<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended July 30, 2000
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
Indicate by check mark, whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant has required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes X No
--- ---
Number of shares of Common Stock, $0.01 par value, outstanding at July 30, 2000:
33,259,742.
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<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, these unaudited statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of Semtech Corporation and subsidiaries as
of July 30, 2000, and the results of their operations and their cash flows for
the six months then ended.
2
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $60,646 $38,253 $118,058 $71,297
Cost of sales 27,006 18,609 53,226 35,054
------- ------- -------- -------
Gross profit 33,640 19,644 64,832 36,243
------- ------- -------- -------
Operating costs and expenses -
Selling, general and administrative 8,638 6,067 16,858 11,709
Product development and engineering 7,721 4,527 14,766 8,644
------- ------- -------- -------
Total operating costs and expenses 16,359 10,594 31,624 20,353
------- ------- -------- -------
Operating income 17,281 9,050 33,208 15,890
Interest and other income, net 2,311 231 3,640 485
------- ------- -------- -------
Income before taxes 19,592 9,281 36,848 16,375
Provision for taxes 5,878 3,063 11,055 5,404
------- ------- -------- -------
Net income $13,714 $ 6,218 $ 25,793 $10,971
======= ======= ======== =======
Earnings per share:
Basic $0.42 $0.20 $0.79 $0.36
Diluted $0.36 $0.18 $0.68 $0.32
Weighted average number of shares:
Basic 32,910 30,466 32,625 30,264
Diluted 37,914 34,612 37,735 33,972
</TABLE>
3
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
July 30, January 30,
2000 2000
(Unaudited) (Audited)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $201,139 $ 45,225
Temporary investments 222,302 18,066
Receivables, less allowances 37,715 25,223
Income taxes refundable 415 -
Inventories 31,043 26,581
Other current assets 3,118 1,223
Deferred income taxes 16,413 4,106
-------- --------
Total current assets 512,145 120,424
Property, plant and equipment, net 25,886 24,397
Long-term investments 60,207 -
Other assets 12,318 1,482
Deferred income taxes 5,563 3,047
-------- --------
TOTAL ASSETS $616,119 $149,350
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,367 $ 10,723
Accrued liabilities 16,651 8,869
Income taxes payable 2,183 1,389
Other current liabilities 786 2,756
-------- --------
Total current liabilities 29,987 23,737
Other long-term liabilities 120 131
Convertible Subordinated Debentures 400,000 -
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 100,000,000 authorized
Issued and outstanding 332 320
Additional paid-in capital 88,619 53,885
Retained earnings 97,291 71,498
Accumulated other comprehensive loss (230) (221)
-------- --------
Total stockholders' equity 186,012 125,482
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $616,119 $149,350
======== ========
</TABLE>
4
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------
July 30, August 1,
2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 25,793 $10,971
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,386 1,996
Deferred income taxes (14,823) (266)
Changes in assets and liabilities, net of acquisition:
Receivables (12,492) (6,666)
Income taxes refundable - 55
Inventories (4,462) (5,088)
Other assets (1,895) (1,118)
Accounts payable and accrued liabilities 7,426 4,966
Income taxes payable 26,071 5,321
Other current liabilities (1,970) (344)
--------- -------
Net cash provided by operating activities 26,034 9,827
--------- -------
Cash flows from investing activities:
Temporary investments, net (204,236) (692)
Purchase of long-term investments (60,207) -
Additions to property, plant and equipment (3,875) (3,758)
--------- -------
Net cash used in investing activities (268,318) (4,450)
--------- -------
Cash flows from financing activities:
Exercise of stock options 9,054 4,623
Proceeds from issuance of debentures 389,164 -
Stock repurchase - (9,998)
Other long-term liabilities (11) 6
--------- -------
Net cash provided by (used in) financing activities 398,207 (5,369)
--------- -------
Effect of exchange rate changes on cash (9) (88)
Net increase (decrease) in cash and cash equivalents 155,914 (80)
Cash and cash equivalents at beginning of period 45,225 41,035
--------- -------
Cash and cash equivalents at end of period $ 201,139 $40,955
========= =======
</TABLE>
5
<PAGE>
SEMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Earnings Per Share
Basic earnings per common share are computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per common
share include the incremental shares issuable upon the assumed exercise of stock
options and assumed conversion of the $400.0 million subordinated debenture
after the date of issuance on February 14, 2000, if dilutive. For the periods
presented, the assumed conversion of the convertible debt is anti-dilutive.
for the first quarter of fiscal year 2001.
