<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 October 31, 1999 Commission File Number 1-6395
---------------- ------
SEMTECH CORPORATION
---------------------------------------------------------
(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
-------------------
N/A
- ------------------------------------------------------------------------------
(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 December 14,
1999: 31,885,821.
----------
<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 October 31, 1999, and the results of their operations and their cash flows
for the three months and nine months then ended.
2
<PAGE>
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -------------------------
October 31, November 1, October 31, November 1,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $47,072 $28,535 $118,369 $83,608
Cost of sales 22,087 14,747 57,141 44,689
------- ------- -------- -------
Gross profit 24,985 13,788 61,228 38,919
------- ------- -------- -------
Operating costs and expenses -
Selling, general and administrative 7,173 5,147 18,882 14,728
Product development and engineering 5,532 3,689 14,176 9,954
One-time charges - - - 1,585
------- ------- -------- -------
Total operating costs and expenses 12,705 8,836 33,058 26,267
------- ------- -------- -------
Operating income 12,280 4,952 28,170 12,652
Interest and other income, net 244 182 729 552
------- ------- -------- -------
Income before taxes 12,524 5,134 28,899 13,204
Provision for taxes 4,133 1,715 9,537 4,410
------- ------- -------- -------
Net income $ 8,391 $ 3,419 $ 19,362 $ 8,794
======= ======= ======== =======
Earnings per share:
Basic $0.27 $0.12 $0.64 $0.30
Diluted $0.24 $0.11 $0.56 $0.28
Weighted average number of shares:
Basic 30,933 29,390 30,486 29,132
Diluted 35,543 31,326 34,625 31,262
</TABLE>
3
<PAGE>
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
(Unaudited) (Audited)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 43,826 $41,035
Temporary investments 9,210 1,648
Receivables, less allowances 26,080 15,414
Income taxes refundable - 258
Inventories 25,345 16,803
Other current assets 2,082 1,275
Deferred income taxes 4,161 2,139
-------- -------
Total current assets 110,704 78,572
Property, plant and equipment, net 15,843 13,417
Other assets 288 89
Deferred income taxes 161 478
-------- -------
TOTAL ASSETS $126,996 $92,556
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,914 $ 5,296
Accrued liabilities 8,198 5,102
Income taxes payable 647 -
Other current liabilities 2,635 2,330
-------- -------
Total current liabilities 22,394 12,728
Other long-term liabilities 66 57
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value, 40,000,000 authorized
Issued and outstanding 151 152
Additional paid-in capital 43,071 30,461
Retained earnings 63,246 49,411
Treasury shares, at cost (1,631) -
Accumulated other comprehensive income (301) (253)
-------- -------
Total shareholders' equity 104,536 79,771
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $126,996 $92,556
======== =======
</TABLE>
4
<PAGE>
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
--------------------------------------------
October 31, November 1,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 19,362 $ 8,794
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,009 2,775
Deferred income taxes (1,705) (317)
Non-cash portion of restructuring charge - 2,366
Changes in assets and liabilities, net of acquisition:
Receivables (10,666) (1,917)
Income taxes refundable 258 -
Inventories (8,542) (1,695)
Other assets (1,006) (95)
Accounts payable and accrued liabilities 8,714 (551)
Income taxes payable 10,389 1,878
Other current liabilities 305 343
-------- -------
Net cash provided by operating activities 20,118 11,581
-------- -------
Cash flows from investing activities:
Temporary cash investments (7,562) 846
Additions to property, plant and equipment (5,435) (4,542)
-------- -------
Net cash used in investing activities (12,997) (3,696)
-------- -------
Cash flows from financing activities:
Exercise of stock options 8,777 1,735
Stock repurchase (13,418) -
Other long-term liabilities 9 19
Other 349 573
-------- -------
Net cash provided by(used in) financing activities (4,283) 2,327
-------- -------
Effect of exchange rate changes on cash (47) 7
Net increase in cash and cash equivalents 2,791 10,219
Cash and cash equivalents at beginning of period 41,035 18,808
-------- -------
Cash and cash equivalents at end of period $ 43,826 $29,027
======== =======
</TABLE>
5
<PAGE>
SEMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Earnings Per Share
- ---------------------
Earnings per share are presented in accordance with Statement of Financial
Accounting Standard (SFAS) No. 128, "Earnings per Share." Basic earnings per
common share are computed using the weighted average number of common shares
outstanding during 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
October 31, 1999 November 1, 1998 October 31, 1999 November 1, 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic 30,933,000 29,390,000 30,486,000 29,132,000
========== ========== ========== ==========
Diluted 35,543,000 31,326,000 34,625,000 31,262,000
========== ========== ========== ==========
</TABLE>
Options to purchase 10,000 and 1,919,000 shares were not included in the
computation of three months diluted net income per share for fiscal 2000 and
fiscal 1999, respectively, because such options were anti-dilutive. For the
nine months diluted net income per share for fiscal 2000 and fiscal 1999, 66,000
and 809,000 shares, respectively, were not included in the computation because
such options were anti-dilutive.
