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 28, 2003
[ ] 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 NO.)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
There were 312,272,486 shares of the Registrant's Common Stock issued
and outstanding as of January 23, 2004.
1
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND SIX MONTHS ENDED DECEMBER 28, 2003
INDEX
Page
----
Part I: Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the three and six months 3
ended December 28, 2003 and December 29, 2002
Consolidated Balance Sheets at December 28, 2003 and 4
June 29, 2003
Consolidated Statements of Cash Flows for the six months 5
ended December 28, 2003 and December 29, 2002
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial 8-11
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11
Part II: Other Information
Item 5. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures: 13
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
--------------------------- ---------------------------
December 28, December 29, December 28, December 29,
2003 2002 2003 2002
-------- -------- -------- --------
Net sales $186,021 $145,045 $360,098 $287,056
Cost of sales 43,777 38,653 85,186 75,221
-------- -------- -------- --------
Gross profit 142,244 106,392 274,912 211,835
-------- -------- -------- --------
Expenses:
Research and development 24,992 21,331 49,327 44,405
Selling, general and administrative 19,240 16,482 36,811 33,429
-------- -------- -------- --------
44,232 37,813 86,138 77,834
-------- -------- -------- --------
Operating income 98,012 68,579 188,774 134,001
Interest income, net 6,684 10,524 13,769 20,879
-------- -------- -------- --------
Income before income taxes 104,696 79,103 202,543 154,880
Provision for income taxes 30,361 22,940 58,737 44,915
-------- -------- -------- --------
Net income $ 74,335 $ 56,163 $143,806 $109,965
======== ======== ======== ========
Basic earnings per share $ 0.24 $ 0.18 $ 0.46 $ 0.35
======== ======== ======== ========
Shares used in the calculation of basic
earnings per share 313,369 312,581 313,389 313,386
======== ======== ======== ========
Diluted earnings per share $ 0.23 $ 0.18 $ 0.44 $ 0.34
======== ======== ======== ========
Shares used in the calculation of diluted
earnings per share 323,440 320,556 323,167 321,405
======== ======== ======== ========
Cash dividends per share $ 0.06 $ 0.05 $ 0.12 $ 0.10
======== ======== ======== ========
See accompanying notes
3
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
December 28, June 29,
2003 2003
----------- -----------
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 221,251 $ 136,276
Short-term investments 1,465,522 1,457,291
Accounts receivable, net of allowance for doubtful
accounts of $1,762 ($1,762 at June 29, 2003) 89,491 80,094
Inventories:
Raw materials 3,027 3,196
Work-in-process 24,500 25,471
Finished goods 5,540 3,427
----------- -----------
Total inventories 33,067 32,094
Deferred tax assets 51,181 51,181
Prepaid expenses and other current assets 20,497 19,064
----------- -----------
Total current assets 1,881,009 1,776,000
----------- -----------
Property, plant and equipment, at cost:
Land, buildings and improvements 142,660 142,361
Manufacturing and test equipment 323,071 324,314
Office furniture and equipment 3,399 3,399
----------- -----------
469,130 470,074
Accumulated depreciation and amortization (263,122) (246,630)
----------- -----------
Net property, plant and equipment 206,008 223,444
----------- -----------
Other non current assets 55,481 57,435
----------- -----------
Total assets $ 2,142,498 $ 2,056,879
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 7,875 $ 7,480
Accrued payroll and related benefits 43,448 39,471
Deferred income on shipments to distributors 43,842 44,678
Income taxes payable 64,370 53,279
Other accrued liabilities 17,106 17,121
----------- -----------
Total current liabilities 176,641 162,029
----------- -----------
Deferred tax and other long-term liabilities 75,950 79,921
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 2,000 shares
authorized; none issued or outstanding -- --
Common stock, $0.001 par value, 2,000,000 shares
