<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended JANUARY 28, 1996
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ----------------
Commission file number 1-6395
SEMTECH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2119684
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
652 MITCHELL ROAD, NEWBURY PARK, CALIFORNIA, 91320
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (805) 498-2111
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK PAR VALUE $.01 PER SHARE
(Title of Class)
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 was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
form 10-K. [ X ]
Aggregate market value of voting stock held by non affiliates of the registrant
as of April 12, 1996 $66,297,935 and the market price of the Registrant's stock
was $11.00 per share. The number of shares outstanding of the Registrant's
common stock was 6,027,085 at April 12, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in Part III of
this report: Definitive Proxy Statement in connection with registrant's annual
meeting of shareholders on June 6, 1996.
This report on Form 10-K contains a total of 39 pages.
<PAGE>
SEMTECH CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JANUARY 28, 1996
PART I
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Page
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Item 1 Business 2
Item 2 Properties 8
Item 3 Legal Proceedings 8
Item 4 Submission of Matters to a Vote of Security Holders 9
PART II
Item 5 Market for the Registrant's Common Equity
and Related Shareholder Matters 10
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8 Financial Statements and Supplementary Data 16
Item 9 Changes in or Disagreements with Accountants on
Accounting and Financial Disclosure 33
PART III
Item 10 Directors and Executive Officers of the Registrant 33
Item 11 Executive Compensation 34
Item 12 Security Ownership of Certain Beneficial
Owners and Management 34
Item 13 Certain Relationships and Related Transactions 34
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 35
Signatures 37
</TABLE>
<PAGE>
PART I
------
ITEM 1. BUSINESS
GENERAL
Semtech Corporation ("Semtech" or the "Company") was incorporated in 1960 in
Delaware. The Company designs, manufactures and distributes high quality analog
integrated circuits ("ICs"). The application of these products are principally
in the communications, personal computer and peripherals, and industrial,
automotive and military markets. The Company also manufactures silicon
rectifiers and rectifier assemblies, as well as providing foundry services for
several customers which produce discrete electronic components primarily for
computers, peripheral and communications markets. The Company's principal
executive offices are located in Newbury Park, California, and manufacturing
facilities are in California, Texas, Mexico and Scotland.
On October 4, 1995, the Company acquired Gamma, Inc., dba ECI Semiconductor
("ECI"), an analog semiconductor manufacturer supplying principally foundry
wafers. ECI also manufacturers custom linear and digital arrays and general
purpose analog semiconductor devices. Gamma, Inc. was acquired in exchange for
775,000 common shares of the Company. The transaction was accounted for as a
pooling of interests. This entity has been renamed Semtech Santa Clara, Inc.
INDUSTRY
The commercial semiconductor industry and the industries in which the Company's
products are used are characterized by rapid changes and short product life
cycles. In the last several years, there has been increased demand for analog
circuits, which control, regulate, convert and reroute voltage and current in
electronic systems. This demand for power analog circuits has been propelled by
the recent growth of battery powered devices and the emergence of lower voltage
microprocessors and Personal Computer Memory Card International Association
("PCMCIA") standards for peripheral devices. While the Company has seen wide
acceptance of its standard products which address this demand for high-
performance power analog circuits, the markets for these products remain very
competitive.
PRODUCTS
The following is a description of the Company's products:
Transient Voltage Suppressors. Transient voltage suppressors provide protection
- -----------------------------
for AC signals in addition to DC signals and have many protection applications
where large voltage transients can permanently damage voltage-sensitive
components. Surface mount transient voltage suppressors prevent system
degradation from electrostatic discharge generated by the human body. Specific
applications are found in computer, telecommunication, industrial, military and
space programs.
Linear and Switching Voltage Regulators. Switching regulators are designed for
- ---------------------------------------
use in step-down applications requiring accurate output voltages over combined
variations of line, load and temperature. These products greatly simplify
switching power supply design. Linear voltage regulators are monolithic
integrated circuits designed for use in applications requiring a well regulated
output voltage. The primary application of these products has been in power
regulation for microprocessors.
Foundry Wafers. Semtech Santa Clara's principal products are foundry wafers
- --------------
which it founders for other semiconductor manufacturers. Much of the processed
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<PAGE>
silicon currently sold goes into discrete components whose principal
applications are in the personal computer, peripherals and industrial markets.
Rectifiers. The Company has several different categories of silicon rectifiers
- ----------
which are primarily used to convert alternating current to direct current.
General use silicon rectifiers are primarily used to convert alternating current
to direct current necessary for instruments, power supplies, small appliances
and control equipment. Fast recovery rectifiers generally function as general
purpose rectifiers, but at much higher frequencies which permits a customer to
use auxiliary components of reduced size and cost. High-voltage rectifiers use
two or more silicon rectifiers in series. The Company manufactures two types of
such high-voltage rectifiers. High-voltage stacks are composed of two or more
packaged silicon rectifiers, properly oriented, joined and vacuum- or transfer-
molded within a much larger package. Multi-chip rectifiers use two or more
silicon rectifier crystals (chips), properly oriented, joined and packaged in
the same configuration as a standard silicon rectifier with only a single chip.
Ultra-fast rectifiers provide very low reverse recovery times and low forward
voltage drop with a soft recovery characteristic. Ultra-fast rectifiers are
generally used in switching power supplies to reduce turn-on losses in switching
transistors. These products are sold to military, aerospace and commercial
customers.
High-Voltage Monolithic Ceramic Capacitors. These products are used in high-
- ------------------------------------------
voltage power supplies in filters as coupling and bypass devices.
Modular Assemblies. A modular assembly is a package of rectifiers of one or
- ------------------
more types encased in epoxy or silicon by various molding techniques,
constituting one or more basic rectifier circuits. The Company manufactures
modular assemblies as catalog items and for special customer requirements.
Commercial Power Hybrids. These products involve voltage regulation for DC to
- ------------------------
DC signals where higher current and accurate voltage regulation are demanded.
The main application for commercial power hybrids is in power management and
local area networks where hermeticity is not required.
In the last few years the Company has discovered new opportunities for its
products in computer, computer peripherals, datacom, commercial aircraft,
medical diagnostic equipment, and industrial power systems. The Company's
introduction of new products into commercial markets has required the Company to
make significant investments in research and development and capital equipment.
During the recently completed fiscal year the Company invested $4.4 million in
new capital equipment. The Company's military sales have decreased significantly
and are ultimately expected to be less than 10% of total Company sales. There
can be no assurances that the Company's goal of realizing opportunities in
commercial markets and of continuing its business in military markets will be
successful.
MANUFACTURING PROCESSES
The Company fabricates and assembles the majority of its products from basic
materials (principally silicon, ceramic materials, metals and plastics), all of
which are available from a number of suppliers. The Company is not dependent on
any particular supplier of materials for its products. The Company utilizes
subcontractors in Taiwan, Malaysia, Thailand and the Philippines to assemble
certain of its products for commercial markets. A reduction in capacity made
available to the Company by these sub-contractors could negatively impact
operating results in the short-term.
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<PAGE>
A large part of the manufacturing operation is performed by operators working on
standard equipment in the Company's wafer fabs. Certain of these operations have
been mechanized in order to improve process uniformity and reduce labor costs.
New designs or process modifications are tested by both product and process
engineering prior to being incorporated into the manufacturing process. The
Company's wafer fabrication facilities are significantly less costly than state-
of-the-art digital fabrication facilities and utilize equipment that is less
subject to obsolescence.
Silicon wafer yields and end product conformance to target characteristics have
an important bearing on unit manufacturing costs. Therefore, testing constitutes
a significant element of total product cost. Yields within the Company's wafer
fabs are subject to fluctuations. The Company has a comprehensive quality
assurance and control program for materials extending from delivery to the
Company through the receipt and inspection of the Company's products by its
customers. As part of its manufacturing process, the Company conducts tests, in
part automatically controlled, which enable it to demonstrate to its customers
on a routine basis the extent to which its products meet required standards.
SALES AND BACKLOG
Approximately 750 customers purchased the Company's products during the fiscal
year ended January 28, 1996. One customer of Semtech Santa Clara accounted for
approximately 12% of the Company's consolidated sales in fiscal 1996 and 15% in
fiscal 1994. The Company does not have any significant contracts with its
customers calling for shipments over a period of more than 18 months. Company
sales are not seasonal.
The Company estimates that during the three fiscal years ended in 1996, 1995,
and 1994, approximately 15%, 30%, and 40%, respectively, of its sales were made
to military and aerospace related accounts, and 85%, 70%, and 60%, respectively,
were made to nongovernment users, including distributors. Direct sales to the
government constituted less than 1% of total sales in any year.
As a result of the acquisition and pooling of Gamma, Inc., the Company had net
sales from wafer foundry services of approximately $16,094,000, $7,004,000 and
$7,321,000 in 1996, 1995, and 1994 respectively. Two customers accounted for
75%, 72% and 75% of these sales in 1996, 1995 and 1994, respectively.
