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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended January 28, 2001
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. [_]
Aggregate market value of voting stock held by non affiliates of the registrant
as of April 13, 2001 was $2,077,320,117 and the market price of the Registrant's
stock was $30.02 per share. The number of shares outstanding of the Registrant's
common stock was 69,197,872 at April 13, 2001.
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 May 31, 2001.
This report on Form 10-K contains a total of 46 pages.
SEMTECH CORPORATION
INDEX TO FORM 10-K
FOR THE YEAR ENDED JANUARY 28, 2001
PART I
Page
Item 1 Business 1
Item 2 Properties 15
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters 16
Item 6 Selected Financial Data 16
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 7A Quantitative and Qualitative Disclosures About Market Risks 22
Item 8 Financial Statements and Supplementary Data 24
Item 9 Changes in or Disagreements with Accountants on Accounting and Financial Disclosure 41
PART III
Item 10 Directors and Executive Officers of the Registrant 41
Item 11 Executive Compensation 41
Item 12 Security Ownership of Certain Beneficial Owners and Management 41
Item 13 Certain Relationships and Related Transactions 42
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 43
Signatures 46
1
PART I
This Annual Report on Form 10-K for the year ended January 28, 2001 (the "Form
10-K") contains certain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Forward-looking statements are statements other than historical
information or statements of current condition and relate to future events or
the future financial performance of the Company. Some forward-looking statements
may be identified by use of such terms as "expects," "anticipates," "intends,"
"estimates," "believes" and words of similar import. These forward-looking
statements relate to plans, objectives and expectations for future operations.
In light of the risks and uncertainties inherent in all such projected
operational matters, the inclusion of forward-looking statements in this Form
10-K should not be regarded as a representation by the Company or any other
person that the objectives or plans of the Company will be achieved or that any
of the Company's operating expectations will be realized. Net sales and results
of operations are difficult to forecast and could differ materially from those
projected in the forward-looking statements contained in this Form 10-K for the
reasons detailed in the "Risk Factors" section of this Form 10-K, beginning on
page 8, or elsewhere in this Form 10-K.
ITEM 1. BUSINESS
General
We are a leading supplier of analog and mixed-signal semiconductors. We
design, manufacture and market a wide range of products for commercial
applications, the majority of which are sold to the communications, industrial
and computer markets. Our semiconductors enable power management, test,
protection and a wide range of other functions in products that require analog
or mixed-signal processing. Our end customers are primarily original equipment
manufacturers, or OEMs, that produce and sell electronics.
Overview of the Semiconductor Industry
In the broadest sense, the semiconductor industry is divided into two
distinct groups: analog semiconductors and digital semiconductors. Analog
semiconductors condition and regulate "real world" functions such as
temperature, speed, sound and electrical current. Analog signals behave in a
continuous manner, in contrast to digital circuits which behave as on's and
off's (expressed in binary code as 1's and 0's), such as those used by
computers. Mixed-signal devices incorporate both analog and digital functions
into a single chip and provide the ability for digital electronics to interface
with the outside world. Where digital processing exists in an end consumer
application such as computers, personal digital assistant devices (PDAs),
networks, cellular phones, automated test equipment (ATE), and medical devices,
analog technology is required.
The market for analog and mixed-signal semiconductors differs from the
market for digital semiconductors. The analog and mixed-signal industry is
characterized by significantly longer product life cycles than the digital
industry because analog technology is applied to real-world functions that
remain relatively consistent. In addition, analog semiconductor manufacturers
tend to have lower capital for manufacturing because their facilities tend to be
less dependent than digital producers on state-of-the-art production equipment.
The end-product markets for analog and mixed-signal semiconductors are smaller
and more varied than the relatively standardized digital semiconductor product
markets. This has resulted in a fragmented market for analog semiconductors, in
contrast to the more homogenous digital semiconductor market.
Another difference between the analog and digital markets is the amount of
talented labor available. The analog industry relies more heavily than the
digital industry on design and applications talent to distinguish its products
from one another. While digital expertise is extensively taught due to its
overall market size, electrical engineering curricula addressing analog
functions are not widely available in universities. Analog and mixed-signal
expertise tends to be learned over time based on experience and hands-on
training. Consequently, personnel with this training are scarce, a fact that
makes it difficult for new suppliers to quickly gain significant market share.
We expect certain segments of the analog market, where end-product demand
is strong, to grow at a faster rate than the overall semiconductor market. These
segments include communications infrastructure equipment, portable devices ,
industrial test and certain high-end computing systems. The need for analog
semiconductors in these markets is based on the need to enable the reliability
of emerging communications devices, extend battery lives, achieve higher levels
of integration, increase portability and reduce size. Further, because the
analog industry is smaller and more fragmented than the digital industry, it
tends to offer high-margin opportunities for those companies able to introduce
innovative new product solutions.
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We believe that certain product segments within the analog semiconductor
market will grow even faster than the overall market in the coming years.
Specific factors contributing to the rapid growth in demand for analog and ixed-
signal semiconductors in these segments include the need to enable the
reliability of emerging communications devices, extend battery lives, decrease
voltage tolerances, achieve higher levels of integration, increase portability
and reduce size. These trends increase the need for more complex, high-
performance analog and mixed-signal semiconductors. "High-performance" refers to
devices that have advanced features and superior performance over widely
available "commodity" circuits.
Semtech End Markets
A majority of our products are sold to customers in the computer,
communications and industrial markets. Up until six years ago, the company had
largely been focused on serving the military and aerospace market. We used the
computer market as our first major entry into the commercial marketplace for our
circuits. Three years ago, approximately half of our revenues were derived from
computer related applications. In recent years, we have seen relative growth
from the communications and industrial markets. We exited fiscal year 2001 with
a near equal balance between the three major markets of computer, communications
and industrial.
Computer market applications include desktop computers, servers,
workstations, laptop computers, PDAs and computer add-on cards. End-product
applications for our products within the communication market include local area
networks, wide area networks, cellular phones and base-stations. Industrial
applications include automated test equipment, medical devices and factory
automation systems.
Semtech's Main Product Specific End-Product
Lines Applications
-----------------------------------------------------------------------------------
Computer Communications Industrial
-----------------------------------------------------------------------------------
Power Management Desktop PCs, servers, Cellular phones, network Power supplies,
workstations, notebook cards, routers and hubs, industrial systems
computers, add-on cards, telecom network boards
PDAs
- --------------------------------------------------------------------------------------------------------------
Protection Notebook computers, USB Cellular phones, base Handled measurement or
ports, LAN cards stations, DSL, routers instrumentation devices
and hubs
- --------------------------------------------------------------------------------------------------------------
High Performance Workstations Cellular base stations, Automated test equipment
routers and hubs, SONET
networks
- --------------------------------------------------------------------------------------------------------------
Advanced Communications SONET networks, routers,
hubs, switches, fiber
modems
- --------------------------------------------------------------------------------------------------------------
Human Interface and System Notebook computers, Cellular phones, web Touch screen systems
Management PDAs phones
- --------------------------------------------------------------------------------------------------------------
Business Strategy
Our objective is to be the leading supplier of analog and mixed-signal
devices to the fastest growing segments of our target markets, particularly
within the computer, communications and industrial segments. We will leverage
our pool of skilled technical personnel to develop new products, or where
appropriate use acquisitions, to serve the fastest growing segments of these
markets. In order to capitalize on our strengths in analog and mixed-signal
processing design, manufacturing and marketing, we intend to pursue the
following strategies:
Strategy to invest more in intellectual property, and less in capital equipment
We have developed a strategy to invest heavily in human resources needed to
define, develop and market high-performance products. Likewise, we tend to
spend nearly three times as much on research and development than we do on
capital expenditures for manufacturing capacity. We outsource a large portion
of our production and focus more on defining, developing and ultimately selling
our products. This strategy is different than many of our competitors.
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Focus on fast growing market segments
We have chosen to target the analog segments of the fastest growing end
markets. We will enhance this growth potential by focusing on specific products
within the analog and mixed-signal market, including high-end personal
computers, notebook computers, PDAs, cellular phones, wide area and local area
networks and test systems. These products are characterized by their need for
leading-edge, high-performance, analog and mixed-signal semiconductor
technology.
