FORM 1O-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 1, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-14864
LINEAR TECHNOLOGY CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
California 942778785
---------- ---------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
1630 McCarthy Blvd.
Milpitas, California 95035-7417
(408) 432-1900
--------------
(Address, Including zip code and Telephone number,
Including area code of registrant's principal executive offices)
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
--- ---
There were 316,719,990 shares of the Registrant's Common Stock issued and
outstanding as of October 27, 2000.
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE MONTHS ENDED OCTOBER 1, 2000
INDEX
Page
----
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the 2
three months ended October 1, 2000 and September 26, 1999
Condensed Consolidated Balance Sheets at October 1, 2000 3-4
and July 2, 2000
Condensed Consolidated Statements of Cash Flows for the
three months ended October 1, 2000 and September 26, 1999 5
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
------------------------
October 1, September 26,
2000 1999
-------- --------
Net sales $232,141 $147,531
Cost of sales 55,490 37,969
-------- --------
Gross profit 176,651 109,562
-------- --------
Expenses:
Research and development 24,747 17,885
Selling, general and administrative 20,419 15,515
-------- --------
45,166 33,400
-------- --------
Operating income 131,485 76,162
Interest income 14,484 8,558
-------- --------
Income before income taxes 145,969 84,720
Provision for income taxes 43,791 26,263
-------- --------
Net income $102,178 $ 58,457
======== ========
Basic earnings per share $ 0.32 $ 0.19
======== ========
Shares used in the calculation of
basic earnings per share 315,782 307,918
======== ========
Diluted earnings per share $ 0.31 $ 0.18
======== ========
Shares used in the calculation of diluted
earnings per share 333,321 324,740
======== ========
Cash dividends per share $ 0.03 $ 0.02
======== ========
See accompanying notes
2
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
October 1, July 2,
2000 2000
----------- -----------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 213,415 $ 230,455
Short-term investments 1,060,542 945,103
Accounts receivable, net of allowance for
doubtful accounts of $803 ($803 at
July 2, 2000) 74,812 69,326
Inventories:
Raw materials 6,139 5,201
Work-in-process 8,591 8,880
Finished goods 8,724 7,831
----------- -----------
Total inventories 23,454 21,912
Deferred tax assets 32,246 32,246
Prepaid expenses and other current assets 15,046 11,061
----------- -----------
Total current assets 1,419,515 1,310,103
----------- -----------
Property, plant and equipment, at cost:
Land, building and improvements 98,925 91,670
Manufacturing and test equipment 274,884 234,042
Office furniture and equipment 3,335 3,249
----------- -----------
377,144 328,961
Less accumulated depreciation and
amortization (138,372) (131,808)
----------- -----------
Net property, plant and equipment 238,772 197,153
----------- -----------
$ 1,658,287 $ 1,507,256
=========== ===========
See accompanying notes
3
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands)
October 1, July 2,
2000 2000
---------- ----------
(unaudited) (audited)
Current liabilities:
Accounts payable $ 34,028 $ 16,829
Accrued payroll and related benefits 43,191 57,710
Deferred income on shipments to distributors 35,288 34,488
Income taxes payable 47,198 31,916
Other accrued liabilities 26,053 27,734
---------- ----------
Total current liabilities 185,758 168,677
Deferred tax liabilities 16,382 16,382
Shareholders' equity:
Common stock, no par value, 480,000
shares authorized; 316,588
shares issued and outstanding at
October 1, 2000 (315,167 shares
at July 2, 2000) 508,704 467,474
Retained earnings 947,443 854,723
---------- ----------
Total shareholders' equity 1,456,147 1,322,197
---------- ----------
$1,658,287 $1,507,256
========== ==========
See accompanying notes
4
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
Three Months Ended
---------------------------------
October 1, September 26,
2000 1999
--------- ---------
Cash flow from operating activities:
Net income $ 102,178 $ 58,457
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,564 5,926
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (5,487) (7,069)
Decrease (increase) in inventories (1,542) (899)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets (3,984) 1,072
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities 16,281 14,037
Tax benefit from stock option transactions 27,871 8,845
Increase (decrease) in deferred income 800 3,802
--------- ---------
Cash provided by operating activities 142,681 84,171
--------- ---------
Cash flow from investing activities:
Purchase of short-term investments (380,257) (189,353)
Proceeds from sales and maturities of short-term
investments 264,818 78,531
Purchase of property, plant and equipment (48,183) (9,615)
--------- ---------
Cash used in investing activities (163,622) (120,437)
--------- ---------
Cash flow from financing activities:
Issuance of common stock under employee stock plans 13,359 6,019
Payment of cash dividends (9,458) (6,151)
--------- ---------
Cash provided by (used in) financing activities 3,901 (132)
--------- ---------
Increase (decrease) in cash and cash equivalents (17,040) (36,398)
Cash and cash equivalents, beginning of period 230,455 154,220
--------- ---------
Cash and cash equivalents, end of period $ 213,415 $ 117,822
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 627 $ 2,921
========= =========
<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 ended
October 1, 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 July 2, 2000 included in the
Company's Annual Report to Shareholders. The accompanying balance sheet at
July 2, 2000 has been derived from audited financial statements as of that
date. 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 2001 is a 52 week year. Fiscal 2000 was a 53 week year; the
extra week was in the second 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
-------------------------
October 1, September 26,
2000 1999
-------- --------
Numerator - Net income $102,178 $ 58,457
