EXHIBIT 13.1 - Certain information included in the Registrant's Annual Report to
Stockholders for the fiscal year ended July 1, 2001
LINEAR TECHNOLOGY CORPORATION
QUARTERLY RESULTS AND STOCK MARKET DATA
(UNAUDITED)
In thousands, except per share amounts
------------------------------------------- ------------------ ------------------ ------------------ -----------------
Fiscal 2001
Quarter Ended July 1, 2001 April 1, 2001 Dec. 31, 2000 Oct. 1, 2000
------------------------------------------- ------------------ ------------------ ------------------ -----------------
Net sales $200,013 $282,021 $258,450 $232,141
Gross profit 150,705 216,829 197,318 176,651
Net income 84,817 125,703 114,758 102,178
Diluted earnings per share 0.26 0.38 0.34 0.31
Cash dividends per share 0.04 0.03 0.03 0.03
Stock price range per share:
High 58.00 65.06 67.44 73.00
Low 33.94 39.63 46.00 50.44
------------------------------------------- ------------------ ------------------ ------------------ -----------------
Fiscal 2000
Quarter Ended July 2, 2000 April 2, 2000 Jan. 2, 2000 Sept. 26, 1999
------------------------------------------- ------------------ ------------------ ------------------ -----------------
Net sales $211,017 $185,075 $162,294 $147,531
Gross profit 159,010 137,640 120,756 109,562
Net income 88,631 75,867 64,951 58,457
Diluted earnings per share 0.27 0.23 0.20 0.18
Cash dividends per share 0.03 0.02 0.02 0.02
Stock price range per share:
High 72.31 58.06 40.88 37.88
Low 41.00 36.00 27.89 28.78
------------------------------------------- ------------------ ------------------ ------------------ -----------------
Diluted earnings per share amounts are based on the weighted average common
shares and dilutive stock options outstanding during the quarter and may not add
to diluted earnings per share for the year. All share and per share amounts
reflect the Company's two-for-one stock split effective in February 2000.
Cash dividends of $0.13 per share totaling $41.2 million were paid by the
Company in fiscal 2001 as compared to $0.09 per share totaling $27.9 million in
fiscal 2000. In April 2001, the Company's Board of Directors announced that the
quarterly cash dividend was increased to $0.04 per share from $0.03 per share.
Future dividends will be based on quarterly financial performance.
The stock activity in the above table is based on the high and low closing
prices. These prices represent quotations between dealers without adjustment for
retail markups, markdowns or commissions, and may not represent actual
transactions. The Company's common stock is traded on the NASDAQ National market
System under the symbol LLTC.
At July 1, 2001, there were approximately 1,707 stockholders of record.
LINEAR TECHNOLOGY CORPORATION
SELECTED FINANCIAL INFORMATION/FIVE-YEAR TREND
In thousands, except per share amounts
------------------------------------------------ ------------ ------------ ------------ ------------ ------------
FIVE FISCAL YEARS ENDED JULY 1, 2001 2001 2000 1999 1998 1997
------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Income statement information
Net sales $ 972,625 $ 705,917 $ 506,669 $484,799 $379,251
Net income 427,456 287,906 194,293 180,902 134,371
Basic earnings per share 1.35 0.93 0.64 0.59 0.45
Diluted earnings per share 1.29 0.88 0.61 0.57 0.43
Weighted average shares outstanding - Basic 316,924 310,953 304,040 305,272 299,952
Weighted average shares outstanding - Diluted 332,527 328,002 317,888 319,878 314,180
Balance sheet information
Cash, cash equivalents and short-term
investments $1,549,002 $1,175,558 $786,707 $637,893 $443,439
Total assets 2,017,074 1,507,256 1,046,914 892,822 679,633
Long-term debt -- -- -- -- --
Cash dividends per share $0.13 $0.09 $0.0725 $0.06 $0.05
------------------------------------------------ ------------ ------------ ------------ ------------ ------------
All share and per share amounts reflect the Company's two-for-one stock split
effective in February 2000.
LINEAR TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
The table below states the income statement items as a percentage of net sales and provides the percentage change of such items
compared to the prior fiscal year amount.
