<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
____________
For Quarter Ended November 1, 1998 Commission File Number 1-6395
---------------- ------
SEMTECH CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2119684
-------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
652 Mitchell Road, Newbury Park, California 91320
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (805) 498-2111
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N/A
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark, whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant has required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes X No
----- ------
Number of shares of Common Stock, $0.01 par value, outstanding at November 1,
1998: 14,734,625.
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<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. It
is suggested that these condensed financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included in the
Company's latest Annual Report on Form 10-K.
In the opinion of the Company, these unaudited statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of Semtech Corporation and subsidiaries as
of November 1, 1998, and the results of their operations and their cash flows
for the three months and nine months then ended.
2
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE FIGURES)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- -------------------------------------
NOVEMBER 1, 1998 November 2, 1997 NOVEMBER 1, 1998 November 2, 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $28,535 $26,533 $83,608 $74,266
Cost of Sales 14,747 13,743 43,517 39,209
------- ------- ------- -------
Gross Profit 13,788 12,790 40,091 35,057
------- ------- ------- -------
Operating costs and expenses:
Selling, general and administrative 5,147 4,246 14,728 12,293
Product development and engineering 3,689 2,367 9,954 6,438
Restructuring charge - - 2,502 -
Acquisition costs - 1,210 255 1,210
------- ------- ------- -------
Total operating costs and expenses 8,836 7,823 27,439 19,941
------- ------- ------- -------
Operating Income 4,952 4,967 12,652 15,116
Interest and other income, net 182 113 552 241
------- ------- ------- -------
Income before taxes 5,134 5,080 13,204 15,357
Provision for taxes 1,715 1,690 4,410 5,134
------- ------- ------- -------
NET INCOME $ 3,419 $ 3,390 $ 8,794 $10,223
======= ======= ======= =======
Earnings per share:
Net income per share-
Basic $ 0.23 $ 0.24 $ 0.60 $ 0.73
Diluted $ 0.22 $ 0.22 $ 0.56 $ 0.68
Weighted average number of shares -
Basic 14,695 14,067 14,566 13,918
Diluted 15,663 15,413 15,631 15,051
</TABLE>
3
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PER SHARE FIGURE)
<TABLE>
<CAPTION>
November 1, February 1,
1998 1998
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $29,027 $18,808
Temporary investments 1,006 1,852
Receivables, less allowances 15,639 13,722
Inventories 18,112 17,020
Other current assets 1,059 956
Deferred income taxes 1,535 1,395
------- -------
Total current assets 66,378 53,753
Property, plant and equipment, net 12,809 12,805
Other assets 149 157
Deferred income taxes 597 420
------- -------
TOTAL ASSETS $79,933 $67,135
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 4,813 5,241
Accrued liabilities 4,336 4,459
Income taxes payable 1,073 1,020
Other current liabilities 2,064 1,721
------- -------
Total current liabilities 12,286 12,441
Other long-term liabilities 52 33
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value, 40,000,000
shares authorized 149 142
Additional paid-in capital 22,277 18,406
Retained earnings 45,381 36,332
Accumulated other comprehensive income (212) (219)
------- -------
Total shareholders' equity 67,595 54,661
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $79,933 $67,135
======= =======
</TABLE>
4
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
November 1, November 2,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities -
Net income $ 8,794 $10,223
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,775 1,980
Deferred income taxes (317) (271)
Loss on disposition of assets 1,763 -
Changes in assets and liabilities :
Receivables (1,917) (4,174)
Income taxes refundable - 68
Inventories (1,092) (1,816)
Other assets (95) 226
Accounts payable and accrued liabilities (551) 988
Income taxes payable 1,878 391
Other current liabilities 343 2,679
------- -------
Net cash provided by operating activities 11,581 10,294
------- -------
Cash flows from investing activities -
Temporary investments 846 (706)
Additions to property, plant and equipment (4,542) (4,075)
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Net cash used by investing activities (3,696) (4,781)
------- -------
Cash flows from financing activities -
Repayment of debt - (1,026)
Exercise of stock options 1,735 1,609
Other long-term liabilities 19 (259)
Other 573 -
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Net cash provided by financing activities 2,327 324
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Effect of exchange rate changes on cash 7 132
Net increase in cash and cash equivalents 10,219 5,969
Cash and cash equivalents at beginning of period 18,808 9,439
------- -------
Cash and cash equivalents at end of period $29,027 $15,408
======= =======
</TABLE>
5
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SEMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BUSINESS COMBINATIONS
- ------------------------
On April 27, 1998, the Company signed a merger agreement with Acapella Limited
(Acapella), a company located in the United Kingdom, to be accounted for as a
pooling of interests. Under the terms of the agreement, Acapella shareholders
received approximately 176,000 shares of Semtech common stock for all
outstanding shares of Acapella stock. The Company acquired Acapella to
strengthen its ability to serve high-end communication applications.
