SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
____________
For Quarter Ended October 29, 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 October 29, 1995: 5,802,538.
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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 October 29, 1995, and the results of their operations and the changes in
their cash flow for the three and nine months periods then ended.
2
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE FIGURES)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- ------------------------
OCTOBER 29, OCTOBER 30, OCTOBER 29, OCTOBER 30,
1995 1994 1995 1994
----------- ------------ ----------- -----------
NET SALES $16,577 $8,324 $44,031 $24,302
Cost of sales 9,522 5,735 25,990 16,695
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Gross profit 7,055 2,589 18,041 7,607
Operating expenses 3,714 2,164 10,144 6,582
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Operating income 3,341 425 7,897 1,025
Interest and other expense (income) 451 (22) 462 20
------- ------ ------- -------
Income before taxes 2,890 447 7,435 1,005
Provision for taxes 985 145 2,451 304
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NET INCOME $ 1,905 $ 302 $ 4,984 $ 701
======= ====== ======= =======
NET INCOME PER SHARE:
Primary $ 0.31 $ 0.06 $ 0.81 $ 0.13
======= ====== ======= =======
Fully diluted $ 0.30 $ 0.05 $ 0.78 $ 0.12
======= ====== ======= =======
See accompanying notes to financial statements.
3
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
OCTOBER 29, JANUARY 29,
1995 1995
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,256 $ 3,261
Temporary investments 420 821
Receivables, net 8,304 5,367
Income taxes refundable 78 71
Inventories 8,881 7,313
Other current assets 519 199
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TOTAL CURRENT ASSETS 22,458 17,032
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PROPERTY, PLANT AND EQUIPMENT, NET 5,146 3,491
OTHER ASSETS 531 464
DEFERRED INCOME TAXES 695 390
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TOTAL ASSETS $28,830 $21,377
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit $ - $ 175
Current maturities of long-term debt 291 304
Accounts payable 3,107 2,749
Accrued liabilities 2,779 2,301
Other current liabilities 193 218
Income taxes payable 1,338 476
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TOTAL CURRENT LIABILITIES 7,708 6,223
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LONG-TERM DEBT, LESS CURRENT MATURITIES 504 799
OTHER LONG-TERM LIABILITIES 639 639
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 par value,
15,000,000 authorized 127 126
Additional paid-in capital 9,580 8,242
Retained earnings 10,550 5,566
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20,257 13,934
Cumulative translation adjustment (278) (218)
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TOTAL SHAREHOLDERS' EQUITY 19,979 13,716
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TOTAL LIABILITIES AND SHAREHOLDERS' $28,830 $21,377
EQUITY ======= =======
See accompanying notes to financial statements.
4
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
--------------------------
OCTOBER 29, OCTOBER 30,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES -
Net income $ 4,984 $ 701
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 896 814
Changes in assets and liabilities:
Receivables (2,937) (225)
Inventories (1,567) (1,767)
Other assets (388) 1
Accounts payable and accrued
liabilities 836 12
Deferred income tax asset (305) (29)
Income tax refundable (7) 66
Income taxes payable 862 (22)
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NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 2,374 (449)
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CASH FLOWS FROM INVESTING ACTIVITIES -
Temporary cash investments 401 201
Additions to property, plant and (2,552) (664)
equipment ------- -------
NET CASH USED BY INVESTING (2,151) (463)
ACTIVITIES ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES -
Net line of credit activity (175) (111)
Repayment of debt (307) (131)
Additions to debt - 535
Receipts on notes receivables - 35
Tax benefit from stock option 1,035 -
transactions
Stock options and debentures exercised 305 113
Other (27) -
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NET CASH PROVIDED BY FINANCING
ACTIVITIES 831 441
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Effect of exchange rate changes on cash (59) 85
Net increase (decrease) in cash and 995 (386)
cash equivalents
Cash and cash equivalents at beginning 3,261 3,153
of period ------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 4,256 $ 2,767
======= =======
See accompanying notes to financial statements.
5
SEMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. INCOME TAXES -
Effective February 1, 1993, the Semtech Corporation (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 or liabilities from period to period.
The income tax provision for the three and nine months ended October 29, 1995
consisted of income tax expense of $930,000 and $2,347,000, respectively, on the
income of the Company's U.S. operations and income tax expense of $55,000 and
$104,000, respectively, on the income from the Company's foreign operation. In
the prior year three and nine months period ended October 30, 1994, the Company
incurred income tax expense of $136,000 and $247,000, respectively, on the
income of the Company's U.S. operations and income tax expense of $9,000 and
$57,000, respectively, on income from the Company's foreign operation.
2. ACQUISITION -
On October 4, 1995 the Company entered into an Agreement and Plan of Merger
("Merger Agreement") among the Company, Semtech Acquisition Corp., Gamma Inc.
(dba ECI Semiconductor) and the Shareholders of Gamma Inc. dated October 4,
1995. Pursuant to the Merger Agreement, on October 4, 1995, Semtech Acquisition
Corp. was merged into Gamma Inc. and Gamma Inc. was the surviving corporation.
