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 April 28, 1996 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 April 28, 1996: 6,027,085.
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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 April 28, 1996, and the results of their operations and the changes in their
cash flow for the three months then ended.
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE FIGURES)
THREE MONTHS ENDED
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APRIL 28, APRIL 30,
1996 1995
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NET SALES $15,477 $12,780
Cost of sales 8,995 7,899
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Gross profit 6,482 4,881
Operating expenses 3,693 3,008
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Operating Income 2,789 1,873
Interest income (expense) 15 (9)
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Income before taxes 2,804 1,864
Provision for taxes 921 601
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NET INCOME $ 1,883 $ 1,263
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NET INCOME PER SHARE:
Primary $ .30 $ .21
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Fully diluted $ .30 $ .20
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
APRIL 28, JANUARY 28,
1996 1996
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,919 $ 6,034
Temporary investments 411 411
Receivables, net 8,309 7,987
Inventories 10,823 9,986
Income taxes refundable 75 72
Deferred income taxes 648 521
Other current assets 417 465
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TOTAL CURRENT ASSETS 25,602 25,476
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PROPERTY, PLANT AND EQUIPMENT, NET 7,311 6,748
OTHER ASSETS 138 134
DEFERRED INCOME TAXES 340 327
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TOTAL ASSETS $33,391 $32,685
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 399 $ 404
Accounts payable 3,340 4,060
Accrued liabilities 1,847 2,407
Other current liabilities 301 319
Income taxes payable 691 405
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TOTAL CURRENT LIABILITIES 6,578 7,595
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LONG-TERM DEBT, LESS CURRENT MATURITIES 915 1,024
OTHER LONG-TERM LIABILITIES 646 797
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 par value, 15,000,000
authorized 75 75
Additional paid-in capital 10,627 10,520
Retained earnings 14,905 13,022
Cumulative translation adjustment (355) (348)
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TOTAL SHAREHOLDERS' EQUITY 25,252 23,269
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $33,391 $32,685
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED
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APRIL 28, APRIL 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES -
Net income $ 1,883 $ 1,263
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 419 241
Changes in assets and liabilities:
Receivables (322) (1,662)
Inventories (837) 45
Other assets 44 80
Accounts payable and accrued liabilities (1,280) 426
Income tax refundable (3) (9)
Income tax payable 286 388
Other current liabilities (18) -
Deferred income taxes (140) -
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NET CASH PROVIDED BY OPERATING ACTIVITIES 32 772
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CASH FLOWS FROM INVESTING ACTIVITIES -
Temporary cash investments - 342
Additions to property, plant and equipment (982) (536)
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NET CASH USED BY INVESTING ACTIVITIES (982) (194)
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CASH FLOWS FROM FINANCING ACTIVITIES -
Net line of credit activity - (175)
Repayment of debt (114) (188)
Tax benefits from exercise of stock options 66 -
Stock options exercised 41 65
Other long-term liabilities (151) 28
Other - (74)
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NET CASH USED BY FINANCING ACTIVITIES (158) (344)
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Effect of exchange rate changes on cash (7) (31)
Net increase (decrease) in cash and cash equivalents (1,115) 203
Cash and cash equivalents at beginning of period 6,034 3,261
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,919 $ 3,464
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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 SFAS No. 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. Prior to fiscal year 1994, deferred
income taxes were provided on temporary differences between the income or loss
determined for financial reporting and income tax reporting at income tax rates
in effect when the differences are expected to be settled. The change did not
have a material effect on the financial statements.
The income tax provision for the three months ended April 28, 1996 consisted of
income tax expense of $874,000 on the income of the Company's U.S. operations
and income tax expense of $47,000 on the income from the Company's foreign
operation. In the prior year three month period ended April 30, 1995, the
Company incurred income tax expense of $578,000 on the income of the Company's
U.S. operations and income tax expense of $23,000 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
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APRIL 28, APRIL 30,
1996 1995
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PRIMARY........... 6,319,000 6,086,000
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FULLY DILUTED..... 6,319,000 6,256,000
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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 -
The commercial semiconductor industry and the markets in which the
Company's products are used are characterized by rapid changes and short product
life cycles. Consistent with the industry, the Company has experienced declines
in average selling prices over the life of its product lines. The Company has
fully reserved inventory which is obsolete or in excess of one year's demand,
and has provided reserves for declines in selling price below cost. Inventories
consisted of the following:
Raw Work in Finished Total
Materials process goods
(thousands)
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APRIL 28, 1996
Gross inventory $2,280 $7,488 $ 3,720 $13,488
Total reserves (727) $ (746) (1,192) (2,665)
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Net inventory $1,553 $6,742 $ 2,528 $10,823
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JANUARY 28, 1996
Gross inventory $2,016 $7,370 $ 3,191 $12,577
Total reserves (722) $ (688) (1,181) (2,591)
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Net inventory $1,294 $6,682 $ 2,010 $ 9,986
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5. LONG-TERM DEBT -
Long-term debt at April 28, 1996 consists mainly of notes payable. Notes
payable consists of fixed rate loans in the amount of $1,076,000 used for the
acquisition of equipment and the loan on the Company's Scotland facility in the
amount of $238,000.