Continue to release new proprietary products
We are focused on developing proprietary new products to serve our target
markets. These markets have experienced significant levels of change as consumer
demand for increased product performance at competitive price points continues
to grow. Our technical talent markets and develops new products specifically for
these high-margin, fast growing market segments. Over the past three years, our
pool of skilled technical personnel has grown from 75 to approximately 300, and
the number of new product families introduced in the past four years has
increased from 28 to 138. We believe that our rate of new product introductions
and number of skilled technical personnel are indicators of our ability to meet
our target markets' evolving needs.
Diversify into new markets
We will enter new markets that complement our existing operations through
internal development of new products and by strategic acquisitions. We believe
strategic acquisitions will allow us to expand our pool of skilled technical
personnel as well as expand the range of complementary products that we offer.
We have purchased four companies over the past four years that have permitted us
to successfully enter new market segments and develop new products. Our focus
during fiscal year 2001 was to expand our presence within the two broad markets
of communications infrastructure and portable devices. A large amount of
resources, namely design and marketing talent, was focused on developing
products for these markets.
Concentrate on cross-selling our products and services
We consider the ability to cross-sell our products and services a major
opportunity. Many of our large customers produce a wide variety of end products
that require analog and mixed-signal products. By leveraging existing
relationships, we believe that we will be able to sell a wider variety of our
products to these organizations. In addition, we believe our marketing
department's technical expertise permits it to identify and capitalize on these
cross-selling opportunities
Product Segments
We categorize our business into three main product segments. Our
strategically most important product offerings are included in the Standard
Semiconductor Products segment. Standard Semiconductor Products represent
approximately 91 percent of our overall net sales for fiscal year 2001. The
following is a description of our 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. Described below are the main product lines
within our Standard Semiconductor Products.
. Power Management Circuits. Power management circuits control, alter,
regulate and condition the electric pulses that flow through electronics.
The largest product types within the power management product line are
linear regulators, switching voltage regulators, combination regulators and
smart regulators. The primary application for these products is power
regulation for computer and communications systems.
. Protection Products. The largest type of protection products we design and
market are transient voltage suppressors (TVS). TVS devices provide
protection for electronic systems where large voltage spikes (called
transients), such as electrostatic discharge (ESD) generated by the human
body, can permanently damage voltage-sensitive components. We also have
developed filter and termination devices that can be sold as a complement
to TVS devices. Specific protection product applications are found in
computer, data-communications, telecommunications and industrial markets.
4
. High Performance Circuits. We design and market a wide variety of high
performance products, namely pin electronics, timing, clock distribution
and parametric measurement products for use in ATE instrumentation
applications. Automated test equipment systems are used by electronic
component manufacturers in the testing of their finished devices. In fiscal
year 2000, we began marketing high performance ECL clock/logic devices
intended for use in both ATE and non-ATE applications.
. Advanced Communication Circuits . Through internal investment and the
acquisition of Acapella Limited and Practical Sciences, we are designing a
line of advanced communication ICs. These circuits are designed to
transmit/receive signals over fiber optic lines, provide timing and
synchronization, and other communication functions. Advanced communication
ICs are used for local area networks, wide area networks and cellular phone
base stations. We also derive a small amount of revenue from design
consulting services provided to other manufacturers.
. Human Interface Devices (HID) and System Management. Through the
acquisition of USAR Systems, we now offer a line of system management
products that include intelligent input/output and smart battery management
devices. The products included in this offering are touch-screen and touch-
pad controllers, pointing stick devices and battery management circuits.
These products are designed to handle human interface and battery function
in portable systems, like notebook computers, PDSs and cellular phones.
Rectifier and Assembly Products. Rectifiers and assemblies are older-
technology products that are principally sold into the military and aerospace
markets.
. Rectifiers. We have several different categories of silicon rectifiers,
which are primarily used to convert alternating current to direct current.
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. Assemblies are used for military,
aerospace and other specialized applications.
Other Products. We produce and sell 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. The end markets for these products include
industrial, consumer, and automotive markets.
. Foundry Wafers. We fabricate silicon wafers for other semiconductor
manufacturers. Much of the processed silicon currently sold goes into
applications for the computer, automotive and industrial markets.
Intellectual Capital and Product Development
We believe that emphasis on the development of our intellectual
capital and introduction of new proprietary product designs are key to our
success. Recruiting and retaining technical talent is the foundation for
developing and selling new products into the marketplace. We have been
successful in hiring technical people through active recruitment and through
strategic acquisitions. In fiscal year 2000, we added experienced engineers
through the acquisitions of two companies, USAR Systems and Practical Sciences.
Recruiting of talent has also been benefited by our strategy of having multiple
design center locations throughout the United States and the world for
attracting people.
Circuit design engineers, or circuit designers, are the most valuable
of all engineers. Circuit designers perform the critical task of designing and
laying out integrated circuits. As of the end of fiscal year 2001, we employed
more than 85 circuit designers. That is up from 70 circuit designers at the end
of fiscal year 2000. A majority of these individuals have senior-level expertise
in the design and development of circuits targeted for use in power management,
protection, high performance and communication applications. We intend 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 are the focus
of this investment.
5
In fiscal year 1996, we began to invest heavily in design and applications
intended to aid the introduction of new products. We now have dedicated design
centers in Santa Clara, California; Oxnard, California; Raleigh, North Carolina;
Glasgow, Scotland; and Southampton, England. In addition, dedicated high
performance circuit design occurs at the San Diego location, human interface and
system management design occurs in New York and protection product design occurs
at the Company's Newbury Park headquarters.
Sales and Marketing
Sales made directly to original equipment manufacturers in fiscal year 2001
and in fiscal year 2000 were approximately 80 percent of net sales and the
remaining 20 percent of net sales were made through independent distributors.
The percentage of sales made directly to original equipment manufacturers has
increased in the last four fiscal years as we sell directly to large strategic
customers and as the contribution from the high performance products group,
which has only direct sales, has increased. We have direct sales offices located
in Southern California, Texas and Connecticut which manage the sales activities
of independent sales representative firms and independent distributors within
the United States and Canada. We also have sales offices in France, Germany and
Scotland as well as independent sales representative firms and independent
distributors to serve the European markets. We maintain branch sale offices in
Taipei, Taiwan and Seoul, Korea, along with independent representatives and
distributors for serving the Asian-Pacific territory. We are also represented
outside the United States, Europe and Asia by other independent sales
organizations.
Customers and Sales Data
For fiscal year 2001, we estimated that 3,000 customers purchased our
products either directly from us or through our authorized distributors. The
following is a representative sample of our target customers:
Representative Customers by End Markets
-------------------------------------------------------------
Computer Communications Industrial
-------------------------------------------------------------
Acer Cisco Agilent Technologies
Compaq Motorola Honeywell
Dell Nortel Varian Medical
IBM Samsung
Intel Siemens
Customers that buy our products include major computer and peripheral
manufacturers and their sub-contractors, automated test system manufacturers,
communications equipment producers (both data-communication and
telecommunication), and a variety of both large and small companies serving the
industrial, automotive, aerospace and military markets.
During fiscal years 2001, 2000, and 1999, foreign sales were 58 percent, 64
percent, and 53 percent, respectively, of net sales. Approximately three
quarters of foreign sales are to customers located in the Asian-Pacific region.
The remaining are into Europe. The decline in the percent of foreign sales
reflects the reduced percentage of shipments derived from the computer market.
A majority of computer related sales are sold into the Asia region. Generally,
we conduct sales in the United States Dollar.
No one customer accounted for 10 percent or more of our net sales for each
of the three fiscal years ended January 28, 2001. In fiscal year 2001, a group
of customers that included one of our automated test equipment customers, their
suppliers and their sub-contractors, accounted for 14 percent of net sales.
Manufacturing Capabilities
We have manufacturing facilities in California, Texas and Mexico. Our
commercial IC production facilities are located in Santa Clara, California and
Corpus Christi, Texas. In March 2001, we announced plans to sell the Santa Clara
wafer fab facility. 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 our high performance products
group. Design, applications, sales, and other administrative activities related
to the high performance group are conducted at this location. Our Reynosa,
Mexico facility provides assembly and test capabilities for supporting military
and legacy products.