<TABLE>
<CAPTION>
(in thousands) Three Months Ended Six Months Ended
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic 32,910 30,466 32,625 30,264
====== ====== ====== ======
Diluted 37,914 34,612 37,735 33,972
====== ====== ====== ======
</TABLE>
Options to purchase 42,000 and 52,000 shares were not included in the
computation of diluted net income per share for the second quarter and first six
months of fiscal year 2001, respectively, because such options were anti-
dilutive. For the second quarter and first six months of fiscal year 2000,
respectively, options to purchase 28,000 and 3,837,000 shares were not included
in the computation of diluted net income per share because such options were
anti-dilutive.
2. Business Segments and Concentrations of Risk
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, protection,
high-performance, advanced communications and human interface devices/system
management 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 integrated circuit (IC) and foundry sales.
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).
The Company does not track or assign assets to individual reportable segments.
Likewise, depreciation expense and capital additions are also not tracked by
reportable segments.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(In thousands) July 30, August 1, July 30, August 1,
Net Sales 2000 1999 2000 1999
--------- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Standard Semiconductor Products.......... $54,713 $33,017 $106,149 $60,647
Rectifier and Assembly Products.......... 3,918 3,071 7,797 6,337
Other Products........................... 2,015 2,165 4,112 4,313
------- ------- -------- -------
Total Net Sales........................ $60,646 $38,253 $118,058 $71,297
======= ======= ======== =======
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Three Months Ended Six Months Ended
Operating Income July 30, August 1, July 30, August 1,
---------------- 2000 1999 2000 1999
--------------------------------------------------------
<S> <C> <C> <C> <C>
Standard Semiconductor Products............. $16,154 $8,416 $30,872 $14,802
Rectifier and Assembly Products............. 791 270 1,484 414
Other Products.............................. 336 364 852 674
------- ------ ------- -------
Total Operating Income.................... $17,281 $9,050 $33,208 $15,890
======= ====== ======= =======
</TABLE>
For the three months ended July 30, 2000 and August 1, 1999, the Company had
no customer that accounted for more than 10 percent of net sales. As of July 30,
2000 and August 1, 1999, no one customer accounted for more than 10 percent of
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>
(In thousands) Three Months Ended Six Months Ended
Net Sales July 30, August 1, July 30, August 1,
--------- 2000 1999 2000 1999
---------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic...................... $27,169 $12,623 $ 52,431 $25,345
Asia-Pacific.................. 25,229 20,083 51,007 36,208
European...................... 8,248 5,547 14,620 9,744
------- ------- -------- -------
Total Net Sales............. $60,646 $38,253 $118,058 $71,297
======= ======= ======== =======
</TABLE>
Long lived assets located outside the United States as of the end of the
second quarter of fiscal year 2001 and at January 30, 2000 were approximately
$1.5 million, respectively.
3. Temporary and Long-Term Investments
Temporary and long-term investments consist of bank and corporate obligations.
Temporary investments have original maturities in excess of three months, but no
greater than twelve months at the time of purchase. Long-term investments have
original maturities in excess of one year. All investments are classified as
"hold to maturity", thus no unrealized holding gains or losses were reported in
the accompanying financial statements.
4. Inventories
Inventories are stated at the lower of cost or market and consist of material,
labor and overhead. Cost is determined by the first-in, first-out method.
