UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 2001
[ ] 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)
Delaware 94-2778785
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1630 McCarthy Boulevard
Milpitas, California 95035
(408) 432-1900
(Address of principal executive offices,
including zip code and telephone number)
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 317,347,200 shares of the Registrant's Common Stock issued
and outstanding as of January 25, 2002.
1
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND SIX MONTHS ENDED DECEMBER 30, 2001
INDEX
Page
----
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the 3
three and six months ended December 30, 2001 and
December 31, 2000
Condensed Consolidated Balance Sheets at December 30, 2001 4-5
and July 1, 2001
Condensed Consolidated Statements of Cash Flows for the 6
six months ended December 30, 2001 and December 31, 2000
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8-10
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
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 Six Months Ended
------------------ ----------------
December 30, December 31, December 30, December 31,
2001 2000 2001 2000
-------- -------- -------- --------
Net sales $121,266 $258,450 $241,370 $490,591
Cost of sales 36,133 61,132 73,380 116,622
-------- -------- -------- --------
Gross profit 85,133 197,318 167,990 373,969
-------- -------- -------- --------
Expenses:
Research and development 19,369 25,487 38,191 50,234
Selling, general and administrative 14,147 24,503 30,305 44,922
-------- -------- -------- --------
33,516 49,990 68,496 95,156
-------- -------- -------- --------
Operating income 51,617 147,328 99,494 278,813
Interest income 13,123 16,612 28,837 31,096
-------- -------- -------- --------
Income before income taxes 64,740 163,940 128,331 309,909
Provision for income taxes 18,775 49,182 37,216 92,973
-------- -------- -------- --------
Net income $ 45,965 $114,758 $ 91,115 $216,936
======== ======== ======== ========
Basic earnings per share $ 0.15 $ 0.36 $ 0.29 $ 0.69
======== ======== ======== ========
Shares used in the calculation of
basic earnings per share 316,749 316,478 317,470 316,130
======== ======== ======== ========
Diluted earnings per share $ 0.14 $ 0.34 $ 0.28 $ 0.65
======== ======== ======== ========
Shares used in the calculation of diluted
earnings per share 328,318 332,945 329,276 333,133
======== ======== ======== ========
Cash dividends per share $ 0.04 $ 0.03 $ 0.08 $ 0.06
======== ======== ======== ========
See accompanying notes
3
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
December 30, July 1,
2001 2001
----------- -----------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 171,601 $ 321,106
Short-term investments 1,351,300 1,227,896
Accounts receivable, net of allowance for
doubtful accounts of $1,003 ($803 at
July 1, 2001) 77,515 89,836
Inventories:
Raw materials 3,609 6,990
Work-in-process 20,916 14,090
Finished goods 3,482 4,512
----------- -----------
Total inventories 28,007 25,592
Deferred tax assets 43,482 43,482
Prepaid expenses and other current assets 23,209 19,936
----------- -----------
Total current assets 1,695,114 1,727,848
----------- -----------
Property, plant and equipment, at cost:
Land, building and improvements 137,157 136,978
Manufacturing and test equipment 330,400 316,501
Office furniture and equipment 3,343 3,343
----------- -----------
470,900 456,822
Less accumulated depreciation and
amortization (189,068) (167,596)
----------- -----------
Net property, plant and equipment 281,832 289,226
----------- -----------
$ 1,976,946 $ 2,017,074
=========== ===========
See accompanying notes
4
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & STOCKHOLDERS' EQUITY
(In thousands)
December 30, July 1,
2001 2001
---------- ----------
(unaudited) (audited)
Current liabilities:
Accounts payable $ 8,815 $ 10,615
Accrued payroll and related benefits 35,389 65,930
Deferred income on shipments to distributors 39,920 44,481
Income taxes payable 66,144 51,335
Other accrued liabilities 26,900 29,863
---------- ----------
Total current liabilities 177,168 202,224
Deferred tax liabilities 32,893 32,893
Stockholders' equity:
Preferred stock, $0.001 par value, 2,000 shares
authorized; none issued or outstanding -- --
Common stock, $0.001 par value per share,
2,000,000 shares authorized; 317,170
shares issued and outstanding at
December 30, 2001 (318,908 shares
at July 1, 2001) 317 319
Additional paid-in capital 638,229 607,883
Retained earnings 1,128,339 1,173,755
---------- ----------
Total stockholders' equity 1,766,885 1,781,957
---------- ----------
$1,976,946 $2,017,074
========== ==========
See accompanying notes
5
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
Six Months Ended
--------------------------
December 30, December 31,
2001 2000
--------- ---------
Cash flow from operating activities:
Net income $ 91,115 $ 216,936
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 21,472 14,756
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 12,321 (31,567)
Decrease (increase) in inventories (2,415) (7)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets (3,273) (10,983)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities (20,495) 70,817
Tax benefit from stock option transactions 18,405 36,040
Increase (decrease) in deferred income (4,561) 12,102
--------- ---------
Cash provided by operating activities 112,569 308,094
--------- ---------
Cash flow from investing activities:
Purchase of short-term investments (590,084) (751,323)
Proceeds from sales and maturities of short-term investments 466,680 651,860
Purchase of property, plant and equipment (14,078) (86,946)
--------- ---------
Cash used in investing activities (137,482) (186,409)
--------- ---------
Cash flow from financing activities:
Issuance of common stock under employee stock plans 18,628 20,195
Stock repurchase (117,780) (52,297)
Payment of cash dividends (25,440) (18,959)
--------- ---------
Cash used in financing activities (124,592) (51,061)
--------- ---------
Increase (decrease) in cash and cash equivalents (149,505) 70,624
Cash and cash equivalents, beginning of period 321,106 230,455
--------- ---------
Cash and cash equivalents, end of period $ 171,601 $ 301,079
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 3,815 $ 5,458
========= =========
See accompanying notes
6
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 six
months ended December 30, 2001 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 1, 2001
included in the Company's Annual Report to Stockholders. The accompanying
balance sheet at July 1, 2001 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 years 2002 and 2001 are a 52 week year.
