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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 26, 1997
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 11, 1997 $151,962,921 and the market price of the Registrant's stock
was $24.75 per share. The number of shares outstanding of the Registrant's
common stock was 6,139,916 at April 11, 1997.
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 5, 1997.
This report on Form 10-K contains a total of 36 pages.
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SEMTECH CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JANUARY 26, 1997
PART I
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PAGE
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<S> <C> <C>
Item 1 Business 2
Item 2 Properties 7
ITem 3 Legal Proceedings 8
ITEM 4 Submission of Matters to a Vote of Security Holders 8
PART II
Item 5 Market for the Registrant's Common Equity
and Related Shareholder Matters 9
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8 Financial Statements and Supplementary Data 14
Item 9 Changes in or Disagreements With Accountants on
Accounting and Financial Disclosure 30
PART III
Item 10 Directors and executive officers of the registrant 30
Item 11 Executive Compensation 31
Item 12 Security Ownership of Certain Beneficial Owners
and Management 31
Item 13 Certain Relationships and Related Transactions 31
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 32
Signatures 35
</TABLE>
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PART I
------
ITEM 1. BUSINESS
GENERAL
Semtech Corporation ("Semtech" or the "Company") was incorporated in 1960 in
Delaware and the Company's initial public offering was in 1967. The Company's
principal executive offices are located at 652 Mitchell Road, Newbury Park,
California.
Semtech designs, manufactures and markets a wide range of analog semiconductors,
including integrated circuits ("ICS"), discrete circuits, and assembly products.
the Company's devices are used in a variety of applications including computer,
communications, industrial, military-aerospace and automotive. The Company also
provides wafer foundry services for customers who produce electronic components
primarily for computers, peripheral and communications markets.
INDUSTRY
Analog semiconductors address "real world" functions, which is in contrast to
digital circuits that compute and process information. Analog provides the
ability for today's digitally dominated electronics to interface with the
outside world. Such real world functions as temperature, speed, sound and
electrical current all behave in a continuous manner, which is in contrast to
digital circuit's on's and off's (expressed in binary code as 1's and 0's).
Analog devices play the important role of managing these functions and bridging
the gap with digital electronics.
Semtech has strategically focused on designing and manufacturing analog
semiconductors for solving power management issues. As today's electronic
components continue to increase in performance, digital circuits require more
complex power management solutions. Important industry trends that the Company
continues to take advantage of include the move to lower operating voltages,
portability, the proliferation of battery operated equipment, and increased
connectivity.
The market for analog semiconductors varies in comparison to the market for
digital semiconductors. The analog industry is specifically characterized by:
fragmented end-market segments, significantly less capital intensive than the
digital industry, longer product life cycles, and greater dependence on design.
Analog semiconductor companies tend to be much less dependent than digital
producers on state of the art manufacturing equipment. Analog, conversely,
places importance on design and applications talent.
The overall commercial semiconductor industry and the end markets in which the
Company's products are sold are characterized by constant changes. Due to lower
operating voltages and more complex power management requirements, there has
been increased demand for the types of analog circuits supplied by Semtech.
Specific drivers of the Company's recent growth include the movement of
microprocessors to lower operating voltages and increased recognition of the
need for protection against transients. While the Company has seen wide
acceptance of its products which address this demand for complex power
management requirements, the markets for these products remain very competitive.
APPLICATIONS
End market applications for the Company's products sold during fiscal 1997 are
estimated to be: 41% computer, 8% communications, 22% industrial, 14%
military/aerospace and 15% foundry sales. Use of the Company's line of voltage
regulators in powering desktop microprocessors represents the largest end
product application. Other specific applications include servers, computer add-
on cards, printers, cellular phone base stations, cellular phone
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handsets, portable devices, factory automation systems, medical equipment,
automotive sub-systems, and defense and aviation systems.
PRODUCTS
The following is a description of the Company's main product lines:
Transient Voltage Suppressors. Transient voltage suppressors provide protection
- -----------------------------
for AC signals and 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, datacommunciations, telecommunications, industrial, military
and aerospace markets.
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.
Modular Assemblies. A power 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. Also produced are power modules that
consist of one or more voltage regulators and other surrounding components which
are mounted on a printed circuit board and fitted with an application specific
socket. The Company manufactures assemblies as catalog items and for special
customer requirements. Modules are used for computer, industrial and other
market applications.
Other Standard and Custom ICS. Other standard and custom circuits include a wide
- -----------------------------
variety of industry standard and customer specific devices. Technical
applications for these products include power management and sensory functions.
Markets include industrial, consumer, automotive and computer.
Foundry Wafers. Semtech supplies wafers which it founders for other
- --------------
semiconductor manufacturers. Much of the processed 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. These products are sold to military, aerospace and
commercial customers.
MANUFACTURING CAPABILITIES
The Company has manufacturing facilities in California, Texas, Mexico and
Scotland. The Company's commercial IC production facilities are located in
Santa Clara, California and Corpus Christi, Texas. Discrete wafer fabrication,
testing, probe and some assembly activity is handled at the Newbury Park,
California location. The Company's Reynosa, Mexico facility provides relatively
low cost assembly and test capabilities and the Glenrothes, Scotland facility
provides value-added manufacturing capabilities for serving the European
markets.
The Company fabricates and assembles a 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 high-volume commercial product lines. While
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the Company currently has adequate capacity with these subcontractors, a
reduction in available capacity could negatively impact operating results in the
short-term.
A large part of the manufacturing operation is performed by operators working on
standard equipment in the Company's wafer fabrication lines ("wafer fabs"). 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 employ various bipolar processes. The
facilities and related fabrication processes used tend to be significantly less
costly than state-of-the-art digital fabrication facilities and likewise 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.