authorized; 313,134 shares issued and outstanding at
December 28, 2003 (312,706 shares at June 29, 2003) 313 313
Additional paid-in capital 791,551 740,084
Accumulated other comprehensive income, net 2,952 6,950
Retained earnings 1,095,091 1,067,582
----------- -----------
Total stockholders' equity 1,888,907 1,814,929
----------- -----------
Total liabilities and stockholders' equity $ 2,142,498 $ 2,056,879
=========== ===========
See accompanying notes
4
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended
-----------------------------
December 28, December 29,
2003 2002
--------- ---------
Cash flow from operating activities:
Net income $ 143,806 $ 109,965
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 24,512 22,415
Tax benefit from stock option transactions 20,755 14,593
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable (9,397) (10,366)
Decrease (increase) in inventories (973) (2,010)
Decrease (increase) in prepaid expenses and
other current assets (1,433) 292
Decrease (increase) in non current assets (875) --
Increase (decrease) in accounts payable,
accrued payroll and other accrued liabilities 2,888 (551)
Increase (decrease) in deferred income on
shipments to distributors (836) (369)
Increase (decrease) in income taxes payable
and deferred tax liabilities 11,091 (14,480)
--------- ---------
Cash provided by operating activities 189,538 119,489
--------- ---------
Cash flow from investing activities:
Purchase of short-term investments (480,743) (417,486)
Proceeds from sales and maturities of short-
term investments 466,012 422,188
Purchase of property, plant and equipment (4,247) (3,153)
--------- ---------
Cash provided by (used in) investing activities (18,978) 1,549
--------- ---------
Cash flow from financing activities:
Issuance of common shares under employee stock plans 35,775 22,690
Purchase of common stock (83,716) (126,507)
Payment of cash dividends (37,644) (31,351)
--------- ---------
Cash provided by (used in) financing activities (85,585) (135,168)
--------- ---------
Increase (decrease) in cash and cash equivalents 84,975 (14,130)
--------- ---------
Cash and cash equivalents, beginning of period 136,276 211,706
--------- ---------
Cash and cash equivalents, end of period $ 221,251 $ 197,576
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 26,206 $ 44,709
========= =========
See accompanying notes
5
LINEAR TECHNOLOGY CORPORATION
NOTES TO 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 and six months
ended December 28, 2003 are not necessarily an indication of results to be
expected for the entire fiscal year. All information reported in this Form
10-Q should be read in conjunction with the Company's annual consolidated
financial statements for the fiscal year ended June 29, 2003 included in
the Company's Annual Report to Stockholders. The accompanying balance sheet
at June 29, 2003 has been derived from audited financial statements as of
that date. 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 2004 and 2003 are 52-week years.
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 28, December 29, December 28, December 29,
2003 2002 2003 2002
-------- -------- -------- --------
Numerator - Net income $ 74,335 $ 56,163 $143,806 $109,965
Denominator for basic earnings
per share - weighted average
shares 313,369 312,581 313,389 313,386
Effect of dilutive securities -
employee stock options 10,071 7,975 9,778 8,019
-------- -------- -------- --------
Denominator for diluted
earnings per share 323,440 320,556 323,167 321,405
Basic earnings per share $ 0.24 $ 0.18 $ 0.46 $ 0.35
======== ======== ======== ========
Diluted earnings per share $ 0.23 $ 0.18 $ 0.44 $ 0.34
======== ======== ======== ========
4. Stock-Based Compensation
As permitted by SFAS 148 and SFAS 123, the Company continues to apply the
accounting provisions of APB 25, and related interpretations, with regard to the
measurement of compensation cost for options granted under the Company's equity
compensation plans. No employee compensation expense has been recorded as all
options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. Had expense been recognized using
the fair value method described in SFAS 123, using the Black-Scholes