2. Segment Reporting
- --------------------
The Company operates in three reportable segments: Standard Semiconductor
Products, Rectifier and Assembly Products, and Other Products. Included in the
Standard Semiconductor Products segment are the power management, automated test
equipment (ATE), transient voltage suppressors (TVS) and advanced communication
IC product lines. The Rectifier and Assembly Products segment includes the
Company's line of assembly and rectifier products. The Other Products segment
is made up of other custom IC and foundry sales.
The accounting policies of the segments are the same as the Company's accounting
policies for financial reporting purposes. The Company evaluates segment
performance based on net sales and operating income of each segment. Management
does not track segment data or evaluate segment performance on additional
financial information. As such, there are no separately identifiable segment
assets nor are there any separately identifiable statements of income data
(below operating income).
The Company does not track or assign assets to individual reportable segments.
Likewise, depreciation expense and capital additions are also not tracked by
reportable segments.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- -------------------------------------
Net Sales (in thousands) October 31, 1999 November 1, 1998 October 31, 1999 November 1, 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Standard Semiconductor Products $42,366 $22,116 $103,013 $63,954
Rectifier and Assembly Products 2,824 3,255 9,161 10,692
Other Products 1,882 3,164 6,195 8,962
------- ------- -------- -------
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Total Net Sales $47,072 $28,535 $118,369 $83,608
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- -------------------------------------
Operating Income (in thousands) October 31, 1999 November 1, 1998 October 31, 1999 November 1, 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Standard Semiconductor Products $11,999 $4,062 $26,801 $ 9,866
Rectifier and Assembly Products 105 577 519 1,338
Other Products 176 313 850 1,448
------- ------ ------- -------
Total Net Sales $12,280 $4,952 $28,170 $12,652
======= ====== ======= =======
</TABLE>
For the three months and nine months ended October 31, 1999 and November 1,
1998, no one customer accounted for 10% or more of the Company's net sales. A
summary of net external sales by region follows. The Company does not track
customer sales by region for each individual reporting segment.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- -------------------------------------
Net Sales (in thousands) October 31, 1999 November 1, 1998 October 31, 1999 November 1, 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic $15,628 $11,985 $ 40,973 $40,998
Asia-Pacific 25,795 13,126 62,003 31,986
European 5,649 3,424 15,393 10,624
------- ------- -------- -------
Total Net Sales $47,072 $28,535 $118,369 $83,608
======= ======= ======== =======
</TABLE>
Long lived assets located outside the United States at October 31, 1999 amounted
to approximately $4.4 million.
3. Temporary Investments
- -------------------------
Temporary investments consist of commercial paper and government and corporate
obligations with original maturities in excess of three months and are carried
at cost, which approximates market.