CUSTOMERS, SALES DATA AND BACKLOG
Approximately 1,000 customers purchased the Company's products during the fiscal
year ended January 26, 1997. No one customer accounted for 10% or more of the
Company's net sales in fiscal 1997 and 1995. One customer accounted for 12% of
net sales in 1996. Customers that buy the Company's products include major
computer and peripheral manufacturers and their sub-contractors, communications
equipment producers (both datacommunication and telecommuncation), and a variety
of both large and small companies serving the industrial, automotive, aerospace
and military markets.
With a large portion of the Company's sales coming from retail computer and
computer related applications, the Company's results reflect some seasonality,
with demand levels being higher in the third and fourth quarters of the year in
comparison to the first and second quarters. While some seasonality was
experienced during fiscal years 1996 and 1997, overall industry trends and
Company specific conditions have greater effect on quarterly sales levels.
Foreign sales, defined as customers located outside of the United States, during
the fiscal year ended January 26, 1997 were approximately 46% of net sales.
During 1996 and 1995, foreign sales were 36% and 24%, respectively, of net
sales. Most foreign sales were to customers located in Taiwan, United Kingdom
and France. A significant portion of the sales in fiscal 1997 were to customers
located in the Far East region. Sales to customers in this region were
approximately 33% of total sales and 34% of new orders in fiscal 1997.
The Company's backlog of orders as of the end of the last three fiscal years
ended 1997, 1996, and 1995 was approximately $21.9 million, $19.5 million and
$13.2 million, respectively. A majority of the backlog is deliverable within
six months; experience has shown that short-delivery lead times are required by
most customers. A backlog analysis at any given time gives little indication of
future business except on a short-term basis, principally within the next three
months. The Company does not have any significant contracts with its customers
calling for shipments over a period of more than 18 months.
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. Orders covered by only a letter of intent are not included in the
Company's backlog of orders.
4
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SALES AND MARKETING FUNCTIONS
The Company maintains a domestic marketing and sales force consisting of direct
sales offices located in Southern California, Ohio and Connecticut who manage
the sales activities of independent sales representative firms and independent
distributors within the United States and Canada. The Company also has sales
offices in France, Germany and Scotland as well as independent sales
representative firms and independent distributors to serve the European markets.
The Company maintains a branch sales office in Taipei, Taiwan along with
independent representatives and distributors for serving the Far East territory.
The Company is also represented outside the United States, Europe and Asia by
other independent sales organizations.
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 plants 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 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.
In fiscal year 1997, Semtech invested heavily in design and applications
intended to aid the introduction of new products. In May of 1996, the Company
opened its design center located at its Santa Clara, California facility. The
design center is located in the "Silicon Valley" to aid in recruiting additional
design talent, developing a close working relationship with the Santa Clara
wafer fab and developing strategic alliances with other technology companies.
Expenditures were made throughout the organization for headcount additions as
well as design aids and equipment needed to support the Company's Santa Clara
based design center. The Company intends to make further investments in people
and equipment in subsequent years in order to increase new product development.
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 competitors has grown due to expansion of the market segments in which
the Company participates.
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
voltage 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 economies in production and sales, but also on
other factors such as whether it is successful in recruiting design and
applications talent and introducing new products. Over the past five years the
Company has experienced improvements in productivity and product yields which
have reduced manufacturing costs, and increased its rate of new product
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introductions. However, the Company still faces many potentially significant
business risks such as new sources of competition, obsolescence or the loss of a
major customer.
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. The
Company has pursued patent protection for certain devices. 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
may be required of the Company at this site.
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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. In fiscal 1997, the Company removed the tank. Removal
costs were covered by environmental accruals established in 1996.
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. Work began on this project
during fiscal year 1997. The remaining costs associated with the removal of
these tanks is estimated at $50,000, which has been accrued as of January 26,
1997. 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. In February 1997, the Company settled the suit
for $20,000.
EMPLOYEES
As of January 26, 1997 the Company had 503 full-time employees, compared to 499
full-time employees at January 28, 1996. The increase was due to additions of
design, applications, strategic marketing, and production capabilities,
partially offset by a decrease in headcount associated with the military
business.
There has been generally 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. Competition for key design
and applications talent is significant.
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.
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
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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'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 module
products.
The Company maintains sales offices in Ohio and Connecticut on short-term
leases. Aggregate annual rentals under these leases during the most recently
completed fiscal year equaled approximately $19,000. 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 1997 of
approximately $39,000.
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.
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 27 of this report under the heading "Selected
Quarterly Data" is incorporated herein by reference.
As of April 11, 1997, there were approximately 722 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 11, 1997 was $24.75 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 fiscal year 1996 acquisition of ECI Semiconductor which was
treated as a pooling-of-interests for accounting purposes. The information set
forth below should be read in conjunction with the Company's complete financial
statements, appearing elsewhere in this report.
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<CAPTION>
Year Ended January
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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Net Sales $65,383 $61,684 $34,605 $29,353 $27,554
Gross Profit 27,270 25,809 11,272 8,440 7,986
Operating Income (Loss) 11,429 11,787 2,099 500 (4)
Income (Loss) Before Taxes 11,413 11,343 2,028 300 (53)
Net Income (loss) $ 7,651 $ 7,531 $ 1,502 $ 198 $ (103)
- ------------------------------------------------------------------------------------------
Net Income (Loss) per Share:
Primary $ 1.19 $ 1.21 $ .27 $ .04 $ (.02)
Fully Diluted $ 1.16 $ 1.18 $ .25 $ .03 $ (.02)
- ------------------------------------------------------------------------------------------
Total Assets $41,645 $32,685 $21,377 $18,260 $17,103
Long-Term Debt, Less Current
Maturities $ 1,237 $ 1,024 $ 799 $ 963 $ 1,060
Working Capital $24,036 $17,881 $11,475 $ 9,623 $ 9,142
Total Shareholders' Equity $31,482 $23,269 $13,715 $11,697 $11,282
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INDUSTRY TRENDS AND OUTLOOK
Over the last three fiscal years, Semtech has experienced increased acceptance
of its commercial product lines and significantly broadened its customer base.