<TABLE>
<CAPTION>
(In thousands) July 30, January 30,
2000 2000
-----------------------------------------------------------
<S> <C> <C>
Raw materials $ 1,171 $ 1,183
Work in progress 19,874 15,246
Finished goods 9,998 10,152
------- -------
Total net inventories $31,043 $26,581
======= =======
</TABLE>
5. Convertible Subordinated Debentures
On February 14, 2000, the Company completed a private offering of $400.0
million principal amount of convertible subordinated debentures that pay an
interest rate of 4 1/2 percent and are convertible into common stock at a
conversion price of $84.46 per share. The notes are due in seven years and
callable by the Company after three
7
<PAGE>
years. The Company intends to use the net proceeds of the offering for general
corporate purposes, including working capital, expansion of sales, marketing and
customer service capabilities, and product development. In addition, the Company
may use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, services or products.
6. Lines of Credit
The Company had a credit arrangement with a financial institution for
borrowings up to $20.0 million at an interest rate of the 30 day commercial
paper plus 2.2 percent. The credit arrangement expired in August 2000 and was
not extended or renewed by the Company. The arrangement was collateralized by
the Company's domestic assets and provides for financial and non-financial
covenants. Through its foreign subsidiary, the Company maintains an overdraft
credit line in the amount of 300,000 pounds sterling. As of July 30, 2000, the
Company had no borrowings outstanding under any credit facility.
7. Commitments and Contingencies
On February 7, 2000, the Company was notified by the United States
Environmental Protection Agency with respect to the Casmalia Disposal Site in
Santa Barbara, California. The Company has been included in the Superfund
program to clean up this disposal site for its involvement in utilizing this
site for waste disposal. As of July 30, 2000, the Company provided
approximately $245,000 for potential settlement under this program, however, the
ultimate resolution and timing of the resolution is unknown at this time. The
Company believes the amount provided is sufficient to cover any liability
existing based on the currently available information.
8. Stock Split
On September 14, 1999, the Company effected a two-for-one stock split in the
form of a 100 percent stock dividend which was payable to shareholders of record
as of August 30, 1999. All shares, per share data, common stock, and stock
option amounts herein have been restated to reflect the effect of this split.
On August 22, 2000, the Company announced a two-for-one stock split in the
form of a 100 percent stock dividend. Each shareholder of record on September
5, 2000 will receive one additional share on or about September 26, 2000. The
pro forma effect of this stock split on earnings per share data is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per share:
Basic $ 0.21 $ 0.10 $ 0.40 $ 0.18
Diluted $ 0.18 $ 0.09 $ 0.34 $ 0.16
Weighted average number of
shares (in thousands):
Basic 65,820 60,932 65,250 60,528
Diluted 75,828 69,224 75,470 67,944
</TABLE>
9. Statement of Cash Flow
8
<PAGE>
The tax benefit related to the exercise of stock options of $25.7 million has
been excluded from the accompanying consolidated condensed statement of cash
flows as it is a non-cash transaction.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
You should read the following discussion of our financial condition and
results of operations together with the condensed financial statements and the
notes to condensed financial statements included elsewhere in this Form 10-Q.
This discussion contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, as more fully described in the
"Forward Looking Statements" section of this Form 10-Q and the "Risk Factors"
section of the Company's annual report on Form 10-K for the year ended January
30, 2000. We undertake no obligation to update any forward-looking statements
for any reason, even if new information becomes available or other events occur
in the future.
Overview
We design, develop, manufacture and market a wide range of analog and mixed-
signal semiconductors for commercial and military applications. Our products are
sold principally to customers in the computer, communications and industrial
markets. Computer market applications include desktop computers, servers,
workstations, laptop computers, personal digital assistants (PDAs) and computer
add-on cards. Products within the communications market include local area
networks, wide area networks, cellular phones and base-stations. Industrial
applications include automated test equipment (ATE), medical devices and factory
automation systems. Our focus on these commercial applications over the past
several years represents a substantial transition from our historical business,
which was predominantly military and aerospace applications.