option-pricing model, the Company would have reported the following results of
operations:
6
Three Months Ended Six Months Ended
------------------------------ --------------------------------
December 28, December 29, December 28, December 29,
2003 2002 2003 2002
---------- ---------- ----------- -----------
Net income as reported $ 74,335 $ 56,163 $ 143,806 $ 109,965
Deduct: total stock-based
compensation expense determined
under the fair value method,
net of tax (19,036) (19,445) (37,563) (38,410)
---------- ---------- ----------- -----------
Pro forma net income $ 55,299 $ 36,718 $ 106,243 $ 71,555
========== ========== =========== ===========
Earning per share: Basic-as
reported $ 0.24 $ 0.18 $ 0.46 $ 0.35
========== ========== =========== ===========
Basic-pro forma $ 0.18 $ 0.12 $ 0.34 $ 0.23
========== ========== =========== ===========
Diluted-as reported $ 0.23 $ 0.18 $ 0.44 $ 0.34
========== ========== =========== ===========
Diluted-pro forma $ 0.17 $ 0.11 $ 0.33 $ 0.22
========== ========== =========== ===========
5. Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of unrealized gains on
available-for-sale securities. The Company, in practice, primarily holds its
cash and short-term investments until maturity. The components of comprehensive
income were as follows:
Three Months Ended Six Months Ended
---------------------------- -----------------------------
December 28, December 29, December 28, December 29,
2003 2002 2003 2002
-------- ------- --------- --------
Net income $ 74,335 $56,163 $ 143,806 $109,965
Increase (decrease) in
unrealized gains on
available-for-sale securities (2,029) 15,600 (3,998) 15,600
-------- ------- --------- --------
Total comprehensive income $ 72,306 $71,763 $ 139,808 $125,565
======== ======= ========= ========
6. Product Warranty and Indemnification
The Company's warranty policy provides for replacement of defective parts.
Warranty expense historically has been negligible. The Company provides a
limited indemnification of customers against intellectual property infringement
claims related to the Company's products. In certain cases, there are limits on
and exceptions to the Company's potential liability for indemnification relating
to intellectual property infringement claims. To date, the Company has not
incurred any significant indemnification expenses relating to intellectual
property infringement claims. The Company cannot estimate the amount of
potential future payments, if any, that the Company might be required to make as
a result of these agreements, and accordingly, the Company has not accrued any
amounts for its indemnification obligations.
7. Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46 (FIN 46), "Consolidation of Variable Interest Entities." FIN 46 requires
an investor with a majority of the variable interests (primary beneficiary) in a
variable interest entity (VIE) to consolidate the entity and also requires
majority and significant variable interest investors to provide certain
disclosures. A VIE is an entity in which the voting equity investors do not have
a controlling interest, or the equity investment at risk is insufficient to
finance the entity's activities without receiving additional subordinated
financial support from other parties. FIN 46 clarifies the application of
Accounting Research Bulletin No. 51 and applies immediately to any variable
interest entities created after January 31, 2003 and to variable interest
entities in which an interest is obtained after
7
that date. For variable interest entities created or acquired prior to February
1, 2003, the provisions of FIN 46 must be applied for the first interim or
annual period ending after March 15, 2004. The Company believes the adoption of
FIN 46 will not have an impact on its results of operations or financial
position.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Critical Accounting Policies
Management believes there have been no significant changes to the Company's
critical accounting policies during the quarter ended December 28, 2003 as
compared to the previous disclosures in Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Annual Report on
Form 10-K for the year ended June 29, 2003.