Foreign sales, defined as customers located outside of the United States, during
the fiscal year ended January 28, 1996 were approximately 36% of Company sales.
During the previous two fiscal years foreign sales were 24% and 18%,
respectively, of Company sales. Most foreign sales were to customers located in
Canada, Europe and the Far East. A significant portion of the sales growth
experienced in fiscal 1996 was due to increased sales located in the Far East
region. Sales to customers in this region were approximately 23% of total sales
and 22% of new orders in fiscal 1996.
The Company maintains a domestic sales and marketing organization consisting of
Company sales people located in Southern California, Texas, Ohio and Connecticut
who manage the sales activities of independent sales representative firms and
independent industrial distributors within the United States and Canada. In
Europe, the Company maintains sales offices in France, Germany and Scotland to
serve the European markets. During fiscal 1996, the Company opened a branch
office in Taipei, Taiwan. The Company is represented outside the United States,
Europe and Taiwan by other independent sales organizations.
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<PAGE>
Sales to customers are made on the basis of individual customer purchase orders.
Many large commercial customers, particularly in the personal computer industry,
include terms in their purchase orders which provide liberal cancellation
provisions. Although in some instances purchase orders are issued by customers
following issuance of a letter of intent, orders covered by a letter of intent
only are not included in the Company's backlog of purchase orders. The Company's
backlog of orders as of the end of the last three fiscal years ended 1996, 1995,
and 1994 was approximately $19.5 million, $13.2 million and $11.6 million,
respectively. The majority of the backlog is deliverable within six months since
the Company's experience has shown that short-delivery lead times are required
by most of its customers. A backlog analysis at any given time gives little
indication of future business except on a short-term basis.
PRODUCT DEVELOPMENT AND ENGINEERING
In each of the last three fiscal years ended in 1996, 1995, and 1994, the
Company has expended approximately $2,827,000, $1,588,000 and $996,000,
respectively, on product development and engineering. The Company currently
performs product development and engineering work in its Newbury Park, Corpus
Christi and Santa Clara facilities. Engineering functions exist within each of
these operations in the form of product engineering, process engineering, and
research and development. The employees within these engineering functions
devote the majority of their time to the product engineering, process
engineering and product development functions. Product development and
engineering costs were recognized on expenditures for new product and process
development. Accordingly, such expenditures have been fully charged to the
earnings of the period in which they were incurred.
COMPETITION
The semiconductor industry is highly competitive and the Company expects
competitive pressures to continue. The Company is in direct and active
competition, as to one or more of its product families, with at least thirty
manufacturers of such products of varying financial size and strength. A number
of these competitors are dependent on semiconductor products as their principal
source of income, and some are much larger than the Company. The number of
different competitors faced by the Company has grown due to the Company's entry
into new commercial markets.
Product life cycles in the semiconductor industry are generally short and
characterized by decreasing unit selling prices over the life of a product. The
Company believes that the portion of the semiconductor industry which includes
the Company's military products has matured and, accordingly, prices have begun
to fluctuate with market conditions as these products act more and more like
commodities. The Company has entered several growing commercial markets with
products which include transient voltage suppressors, DC to DC converters, and
linear regulators. While offering higher potential gross margins, these markets
are extremely competitive.
The Company's ability to compete effectively and to expand its business will
depend not only on efficiency and economy in production and sales, but also on
other factors such as whether it is successful in continuing to enhance product
yield and in systematically introducing improved devices. Over the past five
years the Company has experienced improvements in productivity and product
yields which have reduced manufacturing costs. However, the Company still faces
many potentially significant business risks such as new sources of competition,
obsolescence or the loss of a major customer.
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<PAGE>
PATENTS AND LICENSES
Patents, licenses and other rights have not proven in the past to be significant
to the Company's business. However, competition in the commercial marketplace
has required that certain developed devices be protected by patents. In fiscal
1996, the Company introduced a line of transient suppressors which protect lower
voltage circuits. The Company intends to pursue such rights for future products
that may require protection from use by competitors. At this time, the Company
does not license and is not the licensee under any patents.
ENVIRONMENTAL MATTERS
The Company's manufacturing processes utilize several types of acids and, to a
much lesser degree, solvents. All concentrated neutralized acids and
precipitants are, to the best of the Company's knowledge, sent to appropriate
reprocessing facilities. Extensive soil sampling and groundwater testing is
performed to determine if any contamination exists on the Company's domestic
sites. No evidence of contamination from these manufacturing processes requiring
remedial action has been detected to date, except Santa Clara where certain
elements have been detected above the allowable levels. Monitoring wells are
installed to allow for continued testing of potential future contamination, both
on-site and from upstream sources.
In the past, at the Company's Newbury Park facility, some of the acids were
neutralized in underground tanks and hauled to proper disposal sites while
others were neutralized and discharged into the local sewer system. In 1985 the
Company was notified that it was exceeding allowable Federal levels for certain
metals, fluorides and dissolved solids for discharge into the sewer system.
Since receiving this notice of violation regarding industrial waste discharge
the Company has worked with local official government agencies to construct a
new treatment system and to remove the underground tanks. In early 1989 a new
waste treatment system was brought on line and, to the best of its knowledge,
the Company has operated in compliance with all Federal, State and local
discharge limits. Also during this time the Company abandoned its four
underground acid neutralization tanks at its Newbury Park facility. These tanks
have all been removed. To the best of the Company's knowledge it never stored
solvents in these underground tanks. Solvents are stored in their original
containers in a controlled, contained area. Used solvents are returned to their
original containers and sent to a recycling company.
In late February 1992 the Company was served a subpoena in a lawsuit between two
parties other than the Company regarding groundwater contamination issues on a
property located approximately 50 yards to the north of the Company's principal
offices in Newbury Park, California. This case has since been settled and the
Company was not named in the lawsuit, but was asked to provide information on
the use, handling, collection, storage, disposal and release of certain
chemicals and solvents at or near its Newbury Park facility. In addition, with
respect to this site, the Company was asked to testify on its storage
facilities, soil testing activities and findings, and the existence of soil and
groundwater contamination. Certain contaminants from the adjacent manufacturing
site have been found in the ground water at the Company's Newbury park facility.
The Company has data showing that the contaminants are from the adjacent
facility, which is owned by a 'Fortune 500' company. The contaminants in
question have never been used by the Company at the Newbury Park facility. To
protect its interests the Company utilizes an environmental firm, specializing
in hydrogeology, to perform periodic monitoring. It is currently not possible to
determine the ultimate amount of possible future clean-up costs, if any, that
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<PAGE>
may be required of the Company at this site. Accordingly, no reserves for such
clean-up activities have been provided by the Company at this time.
In fiscal 1996, the Company located another underground tank on the property in
Newbury Park it leases. This tank was installed by a previous tenant, in
approximately 1960. The Company is currently discussing with the landlord who
will be responsible for the removal of this tank. The Company believes that its
environmental accrual is adequate to cover any costs to be borne by the Company.
The Company's Santa Clara facility utilizes several types of acids and solvents
in its manufacturing process which are neutralized in a series of underground
tanks. The Company has decided to remove these underground acid neutralization
tanks to be replaced with an upgraded system as certain contaminants have been
collected from a monitoring well on the property. The Company has accrued
$250,000 for the removal of the underground tanks, installation of a treatment
system and filtering of compounds. Based on advice of environmental consultants,
Company management believes this reserve is adequate to cover the related costs
and any future clean-up.
Semtech Corpus Christi has been named in a suit resulting from waste disposal by
the Company's maquiladora plant in Reynosa, Mexico. Specifically, the
maquiladora re-imported waste into the U.S. and disposed of the waste in a
landfill near McAllen, Texas. The suit, which is in the discovery stage,
pertains to alleged groundwater contamination originating from the landfill. The
company which owns the landfill and several other maquiladoras have also been
named in the suit. The Company has retained legal counsel and intends to defend
itself as management believes that the suit is without merit.
EMPLOYEES
As of January 28, 1996 the Company had 499 full-time employees, compared to 442
full-time employees at January 29, 1995. The principal reason for this increase
was increased production and new product development.
There has been an ample supply of production labor in the areas of the Company's
manufacturing facilities. The Company has never had a work stoppage, and its
domestic and European employees are not unionized. The Company's Mexican
Maquiladora operation has unionized employees. Employee relations at the Mexican
plant have been, and are, satisfactory. In April 1995, the union contract was
renegotiated in light of the fall in value of the Mexican Peso.
GOVERNMENT REGULATIONS
The Company is required to comply with numerous government regulations which are
normal and customary to manufacturing businesses which operate in the Company's
markets and operating locations. In addition, a substantial portion of the
Company's sales that serve the military and aerospace markets consist of
products which have been qualified to be sold in these markets by the U.S.