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. Recent trends within the industry toward shorter lead-
times and "just-in-time" deliveries have resulted in our reduced ability to
predict future shipments. As a result, we expect the percentage of turns-fill
business (orders received and shipped within the same quarter) to increase as a
percentage of net sales.
With a portion of our sales emanating from retail computer and computer
related applications, our 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.
One of our strategies is to expand our business through strategic
acquisitions. Over the past three years, we have made several small acquisitions
in order to increase our pool of skilled technical personnel and penetrate new
market segments such as high performance, advanced communications and system
management devices. These acquisitions include: USAR Systems Incorporated;
Practical Sciences, Inc.; Acapella Limited and Edge Semiconductor. The
acquisitions of USAR, Acapella and Edge were accounted for as poolings of
interests.
9
<PAGE>
Results of Operations
The following table sets forth certain operating data as a percentage of total
net sales for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
---------------------------------------------------------------
<S> <C> <C> <C> <C>
As a Percentage of Net Sales:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 44.5 48.6 45.1 49.2
----- ----- ----- -----
Gross profit 55.5 51.4 54.9 50.8
Operating costs and expenses:
Selling, general & administrative 14.2 15.9 14.3 16.4
Product development and
Engineering 12.7 11.8 12.5 12.1
----- ---- ----- -----
Total operating costs and Expenses 27.0 27.7 26.8 28.5
----- ----- ----- -----
Operating income 28.5 23.7 28.1 22.3
Interest and other income, net 3.8 0.6 3.1 0.7
----- ----- ----- -----
Income before taxes 32.3 24.3 31.2 23.0
Provision for taxes 9.7 8.0 9.4 7.6
----- ----- ----- -----
Net income 22.6% 16.3% 21.8% 15.4%
===== ===== ===== =====
</TABLE>
Comparison of the Three Months Ended July 30, 2000 and August 1, 1999
Net Sales. We generally recognize revenue upon shipment of our products. We
defer revenue recognition on shipment of certain products to distributors where
return privileges exist until the products are sold through to end users. Net
sales for the second quarter of fiscal year 2001 were $60.6 million, compared to
$38.3 million for the second quarter of fiscal year 2000, a 58.5 percent
increase. This increase was due in part to favorable market conditions in the
overall semiconductor industry and the growth in sales into two of the Company's
main strategic end markets: communications and industrial.
Gross Profit. Gross profit is equal to our net sales less our cost of sales.
Our cost of sales includes materials, direct labor and overhead. Cost of
inventory is determined by the first-in, first-out method. Gross profit for the
second quarter of fiscal year 2001 was $33.6 million, compared to $19.6 million
for the comparable period in the prior year, a 71.2 percent increase. Our gross
margins (defined as gross profit as a percentage of net sales) are generally
affected by price changes over the life of the products and the overall mix of
products sold. Higher gross margins are generally expected from new products and
improved production efficiencies as a result of increased utilization.
Conversely, prices for existing products generally will continue to decrease
over their respective life cycles. Our gross margin was 55.5 percent for the
second quarter of fiscal year 2001. This compared to a gross margin of 51.4
percent for the second quarter of fiscal year 2000. The improvement is
attributed to increased operating efficiencies associated with higher shipment
levels, higher revenue contribution from new products and a favorable shift in
product mix toward higher margin product lines.
Operating Costs and Expenses. Operating costs and expenses generally consist
of selling, general and administrative, product development and engineering
costs, costs associated with acquisitions, and other operating related charges.
Operating costs and expenses were $16.4 million, or 27.0 percent of net sales,
for the second quarter ended July 30, 2000. Operating costs and expenses for the
prior year second quarter were $10.6 million, or 27.7 percent of net sales.
Current year operating costs and expenses, as a percentage of net sales, are
lower than previous levels due to higher shipment rates and greater
efficiencies.
