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 March 31, 2002
[ ] 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 317,401,650 shares of the Registrant's Common Stock issued
and outstanding as of April 26, 2002.
1
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED MARCH 31, 2002
INDEX
Page
----
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the 3
three and nine months ended March 31, 2002 and
April 1, 2001
Condensed Consolidated Balance Sheets at March 31, 2002 4-5
and July 1, 2001
Condensed Consolidated Statements of Cash Flows for the 6
nine months ended March 31, 2002 and April 1, 2001
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 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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 Nine Months Ended
------------------ -----------------
March 31, April 1, March 31, April 1,
2002 2001 2002 2001
-------- -------- -------- --------
Net sales $130,155 $282,021 $371,525 $772,612
Cost of sales 34,518 65,192 107,898 181,814
-------- -------- -------- --------
Gross profit 95,637 216,829 263,627 590,798
-------- -------- -------- --------
Expenses:
Research and development 20,127 28,532 58,318 78,766
Selling, general and administrative 15,565 25,460 45,870 70,382
-------- -------- -------- --------
35,692 53,992 104,188 149,148
-------- -------- -------- --------
Operating income 59,945 162,837 159,439 441,650
Interest income 12,562 16,738 41,399 47,834
-------- -------- -------- --------
Income before income taxes 72,507 179,575 200,838 489,484
Provision for income taxes 21,027 53,872 58,243 146,845
-------- -------- -------- --------
Net income $ 51,480 $125,703 $142,595 $342,639
======== ======== ======== ========
Basic earnings per share $ 0.16 $ 0.40 $ 0.45 $ 1.08
======== ======== ======== ========
Shares used in the calculation
of basic earnings per share 317,136 317,098 317,359 316,453
======== ======== ======== ========
Diluted earnings per share $ 0.16 $ 0.38 $ 0.43 $ 1.03
======== ======== ======== ========
Shares used in the calculation of diluted
earnings per share 328,526 331,801 329,026 332,689
======== ======== ======== ========
Cash dividends per share $ 0.04 $ 0.03 $ 0.12 $ 0.09
======== ======== ======== ========
See accompanying notes
3
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
March 31, July 1,
2002 2001
----------- -----------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 204,066 $ 321,106
Short-term investments 1,335,540 1,227,896
Accounts receivable, net of allowance for
doubtful accounts of $1,303 ($803 at
July 1, 2001) 81,441 89,836
Inventories:
Raw materials 3,275 6,990
Work-in-process 21,917 14,090
Finished goods 2,150 4,512
----------- -----------
Total inventories 27,342 25,592
Deferred tax assets 46,875 43,482
Prepaid expenses and other current assets 20,731 19,936
----------- -----------
Total current assets 1,715,995 1,727,848
----------- -----------
Property, plant and equipment, at cost:
Land, building and improvements 137,114 136,978
Manufacturing and test equipment 332,954 316,501
Office furniture and equipment 3,343 3,343
----------- -----------
473,411 456,822
Less accumulated depreciation and
amortization (202,963) (167,596)
----------- -----------
Net property, plant and equipment 270,448 289,226
----------- -----------
$ 1,986,443 $ 2,017,074
=========== ===========
See accompanying notes
4
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & STOCKHOLDERS' EQUITY
(In thousands)
March 31, July 1,
2002 2001
----------- -----------
(unaudited) (audited)
Current liabilities:
Accounts payable $ 6,917 $ 10,615
Accrued payroll and related benefits 25,817 65,930
Deferred income on shipments to distributors 46,673 44,481
Income taxes payable 66,922 51,335
Other accrued liabilities 19,655 29,863
---------- ----------
Total current liabilities 165,984 202,224
Deferred tax liabilities 31,392 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; 317,148
shares issued and outstanding at
March 31, 2002 (318,908 shares
at July 1, 2001) 317 319
Additional paid-in capital 656,864 607,883
Retained earnings 1,131,886 1,173,755
---------- ----------
Total stockholders' equity 1,789,067 1,781,957
---------- ----------
$1,986,443 $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)
Nine Months Ended
----------------------------------
March 31, April 1,
2002 2001
----------- -----------
Cash flow from operating activities:
Net income $ 142,595 $ 342,639
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 35,367 25,375
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 8,395 (51,593)
Decrease (increase) in inventories (1,750) (1,058)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets (4,188) (9,678)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities (38,432) 15,681
Tax benefit from stock option transactions 29,348 73,080
Increase (decrease) in deferred income 2,192 17,348
Increase (decrease) in deferred tax liabilities (1,501) --
----------- -----------
Cash provided by operating activities 172,026 411,794
----------- -----------
Cash flow from investing activities:
Purchase of short-term investments (758,285) (1,216,810)
Proceeds from sales and maturities of short-term investments 650,641 1,070,970
