<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended January 31, 1999
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 16, 1999 was $495,615,404 and the market price of the Registrant's
stock was $32.9375 per share. The number of shares outstanding of the
Registrant's common stock was 15,047,147 at April 16, 1999.
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 10, 1999.
This report on Form 10-K contains a total of 48 pages.
<PAGE>
SEMTECH CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
PART I
Page
-----
<S> <C> <C>
Item 1 Business 2
Item 2 Properties 12
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 13
<CAPTION>
PART II
<S> <C> <C>
Item 5 Market for the Registrant's Common Equity and
Related Shareholder Matters 14
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A Quantitative and Qualitative Disclosures About
Market Risks 20
Item 8 Financial Statements and Supplementary Data 22
Item 9 Changes in or Disagreements with Accountants on
Accounting and Financial Disclosure 38
<CAPTION>
PART III
<S> <C> <C>
Item 10 Directors and Executive Officers of the Registrant 38
Item 11 Executive Compensation 39
Item 12 Security Ownership of Certain Beneficial Owners and
Management 39
Item 13 Certain Relationships and Related Transactions 39
<CAPTION>
PART IV
<S> <C> <C>
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 40
Signatures 42
</TABLE>
<PAGE>
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 and mixed-
signal semiconductors, including Standard Semiconductor Products, Rectifier and
Assembly Products and Other Products. The Company's devices are used in a
variety of applications including computer, communications, industrial,
military-aerospace and automotive. The Company also provides a limited amount
of wafer foundry services to other electronic component manufacturers.
Acquisition
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 fiscal year 1999 were immaterial in relation to Semtech's
overall financial position or results of operations. Therefore, the effect of
the merger prior to February 1, 1998 has been adjusted to retained earnings.
The consolidated balance sheet at January 31, 1999 as well as the consolidated
statements of income and cash flows for the twelve months ended January 31, 1999
include the results of Acapella. Merger related costs of $255,000 associated
with the Company's acquisition of Acapella are reflected in Semtech's net
income.
Industry
Analog semiconductors condition and regulate "real world" functions, which is in
contrast to digital circuits that compute and process information. Mixed-signal
devices incorporate both analog and digital functions into a signal chip.
Analog and analog-rich mixed-signal circuits provide the ability for digital
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 and mixed-signal devices play the important
role of managing these real world functions and bridging the gap with digital
electronics.
Semtech has strategically focused on designing and manufacturing "high-
performance" analog and mixed-signal semiconductors for solving power
management, protection, communications and interface issues. As digital-based
electronic systems continue to increase in performance, such systems require
more complex analog solutions. "High-performance" analog and mixed-signal refers
to devices that have advanced features and superior performance over widely
available, "commodity" circuits.
Several key industry trends that the Company has focused on include the
continued move to lower operating voltages, increased bandwidths and
communication interface speeds, portability, and the overall increase in the use
of personal computers, cellular phones, and consumer and commercial electronics.
2
<PAGE>
The market for analog and mixed-signal semiconductors is unique in comparison to
the market for digital semiconductors. The analog and mixed-signal industries
are characterized by fragmented end-market segments, significantly less capital
intensive than the digital industry, longer product life cycles, and greater
dependence on design and applications talent. Analog semiconductor
manufacturers tend to be less dependent than digital producers on state of the
art production equipment. Analog, conversely, relies more heavily on design and
applications talent to distinguish its products.
While general trends within the commercial semiconductor industry have benefited
the Company, the focus on providing power management and protection solutions
for computer and communication systems and the demand from ATE customers were
the most significant reasons for Semtech's growth in fiscal 1999. Despite the
success achieved, the market for the Company's products and the markets for the
end-systems they are sold into remain very competitive.
Applications
End market applications for the Company's products sold during fiscal 1999 are
estimated to be 45% computer, 20% communications, 20% industrial (which includes
automated test equipment), 9% military/aerospace and 6% foundry sales. Use of
the Company's line of voltage regulators in powering microprocessors and the
company's line of ATE circuits represented the two largest end product
applications in fiscal year 1999. Other specific product applications include
servers, computer add-on cards, printers, cellular phone base stations,
cellular phone handsets, portable devices, factory automation systems, medical
equipment, automotive sub-systems, and defense and aviation electronics.
Products
The following is a description of the Company's main product segments:
Standard Semiconductor Products. Included in Standard Semiconductor Products are
integrated circuits (ICs) and discrete components designed for use in standard
industry applications.
Integrated circuits combine multiple "discrete" functions into a single silicon
chip. Increased performance and reliability is accomplished by integrating more
functions on to a single device. Discrete semiconductors perform a single
function, which is in contrast to integrated circuits that perform multiple
functions within the inner workings of the device. Discrete components usually
have unique characteristics that require them to be a standalone function rather
than part of an integrated circuit. Standard Semiconductor Products are sold to
customers in the computer, communications and industrial markets. Described
below are the main standard product lines.
Power Management Circuits. The main product types within the power management
- -------------------------
product line are 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 for these products is power
regulation for computer and communications systems.
Automated Test Equipment (ATE) Circuits. Semtech designs and markets a wide
- ---------------------------------------
variety of pin electronics, timing, clock distribution and parametric
measurement products for use in ATE instrumentation applications. These circuits
utilize advanced analog and mixed-signal design and process techniques. In
addition to a large selection of standard products, the Company has the
capability to develop circuits customized to meet specific ATE applications.
Automated test equipment systems are used by electronic component manufacturers
in the testing of their finished devices.
3
<PAGE>
Transient Voltage Suppressors (TVS). 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. Transient voltage suppressors prevent system degradation from
electrostatic discharge generated by the human body. Specific applications are
found in computer, data communications, telecommunications, industrial, military
and aerospace markets.
Advanced Communication Circuits. The Company's wholly owned subsidiary, Acapella
- -------------------------------
Limited, designs and markets a line of advanced communication ICs. The circuits
are designed for transmission and receiving signals over fiber optic lines.
Advanced communication ICs are used for local and wide area network
applications.
Rectifier and Assembly Products. Rectifiers and assemblies are older-technology
products that are principally sold into the military and aerospace 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
medical equipment customers.
Assemblies. An assembly is a package of rectifiers of one or more types encased
- ----------
in epoxy or silicon by various molding techniques, constituting one or more
basic rectifier circuits. The Company manufactures assemblies as catalog items
and for special customer requirements. Assemblies are used for military,
aerospace and other specialized applications.
Other Products. Semtech produces and sells Other Products, as detailed below.
Custom and Application Specific Circuits. Other custom and application specific
- ----------------------------------------
integrated circuits (ASICs) include a wide variety of customer and application-
specific devices. Technical applications for these products include sensory,
power and interface functions. The end markets for these products include
industrial, consumer, and automotive.
Foundry Wafers. Semtech supplies wafers that it fabricates for other
- --------------
semiconductor manufacturers. Much of the processed silicon currently sold goes
into applications in the computer, automotive and industrial markets.
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. Discrete wafer fabrication, testing, probe and some
assembly activity are performed in Newbury Park, California. The San Diego,
California location serves as the headquarters for the Company's ATE Division,
Edge Semiconductor. Design, applications, sales, and other administrative
activities related to the ATE business segment are conducted at this location.
The Company's Reynosa, Mexico facility provides relatively low cost assembly and
test capabilities for supporting military and legacy products and the
Glenrothes, Scotland facility provides value-added manufacturing capabilities
for serving the European markets.
The Company fabricates 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. Semtech supports approximately 75% of its
end products with wafers that are fabricated internally. Outside foundries are
used for the remaining 25% of fabrication capacity. As of the end of fiscal year
1999, the Company estimates that it is utilizing approximately 65% of its
internal wafer fabrication capacity. All of the Company's ATE circuits, advanced
communication ICs and a percentage of power management products are fabricated
at outside foundries.
4
<PAGE>
Contractual agreements exist with each of the outside foundries. With expansion
into higher-end communication product lines and higher-performance devices, it
is expected that the Company will increase, as a percentage of the total, the
amount of outside foundries used to support certain product lines. The Company
expects to reach a balance of approximately 50% internal and 50% external wafer
sourcing over the next two years. While Semtech has good working relationships
with the foundries used, any involuntary termination of the relationships would
effect the Company's ability to produce certain products.
The Company utilizes subcontractors in Taiwan, Malaysia and the Philippines to
assemble high-volume commercial product lines. While 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 a variety of Bipolar processes and
a limited amount of CMOS 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 targeted characteristics has
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. A comprehensive quality
assurance and control program exists 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 2,000 customers purchased the Company's products during the fiscal
year ended January 31, 1999. No one customer accounted for 10% or more of the
Company's net sales in fiscal years 1999, 1998 or 1997. Customers that buy the
Company's products include major computer and peripheral manufacturers and their
sub-contractors, automated test system manufacturers, communications equipment
producers (both data-communication and tele-communication), and a variety of
both large and small companies serving the industrial, automotive, aerospace and
military markets. During fiscal year 1999, Semtech further diversified its
customer base and broadened end-product applications.