6
Over the last several years, we have out-sourced much of the processes
required to make our products. We have always relied on third party contractors
for packaging and testing most of our commercial products. During fiscal year
2001, we began to purchase finished silicon wafers from outside sources, often
called outside foundries. We view the movement towards outsourcing most of our
manufacturing to outside sources as a beneficial and strategic initiative.
A large part of the manufacturing operation is performed by operators
working on standard equipment in our wafer fabrication lines. New designs or
process modifications are tested by both product and process engineering prior
to being incorporated into the manufacturing process. Our 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. Unlike the
digital industry, our products are less reliant on state-of-the-art
manufacturing but more on design and applications support.
We fabricate a majority of our products from basic materials (principally
silicon, ceramic materials, metals and plastics), all of which are available
from a number of suppliers. In fiscal year 2001, we supported approximately 25
percent of our end products with wafers that were fabricated internally. Outside
foundries were used for the remaining 75 percent of fabrication capacity. As of
the end of fiscal year 2000, we sourced approximately 50 percent of our wafers
from outside foundires and the remianing 50 percent through internal capacity.
As of the end of fiscal year 2001, we estimated that we had adequate capacity in
our internal wafer fabrication capacity to support anticipated growth over the
next two years. All of our high performance, advanced communications and human
interface ICs and a percentage of power management products are fabricated at
outside foundries. Nearly all of our protection products are fabricated
internally.
We use silicon wafer foundries that are based in the United States, Canada,
Europe and Asia. As of the end of fiscal year 2001, we had foundry relationships
with nine different companies. Currently, our largest foundry suppliers are
based in the United States and Asia. Contractual agreements exist with each of
the outside foundries. With expansion into higher-end communication product
lines and higher-performance devices, we expect that we will increase, as a
percentage of the total, the amount of outside foundries in order to utilize the
best available technology and leverage the capital investment of others.
Competition
The semiconductor industry is highly competitive and we expect competitive
pressures to continue. Our ability to compete effectively and to expand our
business will depend on our ability to continue to recruit applications and
design talent, our ability to introduce new products and the rate at which we
introduce such new products to offset the relatively short product life cycles
found in the industry which is characterized by decreasing unit selling prices
over the life of a product, our ability to capitalize on efficiencies and
economies of scale in production and sales, and our ability to maintain or
improve our productivity and product yields to reduce manufacturing costs.
We are in direct and active competition, as to one or more of our product
lines, with at least 30 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 us.
The number of competitors has grown due to expansion of the market segments in
which we participate. We consider our primary competitors to include Texas
Instruments, National Semiconductor, Linear Technology, Fairchild Semiconductor
and Intersil Semiconductor, all with respect to our power management products;
ST Microelectronics N.V and Microsemi with respect to our protection products;
Analog Devices, Maxim Integrated Products and ON Semiconductors, all with
respect to our high performance/ATE products; Applied Micro Circuits
Corporation, PMC-Sierra Inc. and Vitesse Semiconductor Corp., all with respect
to our advanced communications products; and Philips Semiconductors and
Synaptics Inc. with respect to our HID. Due to the fragmented nature of the
analog semiconductor industry, we estimate that we have no more than 30 percent
product overlap with any single competitor identified.
Patents and Licenses
Patents, licenses and other rights have not proven in the past to be
significant to our business. However, competition in the commercial marketplace
has required that certain developed devices be protected by patents. We have
pursued patent protection for certain devices. We intend to pursue these rights
for future products that may require protection from use by competitors. At this
time, we do not license our patents.
7
Environmental Matters
On February 7, 2000, we were notified by the United States Environmental
Protection Agency with respect to the Casmalia Disposal Site in Santa Barbara,
California. We have been included in the Superfund program to clean up this
disposal site for our involvement in utilizing this site for waste disposal. As
of January 28, 2001, we had provided approximately $245,000 for potential
settlement under this program, however, the ultimate resolution and timing of
the resolution is unknown at this time. We believe the amount provided is
sufficient to cover any liability existing based on the currently available
information.
Certain contaminants have been found in the ground water at our Newbury Park
facility. We have data showing that the contaminants are from an adjacent
facility. We have never used the contaminants in question at our Newbury Park
facility. To protect our interests, we utilize 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 us at this site. Accordingly, no reserve for
clean-up has been provided at this time.
Employees
As of January 28, 2001, we had 777 full-time employees, up from 731 full-time
employees a year earlier. We have never had a work stoppage, and our domestic
and European employees are not unionized. Our 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
We are required to comply with numerous government regulations that are normal
and customary to manufacturing businesses, which operate in our markets and
operating locations. In addition, a substantial portion of our 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, we must comply with certain
specifications promulgated by the DOD. As part of maintaining these
qualifications we are routinely audited by DOD personnel. Based on the
specifications as they exist today, we believe we can maintain our
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 more difficult and thus could adversely impact our profitability in
those product lines.
RISK FACTORS
You should carefully consider and evaluate all of the information in this Form
10-K, including the risk factors listed below. Any of these risks could
materially and adversely affect our business, financial condition and results of
operations.
Keep these risk factors in mind when you read "forward-looking" statements
elsewhere in this Form 10-K. These statements relate to our expectations about
future events and time periods. Generally, the words "anticipate," "expect,"
"intend" and similar expressions identify forward-looking statements. Forward-
looking statements involve risks and uncertainties, and future events and
circumstances could differ significantly from those anticipated in the forward-
looking statements.
Risks Related to Our Business
The cyclical nature of the semiconductor industry may limit our ability to
maintain or increase revenue and profit levels during industry downturns
The semiconductor industry is highly cyclical. Current industry forecast
suggest that calendar year 2001 will be a down year for the overall
semiconductor and electronics industries. High levels of semiconductor
component
8
inventory and declining demand at end-equipment manufacturers could result in a
cyclical downturn in the marketplace. In the prior two years, high consumption
levels by electronics manufactures was a major driver of demand for
semiconductors, including the products we sell.
Our financial performance may be materially and adversely affected by
significant downturns in the semiconductor industry as a result of:
. general economic conditions;
. general reductions in inventory levels by customers;
. excess production capacity; and
. accelerated declines in average selling prices of our products.
The occurrence of these or other conditions in the semiconductor industry in the
future could have a material adverse effect on our business, financial condition
and results of operations.
Economic downturn in our end-markets may have adverse consequences for our
business
We market our products to several commercial markets, including computers
and peripherals, telecommunications, and industrial and test equipment. A
downturn in any of our markets, particularly the consumer computer industry and
the automated test equipment market, could materially and adversely affect our
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 our
manufacturing capacity.
We may be unsuccessful in developing and selling new products required to
maintain or expand our business
We operate in a dynamic environment characterized by price erosion, rapid
technological change and design and other technological obsolescence. Our
competitiveness and future success depend on our ability to introduce new or
improved products that meet customer needs while achieving acceptable margins.
If we fail to introduce these new products in a timely manner or these products
fail to achieve market acceptance, our business, financial condition and results
of operations could be materially and adversely affected.
The introduction of new products presents significant business challenges
because product development commitments and expenditures must be made well in
advance of product sales. The success of a new product depends on accurate
forecasts of long-term market demand and future technological developments, as
well as on a variety of specific implementation factors including:
. timely and efficient completion of process design and development;
. timely and efficient implementation of manufacturing and assembly
processes;
. product performance;
. the quality and reliability of the product; and
. effective marketing, sales and service.
The failure of our products to achieve market acceptance due to these and other
factors could materially and adversely affect our business, financial condition,
and results of operations.
We may fail to attract or retain the specialized technical and management
personnel required to successfully operate our business
9
Our future success depends upon our ability to attract and retain highly
qualified technical, marketing and managerial personnel. We are particularly
dependent on a relatively small group of key technical personnel with analog and
mixed-signal expertise. Personnel with analog and mixed-signal expertise are
scarce and competition for personnel with these skills is intense. There can be
no assurance that we will be able to retain existing key technical, marketing
and managerial employees or that we will be successful in attracting,
assimilating or retaining other highly qualified technical, marketing and
managerial personnel in the future. If we are unable to retain existing key
employees or are unsuccessful in attracting new highly qualified employees, our
business, financial condition and results of operations could be materially and
adversely affected.