Efforts have been made to increase market share for existing products and to
develop new products for serving both the commercial and military markets.
While the Company has been successful in growing, future growth and success is
dependent on new products, market conditions and increased production
efficiencies.
In the first half of fiscal year 1997, the Company was effected by an industry-
wide slowdown caused by excess inventory levels at end customers. Order rates
improved in the second half. However, customers continue to order with short
lead-times. As a result, the Company generally has only 90-120 days visibility
of future period shipments.
New products introduced over the last twelve months are aimed at further
diversifying the Company's product offering and penetrating new applications.
Notebook computers, cellular handsets, communications and industrial
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applications are the focus of new design efforts. While efforts are being made
to increase the rate of new product introductions, enhancements are also being
made to existing devices to reduce cost and maintain market share. Investment
in design and applications are intended to further transition the Company's
revenue sources away from foundry and more towards standard, custom and
proprietary products.
With the increased success and growth in demand for semiconductors, the Company
has seen new competitors enter the market. In addition, existing competitors
have become more aggressive in protecting market share and customer
relationships. Typical of the semiconductor industry, the Company has
experienced declines in average selling prices over the life of its product
lines. Efforts to offset this decline include increasing units shipped, finding
new applications for existing products and introduction of new products.
Management will continue to take steps to offset the impact of declines in
average selling prices, however, there is no assurance that these efforts will
be successful.
RESULT OF OPERATIONS
NET SALES
Net sales for fiscal year 1997 totaled $65.4 million, which represented an
increase of 6% over last year and an 89% increase over fiscal 1995. The
increase in net sales was primarily due to increased shipments of the Company's
lines of voltage regulators and power modules. A majority of the voltage
regulator and module sales were to computer and computer peripheral customers.
The Company experienced pricing pressure in the first half and relatively stable
pricing in the second half of fiscal 1997. Unit shipment increases offset the
effect of decreased prices. The Company has continued to experience a shift in
product mix. Growth in computer, communications and industrial is expected to
increase, while military and foundry sales (as a percentage of the total
revenue) is expected to decline.
Geographically, sales for fiscal 1997 were approximately 54% domestically, 33%
into the Far East region and 13% to European customers. Sales to Asian
customers has continued to increase due to the region's increased production and
consumption of computer and electronic systems.
NEW ORDERS
New orders received for the 12 months ended January 26, 1997 was above shipment
levels for the comparable period, resulting in a book-to-bill ratio in excess of
1:1. Order activity was weak in the first half of the year, yet improved
throughout the final six months of the fiscal year. Demand from the computer
and computer peripheral markets represented the strongest segment. Late in the
fiscal year, the Company began to experience increased demand from
telecommunication and datacommmunication markets for its TVS product lines.
This is attributable to a significant increase in design wins for the Company's
proprietary and limited source TVS products.
While order rates are subject to seasonal factors, overall industry trends have
a more profound effect on orders for each respective quarter. Due to the
significance of the computer and computer peripheral markets to the Company, the
order rates have been stronger during the third and fourth quarters of the past
two fiscal years. While certain industry trends can potentially outweigh
seasonal factors, order rates are subject to fluctuations.
GROSS MARGIN
The Company's gross margin is affected by average selling prices, the volume of
product sales and related effect on manufacturing utilization, and the overall
mix of products sold. Gross margin for fiscal year 1997 was 42% of
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net sales; for fiscal years 1996 and 1995, gross margin was 42% and 33%,
respectively. Gross margin results for the year were negatively impacted by
lower selling prices, but partially offset by increased manufacturing
utilization.
Future trends that will effect the Company's gross margin include price changes
over the life of products, higher gross margins expected from new products and
improved production efficiencies as a result of increased utilization. The
Company has focused its efforts on increasing the number of new products
introduced, particularly those which are proprietary. The Company expects that
prices for existing products will continue to decrease over their respective
life cycles.
OPERATING EXPENSES
Total operating expenses for fiscal year 1997 were $15,841,000 or 24% of net
sales. Total operating expenses for fiscal years 1996 and 1995 were $14,022,000
or 23% and $9,173,000 or 27% of net sales, respectively. Operating expenses
consist of selling, general and administrative (SG&A), and product development
and engineering expenditures. Increases in total operating expenses for fiscal
1997 were due primarily to increased research and development and strategic
marketing activities.
In each of the last three fiscal years ended in 1997, 1996, and 1995, the
Company has expended approximately $4,017,000, $2,827,000 and $1,588,000,
respectively, on product development and engineering. The Company expects to
continue to dedicate more resources towards research and development. The
Company opened a design center and began increased staffing of the operation in
May of calendar 1996. The design center is located at the Company's Santa
Clara, California location and is the center of the Company's design activities.
The Company has made such investment in R&D in an effort to increase its rate of
new product introductions. Such products are generally targeted at broadening
the organization's customer, product line and application bases.
