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 October 27, 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 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 27, 1996: 6,064,285.
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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 27, 1996, and the results of their operations and the changes in
their cash flow for the three and nine months then ended.
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except for per share figures)
(Unaudited)
Three Months Ended Nine Months Ended
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October 27 October 29 October 27 October 29
1996 1995 1996 1995
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NET SALES $ 17,093 $ 16,577 $ 45,994 $ 44,031
Cost of sales 10,030 9,522 27,142 25,990
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Gross profit 7,063 7,055 18,852 18,041
Operating expenses 4,121 3,714 11,265 10,144
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Operating income 2,942 3,341 7,587 7,897
Interest and other (income) expense (4) 451 (18) 462
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Income before taxes 2,946 2,890 7,605 7,435
Provision for taxes 972 985 2,505 2,451
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NET INCOME $ 1,974 $ 1,905 $ 5,100 $ 4,984
========== ========== ========== ==========
NET INCOME PER SHARE:
Primary $ 0.31 $ 0.31 $ 0.80 $ 0.81
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Fully diluted $ 0.31 $ 0.30 $ 0.80 $ 0.78
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(Unaudited)
October 27, January 28,
1996 1996
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,664 $ 6,034
Temporary investments 411 411
Receivables, net 8,892 7,987
Inventories 12,197 9,986
Income taxes refundable 75 72
Deferred income taxes 461 465
Other current assets 571 521
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TOTAL CURRENT ASSETS 29,271 25,476
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PROPERTY, PLANT AND EQUIPMENT, NET 7,937 6,748
OTHER ASSETS 166 134
DEFERRED INCOME TAXES 524 327
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TOTAL ASSETS $37,898 $32,685
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 503 $ 404
Accounts payable 4,011 4,060
Accrued liabilities 2,258 2,407
Other current liabilities 310 319
Income taxes payable 646 405
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TOTAL CURRENT LIABILITIES 7,728 7,595
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LONG-TERM DEBT, LESS CURRENT MATURITIES 960 1,024
OTHER LONG-TERM LIABILITIES 434 797
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 par value, 15,000,000
authorized 76 75
Additional paid-in capital 10,847 10,520
Retained earnings 18,122 13,022
Cumulative translation adjustment (269) (348)
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TOTAL SHAREHOLDERS' EQUITY 28,776 23,269
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $37,898 $32,685
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the Nine Months Ended
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October 27, October 29,
1996 1995
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CASH FLOW FROM OPERATING ACTIVITIES -
Net income $ 5,100 $ 4,984
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,399 896
Tax benefit from stock option transactions 192 1,035
Change in assets and liabilities:
Receivables (905) (2,937)
Inventories (2,211) (1,567)
Other assets (32) (388)
Accounts payable and accrued liabilities (198) 836
Income tax refundable (3) (7)
Income tax payable 241 862
Other liabilities (363) _
Deferred income taxes (193) (305)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 3,027 3,409
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CASH FLOWS FROM INVESTING ACTIVITIES -
Temporary cash investments - 401
Additions to property, plant and equipment (2,587) (2,552)
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NET CASH USED BY INVESTING ACTIVITIES (2,587) (2,151)
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CASH FLOWS FROM FINANCING ACTIVITIES -
Net line of credit activity - (175)
Additions to debt 809 _
Repayment of debt (774) (307)
Stock options exercised 135 305
Other (59) (27)
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 111 (204)
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Effect of exchange rate changes on cash 79 (59)
Net increase in cash and cash equivalents 630 995
Cash and cash equivalents at beginning of period 6,034 3,261
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,664 $ 4,256
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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 difference between the income or loss
determined for financial reporting and income tax reporting at income tax rates
in effect when the difference are expected to be settled. The change did not
have a material effect on the financial statements.
The income tax provision for the nine months ended October 27, 1996 consisted of
income tax expenses of $2,384,000 on the income of the Company's U.S. operations
and income tax expense of $121,000 on the income from the Company's foreign
operation. In the prior year nine month period ended October 29, 1995, the
Company incurred income tax expense of $2,347,000 on the income of the Company's
U.S. operations and income tax expense of $104,000 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 Nine Months Ended
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October 27, October 29, October 27, October 29,
1996 1995 1996 1995
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Primary.............. 6,316,000 6,238,000 6,343,000 6,127,000
========= ========= ========= =========
Fully Diluted........ 6,402,000 6,379,000 6,351,000 6,379,000
========= ========= ========= =========
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 -
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
(thousands) Materials process goods
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OCTOBER 27, 1996
Gross inventory $ 2,425 $ 8,945 $ 3,752 $15,122
Total reserves (745) $ (873) (1,307) (2,925)
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Net inventory $ 1,680 $ 8,072 $ 2,445 $12,197
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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 October 27, 1996 is made up solely of notes payable.