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 $7,500,000
extending to August 1996 at an interest rate of 30 day rolling commercial paper
plus 2.65 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 April 28, 1996, the Company had $753,000 of borrowings outstanding
under this line which were converted into a term loan and reduce the borrowing
limit on the line of credit. 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. SIGNIFICANT CUSTOMERS
For the three months ended April 28, 1996, one customer accounted for 13%
of the Company's revenue. As of April 28, 1996, the Company had receivables from
this customer of $993,000. For the three months ended April 30, 1995, one
customer accounted for 10% of the Company's revenue.
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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 April 28, 1996, Semtech Corporation (the "Company") had working capital
of $19,024,000, compared with $17,881,000 at January 28, 1996 - an increase of
$1,143,000. The increase was primarily due to the Company's profitability
during the three months ended April 28, 1996. The Company's shipment levels
and net income for the first quarter of fiscal 1997 were higher than the
comparable quarter of last year.
During the first quarter of fiscal 1997, the Company used $1,115,000 of
cash and cash equivalents due to increased levels of inventory, outlays for
capital equipment, payments of accrued year-end supplemental compensation and
repayment of debt. Operating cash flow was a positive $32,000. The Company's
accounts receivable increased by $322,000 during the quarter as the result of
the Company's timing of shipments. The Company's inventories continued to
increase as more resources were spent on new and existing product lines. The
Company plans to continue to actively manage inventories to minimize inventory
being carried and to maximize inventory turns. During the first quarter, the
Company used cash of $114,000 to repay debt, $982,000 to pay for capital
equipment purchases during the quarter and approximately $700,000 for capital
equipment purchases which were accrued at year-end. These capital investments
were made to increase the capacity and process capabilities for wafer
fabrication and increase test capabilities. The ratio of current assets to
current liabilities at April 28, 1996, was 3.9 to 1, compared to 3.4 to 1 at
January 28, 1996.
The following leverage ratios indicate the extent to which the Company has
been financed with debt:
APRIL 28, JANUARY 28,
1996 1996
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Long-term debt as a % of total capitalization* 3.5% 5.2%
Total debt to total capitalization* 5.0% 4.2%
*Total capitalization is defined as the sum of long-term debt and
shareholders' equity.
The Company continues to implement its strategic plan to expand product
lines that serve the computer, communications, industrial and automotive
markets. In the past four years the Company has made significant investments in
the development and promotion of new products designed to transition away from
serving primarily military and aerospace customers. Commitments for new
equipment are designed to provide the Company with advanced production
capabilities needed to produce new products. In the first quarter ended April
28, 1996 the Company committed $695,000 for capital equipment. The commitments
made in the first quarter were to increase test capacity, improve production
capabilities and to upgrade the Company's central computer system. Outstanding
obligations for capital equipment were $250,000 at April 28, 1996, compared to
$537,000 at January 28, 1996. 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
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internally generated funds, on-hand cash balances, and an available line of
credit. 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
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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 months ended April 28, 1996 and April 30, 1995.
THREE MONTH PERIOD ENDED APRIL 28, 1996 COMPARED WITH THE THREE MONTH PERIOD
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ENDED APRIL 30, 1995:
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INDUSTRY TRENDS AND OUTLOOK -
The commercial semiconductor industry and the markets in which the
Company's products are used are characterized by rapid changes and short product
life cycles. During the first quarter of fiscal year 1997, the Company
experienced reduced demand for foundry wafers and increased price competition in
its commercial semiconductor product lines. The Company believes that this trend
will continue into the second quarter. The semiconductor industry as a whole has
experienced a general slowdown believed to be caused by increased supply and
decreased demand by end markets.
Typical of the semiconductor industry, the Company has experienced declines
in average selling prices over the life of its product lines. Prices declines
have further been influenced by increased competition and decreased demand.