Results of Operations
The table below states the income statement items for the three and six months
ended December 28, 2003 and December 29, 2002 as a percentage of net sales and
provides the percentage change in absolute dollars of such items comparing the
interim period ended December 28, 2003 to the corresponding period from the
prior fiscal year:
Three Months Ended Six Months Ended
----------------------------------------- ---------------------------------------
December 28, December 29, Increase/ December 28, December 29, Increase/
2003 2002 (Decrease) 2003 2002 (Decrease)
----- ----- --------- ----- ----- ----------
Net sales 100.0% 100.0% 28% 100.0% 100.0% 25%
Cost of sales 23.5 26.6 13 23.7 26.2 13
----- ----- ----- -----
Gross profit 76.5 73.4 34 76.3 73.8 30
----- ----- ----- -----
Expenses:
Research and development 13.4 14.7 17 13.7 15.5 11
Selling, general and
administrative 10.4 11.4 17 10.2 11.6 10
----- ----- ----- -----
23.8 26.1 17 23.9 27.1 11
----- ----- ----- -----
Operating income 52.7 47.3 43 52.4 46.7 41
Interest income, net 3.6 7.3 (36) 3.8 7.3 (34)
----- ----- ----- -----
Income before income taxes 56.3% 54.6% 32 56.2% 54.0% 31
===== ===== ===== =====
Effective tax rates 29.0% 29.0% 29.0% 29.0%
===== ===== ===== =====
Net sales for the quarter ended December 28, 2003 were $186.0 million,
an increase of $41.0 million or 28% over net sales of $145.0 million for the
same quarter of the previous fiscal year. The increase in net sales was
primarily due to the Company selling more units into a wide variety of
end-markets in response to improving overall demand particularly in the
communication and industrial markets. This increase in unit volume was enhanced
by increases in sales of smaller packaged products that go into a wide variety
of hand held products such as cellular phones. The change in sales mix to
smaller packaged products has been the primary factor causing the average
selling price to fall from $1.54 per unit in the second quarter of fiscal 2003
to $1.39 per unit in the second quarter of fiscal 2004. Geographically,
international sales were $130.2 million or 70% of net sales, an increase of
$31.3 million as compared to international sales of $98.9 million or 68% of net
sales for the same period in fiscal 2003. Internationally, sales to Rest of the
World (ROW), which is primarily Asia excluding Japan, represented $71.6 million
or 39% of net sales, while sales to Europe and Japan were $30.3 million or 16%
of net sales and $28.3 million or 15% of net sales, respectively. Domestic sales
were $55.8 million or 30% of net sales in the second quarter of fiscal 2004
compared to $46.1 million or 32% of net sales in the same period in fiscal 2003.
Sales increased in absolute dollars both internationally and domestically,
however the decline in domestic sales as a percentage of net sales and the
increase in international sales as a percentage of net sales primarily resulted
from the Company's domestic customers shifting more of their manufacturing
operations overseas. This shift results in an increase in shipments to
international locations.
Net sales for the six months ended December 28, 2003 were $360.1
million, an increase of $73.0 million or 25% over net sales of $287.1 million
for the same period of the previous fiscal year. The increase in net sales for
the six-month
8
period was due to similar factors as the three-month period discussed above. The
change in sales mix to smaller packaged products has been the primary factor
causing the average selling price to fall from $1.62 per unit in the first
six-month period of fiscal 2003 to $1.39 per unit in the same period of fiscal
2004. Geographically, international sales were $256.7 million or 71% of net
sales for the first six-month period of fiscal 2004, an increase of $64.5
million as compared to international sales of $192.2 million or 67% of net sales
for the same period in fiscal 2003. Internationally, sales to ROW, represented
$138.2 million or 38% of net sales, while sales to Europe and Japan were $62.6
million or 17% of net sales and $55.9 million or 16% of net sales, respectively.
Domestic sales were $103.4 million or 29% of net sales in the first six-month
period of fiscal 2004 compared to $94.9 million or 33% of net sales in the same
period in fiscal 2003. Sales increased in absolute dollars both internationally
and domestically, however the decline in domestic sales as a percentage of net
sales and the increase in international sales as a percentage of net sales
primarily resulted from the Company's domestic customers shifting more of their
manufacturing operations overseas.
Gross profit was $142.2 million and $274.9 million for the second
quarter and first six-month period of fiscal 2004, an increase of $35.9 million
and $63.1 million, respectively, from the corresponding periods of fiscal 2003.
Gross profit as a percentage of net sales increased to 76.5% of net sales in the
second quarter of fiscal 2004 as compared to 73.4% of net sales for the same
period in the previous fiscal year. Gross profit as a percentage of net sales
increased to 76.3% of net sales for the first six-month period of fiscal 2004 as
compared to 73.8% of net sales for the same period of the previous fiscal year.
The increase in gross profit as a percentage of net sales for the three and
six-month period was primarily due to the favorable effect of fixed costs
allocated across higher net sales. Net sales increased 28% and 25% for the three
and six-month period in fiscal 2004. The decrease in average selling price
referred to above did not have a commensurate effect on gross margin since most
of the reduction was due to a change in product mix as the Company has had
increased sales of products with smaller die and package types, which have a
smaller average selling price, but also lower costs.