-------- --------
Denominator for basic earnings per share - weighted
average shares 315,782 307,918
Effect of dilutive securities - employee stock
options 17,539 16,822
-------- --------
Denominator for diluted earnings per share 333,321 324,740
-------- --------
Basic earnings per share $ 0.32 $ 0.19
======== ========
Diluted earnings per share $ 0.31 $ 0.18
======== ========
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 months
ended October 1, 2000 and September 26, 1999 as a percentage of net sales and
provides the percentage change in absolute dollars of such items comparing the
interim period ended October 1, 2000 to the corresponding period from the prior
fiscal year:
Three Months Ended
---------------------------------------
October 1, September 26,
2000 1999 Increase
----- ----- --------
Net sales 100.0% 100.0% 57%
Cost of sales 23.9 25.7 46
----- -----
Gross profit 76.1 74.3 61
----- -----
Expenses:
Research and development 10.7 12.1 38
Selling, general and administrative 8.8 10.6 32
----- -----
19.5 22.7 35
----- -----
Operating income 56.6 51.6 73
Interest income 6.3 5.8 69
----- -----
Income before income taxes 62.9% 57.4% 72
===== ====
Effective tax rates 30.0% 31.0%
===== ====
Net sales for the quarter ended October 1, 2000 were a record $232.1
million, an increase of $84.6 million or 57% 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, mainly in the United States, followed by the rest of world, which is
primarily Asia excluding Japan, then Japan and Europe. International and
domestic sales for the first quarter of fiscal 2001 were both approximately 50%
of net sales. International geographies as a percent of worldwide net sales were
rest of world 22%, Europe 17% and Japan 11%. 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.
Gross profit increased $67.1 million or 61% in the first quarter of
fiscal 2001 over the corresponding period in fiscal 2000. 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 $6.9 million or
38% for the first quarter of fiscal 2001, as compared to the same period in
fiscal 2000. The increase in R&D expense compared to the prior year period was
due to increases in staffing levels of design and test engineering personnel
which resulted in higher compensation costs, and increased profit sharing costs
attributable to the record sales and profitability. Mask development and new
product testing costs also contributed to the increase.
Selling, general and administrative expenses ("SG&A") increased by $4.9
million or 32% for the first quarter of fiscal 2001, as compared to the same
period in fiscal 2000. The increase in SG&A expenses compared to the prior year
period was due to an increase in staffing levels to support the increased sales
volume, higher profit sharing costs, communications expenses, mainly
advertising, and higher commissions resulting from the increase in sales.
Interest income was $14.5 million for the first quarter of fiscal 2001,
an increase of $5.9 million over the corresponding period of fiscal 2000. The
increase in interest income resulted from a significant increase in the cash and
investment balances and a higher rate of interest.
7
The Company's effective tax rate for the first quarter of fiscal 2001
was 30.0%, down from 31.0% in fiscal 2000. The lower tax rate was primarily due
to increased business activity in foreign jurisdictions with lower tax rates and
an increase in tax-exempt interest income.
Cash paid for income taxes in the first quarter of fiscal 2001 was
lower than the corresponding period of the prior fiscal year due to the
increased tax benefit received from employee stock option transactions.
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. For the ninth
consecutive quarter the Company had a book to bill ratio above one, and
continues to experience strong bookings across all end-market applications and
geographic regions. In order to meet the growing customer demand, the Company
has constructed a new wafer fabrication plant and is currently finalizing the
installation of equipment and testing the fabrication process. Output from this
plant will begin to supply product for customers in the March quarter and will
increase capacity in the succeeding quarters. While the Company is increasing
capacity to meet its strong business level, its lead times are remaining at
roughly 12 weeks or one quarter. Consequently the Company is less dependent now
than in previous quarters on orders that book and ship in the same quarter. In
summary, given the strong bookings profile of recent quarters and the acceptance
of new products at customers, the Company currently expects to grow sales in the
near-term in the eight to ten percent 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. New product introductions and patent
protection of existing products are critical factors for future sales growth and
sustained profitability. Furthermore, the Company's headquarters and a portion
of its manufacturing facilities and research and development activities and
certain other critical business operations are located near major earthquake
fault lines. Consequently the Company could be adversely affected in the event
of a major earthquake.
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 October 1, 2000, cash, cash equivalents and short-term investments
totaled $1,274.0 million, and working capital was $1,233.8 million.
During the first three months of fiscal 2001, the Company generated
$142.7 million of cash from operating activities. Additionally, the Company
generated $13.4 million in proceeds from common stock issued under employee
stock plans.
8
During the first three months of fiscal 2001, significant cash
expenditures included net purchases of short-term investments of $115.4 million
and $48.2 million for the purchase of capital assets, primarily manufacturing
equipment for the Company's fabrication, assembly and test facilities. The
Company also paid $9.5 million for cash dividends to shareholders representing
$0.03 per share per quarter. 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 three months ended
October 1, 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: November 14, 2000 BY /s/Paul Coghlan
-----------------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
11