Purchase of property, plant and equipment (16,589) (105,147)
----------- -----------
Cash used in investing activities (124,233) (250,987)
----------- -----------
Cash flow from financing activities:
Issuance of common stock under employee stock plans 28,334 38,937
Purchase of common stock (155,033) (63,259)
Payment of cash dividends (38,134) (28,449)
----------- -----------
Cash used in financing activities (164,833) (52,771)
----------- -----------
Increase (decrease) in cash and cash equivalents (117,040) 108,036
Cash and cash equivalents, beginning of period 321,106 230,455
----------- -----------
Cash and cash equivalents, end of period $ 204,066 $ 338,491
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 17,940 $ 52,112
=========== ===========
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
nine months ended March 31, 2002 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 Nine Months Ended
----------------- -----------------
March 31, April 1, March 31, April 1,
2002 2001 2002 2001
-------- -------- -------- --------
Numerator - Net income $ 51,480 $125,703 $142,595 $342,639
======== ======== ======== ========
Denominator for basic earnings
per share - weighted average
shares 317,136 317,098 317,359 316,453
Effect of dilutive securities -
employee stock options 11,390 14,703 11,667 16,236
-------- -------- -------- --------
Denominator for diluted
earnings per share 328,526 331,801 329,026 332,689
======== ======== ======== ========
Basic earnings per share $ 0.16 $ 0.40 $ 0.45 $ 1.08
======== ======== ======== ========
Diluted earnings per share $ 0.16 $ 0.38 $ 0.43 $ 1.03
======== ======== ======== ========
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. The shutdown of the Company's 4-inch wafer fabrication facility
in January 2002 did not result in any impairment charges as the charges had
been previously anticipated and provided for in the financial statements.
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
nine months ended March 31, 2002 and April 1, 2001 as a percentage of net sales
and provides the percentage change in absolute dollars of such items comparing
the interim periods ended March 31, 2002 to the corresponding periods from the
prior fiscal year:
Three Months Ended Nine Months Ended
--------------------------------------------------- --------------------------------------------
March 31, April 1, Increase/ March 31, April 1, Increase/
2002 2001 (Decrease) 2002 2001 (Decrease)
Net sales 100.0% 100.0% (53.8%) 100.0% 100.0% (51.9%)
Cost of sales 26.5 23.1 (47.1) 29.0 23.5 (40.7)
------ ------ ------ ------
Gross profit 73.5 76.9 (55.9) 71.0 76.5 (55.4)
------ ------ ------ ------
Expenses:
Research & development 15.5 10.1 (29.5) 15.7 10.2 (26.0)
Selling, general &
administrative 12.0 9.0 (38.9) 12.3 9.1 (34.8)
------ ------ ------ ------
27.5 19.1 (33.9) 28.0 19.3 (30.1)
------ ------ ------ ------
Operating income 46.0 57.7 (63.2) 43.0 57.2 (63.9)
Interest income 9.7 5.9 (24.9) 11.1 6.2 (13.5)
------ ------ ------ ------
Income before income taxes 55.7% 63.7% (59.6) 54.1% 63.4% (59.0)
====== ====== ====== ======
Effective tax rates 29.0% 30.0% 29.0% 30.0%
====== ====== ====== ======
Net sales for the quarter ended March 31, 2002 were $130.2 million, a
decrease of $151.9 million or 53.8% 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 in all geographic areas, led by the United States. Domestic
sales were approximately 36% of net sales for the third quarter of fiscal 2002
and international sales were approximately 64%. International geographies as a
percent of worldwide net sales were Europe 21%, Japan 10% and rest of world 33%
which is primarily Asia excluding Japan. The Company's major end-market
applications are communications, industrial and computer. Sales decreased from
the prior year's quarter in all end-market applications, led by communications.
Net sales for the nine months ended March 31, 2002 decreased $401.1
million or 51.9% from net sales for the same period of the previous year. This
decrease in sales was primarily due to lower unit shipments and marginally due
to a slight decrease in the average selling price. Sales decreased in all
geographic areas, particularly the United States, and in all major end-markets,
led by communications.
To partially offset the impact of reduced sales on net profits for the
third quarter and for the first nine months of fiscal 2002, respectively, the
Company reduced its variable expenses primarily in the area of compensation.
This was achieved by lower profit sharing and by plant shutdowns of
approximately one week per month. The related savings in compensation were
approximately $23.7 million for the three months ended and $67.7 million for the
nine months ended March 31, 2002. Additionally, in January 2002 the Company
discontinued production in its oldest 4-inch wafer fabrication plant. The
related ongoing labor savings from the closure of the 4-inch plant were
approximately $3.0 million per quarter. The associated severance costs and
equipment and inventory write-downs had been previously provided for in past
financial statements and, therefore, no special one-time charges were required.
