 423
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 539 490
Changes in assets and liabilities :
Receivables (1,835) (684)
Inventories (343) (1,083)
Other assets (165) 67
Accounts payable and accrued 958 (47)
liabilities
Income tax refundable (184) 138
Income taxes payable 224 (162)
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NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 1,829 (858)
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CASH FLOWS FROM INVESTING ACTIVITIES -
Temporary cash investments 410 (1)
Additions to property, plant and (1,441) (473)
equipment ------- -------
NET CASH USED BY INVESTING ACTIVITIES (1,031) (474)
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CASH FLOWS FROM FINANCING ACTIVITIES -
Net line of credit activity (175) (111)
Repayment of debt (223) (62)
Additions to debt - 514
Tax benefit from stock option
transactions 635
Receipts on notes receivables - 20
Stock options and debentures exercised 271 34
Other (84) -
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NET CASH PROVIDED BY FINANCING
ACTIVITIES 424 395
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Effect of exchange rate changes on cash (41) 7
Net increase (decrease) in cash and
cash equivalents 1,181 (930)
Cash and cash equivalents at beginning
of period 2,837 2,873
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,018 $ 1,943
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5
SEMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. INCOME TAXES -
Effective February 1, 1993, the Company changed its method of accounting for
income taxes to comply with the provisions of Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" (SFAS 109). Under SFAS No. 109,
deferred income tax assets or liabilities are computed based on the temporary
difference between the financial statement and income tax bases of assets and
liabilities using the statutory marginal income tax rate in effect for the year
in which the differences are expected to reverse. Deferred income tax expenses
or credits are based on the changes in the deferred income tax assets, deferred
income tax liabilities and the related valuation reserve from period to period.
The income tax provision for the three and six months ended July 30, 1995
consisted of income tax expense of $600,000 and $1,064,000, respectively, on the
income of the Company's U.S. operations and income tax expense of $24,000 and
$49,000, respectively, on the income from the Company's foreign operation. In
the prior year three and six months period ended July 31, 1994, the Company
incurred income tax expense of $92,000 and $129,000, respectively, on the income
of the Company's U.S. operations and income tax expense of $32,000 and $48,000,
respectively, on income from the Company's foreign operation.
2. INCOME PER SHARE -
Primary net income per share of common stock has been computed based on the
weighted average number of common and common equivalent shares outstanding.
Fully diluted income per share of common stock was determined on the assumption
that all outstanding convertible debentures were converted under the if-
converted method, as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
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JULY 30, JULY 31, JULY 30, JULY 31,
1995 1994 1995 1994
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PRIMARY.................... 5,418,000 4,616,000 5,370,000 4,593,000
========= ========= ========= =========
FULLY DILUTED.............. 5,566,000 5,088,000 5,566,000 5,077,000
========= ========= ========= =========
3. TEMPORARY INVESTMENTS -
Temporary investments consist of commercial paper and government and
corporate obligations with original maturities in excess of three months and are
carried at cost, which approximates market.
4. INVENTORIES -
Inventories consisted of the following:
JULY 30, JANUARY 29,
1995 1995
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RAW MATERIALS........................... $1,096,000 $1,175,000
WORK IN PROCESS......................... 4,459,000 4,100,000
FINISHED GOODS.......................... 1,450,000 1,387,000
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TOTAL $7,005,000 $6,662,000
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5. LONG-TERM DEBT -
Long-term debt at July 30, 1995 consists mainly of $710,000 of notes payable
and $134,000 of outstanding 8.5% Convertible Subordinated Debentures issued
under the Company's Key Management Convertible Subordinated Debenture Purchase
Plan to key employees and retirees of the Company. Notes payable consists of a
fixed rate loan in the amount of $423,000 used for the acquisition of equipment,
the loan on the Company's Scotland facility in the amount of $273,000, and long-
term obligations due on capital leases of $14,000.