4. Inventories
- --------------
The commercial semiconductor industry and the markets in which the Company's
products are used are characterized by rapid changes and short product life
cycles. Consistent with the industry, the Company has experienced declines in
average selling prices over the life of its product lines. The Company has
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
(In thousands) Materials Process Goods
- --------------------------------------------------------------------------------------------------------
October 31, 1999
<S> <C> <C> <C> <C>
Gross inventories $1,380 $18,976 $10,725 $31,081
Total reserves (426) (1,919) (3,391) (5,736)
------ ------- ------- -------
Net inventories $ 954 $17,057 $ 7,334 $25,345
====== ======= ======= =======
January 31, 1999
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Gross inventories $1,879 $ 9,906 $ 9,016 $20,801
Total reserves (426) (1,329) (2,243) (3,998)
------ ------- ------- -------
Net inventories $1,453 $ 8,577 $ 6,773 $16,803
====== ======= ======= =======
</TABLE>
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 requires companies to display the components of
comprehensive.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
October 31, 1999 November 1, 1998 October 31, 1999 November 1, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $8,391 $3,419 $19,362 $ 8,794
Change in foreign currency
translation 40 (6) (48) 132
------ ------ ------- -------
Comprehensive Income $8,431 $3,413 $19,314 $10,355
====== ====== ======= =======
</TABLE>
6. Stock Repurchase
- -------------------
During the second quarter of fiscal year 2000, the Company announced that it had
completed the $10 million stock repurchase that was originally announced on
February 2, 1999. The Company also announced that its Board of Directors has
approved the repurchase of an additional $10 million of its common stock. As of
October 31, 1999, 701,000 shares were repurchased for approximately $13.8
million. Through October 31, 1999, the Company had reissued 652,560 shares to
cover the exercise of employee stock options. As of December 3, 1999, 688,750
shares had been reissued to cover exercise of stock options. On December 3,
1999, the Company announced that it had cancelled its stock repurchase program.
The program was cancelled to complete the acquisition of USAR Systems Inc. as a
pooling-of-interests.
7. Lines of Credit
- ------------------
In August of 1998, the Company agreed to a 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, and is available through August 2000. The
line of credit consists of two facilities. The first facility is a $10,000,000
line of credit for working capital needs and the second facility is a reducing
revolver loan for equipment acquisitions. The available amount under the
reducing revolver loan declines in equal increments over 84 months. As of
October 31, 1999, the Company had $8,690,470 available under the reducing
revolver portion. The arrangement is collateralized by the Company's domestic
assets and provides for financial and non-financial covenants. As of October
31, 1999, the Company had no borrowings outstanding under either credit
facility. Through its foreign subsidiary, the Company also maintains an
overdraft credit line in the amount of 300,000 pounds sterling.
8. Acquisition
- --------------
Semtech purchased Practical Sciences, an Oxnard, California based communication
design firm. Semtech issued 5,000 shares in exchange for all of the issued and
outstanding shares of common stock of Practical Sciences.
8
<PAGE>
Goodwill of $254,000 represents the excess of purchase price over the net assets
acquired and is being amortized over seven years. The purchase was made to
strengthen the Company's ability to design circuits for use in communications
applications.
9. Subsequent Events
- --------------------
On November 26, 1999, the Company purchased a parcel of land located in
Camarillo, California for approximately $5.1 million. The land will be used to
build a new corporate headquarters.
On December 3, 1999, the Company announced that it had cancelled its stock
repurchase program. The program was cancelled to complete the acquisition of
USAR Systems Inc. as a pooling-of-interests.
On December 6, 1999, the Company acquired USAR Systems (USAR), a system-level
designer of firmware (the combination of software and hardware) for use in
portable systems. Semtech issued 495,000 shares in exchange for all the issued
and outstanding shares of USAR to be accounted for as a pooling-of-interests
transaction. The Company incurred approximately $500,000 in costs related to
this acquisition.
Item 2. Management's Discussion and Analysis of Financial Conditions and
----------------------------------------------------------------
Results of Operations
---------------------
(l) Material Changes in Financial Condition
---------------------------------------
On October 31, 1999, Semtech Corporation (the Company) had working capital of
$88,310,000, compared with $65,844,000 at January 31, 1999. The ratio of current
assets to current liabilities at October 31, 1999, was 4.9 to 1, compared to 6.2
to 1 at January 31, 1999. The decline was primarily due to the Company's use of
cash to repurchase stock and invest in capital equipment.
In the first nine months of fiscal year 2000, the Company generated $2.8 million
of cash and cash equivalents. The increase in cash and cash equivalents was due
to profitability for the same period, partially offset by cash outlays for
inventory, capital equipment, increased accounts receivable, year-end
supplemental compensation relating to the prior fiscal year and the repurchase
of 701,000 shares of the Company's common stock. Operating cash flows for the
first nine months of the year was a positive $20,118,000. During the first nine
months of fiscal 2000, the Company used cash of $5,435,000 to pay for capital
equipment purchases.