With a portion of the Company's sales coming from retail computer and computer
related applications, the Company's past results have reflected some
seasonality, with demand levels being higher in computer segments during the
third and fourth quarters of the year in comparison to the first and second
quarters. While some seasonality was experienced during the last two fiscal
years, the Company's ability to gain market-share and diversify its customer
base largely offset any seasonal weakness. Going forward, overall industry
trends and Company specific conditions will continue to have a greater effect on
quarterly sales levels than seasonal factors.
Foreign sales, defined as customers located outside of the United States, during
the fiscal year ended January 31, 1999 were approximately 53% of net sales.
During fiscal years 1998 and 1997, foreign sales were 45% and 43%, respectively,
of net sales. A significant portion of the sales in fiscal 1998 were to
customers located in the Asian-Pacific region. Sales to customers in this
region were approximately 41% of net sales in fiscal year 1999. While a large
percentage of the Company's sales are made to Asian-based customers, it
5
<PAGE>
is estimated that approximately two-thirds of those sales are to customers that
eventually export the finished product back to North American and European
markets. Sales to Japanese and Korean customers, which are included in the
Asian-Pacific regions sales figures, were approximately 4% and 7% of net sales
in fiscal year 1999, respectively.
The Company's backlog of orders as of the end of the last three fiscal years
1999, 1998, and 1997 was approximately $33.2 million, $32.5 million and $24.7
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. Recent trends within the industry towards shorter
and shorter lead-times and "just-in-time" deliveries has resulted in reduced
visibility for the Company. As a result, the Company expects the percentage of
turns-fill business (orders received and shipped within the same quarter) to
increase as a percentage of net sales.
Sales and Marketing Functions
For performing the sales and marketing functions, the Company utilizes a direct
sales staff, applications engineers, independent sales representative firms and
independent distributors. The Company has direct sales offices located in
Southern California, Texas 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 Asian-Pacific territory. The Company is also
represented outside the United States, Europe and Asia by other independent
sales organizations.
Sales made directly to original equipment manufacturers (OEMs) in fiscal year
1999 were approximately 80% of net sales and the remaining 20% of net sales were
made through independent distributors. The percentage of sales made directly to
OEMs has increased in the last four fiscal years as the Company sells directly
to large strategic customers and as the contribution from the ATE Division,
which only has direct sales, has increased.
Product Development and Engineering
The Company currently performs product development and engineering work in its
Newbury Park, Santa Clara, Corpus Christi and San Diego facilities. Engineering
functions exist within each of these locations 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 1996, the Company began to invest heavily in design and
applications intended to aid the introduction of new products. The Company now
has dedicated design centers in Santa Clara, California, Raleigh, North
Carolina, Glasgow, Scotland, and Southampton, England. In addition, dedicated
ATE circuit design occurs at the San Diego location and TVS product design
occurs at the Company's Newbury Park headquarters. In the first quarter of
fiscal year 1999, Semtech opened its newest design center, located in Raleigh,
6
<PAGE>
North Carolina. This location was set-up to attract available design talent
from the surrounding area and to develop working relationships with strategic
customers that have locations in the Raleigh area.
As of the end of fiscal year 1999, the Company employs 76 research and design
employees, including 49 circuit designers. A majority of these individuals have
senior-level expertise in the design and development of circuits targeted for
use in power management, protection, ATE and communication applications. The
Company intends to make further investment in research and development functions
during the coming fiscal years. Additional headcount along with investment in
design and development equipment and overall support of development efforts is
the focus of such investment.
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. Semtech considers Linear Technology, Maxim Integrated
Products, Harris Electronics, Analog Devices, National Semiconductor, ST
Microelectronics and other companies of varying size to be competitors. Due to
the fragmented nature of the analog semiconductor industry, the Company
estimates that it has no more than 30% product overlap with any single one of
the competitors identified.
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
its military products, has matured and, accordingly, prices have begun to
fluctuate with market conditions as these products act more like commodities.
The Company has entered several growing commercial markets with products, which
include transient voltage suppressors, DC to DC converters, voltage regulators
and ATE circuits. 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 efficiencies 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 six years, the
Company has experienced improvements in productivity and product yields that
have reduced manufacturing costs. It has also increased the rate of new product
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 patents. The
Company is a licensee under patents of the Lemelson Medical, Education and
Research Foundation which pertain to certain manufacturing processes.
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
7
<PAGE>
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 in 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, the Company was involved in certain legal proceeding relating to
the Newbury Park facility that stemmed from allegations of groundwater
contamination by a neighboring company. 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 at this time.
Employees
As of January 31, 1999 the Company had 572 full-time employees, compared to 586
full-time employees at February 1, 1998. The slight decrease was due to
reductions in manufacturing headcount that was partially offset by additions in
the areas of design, applications and strategic marketing.
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 application engineers is significant.
Government Regulations
The Company is required to comply with numerous government regulations that 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 (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 would impact the Company's profitability.
RISK FACTORS
Sole or Limited Sources of Supply. The Company obtains certain components and
materials necessary for its manufacturing operations from a limited number of
suppliers. The Company's reliance on a limited number of outside subcontractors
for packaging and certain other tasks also involves several risks, including
potential inability to obtain an adequate supply of required components and
reduced control over the price, timely delivery, reliability and quality of
components. There can be no assurance that problems will not occur in the
future with suppliers or subcontractors. Disruption or termination of the
Company's supply sources or subcontractors could delay shipments by the Company
and could have a material adverse effect on the Company's business, financial
condition and results of operations. Delays could also damage relationships
with current and prospective customers. Any prolonged inability to obtain
timely deliveries or any other circumstances that would require the Company to
seek alternative sources of supply or to
8
<PAGE>
manufacture or package certain components internally would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Protection of Know-How and Trade Secrets; Intellectual Property Claims. Few of
the Company's products are protected by patents. The Company has, however,
devoted significant resources to develop its current level of expertise, and
believes that its integrated circuit design know-how and processes are valuable
assets that have been and will continue to be important to the Company's
business. The Company relies primarily on a combination of nondisclosure
agreements and other contractual provisions, as well as the commitment to
confidentiality and loyalty of its employees, to protect its know-how and
processes. The failure of the Company to adequately protect its material know-
how and processes could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the steps taken by the Company will be adequate to protect its
proprietary rights or that a competitor will not independently develop know-how
or processes similar or superior to those of the Company.
The semiconductor industry is characterized by frequent litigation regarding
patent and intellectual property rights. Litigation, which could result in
substantial cost to and diversion of resources from the Company, may be
necessary to enforce intellectual property rights of the Company or to defend
the Company against infringement claims.
Intense Competition. The semiconductor industry is intensely competitive and is
characterized by price erosion, rapid technological change and design and other
technological obsolescence. The Company competes with domestic and
international semiconductor companies, many of which have substantially greater
financial and other resources than the Company with which to pursue engineering,
manufacturing, marketing and distribution of their products. The Company
expects continued competition from existing competitors as well as competition
from new entrants in the semiconductor market. The ability of the Company to
compete successfully in the rapidly evolving area of integrated circuit
technology depends on several factors, including success in designing and
manufacturing new products that implement new technologies, adequate sources of
raw materials, protection of Company processes and know-how, maintaining high
product quality and reliability, competitive pricing, efficient production,
customer demand, success of competitors' products and general economic
conditions. Increased competition could result in price reductions, reduced
margins and loss of market share, any of which could materially adversely affect
the Company's business, financial condition and results of operations.
Production Yield Fluctuations. The manufacture of semiconductor products is a
highly complex and precise process. Defects in masks, impurities in the
materials used, contamination of the manufacturing environment, equipment
failure and other difficulties in the fabrication process can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer to
be nonfunctional. Wafer yields can decline without warning, resulting in
substantially higher product costs and inventory shortages. Yield problems may
take substantial time to analyze and correct. While the Company has not
experienced material fluctuations in production yields in the recent past, there
can be no assurance that the Company will not experience production yield
problems in the future, or that any problem of that type will not materially
adversely affect the Company's business, financial condition and results of
operations.