Research and development ("R&D") expenses for the quarter ended
December 28, 2003 were $25.0 million, an increase of $3.7 million or 17% over
R&D expenses of $21.3 million for the same period in the previous fiscal year.
The increase in R&D was primarily due to a $2.8 million increase in compensation
costs. Compensation costs increased as the result of increases to the profit
sharing accrual, employee headcount and annual merit increases. R&D profit
sharing grew $1.0 million while compensation related to headcount and annual
merit increases together totaled $1.8 million. In addition to compensation
costs, the Company had a $0.9 million increase in R&D related expenses such as
mask costs, software maintenance and depreciation.
Research and development expenses for the six month period ended
December 28, 2003 were $49.3 million, an increase of $4.9 million or 11% over
R&D expenses of $44.4 million for the same period in the previous fiscal year.
The increase in R&D was primarily due to a $3.9 million increase in compensation
costs. Compensation costs increased as the result of increases to the profit
sharing accrual, employee headcount and annual merit increases. R&D profit
sharing grew $1.6 million while compensation related to headcount and annual
merit increases totaled $2.3 million. In addition to compensation costs, the
Company had a $1.0 million increase in R&D related expenses such as supplies,
software maintenance and depreciation.
Selling, general and administrative expenses ("SG&A") for the quarter
ended December 28, 2003 were $19.2 million, an increase of $2.8 million or 17%
over SG&A expenses of $16.5 million for the same period in the previous fiscal
year. The increase in SG&A was primarily due to a $2.1 million increase in
compensation costs. Compensation costs grew as the result of increases to the
profit sharing accrual, employee headcount, annual merit increases and
commissions. Increases in SG&A compensation related to headcount, annual merit
increases and commissions together totaled $1.4 million. SG&A profit sharing
grew $0.7 million. In addition to compensation costs, the Company had a $0.7
million increase in expenses related to advertising and outside service costs.
Selling, general and administrative expenses for the six-month period
ended December 28, 2003 were $36.8 million, an increase of $3.4 million or 10%
over SG&A expenses of $33.4 million for the same period in the previous fiscal
year. The increase in SG&A was due to a $3.4 million increase in compensation
costs. Compensation costs grew as the result of increases to the profit sharing
accrual, employee headcount, annual merit compensation and commissions.
Increases in SG&A compensation related to headcount, annual merit increases and
commissions together totaled $2.2 million. SG&A profit sharing grew $1.2
million.
Interest income, net was $6.7 million and $13.8 million for the second
quarter and first six-month period of fiscal 2004, a decrease of $3.8 million
and $7.1 million respectively, from the corresponding periods of fiscal 2003.
Interest income declined primarily due to the decrease in the average interest
rate earned on the Company's cash investment balance and due to imputed interest
expense related to a long-term royalty agreement entered into in the third
quarter of fiscal 2003: the total affect of these two factors was $4.8 million
and $8.8 million for the three and six month periods respectively.
9
Offsetting the decreases in interest income was interest earned on the higher
average cash balance, which totaled $1.0 million and $1.7 million for the three
and six-month period respectively.
The Company's effective tax rate for the second quarter and first six
months of fiscal 2004 and 2003 was 29%. The tax rate is lower than the federal
statutory rate primarily due to business activity in foreign jurisdictions with
lower tax rates and tax-exempt 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, the timely
introduction of new processes and products, general conditions in the world
economy and financial markets and other factors described below and in our 10-K
for the fiscal year ended June 29, 2003.