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 Six Months Ended
------------------ ----------------
December 30, December 31, December 30, December 31,
2001 2000 2001 2000
-------- -------- -------- --------
Numerator - Net income $ 45,965 $114,758 $ 91,115 $216,936
-------- -------- -------- --------
Denominator for basic earnings
per share - weighted average
shares 316,749 316,478 317,470 316,130
Effect of dilutive securities -
employee stock options 11,569 16,467 11,806 17,003
-------- -------- -------- --------
Denominator for diluted
earnings per share 328,318 332,945 329,276 333,133
-------- -------- -------- --------
Basic earnings per share $ 0.15 $ 0.36 $ 0.29 $ 0.69
======== ======== ======== ========
Diluted earnings per share $ 0.14 $ 0.34 $ 0.28 $ 0.65
======== ======== ======== ========
4. Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting
for Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", addressing financial accounting and
reporting for the impairment or disposal of long-lived assets. This
statement is effective for our fiscal year beginning July 1, 2002. The
Company does not expect that the adoption of the Statement will have a
significant impact on the Company's financial position and results of
operations.
7
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 six
months ended December 30, 2001 and December 31, 2000 as a percentage of net
sales and provides the percentage change in absolute dollars of such items
comparing the interim period ended December 30, 2001 to the corresponding period
from the prior fiscal year:
Three Months Ended Six Months Ended
----------------------------------------- --------------------------------------------
December 30, December 31, Increase/ December 30, December 31, Increase/
2001 2000 (Decrease) 2001 2000 (Decrease)
Net sales 100.0% 100.0% (53.1%) 100.0% 100.0% (50.8%)
Cost of sales 29.8 23.7 (40.9) 30.4 23.8 (37.1)
----- ----- ----- -----
Gross profit 70.2 76.3 (56.9) 69.6 76.2 (55.1)
----- ----- ----- -----
Expenses:
Research & development 16.0 9.9 (24.0) 15.8 10.2 (24.0)
Selling, general &
administrative 11.7 9.4 (42.3) 12.6 9.2 (32.5)
----- ----- ----- -----
27.6 19.3 (33.0) 28.4 19.4 (28.0)
----- ----- ----- -----
Operating income 42.6 57.0 (65.0) 41.2 56.8 (64.3)
Interest income 10.8 6.4 (21.0) 11.9 6.4 (7.3)
----- ----- ----- -----
Income before income taxes 53.4% 63.4% (60.5) 53.2% 63.2% (58.6)
===== ===== ===== =====
Effective tax rates 29.0% 30.0% 29.0% 30.0%
===== ===== ===== =====
Net sales for the quarter ended December 30, 2001 were $121.3 million,
a decrease of $137.2 million or 53.1% from net sales for the same quarter of the
previous year. This decrease in sales was substantially due to lower unit
shipments and marginally due to a slight decrease in the average selling price.
Sales decreased significantly in all geographic areas, led by the United States.
Domestic sales were approximately 37% of net sales for the second quarter of
fiscal 2002 and international sales were approximately 63%. International
geographies as a percent of worldwide net sales were Europe 19%, Japan 12% and
rest of world 32% which is primarily Asia excluding Japan. Relative to
end-market applications, sales decreased over the prior year's quarter in each
of the Company's three major end-markets: communications, computer and
industrial.
Net sales for the six months ended December 30, 2001 decreased $249.2
million or 50.8% from net sales for the same period of the previous year. This
decrease in sales was due to lower unit shipments. Sales decreased in all
geographic areas, particularly the United States, and in all major end-market
applications, led by communications.