6. LINE OF CREDIT -
The Company maintains a credit arrangement with a financial institution for
a working capital and equipment acquisition line of credit of up to $5,000,000
extending to August 1996 at an interest rate of 30 day rolling commercial paper
plus 2 percent. The arrangement is collateralized by the Company's domestic
assets and contains provisions regarding current ratios, debt to worth, and net
worth. As of July 30, 1995, the Company had no borrowings outstanding against
the line. The Company also maintains an overdraft credit line in the amount of
300,000 pounds sterling at its wholly owned foreign subsidiary, and has obtained
a commitment from its bank to expand the line to 1,000,000 pounds sterling on a
formula line basis.
7. STATEMENT OF CASH FLOWS -
The Company had the following non-cash activities for each of the respective
periods:
THREE MONTHS ENDED
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JULY 30, JULY 31,
1995 1994
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Non-cash activities -
Debentures converted to stock $ 0 $20,000
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Interest paid in the six months ended July 30, 1995 was $58,000 compared
to $69,000 in the six months ended July 31, 1994. Income taxes paid in the six
month period ended July 30, 1995 was $219,750 and income taxes paid in the six
months ended July 31, 1994 was $208,000.
8. SIGNIFICANT CUSTOMERS
For the three and six month periods ended July 30, 1995, one customer
accounted for 10% and 12% of the Company's revenue and another customer
accounted for 15% and 13% of the Company's revenue, respectively. As of July 30,
1995, the Company had receivables from these two customers of $519,744 and
$740,916, respectively.
7
Item 2. Management's Discussion and Analysis of Financial Conditions and
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Results of Operations
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(l) Material Changes in Financial Condition
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At July 30, 1995, the Semtech Corporation (the "Company") had working
capital of $13,507,000, compared with $11,370,000 at January 29, 1995 - an
increase of $2,137,000. The increase was primarily due to the Company's higher
level of shipments and profitability during the six months ended July 30, 1995.
The increased shipments were the result of increased demand for the Company's
line of linear regulators and transient voltage protection devices ("TVS").
Currently, the Company's linear regulators are primarily used to power
microprocessors in desktop personal computers. The Company's TVS products are
sold into several different markets including the data communications,
telecommunications, and the personal computer and peripherals markets.
During the six months ended July 30, 1995, the Company generated $1,181,000 of
cash and cash equivalents. Operating cash flow was $1,829,000. The Company's
accounts receivable increased by $1,835,000 from the balance as of January 29,
1995. The increase in accounts receivable is the result of the Company's higher
shipment rate and the timing of those shipments. The Company's inventories have
increased due to increased production rates and continued increases in the
number and breadth of products offerred by the Company. The Company plans to
continue to actively manage inventories to minimize inventory being carried and
to maximize inventory turns. During the six months ended July 30, 1995, the
Company used cash to repay debt totaling $398,000 and to pay for capital
equipment totaling $1,441,000. The capital investments were made to increase
capacity for wafer fabrication, assembly and test. The ratio of current assets
to current liabilities at July 30, 1995 was 3.9 to 1, compared to 4.1 to 1 at
January 29, 1995. The decline in current ratio represents increased production
activities and certain property additions which were included in accounts
payable as of month end.
The following leverage ratios indicate the extent to which the Company has
been financed with debt:
JULY 30, JANUARY 29,
1995 1995
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Long-term debt as a % of total
capitalization* 3.0% 5.2%
Total debt to total capitalization* 4.5% 8.1%
*Total capitalization is defined as the sum of long-term debt and
shareholders' equity.
The Company is continuing the process of implementing its strategic plan to
expand its product lines that serve the computer, data communications and
telecommunications markets. In the past three years the Company has made
significant investments in the development and promotion of new products.
Commitments for new equipment necessary to achieve the Company's objectives for
improving manufacturing efficiencies and producing new products have been made.