Notes payable consists of a fixed rate loan in the amount of $257,000 and two
variable rate loans totaling $968,000 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 1998 at an interest rate of 30 day rolling commercial paper
plus 2.50 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 27, 1996, the Company had $968,000 of borrowings
outstanding under this line which were converted into term loans 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 October 27, 1996, one customer accounts for 10%
of the Company's net sales. For the three and nine months ended October 29,
1995, one customer accounted for approximately 12% and 11% of the Company's
revenue, respectively.
Item 2. Management's Discussion and Analysis of Financial Conditions and
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Results of Operations
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(1) Material Changes in Financial Condition
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At October 27, 1996, Semtech Corporation (the "Company") had working
capital of $21,543,000, compared with $17,881,000 at January 28, 1996 - an
increase of $3,662,000. The increase was primarily due to the Company's
profitability during the nine months ended October 27, 1996.
For the first three quarters of fiscal year 1997, the Company built
$630,000 of cash and cash equivalents. The build in cash and cash
equivalents was due to Company's profitability during the period and was
only partially offset by cash outlays for inventory, capital equipment, and
year-end supplemental compensation relating to the prior fiscal year.
Operating cash flow for the first nine months of the year was a positive
$3,027,000, a majority of which was generated in the third quarter. Major
factors effecting operating cash flow include profitability, increased
inventory levels and increased accounts receivable.
The Company's inventories continued to increase as more resources were
spent on new and existing product lines. The growth rate of inventory
levels for the third quarter was less than the two previous quarters due to
increased sales during the quarter. The Company actively manages
inventories in an effort to minimize the levels of each product lines'
inventory, without limiting the ability to grow sales. It is expected
that inventory levels will continue to grow over future quarters as efforts
are made to increase revenue levels and diversify the organizations'
product lines and market applications. Planned increases in inventories of
certain product lines' should be partially offset by decreased levels in
older and declining product lines.
During the first nine months of fiscal 1997, the Company used cash of
$774,000 to repay outstanding debt, $2,587,000 to pay for capital equipment
purchases. The ratio of current assets to current liabilities at October
27, 1996, was 3.8 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:
October 27, January 28,
1996 1996
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Long-term debt as a % of total capitalization* 3.2% 4.2%
Total debt to total capitalization* 4.9% 5.9%
*Total capitalization is defined as the sum of long-term debt and
shareholders' equity.
Expansion of product lines that serve commercial markets is the focus
of the Company's strategic plan. Investment in design, applications,
strategic marketing and advanced manufacturing process are all aimed at
improving the organization's ability to serve the computer, communications,
industrial and automotive markets. The Company once derived more than 70%
of its revenues from products sold to military and aerospace customers.
Over the past four years, the transition from serving primarily military
customers to serving commercial customers has resulted in approximately
15% of revenues being
derived from military accounts and 85% from commercial accounts (for the first
nine months of fiscal 1997).
In the nine months ended October 27, 1996 the Company spent $2.6 million for
capital equipment. The commitments made were to increase test capacity, improve
production capabilities and to upgrade the Company's central computer system.
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, 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 and nine month periods ended October 27, 1996 and October 29, 1995.
THREE AND NINE MONTH PERIODS ENDED OCTOBER 27, 1996 COMPARED WITH THE THREE AND
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NINE MONTH PERIODS ENDED OCTOBER 29, 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 six months of fiscal year 1997, there was reduced
demand for the Company's foundry wafers and increased price competition in its
commercial semiconductor product lines. The Company did experience improved new
order rates and related shipment levels in the third quarter. The improved
market conditions were most notably in the computer and computer peripheral
markets. Several positive factors that benefited the Company's results in the
three months ended October 27, 1996 was increased production rates at computer
manufactures, requirements for multiple devices per application and the addition
of three new high-profile electronics manufactures to its customer base.
Increased bookings during the third quarter allowed the Company to build
backlog for the fourth quarter in excess of the levels entering the third
quarter. Because of the higher backlog levels the Company will be less dependent
on 'turns' orders to fill in the fourth quarter.
