LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED APRIL 2, 2000
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the 2
three and nine months ended April 2, 2000 and
March 28, 1999
Condensed Consolidated Balance Sheets at April 2, 2000 3-4
and June 27, 1999
Condensed Consolidated Statements of Cash Flows for the 5
nine months ended April 2, 2000 and March 28, 1999
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7-9
Condition and Results of Operations
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
April 2, March 28, April 2, March 28,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $185,075 $130,093 $494,900 $366,145
Cost of sales 47,435 35,643 126,942 103,334
-------- -------- -------- --------
Gross profit 137,640 94,450 367,958 262,811
-------- -------- -------- --------
Expenses:
Research and development 19,435 14,544 56,077 38,704
Selling, general and administrative 19,394 13,387 53,078 38,430
-------- -------- -------- --------
38,829 27,931 109,155 77,134
-------- -------- -------- --------
Operating income 98,811 66,519 258,803 185,677
Interest income 11,141 6,758 30,003 20,373
-------- -------- -------- --------
Income before income taxes 109,952 73,277 288,806 206,050
Provision for income taxes 34,085 23,449 89,531 65,936
-------- -------- -------- --------
Net income $ 75,867 $ 49,828 $199,275 $140,114
======== ======== ======== ========
Basic earnings per share $ 0.24 $ 0.16 $ 0.64 $ 0.46
======== ======== ======== ========
Shares used in the calculation
of basic earnings per 312,119 304,058 309,927 303,074
share
Diluted earnings per share $ 0.23 $ 0.16 $ 0.61 $ 0.44
======== ======== ======== ========
Shares used in the calculation of diluted
earnings per share 329,536 318,394 326,774 316,203
======== ======== ======== ========
Cash dividends per share $ 0.02 $ 0.0175 $ 0.06 $ 0.0525
======== ======== ======== ========
<FN>
See accompanying notes
</FN>
2
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
April 2, June 27,
2000 1999
----------- -----------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 154,982 $ 154,220
Short-term investments 872,385 632,487
Accounts receivable, net of allowance for
doubtful accounts of $803 ($803 at
June 27, 1999) 74,247 62,188
Inventories:
Raw materials 4,199 2,705
Work-in-process 8,903 8,178
Finished goods 6,726 4,641
----------- -----------
Total inventories 19,828 15,524
Deferred tax assets 30,118 28,116
Prepaid expenses and other current assets 11,805 12,577
----------- -----------
Total current assets 1,163,365 905,112
----------- -----------
Property, plant and equipment, at cost:
Land, building and improvements 88,951 78,555
Manufacturing and test equipment 209,870 166,863
Office furniture and equipment 3,242 3,234
----------- -----------
302,063 248,652
Less accumulated depreciation and
amortization (125,200) (106,850)
----------- -----------
Net property, plant and equipment 176,863 141,802
----------- -----------
$ 1,340,228 $ 1,046,914
=========== ===========
See accompanying notes
3
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands)
April 2, June 27,
2000 1999
---------- ----------
(unaudited) (audited)
Current liabilities:
Accounts payable $ 13,264 $ 7,873
Accrued payroll and related benefits 33,910 33,653
Deferred income on shipments to distributors 40,531 35,464
Income taxes payable 21,479 27,404
Other accrued liabilities 25,238 20,881
---------- ----------
Total current liabilities 134,422 125,275
Deferred tax liabilities 14,370 14,845
Shareholders' equity:
Common stock, no par value, 480,000
shares authorized; 313,089
shares issued and outstanding at
April 2, 2000 (307,462 shares
at June 27, 1999) 415,943 312,027
Retained earnings 775,493 594,767
---------- ----------
Total shareholders' equity 1,191,436 906,794
---------- ----------
$1,340,228 $1,046,914
========== ==========
See accompanying notes
4
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
Nine Months Ended
----------------------
April 2, March 28,
2000 1999
--------- ---------
Cash flow from operating activities:
Net income $ 199,275 $ 140,114
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,351 16,120
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (12,059) 3,706
Decrease (increase) in inventories (4,304) 345
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets (1,230) 1,470
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities 4,080 (15,429)