Efforts by the Company over the past several years to increase Standard
Semiconductor Product segment sales have been effective. New products have been
introduced for use in a wide variety of computer, test and communications
systems. In order to develop, design and manufacture new products, the Company
had to make significant expenditures during the past four years. Such
investments aimed at developing new products, including the hiring of many
design and applications engineers and related equipment, will continue. Semtech
fully intends to continue investing in those areas that have shown potential for
viable and profitable market opportunities. Certain of these expenditures,
particularly the addition of design engineers, do not generate significant
payback in the short-term. The Company plans to finance these expenditures with
cash generated by operations and cash on-hand.
(2) Material Changes in Results of Operations
-----------------------------------------
9
<PAGE>
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 October 31, 1999 and November 1, 1998.
THREE MONTH AND NINE MONTH PERIODS ENDED OCTOBER 31, 1999 COMPARED WITH THE
- ---------------------------------------------------------------------------
THREE MONTH AND NINE MONTH PERIODS ENDED NOVEMBER 1, 1998:
- ----------------------------------------------------------
INDUSTRY TRENDS AND OUTLOOK
As a result of industry-wide trends to lower operating voltages, sub-micron IC
process technology and higher bandwidths, there has been increased need for
complex power management, protection, interface and communication solutions.
The Company has been successful in meeting the needs of customers requiring
high-performance analog and mixed-signal solutions. However, with the increased
demand for these solutions has come added competition.
The Company has grown significantly over the past five years due to new product
developments, good relationships with strategic customers, focus on fast growing
market segments and overall favorable industry conditions. Future growth by the
Company will remain dependent on market conditions, economic factors, the
ability to introduce new products and to increase operating efficiencies. The
overall health of the electronic components industry and the end-markets for
electronic systems have a large influence on the Company's success. Significant
weakness in the industry, end-markets or economic conditions will adversely
affect the Company's financial performance.
Increased competition and a continued move to short lead times within the
components industry will continue to affect the Company's performance on a
quarterly basis. The Company has experienced declines in customer lead times as
manufacturers move to "just-in-time" inventory systems. Likewise, Semtech
generally has only 60-90 days visibility of future period shipments.
With the increased success and growth in demand for analog and mixed-signal
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 the 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 the third quarter ended October 31, 1999 were $47,072,000, which
compared to $28,535,000 in the third quarter ended November 1, 1998, an increase
of 65%. Net sales for the nine months ended October 31, 1999 were $118,369,000
compared to $83,608,000 for the nine months ended November 1, 1998, a 42%
increase.
The increase in net sales for the third quarter and for the nine months of
fiscal year 2000 as compared to the prior year was due to continued improvement
in the Company's ability to market and produce its products used in targeted
end-market applications. The Company has also benefited from favorable market
conditions in the overall semiconductor industry.
10
<PAGE>
End-market applications for the Company's products during the third quarter of
fiscal 2000 are estimated to be 43% computer, 29% communications, 23% industrial
(which includes ATE) and 5% for all other applications, including
military/aerospace and foundry sales. End-market applications for the nine
months ended October 31, 1999 where 42% computer, 29% communications, 23%
industrial and 6% for all other applications. End-market applications for the
prior year's third quarter were estimated to be 48% computer, 21%
communications, 18% industrial and 13% for all other applications. For the
comparable nine month period of last year, sales were estimated to be 47%
computer, 18% communications, 22% industrial, 13% for all other. The Company
expects to derive more net sales from the communications market as specific
product development and marketing efforts are made in this market.
Geographically, sales for the third quarter of fiscal 2000 were approximately
33% domestic, 55% Asian and 12% European. For the first nine months of fiscal
year 2000, sales were approximately 35% domestic, 52% Asian and 13% to European
customers. For the third quarter and first nine months of last fiscal year,
domestic sales were 42% and 49% of net sales, Asia was 46% and 38%, and Europe
was 12% and 13%, respectively. The increase in sales to Asia reflects the
increased use of foreign-based subsidiaries and subcontractors by original
equipment manufacturers (OEMs) for assembling their finished products. Due to
this trend, the Company estimates that two-thirds of all shipments made into
Asia are eventually exported out of the region in finished products.
New Orders
New orders received during the third quarter and first nine months of fiscal
year 2000 were more than net shipments, resulting in a book-to-bill ratio of
greater than 1 to 1. The book-to-bill ratio for the comparable third quarter of
last year was greater than 1 to 1, and below 1 to 1 for the nine month period.