The acquisition of Acapella was accounted for as a pooling of interests in
accordance with APB Opinion No. 16 and related Securities and Exchange
Commission pronouncements. Acapella's financial position and results of
operations prior to the nine months ended November 1, 1998 were immaterial in
relation to Semtech's overall results. Therefore, the effect of the merger prior
to February 1, 1998 has been adjusted to retained earnings. The consolidated
balance sheet at November 1, 1998 as well as the consolidated statements of
income and cash flow for the three and nine months ended November 1, 1998
include the results of Acapella.
2. RESTRUCTURING CHARGE
- -----------------------
A restructuring charge in the amount of $2,502,000 was taken during the quarter
ended August 2, 1998 for the consolidation of certain manufacturing capacity and
the writedown of related inventory. Approximately $138,000 of the restructuring
charge resulted in cash outlays for severance payments. The remaining portion
resulted from writedown of production equipment and legacy product line
inventories. As of November 1, 1998, all restructuring activities where
complete.
The restructuring included the elimination of 60 manufacturing positions and the
transition of all commercial integrated circuit production to the Company's
Santa Clara, California wafer fabrication facility and to outside wafer
foundries. The Company's Corpus Christi, Texas facility is now solely dedicated
to producing wafers for the transient voltage suppressor (TVS) product line. As
a result of these steps, the Company's long-term operating model is expected to
be benefited through improved internal fab utilization, a reduction in capital
spending for wafer fabrication capacity, and the ability to take advantage of
advanced processes at outside foundries.
3. SEGMENT REPORTING
- --------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This Statement, which is effective for
all reporting periods beginning in fiscal 1999, redefines the way publicly held
companies report information about segments. The Company is currently in the
process of determining the appropriate business unit structure for reporting in
accordance with SFAS No. 131.
4. EARNINGS PER SHARE
- ---------------------
The consolidated condensed financial statements are presented in accordance with
SFAS No. 128, "Earnings per Share." Basic earnings per common share are computed
using the weighted average number of common shares outstanding during
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the period. Diluted earnings per common share include the incremental shares
issuable upon the assumed exercise of stock options.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
November 1, November 2, November 1, November 2,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Basic 14,695,000 14,067,000 14,566,000 13,918,000
========== ========== ========== ==========
Diluted 15,663,000 15,413,000 15,631,000 15,051,000
========== ========== ========== ==========
</TABLE>
Options to purchase 1,621,000 and 1,890,000 shares were not included in the
computation of third quarter and year-to-date diluted net income per share for
fiscal 1999, respectively, because such options were considered anti-dilutive.
For the third quarter and first nine months of fiscal 1998, options for 218,000
and 33,000 shares, respectively, were not included in the computation because
such options were anti-dilutive.
5. COMPREHENSIVE INCOME
- -----------------------
On February 2, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". For year-end financial statements, SFAS No. 130 requires that net
income and all other non-owner changes in equity be displayed in a financial
statement with the same prominence as other consolidated financial statements.