Rapid Technological Change. The business in which the Company is engaged is
characterized by rapid technological change and new process technologies and
enhancements. The Company's competitiveness and future success will depend in
large part upon the technological quality of its products and processes relative
to those of its competitors and its ability both to develop new and enhanced
process technologies and to introduce them at competitive prices and
9
<PAGE>
on a timely and cost-effective basis. The success of the Company in developing,
introducing, selling and supporting new and enhanced technologies depends upon a
variety of factors including timely and efficient completion of process design
and development, timely and efficient implementation of manufacturing processes,
software development, and effective sales, marketing and customer service. The
failure to successfully select, develop, manufacture and market new programs and
products, or to enhance its existing technologies, could materially adversely
affect the Company's business, financial condition and results of operations.
Volatility of Share Price. The trading prices of the Company's Common Stock may
be subject to wide fluctuations in response to quarterly variations in operating
results, announcements of technological innovations or new programs and products
by the Company or its competitors, price movements in other semiconductor or
high technology stocks, indicators affecting the market for semiconductors or
other factors. Those factors, as well as general economic, political and market
conditions, may adversely affect the market price of the Common Stock.
Economic Down Turn In Markets; Overcapacity. The Company markets its products
to industries including the telecommunications, consumer, aerospace and
military, computers and peripherals and other industries. A downturn in any of
the Company's markets, especially the consumer computer industry, could
materially adversely affect the Company's business, financial condition and
results of operations. In addition, current efforts being undertaken by
companies in the semiconductor manufacturing industry to increase worldwide
semiconductor manufacturing capacity could lead to general manufacturing
overcapacity and to underutilization of the Company's manufacturing capacity.
The Company's ability to achieve future revenue growth depends in significant
part upon its ability to increase market and account penetration and to maintain
current utilization levels of its manufacturing capacity. There can be no
assurance that the Company will be able to maintain or expand its market share.
Customer Concentration. Historically, the Company has had significant
customers, which individually accounted for more than 10% of consolidated
revenues in certain quarters. The composition of the Company's largest
customers has varied from year to year. The Company primarily conducts its sales
on a purchase order basis, rather than pursuant to long-term supply contracts.
The loss of any significant customer, any reduction in orders by any of the
Company's significant customers, or the cancellation of a significant customer
order, including reductions or cancellations due to customer departures from
recent buying patterns, financial difficulties or acquisition by a third party
of one or more significant customers, or market, economic or competitive
conditions in the semiconductor industry or in industries that use the Company's
customers' products, could materially adversely affect the Company's business,
financial condition and results of operations.
International Sales and Trade. Sales to foreign customers accounted for
approximately 53% of net revenues in the fiscal year ended January 31, 1999.
International sales may increase in future years. International sales are
subject to certain risks, including unexpected changes in regulatory
requirements, fluctuations in exchange rates, tariffs and other barriers,
political and economic instability, difficulties in accounts receivable
collection, difficulties in managing distributors and representatives,
difficulties in staffing and managing foreign subsidiary operations and
potentially adverse tax consequences. There can be no assurance that any of
these factors will not have a material adverse effect on the Company's business,
financial conditions and results of operations. In addition, even though the
majority of the Company's foreign sales are denominated in U.S. dollars,
currency exchange fluctuations in countries where the Company does
10
<PAGE>
business could materially adversely affect the Company by resulting in pricing
that is not competitive with prices denominated in local currencies.
Environmental Regulations. The Company is subject to a variety of United States
federal, state and local governmental laws, rules and regulations related to the
use, storage, handling, discharge or disposal of certain toxic, volatile or
otherwise hazardous chemicals used in its manufacturing process. Any of those
regulations could require the Company to acquire equipment or to incur
substantial other expenses to comply with environmental regulations. If
substantial additional expenses were incurred by the Company, product costs
could significantly increase, thus materially adversely affecting the Company's
business, financial condition and results of operations. The Company believes
its use, storage, handling, discharge or disposal of such materials complies in
all material respects with applicable governmental regulations and that it has
obtained all material permits necessary to conduct its business. Any failure by
the Company to comply with present or future environmental laws, rules and
regulations could result in fines being imposed on the Company, suspension of
production or cessation of operations, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Dependence on Key Employees. The Company's future success depends in
significant part upon the continued service of its technical, marketing and
managerial personnel. The loss of the services of any of the Company's
technical, marketing and managerial personnel could adversely affect the
Company's business, financial condition and results of operations. The
Company's future success also heavily depends on its continuing ability to
attract and retain highly qualified technical, marketing and managerial
personnel. Competition for qualified personnel is intense, particularly for
personnel with expertise in the Company's areas of business. There can be no
assurance that the Company will be able to retain its key managerial, marketing
and technical employees or that it will be successful in attracting,
assimilating or retaining other highly qualified technical, marketing and
managerial personnel in the future.
Product Liability. Product liability claims may be asserted with respect to the
Company's technology or products. Although the Company currently has product
liability insurance, there can be no assurance that the Company has obtained
sufficient insurance coverage, or that the Company will have sufficient
resources, to satisfy any product liability claims.
Impact of Acquisition of Acapella Limited. The Company acquired Acapella on
April 27, 1998 in exchange for approximately 176,000 shares. The acquisition
was treated as a pooling-of-interests under generally accepted accounting
principles. While the Company did an extensive due diligence investigation, the
long-term impact of the acquisition on the Company, including the customers of
Acapella and Semtech and their respective businesses, cannot be forecasted. In
addition, there can be no assurance that Semtech can successfully manage,
motivate and retain Acapella's employees over an extended period, who
collectively constitute an important part of Acapella's value.
Year 2000 Compliance. Due to the known risk of computational errors with
respect to computer systems utilizing dates after December 31, 1999, the Company
is currently in the process of assessing its information technology
infrastructure to prepare for any potential Year 2000 impact with its clients
and suppliers. The Company does not expect the total costs needed for Year 2000
compliance to have a material impact on its results of operations or its
financial position. Although the Company is committed to making its information
technology infrastructure year 2000 compliant by December 1999, it is uncertain
as to the extent its clients and suppliers may be affected by year 2000 issues
that may cause disruptions in their businesses. In the event that any
significant clients or suppliers do not successfully and timely achieve Year
2000 compliance, the Company's business or operations could be adversely
affected.
11
<PAGE>
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 2003 at an annual rental of approximately $225,000, plus
applicable taxes and insurance. The current lease contains an early termination
provision that becomes available in 2001 and requires 12 months advance notice.
This facility supports 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. Test and probe functions for
certain commercial ICs are also performed at this location.
The Company's 20,000-square-foot manufacturing facility in Glenrothes, Fife,
Scotland was purchased in fiscal year 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 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 1999 at an average annual rental of approximately
$248,000. Semtech Santa Clara's other facility, which houses 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 $135,000.
The Semtech Corpus Christi subsidiary leases approximately 44,000 square feet of
floor space in Corpus Christi, Texas. The current lease extends through
December 2001 at an average annual rental of approximately $120,000, plus
applicable taxes and insurance. This facility contains a wafer fabrication
line, production testing, and certain engineering functions.
The Company owns an approximately 22,000 square foot building on 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 leases a 24,972 square foot building in San Diego, California, that
extends through March 2004 at an annual rental of approximately $343,000, plus
applicable taxes and insurance. The location serves as the headquarters for
Edge Semiconductor, the Company's ATE Division. In addition to office and
meeting room space, the location has evaluation laboratories and a dedicated
area for the testing of finished products.
The Company leases a 4,450 square foot portion of a building in Southampton,
England, that extends through September 2007 at an annual rent of approximately
$81,000, plus applicable taxes and insurance. The location serves as the
headquarters for Acapella Limited, the Company's wholly owned subsidiary that
designs advance communication products.
The Company maintains a sales office in Connecticut on short-term lease.
Aggregate annual rentals under this lease during the most recently completed
fiscal year equaled approximately $10,000. The Company also maintains sales
offices in France and Germany and a branch office in Taiwan under short-term
leases with an aggregate annual rent expense during fiscal year 1999 of
approximately $67,000. The Company leases a portion of a building in Glasgow,
Scotland for a design center at an annual expense of approximately $67,000. For
the Raleigh, North Carolina based design center, the company leases a portion of
a building at an annual expense of approximately $40,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is the defendant in a lawsuit involving a matter which is routine to
the nature of its business. The Company believes that the ultimate
12
<PAGE>
resolution of the 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.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information set forth at Page 35 of this report under the heading "Selected
Quarterly Data" is incorporated herein by reference.
As of April 16, 1999, there were approximately 662 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 16, 1999 was $32.9375 per
share.