We obtain certain components and materials and certain manufacturing
services from a limited number of suppliers and subcontractors, including
foreign-based entities
Our reliance on a limited number of outside subcontractors and suppliers
for silicon wafers, packaging and certain other tasks 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 our
supply sources or subcontractors could delay our shipments and could have a
material adverse effect on our 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 us to seek alternative sources of supply or to
manufacture or package certain components internally could have a material
adverse effect on our business, financial condition and results of operations.
Several of our outside subcontractors and suppliers, including third-party
foundries that supply silicon wafers, are located in foreign countries,
including China, Malaysia, the Philippines and Germany. Any political turmoil
or trade restrictions could limit our ability to obtain goods and services from
these suppliers and subcontractors. If we find it necessary to transition the
goods and services received from such suppliers or subcontractors to other
firms, potentially at much higher costs, we could experience a delay in
production associated with such a transition.
Our future quarterly operating results may fluctuate, fail to match past
performance, or fail to meet expectations
Our quarterly operating results may fluctuate in the future, may fail to
match our past performance, or fail to meet the expectations of analysts and
investors. Our quarterly operating results may fluctuate as a result of:
. general economic conditions in the countries where we sell our
products;
. seasonality and variability in the computer market and our other end
markets;
. the timing of our and our competitors' new product introductions;
. product obsolescence;
. the scheduling, rescheduling, or cancellation of orders by our
customers;
. the cyclical nature of demand for our customers' products;
. our ability to develop new process technologies and achieve volume
production at our fabrication facilities; (S) changes in manufacturing
yields;
. movements in exchange rates, interest rates or tax rates;
. the availability of adequate supply commitments from our outside
suppliers; and
. the manufacturing and delivery capabilities of our subcontractors.
As a result of these factors, our past financial results are not necessarily
indicative of our future results.
10
Fluctuations and seasonality in the personal computer industry may have
adverse consequences for our business
Many of our products are used in personal computers and related
peripherals. Industry-wide fluctuations in the personal computer marketplace
have in the past and may in the future materially and adversely affect our
business. In addition, 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.
The build-out of the Internet and the related need for communications
infrastructure equipment and higher bandwidth networks has driven overall demand
for semiconductor and our products
The overall semiconductor industry and our business in particular has
benefited from the build-out of the Internet and the related demand for
communications infrastructure equipment. A large driver in the need for
communication equipment is desire to have higher-speed (higher bandwidth)
networks. The electronics need to support this trend within the communications
market relies heavily on companies like us to develop the circuits used in these
systems.
Any major cut in communications infrastructure investment will have a negative
impact on the overall industry and our sales into these end market segments.
Much of our sales growth and margin expansion in recent years has come from
sales of products into wireless, local area networks, wide area networks and
long-haul communications applications.
Sales of products into the ATE market were approximately 24 percent of
total net sales in fiscal year 2001; the ATE market is characterized as being
cyclical
In fiscal year 2001, shipment of products to automated test equipment (ATE)
customers represented approximately 24 percent of net sales. Our line of high
performance products, which is primarily sold into the ATE market, is our
highest margin product line. The ATE market is characterized as being cyclical.
Past downturns in the test equipment and overall market for semiconductor
capital equipment have been sudden and dramatic.
Interest rates effect our return on excess cash and investments; interest
income has in the past offset interest expense associated with our outstanding
debt
Interest rates effect our return on excess cash and investments. A significant
decline in interest rates would reduce the amount of interest income generated
from our excess cash and investments. In the past, interest income has exceeded
interest expense associated with our corporate debt that was issued at an
effective fixed rate of approximately 5 percent. Current interest rates are
substantially lower than rates at this same time last year.
We receive a significant portion of our revenues from a small number of
customers
Historically, we have had significant customers that individually accounted for
approximately 10 percent of consolidated revenues in certain quarters. The
composition of our largest customers has varied from year to year. In fiscal
year 2001, we had no customer which accounted for 10 percent of annual net
sales. However, a group of customers that included one of our automated test
equipment customers, their suppliers and their sub-contractors, accounted for 14
percent of net sales in fiscal year 2001.
We primarily conduct our 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 our significant customers, the cancellation of
a significant customer order, or the cancellation or delay of a customer's
significant program or product could materially and adversely affect our
business, financial condition and results of operations.
We are expanding and diversifying our operations, and if we fail to manage
our expanding and more diverse operations successfully it may materially and
adversely affected our business
11
Our strategy includes expansion and diversification of our operations
through internal development. Our diversification into new markets and product
lines will increase demand on our management, financial resources and
information and internal control systems. Our success depends in significant
part on our ability to implement, improve and expand our systems, procedures and
controls. If we fail to do this at a pace consistent with the development of our
business, then our business, financial condition and results of operations could
be materially and adversely affected.
As we seek to expand our operations, we expect to encounter a number of
risks, which may include those associated with:
. hiring additional management and other critical personnel;
. adding equipment and capacity; and
. increasing the scope, geographic diversity and complexity of our
operations.
We have acquired and may continue to acquire other companies and may be
unable to successfully integrate such companies with our operations
In the past we have expanded our operations through strategic acquisitions
and we may continue to expand and diversify our operations with additional
acquisitions. If we are unsuccessful in integrating these companies with our
operations, or if integration is more difficult than anticipated, we may
experience disruptions that could have a material adverse effect on our
business, financial condition and results of operations. Some of the risks that
may affect our ability to integrate companies we acquire include those
associated with:
. unexpected losses of key employees or customers of the acquired
company;
. conforming the acquired company's standards, processes, procedures and
controls with our operations;
. coordinating our new product and process development;
. hiring additional management and other critical personnel; and
. increasing the scope, geographic diversity and complexity of our
operations.
We compete against larger, more established entities
The semiconductor industry is intensely competitive and is characterized by
price erosion, rapid technological change and design and other technological
obsolescence. We compete with domestic and international semiconductor
companies, many of which have substantially greater financial and other
resources with which to pursue engineering, manufacturing, marketing and
distribution of their products. Some of these competitors include: Texas
Instruments, National Semiconductor, Linear Technology, Fairchild Semiconductor
and Intersil Semiconductor, all with respect to our power management products;
ST Microelectronics N.V. with respect to our protection products; Analog
Devices, Maxim Integrated Products and ON Semiconductor, all with respect to our
high performance/ATE products; Applied Micro Circuits Corporation, PMC-Sierra
Inc. and Vitesse Semiconductor Corp., all with respect to our advanced
communications products; and Philips Semiconductors, Synaptics Inc. and
Mitsubishi Electric Corp, all with respect to our intelligent input/output
devices. We expect continued competition from existing competitors as well as
competition from new entrants in the semiconductor market. Our ability 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;
. protection of our processes and know-how;
. maintaining high product quality and reliability;
. pricing policies of our competitors;
. performance of competitors' products;
12
. ability to deliver in large volume on a timely basis;
. marketing, manufacturing and distribution capability; and
. financial strength.
Fluctuating production yields may increase production costs and cause
inventory shortages
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, failure of equipment 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 production costs and
inventory shortages. Yield problems may take substantial time to analyze and
correct. Yield problems may also arise from our outsourced third party
manufacturers. We may experience production yield problems in the future that
could materially and adversely affect our business, financial condition and
results of operations.
We must commit resources to product production prior to receipt of purchase
commitments and could lose some or all of the associated investment
Sales are made primarily on a current delivery basis pursuant to purchase
orders that may be revised or cancelled without penalty, rather than pursuant to
long-term supply contracts. Some contracts require us to maintain inventories of
certain products at levels above the anticipated needs of our customers. As a
result, we must commit resources to the production of products without any
advance purchase commitments from customers. Our inability to sell products
after we devote significant resources to them could have a material adverse
effect on our business, financial condition and results of operations.
We may underutilize our manufacturing facilities or we may have inadequate
facilities to meet the demand for our products
We may underutilize our manufacturing facilities from time to time as a
result of reduced demand for our products. If demand for our products does not
increase consistent with our plans and expectations, we will likely underutilize
our manufacturing facilities which could have a material adverse effect on our
business, financial condition and results of operations.