In addition, the standard encourages companies to display the components of
other comprehensive income below the total for net income.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ---------------------------------------
November 1, November 2, November 1, November 2,
1998 1997 1998 1997
------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net Income $3,419 $3,390 $8,794 $10,223
Change in foreign
currency translation (6) 81 7 132
------ ------ ------- -------
Comprehensive Income $3,413 $3,471 $8,801 $10,355
====== ====== ====== =======
</TABLE>
6. TEMPORARY INVESTMENTS
- ------------------------
Temporary investments consist of commercial paper and government and corporate
obligations with original maturities in excess of three months and are carried
at cost, which approximates market. Also included in temporary investments is a
residential structure and related plot of land with an estimated value of
$365,000, which is expected to be sold within the next six months.
7. LONG-TERM DEBT
- -----------------
As of November 1, 1998, the Company had no long-term debt.
8. 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
7
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average selling prices over the life of its product lines. The Company has
generally reserved inventory which is considered obsolete or estimated to be in
excess of 18 months 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
- --------------------------------------------------------------------------------------------------
NOVEMBER 1, 1998
<S> <C> <C> <C> <C>
Gross inventories $2,112 $10,558 $ 9,318 $21,988
Total reserves (442) (1,266) (2,168) (3,876)
------ ------- ------- -------
Net inventories $1,670 $ 9,292 $ 7,150 $18,112
====== ======= ======= =======
February 1, 1998
Gross inventories $2,639 $11,261 $ 6,894 $20,794
Total reserves (329) (1,069) (2,376) (3,774)
------ ------- ------- -------
Net inventories $2,310 $10,192 $ 4,518 $17,020
====== ======= ======= =======
</TABLE>
9. Line of Credit
- -----------------
In August of 1998 the Company agreed to a new credit arrangement with a
financial institution for borrowings up to $20,000,000 at an interest rate of 30
day commercial paper plus 2.2 percent that is available through August 2000.
The line of credit consist of two parts, the first facility being a $10,000,000
line of credit for working capital needs and the second facility being a
reducing revolver loan for equipment acquisitions. The available amount under
the reducing revolver loan declines in equal increments over 84 months. As of
November 1, 1998, the Company had $9,761,905 available under the reducing
revolver portion. The arrangement is collateralized by the Company's domestic
assets and contains provisions regarding current ratios, debt to worth, and net
worth. As of November 1, 1998, the Company had no borrowings outstanding under
this credit facility.
10. SIGNIFICANT CUSTOMERS
- -------------------------
For the three months and nine months ended November 1, 1998 and November 2,
1997, no one customer accounted for 10% or more of the Company's net sales.
11. Legal Matters
- -----------------
The Company is involved in certain legal matters, which are routine to the
nature of its business. In one specific case, the Company is a defendant in a
complaint filed by a competitor regarding the recruitment of personnel.
Management is of the opinion that the ultimate resolution of these matters will
not have a material effect on its financial position or results of operations.
12. NEW PRONOUNCEMENTS
- ----------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and for Hedging Activities." Under the
statement, every derivative is recorded on the balance sheet as either an asset
or liability measured at its fair value. Changes in the derivative's fair value
will be recognized in earnings unless specific hedge accounting criteria are
met. The Company will adopt this standard in January 2000 and has not yet
determined its impact on the Company's financial position. The Company
currently does not use derivative instruments for hedging activities.
8
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Item 2. Management's Discussion and Analysis of Financial Conditions and
----------------------------------------------------------------
Results of Operations
---------------------
(l) Material Changes in Financial Condition
---------------------------------------
On November 1, 1998, Semtech Corporation (the Company) had working capital
of $54,092,000, compared with $41,312,000 at February 1, 1998 - an increase
of $12,780,000. The ratio of current assets to current liabilities at
November 1, 1998, was 5.4 to 1, compared to 4.3 to 1 at February 1, 1998.
The increase was primarily due to increases in cash, inventories and
receivables.