Efforts to offset this decline include increasing units shipped, finding new
applications for existing products and introduction of new products. Management
will continue to take steps to minimize the impact of declines in average
selling prices, however, there is no assurance that these efforts will be
successful. Declines in average selling prices and reduced absorption related
to lower production rates can significantly impact the gross margins of the
Company.
The market for both the Company's commercial and military-aerospace
products remains fiercely competitive. The Company is focusing efforts on
eliminating less profitable product lines and pushing new product development.
The Company also derives a significant amount of revenue from the sale of
foundry wafers. These wafers are generally purchased by manufacturers who
package the individual silicon die in their products. The foundry business is
also very competitive, with other foundries offering similar services. The
revenue generated by the foundry and standard products segments can vary
significantly depending not only on macro trends within the industry, but also
on conditions at specific customers.
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REVENUES -
Revenues for the first quarter ended April 28, 1996 were $15,477,000
compared to $12,780,000 in the first quarter ended April 30, 1995, an overall
increase of 21%. In comparison to last year's first quarter, sales of the
Company's standard and custom products increased by 34%, while sales of foundry
services declined by approximately 14%.
Sales of devices used in commercial applications represented approximately
85% of total revenues in the first quarter of fiscal 1997. Computer and
peripheral applications represent a large portion of the customer base for the
Company's commercial products. Communications, industrial and foundry customers
make up the balance of commercial sales. Revenues from military and aerospace
customers remained relatively flat in the quarter at approximately 15% of net
sales. Sales to commercial customers was 78% versus 22% to military-aerospace
customers in the first quarter of last year.
Shipments to customers located in the Asia-Pacific region were
approximately 26% of the total sales for the first quarter of fiscal 1997, an
increase over the 21% of total sales recorded in the first quarter of last year.
Sales to European customers represented 14% of first quarter of fiscal 1997
total sales compared to 13% in the first quarter of fiscal 1996.
New orders levels for the first quarter were less than total shipments in
the quarter, resulting in a book-to-bill ratio of less than 1 to 1, but above
the industry-wide average. In the first quarter, the Company witnessed a change
in customer's buying patterns away from longer-term orders to short-term orders,
referred to as "turns-fill" orders. The Company believes the semiconductor's
industry wide slowdown will continue to affect buying patterns and new order
rates through the second quarter and potentially longer. The book-to-bill ratio
for last year's first quarter was above 1.10 to 1. Such "turns-fill" orders will
be very important for the Company to meet its second quarter revenue targets.
There is no guarantee that the Company's "turns-fill" order rate will be
sufficient for meeting short-term targets.
COSTS AND EXPENSES -
COST OF GOODS SOLD -
Gross profit margins as a percentage of net sales increased to 42% in the
first quarter of fiscal 1997, compared to 38% in the same period last year.
Gross margins have improved over last year's levels due to increased shipments
of higher margin commercial products and improved manufacturing efficiencies.
Gross margins in comparison to last year have also been positively impacted by
increased throughput at the Company's manufacturing facilities. Future gross
margin performance will be affected by shipment rates, product mix, productivity
levels and price changes. Average selling prices, capacity utilization and new
order rates will continue to have the most significant impact on margins.
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OPERATING EXPENSES -
Operating costs and expenses were approximately flat at 24% of net sales in
the first three months of fiscal 1997 compared to 24% in the first quarter of
fiscal 1996. The increase in gross operating expenses reflects an increase in
variable selling costs and increased spending on research and development (R&D)
activity in the first three months of fiscal 1997.
The Company is aggressively pursuing additional design and applications
talent to foster new product development. Added headcount and overall support
of development will continue to result in higher R&D spending levels. The
Company hopes to offset some of the increased R&D expense with decreased
expenses as percentage of sales in administrative and sales activities. Such a
decrease in operating expenses other than R&D will be dependent on the Company's
ability to grow revenues.
OTHER -
Other income of $15,000 was realized in the quarter ended April 28, 1996,
compared to other expense of $9,000 in the prior year's first quarter. The other
income and expenses are primarily interest income and expense.
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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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Not applicable.
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 1996 Annual Meeting of Shareholders of the Company was duly held on
June 6, 1996.
(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 2,885,344 affirmative votes,
659,585 negative votes, 23,248 abstaining votes and 1,526,370 Broker Non-
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 three months ended April
28, 1996.
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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
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Registrant
Date: June 12, 1996 /S/ John D. Poe
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John D. Poe
President and
Chief Executive Officer
Date: June 12, 1996 /S/ David G. Franz, Jr.
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David G. Franz, Jr.
Vice President Finance, Chief
Financial Officer, and
Secretary
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