Percentage
Fiscal Year Ended Change
------------------------------------------- -----------------------
2001 2000
July 1, July 2, June 27, Over Over
2001 2000 1999 2000 1999
--------------------------------------------- ---------------- ----------------- ---------------- ----------------- ----------------
Net sales 100.0% 100.0% 100.0% 38% 39%
Cost of sales 23.8 25.4 27.6 29 28
--------------------------------------------- ---------------- ----------------- ----------------
Gross profit 76.2 74.6 72.4 41 44
--------------------------------------------- ---------------- ----------------- ----------------
Expenses:
Research and development 10.5 11.1 10.8 31 43
Selling, general and administrative 9.5 10.5 10.7 25 37
--------------------------------------------- ---------------- ----------------- ----------------
20.0 21.6 21.5 28 40
--------------------------------------------- ---------------- ----------------- ----------------
Operating income 56.2 53.0 50.9 46 45
--------------------------------------------- ---------------- ----------------- ----------------
Interest income 6.6 6.1 5.5 50 54
--------------------------------------------- ---------------- ----------------- ----------------
Income before income taxes 62.8% 59.1% 56.4% 46 46
--------------------------------------------- ---------------- ----------------- ----------------
Effective tax rates 30.0% 31.0% 32.0%
--------------------------------------------- ---------------- ----------------- ---------------- ----------------- ----------------
Net sales were a record $972.6 million in fiscal 2001, an increase of 38% over
net sales of $705.9 million in fiscal 2000. The increase in net sales was
primarily due to an increase in unit shipments, while the average selling price
for the Company's products increased slightly during the year. Geographically,
international sales represented 54% of net sales, the same percentage as in
fiscal 2000. International sales to Europe, Japan and the Rest of the World,
primarily Asia, represented 21%, 14% and 19% of net sales, respectively. In
absolute dollars, sales increased 38% year over year in the United States,
increased by 41% in Europe, increased by 70% in Japan, and increased 19% in the
Rest of the World. The Company's major end-markets are communications, computer
and industrial. Sales into all major end-markets were strong with communications
leading computer and industrial. Within communications the major end-markets are
networking and telephone infrastructure, primarily cellular base stations and
cellular phone handsets. After three quarters of strong sales growth, sales in
the fourth quarter decreased by 29% from the previous quarter. This trend was
prevalent in all major end markets, particularly in communications.
Net sales were a record $705.9 million in fiscal 2000, an increase of 39% over
net sales of $506.7 million in fiscal 1999. The increase in net sales was
primarily due to an increase in unit shipments, while the average selling price
for the Company's products declined slightly during the year. Geographically,
international sales represented 54% of net sales, the same percentage as in
fiscal 1999. International sales to Europe, Japan and the Rest of the World
represented 20%, 12% and 22% of net sales, respectively. In absolute dollars,
sales increased 39% year over year in the United States, increased by 19% in
Europe, increased by 37% in Japan, and increased by 69% in the Rest of the
World. The increase in the Rest of the World was due primarily to the overall
economic environment in Asia. Sales into all major end-markets were strong with
communications leading computer and industrial. As in fiscal 2001, within
communications the major end-markets are networking, cellular phone handsets and
telephone infrastructure, primarily cellular base stations. Sales in the
networking area were fueled by growth in internet infrastructure products.
Gross profit was $741.5 million or 76.2% of net sales in fiscal 2001. The
increase in gross profit as a percentage of sales as compared to 74.6% in fiscal
2000 was due primarily 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, partially offset by
costs associated with the start-up of the new wafer fabrication plant in
Milpitas.
Gross profit was $526.9 million or 74.6% of net sales in fiscal 2000. The
increase in gross profit as a percentage of sales as compared to 72.4% in fiscal
1999 was due primarily to the favorable effect of fixed costs allocated across a
higher sales base and better manufacturing efficiencies and yields achieved at
the Company's fabrication, assembly and test facilities. These improvements were
partially offset by a modest reduction in the average selling price.
In addition to the specific functional spending fluctuations mentioned below,
the operating expenses of the Corporation were also impacted by one additional
week of expenses included in fiscal 2000 because the Company operates on a 52/53
week year ending on the Sunday nearest June 30. Fiscal 2000 consisted of 53
weeks, while fiscal years 2001 and 1999 each had 52 weeks. The additional week
during fiscal 2000 occurred in the Company's second fiscal quarter that year.
Research and development ("R&D") expenses were $102.5 million, $78.3 million and
$54.7 million in fiscal 2001, 2000 and 1999, respectively, or 10.5%, 11.1% and
10.8% of net sales, respectively. The increase in R&D expenses in fiscal 2001 as
compared to fiscal 2000 was due to increases in staffing levels of engineering
personnel, which resulted in higher compensation costs, increased profit sharing
costs driven by increases in sales and profitability, and development costs in
new product areas. The increase in R&D expenses in fiscal 2000 as compared to
1999 was due primarily to an increase in compensation costs from increased
staffing, particularly design and test engineering personnel, and higher profit
sharing. In addition, development costs in new product areas, the addition of a
new design center and an increase in patent related expenses contributed to the
increase in R&D expenses.
Selling, general and administrative ("SG&A") expenses were $92.7 million, $74.3
million, and $54.3 million in fiscal 2001, 2000, and 1999, respectively, or
9.5%, 10.5% and 10.7% of net sales, respectively. The increase in selling,
general and administrative expenses in fiscal 2001 as compared to fiscal 2000
was due primarily to an increase in staffing levels to support the increased
sales volumes, higher profit sharing and higher commissions resulting from the
increase in sales, and higher legal costs related to patent protection and
infringement. The increase between fiscal 1999 and fiscal 2000 was caused by
similar reasons as well as an increase in external communication charges,
primarily advertising.
Interest income increased 50% in fiscal 2001 to $64.4 million and increased 54%
in fiscal 2000 to $42.9 million from $27.8 million in fiscal 1999. The year over
year increases were due to the significant increases in cash, cash equivalents
and short-term investments which grew $373.4 million and $388.9 million in
fiscal 2001 and 2000, respectively. These increases were primarily due to the
increase in cash generated from operations; secondarily, cash increased as a
result of the exercise of stock options and the tax benefit derived therefrom.