In the first nine months of fiscal year 1999, the Company generated
$10,219,000 of cash and cash equivalents. The increase in cash and cash
equivalents was due to the Company's profitability during the period and
was only partially offset by cash outlays for inventory, capital equipment,
increased accounts receivable and year-end supplemental compensation
relating to the prior fiscal year. Operating cash flow for the nine months
ended November 1, 1998 was a positive $11,581,000. During the first nine
months of fiscal 1999, the Company used cash of $4,542,000 to pay for
capital equipment.
In order to develop, design and manufacture new products, the Company had
to make significant investments over the past several years. Such
investments aimed at developing additional new products, including the
addition of design and applications engineers and related equipment, will
continue. Semtech fully intends to continue to invest in those areas that
have shown potential for viable and profitable market opportunities.
Certain of these investments, particularly additional design engineers,
will probably not generate significant results in the short-term. The
Company plans to finance these investments with cash generated by
operations and cash on-hand.
(2) Material Changes in Results of Operations
-----------------------------------------
The following information is provided to further explain certain financial
information shown in the Consolidated Condensed Statements of Income for
the three month and nine month periods ended November 1, 1998 and November
2, 1997.
THREE MONTH AND NINE MONTH PERIODS ENDED NOVEMBER 1, 1998 COMPARED WITH THE
---------------------------------------------------------------------------
THREE MONTH AND NINE MONTH PERIODS ENDED NOVEMBER 2, 1997:
----------------------------------------------------------
INDUSTRY TRENDS AND OUTLOOK -
During the third quarter of fiscal year 1999, Semtech experienced a
significant increase in demand over second quarter levels, primary as a
result of strength in the computer and communication markets. During the
second quarter of fiscal year 1999, Semtech experienced weak market
conditions for certain of its main commercial product lines. This weakness
was due primarily to concerns over excess inventory by major computer
manufacturers, a significant drop in production rates of automated test
equipment (ATE) and general concerns over the Asian region's economic
condition.
The Company has benefited from the fundamental shift to lower operating
voltages in newer electronic systems, demand for increased bandwidth in
9
<PAGE>
communication, and the overall need for certain analog-based functions. In
addition to technical factors, unit demand increases for electronics in
general have benefited the sales of all products. Future growth by the
Company will remain dependent on market conditions, economic factors, the
ability to introduce new products and increased operating efficiencies.
The Company has historically experienced some seasonality in order rates
from manufacturers of personal computers. Demand from this market segment
in prior years has declined following the holiday season through first half
of the year. The seasonality for the first half of fiscal year 1999 was
further impacted by the Asian economic situation and excess end-system
inventory at major computer suppliers. Due to increased sales to other
computer segments, such as servers, laptops and peripheral devices, the
effect of computer seasonality on quarterly results has been reduced, but
not eliminated. Ongoing efforts are being made to further diversify revenue
sources and likewise reduce the effects of seasonality.
The semiconductor equipment market, which includes automated test
equipment, is very cyclical. During the second quarter of fiscal 1999, the
Company witnessed a significant decline in demand from its ATE customers.
Increased order rates in the third quarter of fiscal 1999 may represent the
beginning of a rebound in the ATE market. Despite the general decline in
ATE-related demand over the last six months, the Company believes that the
test market still holds long-term growth potential. The Company's ATE
business unit has introduced many new products specially designed for test
applications, and in doing so has gained market share from competing
suppliers.
The Company has witnessed a continued move towards a "build-to-order" model
at many of its OEM customers. As a result, the Company increasingly relies
on turns-fill orders (orders received and shipped in the same quarter) in
each quarter in order to achieve revenue objectives. Semtech generally has
only 60-90 days visibility of future period shipments. Turns-fill orders
for the third quarter of fiscal year 1999 were 34% of net sales. Turns-fill
orders were 22% and 35% of net sales in the second and first quarters on
fiscal 1999, respectively. Turns-fill orders for the third quarter of last
fiscal year were 36% of net sales.