The Company discontinued its cash dividend in 1980 and does not anticipate
paying a cash dividend in the current year. The Company declared a two for one
stock split in fiscal year 1998 in the form of a 100 percent stock dividend to
shareholders. The Company does not anticipate another stock dividend being
declared in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth summary financial information. Amounts are in
thousands, except per share amounts. The acquisition of Acapella Limited in
April 1998 was accounted for as a pooling of interests. Acapella's financial
position and results of operations prior to fiscal year 1999 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 January 31, 1999 as well as the consolidated statements of
income and cash flows for the twelve months ended January 31, 1999 include the
results of Acapella as though it had always been a part of Semtech. Merger
related costs of $255,000 associated with the Company's acquisition of Acapella
are reflected in Semtech's net income. The information set forth below should
be read in conjunction with the Company's complete financial statements,
appearing elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended January
-------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales $114,519 $102,808 $71,595 $61,684 $34,605
Gross Profit 54,278 48,929 30,683 25,809 11,272
Operating Income 18,576 21,809 12,663 11,289 2,099
Income Before Taxes 19,362 22,159 12,714 11,343 2,028
Net Income $ 12,895 $ 14,761 $ 8,487 $ 7,531 $ 1,502
- --------------------------------------------------------------------------------------------------
Net Income per Share:
Basic $ 0.88 $ 1.06 $0.62 $0.64 $0.14
Diluted $ 0.81 $ 0.98 $0.60 $0.61 $0.13
- --------------------------------------------------------------------------------------------------
Weighted Average Number of Shares:
Basic 14,672 13,978 13,589 11,826 10,581
Diluted 15,892 15,118 14,050 12,388 11,858
- --------------------------------------------------------------------------------------------------
Total Assets $ 92,556 $ 67,135 $45,688 $35,225 $21,377
Long-Term Debt, Less Current Maturities
$ - $ - $ 1,256 $ 1,157 $ 799
Working Capital $ 65,844 $ 41,312 $25,585 $19,378 $11,475
Total Shareholders' Equity $ 79,771 $ 54,661 $33,986 $24,937 $13,715
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INDUSTRY TRENDS AND OUTLOOK
Semtech Corporation (Semtech or the Company) achieved record net sales during
fiscal year 1999 due mostly to market share gains. Market share gains were due
to acceptance of new products, strategic marketing efforts and additional
14
<PAGE>
design wins with key customers. The Company did experience a significant decline
in demand during the second quarter because of weakness in the automated test
equipment and personal computer markets. The downturn was significant, but
relatively brief in that the Company's net sales returned to higher levels in
the third and fourth quarters.
Semtech reviewed long-term capacity requirements during the second quarter
weakness in an effort to align internal capacity with expected demand. In
response to the analysis, the Company scaled back production capabilities at the
Corpus Christi, Texas facility and took $2.5 million in pre-tax charges. The
Corpus Christi facility is now solely dedicated to producing wafers for the
transient voltage suppressor (TVS) product line. The reduction in capacity
allows for better utilization of the Company's other production facilities and
creates the opportunity to use cost-effective capacity available at outside
foundries.
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 increase operating efficiencies.
As a result of industry-wide trends to lower operating voltages, sub-micron IC
process technology and higher bandwidths, there has been growth in the 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 semiconductor equipment market, which includes automated test equipment
(ATE), is very cyclical. During the second quarter of fiscal year 1999 the ATE
market experienced a dramatic downturn in demand. While trends within this
market effect the demand for ATE products, the Company believes that it
continues to gain market share from other competitors.
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 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 1999 totaled $114.5 million, an increase of 11% over
fiscal year 1998 and a 60% increase over fiscal year 1997. The growth in net
sales was primarily due to increased shipments of integrated circuits (ICs) and
discrete products. Power management, protection and ATE specific products were
the major reason for the increase in sales for both 1999 and 1998. The majority
of power management product line sales are for applications in the computer
market. Protection products are used in both portable computers and
15
<PAGE>
communication applications. ATE products are sold to end-producers of automated
test systems who then sell these finished systems to electronic component
manufacturers.
Semtech experienced added acceptance of its new products and increased unit
volume demand during fiscal year 1999. Unit growth was driven by increased end-
system volumes, further market penetration and additional end-product
applications. The Company's older products that support the military, aerospace
and certain industrial markets remained relatively flat in terms of absolute
dollar sales, but declined as a percentage of total net sales. The Company
continues to expect growth in strategic commercial markets and declines in
older, more mature market segments. In addition, the Company continues to de-
emphasize foundry services and certain older products.
Geographically, net sales for fiscal year 1999 were approximately 47% domestic,
41% to Asian-Pacific and 12% to European customers. Net sales for fiscal year
1998 were approximately 55% domestic, 32% to Asian-Pacific and 13% to European
customers. Two-thirds of the Company's sales to Asian-based customers are
estimated to be eventually exported in finished product back to the North
American and European markets. Sales to Korean customers, which are included in
Asian-Pacific, represented the largest percentage increase for fiscal 1999.
New Orders
New orders received during fiscal year 1999 were just above shipment levels for
the same period, resulting in a book-to-bill ratio in excess of 1:1. Order
activity was strong in the first, third and fourth quarters of fiscal year 1999.
New orders received during the second quarter were well below the other quarters
as a result of weakness in the computer and ATE markets. The Company had a
book-to-bill ratio in excess of 1:1 for fiscal year 1998.
Orders for IC products where weak during the second quarter, but improved in the
second half of fiscal year 1999. New orders for discrete products were up for
the entire year due largely to added demand for protection 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 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.
Gross Margin
The gross margin exclusive of one-time charges for fiscal year 1999 was 48% of
net sales. For fiscal years 1998 and 1997, gross margins were 48% and 43%,
respectively. Included in cost of goods sold for fiscal 1999 were one-time
charges of $1,172,000 associated with restructuring the Company's Corpus
Christi, Texas facility. Net of one-time charges, gross margin for fiscal year
1999 was 47%.
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 prior to one-time charges for fiscal year
1999 and 1998 improved due to a favorable shift towards higher-margin new
products and increased unit volumes. The increased profit margin associated
with new products and high unit volumes was only partially offset by normal
declines in selling prices.
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
introduced, particularly those which are proprietary or limited source in
nature. The Company expects that prices for existing products will
16
<PAGE>
continue to decrease over their respective life cycles. The Company does believe
it can increase its consolidated gross margin to above 50% of net sales sometime
within 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
Total operating expenses for fiscal year 1999 were $35,702,000 or 31% of net
sales. For fiscal 1998 and 1997, operating expenses were $27,120,000 or 26% of
net sales and $18,020,000 or 25% of net sales, respectively. Operating expenses
consist of selling, general and administrative (SG&A), product development,
engineering expenditures, costs associated with acquisitions, other operational
related charges and a one-time restructuring charge for fiscal year 1999.
Increases in total operating expenses for fiscal 1999 were due primarily to
additional research and development, strategic marketing activities, and costs
associated with restructuring and reorganization.
Spending on SG&A grew moderately in fiscal 1999, and was 18% of net sales.
Increased headcount in key sales and strategic marketing positions accounted for
a large portion of the increase. SG&A was 16% of net sales in fiscal 1998 and
18% in fiscal 1997. SG&A declined in fiscal 1998 compared to fiscal 1997 due
largely to higher net sales. SG&A as a percentage of net sales is expected to
remain relatively flat or decline slightly over the coming fiscal year as the
Company tries to grow net sales and achieve added efficiencies in the SG&A
functions.
For the fiscal years 1999, 1998, and 1997, the Company spent approximately
$14,026,000, $9,195,000 and $5,324,000, respectively, on product development and
engineering. The Company expects to continue to dedicate more resources towards
research and development (R&D). Fiscal 1999 R&D expense included the initial
costs associated with the establishment of the Company's Raleigh, North Carolina
design center. The focus of the Company's investment in R&D is to increase the
rate of product introductions. New products are generally targeted at
broadening the organization's customer base, product lines and end-product
applications. The Company expects the amount spent on R&D activities in fiscal
2000 to increase at a lower rate then it did during fiscal year 1999.
In fiscal years 1999 and 1998, the Company incurred costs of $255,000 and
$1,000,000 for expenses associated with the mergers with Acapella Limited and
Edge Semiconductor, respectively. Acapella was acquired to provide expertise in
designing advance communication circuits. Edge provided an established product
line and design staff that serves the ATE market segment. A large portion of
the costs associated with these transactions were for legal, accounting and
investment banking fees.
Included in fiscal year 1999 operating costs and expenses were one-time charges
totaling $1,330,000 taken during the second quarter. The charges were for the
consolidation of certain manufacturing capacity, the write-down of impaired
assets and a $1,172,000 write-off of discontinued inventory included in cost of
sales. The restructuring included the elimination of 60 manufacturing positions
and the transition of all commercial integrated circuit production from the
Company's Corpus Christi, Texas facility 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 TVS product line. As a result of these steps, the Company's
long-term operating model is expected to benefit 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.