The average interest rate for the year decreased slightly and was approximately
4.27%.
The Company's effective tax rate was 30.0%, 31.0% and 32.0% in fiscal 2001, 2000
and 1999, respectively. The lower tax rates in fiscal 2001 and 2000 were
primarily due to increased business activity in foreign jurisdictions with lower
tax rates, an increase in tax-exempt interest income, the R&D credit, and the
Company's foreign sales corporation.
Factors Affecting Future Operating Results
Except for historical information contained herein, the matters set forth in
this Annual Report, 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.
As fiscal 2001 progressed, the Company, as with other semiconductor
companies, has seen a significant decrease in net bookings. Business was weak in
all geographic areas, especially North America and in all major end markets,
especially the networking communications area. This has been the most
precipitous slowdown the Company has seen as customers have been reacting to
larger inventories in several channels, shorter supplier lead times, and
diminished end-user demand. Backlog at year-end was approximately $71.5 million
as compared with $298.4 million at the end of the previous year. Consequently,
the Company estimates that its sales which declined from the third to the fourth
quarter will decline again in the first quarter of fiscal 2002. However, the
Company expects to be profitable even at such reduced sales levels. Accordingly,
it has made some modest reductions in staff and expense levels to bring
productivity more in line with anticipated demand. Given the current limited
visibility due to short lead times and unclear customer demand, it is difficult
to project the level of business beyond the first quarter of fiscal 2002.
Nevertheless, although the market is currently undergoing some severe
adjustments, the Company believes that the longer term prospects for both the
market and the Company are excellent.
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. The Company's headquarters
and a portion of its manufacturing facilities and research and development and
certain other critical business operations are located near major earthquake
fault lines in California. Consequently the Company could be adversely affected
in the event of a major earthquake. In addition, California is currently
experiencing the threat of interruption in the availability of electricity. To
date the impact on the Company has been negligible. However, electricity is a
critical resource to the Company without which its products could not be
manufactured.
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 July 1, 2001, cash, cash equivalents and short-term investments totaled $1.5
billion, an increase of $373.4 million or 32% over cash, cash equivalents and
short-term investments of $1.2 billion at the end of fiscal 2000.
The issuance of common stock under stock option and employee stock purchase
plans provided $143.3 million in proceeds and tax benefits in fiscal 2001 as
compared to $155.4 million in fiscal 2000. The proceeds from stock issuances
decreased by $2.0 million in fiscal 2001 due to decreases in the number of
options exercised partially offset by an increase in the average option price.
The tax benefit from stock option transactions decreased by $10.1 million in
fiscal 2001 mainly due to decreases in the number of options exercised and
slightly higher option prices partially offset by an increase in the average
sales price for options exercised. generally, the Company receives a tax
deduction for the gain the employee recognizes on the exercise of a nonqualified
stock option and records this tax benefit as an increase in common stock and a
reduction in current income taxes payable.
During fiscal year 2001 the Company purchased back 1,550,000 shares or $69.8
million of its common stock.
The Company's capital expenditures in fiscal 2001 totaled $127.9 million
covering land in the United States and machinery and equipment for the Company's
fabrication, test and assembly facilities. $55.9 million of these expenditures
were spent on the Company's new wafer fabrication plant in Milpitas, California.
Cash dividends of $0.13 per share totaling $41.2 million were paid by the
Company in fiscal 2001 as compared to $0.09 per share totaling $27.9 million in
fiscal 2000. In April 2001, the Company's Board of Directors announced that the
quarterly cash dividend was increased to $0.04 per share from $0.03 per share.
Future dividends will be based on quarterly financial performance.
The Company's cash equivalents and short-term investments are subject to market
risk, primarily interest-rate and credit risk. The Company's investments are
managed by outside professional managers within investment guidelines set by the
Company. Such guidelines include security type, credit quality and maturity and
are intended to limit market risk by restricting the Company's investments to
high quality debt instruments with relatively short-term maturities. Based upon
the weighted average duration of the Company's investments at July 1, 2001, a
hypothetical 100 basis point increase in short-term interest rates would result
in an unrealized loss in market value of the Company's investments totaling
approximately $10.4 million. However, because the Company's debt securities are
classified as available-for-sale, no gains or losses are recognized by the
Company due to changes in interest rates unless such securities are sold prior
to maturity. The Company generally holds securities until maturity and carries
the securities at amortized cost, which approximates fair market value.
At the end of fiscal 2001, working capital was $1.5 billion and the Company had
no long-term debt. For the past several years the Company has generally
satisfied its liquidity needs through cash generated from operations and its
existing cash and investment balances. Given its strong financial condition and
performance, the Company plans to continue to finance its capital needs through
these internal sources for the foreseeable future.