Spending on SG&A grew moderately in fiscal 1997. Increased headcount in key
sales and strategic marketing positions accounted for a large portion of the
increase. SG&A remained relatively flat as a percentage of sales and is
expected to remain relatively flat or decline slightly over the coming fiscal
year as the Company tries to grow net sales and achieves added efficiencies in
the SG&A functions.
INTEREST AND OTHER EXPENSE
For the 12 months ended January 26, 1997, the Company had interest expense of
$131,000 compared to $99,000 in 1996 and $160,000 in 1995. Semtech had other
income of $115,000 for fiscal 1997, in comparison to $153,000 and $89,000 in
1996 and 1995. In 1996, the Company incurred $498,000 for costs associated with
the acquisition of ECI Semiconductor.
PROVISION FOR TAXES
Expense for income taxes was $3,762,000 in fiscal 1997 versus $3,812,000 in
fiscal 1996 and $526,000 in fiscal 1995. Income tax expense as a percentage of
income before taxes was higher in both fiscal 1997 and 1996 due to increased
revenues generated from California based operations.
11
<PAGE>
FINANCIAL CONDITION
Semtech's working capital ratios, which measure the Company's ability to meet
its short-term obligations are presented.
<TABLE>
<CAPTION>
Working Capital (in thousands $): 1997 1996 1995
- ------------------------------- ---- ---- ----
<S> <C> <C> <C>
Beginning of year $17,881 $11,475 $ 9,623
End of year $24,036 $17,881 $11,475
Increase in working capital $ 6,155 $ 6,406 $ 1,852
Working capital ratios 3.8 3.4 2.9
</TABLE>
For fiscal year 1997, the Company generated $5,794,000 of cash from operations
as a result of income from operations. Investments in capital equipment were
$3,512,000 for the year and inventories increased by $3,612,000. Increases in
inventory, accounts receivable, accounts payable and other balance sheet items
were in line with the Company's growth. The Company has certain aggressive
programs that are targeted to increase inventory turnover to above 4 times per
year.
The Company maintains a $7,500,000 credit facility with a financial institution
for working capital and equipment acquisition. This arrangement is
collateralized by the Company's domestic assets and contains provisions
regarding current ratios, debt to worth, and net worth. During fiscal 1997, the
Company had no borrowings against this line. In November of 1996, the Company
consolidated two term loans into a single three year note in the amount of
$1,510,000. Since November of 1996, the Company has paid down $540,000 of the
original balance. In October 1994, the Company entered into a four year term
loan in the amount of $535,000. Both the above noted 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 26, 1997.
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 many design and applications engineers and related
equipment, 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 and cash on-hand.
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.
12
<PAGE>
the leverage ratios presented below indicate the extent to which the Company has
been financed with debt. Total debt increased by $2,000 in fiscal year 1997.
Existing debt services are supported by cash flows from operations.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Long-term debt as a % of total capitalization (1) 3.8% 4.2% 5.5%
Total debt as a % of total capitalization (1) 4.4% 5.9% 8.8%
(1) Total capitalization is defined as the sum
of long-term debt, less current maturities and
shareholders' equity.
</TABLE>
Purchases of new capital equipment were made primarily to expand manufacturing
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 1998 to increase test,
design and wafer fabrication capacity. 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 1997 and 1996, improved to forty days as of January 26,
1997 from forty-one days as of January 28, 1996. Days sales outstanding are
impacted by sales within Europe at standard terms of sixty to ninety days.
Inventory turnover decreased to 3.2 as of January 26, 1997 from 4.1 as of
January 28, 1996. This decrease was primarily due to the Company's investment
in new product inventory and increased work in progress to support higher future
shipment rates. All inventory which is considered obsolete or estimated to be
in excess of one year's demand has been 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.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED JANUARY 26, 1997
(Dollars in thousands-except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $65,383 $61,684 $34,605
Cost of Sales 38,113 35,875 23,333
------- ------- -------
GROSS PROFIT 27,270 25,809 11,272
------- ------- -------
OPERATING COSTS AND EXPENSES:
Selling, general and administrative 11,824 11,195 7,585
Product development and engineering 4,017 2,827 1,588
------- ------- -------
Total operating costs and expenses 15,841 14,022 9,173
------- ------- -------
OPERATING INCOME 11,429 11,787 2,099
Interest expense (131) (99) (160)
Acquisition costs - (498) -
Other income, net 115 153 89
------- ------- -------
INCOME BEFORE TAXES 11,413 11,343 2,028
Provision for taxes 3,762 3,812 526
------- ------- -------
NET INCOME $ 7,651 $ 7,531 $ 1,502
======= ======= =======
EARNINGS PER SHARE:
NET INCOME PER SHARE-
PRIMARY $1.19 $1.21 $0.27
FULLY DILUTED $1.16 $1.18 $0.25
See accompanying notes.
</TABLE>
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
JANUARY 26, 1997 AND JANUARY 28, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,346 $ 6,034
Temporary investments 757 411
Receivables, less allowances of $1,253
in 1997 and $821 in 1996 8,465 7,987
Income taxes refundable 68 72
Inventories 13,598 9,986
Other current assets 853 521
Deferred income taxes 588 465
------- -------
TOTAL CURRENT ASSETS 32,675 25,476
------- -------
PROPERTY, PLANT AND EQUIPMENT, NET 8,470 6,748
OTHER ASSETS 198 134
DEFERRED INCOME TAXES 302 327
------- -------
TOTAL ASSETS $41,645 $32,685
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 193 $ 404
Accounts payable 4,660 4,060
Accrued liabilities 2,305 2,407
Income taxes payable 821 405
Other current liabilities 660 319
------- -------
TOTAL CURRENT LIABILITIES 8,639 7,595
------- -------
LONG-TERM DEBT, LESS CURRENT MATURITIES 1,237 1,024
------- -------
OTHER LONG-TERM LIABILITIES 287 797
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
COMMON STOCK, $0.01 PAR VALUE,
15,000,000 AUTHORIZED
Issued and outstanding 6,108,283 in
1997 and 6,011,369 in 1996 76 75
Additional paid-in capital 11,012 10,520
Retained earnings 20,673 13,022
Cumulative translation adjustment (279) (348)
------- -------
TOTAL SHAREHOLDERS' EQUITY 31,482 23,269
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $41,645 $32,685
======= =======
</TABLE>
See accompanying notes.