Interest and Other Expense
Interest expense for fiscal 1999 was $22,000, which compared to interest expense
of $36,000 in 1998 and $131,000 in 1997. Semtech had other income of
17
<PAGE>
$808,000 for fiscal year 1999 in comparison to $386,000 and $182,000 in 1998 and
1997. A majority of other income is interest income.
Provision for Taxes
Expense for income taxes was $6,467,000 in fiscal 1999 versus $7,398,000 in
fiscal 1998 and $4,227,000 in fiscal 1997. The effective tax rate for fiscal
years 1999, 1998 and 1997 remained at 33%.
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 incorporate the incremental shares issuable upon the assumed exercise of
stock options. For fiscal 1999, earnings per diluted share was adversely
impacted by a significant increase in Company's stock price and the granting of
additional stock options. The Company will partially reduce the dilutive effect
of future stock option grants by occasionally repurchasing shares on the open
market. For fiscal 1998, the price of the Company's stock and stock option
grants had less significant effects on earning per share.
LIQUIDITY AND CAPITAL RESOURCES
Semtech's working capital ratios, which measure the ability to meet short-term
obligations are presented.
<TABLE>
<CAPTION>
Working Capital (in thousands $): 1999 1998 1997
- --------------------------------- ---- ---- ----
<S> <C> <C> <C>
Beginning of year $41,312 $25,585 $19,378
End of year $65,844 $41,312 $25,585
Increase in working capital $24,532 $15,727 $ 6,207
Working capital ratios 6.3 4.3 3.5
</TABLE>
For fiscal year 1999, the Company generated $22.2 million of cash and cash
equivalents. Operating cash flow was a positive $21.2 million largely as a
result of profitability, the non-cash portion of restructuring and the tax
benefit associated with stock option exercises. Receivables and inventory,
which are included in operating activities, grew by $1.8 million and $1 million
during the year, respectively. Investments in capital equipment were $5.6
million during fiscal year 1999. Cash generated by additional paid in capital
associated with stock option exercises was $6.1 million.
In August of 1998 the Company agreed to a new credit arrangement with a
financial institution for borrowings up to $20,000,000. The line of credit
consists 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. As of the end of fiscal year 1999, the Company had
$9,642,856 available under the reducing revolver portion. Through its foreign
subsidiary, the Company also maintains an overdraft credit line in the amount of
300,000 pounds sterling. As of January 31, 1999, the Company had no borrowings
outstanding under either of these credit facilities.
Efforts by the Company over the past several years to increase IC and discrete
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 to invest 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
18
<PAGE>
payback in the short-term. The Company plans to finance these expenditures with
cash generated by operations and cash on-hand.
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 and cash reserves. The Company believes that
sales generating cash flows, together with cash reserves and existing credit
facilities are sufficient to support future capital expenditures.
Inventory turnover improved to 3.6 times per year for fiscal 1999 from 3.4 for
fiscal 1998. This was primarily due to the Company's ability to produce and
sell products that had increased demand in the marketplace.
Accounts receivable days sales outstanding, calculated by annualizing fourth
quarter results, was forty-six days for fiscal 1999 compared to thirty-seven
days for fiscal 1998. The timing of shipments during the fourth quarter and a
general increase in the time in which large OEMs pay invoices impacted days
sales outstanding during fiscal 1999.
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.
Recently Issued Accounting Standards
On February 2, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." For year-end
financial statements, SFAS No. 130 requires that comprehensive income, which is
the total of net income and all other non-owner changes in equity, be displayed
in a financial statement that is displayed with the same prominence as other
consolidated financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
Company adopted SFAS No. 131 in fiscal year 1999 (see Note 15).
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 reporting 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 is in the final stages of 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'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
19
<PAGE>
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.
Semtech estimates the costs to reprogram, replace and test its information and
non-information technology systems for Year 2000 compliance will be between
$100,000 and $150,000 over the life of the project. However, such expenditures
could 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 by December 1999,
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 is developing contingency plans to handle a Year 2000 system failure of
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, penetrate new
markets and additional end-product applications, and the ability to use equity
incentives to recruit and retain technical talent. As a result of these factors
and other items of risk outlined in this Form 10-K, the Company's future
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 a 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.
20
<PAGE>
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 January
31, 1999 the Company had no long-term debt outstanding.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED JANUARY 31, 1999
(In thousands-except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $114,519 $102,808 $71,595
Cost of Sales 60,241 53,879 40,912
-------- -------- -------
Gross Profit 54,278 48,929 30,683
-------- -------- -------
Operating costs and expenses:
Selling, general and administrative 20,091 16,925 12,696
Product development and engineering 14,026 9,195 5,324
Restructuring charge 1,330 - -
Acquisition costs 255 1,000 -
-------- -------- -------
Total operating costs and expenses 35,702 27,120 18,020
-------- -------- -------
Operating Income 18,576 21,809 12,663
Interest expense (22) (36) (131)
Other income, net 808 386 182
-------- -------- -------
Income before taxes 19,362 22,159 12,714
Provision for taxes 6,467 7,398 4,227
-------- -------- -------
NET INCOME $ 12,895 $ 14,761 $ 8,487
======== ======== =======
Earnings per share:
Net income per share-
Basic $ 0.88 $ 1.06 $ 0.62
Diluted $ 0.81 $ 0.98 $ 0.60
Weighted average number of shares -
Basic 14,672 13,978 13,589
Diluted 15,892 15,118 14,050
</TABLE>
See accompanying notes.
22
<PAGE>
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND FEBRUARY 1, 1998
(Dollars in thousands-except per share amount)
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $41,035 $18,808
Temporary investments 1,648 1,852
Receivables, less allowances of $878 in 1999 and $797 in 1998 15,414 13,722
Income taxes refundable 258 -
Inventories 16,803 17,020
Other current assets 1,275 956
Deferred income taxes 2,139 1,395
------- -------
Total current assets 78,572 53,753
------- -------
Property, plant and equipment, net 13,417 12,805
Other assets 89 157
Deferred income taxes 478 420
------- -------
TOTAL ASSETS $92,556 $67,135
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,296 $ 5,241
Accrued liabilities 5,102 4,459
Income taxes payable - 1,020
Other current liabilities 2,330 1,721
------- -------
Total current liabilities 12,728 12,441
------- -------
Other long-term liabilities 57 33
------- -------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value, 40,000,000 authorized
Issued and outstanding 15,193,980 in 1999 and 14,194,230 in 1998 152 142
Additional paid-in capital 30,461 18,406
Retained earnings 49,411 36,332
Accumulated other comprehensive income (253) (219)
------- -------
Total shareholders' equity 79,771 54,661
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $92,556 $67,135
======= =======
</TABLE>
See accompanying notes.
