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 27, 1997 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, $0.01 par value, outstanding at April 27,
1997: 6,139,916.
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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 27, 1997, and the results of their operations and their cash flows for
the three months then ended.
2
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE FIGURES)
(UNAUDITED)
THREE MONTHS ENDED
APRIL 27, APRIL 28,
1997 1996
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NET SALES $ 20,375 $ 15,477
Cost of sales 11,270 8,995
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Gross profit 9,105 6,482
Operating expenses 4,888 3,693
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Operating income 4,217 2,789
Interest and other income, net (34) (15)
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Income before taxes 4,251 2,804
Provision for taxes 1,403 921
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NET INCOME $ 2,848 $ 1,883
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NET INCOME PER SHARE:
Primary $ 0.42 $ 0.30
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Fully diluted $ 0.42 $ 0.30
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3
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PER SHARE FIGURE)
(UNAUDITED)
APRIL 27, JANUARY 26,
1997 1997
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,464 $ 8,346
Temporary investments 655 757
Receivables, net 8,948 8,465
Income taxes refundable 66 68
Inventories 14,067 13,598
Other current assets 894 853
Deferred income taxes 564 588
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TOTAL CURRENT ASSETS 35,658 32,675
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PROPERTY, PLANT AND EQUIPMENT, NET 9,690 8,470
OTHER ASSETS 16 198
DEFERRED INCOME TAXES 218 302
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TOTAL ASSETS $ 45,582 $ 41,645
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 322 $ 193
Accounts payable 4,170 4,660
Accrued liabilities 2,658 2,305
Income taxes payable 1,278 821
Other current liabilities 794 660
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TOTAL CURRENT LIABILITIES 9,222 8,639
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LONG-TERM DEBT, LESS CURRENT MATURITIES 1,072 1,237
OTHER LONG-TERM LIABILITIES 350 287
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 par value, 15,000,000 authorized 77 76
Additional paid-in capital 11,557 11,012
Retained earnings 23,521 20,673
Cumulative translation adjustment (217) (279)
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TOTAL SHAREHOLDERS' EQUITY 34,938 31,482
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 45,582 $ 41,645
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4
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
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APRIL 27, APRIL 28,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES -
Net income $ 2,848 $ 1,883
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 512 419
Deferred income taxes 108 (140)
Tax benefit from stock option transactions 322 66
Changes in assets and liabilities:
Receivables (483) (322)
Income taxes refundable 2 (3)
Inventories (469) (837)
Other assets 141 44
Accounts payable and accrued liabilities (137) (1,280)
Income taxes payable 457 286
Other liabilities 134 (18)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 3,435 98
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CASH FLOWS FROM INVESTING ACTIVITIES -
Temporary cash investments 102 --
Additions to property, plant and equipment (1,732) (982)
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NET CASH USED BY INVESTING ACTIVITIES (1,630) (982)
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CASH FLOWS FROM FINANCING ACTIVITIES -
Repayment of debt (36) (114)
Stock options exercised 224 41
Other long-term liabilities 63 (151)
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 251 (224)
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Effect of exchange rate changes on cash 62 (7)
Net increase (decrease) in cash and cash equivalents 2,118 (1,115)
Cash and cash equivalents at beginning of period 8,346 6,034
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,464 $ 4,919
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SEMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. INCOME TAXES -
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109. Under SFAS No.
109, deferred income tax assets or liabilities are computed based on the
temporary differences between the financial statement and income tax bases of
assets and liabilities using the statutory marginal income tax rate in effect
for the years 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 months ended April 27, 1997
consisted of income tax expense of $1,334,000 on the income of the Company's
U.S. operations and income tax expense of $69,000 on the income from the
Company's foreign operation. In the prior year three month period ended April
28, 1996, the Company incurred income tax expense of $874,000 on the income of
the Company's U.S. operations and income tax expense of $47,000 on income from
the Company's foreign operation.
2. INCOME PER SHARE -
Primary and fully diluted net income per share of common stock has been
computed based on the weighted average number of common and common equivalent
shares outstanding, as follows:
THREE MONTHS ENDED
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APRIL 27, APRIL 28,
1997 1996
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Primary......... 6,808,000 6,319,000
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Fully Diluted... 6,808,000 6,319,000
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In February 1997, the Financial Accounting Standards Board introduced SFAS No.
128 "Earnings per Share" and SFAS No. 129 "Disclosure of Information About
Capital Structure". SFAS No. 128 revises and simplifies the computation of
earnings per share and requires certain additional disclosures. SFAS No. 129
requires additional disclosure regarding the Company's capital structure. Both
standards will be adopted in the fourth quarter of fiscal year 1998. Management
does not expect the adoption of SFAS No. 129 to have material effect on the
Company's financial position or results of operations. The Company has not yet
evaluated the impact of adopting SFAS No. 128 on earnings per share.