Department of Defense (the "DOD"). These products mainly consist of discrete
rectifiers and rectifier assemblies. In order to maintain these qualifications
the Company must comply with certain specifications promulgated by the DOD. As
part of maintaining these qualifications the Company is routinely audited by DOD
personnel. Based on the specifications as they exist today the Company believes
it can maintain its qualifications for the foreseeable future. However, these
specifications can be modified by the DOD in the future which may make the
manufacturing of these products either more difficult or more simple to produce
and thus impact the Company's profitability.
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ITEM 2. PROPERTIES
The Company's headquarters facility is located in Newbury Park, California,
approximately 50 miles from downtown Los Angeles. The facility contains
approximately 53,000 square feet of floor space. The current lease extends
through August 1998 at an annual rental of approximately $242,000, plus
applicable taxes and insurance. This facility contains the majority of the
Company's military and commercial rectifier and custom assembly manufacturing
operations, as well as all of the Company's inside Sales & Marketing and
Administrative offices.
The Company leases 7,000 square feet of space in Newbury Park, California,
approximately two city blocks from the Company's main manufacturing facility.
The space is utilized by the Company for high reliability processing. The
current lease extends through April 1998 at an annual rental of approximately
$39,000, plus applicable taxes and insurance.
The Company's 20,000-square-foot manufacturing facility in Glenrothes, Fife,
Scotland was purchased by the Company's wholly owned subsidiary in fiscal 1988.
A portion of the Company's products are manufactured in this facility, and
substantially all of the manufactured output from the facility is sold in the
European market. The facility includes approximately one acre of land.
The Semtech Corpus Christi subsidiary leases approximately 44,000 square feet of
floor space in Corpus Christi, Texas. The current lease extends through December
2000 at an average annual rental of approximately $110,000, plus applicable
taxes and insurance. This facility contains the wafer fabrication, hybrid
product assembly and production testing, as well as all of the subsidiary's
engineering functions.
The Semtech Santa Clara subsidiary conducts its operations in two leased
facilities within a city block of each other. One facility, which houses the
wafer fab, contains 10,345 square feet of space. The lease on this facility
extends until November 1997 at an average annual rental of approximately
$94,000. Semtech Santa Clara's other facility, which houses sales, design
engineering, test and administration, contains 13,250 square feet. The lease on
this facility extends until November 2000 at an average annual rental of
approximately $120,000.
In May 1991, the Company acquired an approximately 22,000-square-foot building
on approximately three and one-half acres of land in Reynosa, Mexico. This space
is used to operate the Company's Mexican "Maquiladora" operation for assembly of
certain of its rectifier assemblies and DC to DC converter modules products.
The Company maintains sales offices in Texas and Connecticut on short-term
leases. Aggregate annual rentals under these leases during the most recently
completed fiscal year equaled approximately $16,000. The Company also maintains
sales offices in France and Germany and a branch office in Taiwan under short-
term leases with an aggregate annual rental during fiscal year 1996 of
approximately $34,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is the defendant in lawsuits involving matters which are routine to
the nature of its business. The Company believes that the ultimate resolution of
all such matters will not have a material adverse effect on its business, its
prospects, or its financial condition and results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report no matter
was submitted to a vote of the security holders through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The information set forth at Page 30 of this report under the heading "Selected
Quarterly Data" is incorporated herein by reference.
As of April 12, 1996, there were approximately 775 recorded holders of the
Company's common stock. The last reported sales price for the Company's common
stock on the NASDAQ National Market System at April 12, 1996 was $11.00 per
share.
The Company discontinued its cash dividend in late 1980 and does not anticipate
paying a cash dividend in the current year. The Company has not declared a
stock dividend in the current year and does not presently anticipate doing so in
the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth summary financial information. Dollar amounts
are in thousands, except per share amounts. This data has been restated to
reflect Semtech's acquisition of ECI which was treated as a pooling-of-interests
for accounting purposes, except the 1992 information which has not been restated
because its impact on net income was immaterial. The information set forth
below should be read in conjunction with the Company's complete financial
statements, appearing elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended January
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1996 1995 1994 1993 1992
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Net Sales $61,684 $34,605 $29,353 $27,554 $26,531
Gross Profit 25,809 11,272 8,440 7,986 8,062
Operating Income (Loss) 11,787 2,099 500 (4) 1,139
Income (Loss) Before Taxes 11,343 2,028 300 (53) 875
Net Income (loss) $ 7,531 $ 1,502 $ 198 $ (103) $ 707
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Net Income (Loss) per Share:
Primary $ 1.21 $ .27 $ .04 $ (.02) $ .16
Fully Diluted $ 1.18 $ .25 $ .03 $ (.02) $ .14
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Total Assets $32,685 $21,377 $18,260 $17,103 $16,239
Long-Term Debt, Less Current
Maturities $ 1,024 $ 799 $ 963 $ 1,060 $ 1,304
Working Capital $17,881 $11,475 $ 9,623 $ 9,142 $ 9,523
Total Shareholders' Equity $23,269 $13,715 $11,697 $11,282 $12,298
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INDUSTRY TRENDS AND OUTLOOK
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The Company experienced growth during fiscal year 1996 due to new products used
in computer and communications applications. 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. The market for
the Company's military and aerospace products remains fiercely competitive. The
Company plans to address these issues by focusing efforts on eliminating less
profitable product lines and pushing new product development.
Typical of the semiconductor industry, the Company has experienced declines in
average selling prices over the life of its product lines. Efforts to offset
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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.
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. Demand for these wafers
can vary significantly based on demand for the manufacturer's finished product.
The foundry business is also very competitive, with other foundries offering
similar services. The revenue generated by this segment can vary significantly
depending not only on macro trends within the semiconductor industry, but also
on conditions at specific customers. As previously disclosed the Company expects
that foundry revenue will decline in the first quarter of fiscal 1997 compared
to levels in the fourth quarter of fiscal 1996. Subsequent to the Company's
fiscal 1996 year-end, there was a general downturn in the semiconductor industry
due primarily to excess inventory in the personal computer market.
RESULTS OF OPERATIONS
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Semtech posted record sales of $61.7 million in fiscal year 1996 compared with
$34.6 million in fiscal 1995 and $29.4 million in 1994. Net income was
$7,531,000 in 1996 compared to $1,502,000 in 1995 and $198,000 in 1994. The
results of operations for the three years ended January 28, 1996 have been
restated to reflect the pooling of ECI.
SALES
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Sales for fiscal year 1996 increased 78% over fiscal 1995 and 110% over fiscal
year 1994. The increase was primarily due to the increased shipment of analog
semiconductor products used in commercial applications. Increased sales of the
Company's lines of linear regulators, transient voltage suppressors (TVS), and
foundry wafers represented a majority of the increased revenues.
Sales of commercial semiconductors continued to increase in fiscal 1996 compared
to prior periods. Sales of devices used in computer and peripheral applications
represented about 30% of total sales for the year. Communications applications
represented 9%, industrial applications 20%, and foundry customers represented
26%. This mix is attributable to the Company's acquisition of ECI Semiconductor
and the development and marketing of new products for a diverse customer base.
For the year, sales to military and aerospace customers remained relatively flat
in absolute dollars and decreased to approximately 15% of total sales. The
Company expects the military market will be flat or decline slightly in fiscal
year 1997. The Company has implemented a strategy for selective participation
in the military market.
The Asia-Pacific region continued to show increased demand for the Company's
products in fiscal 1996. A large portion of this demand was for devices used in
computer applications. Sales to customers located in the Asia-Pacific region
were approximately 23% of the total sales for all of fiscal 1996, compared to 7%
in fiscal 1995. Sales to European customers represented 13% of fiscal 1996's
total sales compared to 17% in fiscal 1995. The Company would expect that sales
to both the Asia-Pacific and European regions will grow (in absolute dollars) as
added investment in computer and communications equipment is forecasted for
these regions.
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ORDERS
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New orders for fiscal year 1996 amounted to $68 million. The Company's book-to-
bill ratio for the year was 1.10.
Semtech witnessed increases in the order rates for its lines of linear
regulators and transient voltage suppressers (TVS). The Company also
experienced significant growth in the orders of foundry wafers. Foundry wafers
are fabricated wafers that are sold to customers who then use the wafer to
produce their own finished products. Linear regulators, which are used in
powering applications, are designed to both regulate and drop output voltage
levels. TVS devices provide "overvoltage" protection to sensitive electronic
circuits. The Company experienced limited success in booking orders for its
line of DC to DC power converters.
Orders from customers located in Asia-Pacific continued to grow in fiscal 1996.
The Company was successful in identifying additional business opportunities with
several suppliers of computer and telecommunications products. Bookings from
Asia-Pacific customers represented approximately 22% of the total orders
received in fiscal 1996. The entire Asia-Pacific region has become
strategically important for achieving additional new customers and increased
order levels. As was planned, Semtech opened a branch office in Taiwan to
support sales and marketing effort in the region.
In 1996 the Company took steps to improve both domestic and foreign direct and
distribution sales coverage by reviewing and in some cases extending agreements
with key distributors. This improved coverage is expected to help unit sales of
both military and commercial products.