New orders received in the third quarter and first three quarters of this year
reflected the general strength in all the major end-markets and the demand from
manufacturers supplying these markets. Demand for the Company's Standard
Semiconductor Product segment represented a majority of the new order activity
during the third quarter and the nine month period ended October 31, 1999.
Orders for power management and protection circuits showed the strongest
relative strength within the third quarter of fiscal year 2000. For the third
quarter of fiscal year 1999, the Company experienced a rebound in new orders
from the prior quarter, due largely to weakness in the ATE and computer markets.
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 computer and computer peripheral markets to the Company, order
rates have been stronger during the third and fourth quarters of the past three
fiscal years. While certain industry trends can potentially outweigh seasonal
factors, order rates are subject to fluctuations.
COSTS AND EXPENSES
Cost of Sales
Gross profit as a percentage of net sales was 53% in the third quarter and 52%
for the first three quarters of fiscal 2000. This compared to 48% in the third
quarter and 47% of net sales for the first nine months of last year. The
improvement in gross margin is attributed to increased operating efficiencies
associated with higher shipment levels, higher revenue contribution from
products introduced in the last year, and a favorable shift in product mix
towards higher margin product lines. Gross profit margin was favorably impacted
in the third quarter of last year by a sequential rebound in net
11
<PAGE>
sales over the second quarter of fiscal 1999 results that included poor-market
conditions and the write-down of inventory.
As net sales from the Standard Semiconductor Product segment increase in future
periods, gross profit margin as a percentage of net sales is expected to
increase. Standard Semiconductor Products as a whole sell at higher gross
margins than the overall corporate average.
Future trends that will effect the Company's gross margin include price changes
over the life of the 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,
particularly those which are proprietary or limited source in nature. The
Company expects that prices for existing products will continue to decrease over
their respective life cycles. The Company does believe it can further improve
its consolidated gross margin to above the current level over the next twelve
months. Such an expansion in gross margin assumes continued revenue growth,
increased contribution from new products and additional manufacturing
efficiencies.
Operating Expenses
Operating costs and expenses, as a percentage of net sales, were at 27% and 28%
of net sales in the third quarter and first nine months of fiscal 2000,
respectively. Operating costs and expenses for the third quarter and first nine
months of fiscal year 1999 were 31% of net sales, respectively. Included in the
operating expenses for the nine months ended November 1, 1998, are one-time
costs of $255,000 associated with the acquisition of Acapella Limited and
$1,330,000 related to restructuring and the write-down of long-lived assets.
Operating expenses, as a percentage of net sales, for the first three and nine
months of fiscal year 2000 are lower than prior year levels due to higher
shipment rates and better efficiencies. Increased spending in the areas of
research and development, strategic marketing, and to a lesser degree in general
and administrative functions caused operating expenses as a percentage of net
sales to be higher than historical averages in both fiscal years 2000 and 1999.
The Company continues to invest heavily in areas deemed critical for developing
and marketing new products. While the Company anticipates that spending on
research and development and other operating functions will continue to increase
over time, operating expenses as a percentage of net sales should remain in the
range of 27-30% if revenue growth objectives are achieved.
Interest and Other Income
Interest and other income of $244,000 and $729,000, respectively, was realized
in the three and nine month periods ended October 31, 1999. For the three and
nine month periods ended November 1, 1998, interest and other income was
$182,000 and $552,000, respectively. Other income and expenses for all periods
is primarily interest income.
Provision for Taxes
The effective tax rate for the first three and nine months of fiscal years 2000
and 1999 remained constant at 33%.
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.
12
<PAGE>
Recently Issued Accounting Standards
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 is effective in fiscal year 2001 and
management does not expect adoption of this standard to have a material impact
on the Company's financial position or results of operations.
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 completed a comprehensive program intended 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 have 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 has
been replaced with software that is Year 2000 compliant.
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 has contacted its significant
vendors and customers to ascertain whether the systems used by such third
parties are Year 2000 compliant. As of December 1999, the Company has all Year
2000 compliance testing and any necessary conversions completed.
Semtech estimates the costs to reprogram, replace and test its information and
non-information technology systems for Year 2000 compliance has been between
$100,000 and $150,000 over the life of the project. However, such expenditures
could increase materially if any undetected problems or vendor issues arise.