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share amounts
--------------------------------------------------------------------------------------------
THREE YEARS ENDED JULY 1, 2001 2001 2000 1999
--------------------------------------------------------------------------------------------
Net sales $972,625 $705,917 $506,669
Cost of sales 231,122 178,949 139,821
--------------------------------------------------------------------------------------------
Gross profit 741,503 526,968 366,848
--------------------------------------------------------------------------------------------
Expenses:
Research and development 102,487 78,299 54,662
Selling, general and administrative 92,731 74,273 54,260
--------------------------------------------------------------------------------------------
195,218 152,572 108,922
--------------------------------------------------------------------------------------------
Operating income 546,285 374,396 257,926
--------------------------------------------------------------------------------------------
Interest income 64,366 42,858 27,801
--------------------------------------------------------------------------------------------
Income before income taxes 610,651 417,254 285,727
--------------------------------------------------------------------------------------------
Provision for income taxes 183,195 129,348 91,434
--------------------------------------------------------------------------------------------
Net income $427,456 $287,906 $194,293
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Earnings per share:
--------------------------------------------------------------------------------------------
Basic $1.35 $0.93 $0.64
--------------------------------------------------------------------------------------------
Diluted $1.29 $0.88 $0.61
--------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 316,924 310,953 304,040
Diluted 332,527 328,002 317,888
Cash dividends per share $0.13 $0.09 $0.0725
--------------------------------------------------------------------------------------------
<FN>
See accompanying notes.
</FN>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------------
In thousands
----------------------------------------------------------------------------------------------
JULY 1, 2001 AND JULY 2, 2000 2001 2000
Assets
Current assets:
Cash and cash equivalents $321,106 $230,455
Short-term investments 1,227,896 945,103
Accounts receivable, net of allowance for
doubtful accounts of $803 ($803 in 2000) 89,836 69,326
Inventories
Raw materials 6,990 5,201
Work-in-process 14,090 8,880
Finished goods 4,512 7,831
----- -----
Total inventories 25,592 21,912
Deferred tax assets 43,482 32,246
Prepaid expenses and other current assets 19,936 11,061
------ ------
Total current assets 1,727,848 1,310,103
--------- ---------
Property, plant and equipment, at cost:
Land, buildings and improvements 136,978 91,670
Manufacturing and test equipment 316,501 234,042
Office furniture and equipment 3,343 3,249
----- -----
456,822 328,961
Accumulated depreciation and amortization (167,596) (131,808)
--------- ---------
Net property, plant and equipment 289,226 197,153
------- -------
Total assets $2,017,074 $1,507,256
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 10,615 $ 16,829
Accrued payroll and related benefits 65,930 57,710
Deferred income on shipments to distributors 44,481 34,488
Income taxes payable 51,335 31,916
Other accrued liabilities 29,863 27,734
------ ------
Total current liabilities 202,224 168,677
------- -------
Deferred tax liabilities 32,893 16,382
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value (no par
value in 2000), 2,000 shares authorized, none -- --
issued or outstanding
Common stock, $0.001 par value (no par value
in 2000), 2,000,000 shares authorized (480,000
shares in 2000); 318,908 shares issued and
outstanding (315,167 shares in 2000) 319 467,474
Additional Paid-In Capital 607,883 --
Retained earnings 1,173,755 854,723
--------- -------
Total stockholders' equity 1,781,957 1,322,197
--------- ---------
Total liabilities and stockholders' equity $2,017,074 $1,507,256
========== ==========
------------------------------------------------ ----------------------- -----------------------
<FN>
See accompanying notes.
</FN>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE IN CASH AND CASH EQUIVALENTS
In thousands
THREE YEARS ENDED JULY 1, 2001 2001 2000 1999
Cash flow from operating activities:
Net income $427,456 $287,906 $194,293
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 35,788 24,958 21,972
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (20,511) (7,137) 6,351
Decrease (increase) in inventories (3,680) (6,388) 596
Decrease (increase) in deferred tax assets (11,236) (4,130) 7,701
Decrease (increase) in prepaid expenses
and other current assets (8,874) 1,515 (2,770)
Increase (decrease) in accounts payable,
accrued 4,135 39,866 5,507
payroll and other accrued liabilities
Increase (decrease) in deferred income
on shipments to distributors 9,993 (976) 2,087
Tax benefit from stock option transactions 90,563 100,664 49,077
Increase (decrease) in income taxes payable 19,419 4,512 (5,345)
Increase (decrease) in deferred tax liabilities 16,511 1,537 962
------ ----- ---
Cash provided by operating activities 559,564 442,327 280,431
------- ------- -------
Cash flow from investing activities:
Purchase of short-term investments (1,722,358) (793,631) (529,740)
Proceeds from sales and maturities of short-term
investments 1,439,565 481,015 406,413
Purchase of property, plant and equipment (127,861) (80,309) (39,128)
--------- -------- --------
Cash used in investing activities (410,654) (392,925) (162,455)
--------- --------- ---------
Cash flow from financing activities:
Issuance of common shares under employee stock plans 52,704 54,783 38,332
Purchase of common stock (69,799) ----- (108,736)
Payment of cash dividends (41,164) (27,950) (22,085)
-------- -------- --------
Cash (used in) provided by financing activities (58,259) 26,833 (92,489)
-------- ------ --------
Increase in cash and cash equivalents 90,651 76,235 25,487
Cash and cash equivalents, beginning of period 230,455 154,220 128,733
------- ------- -------
Cash and cash equivalents, end of period $321,106 $230,455 $154,220
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the fiscal year for income taxes $ 67,656 $26,486 $36,856
-------- ------- -------
<FN>
See accompanying notes.