Typical of the semiconductor industry, the Company has experienced
increased competition and overall declines in average selling prices over
the life of its product lines. In addition to new competitors, existing
competitors have become more aggressive in protecting market share and
customer relationships. Efforts to offset price declines 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.
NET SALES -
Net sales for the third quarter of fiscal 1999 were $28,535,000 compared to
$26,533,000 in the third quarter of fiscal 1998, an increase of 8%. Net
sales for the nine months ended November 1, 1998 were $83,608,000 compared
to $74,266,000 in the comparable period ended November 2, 1997. Net sales
for the third quarter where 12% higher than net sales for the second
quarter of fiscal 1999. Net sales for the second quarter were down 14% from
net sales for the first quarter of fiscal year 1999.
10
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End-market applications for the Company's products sold during the third
quarter of fiscal 1999 are estimated to be 48% computer, 21%
communications, 17% industrial (which includes ATE), 7% military/aerospace
and 7% foundry sales. For the prior year's third quarter, end-market
applications were estimated to be 46% computer, 15% communications, 20%
industrial (which includes ATE), 14% military/aerospace and 5% foundry. On
a year-over-year basis, the largest gains were in communications and ATE
(included in industrial) applications and the largest decline was in
foundry sales. A significant amount of the overall rebound in demand in the
third quarter of fiscal 1999 was because of computer and communication
applications, including those for desktop, server and laptop computer
systems.
Geographically, sales for the third quarter of fiscal 1999 were
approximately 42% domestic, 46% to Asian-Pacific and 12% to European
customers. For the third quarter of last fiscal year, domestic sales were
53% of net sales, Asia was 32% and Europe was 15%. Sales to Asian customers
grew both on a sequentially and year-over-year basis due to increased
shipments to subcontractors and foreign subsidiaries of major United
States-based manufacturers. The Company estimates that more than two-thirds
of all shipments made into Asia are eventually exported out of the region
in finished products.
New orders received during the third quarter of fiscal year 1999 were more
than net shipments, resulting in a book-to-bill ratio of more than 1 to 1.
For the first nine months of fiscal year 1999, the Company had a book-to-
bill ratio just below 1 to 1, largely due to very weak order rates during
the second quarter. The book-to-bill ratio for the comparable three and
nine month periods of last fiscal year where both above 1 to 1.
New orders received in the third quarter of this year reflected the
strength in demand for computer and communications systems. The Company's
power management and protection (including transient voltage suppressors)
product lines most benefited from the improved demand from computer and
communication customers. The most dramatic sequential increase (as a
relative percentage) in new orders was for the Company's line of ATE
circuits. The sequential increase in ATE orders is largely due to the low
order rates in the prior quarter due to extremely weak ATE market
conditions.
COSTS AND EXPENSES -
COST OF GOODS SOLD -
Gross profit margin as a percentage of net sales was 48% in the third
quarter of fiscal year 1999, consistent with the third quarter of fiscal
1998. For the first nine months of fiscal year 1999 and 1998, profit margin
as a percentage of net sales was 48% and 47%, respectively.
Gross profit margin was 46% in the second quarter of fiscal year 1999,
which represented a drop from the prior quarter's levels. The second
quarter decline in gross margin was attributed to a sequential drop in
overall net sales and a large decline in sales of ATE components. The
rebound in gross profit margin for the third quarter of fiscal 1999 was
related to the sequential increase in sales and continued growth of revenue
from higher-margin new products.
11
<PAGE>
Future gross margin performance will be affected by product mix,
productivity levels and price changes. Average selling prices, capacity
utilization and shipment rates for new products will continue to have the
most significant impact on margins.
OPERATING EXPENSES -
Fiscal year 1999 operating costs and expenses were at 31% of net sales in
the third quarter and 33% of net sales in the first nine months of the
year. Operating expenses were 29% and 28% of net sales in the third quarter
and first nine months of fiscal year 1998, respectively.