Conversely, there may be situations in the future in which our
manufacturing facilities will be inadequate to meet the demand for our products.
Our inability to generate sufficient manufacturing capacities to meet demand,
either through our own facilities or through outsourcing to third parties, could
have a material adverse effect on our business, financial condition and results
of operations.
We sell and trade with foreign customers, which subjects our business to
increased risks applicable to international sales
Sales to foreign customers accounted for approximately 52 percent of net
sales in the fiscal year ended January 28, 2001 and 64 percent of net sales for
fiscal year 2000. The percentage of 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 our
business, financial condition and results of operations. In addition, even
though the majority of our foreign sales are denominated in U.S. dollars,
currency exchange fluctuations in countries where we do business could
materially and adversely affect us by resulting in pricing that is not
competitive with prices denominated in local currencies.
We may be unable to adequately protect our intellectual property rights
13
Few of our products are protected by patents and we rely primarily on a
combination of nondisclosure agreements and other contractual provisions, as
well as the commitment to confidentiality and loyalty of our employees, to
protect our know-how and processes. We intend to continue to protect our
proprietary technology through copyrights and trade secrets and, to a limited
extent, patents. Despite this intention, we may not be successful in achieving
adequate protection. Our failure to adequately protect our material know-how and
processes could have a material adverse effect on our business, financial
condition and results of operations. There can be no assurance that the steps we
have taken will be adequate to protect our proprietary rights or that a
competitor will not independently develop similar or superior know-how or
processes. Also, the laws of the countries in which our products are or may be
developed, manufactured , or sold may not protect our products and intellectual
property rights to the same extent as laws in the United States.
The semiconductor industry is characterized by frequent litigation
regarding patent and intellectual property rights. Due to the number of
competitors, the potential for patent infringement exists and is an ongoing risk
since other companies in our industry could have patent rights which may not be
identifiable when we initiate development efforts. Litigation, which could
result in substantial cost and diversion of resources, may be necessary to
enforce our intellectual property rights or to defend ourselves against
infringement claims. We may also be subject to future intellectual property
claims or judgments. If these were to occur, we may be unable to obtain a
license on favorable terms, if at all, or without a material adverse effect on
our business, financial condition and results of operations.
We are subject to environmental regulations
We are subject to a variety of United States federal, foreign, 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 our manufacturing process. Any of these regulations
could require us to acquire equipment or to incur substantial other expenses to
comply with environmental regulations. If we were to incur substantial
additional expenses, product costs could significantly increase, thus materially
and adversely affecting our business, financial condition and results of
operations. Any failure to comply with present or future environmental laws,
rules and regulations could result in fines, suspension of production or
cessation of operations, any of which could have a material adverse effect on
our business, financial condition and results of operations.
Our products may be found to be defective, product liability claims may be
asserted against us and we may not have sufficient liability insurance
One or more of our products may be found to be defective after we have
already shipped such products in volume, requiring a product replacement,
recall, or a software fix which would cure the defect but impede performance. We
may also be subject to product returns which could impose substantial costs and
have a material and adverse effect on our business, financial condition and
results of operations.
Product liability claims may be asserted with respect to our technology or
products. Although we currently have product liability insurance, there can be
no assurance that we have obtained sufficient insurance coverage or that we will
have sufficient resources to satisfy any product liability claims.
Some of our facilities are located near major earthquake fault lines
Our corporate headquarters, a portion of our manufacturing facilities,
assembly and research and development activities and certain other critical
business operations are located near major earthquake fault lines. We could be
materially and adversely affected in the event of a major earthquake. We do not
maintain earthquake insurance.
We could be required to register as an investment company and become
subject to substantial regulation that would interfere with our ability to
conduct our business.
We invest in short-term instruments consistent with prudent cash management
and not primarily for the purpose of achieving investment returns. This could
result in our being required to register and be treated as an investment company
under the Investment Company Act of 1940. The Investment Company Act requires
the registration of companies which are engaged primarily in the business of
investing, reinvesting or trading in securities or which are engaged in
investing, reinvesting, owning, holding or trading in securities and over 40% of
whose assets on an
14
unconsolidated basis (other than government securities and cash) consist of
investment securities. While we do not believe that we are engaged primarily in
the business of investing, reinvesting or trading in securities, we may invest
our cash and cash equivalents in government securities to the extent necessary
to avoid having over 40% of our assets consist of investment securities.
Government securities are defined as securities issued by the U.S. government
and certain federal agencies. These securities generally yield lower rates of
income than other short-term instruments in which we have invested to date.
Accordingly, investing substantially all of our cash and cash equivalents in
government securities could result in lower levels of interest income and net
income.
If we were required to register as an investment company under the
Investment Company Act, we would become subject to substantial regulation with
respect to our capital structure, management, operations, transactions with
affiliated persons, if any, and other matters, incur substantial costs and
experience a disruption of our business. Application of the provisions of the
Investment Company Act to us would materially and adversely affect our business,
prospects, financial condition and results of operations.
ITEM 2. PROPERTIES
Our headquarters facility is located in Newbury Park, California where we
lease approximately 53,000 square feet under a lease that extends through August
2003. This facility supports a very limited amount of our manufacturing
operations, as well as all of our inside sales, marketing and administrative
offices. In November 1999, we purchased a parcel of land in Camarillo,
California for approximately $5.1 million. We are building a 87,000 square foot
facility. This location will be the future headquarters of the corporation. The
facility should be completed by the end of fiscal year 2002 for a cost of
approximately $11.5 million.
In addition, we lease two facilities in Santa Clara, California. One
facility houses wafer fabrication operations, contains 10,345 square feet and
has a lease that extends until November 2004. The other facility which houses
design engineering, test and administration, contains 13,250 square feet and has
a lease that extends until November 2005. On March 19, 2001, we announced that
we were exiting the foundry services business and in negotiations to sell our
Santa Clara wafer fabrication facility and the rights associated with its lease.
The planned divestiture of the Santa Clara wafer fab is part of our strategy to
source a majority of our silicon wafers from outside foundries. We expect no
material financial impact as a result of the planned sale of the Santa Clara
wafer fab facility.
In December 2001, we purchased a parcel of land in San Diego, California
for approximately $7.9 million. We are exploring plans to build a facility that
would house our high performance products business unit. We have not yet
estimated how much it would cost to build-out this location.
We lease a facility in Corpus Christi, Texas, which houses a wafer
fabrication line, production testing, and certain engineering functions, and
contains approximately 44,000 square feet under a lease that extends through
December 2001. In addition, we lease space to house certain of our other
manufacturing, design, sales and marketing facilities in San Diego, California;
Oxnard, California; Raleigh, North Carolina; Connecticut; France; Germany;
Taiwan; Korea; Southampton, England; St. Gallen, Switzerland and Glasgow,
Scotland.
We also own a 20,000 square foot manufacturing facility in Glenrothes,
Fife, Scotland and a 22,000 square foot building in Reynosa, Mexico.
Between our existing leased and owned facilities, we believe to have more
than adequate space for our current operations, and that suitable replacement
and additional space will be available in the future on commercially reasonable
terms.
ITEM 3. LEGAL PROCEEDINGS
We periodically become subject to legal proceedings in the ordinary course
of our business. Other than the action detailed below, we are not currently
involved in any proceedings which we believe could materially and adversely
affect us.
On February 7, 2000, we were notified by the United States Environmental
Protection Agency with respect to the Casmalia Disposal Site in Santa Barbara,
California. We have been included in the Superfund program to clean up this
15
disposal site for our involvement in utilizing this site for waste disposal. As
of January 30, 2000, we had provided approximately $245,000 for potential
settlement under this program, however, the ultimate resolution and timing of
the resolution is unknown at this time. We believe the amount provided is
sufficient to cover any liability existing based on the currently available
information.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National Market under
the symbol "SMTC". The following table sets forth, for the fiscal periods
indicated, the quarterly high and low closing prices.