</FN>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In thousands
THREE YEARS ENDED JULY 1, 2001
Additional Total
Common Stock Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
Balance at June 28, 1998 307,292 $230,655 --- $ 525,258 $ 755,913
Issuance of common stock for cash under employee
stock option and stock purchase plans 8,200 38,332 --- --- 38,332
Tax benefit from stock option transactions --- 49,077 --- --- 49,077
Purchase and retirement of common stock (8,030) (6,037) --- (102,699) (108,736)
Net income --- --- --- 194,293 194,293
Cash dividends - $0.0725 per share --- --- --- (22,085) (22,085)
--------- --------- --------- --------- ---------
Balance at June 27, 1999 307,462 312,027 --- 594,767 906,794
Issuance of common stock for cash under employee
stock option and stock purchase plans 7,705 54,783 --- --- 54,783
Tax benefit from stock option transactions --- 100,664 --- --- 100,664
Purchase and retirement of common stock --- --- --- --- ---
Net income --- --- --- 287,906 287,906
Cash dividends - $0.09 per share --- --- --- (27,950) (27,950)
--------- --------- --------- --------- ---------
Balance at July 2, 2000 315,167 467,474 --- 854,723 1,322,197
Issuance of common stock for cash under employee
stock option and stock purchase plans 5,291 52,704 --- --- 52,704
Tax benefit from stock option transactions --- 90,563 --- --- 90,563
Purchase and retirement of common stock (1,550) (2,539) --- (67,260) (69,799)
Reincorporation in Delaware --- (607,883) 607,883 --- ---
Net income --- --- --- 427,456 427,456
Cash dividends - $0.13 per share --- --- --- (41,164) (41,164)
--------- --------- --------- --------- ---------
Balance at July 1, 2001 318,908 $319 607,883 $1,173,755 $1,781,957
========= ========= ========= ========= =========
<FN>
See accompanying notes.
</FN>
LINEAR TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of business and significant accounting policies
Description of business and export sales
Linear Technology Corporation ("the Company") designs, manufactures and markets
high performance linear integrated circuits. Applications for the Company's
products include: telecommunications, cellular telephones, networking products
and satellite systems, notebook and desktop computers, computer peripherals,
video/multimedia, industrial instrumentation, automotive electronics, factory
automation, process control and military and space systems.
Export sales by geographic area were as follows:
In thousands
2001 2000 1999
---- ---- ----
Europe $202,193 $143,204 $120,793
Japan 137,352 80,637 58,656
Rest of the World 188,129 158,520 93,738
-------- -------- --------
Total export sales $527,674 $382,361 $273,187
======== ======== ========
Basis of presentation
The Company's fiscal year ends on the Sunday nearest June 30. Fiscal 2001 was a
52 week period, fiscal year 2000 was a 53 week period, and fiscal year 1999 was
a 52 week period. The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries after elimination of
all significant inter-company accounts and transactions. Accounts denominated in
foreign currencies have been translated using the U.S. dollar as the functional
currency.
In fiscal 2001 the Company changed its state of incorporation from California to
Delaware. As a consequence of this change stockholders' equity has been expanded
to include both common stock and additional paid-in capital in conformance with
Delaware reporting requirements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash equivalents and short-Term investments
Cash equivalents are highly liquid investments with original maturities of three
months or less. Investments with maturities over three months at the time of
purchase are classified as short-term investments.
At July 1, 2001 and July 2, 2000, all of the Company's investments in debt
securities were classified as available-for-sale, which means that, although the
Company principally holds securities until maturity, they may be sold under
certain circumstances. The debt securities are carried at amortized cost, which
approximates fair market value, determined using quoted market prices for these
securities. Realized and unrealized gains and losses from short-term investments
were not material at any time during fiscal 2001, 2000 and 1999. At July 1, 2001
and July 2, 2000, the Company held no equity securities.
Concentrations of Credit Risk and Off Balance Sheet Risk
The Company's investment policy restricts investments to high credit quality
investments with a maturity of three years or less and limits the amount
invested with any one issuer. Concentrations of credit risk with respect to
accounts receivable are generally not significant due to the diversity of the
Company's customers and geographic sales areas. The Company performs ongoing
credit evaluations of its customers' financial condition and requires
collateral, primarily letters of credit, as deemed necessary.
No single end customer has accounted for 10% or more of the Company's net sales.
However, in given years, one or more distributors may account for 10% or more of
the Company's net sales. One domestic distributor accounted for 12% of net sales
during fiscal 2001, two distributors accounted for approximately 14% and 11% of
net sales in fiscal 2000, and two distributors accounted for approximately 14%
and 10% of net sales during fiscal 1999. Distributors are not end customers, but
rather serve as a channel of sale to many end users of the Company's products.