Fiscal year 1999 operating costs and expenses includes a one-time
restructuring charge of $2,502,000 expensed during the second quarter of
fiscal 1999 and acquisition costs of $255,000 taken in the first quarter of
fiscal 1999. The restructuring charge was for the consolidation of certain
manufacturing capacity and the acquisition costs related to the merger with
Acapella Limited.
The restructuring charge taken during the second quarter of fiscal year
1999 included the elimination of 60 manufacturing positions and the
transition of all commercial integrated circuit production to the Company's
Santa Clara, California wafer fabrication facility and to outside wafer
foundries. The Company's Corpus Christi, Texas facility is now solely
dedicated to producing wafers for the transient voltage suppressor (TVS)
product line. As a result of these steps, the Company's long-term operating
model is expected to be benefited through improved internal fab
utilization, a reduction in capital spending for wafer fabrication
capacity, and the ability to take advantage of advanced processes at
outside foundries.
The Company has increasingly used outside foundry relationships for
fabricating wafers. As of the end of the third quarter of fiscal year 1999,
the Company estimates that 25% of net sales are supported by outside
foundries and 75% by internal (Company-owned). Over the next two years, the
Company expects the balance between the utilization of outside and internal
foundry capacity to be equal at around 50% each.
Over the last twenty-four months Semtech has invested heavily in technical
talent and equipment needed to support ongoing research and development of
new products. The Company has dedicated design centers in California, North
Carolina, Scotland and England. Cost associated with development efforts
are expected to continue to increase in terms of absolute dollars and as a
percentage of sales. Expenses related to sales, marketing, general and
administrative are also expected to increase, but at a less significant
rate.
OTHER -
Net interest and other income for the third quarter of fiscal year 1999 was
$182,000. For the third quarter of fiscal 1998, net interest and other
income was $113,000. For the three quarters of fiscal year 1999 and 1998,
the Company had net interest and other income of $552,000 and $241,000,
respectively. Other income for all periods is primarily interest income.
PROVISION FOR TAXES -
The effective tax rate for the third quarters and first nine months of
fiscal years 1999 and 1998 was approximately 33%.
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NET INCOME PER SHARE -
Net income per diluted share was $0.22 for three months ended November 1,
1998 and November 2, 1997. Net income per diluted share for the first nine
months of fiscal 1999 and fiscal 1998 where $0.56 and $0.68, respectively.
The calculation for net income per diluted share incorporates the
incremental shares issuable upon the assumed exercise of stock options (if
dilutive) and is affected by the market price of the Company's common
stock. Likewise, an increase in the price of the Company's common stock
will increase the dilutive effect of stock options.
YEAR 2000 COMPLIANCE -
A significant percentage of the software that runs most of the computers in
the United States relies on two-digit date codes to perform a number of
computation and decision making functions. Commencing on January 1, 2000
these computer programs may fail from an inability to interpret date codes
properly, misreading "00" for the year 1900 instead of the year 2000.
Semtech has initiated a comprehensive program to identify, evaluate and
address issues associated with the ability of its information technology
and non-information technology systems to properly recognize the Year 2000
in order to avoid interruption of the operation of these systems and a
material adverse effect on Semtech's operations as a result of the century
change. Each of the information technology software programs that the
Company currently uses has either been certified by its respective vendor
as Year 2000 compliant or will be replaced with software that is so
certified prior to December 1999. Semtech intends to conduct comprehensive
tests of all of its software programs for Year 2000 compliance as part of
its Year 2000 readiness program.
Semtech's computer system interfaces with the computers and technology of
different companies, including those of foreign companies. The Company
considers the Year 2000 readiness of its foreign customers and vendors of
particular importance given the general concern that the computer systems
abroad may not be as prepared as those in domestic operations to handle the
century change. As part of its Year 2000 compliance program, Semtech
intends to contact its significant vendors and customers to ascertain
whether the systems used by such third parties are Year 2000 compliant. The
Company plans to have all Year 2000 compliance initial testing and any
necessary conversions completed by December 1999.