15
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED JANUARY 26, 1997
(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 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
Conversion 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 adjustment - - - - (130) (130)
Net income - - - 7,531 - 7,531
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 28, 1996 6,011,369 $75 $10,520 $13,022 $(348) $23,269
Stock options exercised 96,914 1 229 - - 230
Tax benefit from stock options exercised - - 263 - - 263
Translation adjustment - - - - 69 69
Net income - - - 7,651 - 7,651
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 26, 1997 6,108,283 $76 $11,012 $20,673 $(279) $31,482
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JANUARY 26, 1997
<S> <C> <C> <C>
(Dollars in thousands)
1997 1996 1995
- ------------------------------------------ ------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,651 $ 7,531 $ 1,502
Adjustments to reconcile net income to
Net cash provided by operating activities:
Depreciation and amortization 1,748 1,139 997
Deferred income taxes (98) (401) (128)
(Gain) loss on disposition of assets (2) 1 -
Provision for doubtful accounts 432 540 (39)
Tax benefit from stock option tramsactions 263 1,649 -
Changes in assets and liabilities:
Receivables (910) (3,160) (1,165)
Income taxes refundable 4 (1) 67
Inventories (3,612) (2,673) (1,972)
Other current assets (332) (323) 42
Other assets (95) 304 44
Accounts payable 600 1,311 372
Accrued liabilities (102) 422 661
Income taxes payable 416 (71) 209
Other liabilities (169) (58) (23)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,794 6,210 567
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
temporary investments, net (346) 410 190
Proceeds from sale of property, plant and equipment 75 30 -
additions to property, plant and equipment (3,512) (4,427) (1,049)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (3,783) (3,987) (859)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit - (175) (111)
Proceeds of employee note - 26 39
Additions to long-term debt 2,319 822 535
Repayment of long-term debt (2,317) (361) (194)
Stock options exercised 230 442 113
Purchase and retirement of common - (74) (10)
stock ------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 232 680 372
------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS 69 (130) 28
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,312 2,773 108
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,034 3,261 3,153
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,346 $ 6,034 $ 3,261
======= ======= =======
</TABLE>
See accompanying notes.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS Semtech Corporation and its wholly owned subsidiaries (Semtech Corpus
Christi, Semtech Limited and Semtech Santa Clara, together, the "Company")
manufacture silicone rectifiers, integrated circuits and related devices which
are used in computer, communications, 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 26, 1997
all consisted of fifty-two weeks.
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 intercompany 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 The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 109.
Under SFAS No. 109, deferred income tax assets or liabilities are computed based
on the temporary difference between the financial statement and income tax bases
of assets and liabilities using the statutory marginal income tax rate in effect
for the years in which the differences are expected to reverse. Deferred income
tax expenses or credits are based on the changes in the deferred income tax
assets or liabilities from period to period.
As of January 26, 1997 and january 28, 1996, approximately $2,040,000 and
$1,781,000, respectively, of unremitted income related to the Company's wholly
owned European subsidiary is not subject to Federal and State income taxes
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.
EARNINGS PER SHARE Primary earnings per common and common equivalent share
(including the effect of stock options as common stock equivalents) have been
computed based on the weighted average number of shares outstanding of 6,414,838
in 1997, 6,213,044 in 1996, and 5,484,815 in 1995. 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 1997, 1996, and 1995 were 6,583,224, 6,377,661, and
6,070,225, respectively.
18
<PAGE>
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 reporting period. actual results could differ from those estimates.
NEW AUTHORITATIVE PRONOUNCEMENTS The Company has adopted the disclosure-only
provisions of SFAS no. 123, "Accounting for Stock-Based Compensation" under
which no compensation cost has been recognized. If the Company had elected to
recognize compensation costs based on the fair value at the date of grant for
awards in 1996 and 1995, consistent with the provisions of SFAS No. 123, net
income and net income per share would have been reduced to the following pro
forma amounts:
<TABLE>
<CAPTION>
(in thousands $, except per 1997 1996
share amounts) ---- ----
--------------------------------------------------
<S> <C> <C>
Net Income $5,571 $6,851
- --------------------------------------------------
Net Income Per Share:
Primary $ 0.92 $ 1.14
Fully Diluted $ 0.88 $ 1.12
- --------------------------------------------------
</TABLE>
The pro forma effect on net income for fiscal years 1997 and 1996 may not be
representative of the pro forma effect on net income of future years because the
SFAS No. 123 method of accounting for pro forma compensation expense has not
been applied to options granted prior to January 30, 1995.
The weighted-average fair values at date of grant for options granted during
fiscal 1997 and 1996 were between $5.25 and $19.42, and were estimated using the
black-scholes option-pricing model. The following assumptions were applied: (i)
expected dividend yield of 0%, (ii) expected volatility rate of .894, (iii)
expected lives of 4 to 5 years, and (iiii) risk-free interest rates ranging from
5.28% to 7.01%.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. Option valuation models also require the input of highly
subjective assumptions such as expected option life and expected stock price
volatility. Because the Company's employee stock-based compensation plans have
characteristics significantly different from those of traded options and because
changes in the subjective input assumptions can materially affect the fair value
estimate, the Company believes that the existing option valuation models do not
necessarily provide a reliable single measure of the fair value of awards from
those plans.