The Company ended fiscal year 1996 with $19.5 million in backlogged orders
compared to $13.2 million and $11.6 million at the end of fiscal years 1995 and
1994, respectively. A majority of the Company's backlog is shippable within six
months.
GROSS MARGIN
- ------------
The Company's gross profit margin for fiscal year 1996 improved to 42% compared
to 33% in 1995 and 29% in 1994. This increase was due to added shipments of
higher margin devices, improved capacity utilization and improved production
yields. The Company's overall gross margin continued to be adversely affected
by margins received on products sold to military customers. Included in the
cost of sales are certain expenditures for engineering costs and process
development which the Company considers to be production related.
Gross margin improvement over time is dependent on the Company's ability to
develop and introduce higher margin commercial products, more fully utilizing
capacity and achieving further yield improvements. The Company's strategic plan
calls for the introduction of additional proprietary products, which tend to
fetch higher margins than industry standard and custom parts. Management also
intends to continue to pursue any available steps to improve manufacturing
efficiencies. These efforts are expected to be partially offset by a decline in
the Company's older product lines.
SELLING, GENERAL AND ADMINISTRATIVE, AND ENGINEERING
- ----------------------------------------------------
Costs related to selling, general and administrative, and engineering in 1996
were $14.0 million, representing an increase of 53% over the $9.2 million in
1995 and an increase of 77% over the $7.9 million in 1994. The rise was due to
across-the-board increases in research and development spending, the addition of
-12-
<PAGE>
several strategic marketing individuals, increased commission expense and
variable compensation. Both sales and engineering costs increased due to the
Company's overall efforts to increase sales long-term. The specific areas in
which Semtech expended more resources were primarily sales, advertising, and
engineering. Operating expenses were 23% of net sales in 1996 versus 27% in
1995 and 27% in 1994. Management expects expenses related to sales, general and
administrative and engineering to increase (in absolute dollar terms) in fiscal
year 1997 due to efforts to grow net sales.
INTEREST AND OTHER EXPENSE
- --------------------------
In fiscal year 1996, the Company had interest expense of $99,000 compared to
$160,000 in 1995 and $149,000 in 1994. The decline in interest expense is due
to a lower average daily debt balance in fiscal 1996 compared to 1995 and 1994.
Semtech had net other expense of $345,000 in 1996, which included $498,000 for
costs associated with the acquisition of ECI Semiconductor, $156,000 of interest
income, $1,000 loss on disposition of assets and $2,000 of miscellaneous
expenses. Semtech had other income of $89,000 in 1995, which included $144,000
of interest income and $5,000 of foreign currency transaction gains, partially
offset by miscellaneous expense of $60,000. In fiscal 1994, the Company
incurred net other expense of $51,000, which included foreign currency
transaction losses totaling $29,000, $69,000 of miscellaneous expenses that
included the amortization of intangibles, $8,000 loss on disposition of assets,
$108,000 in restructuring charges taken to reduce headcount in our Corpus
Christi and Scotland facilities and interest income of $163,000. The cost
savings generated through the restructuring were originally estimated at
$100,000 per quarter. The actual savings have not differed materially from this
original estimate.
INCOME TAX EXPENSE
- ------------------
Income tax expense for fiscal 1996 was $3,812,000 compared to $526,000 and
$102,000 in 1995 and 1994, respectively. The effective tax rate was higher in
1996 than in 1995 due to increased revenues generated from California based
operations and due to the utilization of R&D credit and alternative minimum tax
credit carry-forwards during fiscal 1995. The annual tax rate for fiscal 1997
is expected to approximate the rate for fiscal 1996. As of fiscal 1996 year-
end, the Company had $792,000 in deferred tax assets, which is net of related
valuation reserves. The valuation reserve has been established in accordance
with SFAS No. 109.
FINANCIAL CONDITION
- -------------------
During fiscal year 1996, the Company improved its financial condition.
Semtech's working capital ratios, which measure the Company's ability to meet
its short-term obligations are presented.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Working Capital:
Beginning of year $11,475 $ 9,623 $9,142
End of year $17,881 $11,475 $9,623
Increase (decrease) in working capital $ 6,406 $ 1,852 $ 481
Working capital ratios 3.4 2.9 3.1
</TABLE>
The increase in working capital for fiscal 1996 was the result of $6,210,000 of
cash generated by operations. During fiscal 1996, the Company invested
-13-
<PAGE>
approximately $4.4 million in capital equipment and approximately $2.7 million
in inventory to support its commercial product lines. Despite these investments
and the repayment of debt, the Company's net cash balance increased by $2.8
million in fiscal 1996. Semtech's working capital ratio increased to 3.4 in
1996 from 2.9 in 1995 and 3.1 in 1994.
The Company maintains a credit facility with a financial institution for working
capital and equipment acquisition. This line provides up to $7.5 million of
credit and extends until August 1996. This arrangement is collateralized by the
Company's domestic assets and contains provisions regarding current ratios, debt
to worth, and net worth. During fiscal 1996, the Company borrowed $822,000
against this line, which was converted into a 3 year note. In October 1994, the
Company entered into a four year term loan in the amount of $535,000. Both
loans were for the purchase of capital equipment and are collateralized by the
related equipment. The Company's foreign subsidiary also maintains an overdraft
credit line in the amount of 300,000 pounds sterling with a commitment from its
bank to expand this line to 1,000,000 pounds sterling. This line is based on a
percentage of foreign assets and is guaranteed by the Company. No amounts were
outstanding under the line at January 28, 1996.
Efforts by the Company over the past several years to increase commercial
semiconductor product sales have been effective. New products have been
introduced for such applications as computer and telecommunications equipment.
In order to develop, design and manufacture new products, the Company has had to
make significant investments over the past several years. Such investments,
including the addition of several design and applications engineers, aimed at
developing additional new products 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, cash on-hand, and borrowings from the Company's credit
facilities.
In an on-going effort to grow the Company and improve its long-term financial
position, the Company has examined potential acquisitions. Although no
agreements have been reached, the Company will continue to investigate possible
acquisitions that fit with the Company's strategic plan. If the Company does
choose to enter such a transaction, several forms of financing will be examined.
The leverage ratios presented below indicate the extent to which the Company has
been financed with debt. Total debt increased by $150,000 in fiscal year 1996.
This increase was the result of a borrowing to finance certain capital equipment
purchases, partially offset by regular principal payments and conversion of
debentures. Existing debt services are supported by adequate cash flows from
operations.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Long-term debt as a % of total capitalization(1) 4.2% 5.5% 7.6%
Total debt as a % of total capitalization (1) 5.9% 8.8% 11.0%
(1) Total capitalization is defined as the sum of long-
term debt and shareholders' equity.
</TABLE>
During fiscal year 1996, Semtech purchases of new capital equipment were
$4,427,000. These additions were made primarily to expand manufacturing
-14-
<PAGE>
capacity and improve efficiency. Funding for these purchases was made from the
Company's operating cash flows, cash reserves, and debt obligations.
Management plans to make capital expenditures in fiscal 1997 to increase test,
assembly and wafer fabrication capacity. As of January 28, 1996, the Company
had approximately $537,000 of outstanding commitments for machinery and
equipment purchases. The Company believes that current internal cash flows
together with cash reserves and existing credit facilities are sufficient to
support these capital expenditures.
Accounts receivable days sales outstanding, calculated by annualizing fourth
quarter results for 1996 and 1995, improved to forty-one days as of January 28,
1996 from forty-seven days as of January 29, 1995. Days sales outstanding are
impacted by sales within Europe at standard terms of sixty to ninety days.
Inventory turns increased to 4.1 as of January 28, 1996 from 3.7 as of January
29, 1995. This increase was primarily due to the Company's new products
inventory which turned at a faster rate than the military inventory. All
inventory which is obsolete or in excess of one year's demand is fully reserved.
INFLATION
- ---------
Inflationary factors have not had a significant effect on the Company's
performance over the past three fiscal years. A significant increase in
inflation would affect the Company's future performance.
-15-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED JANUARY 28, 1996
(Dollars in thousands-except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $61,684 $34,605 $29,353
Cost of Sales 35,875 23,333 20,913
------- ------- -------
GROSS PROFIT 25,809 11,272 8,440
------- ------- -------
OPERATING COSTS AND EXPENSES:
Selling, general and administrative 11,195 7,585 6,944
Product development and engineering 2,827 1,588 996
------- ------- -------
Total operating costs and expenses 14,022 9,173 7,940
------- ------- -------
OPERATING INCOME 11,787 2,099 500
Interest expense (99) (160) (149)
Acquisition costs (498) - -
Other income (expense), net 153 89 (51)
------- ------- -------
INCOME BEFORE TAXES 11,343 2,028 300
Provision for taxes 3,812 526 102
------- ------- -------
NET INCOME $ 7,531 $ 1,502 $ 198
======= ======= =======
EARNINGS PER SHARE:
NET INCOME PER SHARE-
PRIMARY $ 1.21 $ 0.27 $ 0.04
FULLY DILUTED $ 1.18 $ 0.25 $ 0.03
</TABLE>
See accompanying notes.