During the quarter ended December 28, 2003 the Company exceeded its
expectations by growing sales and profits by 7% sequentially over the September
fiscal 2004 quarter. The Company's orders exceeded shipments causing backlog to
increase over the first quarter of fiscal 2004. The Company's backlog is
approaching normal historic levels. The conditions external to the Company
appear to be improving; general economic news has improved as several companies
in the semiconductor industry and within markets that the Company serves have
reported upward trends. Looking forward, the Company is reducing its quarterly
plant shutdowns at its Camas, Washington fabrication plant from three weeks per
quarter to two weeks per quarter. The Company anticipates that the effect of
fewer shutdowns on its cost structure will be negligible as the Company will
have increased inventoriable costs, but expects to increase sales at the same
time. The Company is experiencing good bookings momentum in all major
geographies; most end-markets; and all product categories. The Company's
inventory is well positioned and the Company continues to have responsive lead
times. Consequently, should these positive trends continue, the Company
estimates sales and profits to grow in the high single digit range sequentially
in the March quarter from those just achieved in the December 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, as well as exposure
related to patent infringement suits if brought against the Company, are factors
that can influence 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 could be significantly affected by factors
described 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 28, 2003, cash, cash equivalents and short-term investments
totaled $1,686.8 million, and working capital was $1,704.4 million.
Accounts receivable totaled $89.5 million at the end of the second
quarter of fiscal 2004, an increase of $9.4 million from the fourth quarter of
fiscal 2003. The increase is due to higher sales while days sales outstanding
(DSO) remained flat at 44 days from the fourth quarter of fiscal 2003. Compared
with the similar quarter in the prior fiscal year, DSO in accounts receivable
improved from 58 days to 44 days.
Income taxes payable totaled $64.4 million at the end of the second
quarter of fiscal 2004, an increase of $11.1 million from the fourth quarter of
fiscal 2003. The $11.1 increase to income taxes payable was the result of a
$58.7 million
10
provision for income taxes, offset by tax payments and the tax benefit from
stock option transactions, which together totaled $47.6 million.
During the first six months of fiscal 2004, the Company generated
$189.5 million of cash from operating activities and $35.8 million in proceeds
from common stock issued under employee stock plans.
During the first six months of fiscal 2004, significant cash
expenditures included repurchasing $83.7 million of common stock, $37.6 million
in cash dividends to stockholders representing $0.06 per share per quarter, net
purchases of short-term investments of $14.7 million and $4.2 million for the
purchase of capital assets. In January 2004, the Company's Board of Directors
declared an increase in the quarterly cash dividend to $0.08 per share to be
paid during the March quarter of fiscal 2004. The payment of future dividends
will be based on quarterly financial performance.
As of December 28, 2003, the Company had no off-balance sheet financing
arrangements.
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
For additional quantitative and qualitative disclosures about market
risk affecting the Company, see item 7A of the Company's Form 10-K for the
fiscal year ended June 29, 2003. There have been no material changes in the
market risk affecting the Company since the filing of the Company's Form 10-K
for fiscal 2003. At December 28, 2003, 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 municipal bonds, federal
agency bonds, commercial paper, 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.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
The Company's management evaluated, with the participation of the Chief
Executive Officer and the Chief Financial Officer, the effectiveness of the
Company's disclosure controls and procedures as of the end of the period covered
by this Quarterly Report on Form 10-Q. Based on this evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective to ensure that
information that the Company is required to disclose in reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
(b) Changes in internal controls over financial reporting
There was no change in the Company's internal control over financial
reporting that occurred during the second quarter of fiscal 2004 that has
materially affected, or is reasonably likely to materially affect, its internal
control over financial reporting.
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PART II. OTHER INFORMATION
Item 5. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company, held on November
5, 2003, 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. 215,820,548 62,163,778
David S. Lee 269,934,125 8,050,201
Leo T. McCarthy 269,897,703 8,086,623
Richard M. Moley 269,944,784 8,039,542
Thomas S. Volpe 269,940,527 8,043,799
The vote to ratify the appointment of Ernst & Young LLP as independent auditors
for fiscal 2004 was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
233,797,363 42,829,652 1,357,311
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to
Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Exhibit 31.2 Certification of Chief Financial Officer Pursuant to
Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Exhibit 32.1 Certifications of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K:
During the quarter ended December 28, 2003, the Company filed one
report on Form 8-K as follows:
A report on Form 8-K was filed October 15, 2004, furnishing to the
Securities and Exchange Commission a press release announcing the
Company's quarterly financial results for the fiscal quarter ending
September 28, 2003.
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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 6, 2004 BY /s/Paul Coghlan
-----------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
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