In March 1997, the Financial Accounting Standards Board introduced SFAS No. 128
"Earnings Per Share" and SFAS No. 129 "Disclosure of Information About Capital
Structure". SFAS No. 128 revises and simplifies the computation of earnings per
share and requires certain additional disclosures. SFAS No. 129 requires
additional disclosure regarding the Company's capital structure. Both standards
will be adopted in the fourth quarter of fiscal 1998. Management does not
expect the adoption of these standards to have a material effect on the
Company's financial position or results of operations.
19
<PAGE>
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
Corporation common stock, 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. In fiscal 1995, the Company
adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." at January 26, 1997, January 28, 1996, and January 29, 1995, the
fair market value of temporary investments, classified as "available for sale
securities", approximated cost, thus no unrealized holding gains or losses were
reported in the accompanying balance sheets. During fiscal year 1997, the
Company had no sales of available for sale securities and likewise no realized
gain or loss. As of January 26, 1997, the Company holds corporate bonds and
government securities of approximately $30,000 and $727,000, respectively,
expiring at various dates through the year 2000.
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
reserved inventory which is considered obsolete or estimated to be 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 Work in Finished Total
(thousands) Materials Process Goods
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Gross inventories $2,895 $9,173 $ 3,842 $15,910
Total reserves (702) (460) (1,150) (2,312)
------ ------ ------- -------
Net inventories $2,193 $8,713 $ 2,692 $13,598
====== ====== ======= =======
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
====== ====== ======= =======
</TABLE>
20
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Land $ 164 $ 162
Building 1,069 1,008
Leasehold improvements 1,623 1,411
Machinery and equipment 15,043 12,548
Furniture and office equipment 1,610 979
-------- -------
19,509 16,108
Less accumulated depreciation and
amortization (11,039) (9,360)
-------- -------
Total $ 8,470 $ 6,748
======== =======
</TABLE>
LONG-TERM DEBT AND LINE OF CREDIT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable, interest at 8.62%, due in monthly installments
to 1998, collateralized by capital equipment $ 223 $ 356
Note payable, interest at 8.31%, due in monthly installments,
collateralized by machinery and equipment - 822
Note payable, interest at 11.875%, due in semi-annual
installments to 2003, collaterized by building
collaterized by a building 237 240
Notes payable bearing interest at 30 day commercial paper
rate plus 2.5% (7.92% at january 26, 1997) due in
monthly installmants to 1999, collateralized by
company's domestic assets 970 -
Notes payable bearing interest at 7.1% to 15%, due in
monthly installments, collateralized by certain equipment - 10
1,430 1,428
Less current maturities (193) (404)
------ ------
Total $1,237 $1,024
====== ======
</TABLE>
Long-term debt matures as follows: $193,000 in 1998, $620,000 in 1999, $450,000
in 2000, $28,000 in 2001, $30,000 in 2002, and $109,000 thereafter.
for fiscal 1997, the Company's maximum outstanding debt balance was $2,019,000.
in August 1992, and amended in September 1996, the Company entered into a credit
arrangement with a financial institution for a line of credit for up to
$7,500,000 at an interest rate of 30 day commercial paper plus 2.5 percent
(7.92% at January 26, 1997). the line of credit is made up of two parts, the
first part being a $4,000,000 line for working capital needs that extends
through September 1998 and the second part being a $3,500,000 line for equipment
acquisition that extends through september 1997 (with an option to extend to
september 1998). The arrangement is collateralized by the Company's domestic
assets and contains provisions regarding current ratios, debt to worth, and net
worth. As of January 26, 1997, the Company had no borrowings outstanding under
this credit facility. 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 basis.
21
<PAGE>
ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1997 1996
- -----------------------------------------------
<S> <C> <C>
Payroll and related $1,668 $1,613
Commissions 239 158
Reserve for credit memos 50 50
Environmental 50 250
Other 298 336
------ ------
Total $2,305 $2,407
====== ======
</TABLE>
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 26, 1997
and January 28, 1996, is $603,000 and $1,085,000, 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) 1997 1996 1995
- ----------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $3,257 $3,339 $ 429
State 475 724 124
Foreign 128 150 101
------ ------ -----
3,860 4,213 654
Deferred:
Federal (72) (337) (100)
State (28) (62) (30)
Foreign 2 (2) 2
------ ------ -----
Total $3,762 $3,812 $ 526
====== ====== =====
</TABLE>
The components of the net deferred income tax assets at January 26, 1997
and January 28, 1996 are as follows:
Net short-term deferred income taxes:
<TABLE>
<CAPTION>
(thousands) 1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Payroll and related $ 268 $ 272
Environmental 20 100
Reserve for credit memos 246 130
Deferred revenue 143 65
Bad debt reserve 136 91
State income taxes 122 71
Other deferred assets 47 49
----- -----
Total deferred income taxes 982 778
Valuation reserve (394) (313)
----- -----
Net short-term deferred income taxes $ 588 $ 465
===== =====
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Net long-term deferred income taxes:
(thousands) 1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory valuation $ 825 $ 824
Accrued compensation 123 260
------ ------
Total long-term deferred assets 948 1,084
------ ------
Deferred tax liabilities:
Depreciation and amortization (530) (239)
Foreign deferred taxes (37) (35)
------ ------
Total long-term deferred liabilities (567) (274)
------ ------
Subtotal 381 810
Valuation reserve (79) (483)
------ ------
Net long-term deferred income taxes $ 302 $ 327
====== ======
</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) 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax $3,880 $3,857 $ 690
State income taxes, net of federal 447 662 97
benefit foreign sales corporation rates
less than statutory rates (246) (255) -
Foreign taxes at rates greater (less)
than domestic rates (4) (17) 2
Utilization of net operating loss and
tax credit carryforwards - (106) (31)
Changes in valuation reserve (323) (435) (187)
Other 8 106 (45)
------ ------ -----
Provision for taxes $3,762 $3,812 $ 526
====== ====== =====
</TABLE>
Realization of the net deferred tax assets is dependent on generating sufficient
taxable income during the periods in which temporary differences will reverse.