23
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
THREE YEARS ENDED JANUARY 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
-----------------------------------
Additional
Number Paid-in Retained Accumulated Other Shareholders'
of Shares Amount Capital Earnings Comprehensive Income Equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 28, 1996 13,488,692 $135 $12,066 $13,084 $(348) $24,937
Comprehensive income:
Net income - - - 8,487 - 8,487
Translation adjustment - - - - 69 69
-------
Comprehensive income: - - - - - 8,556
Exercise of stock options 193,828 2 228 - - 230
Tax benefit from exercised
stock options - - 263 - - 263
- -------------------------------------------------------------------------------------------------------------------------------
Balance at January 26, 1997 13,682,520 $137 $12,557 $21,571 (279) $33,986
Comprehensive income:
Net income - - - 14,761 - 14,761
Translation adjustment - - - - 60 60
-------
Comprehensive income - - - - - 14,821
Exercise of stock options 511,710 5 1,926 - - 1,931
Tax benefit from exercised
stock options - - 3,923 - - 3,923
- -------------------------------------------------------------------------------------------------------------------------------
Balance at February 1, 1998 14,194,230 $142 $18,406 $36,332 (219) $54,661
Comprehensive income:
Net income - - - 12,895 - 12,895
Translation adjustment - - - - (34) (34)
-------
Comprehensive income - - - - - 12,861
Effect of pooling with Acapella Limited 175,774 2 59 184 - 245
Exercise of stock options 823,976 8 6,137 - - 6,145
Tax benefit from exercised
stock options - - 5,859 - - 5,859
- -------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1999 15,193,980 $152 $30,461 $49,411 $(253) $79,771
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JANUARY 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $12,895 $14,761 $ 8,487
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,723 2,775 1,929
Deferred income taxes (802) (876) (147)
(Gain) Loss on disposition of property, plant and equipment (1) 20 (2)
Provision for doubtful accounts 135 480 493
Non-cash portion of restructuring charge 2,366 - -
Changes in assets and liabilities:
Receivables (1,827) (4,732) (1,354)
Income taxes refundable (258) 68 4
Inventories (955) (2,566) (4,248)
Other assets (251) 9 (249)
Accounts payable 55 (344) 1,446
Accrued liabilities 643 1,813 (469)
Income taxes payable 4,839 4,279 521
Other liabilities 633 457 231
------- ------- -------
Net cash provided by operating activities 21,195 16,144 6,642
------- ------- -------
Cash flows from investing activities:
Temporary investments, net 204 (1,095) (346)
Proceeds from sale of property, plant and
equipment 62 31 75
Purchases of property, plant and equipment (5,590) (6,192) (4,355)
------- ------- -------
Net cash used in investing activities (5,324) (7,256) (4,626)
------- ------- -------
Cash flows from financing activities:
Net repayments under line of credit - (80) -
Additions to long-term debt - - 2,319
Repayment of long-term debt - (1,430) (2,370)
Exercise of stock options 6,145 1,931 230
Effect of pooling of interests with Acapella 245 - -
------- ------- -------
Net cash provided by financing activities 6,390 421 179
------- ------- -------
Effect of exchange rate changes on cash and cash equivalents (34) 60 69
Net increase in cash and cash equivalents 22,227 9,369 2,264
Cash and cash equivalents at beginning of year 18,808 9,439 7,175
------- ------- -------
Cash and cash equivalents at end of year $41,035 $18,808 $ 9,439
======= ======= =======
</TABLE>
See accompanying notes.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
- ---------------------------------------------
Business - Business - Semtech Corporation and its wholly owned subsidiaries
(Semtech Corpus Christi, Semtech Limited, Semtech Santa Clara, Edge
Semiconductor and Acapella Limited, together, the "Company") design, develop and
manufacture Standard Semiconductor Products, Rectifier and Assembly Products,
Other Products which are used in computer, communications, military, aerospace,
industrial, automotive and consumer applications. The Company's primary
facilities are in Newbury Park, Santa Clara and San Diego, California, Corpus
Christi, Texas, Reynosa, Mexico, Southampton, England and Glenrothes, Scotland.
Fiscal Year - The Company reports results on the basis of fifty-two and fifty-
three week periods. The fiscal years ended January 31, 1999 and January 26,
1997 each consisted of fifty-two weeks. The fiscal year ended February 1, 1998
consisted of fifty-three weeks.
Revenue Recognition - The Company generally recognizes product revenue upon
shipment. Product design and engineering revenue is recognized during the
period in which services are performed. The Company defers revenue recognition
on shipment of certain products to distributors where return privileges exist
until the products are sold through to end users.
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.
Reclassifications - Certain prior year balances have been reclassified to be
consistent with current year presentation.
Recently Issued Accounting Standards - On February 2, 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." For year-end financial statements, SFAS No. 130 requires
that comprehensive income, which is the total of 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. The Company displays the
components of other comprehensive income in the accompanying consolidated
statements of shareholders' equity and comprehensive income. The Company has not
provided for an income tax effect related to the translation adjustment, as no
tax deduction is expected to be received in future periods.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
Company adopted SFAS No. 131 in fiscal year 1999 (see Note 15).
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.
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; machinery
and equipment for two to six years; and furniture and office equipment for three
to six 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.
26
<PAGE>
Income Taxes - The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred income tax assets or liabilities are computed based on the temporary
differences between the financial statement and income tax bases of assets and
liabilities using the statutory marginal income tax rate in effect for the years
in which the differences are expected to reverse. Deferred income tax expenses
or credits are based on the changes in the deferred income tax assets or
liabilities from period to period.
As of January 31, 1999 and February 1, 1998, approximately $2,970,000 and
$2,817,000, 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 - The consolidated 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 the period. Diluted earnings per common share incorporate the
incremental shares issuable upon the assumed exercise of stock options. The
weighted average number of shares used to compute basic earnings per share in
fiscal years 1999, 1998 and 1997 were 14,672,000, 13,978,000, and 13,589,000,
respectively. For computation of diluted earnings per share, the weighted
average number of shares used in fiscal years 1999, 1998 and 1997 were
15,892,000, 15,118,000, and 14,050,000, respectively.
Options to purchase approximately 565,000, 188,000, and 168,000 shares were not
included in the computation of 1999, 1998 and 1997 diluted net income per share
because such options were considered anti-dilutive.
Stock Distribution - On January 13, 1998, the Company effected a two-for-one
stock split in the form of a 100% stock dividend which was payable to
shareholders of record as of December 23, 1997. All shares, per share data,
common stock, and stock option amounts herein have been restated to reflect the
effect of this split.
Translation - The assets and liabilities of the Company's foreign subsidiaries
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 accumulated other
comprehensive income 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.
2. Business Combinations
- ------------------------
On April 27, 1998, the Company signed a merger agreement with Acapella Limited
(Acapella), a company located in the United Kingdom. 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 fiscal year 1999 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
27
<PAGE>
January 31, 1999 as well as the consolidated statements of income and cash flows
for the twelve months ended January 31, 1999 include the results of Acapella.
Merger related costs of $255,000 associated with the Company's acquisition of
Acapella are reflected in the Company's net income.
In fiscal year 1998, the Company acquired Edge Semiconductor (Edge). The
acquisition was accounted for as a pooling of interests and Edge shareholders
received 1,499,954 shares of common stock. Cost of $1,000,000 was recorded to
cover the cost associated with the acquisition of Edge. At the time of the
transaction, the financial statements of the Company were restated to include
the results of operations, financial position and cash flows of Edge, as though
it had always been a part of Semtech. The Company acquired Edge to integrate and
complement its existing businesses and technology.
3. Impairment of Assets and Restructuring Charge
- -------------------------------------------------
Operating income for fiscal 1999 included total charges of $2,502,000, comprised
of $136,000 related to a restructuring program, $1,194,000 for the write-down of
long-lived assets, and a $1,172,000 write-down of inventory included in "Cost of
Sales."
The key components of the restructuring program were the transfer of
manufacturing operations into more advanced facilities and significant
reductions of capacity through the elimination of approximately 60 positions
during fiscal 1999.
The asset impairment loss of $1,194,000 consists of a write-down of the
Company's Corpus Christi wafer fab, and results from the evaluation of the
Company's ability to recover asset costs after an extensive review of its
business model. The asset impairment loss was determined by comparing the
estimated future cash flows associated with each long-lived asset or group
thereof, as appropriate, to the carrying amount of such asset or group of
assets. The $1,172,000 inventory write-down consists of inventory that was
written down to its estimated net realizable value.
The charges for the write-down of impaired assets and restructuring related to
the Company's power management product line, which is included in the Standard
Semiconductor Products reporting segment. As of the end of fiscal year 1999, no
amounts included in the charges remain to be spent.
4. Temporary Investments
- ---------------------------
Temporary investments consist of municipal and government obligations with
original maturities in excess of three months. At January 31, 1999, February 1,
1998, and January 26, 1997, 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 1999 and 1998, the Company had no sales of available
for sale securities and likewise no realized gain or loss. As of January 31,
1999, the Company holds municipal and government securities that mature at
various dates through the year 2000.
5. 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 Materials Work in Process Finished Goods Total
(thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
</TABLE>
28
<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
====== ======= ======= =======
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>
6. Property, Plant and Equipment
- --------------------------------
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 165 $ 164
Building 1,119 1,083
Leasehold improvements 1,423 2,301
Machinery and equipment 22,683 19,707
Furniture and office equipment 3,537 3,161
Construction in progress 3 341
-------- --------
28,930 26,757
Less accumulated depreciation and amortization
(15,513) (13,952)
--------- --------
Total $ 13,417 $ 12,805
======== ========
</TABLE>
7. Lines 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 consists of two parts, 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
January 31, 1999, the Company had $9,642,856 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 January
31, 1999, the Company had no borrowings outstanding under this credit facility.
Through its foreign subsidiary, the Company also maintains an overdraft credit
line in the amount of 300,000 pounds sterling.
8. Accrued Liabilities
- ----------------------
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Payroll and related $3,934 $2,902
Commissions 269 275
Non-income related taxes 110 784
Other 789 498
------ ------
Total $5,102 $4,459
====== ======
</TABLE>
9. Deferred Compensation
- ------------------------
In September 1989, the Company entered into an employment contract with a
shareholder that guaranteed continuing salary payments 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
29
<PAGE>
value of this commitment at January 31, 1999 was $726,000, which is reflected in
the accrued liabilities section of the accompanying consolidated financial
statements. Subsequent to the end of fiscal year 1999, the Company paid this
liability to the individual's estate.