High Low
------------------------
Fiscal Year 2001:
First Quarter...................... $37.94 $25.52
Second Quarter..................... $47.06 $22.50
Third Quarter...................... $59.22 $28.75
Fourth Quarter..................... $32.25 $15.38
Fiscal Year 2000:
First Quarter...................... $ 8.82 $ 6.19
Second Quarter..................... $17.02 $ 8.21
Third Quarter...................... $21.35 $14.00
Fourth Quarter..................... $34.00 $18.63
As of April 13, 2001, there were approximately 15,500 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 13, 2001, was $30.02
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 two-for-one
stock splits in fiscal years 2001, 2000 and 1998 in the form of 100 percent
stock dividends to stockholders. 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 consolidated financial information.
Amounts are in thousands, except per share amounts. The acquisitions of USAR
Systems (USAR) in December 1999, Acapella Limited (Acapella) in April 1998, and
Edge Semiconductor (Edge) in April 1997 were accounted for as poolings of
interests. The financial positions and results of operations of USAR, Acapella,
and Edge were included from November 1, 1999, February 1, 1998, and January 28,
1996, respectively (see Note 2 to the Consolidated Financial Statements).
Weighted average number of shares and net income per share reflect two-for-one
stock splits, effected in the form of stock dividends that were paid on January
13, 1998, September 14, 1999 and September 26, 2000. The information set forth
below should be read in conjunction with the Company's complete financial
statements, appearing elsewhere in this report.
Year Ended January
---------------------------------------------------------------------------
1997 1998 1999 2000 2001
---------------------------------------------------------------------------
Net Sales $71,595 $102,808 $114,519 $173,768 $256,685
Gross Profit 30,683 48,929 54,278 91,037 144,866
Operating Income 12,663 21,809 18,576 42,958 76,694
Income Before Taxes 12,714 22,159 19,362 44,104 86,028
Net Income $ 8,487 $ 14,761 $ 12,895 $ 29,395 $ 60,220
- ---------------------------------------------------------------------------------------------------------------
Net Income per Share:
16
Basic $ 0.16 $ 0.26 $ 0.22 $ 0.48 $ 0.91
Diluted $ 0.15 $ 0.24 $ 0.20 $ 0.42 $ 0.79
- ---------------------------------------------------------------------------------------------------------------
Weighted Average Number of Shares:
Basic 54,356 55,912 58,688 61,670 66,247
Diluted 56,200 60,472 63,568 70,630 76,527
- ---------------------------------------------------------------------------------------------------------------
Total Assets $45,688 $ 67,135 $ 92,556 $149,350 $677,288
Long-Term Obligations, Less Current
Maturities $ 1,256 $ 33 $ 57 $ 131 $400,230
Working Capital $25,585 $ 41,312 $ 65,844 $ 96,687 $530,967
Total Stockholders' Equity $33,986 $ 54,661 $ 79,771 $125,482 $242,357
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations together with the consolidated financial statements and
the notes to consolidated financial statements included elsewhere in this Form
10-K. 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 "Risk
Factors" section and elsewhere in this Form 10-K. 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.
One of our strategies is to expand our business through strategic
acquisitions. Over the past five 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 human
interface 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.
The results of operations described below give effect to our two-for-one
stock splits in the form of 100 percent stock dividends that were paid on
September 26, 2000 and September 14, 1999.
Market Update
The semiconductor and electronics industries have experienced very weak
market conditions so far in calendar year 2001. Excess inventory levels and
slowing end-market demand have adversely affected macro conditions within the
semiconductor industry. Industry sources have forecasted that worldwide year-
over-year sales of semiconductors
17
could be down as much as 20 percent in calendar year 2001. Many of our customers
and competitors have forecasted their results will be down dramatically in
calendar year 2001 in comparison to the prior year.
Consistent with these trends, we have revised our forecast as a result of
weak demand from the communications infrastructure and ATE markets. We had
received a limited amount of turns-filled-orders from the communications market
during the first quarter, and had to cancel backlog for many communications
customers. Additionally, a significant amount of backlog for the ATE market was
rescheduled to reflect customers' revised forecasts. Finally, demand from the
computer market was relatively stable. Ultimately, we believe our new product
developments and strategic focus should allow us to remain well positioned
within the marketplace.
Results of Operations
Fiscal Year 2001 Compared With Fiscal Year 2000
Net Sales. We generally recognized product revenue when persuasive evidence
of an arrangement exists, delivery has occurred, the fee is fixed or
determinable and collectibility is probable. Net sales for fiscal year 2001 were
$256.7 million, compared to $173.8 million for fiscal year 2000, a 48 percent
increase. This increase was due in part to favorable market conditions in the
overall semiconductor industry and the growth in sales into the communications
and industrial end market.
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
fiscal year 2001 was $144.9 million, compared to $91.0 million for the
comparable period in the prior year, a 59 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 56 percent for fiscal year 2001. This compared
to a gross margin of 52 percent for fiscal year 2000. The improvement is
attributed to increased operating efficiencies associated with higher shipment
levels, higher revenue contribution from products introduced in the last
eighteen months, 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 (SG&A), product development and
engineering costs (R&D), costs associated with acquisitions, and other operating
related charges. Operating costs and expenses were $68.2 million, or 27 percent
of net sales, for fiscal year 2001. Operating costs and expenses for fiscal year
2000 were $48.1 million, or 28 percent of net sales. Operating costs and
expenses, as a percentage of net sales, are lower for fiscal year 2001 than
previous levels due to higher shipment rates and greater efficiencies.
SG&A expenses for fiscal year 2001 were $36.2 million, or 14 percent of net
sales, compared to $27.2 million, or 16 percent of net sales for fiscal year
2000. The increase in expenditures was due primarily to the overall growth of
our business, while the decrease in percentage of net sales reflects higher
revenues and greater efficiencies.
R&D expenses were relatively consistent, as a percentage of net sales, at
$32.0 million, or 12 percent of net sales in fiscal year 2001, up 57 percent
from $20.3 million, or 12 percent of net sales in fiscal year 2000. We continue
to invest heavily in areas deemed critical for developing and marketing new
products, which are generally targeted at broadening our customer base, product
lines and end-product applications.
Operating costs and expenses for fiscal year 2000 include one-time costs of
$531,000 associated with the December 1999 acquisition of USAR Systems.
Interest and Other Income. Interest and other income of $9.3 million was
realized in fiscal year 2001, up dramatically from interest and other income of
$1.1 million in fiscal year 2000. Interest and other income in fiscal year 2001
is made up primarily of interest income. For fiscal year 2000, interest and
other income and expenses was primarily interest income. The significant
increase in interest and other income in fiscal year 2001 over the prior year
was income attributable to cash provided by the February 2000 issuance of $400.0
million in convertible subordinated debentures. Interest income from investments
made with the debenture proceeds far exceed the fixed interest expense paid to
bond holders.
18
Provision for Taxes. Provision for income taxes was $25.8 million in fiscal
year 2001, an effective tax rate of 30 percent. Provision for income taxes was
$14.7 million in fiscal year 2000, an effective tax rate of 33 percent. The
decline is due to increased sales through foreign-based subsidiaries that are in
lower tax jurisdictions.
Fiscal Year 2000 Compared With Fiscal Year 1999
Net Sales. We generally recognized product revenue when persuasive evidence
of an arrangement exists, delivery has occurred, the fee is fixed or
determinable and collectibility is probable. Net sales for fiscal year 2000 were
$173.8 million, compared to $114.5 million for fiscal year 1999, a 52 percent
increase. This increase was due in part to favorable market conditions in the
overall semiconductor industry and the growth in sales into the communications
end market.
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
fiscal year 2000 was $91.0 million, compared to $54.3 million for the comparable
period in the prior year, a 68 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 52 percent for fiscal year 2000. This compared
to a gross margin of 47 percent for fiscal year 1999. The improvement is
attributed to increased operating efficiencies associated with higher shipment
levels, higher revenue contribution from products introduced in the last year,
and a favorable shift in product mix toward higher margin product lines. Gross
profit for fiscal year 1999 was adversely effected by one-time charges of $1.2
million for write-offs of discontinued inventory associated with restructuring
our Corpus Christi facility.