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.
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 26, 1997 were as
follows:
<TABLE>
<CAPTION>
(thousands) Operating
Fiscal Year Ending Leases
- ----------------------------------------------
<S> <C>
1998 $ 638
1999 426
2000 259
2001 235
------
Total minimum lease commitments $1,558
======
</TABLE>
23
<PAGE>
Annual rent expense was $669,000, $667,000, and $638,000 for fiscal years 1997,
1996, and 1995, respectively.
In 1996, 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 pertains to alleged groundwater
contamination originating from the landfill. The Company which owns the
landfill and several other maquiladoras were named in the suit. The Company
settled the claim in February 1997 for $20,000.
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.
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.
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.
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 vest in
equal annual increments over three to four years from the date of grant.
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 substantially the same as those granted
under the Company's 1986 Stock Option Plan.
In 1994, the Company adopted the 1994 Long-Term Stock Incentive Plan and the
1994 Non-Employee Directors Stock Option Plan. These plans have been amended to
cover 1,500,000 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.
24
<PAGE>
Stock option information with respect to the company's stock option plans is as
follows:
<TABLE>
<CAPTION>
Common Weighted Aggregate
Shares Available Average Option Price
Reserved for Grant Options Exercise
Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 30, 1994 502,551 34,826 467,725 $ 1.88 $ 880,256
Granted - (219,500) 219,500 2.30 503,968
Canceled - 54,850 (54,850) 1.70 (93,513)
Exercised (61,125) - (61,125) 1.85 (113,000)
Additions 400,000 400,000 - -
--------- --------- --------- -------- -----------
Balance at January 29, 1995 841,426 270,176 571,250 $ 2.06 $ 1,177,711
Granted - (470,300) 470,300 20.28 9,537,363
Canceled - 11,500 (11,500) 1.97 (22,691)
Exercised (236,680) - (236,680) 1.87 (442,701)
Additions 550,000 550,000 - - -
--------- --------- --------- -------- -----------
Balance at January 28, 1996 1,154,746 361,376 793,370 $12.92 $10,249,682
Granted - (946,300) 946,300 12.15 11,495,919
Canceled - 460,968 (460,968) 21.54 (9,930,915)
Exercised (96,914) - (96,914) 2.37 (229,800)
Additions 800,000 800,000 - - -
--------- --------- --------- ------- -----------
Balance at January 26, 1997 1,857,832 676,044 1,181,788 $ 9.80 $11,584,886
========= ========= ========= ====== ===========
</TABLE>
During 1997, 333,800 options were repriced from a weighted average exercise
price of $22.84 to $10.88. At January 26, 1997, options outstanding have
exercise prices ranging between $1.75 and $26.25 with a remaining weighted
average contractual life of 8.08 years. Vested options at January 26, 1997
totaled 253,979 at a weighted average exercise price of $5.26.
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.
OTHER INCOME AND EXPENSE
Other income (expense) consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 138 $ 156 $ 144
Gain (loss) on disposition of assets 2 (1) -
Foreign currency transaction gains (25) - 5
(losses)
Miscellaneous expense - (2) (60)
----- ----- -----
Total $ 115 $ 153 $ 89
===== ===== =====
</TABLE>
25
<PAGE>
STATEMENTS OF CASH FLOWS
The Company had the following non-cash activities for each year:
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Non-cash activities -
Debentures converted to stock $ - $ 136 $ 350
Stock issued for services $ - $ - $ 35
</TABLE>
Income taxes paid in fiscal years 1997, 1996, and 1995, were $2,831,000,
$2,251,000, and $427,000, respectively. For those same periods, the Company
paid interest in the amounts of $131,000, $97,000, and $163,000, respectively.
The Company considers all highly liquid investments with original maturities 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. No customer
accounted for greater than 10% of net sales during fiscal 1997 and 1995. In
fiscal 1996, one customer did account for 12% of the Company's net sales.
As a result of the acquisition and pooling of Gamma, Inc., the Company had net
sales from wafer foundry services of approximately $8,694,000, $16,094,000, and
$7,004,000 in 1997, 1996, and 1995, respectively. The top two customers
accounted for 50%, 75%, and 72% of these sales in 1997, 1996, and 1995,
respectively.
A summary of net sales, pre-tax income and identifiable assets for the Company's
domestic and European operations follows:
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
- -----------------------------------------------------
<S> <C> <C> <C>
Net Sales:
Domestic $56,496 $53,906 $28,787
European 8,887 7,778 5,818
------- ------- -------
Total $65,383 $61,684 $34,605
======= ======= =======
Income Before Taxes:
Domestic $11,026 $10,870 $ 1,761
European 387 473 267
------- ------- -------
Total $11,413 $11,343 $ 2,028
======= ======= =======
Identifiable Assets:
Domestic $38,183 $29,702 $18,584
European 3,462 2,983 2,793
------- ------- -------
Total $41,645 $32,685 $21,377
======= ======= =======
</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 $21.6
million in fiscal 1997, $14.1 million in fiscal 1996, and $2.3 million in fiscal
1995.