10. Income Taxes
- ----------------
The provision for taxes consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $6,331 $6,963 $3,629
State 870 918 617
Foreign 68 393 128
------ ------ ------
7,269 8,274 4,374
Deferred:
Federal (672) (800) (107)
State (130) (76) (42)
Foreign - - 2
------ ------ ------
Total $6,467 $7,398 $4,227
====== ====== ======
</TABLE>
The components of the net deferred income tax assets at January 31, 1999 and
February 1, 1998 are as follows:
Net short-term deferred income taxes:
<TABLE>
<CAPTION>
(thousands) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Payroll and related $ 544 $ 330
Environmental - 15
Reserve for credit memos 4 4
Deferred revenue 1,211 653
Bad debt reserve 245 237
State income taxes 309 312
Other deferred assets - 35
------ ------
Total short-term deferred assets 2,313 1,586
Valuation reserve (174) (191)
------ ------
Net short-term deferred income taxes $2,139 $1,395
====== ======
</TABLE>
Net long-term deferred income taxes:
<TABLE>
<CAPTION>
(thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory valuation $1,342 $1,236
Accrued compensation - 114
Research and development charges 210 236
------ ------
Total long-term deferred assets 1,552 1,586
------ ------
Deferred tax liabilities:
Depreciation and amortization (792) (901)
Foreign deferred taxes (37) (37)
------ ------
Total long-term deferred liabilities (829) (938)
------ ------
Subtotal 723 648
Valuation reserve (245) (228)
------ ------
Net long-term deferred income taxes $ 478 $ 420
====== ======
</TABLE>
30
<PAGE>
The provision for taxes reconciles to the amount computed by applying the
statutory federal rate to income before taxes as follows:
<TABLE>
<CAPTION>
(thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax $6,583 $7,534 $4,323
State income taxes, net of federal benefit 599 640 302
Foreign sales corporation at rates less than statutory rates (276) (346) (246)
Foreign taxes at rates less than domestic rates (7) (5) (4)
Utilization of net operating loss and tax credit carryforwards (644) (546) -
Changes in valuation reserve - (263) (377)
Permanent differences (160) 83 (24)
Other 372 301 253
------ ------ ------
Provision for taxes $6,467 $7,398 $4,227
====== ====== ======
</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.
11. Commitments and Contingencies
- ---------------------------------
The Company leases facilities and certain equipment under operating lease
arrangements expiring in various years through fiscal year 2008. The aggregate
minimum annual lease payments under leases in effect on January 31, 1999 were as
follows:
<TABLE>
<CAPTION>
(thousands) Operating
Fiscal Year Ending Leases
- -------------------------------------------------------------------------
<S> <C>
2000 $1,239
2001 948
2002 748
2003 532
2004 413
Thereafter 444
------
Total minimum lease commitments $4,324
======
</TABLE>
Annual rent expense was $1,296,000, $1,000,000, and $745,000, for fiscal years
1999, 1998, and 1997, respectively.
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 clean-up have been provided by the Company at this time.
From time to time, the Company is a defendant in 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.
31
<PAGE>
12. Shareholders' Equity
- ------------------------
In February 1986, the Company established the 1986 Stock Option Plan which
provides for granting options to purchase up to 500,000 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. 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
700,000 shares of the Company's common stock. The 1987 plan provides for the
granting of incentive stock options, as well as 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 and 1996, the Company adopted the 1994 Long-Term Stock Incentive Plan
and the 1996 Non-Employee Directors Stock Option Plan. Entering fiscal year
1999, the 1994 Long-Term Stock Incentive Plan provided for the issuance of
4,600,000 shares and the 1996 Non-Employee Directors Stock Option Plan provided
for the issuance of 500,000 shares. In fiscal year 1999, these plans were
amended and consolidated into a single plan, renamed the Long-Term Stock
Incentive Plan. The Plan provides for the issuance of an additional 2,000,000
shares over the remaining life of the plan. The plan also provides for the
further issuance of up to 2,000,000 additional shares, if authorized by the
Board, which are reacquired in the open market or in a private transaction.
The Long-Term Stock Incentive Plan provides for the granting of incentive stock
options, as well as nonstatutory options. The terms and conditions of options
granted under the plan are substantially similar to those granted under the
Company's 1987 and 1986 Plans.
Stock option information with respect to the Company's stock option plans is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Under Exercise Under Exercise Under Exercise
Option Price Option Price Option Price
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding, beginning 3,969,064 $11.90 2,363,576 $ 4.90 1,586,740 $ 6.46
of year
Granted 1,897,193 $16.81 2,366,200 $16.33 1,892,600 $ 6.07
Canceled (253,499) $13.83 (249,002) $ 6.39 (921,936) $10.77
Exercised (823,976) $ 7.46 (511,710) $ 3.77 (193,828) $ 1.19
-------- ------ -------- ------ -------- ------
Options Outstanding, end of 4,788,782 $14.51 3,969,064 $11.90 2,363,576 $ 4.90
year ========= ====== ========= ====== ========= ======
Options exercisable at the end 1,171,038 $11.29 589,740 $ 4.54 507,958 $ 2.63
of year ========= ====== ========= ====== ========= ======
Weighted average fair value of $10.50 $11.11 $ 5.39
options granted during year ====== ====== ======
</TABLE>
Information about stock options outstanding at January 31, 1999 is summarized as
follows:
<TABLE>
<CAPTION>
Weighted
Number Average Number
Outstanding Remaining Exercisable
Exercise Prices 1/31/99 Contract Life at 1/31/99
- -------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C> <C>
$ 0.97 - $ 1.31 69,066 4.5 Years 69,066
$ 3.88 - $ 5.44 683,296 7.2 Years 262,726
$ 6.75 - $ 9.75 785,864 7.7 Years 272,869
$11.53 - $15.75 1,484,051 9.3 Years 298,040
$17.97 - $26.63 1,741,505 8.9 Years 268,337
$26.64 - $35.88 25,000 9.9 Years -
- --------------------------------------------------------------------------------------------------
$ 0.97 - $35.88 4,788,782 8.5 Years 1,171,038
=============== ========= ========== =========
</TABLE>
In fiscal year 1997, 667,600 options were repriced from a weighted average
exercise price of $11.42 to $5.44. The repriced options were cancelled and
reissued at the lower price and the vesting period started over from the date of
regrant.
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 1999, 1998, and 1997,
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 share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Additional compensation expense $15,080 $8,095 $3,200
Proforma net income $ 3,063 $9,609 $6,407
Proforma basic net income per share $ 0.21 $ 0.69 $ 0.47
Proforma diluted net income per share $ 0.19 $ 0.64 $ 0.46
</TABLE>
The pro forma effect on net income for fiscal years 1999, 1998, and 1997 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 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. The following assumptions were applied: (i) expected dividend yields
of 0% for all periods, (ii) expected volatility rates of 0.778 for 1999, 0.828
for 1998, and 0.894 for 1997, (iii) expected lives of 4 to 6 years for all
years, and (iv) risk-free interest rates ranging from 4.63% to 7.01% for all
years.
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.
13. Other Income and Expense
- ----------------------------
Other income (expense) consisted of the following:
<TABLE>
<CAPTION>
(thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 992 $ 469 $ 205
Gain (loss) on disposition of assets 1 (20) 2
Foreign currency transaction gains (losses) (24) (63) (25)
Miscellaneous expense (161) - -
----- ----- -----
Total $ 808 $ 386 $ 182
===== ===== =====
</TABLE>
33
<PAGE>
14. Statements of Cash Flows
- ----------------------------
The Company had the following non-cash activities for each year:
<TABLE>
<CAPTION>
(thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax benefits related to $5,859 $3,923 $ 263
stock options ====== ====== =====
</TABLE>
Income taxes paid in fiscal years 1999, 1998, and 1997, were $2,812,000,
$3,534,000, and $3,491,000, respectively. For those same periods, the Company
paid interest in the amounts of $22,000, $36,000, and $131,000, respectively.
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
15. Business Segments and Concentrations of Risk
- ------------------------------------------------
As of January 31, 1999, 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, ATE, 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 those described above in
the summary of significant accounting policies. 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 is there any separately identifiable statements of income data (below
operating income).