Operating Costs and Expenses. Operating costs and expenses generally
consist of selling, general and administrative (SG&A), product development and
engineering costs (R&D), costs associated with acquisitions, and other operating
related charges. Operating costs and expenses were $48.1 million, or 28 percent
of net sales, for fiscal year 2000. Operating costs and expenses for fiscal year
1999 were $35.7 million, or 31 percent of net sales. Operating costs and
expenses, as a percentage of net sales, are lower for fiscal year 2000 than
previous levels due to higher shipment rates and greater efficiencies.
SG&A expenses for fiscal year 2000 were $27.2 million, or 16 percent of net
sales, compared to $20.1 million, or 18 percent of net sales for fiscal year
1999. 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 expenses were relatively
consistent at $20.3 million, or 12 percent of net sales, for fiscal year 2000,
compared to $14.0 million, or 12 percent of net sales, for fiscal year 1999. We
continue to invest heavily in areas deemed critical for developing and marketing
new products, which are generally targeted at broadening our customer base,
product lines and end-product applications.
Operating costs and expenses for fiscal year 2000 include one-time costs of
$531,000 associated with the December 1999 acquisition of USAR Systems.
Operating costs and expenses for fiscal year 1999 include one-time costs of
$255,000 associated with the April 1998 acquisition of Acapella Limited.
Additionally, a one-time restructuring charge of $1.3 million was taken in the
same period in connection with the consolidation of manufacturing capacity and
the write-down of impaired assets at our Corpus Christi, Texas facility.
Interest and Other Income. Interest and other income of $1.1 million was
realized in fiscal year 2000. For fiscal year 1999, interest and other income
was $786,000. Interest and other income for both periods is primarily interest
income.
Provision for Taxes. Provision for income taxes was $14.7 million in fiscal
year 2000, compared to $6.5 million in fiscal year 1999. The effective tax rate
for fiscal years 2000 and 1999 remained constant at 33 percent.
Selected Quarterly Financial Data (Unaudited)
The following tables set forth our unaudited consolidated statements of
income data for each of the eight quarterly periods ended January 28, 2001, as
well as that data expressed as a percentage of our net sales for the quarters
presented. You should read this information in conjunction with our consolidated
financial statements and related notes
19
appearing elsewhere in this Form 10-K. We have prepared this unaudited
consolidated information on a basis consistent with our audited consolidated
financial statements, and, in the opinion of our management, it reflects all
normal recurring adjustments that we consider necessary for a fair presentation
of our financial position and operating results for the quarters presented. You
should not draw any conclusions about our future results from the operating
results for any quarter.
Quarter Ended
----------------------------------------------------------------------------------------
May 2, Aug. 1, Oct. 31, Jan. 30, April 30, Jul. 30, Oct. 29, Jan. 28,
1999 1999 1999 2000 2000 2000 2000 2001
----------------------------------------------------------------------------------------
(in thousands, except per share data)
Net sales $33,044 $38,253 $47,072 $55,399 $57,412 $60,646 $69,012 $69,615
Cost of sales 16,445 18,609 22,087 25,590 26,220 27,006 29,553 29,040
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 16,599 19,644 24,985 29,809 31,192 33,640 39,459 40,575
Operating costs and expenses:
Selling, general and
administrative 5,642 6,067 7,173 8,324 8,220 8,638 9,546 9,760
Product development and
engineering 4,117 4,527 5,532 6,166 7,045 7,721 8,615 8,627
One-time charges - - - 531 - - - -
------- ------- ------- ------- ------- ------- ------- -------
Total operating costs
and expenses 9,759 10,594 12,705 15,021 15,265 16,359 18,161 18,387
------- ------- ------- ------- ------- ------- ------- -------
Operating income 6,840 9,050 12,280 14,788 15,927 17,281 21,298 22,188
Interest and other income, net 254 231 244 417 1,329 2,311 2,758 2,936
------- ------- ------- ------- ------- ------- ------- -------
Income before taxes 7,094 9,281 12,524 15,205 17,256 19,592 24,056 25,124
Provisions for taxes 2,341 3,063 4,133 5,172 5,177 5,878 7,216 7,537
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 4,753 $ 6,218 $ 8,391 $10,033 $12,079 $13,714 $16,840 $17,587
======= ======= ======= ======= ======= ======= ======= =======
Net income per share (1):
Basic $ 0.08 $ 0.10 $ 0.14 $ 0.16 $ 0.19 $ 0.21 $ 0.25 $ 0.26
======= ======= ======= ======= ======= ======= ======= =======
Diluted $ 0.07 $ 0.09 $ 0.12 $ 0.14 $ 0.16 $ 0.18 $ 0.22 $ 0.23
======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of
shares (1):
Basic 60,116 60,932 61,866 63,728 64,682 65,820 66,923 67,582
Diluted 66,204 69,224 71,086 73,708 74,764 75,828 77,114 76,208
_________________
(1) Reflects two-for-one stock splits effected in the form of 100 percent stock
dividends paid on September 14, 1999, and September 26, 2000.
Liquidity and Capital Resources
On February 14, 2000, we completed a private offering of $400.0 million
principal amount of convertible subordinated debentures that pay interest
semiannually at a rate of 4 1/2 percent and are convertible into our common
stock at a conversion price of $42.23 per share. The notes are due in seven
years from the date of issuance and callable by the Company after three 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 January 28, 2001, we had working capital of $531.0 million, compared
with $96.7 million at January 30, 2000. The ratio of current assets to current
liabilities at January 28, 2001 was 16.3 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 the convertible subordinated debentures.
Cash provided by operating activities was $86.0 million for the fiscal year
2001, compared to $36.6 million for fiscal year 2000. Net income for fiscal year
2001 was reduced by non-cash charges for depreciation and amortization
20
of $8.8 million. Net operating cash flows were favorably impacted by net income
of $60.2 million compared to $29.4 million in the prior year. Net operating
activities for fiscal year 2001 were positively impacted by an increase in
accounts payable, accrued liabilities and the impact of the tax benefit from
stock option exercises. These items were partially offset by increases in
receivables, inventories, income taxes refundable, and other assets as well as a
reduction in income taxes payable and other liabilities.
Investing activities used $212.4 million in fiscal year 2001 compared to
$31.4 million in fiscal year 2000. Investing activities in fiscal year 2001
consists of increases in temporary investments, investments with maturities in
excess of 1 year and capital expenditures of $130.5 million, $59.2 million and
$22.7 million, respectively. Cash used in investing activities for the
comparable prior year period reflects a $15.0 million addition to property,
plant and equipment and $16.4 million increase in temporary investments.
Our financing activities provided positive cash flows of $404.5 million
during fiscal year 2001 and used $1.0 million in the prior year. Financing
activities for fiscal year 2001 reflect the proceeds, net of related fees, from
the issuance of $400.0 million of convertible subordinated debentures, cash
provided by stock option exercises, offset by the repurchase of treasury stock.
Financing activities for the comparable prior year period represented cash from
stock option exercises, cash used and proceeds from the repurchase and
reissuance of treasury stock, and the cash effects of a pooling of interests.
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. Through our foreign subsidiary, we maintain an
overdraft credit line in the amount of 300,000 pounds sterling. As of January
28, 2001, 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 improve internal
computer systems and expand manufacturing capacity. 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.
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 Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Investments and Hedging Activities," and SFAS No. 137, which
delayed the effective date of SFAS No. 133. In June 2000, the FASB issued SFAS
No. 138, which provides additional guidance for the application of SFAS No. 133
for certain transactions. We will adopt the statement in fiscal year 2002 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 in Financial
Statements," and as amended. SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. We have applied the provisions of SAB 101 in the
consolidated financial statements. The adoption of SAB 101 did not have a
material impact on our financial condition or results of operations.
In March 2000, the FASB issued interpretation No. 44 (FIN 44), "Accounting
for Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for
21
certain issues, including the definition of an employee, the treatment of the
acceleration of stock options and the accounting treatment for options assumed
in business combinations. FIN 44 became effective on July 1, 2000, but is
applicable for certain transactions dating back to December 1998. The adoption
of FIN 44 did not have a significant impact on our financial position or results
of operations.