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. Efforts to offset this
decline include increasing units shipped, improved manufacturing efficiencies,
finding new applications for existing products, introduction of new products and
a major program to reduce silicon die size in several product families.
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 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 approximately 15% (estimate for most recent quarter) of
revenues 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 revenues 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.
REVENUES -
Revenues for the third quarter ended October 27, 1996 were $17,093,000
compared to $16,577,000 in the third quarter ended October 29, 1995, an increase
of 3%. Revenues for the nine months ended October 27, 1996 were $45,994,000
compared to $44,031,000 in the nine months ended October 29, 1995, an increase
of 1,963,000 or 4%. As expected, conditions in the semiconductor market improved
during the third quarter. These improved market conditions and further market
penetration by the Company, produced the quarter over quarter increase in
revenues.
Sales of devices used in commercial applications represented approximately
85% of total revenues in the third 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
remains at approximately 15% of net sales.
Shipments to customers located in the Asia-Pacific region were 36% of the
total sales for fiscal 1997's third quarter, an increase over the comparable
prior year quarter in which sales in the Asia-Pacific region represented 24% of
sales. Sales to European customers represented 14% of total sales for the third
quarter of fiscal 1997 compared to 13% in the third quarter of fiscal 1996.
New order levels for the third quarter were greater than total shipments in
the quarter, resulting in a book-to-bill ratio of greater than 1 to 1. The
book-to-bill ratio for the comparable three month period last year was also
greater than 1 to 1. The strong third quarter book to bill reflects an
improvement in market conditions, the Company's introduction of new products and
strong demand from the Company's customers in the personal computer industry.
Customers' inventory levels, most apparent in the Company's line of voltage
regulators, appear to be at very low levels. Our customers significantly reduced
their inventory of our products during the first half of fiscal 1997. The
improved booking rate will reduce the Company's dependence on 'turns' business
to fill in the fourth quarter. However, a fair quantity of orders received are
short-term orders (referred to as "turns-fill" orders) versus longer-term
scheduled orders.
COSTS AND EXPENSES -
COST OF GOODS SOLD -
Gross profit margins as a percentage of net sales was 41.3% in the third
quarter of fiscal 1997, compared to 42.5% in the same period last year. For the
nine months ended October 27, 1996 and October 29, 1995, gross margins were 41%
and 41%, respectively. The decline in gross margins for the third quarter is due
to declines in average unit selling prices, partially offset by improved
manufacturing yields and efficiencies and by an improved mix of products
shipped.
The Company took steps in the third quarter that should benefit gross
margins in the fourth quarter. New designs were put into production which reduce
the die size in many of the Company's integrated circuit (IC) products. Die size
shrinks allow for more products to be produced from each fabricated wafer - a
benefit of increased efficiencies and lower costs.
Future gross margin performance will be affected by the above noted changes
as well as 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.
OPERATING EXPENSES -
Operating costs and expenses were at 24% of the net sales in the third
quarter of fiscal 1997 compared to 22% in the third quarter of fiscal 1996.
Operating expenses for the first nine months of fiscal 1997 were at 24% of net
sales versus 23% in the first nine months of fiscal 1996. Both the quarterly and
nine month operating expenses reflect increased spending on research and
development (R&D) activity.
In May 1996, the Company opened a design center at its Santa Clara,
California facility. Two senior designers were also added in the second quarter,
one of which was named vice president of product design and development. The
Company plans to add up to 10 new designers to the design center's staff by the
end of fiscal 1997 to support additional design activity.
The Company will continue to aggressively pursue not only additional
design, but also applications and strategic marketing talent needed 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 a 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 -
Interest and other income of $4,000 was realized in the quarter ended
October 27, 1996, compared to other expense of $451,000 in the prior year's
third quarter. The prior year other expense included a charge of $492,000
relative to the completion of Semtech's acquisition of Gamma Inc. For the nine
month periods ended October 27, 1996 and October 29, 1995, $18,000 of income and
$462,000 of expense, respectively, was realized. Other income and expenses for
all periods is primarily interest income and expense.
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. The results of voting have been previously reported.
(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) The results of voting have been previously reported.
(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 nine months ended
October 27, 1996.
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: December 10, 1996 /S/ John D. Poe
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John D. Poe
President and
Chief Executive Officer
Date: December 10, 1996 /S/ David G. Franz, Jr.
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David G. Franz, Jr.
Vice President Finance, Chief
Financial Officer, and
Secretary