-16-
<PAGE>
CONSOLIDATED BALANCE SHEETS
JANUARY 28, 1996 AND JANUARY 29, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,034 $ 3,261
Temporary investments 411 821
Receivables, less allowances of $821 in
1996 and $281 in 1995 7,987 5,367
Income taxes refundable 72 71
Inventories 9,986 7,313
Other current assets 521 198
Deferred income taxes 465 352
------- -------
Total current assets 25,476 17,383
------- -------
Property, plant and equipment, net 6,748 3,491
Other assets 134 464
Deferred income taxes 327 39
------- -------
TOTAL ASSETS $32,685 $21,377
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ - $ 175
Current maturities of long-term debt 404 304
Accounts payable 4,060 2,749
Accrued liabilities 2,407 1,985
Income taxes payable 405 476
Other current liabilities 319 219
------- -------
Total Current Liabilities 7,595 5,908
------- -------
Long-term debt, less current maturities 1,024 799
------- -------
Other long-term liabilities 797 955
------- -------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value,
10,000,000 authorized
Issued and outstanding 6,011,369 in
1996 and 5,638,409 in 1995 75 72
Additional paid-in capital 10,520 8,296
Retained earnings 13,022 5,565
Cumulative translation adjustment (348) (218)
------- -------
Total Shareholders' Equity 23,269 13,715
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $32,685 $21,377
======= =======
</TABLE>
See accompanying notes.
-17-
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED JANUARY 28, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
---------------------------------
Additional Cumulative
Number Paid-in Retained Translation Shareholders'
of Shares Amount Capital Earnings Adjustment Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1993 5,042,182 $67 $ 7,628 $ 3,875 $(288) $11,282
Conversions of debentures 40,000 - 50 - - 50
Stock options exercised 76,566 1 117 - - 118
Stock issued for services 28,707 - 7 - - 7
Translation adjustment - - - - 42 42
Net income - - - 198 - 198
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 30, 1994 5,187,455 $68 $ 7,802 $ 4,073 $(246) $11,697
Conversion of debentures 350,440 3 347 - - 350
Stock options exercised 61,125 1 112 - - 113
Stock issued for services 39,389 - 35 - - 35
Stock repurchases - - - (10) - (10)
Translation adjustment - - - - 28 28
Net income - - - 1,502 - 1,502
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 29, 1995 5,638,409 $72 $ 8,296 $ 5,565 $(218) $13,715
Conversions of debentures 136,280 1 135 - - 136
Stock options exercised 236,680 2 440 - - 442
Tax benefit from stock options
exercised - - 1,649 - - 1,649
Stock repurchases - - - (74) - (74)
Translation adjustments - - - - (130) (130)
Net income - - - 7,531 - 7,531
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 28, 1996 6,011,369 $75 $10,520 $13,022 $(348) $23,269
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
-18-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JANUARY 28, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,531 $ 1,502 $ 198
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,139 997 1,129
Deferred income taxes (401) (128) (81)
Loss on disposition of assets 1 - -
Provision for doubtful accounts 540 (39) 28
Tax benefit from stock option transactions 1,649 - -
Changes in assets and liabilities:
Receivables (3,160) (1,165) (599)
Income taxes refundable (1) 67 (99)
Inventories (2,673) (1,972) (699)
Other current assets (323) 42 11
Other assets 304 44 (4)
Accounts payable 1,311 372 349
Accrued liabilities 422 661 (75)
Income taxes payable (71) 209 227
Other liabilities (58) (23) -
------- ------- -------
Net cash provided by operating activities 6,210 567 385
------- ------- -------
Cash flows from investing activities:
Temporary investments, net 410 190 (60)
Proceeds from sale of property, plant and
equipment 30 - -
Additions to property, plant and equipment (4,427) (1,049) (1,136)
------- ------- -------
Net cash used in investing activities (3,987) (859) (1,196)
------- ------- -------
Cash flows from financing activities:
Net borrowings (repayments) underline of credit (175) (111) 286
Proceeds of employee note 26 39 50
Additions to long-term debt 822 535 98
Repayment of long-term debt (361) (194) (285)
Stock options exercised 442 113 118
Purchase and retirement of common stock (74) (10) -
------ ------- -------
Net cash provided by financing activities 680 372 267
------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents (130) 28 42
Net increase (decrease) in cash and cash equivalents 2,773 108 (502)
Cash and cash equivalents at beginning of year 3,261 3,153 3,655
------- ------- -------
Cash and cash equivalents at end of year $ 6,034 $ 3,261 $ 3,153
======= ======= =======
</TABLE>
See accompanying notes.
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
Business Semtech Corporation, (the "Company"), including its wholly owned
subsidiaries (Semtech Corpus Christi, Semtech Limited and Semtech Santa Clara)
manufactures silicone rectifiers, integrated circuits and related devices which
are used in computer, military, aerospace, industrial, automotive and consumer
applications.
Fiscal Year The Company reports results on the basis of fifty-two and fifty-
three week periods. The three fiscal years in the period ended January 28, 1996
consisted of fifty-two weeks, fifty-two weeks and fifty-three weeks,
respectively.
Revenue Recognition The Company recognizes product revenue upon shipment.
Product design and engineering revenue is recognized during the period in which
services are performed.
Principles of Consolidation The accompanying consolidated financial statements
include the accounts of Semtech Corporation and its wholly owned subsidiaries.
All significant inter-company transactions and accounts have been eliminated.
Inventories Inventories are stated at the lower of cost or market and consist
of materials, labor and overhead. Cost is determined by the first-in, first-out
method.
Property, plant and equipment Property, plant and equipment are stated at
cost. Depreciation is computed primarily using the straight-line method over
the following estimated useful lives: buildings for fifty years; leasehold
improvements for the lesser of estimated useful life or lease term; equipment
for two to five years; and furniture and fixtures for three to five years.
Maintenance and repairs are charged to expense as incurred and the costs of
additions and betterments that increase the useful lives of the assets are
capitalized.
Income Taxes Effective February 1, 1993, the Company changed its method of
accounting for income taxes to comply with the provisions of Statement of
Financial Accounting Standards ("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.
As of January 28, 1996 and January 29, 1995, approximately $1,781,000 and
$1,445,000 of unremitted income related to the Company's wholly owned European
subsidiary is not subject to federal and state income taxes, respectively,
except when such income is paid to the parent company. Federal and state income
taxes have not been provided on this income, as it is management's intention
that these amounts will not be distributed in a taxable transaction.
-20-
<PAGE>
Earnings per share Primary earnings per common and common equivalent share
(including the effect of stock options and stock warrants as common stock
equivalents) have been computed based on the weighted average number of shares
outstanding of 6,213,044 in 1996, 5,484,815 in 1995, and 5,176,116 in 1994.
Fully diluted earnings per share was determined on the assumption that all the
convertible debentures were converted at the beginning of the period under the
if-converted method. The weighted average number of shares used to compute
fully diluted earnings per share in fiscal years 1996, 1995, and 1994 were
6,377,661, 6,070,225, and 5,712,464, respectively.
Translation The assets and liabilities of the Company's foreign subsidiary are
translated using currency exchange rates at fiscal year end. Income statement
items are translated at average exchange rates prevailing during the period.
The translation gains or losses are included in the cumulative translation
adjustment in the accompanying financial statements.
Estimates Used by Management The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
New Authoritative Pronouncements In March 1995 the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121), which
requires impairment losses to be recorded on long-lived assets used in
operations when indications of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company adopted SFAS 121 in the fourth quarter of 1996
which had no impact on the Company's financial position and results of
operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 encourages, but does not require, a fair
value based method of accounting for employee stock options or similar equity
instruments. It also allows an entity to elect to continue to measure
compensation cost under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), but requires pro forma disclosure of
net income and earnings per share as if the fair value based method had been
applied. The Company will be required to adopt this standard effective in
fiscal 1997. While the Company is still evaluating SFAS 123, it currently
expects to elect to measure compensation cost under APB 25 and comply with the
pro-forma disclosure requirements. Therefore, SFAS 123 will have no impact on
the Company's financial position or results of operations.
Business Combination On October 4, 1995, the Company entered into an Agreement
and Plan of Merger ("Merger Agreement") among the Company, Semtech Acquisition
Corp. (a wholly owned subsidiary of the Company), Gamma Inc. (dba ECI
Semiconductor) and the shareholders of Gamma Inc. Pursuant to the Merger
Agreement, on October 4, 1995, Semtech Acquisition Corp. was merged into Gamma
Inc., and Gamma Inc. was the surviving corporation and became a wholly-owned
subsidiary of the Company. 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
-21-
<PAGE>
Corporation common stock (50,000 of which are being held in escrow for a maximum
period of one year), for 147,566 shares of Gamma Inc. common stock. The Merger
Agreement defines the terms under which all the outstanding shares of Gamma Inc.
were exchanged.