No other distributor or customer accounted for 10% or more of net sales for
fiscal 2001, 2000 and 1999.
The Company's assets, liabilities and cash flows are predominately U.S. dollar
denominated, including those of its foreign operations. However, the Company's
foreign subsidiaries have certain assets, liabilities and cash flows that are
subject to foreign currency risk. The Company considers this risk to be minor
and, for the three years ended July 1, 2001, had not utilized derivative
instruments to hedge foreign currency risk
or for any other purpose. Gains and losses resulting from foreign currency
fluctuations are recognized in income currently and were not material for all
periods presented.
Inventories
Inventories are stated at the lower of standard cost, which approximates actual
cost determined on a first-in, first-out basis, or market.
Property, plant and equipment
Net property, plant and equipment at July 1, 2001 was geographically distributed
as follows: United States - $228,503,000 Malaysia - $35,640,000 Singapore -
$25,043,000 and other - $40,000. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the assets
(3-7 years for equipment and 10-30 years for buildings and building
improvements). Leasehold improvements are amortized over the shorter of the
asset's useful life or the expected term of the lease.
Revenue Recognition
The Company generally recognizes net revenues upon the transfer of title.
However, certain of the Company's sales are made to distributors under
agreements allowing price protection and/or right of return on merchandise
unsold by the distributors. The Company defers recognition of revenues on
shipments to domestic distributors until the distributors sell the merchandise.
The Company estimates international distributor returns and defers a portion of
international distributor sales and profits based on these estimated returns.
Management believes that the Company's revenue recognition policies are in
accordance with the Securities and Exchange Commission Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" (SAB 101).
Stock Based Compensation
The Company accounts for stock-based awards to employees under the intrinsic
value method and discloses in Note 4 the proforma effects of accounting for such
awards under the fair value method.
Earnings Per Share
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 dilutive effect of stock options was 15,603,000, 17,049,000 and
13,848,000 shares for fiscal 2001, 2000 and 1999 respectively.
Comprehensive Income
The Company adopted FAS 130, "Reporting Comprehensive Income", in fiscal 1999.
FAS 130 requires certain items, including unrealized gains and losses on the
Company's available-for-sale securities, to be included in other comprehensive
income. The adoption of FAS 130 had no impact on the Company's financial
position or results of operations, and there were no material differences
between comprehensive income and net income for fiscal 2001, 2000 and 1999.
Segment Reporting
The Company adopted FAS 131, "Disclosures About Segments of an Enterprise and
Related Information", in fiscal 1999. FAS 131 established new reporting
requirements for public companies based on the management approach to segment
reporting. The Company competes in a single operating segment, and as a result,
no segment information has been disclosed. Disclosures about products and
services, geographical areas, and major customers are included above in Note 1
to the consolidated financial statements.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued FAS 133,
"Accounting for Derivative Investments and Hedging Activities." This statement
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. In July 1999, the FASB issued
FAS 137, which defers the effective date of FAS 133 for one year. Accordingly,
the Company adopted FAS 133 during fiscal 2001. The adoption of FAS 133 did not
have a material impact on the Company's financial position or results of
operations.
In July 2001, the FASB issued FAS 141 "Business Combination" and FAS 142
"Goodwill and Other Intangible Assets". FAS 141 eliminates the
pooling-of-interest method of accounting for business combinations except for
qualifying business combinations that were initiated prior to July 1, 2001.
Statement 141 further clarifies the criteria to recognize intangible assets
separately from goodwill. The requirements of FAS 141 are effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001 (i.e., the acquisition date is July 1, 2001 or after). Under
FAS 142, goodwill and indefinite lived intangible assets are no longer amortized
but are reviewed annually (or more frequently if impairment indicators arise)
for impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
Company will adopt FAS 141 on July 1, 2001. The adoption is not expected to have
any material adverse impact on the Company's financial position or results of
its operations. The Company will adopt FAS 142 in fiscal year 2002. The Company
has not yet determined what impact the adoption will have on the Company's
financial position or results of operations.
2. Short-term Investments
Short-term investments as of July 1, 2001 and July 2, 2000 were as follows:
In thousands July 1, 2001 July 2, 2000
------------ ------------
Municipal bonds $690,288 $631,009
U.S. Treasury securities and
obligations of U.S. government
agencies 396,861 239,919
Corporate debt securities and other 140,747 74,175
---------- --------
$1,227,896 $945,103
========== ========
The contractual maturities of short-term investments at July 1, 2001 were as
follows: one year or less - $521,322,000, one year to three years -
$706,574,000. Expected maturities may differ from contractual maturities because
the issuers of the securities may have the right to repay obligations without
prepayment penalties.
3. Lease commitments
The Company leases certain of its facilities under operating leases, some of
which have options to extend the lease period. In addition, the Company has
entered into long-term land leases for the sites of its Singapore and Malaysia
manufacturing facilities.
At July 1, 2001, future minimum lease payments under non-cancelable operating
leases having an initial term in excess of one year were as follows: fiscal
2002: $1,634,000; fiscal 2003: $1,482,000; fiscal 2004: $1,382,000; fiscal 2005:
$1,235,000; fiscal 2006: $1,119,000; and thereafter: $1,322,000.