In the six months ended July 30, 1995 the Company committed $1,819,000 for new
equipment purchases. The commitments made were to increase assembly capacity at
our sub-contractors in the Far East, increase test capacity in the Company's
Corpus Christi plant and in the Far East and to continue the conversion of our
Corpus Christi wafer fabrication facility to 4" wafers from 3" wafers.
Outstanding obligations for capital equipment were $527,000 at July 30, 1995,
compared to $142,000 at January 29, 1995. Future capital acquisitions will
continue to be based on economic conditions of the Company's
8
markets and the Company's ability to utilize such assets effectively. The
Company intends to finance the majority of its capital investments and ongoing
operations from internally generated funds and its on-hand cash balances. Some
use of the Company's equipment financing line is possible. The Company believes
that current internal cash flows, together with the Company's cash and cash
equivalents, temporary investments, and the Company's credit facilities are
sufficient to support all currently anticipated future investments in equipment
and facilities.
9
(2) Material Changes in Results of Operations
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The following information is provided to further explain certain financial
information shown in the Consolidated Condensed Statements of Operations for the
three and six month periods ended July 30, 1995, and July 31, 1994.
THREE AND SIX MONTH PERIODS ENDED JULY 30, 1995, COMPARED WITH THE THREE AND SIX
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MONTH PERIODS ENDED JULY 31, 1994:
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REVENUES -
Revenues for the second quarter ended July 30, 1995 were $10,601,000
compared to $6,593,000 in the second quarter ended July 31, 1994, an increase of
61%. Revenues for the six months ended July 30, 1995 increased 63% over the
prior year period. Revenues continued to increase due to Company's ability to
increase production at its Corpus Christi wafer fabrication facility, introduce
new products, increase the Company's production capacity at sub-contractors in
the Far East and the continued shift in the personal computer market to
microprocessors which run on less than 5 volts (3.3 volts). The primary product
which has driven the Company's increased revenues are the Company's line of
linear regulators which it markets under the name "EZ Regulators." EZ
Regulators are currently sold primarily to the manufacturers of personal
computer motherboards. Most of these manufacturers, who are customers of the
Company, are located in the Far East. The Company's line of TVS products has
also been a factor in the increased shipments reported the last three
consecutive quarters. Total sales to customers located in the Far East increased
to 29% of total revenue in the three months ended July 30, 1995 compared to less
than 5% of total revenue in prior year second quarter.
New orders were $12,196,000 in the second quarter of fiscal year 1996 versus
$5,156,000 in the prior year second quarter, an increase of 137%. Commercial
products accounted for approximately 80% of orders received in three months
ended July 30, 1995 compared to 35% of the orders in the prior year second
quarter. The increased bookings were the result of the Company's ability to
continue generating orders for its family of EZ Regulators which are currently
being principally used to power microprocessors which are powered by less than 5
volts, typically 3.3 volts. The Company's EZ Regulators are primarily used in
desktop personal computers. In recent months, the Company has been able to
obtain orders from several new customers, including some of the larger PC
motherboard manufacturers in the Far East. Demand for surface mount TVS devices
during the second quarter also drove the increase in new bookings. The market
for certain of these TVS devices has been characterized by significant market
shortages. This has aided the Company's entry into this market as many
customers seek second and third suppliers for these devices. The Company is
working to solidify its position as a signicant participant in the TVS market by
supporting customers requirements and introducing new and innovative products.
The Company maintains its belief that the military market will continue to
decline in the future. As a result the Company has made significant investments
in new products, primarily targeted for the telecommunications, data
communications and computer markets.
10
COSTS AND EXPENSES -
COST OF GOODS SOLD -
Gross profit margins as a percentage of net sales increased to 42% in the
second quarter of fiscal 1996, compared to 31% in the same period last year.
Gross margins for the six months ended July 30, 1995 increased to 40% from 31%
in the comparable prior year period. Gross margins have improved over the last
three consecutive quarters due to the significant increase in shipments of EZ
Regulators and TVS products which generally have higher margins than the
Company's military products. Gross margins have also been favorably impacted by
the increased utilization of the Company's Corpus Christi wafer fabrication
facility. Margins may be negatively impacted at some point in the future by
increased price competition among suppliers of alternate devices, shifts in the
mix of products supplied by the Company and changes in market demand for the
Company's products.