26
<PAGE>
SELECTED QUARTERLY DATA (UNAUDITED)
Quarterly data, unaudited, for fiscal 1997 and fiscal 1996 is presented below.
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Net sales $15,477 $13,424 $17,093 $19,389 $65,383
Gross Profit 6,482 5,307 7,063 8,418 27,270
Net Income 1,883 1,243 1,974 2,551 7,651
Net Income per Share:
Primary .30 .20 .31 .38 1.19
Fully Diluted .30 .20 .31 .38 1.16
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
</TABLE>
27
<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 26, 1997,
and January 28, 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended January 26, 1997. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule 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 26, 1997, and January 28, 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended January 26, 1997, 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 2, 1997
28
<PAGE>
SCHEDULE II
SEMTECH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 29, 1995, JANUARY 28, 1996, AND JANUARY 26, 1997
<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 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
Year Ended January 26, 1997
- --------------------------
Allowance for doubtful
accounts $821,000 $ - $493,000 $ (61,000) $1,253,000
</TABLE>
29
<PAGE>
ITEM 9. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained at Pages 2 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 22 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 45 President and Chief Executive Officer
Raymond E. Bregar 49 Executive Vice President, Corporate
Operations
David G. Franz, Jr. 35 Vice President, Finance and Chief
Financial Officer, and Secretary
David I. Anderson 50 Vice President, IC Design and Development
Jean-Claude Zambelli 53 Vice President, Sales and Marketing
</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. 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 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.
Mr. Anderson joined the Company as Vice President of IC Design and Development
in June of 1996. Prior to taking this position, Mr. Anderson was the Worldwide
design manager for National Semiconductor's Automotive Systems Group. Mr.
Anderson has over 20 years experience in analog design.
Mr. Zambelli was named Vice President of Sales and Marketing in December of
1996. Mr. Zambelli has more than 25 years of experience in the semiconductor
industry and has held senior management positions with several companies. Most
recently, Mr. Zambelli was Vice President of sales for Exar Corporation.
30
<PAGE>
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.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement at Pages 6 through 10 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 6 through 10 under the
heading "Executive Compensation" is incorporated by reference herein.
31
<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
----
<S> <C>
Index of Financial Statements:
Consolidated statements of income, three years ended 14
January 26, 1997
Consolidated balance sheets, January 26, 1997 and 15
January 28, 1996
Consolidated statements of shareholders' equity, three 16
years ended January 26, 1997
Consolidated statements of cash flows, three years 17
ended January 26, 1997
Notes to consolidated financial statements 18
Report of Independent Public Accountants 28
</TABLE>
(2) The following financial statements schedule of the Company for
the years ended January 26, 1997, January 28, 1996, and January 29, 1995 is
filed as part of this Report and should be read in conjunction with the
financial statements:
Page
----
Schedule II Valuation and Qualifying Accounts 29
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 26, 1997 and January 28, 1996 is
included in part ii of this Report at page 27.
32
<PAGE>
(3) Exhibits - Incorporated by reference from the Company's previous 10-K
-------- filings unless otherwise indicated
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 August 15, 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, as amended.
10.11 - The Company's 1994 Non-Employee Directors Stock Option Plan and
the related Form of Option Agreement, as amended.
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
33
<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 24, 1997
--------------------------
34
<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 24, 1997 /s/ John D. Poe
-------------------- -----------------------------
John D. Poe, President
and Chief Executive Officer,
Director
Date: April 24, 1997 /s/ David G. Franz Jr.
-------------------- ------------------------------
David G. Franz, Jr.
Vice President, Finance
and Chief Financial Officer,
and Secretary
(Principal Accounting
and Financial Officer)
Date: April 24, 1997 /s/ James P. Burra
-------------------- ------------------------------
James P. Burra
Director
Date: April 24, 1997 /s/ Rock N. Hankin
-------------------- ------------------------------
Rock N. Hankin
Director
Date: April 24, 1997 /s/ Allen H. Orbuch
-------------------- ------------------------------
Allen H. Orbuch
Director
Date: April 24, 1997 /s/ James T. Schraith
-------------------- ------------------------------
James T. Schraith
Director
Date: April 24, 1997 /s/ Jack O. Vance
-------------------- ------------------------------
Jack O. Vance
Director
The information contained in the Proxy Statement at Pages 7 and 11 under
the heading "Executive Compensation" is incorporated by reference herein.
35
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESULTS OF OPERATIONS FOR THE 12 MONTHS ENDED JANUARY 26,
1997, WHICH ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FORM 10-K FOR
THE YEAR ENDED JANUARY 26, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-26-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> JAN-26-1997
<CASH> 8,346
<SECURITIES> 757
<RECEIVABLES> 8,465
<ALLOWANCES> 0
<INVENTORY> 13,598
<CURRENT-ASSETS> 32,675
<PP&E> 8,470
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,645
<CURRENT-LIABILITIES> 8,639
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 31,406
<TOTAL-LIABILITY-AND-EQUITY> 41,645
<SALES> 65,383
<TOTAL-REVENUES> 65,383
<CGS> 38,113
<TOTAL-COSTS> 38,113
<OTHER-EXPENSES> 15,841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131
<INCOME-PRETAX> 11,413
<INCOME-TAX> 3,762
<INCOME-CONTINUING> 7,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,651
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.16
</TABLE>