Tax benefit from stock option transactions 65,640 39,389
Increase (decrease) in deferred income 5,067 (288)
Increase (decrease) in deferred tax liabilities (475) (1)
--------- ---------
Cash provided by operating activities 274,345 185,426
--------- ---------
Cash flow from investing activities:
Purchase of short-term investments (469,608) (406,455)
Proceeds from sales and maturities of short-term
investments 229,710 324,234
Purchase of property, plant and equipment (53,412) (32,671)
--------- ---------
Cash used in investing activities (293,310) (114,892)
--------- ---------
Cash flow from financing activities:
Issuance of common stock under employee stock plans 38,276 29,340
Purchase of common stock -- (108,736)
Payment of cash dividends (18,549) (15,960)
--------- ---------
Cash used in financing activities 19,727 (95,356)
--------- ---------
Increase (decrease) in cash and cash equivalents 762 (24,822)
Cash and cash equivalents, beginning of period 154,220 128,733
--------- ---------
Cash and cash equivalents, end of period $ 154,982 $ 103,911
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 32,179 $ 32,973
========= =========
<FN>
See accompanying notes
</FN>
5
LINEAR TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim financial statements and information are unaudited; however, in the
opinion of management all adjustments necessary for a fair and accurate
presentation of the interim results have been made. All such adjustments
were of a normal recurring nature. The results for the three months and
nine months ended April 2, 2000 are not necessarily an indication of
results to be expected for the entire fiscal year. All information reported
in this Form 10-Q should be read in conjunction with the Company's annual
consolidated financial statements for the fiscal year ended June 27, 1999
included in the Company's Annual Report to Shareholders. The accompanying
balance sheet at June 27, 1999 has been derived from audited financial
statements as of that date. All share and per share information has been
adjusted for the effect of the Company's two-for-one stock split which was
distributed March 27, 2000. There were no material differences between
comprehensive income and net income for all periods presented. Because the
Company is viewed as a single operating segment for management purposes, no
segment information has been disclosed.
2. The Company operates on a 52/53 week year ending on the Sunday nearest June
30. Fiscal 2000 will consist of 53 weeks, compared to 52 weeks for fiscal
1999. The extra week occurred in the Company's second fiscal quarter ended
January 2, 2000.
3. Basic earnings per share is calculated using the weighted average shares of
common stock outstanding during the period. Diluted earnings per share is
calculated using the weighted average shares of common stock outstanding,
plus the dilutive effect of stock options calculated using the treasury
stock method. The following table sets forth the reconciliation of weighted
average common shares outstanding used in the computation of basic and
diluted earnings per share:
Three Months Ended Nine Months Ended
------------------ ------------------
April 2, March 28, April 2, March 28,
2000 1999 2000 1999
-------- -------- -------- --------
Numerator - Net income $ 75,867 $ 49,828 $199,275 $140,114
-------- -------- -------- --------
Denominator for basic earnings
per share - weighted average
shares 312,119 304,058 309,927 303,074
Effect of dilutive securities -
employee stock options 17,417 14,336 16,847 13,129
-------- -------- -------- --------
Denominator for diluted
earnings per share 329,536 318,394 326,774 316,203
-------- -------- -------- --------
Basic earnings per share $ 0.24 $ 0.16 $ 0.64 $ 0.46
======== ======== ======== ========
Diluted earnings per share $ 0.23 $ 0.16 $ 0.61 $ 0.44
======== ======== ======== ========
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The table below states the income statement items for the three and
nine months ended April 2, 2000 and March 28, 1999 as a percentage of net sales
and provides the percentage change in absolute dollars of such items comparing
the interim periods ended April 2, 2000 to the corresponding periods from the
prior fiscal year:
Three Months Ended Nine Months Ended
----------------------------------- ----------------------------------
April 2, March 28, Increase/ April 2, March 28, Increase/