SG&A expenses for the second quarter of fiscal year 2001 were $8.6 million, or
14.2 percent of net sales, compared to $6.1 million, or 15.9 percent of net
sales for the prior year second quarter. The increase in expenditures was due
primarily to the overall growth of our business, while the decrease in
percentage of net sales reflects higher revenue contributions from newer
products. R&D expense as a percentage of net sales was $7.7 million, or 12.7
percent of net sales, for the second quarter of fiscal year 2001, compared to
$4.5 million, or 11.8 percent of net sales, for the second quarter of fiscal
year 2000. We continue to invest heavily in areas deemed critical for developing
and
10
<PAGE>
marketing new products, which are generally targeted at broadening our customer
base, product lines and end-product applications.
Interest and Other Income. Net interest and other income of $2.3 million was
realized in the second quarter of fiscal year 2001. For the second quarter of
fiscal year 2000, interest and other income was $231,000. Other income and
expenses for the second quarter of fiscal year 2001 is primarily interest
income, net of $4.5 million of interest expense associated with the outstanding
subordinated debentures. For the prior year second quarter, interest and other
income is primarily interest income. The significant increase in interest and
other income is attributable to cash provided by the February 2000 issuance of
convertible subordinated debentures.
Provision for Taxes. Expense for income taxes was $5.9 million in the second
quarter fiscal year 2001, compared to $3.1 million in the second quarter of
fiscal year 2000. The effective tax rate for the second quarter of fiscal year
2001 was 30 percent and for the comparable quarter of fiscal year 2000 was 33
percent. The decline is due to increased sales through foreign-based
subsidiaries that are in lower tax jurisdictions.
Comparison of the Six Months Ended July 30, 2000 and August 1, 1999
Net Sales. Net sales for the first six months of fiscal year 2001 were $118.1
million, compared to $71.3 million for the first six months of fiscal year 2000,
a 65.6 percent increase. The increase in net sales for the first half of fiscal
year 2001 reflects the overall strength in demand for semiconductors and
successful penetration into the Company's targeted end market applications.
Gross Profit. Gross profit for the first six months of fiscal year 2001 was
$64.8 million, compared to $36.2 million for the comparable period in the prior
year, a 78.9 percent increase. Our gross margin was 54.9 percent for the first
six months of fiscal year 2001. This compared to a gross margin of 50.8 percent
for the first six months of fiscal year 2000. The improvement is attributed to
increased operating efficiencies associated with higher shipment levels, higher
revenue contribution from new products and a favorable shift in product mix
toward higher margin product lines.
Operating Costs and Expenses. Operating costs and expenses were $31.6
million, or 26.8 percent of net sales, for the first six months ended July 30,
2000. Operating costs and expenses for the prior year first six months were
$20.4 million, or 28.5 percent of net sales. Current year operating costs and
expenses, as a percentage of net sales, are lower than previous levels due to
higher shipment rates and greater efficiencies.
SG&A expenses for the first six months of fiscal year 2001 were $16.9 million,
or 14.3 percent of net sales, compared to $11.7 million, or 16.4 percent of net
sales for the prior year first six months. The increase in expenditures was due
primarily to the overall growth of our business, while the decrease in
percentage of net sales reflects higher revenue contributions from newer
products. R&D expense as a percentage of net sales was $14.8 million, or 12.5
percent of net sales, for the first half of fiscal year 2001, compared to $8.6
million, or 12.1 percent of net sales, for the first six months of fiscal year
2000.
Interest and Other Income. Net interest and other income of $3.6 million was
realized in the first six months of fiscal year 2001, compared to interest and
other income of $485,000 for the first half of fiscal year 2000. Other income
and expenses for the first six months of fiscal year 2001 is primarily interest
income, net of $9.6 million of interest expense associated with the outstanding
subordinated debentures. For the prior year first six months, interest and other
income is primarily interest income. The significant increase in interest and
other income is attributable to cash provided by the February 2000 issuance of
convertible subordinated debentures.
Provision for Taxes. Expense for income taxes was $11.1 million in the first
six months fiscal year 2001, compared to $5.4 million in the first six months of
fiscal year 2000. The effective tax rate for the first six months of fiscal
year 2001 was 30 percent and for the comparable quarter of fiscal year 2000 was
33 percent. The decline is due to increased sales through foreign-based
subsidiaries that are in lower tax jurisdictions.