Total rent expense was $2,252,064, $2,045,000, and $2,261,000 in fiscal 2001,
2000 and 1999, respectively.
4. Employee benefit plans
Stock option plans
The Company has stock option plans under which options to purchase shares of the
Company's common stock may be granted to employees and directors at a price no
less than the fair market value on the date of the grant. At July 1, 2001, the
total authorized number of shares under all plans was 169,000,000. Options
become exercisable over a five-year period (generally 10% every six months). All
options expire ten years after the date of the grant.
Stock option transactions during the three years ended July 1, 2001 are
summarized as follows:
Stock Weighted-
Options Average
Outstanding Exercise Price
Outstanding options, June 28, 1998 42,897,984 $7.73
----------
Granted 9,952,000 21.13
Forfeited (765,400) 11.46
Exercised (7,914,194) 4.41
----------
Outstanding options, June 27, 1999 44,170,390 $11.28
----------
Granted 3,812,200 37.62
Forfeited (558,070) 17.57
Exercised (7,535,600) 6.73
----------
Outstanding options, July 2, 2000 39,888,920 $14.70
==========
Granted 7,835,650 46.61
Forfeited (764,780) 22.55
Exercised (5,164,470) 9.14
----------
Outstanding options, July 1, 2001 41,795,320 $21.21
==========
The following table sets forth certain information with respect to employee
stock options outstanding and exercisable at July 1, 2001:
Weighted Weighted Weighted
Stock Average Average Stock Average
Options Exercise Remaining Options Exercise
Range of Exercise Prices Outstanding Price Contractual Exercisable Price
Life (Years)
$ 1.73 - $ 7.22 11,195,170 $ 5.72 4.09 10,168,730 $ 5.67
8.53 - 15.06 12,582,960 13.09 6.41 7,403,040 12.89
15.92 - 38.25 11,782,240 29.05 8.17 3,425,800 25.09
45.66 - 55.88 6,234,950 50.62 9.09 723,865 49.49
----------- ----------
$ 1.73 - $55.88 41,795,320 $21.21 6.68 21,721,435 $12.65
=========== ==========
Stock purchase plan
The Company's stock purchase plan ("ESPP") permits eligible employees to
purchase common stock through payroll deductions at the lower of 85% of the fair
market value of common stock at the beginning or end of each six month offering
period. The offering periods commence on approximately May 1 and November 1 of
each year. At July 1, 2001, the shares reserved for issuance under this plan
totaled 8,400,000 and 7,117,546 shares had been issued under this plan. During
fiscal 2001, 127,096 shares were issued at a weighted-average price of $43.06
per share pursuant to this plan.
Pro Forma Disclosure of the Effect of Stock-Based Compensation
The following table summarizes pro forma net income and pro forma earnings per
share, as if the Company had elected to recognize compensation expense for its
employee stock plans under the fair value method instead of the intrinsic value
method (in thousands, except per share amounts):
2001 2000 1999
---- ---- ----
Pro forma net income $366,063 $247,009 $166,847
Pro forma earnings per share:
Basic $1.16 $0.79 $0.55
Diluted $1.10 $0.75 $0.53
For purposes of the pro forma information, the fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option pricing
model and the following weighted average assumptions (the fair value of shares
issued under the Company's ESPP was not significant for all periods presented):
2001 2000 1999
---- ---- ----
Expected lives 6.5 6.5 6.5
Expected volatility 65.8% 59.1% 54.0%
Dividend yields 0.2% 0.3% 0.3%
Risk free interest 5.0% 5.9% 5.6%
rates
The Black-Scholes option valuation model was developed for use in estimating the
fair value of publicly traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of publicly traded options, and because changes in these
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not provide a reliable single
measure of the fair value of its stock options.
Using the Black-Scholes option pricing model, the weighted average estimated
fair value of employee stock options granted in fiscal 2001, 2000 and 1999 was
$31.64, $24.26 and $12.55 per share, respectively. For the purposes of the pro
forma information, the estimated fair values of the employee stock options are
amortized to expense using the straight-line method over the vesting period.
Retirement Plan
The Company has established a 401(k) retirement plan for its qualified U.S.
employees. Profit sharing contributions made by the Company to this plan were
approximately $11,857,000, $9,818,000 and $7,577,000 in fiscal 2001, 2000 and
1999, respectively.
5. Income taxes
The components of income before income taxes are as follows:
In thousands 2001 2000 1999
---- ---- ----
United States operations $541,112 $361,834 $246,190
Foreign operations 69,539 55,420 39,537
-------- -------- --------
$610,651 $417,254 $285,727
======== ======== ========
The provision for income taxes consists of the following:
In thousands 2001 2000 1999
---- ---- ----
United States federal:
Current $155,390 $118,917 $71,433
Deferred 4,747 (2,219) 8,442
-------- -------- --------
160,137 116,698 79,875
-------- -------- --------
State:
Current 14,229 8,575 9,119
Deferred 528 (374) 222
-------- -------- --------
14,757 8,201 9,341
-------- -------- --------
Foreign-Current 8,301 4,449 2,218
-------- -------- --------
$183,195 $129,348 $91,434
======== ======== =======
Actual current federal and state tax liabilities are lower than the amounts
reflected above by the tax benefit from stock option activity of approximately
$90,563,000, $100,664,000, and $49,077,000 for fiscal 2001, 2000 and 1999,
respectively. The tax benefit from stock option activity is recorded as a
reduction in current income taxes payable and an increase in common stock.