Prior to fiscal year 1999, the Company did not track operating income by
reportable segments. Therefore, operating income by segment prior to fiscal
1999 is not available. 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>
Net Sales (in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Standard Semiconductor Products $ 89,238 $ 76,691 $45,738
Rectifier and Assembly Products 13,769 14,865 13,647
Other Products 11,512 11,252 12,210
-------- -------- -------
Total Net Sales $114,519 $102,808 $71,595
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Operating Income (in thousands) 1999
- -------------------------------------------------------------------------
<S> <C>
Standard Semiconductor Products $17,062
Rectifier and Assembly Products 2,196
Other Products 2,075
One-time charges (2,757)
-------
Total Operating Income $18,576
=======
</TABLE>
The one-time charges include charges of $2,502,000 related to Standard
Semiconductor Products, comprised of $136,000 related to a restructuring
program, $1,194,000 for the write-down of long-lived assets, and a $1,172,000
write-down of inventory included in "Cost of Sales."
34
<PAGE>
For the three fiscal years ended January 31, 1999, the Company had no customer
that accounted for more than 10% of net sales or total accounts receivable. 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>
Net Sales (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 53,824 $ 56,754 $41,082
Asia-Pacific 46,953 32,899 21,626
European 13,742 13,155 8,887
-------- -------- -------
Total Net Sales $114,519 $102,808 $71,595
======== ======== =======
</TABLE>
Long lived assets located outside the United States at January 31, 1999 amount
to $2,564,895.
16. Selected Quarterly Data (unaudited)
- ---------------------------------------
Unaudited quarterly data for fiscal 1999 and 1998 is presented below.
<TABLE>
<CAPTION>
(In thousands-except per First Second Third Fourth Fiscal
share amounts) Quarter Quarter (Note 1) Quarter Quarter Year
- ---------------------------------------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C> <C>
Net sales $29,534 $25,539 $28,535 $30,911 $114,519
Gross Profit 14,474 9,390 13,788 16,626 54,278
Net Income 4,537 838 3,419 4,101 12,895
Net Income per Share:
Basic $ 0.31 $ 0.06 $ 0.23 $ 0.27 $ 0.88
Diluted $ 0.29 $ 0.05 $ 0.22 $ 0.25 $ 0.81
1998
Net sales $23,175 $24,558 $26,533 $28,542 $102,808
Gross Profit 10,697 11,570 12,790 13,872 48,929
Net Income 3,230 3,603 3,390 4,538 14,761
Net Income per Share:
Basic $ 0.24 $ 0.26 $ 0.24 $ 0.32 $ 1.06
Diluted $ 0.22 $ 0.24 $ 0.22 $ 0.30 $ 0.98
</TABLE>
Note 1. Approximately $1,172,000, related to the write-down of discontinued
product inventories, has been reclassified to "Cost of Sales" from "Operating
Expenses" for the second quarter of fiscal year 1999.
17. Subsequent Event
- --------------------
On February 2, 1999, the Company announced that its Board of Directors had
approved the repurchase of up to $10 million of its common stock. During
February and March of 1999, the Company repurchased 212,500 shares at a cost of
$6.6 million. Of the shares repurchased, 80,667 have been reissued to cover the
exercise of employee stock options.
35
<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 31, 1999 and
February 1, 1998, and the related consolidated statements of income,
shareholders' equity and comprehensive income, and cash flows for each of the
three years in the period ended January 31, 1999. 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 31, 1999 and February 1, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 1999, 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, 1999
36
<PAGE>
SCHEDULE II
SEMTECH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 26, 1997, FEBRUARY 1, 1998, AND JANUARY 31, 1999
<TABLE>
<CAPTION>
Charged to Costs Balance at
Balance at and End
Beginning of Year Other Expenses Deductions of Year
------------------- ------------ ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended January 26, 1997
- ---------------------------------------
Allowance for doubtful
Accounts $1,041,000 $ - $493,000 $(61,000) $1,473,000
Year Ended February 1, 1998
- ---------------------------------------
Allowance for doubtful
Accounts $1,473,000 $(1,141,000) $480,000 $(15,000) $ 797,000
Year Ended January 31, 1999
- ---------------------------------------
Allowance for doubtful
Accounts $ 797,000 $ - $135,000 $(54,000) $ 878,000
</TABLE>
37
<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 5 through 10 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 14 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 47 President and Chief Executive Officer
Raymond E. Bregar 51 Executive Vice President, Corporate Operations
David G. Franz, Jr. 37 Vice President, Finance and Chief Financial Officer, and
Secretary
Wylie J. Plummer 44 Vice President, ATE Division
Jean-Claude Zambelli 55 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, Chief Financial Officer, and Secretary
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. Plummer joined the Company as Vice President, ATE Division as a result of
the April 1997 acquisition of Edge Semiconductor. Mr. Plummer co-founded Edge
Semiconductor and served as its president until the acquisition. Prior to Edge,
Mr. Plummer held positions with Brooktree, Intel and National Semiconductor.
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.
38
<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 9 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 5 under the heading
"Principal Shareholders" and Pages 5 and 9 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 9 through 10 under the
heading "Executive Compensation" is incorporated by reference herein.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The financial statements and the Report of Arthur Andersen LLP are
included in Part II of this Report on the pages indicated.
<TABLE>
<CAPTION>
Page
----------------------
Index of Financial Statements:
<S> <C>
Consolidated statements of income, three years ended January 31, 1999 22
Consolidated balance sheets, January 31, 1999 and February 1, 1998 23
Consolidated statements of shareholders' equity and comprehensive income, three 24
years ended January 31, 1999
Consolidated statements of cash flows, three years ended January 31, 1999 25
Notes to consolidated financial statements 26
Report of Independent Public Accountants 36
</TABLE>
(2) The following financial statements schedule of the Company for the
years ended January 31, 1999 February 1, 1998, and January 26, 1997, is filed as
part of this Report and should be read in conjunction with the financial
statements:
<TABLE>
<CAPTION>
Page
----------------------
<S> <C> <C>
Schedule II - Valuation and Qualifying Accounts 37
</TABLE>
Schedules other than those listed above are omitted since they are not
applicable, not required, or the information required to be set forth herein is
included in the consolidated financial statements or notes thereto.
Supplementary Financial Information - Quarterly Financial Data
-----------------------------------
(unaudited) for the years ended January 31, 1999 and February 1, 1998 is
included in Part II of this Report at page 35.
40
<PAGE>
(3) Exhibits - Incorporated by reference from the Company's previous 10-K
--------
filings unless otherwise indicated
<TABLE>
<C> <S>
3.1 - Certificate of Incorporation, as amended
3.2 - Bylaws
4.1 - Indenture between Semtech Corporation and Trust Services
of America, Inc.
4.2 - Form of Debenture (contained in 4.1 above)
4.3 - First Supplemental Indenture between Semtech Corporation
and Trust Services of America, dated May 11, 1988
10.1 - Security Agreement and Collateral Installment Note
between the Company and Merrill Lynch in the aggregate
amount of $7,500,000, dated August 24, 1992, as amended
on 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.
13.1 - Annual Report to Shareholders
22.1 - Subsidiaries of the Company
27 - Financial Data Schedule, Article 5, attached
</TABLE>
41
<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 27, 1999
------------------------
42
<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 27, 1999 /S/ John D. Poe
-------------------- -----------------------------
John D. Poe
Chairman of the Board and Chief
Executive Officer
Date: April 27, 1999 /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 27, 1999 /S/ Rock N. Hankin
-------------------- ------------------------------
Rock N. Hankin
Vice Chairman of the Board
Date: April 27, 1999 /S/ James P. Burra
-------------------- ------------------------------
James P. Burra
Director
Date: April 27, 1999 /S/ Allen H. Orbuch
-------------------- ------------------------------
Allen H. Orbuch
Director
Date: April 27, 1999 /S/ James T. Schraith
-------------------- ------------------------------
James T. Schraith
Director
Date: April 27, 1999 /S/ Jack O. Vance
-------------------- ------------------------------
Jack O. Vance
Director
The information contained in the Proxy Statement at Pages 9 and 10 under
the heading "Executive Compensation" is incorporated by reference herein.
43
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESULTS OF OPERATIONS FOR THE 12 MONTHS ENDED JANUARY 31,
1999, WHICH ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FORM 10-K FOR
THE YEAR ENDED JANUARY 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 41,035
<SECURITIES> 1,648
<RECEIVABLES> 15,414
<ALLOWANCES> 0
<INVENTORY> 16,803
<CURRENT-ASSETS> 78,572
<PP&E> 13,417
<DEPRECIATION> 0
<TOTAL-ASSETS> 92,556
<CURRENT-LIABILITIES> 12,728
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> 79,619
<TOTAL-LIABILITY-AND-EQUITY> 92,556
<SALES> 114,519
<TOTAL-REVENUES> 114,519
<CGS> 60,241
<TOTAL-COSTS> 60,241
<OTHER-EXPENSES> 35,702
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> 19,362
<INCOME-TAX> 6,467
<INCOME-CONTINUING> 12,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,895
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.81
</TABLE>