Liquidity and Capital Resources
11
<PAGE>
On February 14, 2000, we completed a private offering of $400.0 million
principal amount of convertible subordinated debentures that pay an interest
rate of 4 1/2 percent and are convertible into our common stock at a conversion
price of $84.46 per share. The notes are due in seven years. We intend to use
the net proceeds of the offering for general corporate purposes, including
working capital, expansion of sales, marketing and customer service
capabilities, and product development. In addition, we may use a portion of the
net proceeds to acquire or invest in complementary businesses, technologies,
services or products.
On July 30, 2000, we had working capital of $482.2 million, compared with
$96.7 million at January 30, 2000. The ratio of current assets to current
liabilities at July 30, 2000 was 17.1 to 1, compared to 5.1 to 1 at January 30,
2000. A majority of the increase was due to cash generated by the issuance of
convertible subordinated debentures.
Cash provided by operating activities was $26.0 million for the first six
months of fiscal year 2001, compared to $9.8 million for the first half of
fiscal year 2000. Net income for the first six months of fiscal year 2001 was
reduced by non-cash charges for depreciation and amortization of $2.4 million.
Net operating cash flows were favorably impacted by net income of $25.8 million
compared to $11.0 million in the prior year period. Net cash provided by
operating activities for the first six months of fiscal year 2001 was positively
impacted by an increase in accounts payable, accrued liabilities, deferred
income taxes and income tax liability. These items were partially offset by
increases in receivables and other assets as well as a reduction in other
current liabilities.
Cash provided by operating activities for the first six months of fiscal year
2000 was favorably impacted by net income, non-cash charges for depreciation and
amortization of $2.0 million and increases in accounts payable, accrued
liabilities and income taxes payable. These items were partially offset by
increases in receivables, inventories and other assets.
Investing activities used $268.3 million for the first six months of fiscal
year 2001 compared to $4.5 million in the first six months of fiscal year 2000.
Investing activities for the first half of fiscal year 2001 consists of
increases in temporary investments, purchases of long-term investments, and
capital expenditures of $204.2 million, $60.2 million and $3.9 million,
respectively. Cash used in investing activities for the comparable prior year
period reflects primarily additions to property and equipment.
Our financing activities provided $398.2 million during the first six months
of fiscal year 2001 and used $5.4 million in the prior year first half.
Financing activities for the first two quarters of fiscal year 2001 reflect the
proceeds, net of related fees, from the issuance of $400.0 million of
convertible subordinated debentures and cash provided by stock option exercises
and other long term financing items. Financing activities for the comparable
prior period represent primarily cash from stock option exercises and cash used
to repurchase our stock.
We had a credit arrangement with a financial institution for borrowings up to
$20.0 million at an interest rate of the 30 day commercial paper plus 2.2
percent. Our credit arrangement expired in August 2000, and we did not extend
or renew this credit facility. The arrangement was collateralized by our
domestic assets and provided for financial and non-financial covenants. Through
our foreign subsidiary, we maintain an overdraft credit line in the amount of
300,000 pounds sterling. As of July 30, 2000, we had no borrowings outstanding
under any credit facility.
In order to develop, design and manufacture new products, we had to make
significant expenditures during the past five years. These investments aimed at
developing new products, including the hiring of many design and applications
engineers and related purchase of equipment, will continue. We fully intend 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 payback in the short-
term. We plan 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 our
operating cash flows and cash reserves. We have made significant investments in
product and process technology. We believe that sales generating cash flows,
together with the proceeds of the debt offering, cash reserves and existing
credit facilities, are sufficient to fund operations and capital expenditures
for the foreseeable future.
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Inflation
Inflationary factors have not had a significant effect on our performance over
the past several years. A significant increase in inflation would affect our
future performance.