OPERATING EXPENSES -
Operating costs and expenses increased 45% in the three months ended July
30, 1995 compared with the quarter ended July 31, 1994. Operating costs and
expenses for the six months ended July 30, 1995 increased 37% compared with the
comparable prior year period. Operating expenses as a percentage of net sales
were 22% in the current quarter, compared to 24% in the prior year. The
decrease in operating expenses as a percentage of sales was due to the increase
in sales. The increase in the gross operating expenses was due to variable
selling costs associated with higher sales volume, accruals of year-end
supplemental compensation, the addition of three senior sales and marketing
professionals to Semtech's team, the opening of a representative office in
Taipei, Taiwan and the accrual of costs for an August sales meeting.
OTHER -
Other income of $20,000 was realized in the quarter ended July 30, 1995,
compared to other expense of $15,000 in the prior year's second quarter. The
other income and expenses are primarily interest income and expense.
INDUSTRY TRENDS AND OUTLOOK
The Company has experienced growth over the past year. A majority of this
growth has come from products used in personal computers and data communications
applications. The commercial semiconductor industry in which the Company's
products are used are characterized by rapid changes and short product life
cycles. The Company has experienced fluctuations in its results of operations.
Factors that affect the Company's results of operations include the volume and
timing of orders received, changes in the mix of products sold, competitve
pricing pressures, the Company's ability to introduce new products on a timely
basis, fluctuations in manufacturing yields, cyclical semiconductor industry
conditions and new products introduced by competitors. As a result of the
foregoing or other factors, there can be no assurance that the Company will not
experience fluctuations in future operating results on a quarterly or annual
basis.
11
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
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The Company is involved in legal matters which are routine to the nature of
its business. Management is of the opinion that the ultimate resolution of all
such matters will not have a material adverse effect on the accompanying
consolidated condensed financial statements.
Item 2. Changes in Securities
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The Company has registered 8.5% Convertible Subordinated Debentures due 1996
(the "Debentures") in the principal amount of $3,100,000. The Debentures are
subordinated to existing and future senior indebtedness and are convertible at
any time into one share of the Company's Common Stock at a conversion rate of
one common share per $1.00 face value of Debentures. At July 30, 1995,
$3,089,000 of Debentures were issued, and $134,000 were outstanding. The
balance of $2,955,000 of Debentures have been converted to Common Stock,
canceled or redeemed.
Item 3. Defaults upon Senior Securities
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
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(a) The 1995 Annual Meeting of Shareholders of the Company was duly held on June
8, 1995.
(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) Other matters voted upon at the meeting (i) Amendment to the 1994 Long-term
Stock Incentive Plan in which there were 2,451,592 affirmative votes,
143,674 negative votes and 33,506 abstaining votes (ii) Amendment to the
1994 Non-Employee Directors Stock Option Plan in which there were 2,539,085
affirmative votes, 154,886 negative votes and 35,391 abstaining votes (iii)
Increase in the authorized shares outstanding from 10 million to 15 million
in which there were 3,850,725 affirmative votes, 90,897 negative votes and
29,930 abstaining votes.
(d) Not applicable
Item 5. Other Information
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Not applicable.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
11.1 -Computation of per share earnings - See Note 2 of Notes to
Consolidated Condensed Financial Statements.
27 -Financial Data Schedule, Article 5
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the six months ended July
30, 1995.
12
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
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Registrant
Date: September 13, 1995 /S/ John D. Poe
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John D. Poe
President and
Chief Executive Officer
Date: September 13, 1995 /S/ David G. Franz, Jr.
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David G. Franz, Jr.
Vice President Finance and
Chief Financial Officer,
Secretary and Treasurer
13