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.
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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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APRIL 27, 1997
Gross inventory $ 2,392 $ 9,790 $ 5,321 $17,503
Total reserves (749) $ (768) (1,919) (3,436)
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Net inventory $ 1,643 $ 9,022 $ 3,402 $14,067
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JANUARY 26, 1997
Gross inventory $ 2,895 $ 9,173 $ 3,842 $15,910
Total reserves (702) $ (460) (1,150) (2,312)
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Net inventory $ 2,193 $ 8,713 $ 2,692 $13,598
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5. LONG-TERM DEBT -
Long-term debt at April 27, 1997 is made up solely of notes payable.
Notes payable consists of a fixed rate loan with $189,000 still due and two
variable rate loans totaling $970,000 used for the acquisition of equipment and
the loan on the Company's Scotland facility in the amount of $235,000.
6. LINE OF CREDIT -
In August 1992, and amended in September 1996, the Company entered into
a credit arrangement with a financial institution for a line of credit for up to
$7,500,000 at an interest rate of 30 day commercial paper plus 2.5 percent. The
line of credit is made up of two parts, the first part being a $4,000,000 line
for working capital needs that extends through September 1998 and the second
part being a $3,500,000 line for equipment acquisition that extends through
September 1997 (with an option to extend to September 1998). 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 27, 1997,
the Company had no borrowings outstanding under this credit facility.
7. SIGNIFICANT CUSTOMERS -
For the three months ended April 27, 1997, a group of affiliated companies
represented 11% of the Company's net sales. For the comparable quarter ended
April 28, 1996, one customer accounted for 13% of the Company's net sales.
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 27, 1997, Semtech Corporation (the "Company") had working
capital of $26,436,000, compared with $24,036,000 at January 26, 1997 - an
increase of $2,400,000. The increase was primarily due to the Company's
profitability during the three months ended April 27, 1997.
7
In the first three months of fiscal year 1998, the Company built
$2,118,000 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 three months of the year was a positive $3,435,000. Major factors
effecting operating cash flows include profitability, increased inventory
levels, increased accounts receivable and increased income taxes payable.
Because the Company has historically had relatively low depreciation expense,
operating cash flow is largely driven by the ability to generate net income.
During the first three months of fiscal 1998, the Company used cash of
$36,000 to repay outstanding debt and $1,732,000 to pay for capital equipment
purchases. The ratio of current assets to current liabilities at April 27, 1997,
was 3.9 to 1, compared to 3.8 to 1 at January 26, 1997.
The following leverage ratios indicate the extent to which the Company
has been financed with debt:
APRIL 27, JANUARY 26,
1997 1997
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Long-term debt as a % of total capitalization* 3.0% 3.8%
Total debt to total capitalization* 3.9% 4.4%
*Total capitalization is defined as the sum of long-term debt and
shareholders' equity.
Efforts by the Company over the past several years to increase
commercial product sales have been effective. In order to develop, design and
manufacture new products, the Company has had to make significant investments
over the past several years. Such investments aimed at developing additional new
products, including the addition of many design and applications engineers and
related equipment, will continue. Semtech fully intends to continue to invest in
those areas that have shown potential for viable and profitable market
opportunities. Certain of these investments, particularly the addition of design
engineers, will probably not generate significant payback in the short-term. The
Company plans to finance these investments with cash generated by operations and
cash on-hand.
(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 Income
for the three month periods ended April 27, 1997 and April 28, 1996.
THREE MONTH PERIOD ENDED APRIL 27, 1997 COMPARED WITH THE THREE MONTH PERIOD
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ENDED APRIL 28, 1996:
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INDUSTRY TRENDS AND OUTLOOK -
Over the last three fiscal years, Semtech has experienced increased
acceptance of its commercial product lines and significantly broadened its
customer base. Efforts have been made to increase market share for existing
products and to develop new products for serving both the commercial and
military markets. While the Company has been successful in growing, future
growth and success is dependent on new products, market conditions and
8
increased production efficiencies. Customers continue to order with short
lead-times. As a result, the Company generally has only 90-120 days visibility
of future period shipments.
With a portion of the Company's sales coming from retail computer and
computer related applications, the Company's results reflect some seasonality,
with demand levels for this segment being higher in the third and fourth
quarters of the year in comparison to the first and second quarters. While some
seasonality was experienced during fiscal years 1996 and 1997, overall industry
trends and Company specific conditions have greater effect on quarterly sales
levels.