2000 1999 (Decrease) 2000 1999 (Decrease)
Net sales 100.0% 100.0% 42% 100.0% 100.0% 35%
Cost of sales 25.6 27.4 33 25.7 28.2 23
------ ------ ------ ------
Gross profit 74.4 72.6 46 74.3 71.8 40
------ ------ ------ ------
Expenses:
Research & development 10.5 11.2 34 11.3 10.6 45
Selling, general &
administrative 10.5 10.3 45 10.7 10.5 38
------ ------ ------ ------
21.0 21.5 39 22.1 21.1 42
------ ------ ------ ------
Operating income 53.4 51.1 49 52.3 50.7 39
Interest income 6.0 5.2 65 6.1 5.6 47
------ ------ ------ ------
Income before income taxes 59.4% 56.3% 50 58.4% 56.3% 40
====== ====== ====== ======
Effective tax rates 31.0% 32.0% 31.0% 32.0%
====== ====== ====== ======
Net sales for the quarter ended April 2, 2000 were a record $185.1
million, an increase of $55.0 million or 42% over net sales for the same quarter
of the previous year. This increase was due to higher unit shipments, while the
average selling price declined slightly. Sales increased in all geographic
areas, with the United States and Europe leading Japan and the rest of Asia.
International sales for the third quarters of both fiscal 2000 and 1999 were 55%
of net sales. Relative to end-market applications, sales increased significantly
over the prior year's quarter in each of the Company's three major end markets:
communications, computer and industrial, with communications showing the most
growth particularly in the networking area, fueled by growth in internet
infrastructure products.
Net sales for the nine months ended April 2, 2000 increased $128.8
million or 35% over net sales for the same period of the previous year. This
increase was due primarily to higher unit shipments while the average selling
price declined slightly. Sales increased in all geographic areas, particularly
Asia and the United States, and in all major end market applications led by
communications.
Gross profit increased $43.2 million or 46% and $105.1 million or 40%
for the third quarter and first nine months of fiscal 2000 over the
corresponding periods in fiscal 1999. The improvement in gross profit as a
percentage of net sales was primarily due to the favorable effect of fixed costs
allocated across a higher sales base and improved manufacturing efficiencies and
yields achieved at the Company's fabrication, assembly and test facilities.
Research and development ("R&D") expenses increased by $4.9 million or
34% and $17.4 million or 45% for the third quarter and first nine months of
fiscal 2000, respectively, as compared to the same periods in fiscal 1999. The
increases in R&D expenses compared to the prior year periods were due to
increases in staffing levels of design and test engineering personnel which
resulted in higher compensation costs, increased profit sharing costs driven by
the increases in sales and profitability, and development costs in new product
areas.
Selling, general and administrative expenses ("SG&A") increased by $6.0
million or 45% and $14.6 million or 38% for the third quarter and first nine
months of fiscal 2000, respectively, as compared to the same periods in fiscal
1999. The increases in SG&A expenses compared to the prior year periods were due
primarily to an increase in staffing levels to support the increased sales
volume, higher profit sharing costs and higher
7
commissions resulting from the increase in sales. The increased expenses were
partially offset by a reduction in reserves for certain business disputes with
third parties that were resolved in the Company's favor.
Interest income was $11.1 million and $30.0 million for the third
quarter and first nine months of fiscal 2000, an increase of $4.4 million and
$9.6 million respectively, over the corresponding periods of fiscal 1999. The
increase in interest income resulted from an increase in the cash and investment
balances and a higher rate of return.
The Company's effective tax rate for the third quarter and the first
nine months of fiscal 2000 was 31.0%, down from 32.0% in fiscal 1999. The lower
tax rate is due primarily to increased business activity in foreign
jurisdictions and an increase in assets deployed outside of California in
jurisdictions where the Company experiences lower tax rates. Although the
Company's tax holiday in Singapore expired in September 1999, it is anticipated
that the Company will receive at least a partial rate reduction for its
Singapore operations going forward.