Historically, Semtech has not incurred any significant costs to reprogram,
replace and test its information and non-information technology systems for
Year 2000 compliance. The costs associated with Semtech's Year 2000
compliance efforts will be incurred during the remainder of 1998 and
throughout 1999. Semtech estimates the costs of the efforts will be between
$100,000 and $150,000 over the life of the project; though such
expenditures may increase materially following testing of non-information
technology systems and the evaluation of the Year 2000 compliance status of
integral third party vendors and customers. Costs incurred in connection
with Year 2000 compliance efforts will be expensed as incurred.
Semtech currently anticipates that its information technology and non-
information technology systems will be Year 2000 compliant before January
1, 2000, though no assurances can be given that compliance testing will not
13
<PAGE>
detect unanticipated problems. Furthermore, the Company does not yet know
the Year 2000 compliance status of all of its integral third parties and is
therefore currently unable to assess the likelihood or the risk associated
with third party system failures. However, a system failure by any of
Semtech's significant customers or vendors could have a material adverse
effect on the Company's operations.
The Company believes that the most reasonably likely worst case scenario
resulting from the century change could be the inability to produce and
ship products at current rates for an indeterminable period of time, which
could have a material adverse effect on the results of operations and
liquidity.
Semtech intends to develop contingency plans to handle a Year 2000 system
failure experienced by its information and non-information technology
systems and to handle any necessary interactions with the computers and
technology of any integral non-complying third party.
FORWARD LOOKING STATEMENTS -
Some statements included in this filing which are not historical in nature
are forward-looking statements within the meaning of the Private Securities
Legislation Act of 1995. Forward looking statements regarding the Company's
future performance and financial results are subject to certain risks and
uncertainties.
The Company cautions investors that there can be no assurance that actual
results or business conditions will not differ materially from those
suggested in such forward-looking statements as a result of various
factors, including, but not limited to, the Company's ability to introduce
new products, support existing and new customers, achieve manufacturing
efficiencies, and penetrate new markets and additional end-product
applications. As a result, the Company's future development efforts involve
a high degree of risk. For further information, refer to the more specific
risks and uncertainties discussed throughout this report and the Company's
most recent Form 10-K filing with the Securities and Exchange Commission.
14
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company is involved in certain legal matters, which are routine to the
nature of its business. In one specific case, the Company is a defendant in a
complaint filed by a competitor regarding the recruitment of personnel.
Management is of the opinion that the ultimate resolution of all these matters
will not have a material adverse effect on its financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES
---------------------
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
(A) The 1998 Annual Meeting of shareholders of the Company was duly held on June
11, 1998.
(B) Inapplicable, as (i) proxies for the meeting were solicited pursuant to
Regulation 14 under the Act; (ii) there was no solicitation in opposition to
the management's nominees as listed in the Proxy Statement; and (iii) all of
such nominees were duly elected.
(C) One other matter voted upon at the meeting was for the adoption of a new
Long-Term Stock Incentive plan in which there were 5,561,077 affirmative
votes, 4,143,637 negative votes, and 37,917 abstaining votes.
(D) Not Applicable.
ITEM 5. OTHER INFORMATION
-----------------
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
11.1 -Computation of per share earnings - See Note 2 of Notes to
Consolidated Condensed Financial Statements.
27 -Financial Data Schedule, Article 5
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on March 3, 1998 for the registration
of stock issued in connection with a stock split in the form of a 100% stock
dividend.
A report on Form 8-K was filed on July 8, 1998 in connection with a press
release that sighted weaker demand that was effecting second quarter
results.
A report on Form 8-K was filed on July 16, 1998 to register a stockholder
protection agreement that was adopted by Company's Board of Directors and
approved by stockholders.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SEMTECH CORPORATION
-------------------
Registrant
Date: December 16, 1998 /S/ John D. Poe
--------------------------------
John D. Poe
Chairman of the Board and
Chief Executive Officer
Date: December 16, 1998 /S/ David G. Franz, Jr.
--------------------------------
David G. Franz, Jr.
Vice President Finance, Chief
Financial Officer, and
Secretary
16
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