Semtech Corporation acquired Gamma Inc. to integrate and complement its existing
business technology. Gamma Inc. is an analog semiconductor manufacturer
supplying foundry wafers, custom linear and digital arrays, and general purpose
analog semiconductor devices.
The transaction was accounted for as a pooling of interests and, accordingly,
the accompanying consolidated financial statements have been restated as if the
companies had been combined for all periods presented.
TEMPORARY INVESTMENTS
Temporary investments consist of commercial paper and government obligations
with original maturities in excess of three months and were carried at cost,
which approximated market for fiscal 1994. In fiscal 1995, the Company adopted
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." At January 28, 1996, and January 29, 1995, the fair market value of
these temporary investments, classified as "available for sale securities",
approximated cost, thus no unrealized holding gains or losses were reported in
the accompanying balance sheet. During fiscal year 1996, the Company had
proceeds from sales of available for sale securities and gross realized losses
on these sales of approximately $280,000 and $10,000, respectively. In addition,
the Company holds corporate bonds and government securities of approximately
$30,000 and $381,000, respectively, expiring at various dates through 1999.
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:
<TABLE>
<CAPTION>
Raw Materials Work in process Finished goods Total
(thousands)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Gross inventories $2,016 $ 7,370 $ 3,191 $12,577
Total reserves (722) $ (688) (1,181) (2,591)
------ ------- ------- -------
Net inventories $1,294 $ 6,682 $ 2,010 $ 9,986
====== ======= ======= =======
1995
Gross inventories $1,731 $ 5,869 $ 2,494 $10,094
Total reserves (539) (1,146) (1,096) (2,781)
------ ------- ------- -------
Net inventories $1,192 $ 4,723 $ 1,398 $ 7,313
====== ======= ======= =======
</TABLE>
-22-
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Land $ 162 $ 162
Building 1,008 1,024
Leasehold improvements 1,411 1,237
Machinery and equipment 12,548 9,592
Furniture and office equipment 979 855
------- -------
16,108 12,870
Less accumulated depreciation and amortization (9,360) (9,379)
------- -------
Total $ 6,748 $ 3,491
======= =======
</TABLE>
OTHER ASSETS
Included in other assets as of January 28, 1996 is a note receivable from an
executive officer of $32,000. It represents the amount due for the purchase of
debentures issued in accordance with the Company's Key Management Convertible
Subordinated Debenture Plan. The remaining debentures, which were purchased by
the executive officer in fiscal 1987, were converted to common stock of the
Company during the current year. This note bears an interest rate of 6.5% and
matures on December 15, 1997.
Principal and interest due under this note will be paid by the Company in the
amount of 5% of the Company's pretax earnings for each fiscal quarter, beginning
with the first quarter of fiscal 1995 and ending with the third quarter of
fiscal 1997. For fiscal 1996 and 1995, compensation expense in the amount of
$497,000 and $85,000, respectively, was recognized by the Company under this
agreement.
ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Payroll and related $1,613 $1,125
Commissions 158 141
Reserve for credit memos 50 150
Environmental 250 250
Other 336 319
------ ------
Total $2,407 $1,985
====== ======
</TABLE>
The Company plans to remove underground acid neutralization tanks and perform
soil remediation and monitoring at two of its facilities and install a new
treatment system at one of these facilities. The Company estimates the cost of
these activities to be $250,000 based on consultation with environmental
consultants and has accrued this amount in the accompanying financial statements
as of January 28, 1996, and January 29, 1995.
Certain contaminants from an adjacent manufacturing site have been found in the
ground water at the Company's Newbury Park facility. The Company has data
showing that the contaminants are from an adjacent facility. The contaminants
in question have never been used by the Company at the Newbury Park facility.
-23-
<PAGE>
To protect its interests the Company utilizes an environmental firm,
specializing in hydrogeology, to perform periodic monitoring. It is currently
not possible to determine the ultimate amount of possible future clean-up costs,
if any, that may be required of the Company at this site. Accordingly, no
reserves for such clean-up activities have been provided by the Company at this
time.
LONG-TERM DEBT AND LINE OF CREDIT
Long-Term debt consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
8.5% convertible subordinated debentures, due 1996,
interest payable semi-annually $ - $ 137
Note payable, interest at 8.62%, due in monthly
installments to 1998, collaterilized by capital
equipment 356 490
Note payable, interest at 8%, due in monthly
installments to 1996, partially collaterilized by a
$112 certificate of deposit - 150
Note payable, interest at 8.31%, due in monthly
installments to 1999, collateralized by machinery and
equipment 822 -
Note payable, interest at 11.875%, due in semi-annual
installments to 2003, collaterized by a building 240 267
Notes payable bearing interest at 7.25% due in monthly
installmants to 1996, collateralized by certain
equipment
- 36
Notes payable bearing interest at 7.1% to 15%, due in
monthly installments to 1998, collaterilized by certain
equipment 10 23
------ ------
1,428 1,103
Less current maturities (404) (304)
------ ------
Total $1,024 $ 799
====== ======
</TABLE>
Long-term debt matures as follows: $404,000 in 1997, $444,000 in 1998, $406,000
in 1999, $26,000 in 2000, $28,000 in 2001, and $120,000 thereafter.
For fiscal 1996, the Company's maximum outstanding debt balance was $1,428,000.
In August 1992, as amended in April 1996, the Company entered into a credit
arrangement with a financial institution for a working capital and equipment
acquisition line of credit for up to $7,500,000 extending to August 1996 at an
interest rate of 30 day commercial paper plus 2.65 percent (8.16% at January 28,
1996). The arrangement is collateralized by the Company's domestic assets and
contains provisions regarding current ratios, debt to worth, and net worth. As
of January 28, 1996, the Company had $822,000 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.
-24-
<PAGE>
DEFERRED COMPENSATION
On September 10, 1989, Gamma Inc. entered into an employment contract with a
shareholder. The agreement guarantees continuing salary payments to the
shareholder upon termination of employment equal to his compensation at the
point of termination, plus certain benefits, for a period of three years. The
liability was originally recorded by the Company in 1989 and increased based on
salary adjustments. The present value of this commitment at January 28, 1996 and
January 29, 1995, is $1,085,000 and $955,000, respectively, which is reflected
in the accompanying financial statements as a component of other current and
long-term liabilities.
INCOME TAXES
The provision (benefit) for taxes consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
Current: $3,339 $ 429 $177
Federal 724 124 85
State 150 101 (79)
Foreign ------ ----- ----
4,213 654 183
Deferred: (337) (100) (66)
Federal (62) (30) (15)
State (2) 2 -
Foreign ------ ----- ----
$3,812 $ 526 $102
Total ====== ===== ====
</TABLE>
The components of the net deferred income tax assets at January 28, 1996
and January 29, 1995 are as follows:
Net short-term deferred income taxes:
<TABLE>
<CAPTION>
(thousands) 1996 1995
-----------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Payroll and related $ 272 $ 474
Environmental 100 100
Research and development tax credit - 143
Reserve for credit memos 130 60
Deferred revenue 65 31
Bad debt reserve 91 25
State income taxes 71 -
Other deferred assets 49 19
----- -----
Total deferred income taxes 778 852
Valuation reserve (313) (500)
----- -----
Net short-term deferred income taxes $ 465 $ 352
===== =====
</TABLE>
-25-
<PAGE>
Net long-term deferred income taxes:
<TABLE>
<CAPTION>
(thousands) 1996 1995
-----------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory valuation $ 824 $ 773
Tax credits - 20
Accrued compensation 260 71
Other deferred assets - 54
------ -----
Total long-term deferred assets 1,084 918
------ -----
Deferred tax liabilities:
Depreciation and amortization (239) (111)
Foreign deferred taxes (35) (37)
------ -----
Total long-term deferred liabilities (274) (148)
------ -----
Subtotal 810 770
Valuation reserve (483) (731)
------ -----
Net long-term deferred income taxes $ 327 $ 39
====== =====
</TABLE>
The provision for taxes reconciles to the amount computed by applying the
statutory federal rate to income before taxes as follows:
<TABLE>
<CAPTION>
(thousands) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax $3,857 $ 690 $102
State income taxes, net of federal
benefit 662 97 19
Foreign sales corporation rates less
than statutory rates (255) - -
Foreign taxes at rates greater (less)
than domestic rates (17) 2 68
Utilization of net operating loss and
tax credit carryforwards (106) (31) (13)
Changes in valuation reserve (435) (187) (73)
Other 106 (45) (1)
------ ----- ----
Provision for taxes $3,812 $ 526 $102
====== ===== ====
</TABLE>
Realization of the net deferred tax assets is dependent on generating sufficient
taxable income during the periods in which temporary differences will reverse.
In general, the Company reserves those deferred tax items which are projected to
be realized in greater than two years. Although realization is not assured,
management believes it is more likely than not that the net deferred tax assets
will be realized. The amount of the net deferred tax assets considered
realizable, however, could be adjusted in the near term if estimates of future
taxable income during the reversal periods are revised.