Factors Affecting Future Operating Results
Except for historical information contained herein, the matters set
forth in this Form 10-Q, including the statements in the following paragraphs,
are forward-looking statements that are dependent on certain risks and
uncertainties including such factors, among others, as the timing, volume and
pricing of new orders received and shipped during the quarter, timely ramp-up of
new facilities, the timely introduction of new processes and products, general
conditions in the world economy and financial markets and other factors
described below.
Management of the Company believes the long-term prospects for the
business are excellent and the Company continues to invest in the plant
infrastructure and technical talent to maximize its opportunities. The Company
has had seven consecutive strong bookings quarters both in the magnitude of
bookings and in their breadth across end-market applications and geographic
regions, with the current quarter's bookings being the strongest in the history
of the Company. Customers are generally positive in their business outlook, and
appear to be placing orders on the Company to meet their demand as opposed to
significantly building inventory. However, as general business conditions
continue strong, customers are more watchful of product availability. The
Company continues to be dependent to some extent on orders that book and ship in
the same quarter, although to a lesser extent than in previous quarters. In
summary, given the acceleration of bookings throughout last quarter and the
acceptance of new products at customers, the Company currently expects to grow
sales in the near-term in the low double-digit range sequentially over the
quarter just reported. The Company expects that its profitability as a
percentage of sales will be generally unchanged during this period.
Estimates of future performance are uncertain, and past performance of
the Company may not be a good indicator of future performance due to factors
affecting the Company, its competitors, the semiconductor industry and the
overall economy. The semiconductor industry is characterized by rapid
technological change, price erosion, cyclical market patterns, periodic
oversupply conditions, occasional shortages of materials, capacity constraints,
variations in manufacturing efficiencies and significant expenditures for
capital equipment and product development. Furthermore, new product
introductions and patent protection of existing products are critical factors
for future sales growth and sustained profitability.
Although the Company believes that it has the product lines,
manufacturing facilities and technical and financial resources for its current
operations, sales and profitability can be significantly affected by the above
and other factors. Additionally, the Company's common stock could be subject to
significant price volatility should sales and/or earnings fail to meet
expectations of the investment community. Furthermore, stocks of high technology
companies are subject to extreme price and volume fluctuations that are often
unrelated or disproportionate to the operating performance of these companies.
Liquidity and Capital Resources
At April 2, 2000, cash, cash equivalents and short-term investments
totaled $1,027.4 million, and working capital was $1,028.9 million.
8
During the first nine months of fiscal 2000, the Company generated
$274.3 million of cash from operating activities. Additionally, the Company
generated $38.3 million in proceeds from common stock issued under employee
stock option and stock purchase plans.
During the first nine months of fiscal 2000, significant cash
expenditures included net purchases of short-term investments of $239.9 million
and $53.4 million for the purchase of capital assets, primarily manufacturing
equipment for the Company's fabrication, assembly and test facilities. The
Company also paid $18.5 million for cash dividends to shareholders representing
$0.02 per share per quarter. In April 2000, the Company's Board of Directors
declared an increase in the quarterly cash dividend to $0.03 per share to be
paid during the fourth quarter of fiscal 2000. The payment of future dividends
will be based on quarterly financial performance.
Historically, the Company has satisfied its liquidity needs through
cash generated from operations and the placement of equity securities. Given its
strong financial condition and performance, the Company believes that current
capital resources and cash generated from operating activities will be
sufficient to meet its liquidity and capital expenditures requirements for the
foreseeable future.
9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule for the nine months ended
April 2, 2000
b) Reports on Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINEAR TECHNOLOGY CORPORATION
DATE: May 15, 2000 BY /s/Paul Coghlan
----------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
11