Costs incurred in connection with Year 2000 compliance efforts are expensed as
incurred.
Semtech anticipates that its information technology and non-information
technology systems are Year 2000 compliant, though no assurances can be given
that compliance testing will not detect unanticipated problems. The Company has
evaluated the Year 2000 compliance status of its top 25 third party suppliers.
Based on these evaluations, the Company can only approximate the likelihood of
third party system failures. 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 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 has developed contingency plans to handle a Year 2000 system failure of
its information and non-information technology systems and to handle necessary
interactions with the computers and technology of any integral non-complying
third party.
13
<PAGE>
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, penetrate new
markets and additional end-product applications, and the ability to use equity
incentives to recruit and retain technical talent. In addition, external
factors of risk include the overall health of the electronics industry, risks
associated with Year 2000, certain end-market applications (including personal
computers and test systems), exposure to regional economic and political
conditions and exposure to overall global economic conditions. As a result of
these factors and other items of risk outlined in this Form 10-Q, the Company's
future operations development efforts involve a high degree of uncertainty.
GIVEN THESE UNCERTAINTIES, THE SHAREHOLDERS OF THE COMPANY ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Foreign Currency Risk. As a global enterprise, the Company faces exposure to
adverse movements in foreign currency exchange rates. The Company's foreign
currency exposures may change over time as the level of activity in foreign
markets grows and could have an adverse impact upon the Company's financial
results.
Certain of the Company's assets, including certain bank accounts and accounts
receivable, exist in nondollar-denominated currencies, which are sensitive to
foreign currency exchange rate fluctuations. The nondollar-denominated
currencies are principally German Deutschmarks, British Pounds Sterling and
French Francs. Additionally, certain of the Company's current and long-term
liabilities are denominated principally in British Pounds Sterling currencies,
which are also sensitive to foreign currency exchange rate fluctuations.
Because of the relatively small size of each individual currency exposure, the
Company does not employ hedging techniques designed to mitigate foreign currency
exposures. Likewise, the Company could experience unanticipated currency gains
or losses.
Interest Rate Risk. The Company has a line of credit with a financial
institution at an interest rate of 30 day commercial paper plus 2.2 percent. At
any time, a sharp rise in interest rates could have a material adverse impact
upon the Company's cost of working capital and the interest expense. The Company
does not currently hedge this potential interest rate exposure. As of October
31, 1999 the Company had no debt outstanding.
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. Management is of the opinion that the ultimate
resolution of 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 1999 Annual Meeting of Shareholders of the Company was duly held on June
10, 1999. A special meeting of shareholders was held on October 12, 1999 to
approve an amendment to increase the Company's authorized shares of common
stock available for issuance.
(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) Not applicable.
(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 1 of Notes to Unaudited
Consolidated Condensed Financial Statements.
27 -Financial Data Schedule, Article 5
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended October
31, 1999.
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 15, 1999 /S/ John D. Poe
--------------------------------
John D. Poe
Chairman of the Board
and Chief Executive Officer
Date: December 15, 1999 /S/ David G. Franz, Jr.
--------------------------------
David G. Franz, Jr.
Vice President Finance, Chief
Financial Officer, and
Secretary
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST
1, 1999, WHICH ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FORM 10-Q
FILING AND FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-2000
<PERIOD-START> AUG-02-1999
<PERIOD-END> OCT-31-1999
<CASH> 43,826
<SECURITIES> 9,210
<RECEIVABLES> 26,080
<ALLOWANCES> 0
<INVENTORY> 25,345
<CURRENT-ASSETS> 111,704
<PP&E> 15,843
<DEPRECIATION> 0
<TOTAL-ASSETS> 126,996
<CURRENT-LIABILITIES> 22,394
<BONDS> 0
0
0
<COMMON> 151
<OTHER-SE> 104,385
<TOTAL-LIABILITY-AND-EQUITY> 104,536
<SALES> 47,072
<TOTAL-REVENUES> 47,072
<CGS> 22,087
<TOTAL-COSTS> 12,705
<OTHER-EXPENSES> (244)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,524
<INCOME-TAX> 4,133
<INCOME-CONTINUING> 8,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,391
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.24
</TABLE>