Gross profit decreased $121.2 million or 55.9% and $327.2 million or
55.4% for the third quarter and first nine 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 and the shutdown of our
4-inch production plant as discussed above.
8
Research and development ("R&D") expenses decreased by $8.4 million or
29.5% and $20.4 million or 26% for the third quarter and first nine months of
fiscal 2002, respectively, as compared to the same periods in fiscal 2001. The
decrease in R&D expense compared to the prior year periods was due to a decrease
in compensation costs as discussed above.
Selling, general and administrative expenses ("SG&A") decreased by $9.9
million or 38.9% and $24.5 million or 34.8% for the third quarter and first nine
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 due
to a decrease in compensation costs, lower commissions resulting from the
decrease in sales, and a reduction in legal expenses.
Interest income was $12.6 million and $41.4 million for the third
quarter and first nine months of fiscal 2002, a decrease of $4.2 million and
$6.4 million, respectively, over the corresponding periods of fiscal 2001. The
interest income earned on the increase in the Company's cash equivalents and
short-term investment balance was more than offset by a decline in the average
interest rates from period to period.
Income before income taxes as a percentage of sales was 55.7% for the
three month period ending March 31, 2002 and 54.1% for the nine month period
ending March 31, 2002 compared with 63.7% and 63.4% respectively for the prior
year comparable periods. The decrease from the prior years periods was the
result of lower sales offset by a reduction in spending by the Company.
The Company's effective tax rate for the third quarter and the first
nine months of fiscal 2002 was 29.0%, down from 30.0% in fiscal 2001. The lower
tax rate is due to increased business activity in jurisdictions with lower tax
rates and an increase in tax-exempt interest income as a percentage of total
interest income.
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.
Although the market in general and the Company in particular have
undergone some severe contraction in the first nine months of fiscal 2002, the
Company believes that the longer-term prospects for both the market and the
Company are excellent. Within the last quarter net bookings have increased
across all major geographical areas and all major end-markets from the previous
quarter within the current fiscal year. However, the Company's backlog, while
improving, is still low, and global economic and political conditions continue
to be tenuous. Therefore, confidently and accurately forecasting future
financial results remains difficult. However, based on analysis of the data
available, the Company believes excess inventory of products at its customers
continues to be worked off and the Company expects bookings to continue to
improve. Consequently, the Company currently estimates that its sales and
profits for the fourth quarter of fiscal 2002 will improve, 8%-10% over the
amounts just achieved in the third quarter.
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
influencing 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.
9
Liquidity and Capital Resources
At March 31, 2002, cash, cash equivalents and short-term investments
totaled $1,539.6 million, and working capital was $1,550.0 million.
During the first nine months of fiscal 2002, the Company generated
$172.0 million of cash from operating activities. Additionally, the Company
generated $28.3 million in proceeds from common stock issued under employee
stock option and stock purchase plans.
During the first nine months of fiscal 2002, significant cash
expenditures included net purchases of short-term investments of $107.6 million
and $16.6 million for the purchase of capital assets, primarily manufacturing
equipment for the Company's fabrication, assembly and test facilities. The
Company also paid $155.0 million to repurchase 4.5 million shares of its common
stock and $38.1 million for cash dividends to stockholders representing $0.04
per share per quarter. In April 2002, the Company's Board of Directors declared
an increase in the quarterly cash dividend to $0.05 per share to be paid during
the June quarter of fiscal 2002. 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 March 31, 2002, 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, municipal bonds,
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 6. Exhibits and Reports on Form 8-K
a) Exhibits
On December 17, 2001, the Board of Directors of the Registrant approved
employment agreements with four of its executive officers.
10.50 Robert H. Swanson, Jr. Employment Agreement dated January 15, 2002
between the Registrant and Robert H. Swanson, Jr.
10.51 Clive B. Davies Employment Agreement dated January 15, 2002 between
the Registrant and Clive B. Davies.
10.52 Paul Coghlan Employment Agreement dated January 15, 2002 between
the Registrant and Paul Coghlan.
10.53 Robert C. Dobkin Employment Agreement dated January 15, 2002
between the Registrant and Robert C. Dobkin.
b) Reports on Form 8-K
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINEAR TECHNOLOGY CORPORATION
DATE: May 14, 2002 BY /s/Paul Coghlan
----------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
12
LINEAR TECHNOLOGY CORPORATION
INDEX TO EXHIBITS
10.50 Robert H. Swanson, Jr. Employment Agreement dated January 15, 2002
between the Registrant and Robert H. Swanson, Jr.
10.51 Clive B. Davies Employment Agreement dated January 15, 2002 between
the Registrant and Clive B. Davies.
10.52 Paul Coghlan Employment Agreement dated January 15, 2002 between
the Registrant and Paul Coghlan.
10.53 Robert C. Dobkin Employment Agreement dated January 15, 2002
between the Registrant and Robert C. Dobkin.