FORWARD LOOKING STATEMENTS
In addition to historical information, this Form 10-K 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-K. 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 "Risk Factors" including those set forth
below and those detailed from time to time in our filings with the SEC:
. cyclical nature of the semiconductor industry;
. adverse effects of economic downturn in our end-markets;
. successful development and timing of new products;
. ability to attract or retain specialized technical personnel;
. availability of manufacturing capacity, including from foreign-based
suppliers;
. fluctuation of quarterly operating results;
. our reliance on the communications infrastructure and automated test
equipment markets;
. fluctuations in interest rates effect our return on investments;
. loss of a significant customer or customer order;
. our ability to manage and integrate our expanding and more diverse
operations;
. our ability to integrate strategic acquisitions;
. our ability to compete against larger, more established entities;
. fluctuations in manufacturing yields and commitment of resources prior to
receipt of customer orders;
. 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, we face exposure to adverse movements in foreign
currency exchange rates. Our foreign currency exposures may change over time as
the level of activity in foreign markets grows and could have an adverse impact
upon financial results.
22
Certain of our 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 our 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,
we do not employ hedging techniques designed to mitigate foreign currency
exposures. Likewise, we could experience unanticipated currency gains or losses.
Interest Rate Risk
As of January 28, 2001, we had $400.0 million in long-term debt outstanding
at a fixed interest rate of 4 1/2 percent. We do not currently hedge any
potential interest rate exposure.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED JANUARY 28, 2001
(In thousands, except per share data)
2001 2000 1999
- --------------------------------------------------------------------------------------------------------
NET SALES $256,685 $173,768 $114,519
Cost of Sales 111,819 82,731 60,241
-------- -------- --------
Gross Profit 144,866 91,037 54,278
-------- -------- --------
Operating costs and expenses:
Selling, general and administrative 36,164 27,206 20,091
Product development and engineering 32,008 20,342 14,026
Restructuring charge - - 1,330
Acquisition costs - 531 255
-------- -------- --------
Operating costs and expenses 68,172 48,079 35,702
-------- -------- --------
Operating Income 76,694 42,958 18,576
Interest expense (18,718) (57) (22)
Interest and other income, net 28,052 1,203 808
-------- -------- --------
Income before provision for taxes 86,028 44,104 19,362
Provision for taxes 25,808 14,709 6,467
-------- -------- --------
NET INCOME $ 60,220 $ 29,395 $ 12,895
======== ======== ========
Earnings per share:
Net income per share -
Basic $ 0.91 $ 0.48 $ 0.22
Diluted $ 0.79 $ 0.42 $ 0.20
Weighted average number of shares -
Basic 66,247 61,670 58,688
Diluted 76,527 70,630 63,568
See accompanying notes.
24
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 28, 2001 AND JANUARY 30, 2000
(In thousands, except share data)
2001 2000
- ------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $323,182 $ 45,225
Temporary investments 148,582 18,066
Receivables, less allowances of $1,100 in 2001 and $750 in 2000 37,935 25,223
Inventories 31,595 26,581
Deferred income taxes 19,993 4,106
Other current assets 4,381 1,223
-------- --------
Total current assets 565,668 120,424
Property, plant and equipment, net 40,064 24,397
Investments with maturities in excess of 1 year 59,215 -
Deferred income taxes 936 3,047
Other assets 11,405 1,482
-------- --------
TOTAL ASSETS $677,288 $149,350
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,934 $ 10,723
Accrued liabilities 18,925 8,869
Deferred revenue 2,049 2,555
Income taxes payable 756 1,389
Other current liabilities 37 201
-------- --------
Total current liabilities 34,701 23,737
Convertible subordinated debentures 400,000 -
Other long-term liabilities 230 131
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 250,000,000 authorized
68,158,882 issued and 68,116,382 outstanding in 2001 and 682 641
64,096,504 issued and outstanding in 2000
Treasury stock, 42,500 at cost in 2001 (1,018) -
Additional paid-in capital 111,303 53,564
Retained earnings 131,718 71,498
Accumulated other comprehensive loss (328) (221)
-------- --------
Total stockholders' equity 242,357 125,482
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $677,288 $149,350
======== ========
See accompanying notes.
25
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
THREE YEARS ENDED JANUARY 28, 2001
(In thousands, except share amounts)
Common Stock
----------------------------------
Accumulated
Additional Other
Number Paid-in Retained Treasury Comprehensive Stockholders'
of Shares Amount Capital Earnings Stock, at Cost Loss Equity
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at February 1, 1998 56,776,920 $568 $ 17,980 $ 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 703,096 7 54 184 - - 245
Exercise of stock options 3,295,904 33 6,112 - - - 6,145
Tax benefit from exercised
stock options - - 5,859 - - - 5,859
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1999 60,775,920 608 30,005 49,411 - (253) 79,771
=================================================================================================================================
Comprehensive income:
Net income - - - 29,395 - - 29,395
Translation adjustment - - - - - 32 32
--------
Comprehensive income - - - - - - 29,427
Effect of pooling with USAR
Systems 990,808 10 1,224 (143) - - 1,091
Stock repurchase (1,402,000) (14) - - (13,836) (13,850)
Reissued treasury stock 1,382,000 14 - (7,165) 13,836 - 6,685
Purchase of Practical Sciences 20,000 - 349 - - - 349
Exercise of stock options 2,329,776 23 5,035 - - - 5,058
Tax benefit from exercised
stock options - - 16,951 - - - 16,951
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at January 30, 2000 64,096,504 641 53,564 71,498 - (221) 125,482
=================================================================================================================================
Comprehensive income:
Net income - - - 60,220 - - 60,220
Translation adjustment - - - - - (107) (107)
--------
Comprehensive income - - - - - - 60,113
Stock repurchase (42,500) - - - (1,018) (1,018)
Exercise of stock options 4,062,378 41 16,946 - - - 16,987
Tax benefit from exercised
stock options - - 40,793 - - - 40,793
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at January 28, 2001 68,116,382 $682 $111,303 $131,718 $ (1,018) $(328) $242,357
=================================================================================================================================
See accompanying notes.
26
SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JANUARY 28, 2001
(In thousands)
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 60,220 $ 29,395 $12,895
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,837 4,118 3,723
Deferred income taxes (13,776) (21,487) (6,661)
Gain on disposition of property, plant and equipment - - (1)
Provision for doubtful accounts 760 45 135
Tax benefit from stock option exercises 40,793 16,951 5,859
Non-cash portion of restructuring charge - - 2,366
Changes in assets and liabilities, net of effect of acquisition:
Receivables (13,472) (9,854) (1,827)
Inventories (5,014) (9,778) (955)
Other assets (3,407) (823) (509)
Accounts payable 2,211 5,427 55
Accrued liabilities 10,056 3,767 643
Deferred revenue (506) 320 2,235
Income taxes payable (633) 18,340 4,839
Other liabilities (65) 180 (1,602)
--------- -------- -------
Net cash provided by operating activities 86,004 36,601 21,195
Cash flows from investing activities:
Temporary investments, net (130,516) (16,418) 204
Purchases of investments, maturing in excess of 1 year (59,215) - -
Proceeds from sale of property, plant and equipment - - 62
Purchases of property, plant and equipment (22,667) (15,009) (5,590)
--------- -------- -------
Net cash used in investing activities (212,398) (31,427) (5,324)
Cash flows from financing activities:
Issuance of long-term debt, net of fees 388,489 - -
Exercise of stock options 16,987 5,058 6,145
Repurchase of treasury stock (1,018) (13,850) -
Reissuance of treasury stock - 6,685 -
Effect of pooling of interests - 1,091 245
--------- -------- -------
Net cash provided by (used in) financing activities 404,458 (1,016) 6,390
Effect of exchange rate changes on cash and cash equivalents (107) 32 (34)
--------- -------- -------
Net increase in cash and cash equivalents 277,957 4,190 22,227
Cash and cash equivalents at beginning of year 45,225 41,035 18,808
--------- -------- -------
Cash and cash equivalents at end of year $ 323,182 $ 45,225 $41,035
========= ======== =======
See accompanying notes.
27
SEMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
Semtech Corporation and its wholly owned subsidiaries (Semtech International,
Semtech Corpus Christi, Semtech Limited, Semtech Santa Clara, Semtech San Diego,
Acapella Limited, and Semtech New York, together, the Company) is a leading
supplier of analog and mixed-