To partially offset the impact of reduced sales on net profits for the
second quarter and first six months of fiscal 2002, respectively, the Company
reduced its variable expenses primarily in the area of compensation. This was
achieved by decreasing profit sharing and by having plant shutdowns of one week
per month. The amounts involved were approximately $24.0 million for the three
months ended and $44.0 million for the six months ended December 30, 2001.
Gross profit decreased $112.2 million or 56.9% and $206.0 million or
55.1% for the second quarter and first six months of fiscal 2002, respectively,
over the corresponding periods in fiscal 2001. The decrease in gross profit as a
percentage of net sales was primarily due to absorbing fixed costs over a
smaller sales base and an increase in inventory reserves. This impact was
partially offset by a reduction in compensation costs as discussed above.
Research and development ("R&D") expenses decreased by $6.1 million or
24% and $12.0 million or 24% for the second quarter and first six months of
fiscal 2002, respectively, as compared to the same periods in fiscal 2001. The
decrease in R&D expenses compared to the prior year periods was mainly due to a
decrease in compensation costs as discussed above, which is partially offset by
increased mask costs and test wafer expenses.
Selling, general and administrative expenses ("SG&A") decreased by
$10.4 million or 42.3% and $14.6 million or 32.5% for the second quarter and
first six months of fiscal 2002, respectively, as compared to the same periods
in fiscal 2001. The decrease in SG&A expenses compared to the prior year periods
was primarily due to a decrease in compensation costs,
8
lower commissions resulting from the decrease in sales, and reductions in
variable costs in areas such as legal and communications.
Interest income was $13.1 million and $28.8 million for the second
quarter and first six months of fiscal 2002, a decrease of $3.5 million and $2.3
million respectively, from the corresponding periods of fiscal 2001. The average
cash equivalent and short-term investment balance increased by $177.3 million,
but this was more than offset by a decline in average interest rates related to
our cash equivalents and short-term investments.
The Company's effective tax rate for the second quarter and the first
six months of fiscal 2002 was 29%, down from 30% in fiscal 2001. The lower tax
rate was primarily due to increased business activity in jurisdictions with
lower tax rates.
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.
The Company, as with other semiconductor companies, has seen a
significant decrease in net bookings from levels experienced this quarter last
year. Business has been weaker in all geographic areas, especially North America
and in all major end markets, especially the networking communications area.
However, at the end of this second quarter the Company experienced some modest
improvements across all end markets in the booking rate. Consequently, the
Company currently estimates that its sales and profits for the third quarter of
fiscal 2002 will improve moderately, 3%-5% over the amounts just achieved in the
second quarter. 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.
The Company has two wafer fabrication operations in Milpitas,
California, one processing 4-inch diameter wafers and a new one processing
6-inch diameter wafers. The 6-inch line was planned as a replacement of the
4-inch line. Consequently, in January, the Company will discontinue production
in the 4-inch line. Related severance costs and equipment and inventory write
downs had been previously anticipated and provided for in the financial
statements and, therefore, will not require any special one-time charge in the
income statement.
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
activities 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.
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 December 30, 2001, cash, cash equivalents and short-term investments
totaled $1,523.0 million, and working capital was $1,518.0 million.
During the first six months of fiscal 2002, the Company generated
$112.6 million of cash from operating activities. Additionally, the Company
generated $18.6 million in proceeds from common stock issued under employee
stock plans.
During the first six months of fiscal 2002, significant cash
expenditures included net purchases of short-term investments of $123.4 million,
and $14.1 million for the purchase of capital assets, primarily manufacturing
equipment for the Company's fabrication, assembly and test facilities. The
Company also purchased back $117.8 million of its common
9
stock and paid $25.4 million for cash dividends to stockholders representing
$0.04 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At December 30, 2001, the Company's cash and cash equivalents consisted
primarily of bank deposits, commercial paper and money market funds. The
Company's short-term investments consisted of commercial paper, federal agency
and related securities. The Company did not hold any derivative financial
instruments. The Company's interest income is sensitive to changes in the
general level of interest rates. In this regard, changes in interest rates can
affect the interest earned on cash and cash equivalents and short-term
investments.
10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company, held on November
7, 2001, in Milpitas, California, the stockholders elected members of the
Company's Board of Directors, and ratified the Company's proposal to appoint
Ernst & Young LLP as independent auditors.
The vote for nominated directors was as follows:
NOMINEE FOR WITHHELD
- ------- --- --------
Robert H. Swanson, Jr. 249,641,817 34,316,161
David S. Lee 279,277,256 4,680,810
Leo T. McCarthy 279,244,186 4,713,880
Richard M. Moley 279,270,783 4,687,283
Thomas S. Volpe 279,267,350 4,690,716
The vote to ratify the appointment of Ernst & Young LLP as independent auditors
for fiscal 2002 was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
282,174,362 788,509 955,195
11
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
12
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: February 11, 2002 BY /s/Paul Coghlan
-------------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
13