The provision for income taxes reconciles to the amount computed by applying the
statutory U.S. Federal rate at 35% to income before income taxes as follows:
In thousands 2001 2000 1999
---- ---- ----
Tax at U.S. statutory rate $213,728 $146,039 $100,005
State income taxes, net of federal benefit 9,592 5,331 6,072
Earnings of foreign subsidiaries subject to lower rates (10,230) (10,400) (8,043)
Tax-exempt interest income (11,908) (8,934) (5,922)
FSC benefits (13,224) (4,042) (4,560)
Other (4,763) 1,354 3,882
---------- ---------- ----------
$183,195 $129,348 $91,434
========== ========== ==========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities recorded in the balance sheet
as of July 1, 2001 and July 2, 2000 are as follows:
In thousands 2001 2000
---- ----
Deferred tax assets:
Inventory valuation $12,410 $10,000
Deferred income on shipments to distributors 16,606 12,828
State income taxes 5,165 2,869
Non-deductible accrued benefits 2,523 2,278
Other 6,778 4,271
-------- --------
Total deferred tax assets 43,482 32,246
-------- --------
Deferred tax liabilities:
Depreciation and amortization 10,234 1,898
Unremitted earnings of subsidiaries 22,659 14,484
-------- --------
Total deferred tax liabilities 32,893 16,382
-------- --------
Net deferred tax assets $10,589 $15,864
======== ========
The Company has finalized a modified tax holiday in Singapore which is effective
through September 2004. The Company's Malaysia tax holiday expired in June 2000.
The Company has applied for an extension of its Malaysia tax holiday and
believes that an extension will be granted.
The impact of the Singapore and Malaysia tax holidays was to increase net income
by approximately $11,669,000 ($0.04 per diluted share) in fiscal 2001,
$9,320,000 ($0.03 per diluted share) in fiscal 2000 and $6,086,000 ($0.04 per
diluted share) in fiscal 1999. The Company does not provide a residual U.S. tax
on a portion of the undistributed earnings of its Singapore and Malaysia
subsidiaries, as it is the Company's intention to permanently invest these
earnings overseas. Should these earnings be remitted to the U.S. parent,
additional U.S. taxable income would be approximately $185,021,000.
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders of Linear Technology Corporation
We have audited the accompanying consolidated balance sheets of Linear
Technology Corporation as of July 1, 2001 and July 2, 2000, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended July 1, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Linear Technology
Corporation at July 1, 2001 and July 2, 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended July 1, 2001, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
San Jose, California
July 20, 2001
COMPANY PROFILE
Linear Technology Corporation
designs, manufactures and markets
a broad line of standard high
performance linear integrated circuits
utilizing bipolar and silicon gate
CMOS and BiCMOS process technologies.
BOARD OF DIRECTORS
Thomas S. Volpe
Founder and Chief Executive Officer
Volpe Investments LLC
David S. Lee
Chairman of the Board
Cortelco Systems Holding Corp.
Manufacturer, Telecommunication
Systems and Products
Leo T. McCarthy
President
The Daniel Group
International Consulting Firm
Former Lieutenant Governor
State of California
Richard M. Moley
Former President and Chief Executive Officer
StrataCom, Inc.
Manufacturer, Telecommunication
Systems and Products
Robert H. Swanson, Jr.
Chairman and Chief Executive Officer
Linear Technology Corporation
OFFICERS
Robert H. Swanson, Jr.
Chairman and Chief Executive Officer
Clive B. Davies, Ph.D.
President
Paul Chantalat
Vice President, Quality and Reliability
Paul Coghlan
Vice President, Finance and Chief Financial Officer
Timothy D. Cox
Vice President, North American Sales
Robert C. Dobkin
Vice President, Engineering and Chief Technical Officer
Lothar Maier
Vice President and Chief Operating Officer
David A. Quarles
Vice President, International Sales
Arthur F. Schneiderman
Secretary
Attorney, Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation
Legal Counsel
TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company
Boston, Massachusetts
INDEPENDENT AUDITORS
Ernst & Young LLP
San Jose, California
CORPORATE AND INVESTOR INFORMATION
Please direct inquiries to:
Paul Coghlan
Vice President, Finance and CFO,
Linear Technology Corporation
1630 McCarthy Blvd.
Milpitas, California, 95035-7417
SEC FORM 10-K
If you would like a copy of our Annual Report on Form 10-K
for the fiscal year ended July 1, 2001, as filed with the
Securities and Exchange Commission,
you may obtain it without charge. Direct your request to:
Paul Coghlan,
Vice President, Finance and CFO
Linear Technology Corporation,
1630 McCarthy Blvd.
Milpitas, California, 95035-7417