Recently Issued Accounting Standards
In June 1998 and June 1999, the FASB issued SFAS No. 133, "Accounting for
Derivative Investments and Hedging Activities," and SFAS No. 137, which delayed
the effective date of SFAS No. 133. We will adopt the statement in February 2001
and do not expect the adoption of this statement to have a material impact on
our financial position or results of operations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101 provides
additional guidance on the recognition, presentation and disclosure of revenue
in financial statements. We have reviewed this bulletin and believe that our
current revenue recognition policy is consistent with the guidance of SAB No.
101.
Year 2000 Compliance
As of the date of this Form 10-Q, we have not experienced any significant
disruptions or computer processing errors or failures related to any Year 2000
issues. 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 had the potential to fail from an inability to interpret date
codes properly, misreading "00" for the year 1900 instead of the year 2000. No
adverse effects were encountered and no future expense is expected as a result
of Year 2000.
FORWARD LOOKING STATEMENTS
In addition to historical information, this Form 10-Q contains statements
relating to our future results. These statements include certain projections and
business trends, which are "forward-looking" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
made only as of the date of this Form 10-Q. We do not undertake to update or
revise the forward-looking statements, whether as a result of new information,
future events or otherwise.
Actual results may differ materially from projected results as a result of
certain risks and uncertainties. These risks and uncertainties include, without
limitation, those described under the "Risk Factors" section of the Company's
annual report on Form 10-K for the year ended January 30, 2000, including those
set forth below:
. successful development and timing of new products;
. ability to attract or retain specialized technical personnel;
. cyclical nature of the semiconductor industry due to global and market
conditions;
. availability of manufacturing capacity;
. fluctuation of quarterly operating results;
. loss of a significant customer or customer order;
. our ability to manage and integrate our expanding and more diverse
operations;
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. our ability to integrate strategic acquisitions;
. our ability to compete against larger, more established entities;
. fluctuations in manufacturing yields;
. our ability to protect our intellectual property rights;
. uncertainties of litigation; and
. other risks and uncertainties.
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.
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
As of July 30, 2000 the Company had $400.0 million in long-term debt
outstanding at a fixed interest rate of 4 1/2 percent. The Company does not
currently hedge any potential interest rate exposure.
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PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company has periodically become subject to legal proceedings in the
ordinary course of our business. Other than the action detailed below, the
Company is not currently involved in any proceedings, which are believed to
have a material and adverse affect.
On February 7, 2000, the Company was notified by the United States
Environmental Protection Agency with respect to the Casmalia Disposal Site in
Santa Barbara, California. The Company has been included in the Superfund
program to clean up this disposal site for its involvement in utilizing this
site for waste disposal. As of July 30, 2000, the Company has provided
approximately $245,000 for potential settlement under this program, however,
the ultimate resolution and timing of the resolution is unknown at this time.
The Company believes the amount provided is sufficient to cover any liability
existing based on the currently available information.
ITEM 2. CHANGES IN SECURITIES
---------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
(a) The Fiscal Year 2000 Annual Meeting of Shareholders of the Company was duly
held on June 8, 2000.
(b) Inapplicable, as (i) proxies for the meeting were solicited pursuant to
Regulation 14 under the Act; (ii) there was no solicitation in opposition to
the management's nominees as listed in the Proxy Statement; and (iii) all of
such nominees were duly elected.
(c) Not applicable.
(d) Not applicable.
ITEM 5. OTHER INFORMATION
-----------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
11.1 -Computation of per share earnings - See Note 1 of Notes to Unaudited
Consolidated Condensed Financial Statements.
27 -Financial Data Schedule, Article 5
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on February 3, 2000 and February 15,
2000 relating to its private placement of $400.0 million of 4 1/2 percent
Convertible Subordinated Notes due 2007.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SEMTECH CORPORATION
-------------------
Registrant
Date: September 14, 2000 /S/ John D. Poe
--------------------------------
John D. Poe
Chairman of the Board
and Chief Executive Officer
Date: September 14, 2000 /S/ David G. Franz, Jr.
--------------------------------
David G. Franz, Jr.
Vice President Finance, Chief
Financial Officer, and
Secretary
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