Gamma Inc. was then renamed Semtech Santa Clara Corp. Each share of Gamma Inc.
stock outstanding on October 4, 1995, by virtue of the Merger Agreement, was
exchanged for and converted into fully paid and nonassessable voting common
shares, par value $.01 per share, of Semtech Corporation common stock, at the
exchange rate of 775,000 shares of Semtech Corporation common stock, for 147,566
shares of Gamma Inc. common stock. Semtech Corporation acquired Gamma Inc. to
integrate and complement its existing businesses and technology.
This acquisition has been accounted for as a pooling of interests. All prior
periods have been restated as though the acquisition had been completed as of
January 30, 1994. Prior period results combined with those of Semtech were as
follows, in thousands:
6 months ended 9 months ended
July 30, 1995 October 30, 1994
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Semtech - Revenues $19,916 $18,143
Gamma Inc. - Revenue 7,538 6,159
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COMBINED REVENUES $27,454 $24,302
Semtech - Net Income $ 2,635 $ 618
Gamma Inc. - Net Income 444 83
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COMBINED NET INCOME $ 3,079 $ 701
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3. 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. Prior year amounts have been restated to reflect the 775,000
shares of Semtech common stock issued to the former shareholders of ECI as if
they had been granted on January 30, 1994.
THREE MONTHS ENDED NINE MONTHS ENDED
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OCTOBER 29, OCTOBER 30, OCTOBER 29, OCTOBER 30,
1995 1994 1995 1994
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PRIMARY................... 6,238,000 5,428,000 6,172,000 5,382,000
========= ========= ========= =========
FULLY DILUTED............. 6,379,000 5,887,000 6,379,000 5,854,000
========= ========= ========= =========
4. 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.
5. INVENTORIES -
Inventories consisted of the following:
OCTOBER 29, JANUARY 29,
1995 1995
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RAW MATERIALS........................... $1,228,000 $1,216,000
WORK IN PROCESS......................... 5,416,000 4,672,000
FINISHED GOODS.......................... 2,237,000 1,425,000
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TOTAL $8,881,000 $7,313,000
========== ==========
6. LONG-TERM DEBT -
Long-term debt at October 29, 1995 consists mainly of $661,000 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 $392,000 used for the acquisition
of equipment, the loan on the Company's Scotland facility in the amount of
$259,000, and long-term obligations due on capital leases of $10,000.
7. 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 October 29, 1995, the Company had no borrowings outstanding
against the line. The Company also maintains an overdraft
7
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.
8. STATEMENT OF CASH FLOWS -
The Company had the following non-cash activities for each of the respective
periods:
NINE MONTHS ENDED
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OCTOBER 29, OCTOBER 30,
1995 1994
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Non-cash activities -
Stock issued for services $35,000 $ 0
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Debentures converted to stock $ 0 $35,000
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Interest paid in the nine months ended October 29, 1995 was $77,000
compared to $124,000 in the nine months ended October 30, 1994. Income taxes
paid in the nine month period ended October 29, 1995 was $551,000 and income
taxes paid in the nine months ended October 30, 1994 was $153,000.
9. SIGNIFICANT CUSTOMERS
For the three and nine months ended October 29, 1995, one customer accounted
for approximately 12% and 11% of the Company's revenue. As of October 29, 1995
the receivable from that customer was $310,843.
8
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 October 29, 1995, the Semtech Corporation (the "Company") had working
capital of $14,813,000, compared with $10,872,000 at January 29, 1995 - an
increase of $3,941,000. The increase was primarily due to the Company's higher
level of shipments and profitability during the nine months ended October 29,
1995. The increased shipments were the result of increased demand for the
Company's line of linear regulators, transient voltage protection devices
("TVS") and increased production and shipments of foundry wafers by Semtech
Santa Clara. 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. The Company's foundry customers include a large, diversified
semiconductor manufacturer and the semiconductor division of a manufacturer.
During the nine months ended October 29, 1995, the Company generated $995,000 of
cash and cash equivalents. Operating cash flow during the period was
$2,374,000. The Company's accounts receivable increased by $2,937,000 during
this period. 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 grew as the Company continued to ramp up production at its Corpus
Christi and Santa Clara wafer fabs. The Company plans to continue to actively
manage inventories to minimize inventory being carried and to maximize inventory
turns. During the nine months ended October 29, 1995, the Company used cash to
repay debt and line of credit drawdowns totaling $482,000 and to pay for capital
equipment totaling $2,552,000. The capital investments were made to increase
capacity for wafer fabrication, assembly, test and improve facilities. The
ratio of current assets to current liabilities at October 29, 1995, was 2.9 to
1, compared to 2.8 to 1 at January 29, 1995.