New products introduced over the last twelve months are aimed at
further diversifying the Company's product offering and penetrating new
applications. Notebook computers, cellular handsets, communications and
industrial applications are specific examples of new design efforts. While
efforts are being made to increase the rate of new product introductions,
enhancements are also being made to existing devices to reduce cost and maintain
market share. Investment in design and applications are intended to further
transition the Company's revenue sources away from foundry services and more
towards standard, custom and proprietary products.
With the increased success and growth in demand for semiconductors, the
Company has seen new competitors enter the market. In addition, existing
competitors have become more aggressive in protecting market share and customer
relationships. Typical of the semiconductor industry, the Company has
experienced declines in average selling prices over the life of its product
lines. 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 offset the impact of declines in
average selling prices, however, there is no assurance that these efforts will
be successful.
REVENUES -
Revenues for the first quarter ended April 27, 1997 were $20,375,000
compared to $15,477,000 in the first quarter ended April 28, 1996, an increase
of 32%. The increase in revenues for first quarter compared to the prior year
period was due to continued improvement in the Company's ability to market and
produce its products used in targeted end-market applications. In comparing this
year's first quarter results to last years, it is important to note the effects
of industry wide slowdown that occurred in the first half of last year.
Sales of devices used in computer and peripheral applications represent
over 50% of net sales in the first quarter. While sales for computer related
applications has continued to represent the largest market segment, efforts to
diversify customers, products and specific end product uses within the computer
segment have been successful. Sales to communications customers has also
increased due to demand for the Company's line of transient voltage suppressors
(TVS) used in datacommunications and telecommunications applications.
Shipments to customers located in the Asia-Pacific region were 31% of
the net sales for fiscal 1998's first quarter, an increase over the 26% of net
sales the region represented in the comparable quarter of last year. Sales to
European customers represented 13% of total sales for the first quarter of
fiscal 1998 compared to 14% in the first quarter of fiscal 1997.
New order received during the first quarter were more than net
shipments, 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 less
9
than 1 to 1. Total new orders for the quarter ended April 27, 1997 were
benefited by strong demand for the Company's TVS product line. The largest
percentage of TVS product orders were from customers in the communications and
computer industries.
The Company experienced some seasonality in order rates from
manufacturers of personal computers in the first quarter. The order rates from
this market segment are consistent with prior year seasonal trends that
generally occur after the holiday season and usually last through the first half
of the year. Due to increased sales to other computer segments, such as servers
and peripheral devices, the effects of this seasonality on quarterly results has
been reduced. Ongoing efforts are being made to further diversify revenue
sources and likewise reduce the effects of seasonality on future periods'
quarterly results.
COSTS AND EXPENSES -
COST OF GOODS SOLD -
Gross profit margins as a percentage of net sales was 45% in the first
quarter of fiscal 1998, compared to 42% in the same period last year. The
improvement in gross margins is attributed to increased operating efficiencies
associated with higher shipment levels and higher revenue contribution from new
products. Efforts continue to be made to reduce per unit cost on exiting
products as well as to increase emphasis on new product sales that typically
command much higher gross margins.
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 shipment rates for new
products will continue to have the most significant impact on margins.
OPERATING EXPENSES -
Operating costs and expenses were at 24% of net sales in the first
quarter of fiscal 1998, which equaled the 24% in the first quarter of fiscal
1997. While operating expenses remained flat as a percentage of net sales,
absolute dollar spending did increase.
In May 1996, the Company opened a design center at its Santa Clara,
California facility. Since the opening of the design center, the Company has
aggressively pursued additional design, applications and marketing talent needed
to foster new product development. Added headcount and overall support of
development will continue to result in higher research and development (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 general and administrative
activities. Such a percentage 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 $34,000 was realized in the quarter ended
April 27, 1997, compared to interest and other income of $15,000 in the prior
year's first quarter. Other income and expenses for all periods is 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 1997 Annual Meeting of Shareholders of the Company was duly held on
June 5, 1997.
(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 of the Company's
1994 Long-term Stock Incentive Plan in which there were 3,061,702
affirmative votes, 1,024,288 negative votes, and 28,448 abstaining votes
(ii) Amendment to the Company's Certificate of Incorporation to (a)
increase the number of authorized shares and (b) authorization of a new
class of shares, in which there were 3,124,233 affirmative votes,
1,015,981 negative votes, and 15,640 abstaining votes and (iii)
Amendment to the Company's Certificate of Incorporation to eliminate
cumulative voting for the election of Directors in which there were
3,369,342 affirmative votes, 531,291 negative votes, and 213,805
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 three months ended
April 27, 1997.
11
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 11, 1997 /s/ John D. Poe
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John D. Poe
President and
Chief Executive Officer
Date: June 11, 1997 /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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