-26-
<PAGE>
COMMITMENTS AND CONTINGENCIES
The Company leases facilities and certain equipment under operating lease
arrangements expiring in various years through 2001. The aggregate minimum
annual lease payments under leases in effect on January 28, 1996 were as
follows:
<TABLE>
<CAPTION>
(thousands) Operating
Fiscal Year Ending Leases
------------------------------------------
<S> <C>
1997 $ 680
1998 629
1999 418
2000 259
2001 235
------
Total minimum lease commitments $2,221
======
</TABLE>
Annual rent expense was $667,000, $638,000, and $579,000 for fiscal years 1996,
1995, and 1994, respectively. From 1987 through 1994, the Company subleased a
portion of its facilities. Accordingly, amounts received from these agreements
were netted against rent expense. The Company received $10,000 in sublease
payments in 1994.
Semtech Corpus Christi has been named in a suit resulting from waste disposal by
the Company's maquiladora plant in Reynosa, Mexico. Specifically, the
maquiladora re-imported waste into the U.S. and disposed of the waste in a
landfill near McAllen, Texas. The suit, which is in the discovery stage,
pertains to alleged groundwater contamination originating from the landfill. The
company which owns the landfill and several other maquiladoras have also been
named in the suit. The Company has retained legal counsel and intends to defend
itself as management believes that the suit is without merit.
The Company is a defendant in other lawsuits involving 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 financial statements.
As of January 28, 1996, the company had purchase commitments for machinery and
equipment totaling $537,000.
SHAREHOLDERS' EQUITY
STOCK OPTIONS In February 1986, the Company established the 1986 Stock Option
Plan which provides for granting options to purchase up to 250,000 shares of the
Company's common stock to employees, directors and consultants of the Company.
The 1986 plan provides for the granting of options which meet the Internal
Revenue Code requirements for qualification as incentive stock options, as well
as nonstatutory options. Under this Plan, the option price must be at least
equal to the fair market value of the Company's common stock at the date of the
grant for incentive stock options and must equal or exceed the lesser of (i) 85%
of fair market value on the date of grant, or (ii) 85% of fair market value on
the date of exercise for nonstatutory options. Most incentive stock options
expire within ten years from the date of grant. Generally, the options are
exercisable in annual installments beginning one year after, and expire either
five or six years after, the date of grant.
-27-
<PAGE>
In February 1987, the Company adopted the 1987 Stock Option Plan covering
350,000 shares of the Company's common stock. The 1987 Plan provides for the
granting of options which meet the Internal Revenue Code requirements for
qualification as incentive stock options, and of options which do not meet such
requirements, nonstatutory options. The terms and conditions of options granted
under the 1987 Stock Option Plan are the same as those granted under the
Company's 1986 Stock Option Plan, depending on the designation of the option.
In 1994, the Company adopted the 1994 Long-Term Stock Incentive Plan and the
1994 Non-Employee Directors Stock Option Plan. These plans were both amended
during fiscal 1996 to cover 700,000 shares and 250,000 shares of the Company's
common stock, respectively. Both 1994 plans provide for the granting of options
which meet the Internal Revenue Code requirements for qualification as incentive
stock options, and of options which do not meet such requirements, nonstatutory
options. The terms and conditions of options granted under the 1994 Plans are
substantially similar to those granted under the Company's 1987 and 1986 Plans.
Stock option information with respect to the Company's stock option plans is as
follows:
<TABLE>
<CAPTION>
Common Option Aggregate
Shares Available Price Option Price
Reserved for Grant Options Per Share
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1993 585,742 57,167 528,575 $ 1.00-$4.50 $ 968,963
Granted - (89,750) 89,750 1.75- 2.38 182,656
Canceled (6,625) 67,409 (74,034) 1.00- 4.50 (154,297)
Exercised (76,566) - (76,566) 1.00- 2.25 (117,066)
--------- -------- -------- ------------ -----------
Balance at January 30, 1994 502,551 34,826 467,725 $ 1.00-$3.13 $ 880,256
Granted - (219,500) 219,500 1.94-2.63 503,968
Canceled - 54,850 (54,850) 1.00-3.13 (93,513)
Exercised (61,125) - (61,125) 1.00-2.00 (113,000)
Additions 400,000 400,000 - - -
--------- -------- -------- ------------ -----------
Balance at January 29, 1995 841,426 270,176 571,250 $ 1.00-$2.63 $ 1,177,711
Granted - (470,300) 470,300 7.75-26.75 9,537,363
Canceled - 11,500 (11,500) 1.75-2.63 (22,691)
Exercised (236,680) - (236,680) 1.00-2.63 (442,701)
Additions 550,000 550,000 - - -
--------- -------- -------- ------------ -----------
Balance at January 28, 1996 1,154,746 361,376 793,370 $1.00-$26.75 $10,249,682
========= ======== ======== ============ ===========
</TABLE>
CONVERTIBLE DEBENTURES As of January 28, 1996, there were no convertible
debentures remaining outstanding. During fiscal year 1996, the remaining
$136,280 of debentures issued under the Key Management Convertible Subordinated
Debenture Purchase Plan were converted into 136,280 shares of common stock.
-28-
<PAGE>
OTHER INCOME AND EXPENSE
Other income (expense) consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $156 $144 $163
Loss on disposition of assets (1) - (8)
Foreign currency transaction gains (losses) - 5 (29)
Restructuring costs - - (108)
Miscellaneous expense (2) (60) (69)
---- ---- ----
Total $153 $ 89 $(51)
==== ==== ====
</TABLE>
The restructuring charge for 1994 was the cost of reducing administrative
headcount in the Corpus Christi facility and manufacturing headcount at Semtech
Limited. This restructuring allowed the Company to eliminate the finance and
sales organization within its Corpus Christi operation.
STATEMENTS OF CASH FLOWS
The Company had the following non-cash activities for each year:
<TABLE>
<CAPTION>
(thousands) 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C>
Non-cash activities -
Debentures converted to stock $136 $350 $50
Stock issued for services - 35 7
</TABLE>
Income taxes paid in fiscal years 1996, 1995, and 1994 were $2,251,000,
$427,000, and $27,000 respectively. For those same periods, the Company paid
interest in the amounts of $97,000, $163,000, and $151,000 respectively.
The Company considers all highly liquid investments with original maturity of
three months or less to be cash equivalents.
BUSINESS SEGMENTS AND CONCENTRATIONS OF RISK
The business of the Company consists of the manufacture and sale of silicon
rectifiers, integrated circuits and related devices which falls within a single
segment. Foreign sales are primarily in Europe and Far East Asia. One customer
accounted for 12% and 15% of the Company's net sales during 1996 and 1994. No
single customer had net sales exceeding 10 percent of total net sales in fiscal
year 1995.
As a result of the acquisition and pooling of Gamma, Inc., the Company had net
sales from wafer foundry services of approximately $16,094,000, $7,004,000 and
$7,321,000 in 1996, 1995, and 1994 respectively. Two customers accounted for
75%, 72% and 75% of these sales in 1996, 1995 and 1994, respectively.
-29-
<PAGE>
A summary of net sales, pre-tax income and identifiable assets for the Company's
domestic and European operations follows:
<TABLE>
<CAPTION>
(thousands) 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
Domestic $53,906 $28,787 $25,250
European 7,778 5,818 4,103
------- ------- -------
Total $61,684 $34,605 $29,353
======= ======= =======
Pre-tax Income (Loss):
Domestic $10,870 $ 1,761 $ 666
European 473 267 (366)
------- ------- -------
Total $11,343 $ 2,028 $ 300
======= ======= =======
Identifiable Assets:
Domestic $29,702 $18,584 $15,516
European 2,983 2,793 2,744
------- ------- -------
Total $32,685 $21,377 $18,260
======= ======= =======
</TABLE>
Sales to customers in Asia-Pacific are included in domestic totals as they are
all export sales. Sales to customers in the Asia-Pacific region totaled $14.1
million in fiscal 1996, $2.3 million in fiscal 1995 and were immaterial in
fiscal 1994.
SELECTED QUARTERLY DATA (UNAUDITED)
Quarterly data, unaudited, for fiscal 1996 and fiscal 1995 is presented below.