The following leverage ratios indicate the extent to which the Company has
been financed with debt:
OCTOBER 29, JANUARY 29,
1995 1995
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Long-term debt as a % of total
capitalization* 2.5% 5.5%
Total debt to total capitalization* 3.9% 7.6%
*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 nine months ended October 29, 1995 the Company committed $4,019,000 for
new equipment purchases. The commitments made during this period were to
increase test capacity in the Company's Corpus Christi plant and in the Far
East, convert our Corpus Christi wafer fabrication facility to 4" wafers from 3"
wafers, increase assembly capacity at our sub-contractors in the Far East,
improve the Corpus Christi facility and clean room, increase epi capacity and
increase fab capacity. Outstanding obligations for capital
9
equipment were $1,646,000 at October 29, 1995, compared to $149,000 at January
29, 1995. Future capital acquisitions will continue to be based on economic
conditions of the Company's 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 likely
in the fourth quarter of fiscal 1996. 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.
(2) Material Changes in Results of Operations
-----------------------------------------
The following information is provided to further explain certain financial
information shown in the Consolidated Condensed Statements of Operations for the
three and nine months ended October 29, 1995, and October 30, 1994.
THREE AND NINE MONTH PERIODS ENDED OCTOBER 29, 1995, COMPARED WITH THE THREE AND
- --------------------------------------------------------------------------------
NINE MONTH PERIODS ENDED OCTOBER 30, 1994:
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REVENUES -
Revenues for the third quarter ended October 29, 1995 were $16,577,000
compared to $8,324,000 in the third quarter ended October 30, 1994, an increase
of 99%. Revenues for the nine months ended October 29, 1995 increased 81% over
the same period in the prior year. Revenues increased due to Company's ability
to increase production at its Corpus Christi and Santa Clara wafer fabrication
facilities, introduce new products, increase the Company's production capacity
at sub-contractors in the Far East, and penetrate new markets. External factors
which helped drive the increased sales include the continued shift in the
personal computer market to microprocessors which run on less than 5 volts
(typically 3.3 volts), government mandates of transient protection in Europe and
high overall levels of demand for semiconductor products. One 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 two consecutive quarters. Total sales to
customers located in the Far East was 24% of total revenue in the three months
ended October 29, 1995 compared to less than 5% of total revenue in prior year
third quarter.
New orders were $18,896,000 in the third quarter of fiscal year 1996 for a book
to bill ratio of 1.14. Commercial products accounted for approximately 85% of
orders received in three months ended October 29, 1995 compared to 61% of the
orders in the prior year third quarter. The increased bookings were the result
of the Company's ability to generate more orders for its family of EZ
Regulators, demand for foundry wafers, new standard products, custom circuits
designed for several customers and strong demand for TVS products in Europe. 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. The Company's line of TVS devices also has contributed to the growth in
orders on a quarter to quarter basis. Orders from customers located in the Far
East were approximately 26% of total orders in the three months ended October
29, 1995.
The Company maintains its belief that the military market will continue to
decline in the future. As a result the Company has made significant
10
investments in new products, primarily targeted for the telecommunications, data
communications and computer markets. The Company also has begun to take efforts
to reduce costs associated with making its various military products, in order
to improve gross margins.
COSTS AND EXPENSES -
COST OF GOODS SOLD -
Gross profit margins as a percentage of net sales increased to 43% in the
third quarter of fiscal 1996, compared to 31% in the same period last year.
Gross profit margins for the nine months ended October 29, 1995 increased to 41%
from 31% in the comparable prior year period. Gross margins have improved over
the last year 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 and Santa Clara wafer fabrication
facilities.
OPERATING EXPENSES -
Operating costs and expenses increased 72% in the three months ended October
29, 1995 compared with the quarter ended October 30, 1994. Operating costs and
expenses increased 54% in the nine month period ended October 29, 1995 compared
with the nine month period ended October 30, 1994. Operating expenses as a
percentage of net sales were 22% in the current quarter, compared to 26% 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 two senior sales and
marketing professionals to Semtech's team and increased spending on product
development.
OTHER -
Other expense of $451,000 was realized in the quarter ended October 29,
1995, compared to other income of $22,000 in the prior year's third quarter.
Other expense for the quarter ended October 29, 1995 includes $492,000 of one-
time costs related to the acquisition of Gamma Inc. The acquisition costs are
principally the charges of the attorneys, auditors and investment bankers that
assisted the company in completing the transaction. The remainder of 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, competitive
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
---------------------
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 October 29, 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
-------------------------------
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) Information provided in July 30, 1995 10-Q filed with the Securities and
Exchange Commission on or about September 13, 1995.
(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 3 of Notes to
Consolidated Condensed Financial Statements.
27 -Financial Data Schedule, Article 5.
(b) Reports on Form 8-K
On October 19, 1995 the Company filed a report on Form 8-K to report the
acquisition of Gamma Inc, dba ECI Semiconductor.
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
-------------------
Registrant
Date: December 12, 1995 /s/ John D. Poe
--------------------------------
John D. Poe
President and
Chief Executive Officer
Date: December 12, 1995 /s/ David G. Franz, Jr.
--------------------------------
David G. Franz, Jr.
Vice President Finance and
Chief Financial Officer,
Secretary and Treasurer
13