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Net sales $12,780 $14,674 $16,577 $17,653 $61,684
Gross Profit 4,881 6,105 7,055 7,768 25,809
Net Income 1,263 1,816 1,905 2,547 7,531
Net Income per Share:
Primary .21 .29 .31 .40 1.21
Fully Diluted .20 .29 .30 .40 1.18
1995
Net sales $ 7,584 $ 8,394 $ 8,324 $10,303 $34,605
Gross Profit 2,408 2,610 2,589 3,665 11,272
Net Income 169 230 302 801 1,502
Net Income per Share:
Primary .03 .04 .06 .14 .27
Fully Diluted .03 .04 .05 .13 .25
</TABLE>
-30-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Semtech Corporation:
We have audited the accompanying consolidated balance sheets of Semtech
Corporation (a Delaware Corporation) and subsidiaries as of January 28, 1996,
and January 29, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended January 28, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Semtech Corporation and
subsidiaries as of January 28, 1996, and January 29, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended January 28, 1996, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II - Valuation and Qualifying Accounts is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/S/Arthur Andersen LLP
---------------------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
April 9, 1996
-31-
<PAGE>
SCHEDULE II
SEMTECH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 30, 1994, JANUARY 29, 1995, AND JANUARY 28, 1996
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End
of Year Other Expenses Deductions of Year
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Year Ended January 30, 1994:
- ---------------------------
Allowance for doubtful
accounts $291,000 $ - $ 47,000 $ (18,000) $320,000
Year Ended January 29, 1995:
- ---------------------------
Allowance for doubtful
accounts $320,000 $4,000 $ 20,000 $ (63,000) $281,000
Year Ended January 28, 1996
- ---------------------------
Allowance for doubtful
accounts $281,000 $ - $755,000 $(215,000) $821,000
</TABLE>
-32-
<PAGE>
ITEM 9. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information contained at Pages 3 through 6 in Management's Proxy Statement
(the "Proxy Statement"), to be filed within 120 days of the Company's fiscal
year end, under the heading "Election of Directors" and the information
contained on Page 11 of the Proxy Statement regarding appointment of independent
accounts is incorporated by reference herein.
Executive Officers and Certain Other Significant Employees of Registrant
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
John D. Poe 44 President and Chief Executive Officer
Raymond E. Bregar 48 Executive Vice President-Corporate
Operations
David G. Franz, Jr. 34 Vice President-Finance and Chief Financial
Officer, Secretary and Treasurer
</TABLE>
Mr. Poe became President and Chief Executive Officer of the Company in October
1985. He is a director of the Company. Before serving in this capacity at the
Company, Mr. Poe served as Vice President, Operations, for Silicon General, Inc.
from August 1984 through September 1985. Prior to that position, Mr. Poe was
Military Operations Manager in the Discrete Division at Fairchild Camera and
Instrument, Inc. where he managed the manufacture, design and marketing of
military discrete semiconductors for more than four years.
Mr. Bregar joined the Company in February 1988 and was appointed Vice President-
Engineering in February 1988. From fiscal 1989 through fiscal 1993 Mr. Bregar
served as Vice President of Discrete Products. Currently Mr. Bregar serves as
Executive Vice President-Corporate Operations, a position he has held since
February 1993. Prior to joining the Company, Mr. Bregar served as Business
manager of Power Discretes with Fairchild Semiconductor where he directed the
research and development and manufacturing of the power mosfet and power
rectifier product lines.
Mr. Franz became Vice President-Finance and Chief Financial Officer, Secretary
and Treasurer in August of 1993. Prior to joining the Company, Mr. Franz was
Director of Finance of the Large Computer Systems Division (formerly the
Teradata Corporation) of AT&T from May 1990 through August 1993. Prior to that
position Mr. Franz was employed by the Wickes Companies and Arthur Andersen LLP.
Mr. Franz is a Certified Public Accountant.
None of the officers has any family relationship to any other officer. The
officers are elected annually by the Board of directors and serve at the
discretion of the Board.
-33-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement at Pages 5 through 8 under the
heading "Executive Compensation" is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the Proxy Statement at Page 2 under the heading
"Principal Shareholders" and Pages 2 and 5 under the heading "Election of
Directors" is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Proxy Statement at Pages 5 through 8 under the
heading "Executive Compensation" is incorporated by reference herein.
-34-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The financial statements and the Report of Arthur Andersen LLP are
included in Part II of this Report on the pages indicated.
<TABLE>
<CAPTION>
Page
----
Index of Financial Statements:
<S> <C>
Consolidated statements of income, three years ended 16
January 28, 1996
Consolidated balance sheets, January 28, 1996 and 17
January 29, 1995
Consolidated statements of shareholders' equity, three 18
years ended January 28, 1996
Consolidated statements of cash flows, three years 19
ended January 28, 1996
Notes to consolidated financial statements, 20
January 28, 1996
Report of Independent Public Accountants 31
</TABLE>
(2) The following financial statements schedule of the Company for the
years ended January 28, 1996, January 29, 1995, and January 30, 1994 is filed as
part of this Report and should be read in conjunction with the financial
statements:
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Schedule II - Valuation and Qualifying Accounts 32
</TABLE>
Schedules other than those listed above are omitted since they are not
applicable, not required, or the information required to be set forth herein is
included in the consolidated financial statements or notes thereto.
Supplementary Financial Information - Quarterly Financial Data
-----------------------------------
(unaudited) for the years ended January 28, 1996 and January 29, 1995 is
included in Part II of this Report at page 30.
-35-
<PAGE>
<TABLE>
(3) Exhibits - Incorporated by reference from the Company's previous 10-K
--------
filings unless otherwise indicated
<C> <S>
3.1 - Certificate of Incorporation, as amended
3.2 - Bylaws
4.1 - Indenture between Semtech Corporation and Trust Services
of America, Inc.
4.2 - Form of Debenture (contained in 4.1 above)
4.3 - First Supplemental Indenture between Semtech Corporation
and Trust Services of America, dated May 11, 1988
10.1 - Security Agreement and Collateral Installment Note
between the Company and Merrill Lynch in the aggregate
amount of $7,500,000, dated August 24, 1992, as amended
on April 10, 1996, for establishing a WCMA line of credit
and an equipment acquisition line
10.4 - Agreement of sublease executed on December 23, 1991,
effective January 1, 1991, by the Company and the Corpus
Christi Airport Development Corporation for a portion of
the Company's plant and facilities
10.6 - Overdraft facility agreement executed on May 26, 1987
between the Company and the Bank of Scotland in the
amount of 300,000 pounds sterling
10.7 - Lease executed on May 1, 1988 and amended on November 1,
1991 by the Company for a portion of its plant and
facilities
10.8 - Lease executed on September 12, 1988 by the Company for a
portion of its plant and facilities
10.10 - The Company's 1986 Stock Option Plan and the related Form
of Option Agreement
10.11 - The Company's 1987 Stock Option Plan and the related Form
of Option Agreement
10.12 - The Company's 1994 Long-term Stock Incentive Plan and the related
Form of Option Agreement
10.11 - The Company's 1994 Non-Employee Directors Stock Option Plan and
the related Form of Option Agreement
11.1 - Computation of per-share earnings (filed with January 30,
1994 10-K)
13.1 - Annual Report to Shareholders
22.1 - Subsidiaries of the Company
27 - Financial Data Schedule, Article 5, attached
</TABLE>
(b) Reports on Form 8-K - The Company filed an 8-K with the Commission on
or about October 13, 1995 as amended on or about December 19, 1995, to report
the acquisition of Gamma, Inc., dba ECI Semiconductor.
-36-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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
By /S/John D. Poe
---------------------------
John D. Poe, President
and Chief Executive Officer
Date April 25, 1996
------------------------
-37-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: April 25, 1996 /s/ John D. Poe
-------------------- -----------------------------
John D. Poe, President
and Chief Executive Officer,
Director
Date: April 25, 1996 /s/ David G. Franz Jr
-------------------- ------------------------------
David G. Franz, Jr.
Vice President-Finance
and Chief Financial Officer,
Secretary and Treasurer
(Principal Accounting
and Financial Officer)
Date: April 25, 1996 /s/ James P. Burra
-------------------- --------------------------------
James P. Burra
Director
Date: April 25, 1996 /s/ Rock N. Hankin
------------------- -------------------------------
Rock N. Hankin
Director
Date: April 25, 1996 /s/ Allen H. Orbuch
-------------------- -------------------------------
Allen H. Orbuch
Director
Date: April 25, 1996 /s/ James T. Schraith
------------------- ------------------------------
James T. Schraith
Director
Date: April 25, 1996 /s/ Jack O. Vance
-------------------- --------------------------------
Jack O. Vance
Director
The information contained in the Proxy Statement at Pages 6 and 7 under
the heading "Executive Compensation" is incorporated by reference herein.
-38-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEMTECH'S
10-K FOR THE YEAR ENDED JANUARY 28, 1996, WHICH ARE QUALIFIED IN THEIR ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-START> JAN-30-1995
<PERIOD-END> JAN-28-1996
<CASH> 6,034
<SECURITIES> 411
<RECEIVABLES> 7,987
<ALLOWANCES> 0
<INVENTORY> 9,986
<CURRENT-ASSETS> 25,476
<PP&E> 6,748
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,685
<CURRENT-LIABILITIES> 7,595
<BONDS> 0
75
0
<COMMON> 0
<OTHER-SE> 23,194
<TOTAL-LIABILITY-AND-EQUITY> 32,685
<SALES> 61,684
<TOTAL-REVENUES> 61,684
<CGS> 35,875
<TOTAL-COSTS> 35,875
<OTHER-EXPENSES> 14,022
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 11,343
<INCOME-TAX> 3,812
<INCOME-CONTINUING> 7,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,531
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.18
</TABLE>
