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 28, 2004
[ ] 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 309,417,329 shares of the Registrant's Common Stock issued
and outstanding as of April 23, 2004.
1
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED MARCH 28, 2004
INDEX
Page
----
Part I: Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the three and nine months 3
ended March 28, 2004 and March 30, 2003
Consolidated Balance Sheets at March 28, 2004 and 4
June 29, 2003
Consolidated Statements of Cash Flows for the nine months 5
ended March 28, 2004 and March 30, 2003
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 2. Changes in Securities, Use of Proceeds and Issuer Purchases 12
of Equity Securities
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 Nine Months Ended
-------------------- ----------------------
March 28, March 30, March 28, March 30,
2004 2003 2004 2003
-------- -------- -------- --------
Net sales $209,133 $153,750 $569,231 $440,806
Cost of sales 47,596 39,390 132,782 114,611
-------- -------- -------- --------
Gross profit 161,537 114,360 436,449 326,195
-------- -------- -------- --------
Expenses:
Research and development 26,633 22,609 75,960 67,014
Selling, general and administrative 20,553 15,916 57,364 49,345
-------- -------- -------- --------
47,186 38,525 133,324 116,359
-------- -------- -------- --------
Operating income 114,351 75,835 303,125 209,836
Interest income, net 6,140 9,548 19,909 30,427
-------- -------- -------- --------
Income before income taxes 120,491 85,383 323,034 240,263
Provision for income taxes 34,942 24,761 93,679 69,676
-------- -------- -------- --------
Net income $ 85,549 $ 60,622 $229,355 $170,587
======== ======== ======== ========
Basic earnings per share $ 0.27 $ 0.19 $ 0.73 $ 0.54
======== ======== ======== ========
Shares used in the calculation of basic
earnings per share 311,993 312,782 312,924 313,184
======== ======== ======== ========
Diluted earnings per share $ 0.27 $ 0.19 $ 0.71 $ 0.53
======== ======== ======== ========
Shares used in the calculation of diluted
earnings per share 321,507 320,842 322,614 321,217
======== ======== ======== ========
Cash dividends per share $ 0.08 $ 0.05 $ 0.20 $ 0.15
======== ======== ======== ========
<FN>
See accompanying notes
</FN>
3
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 28, June 29,
2004 2003
----------- -----------
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 214,184 $ 136,276
Short-term investments 1,434,203 1,457,291
Accounts receivable, net of allowance for
doubtful accounts of $1,762
($1,762 at June 29, 2003) 98,419 80,094
Inventories:
Raw materials 2,947 3,196
Work-in-process 23,487 25,471
Finished goods 6,622 3,427
----------- -----------
Total inventories 33,056 32,094
Deferred tax assets 48,925 51,181
Prepaid expenses and other current assets 18,455 19,064
----------- -----------
Total current assets 1,847,242 1,776,000
----------- -----------
Property, plant and equipment, at cost:
Land, buildings and improvements 142,826 142,361
Manufacturing and test equipment 326,358 324,314
Office furniture and equipment 3,399 3,399
----------- -----------
472,583 470,074
Accumulated depreciation and amortization (273,564) (246,630)
----------- -----------
Net property, plant and equipment 199,019 223,444
----------- -----------
Other non current assets 55,067 57,435
----------- -----------
Total assets $ 2,101,328 $ 2,056,879
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 8,933 $ 7,480
Accrued payroll and related benefits 32,375 39,471
Deferred income on shipments to distributors 46,178 44,678
Income taxes payable 71,790 53,279
Other accrued liabilities 18,376 17,121
----------- -----------
Total current liabilities 177,652 162,029
----------- -----------
Deferred tax and other long-term liabilities 77,202 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; 311,079 shares issued and
outstanding at March 28, 2004 (312,706
shares at June 29, 2003) 311 313
Additional paid-in capital 801,241 740,084
Accumulated other comprehensive income, net 3,075 6,950
Retained earnings 1,041,847 1,067,582
----------- -----------
Total stockholders' equity 1,846,474 1,814,929
----------- -----------
Total liabilities and
stockholders' equity $ 2,101,328 $ 2,056,879
=========== ===========
<FN>
See accompanying notes
</FN>
4
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
----------------------
March 28, March 30,
2004 2003
--------- ---------
Cash flow from operating activities:
Net income $ 229,355 $ 170,587
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 36,725 33,494
Tax benefit from stock option transactions 29,466 18,103
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable (18,325) (2,153)
Decrease (increase) in inventories (962) (2,424)
Decrease (increase) in prepaid expenses and
other current assets and deferred tax assets 2,865 2,706
Decrease (increase) in other non current assets (1,875) --
Increase (decrease) in accounts payable,
accrued payroll and other accrued liabilities (6,852) (10,327)
Increase (decrease) in deferred income on
shipments to distributors 1,500 (1,242)
Increase (decrease) in income taxes payable
and deferred tax liabilities 20,682 (18,901)
--------- ---------
Cash provided by operating activities 292,579 189,843
--------- ---------
Cash flow from investing activities:
Purchase of short-term investments (687,291) (614,921)
Proceeds from sales and maturities of short-
term investments 704,078 553,458
Purchase of property, plant and equipment (8,057) (5,162)
--------- ---------
Cash provided by (used in) investing activities 8,730 (66,625)
--------- ---------
Cash flow from financing activities:
Issuance of common shares under employee
stock plans 44,212 27,353
Purchase of common stock (204,906) (165,659)
Payment of cash dividends (62,707) (47,024)
--------- ---------
Cash provided by (used in) financing activities (223,401) (185,330)
--------- ---------
Increase (decrease) in cash and cash equivalents 77,908 (62,112)
--------- ---------
Cash and cash equivalents, beginning of period 136,276 211,706
--------- ---------
Cash and cash equivalents, end of period $ 214,184 $ 149,594
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 40,501 $ 68,999
========= =========
<FN>
See accompanying notes
</FN>
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 nine
months ended March 28, 2004 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 Nine Months Ended
------------------- --------------------
March 28, March 30, March 28, March 30,
2004 2003 2004 2003
-------- -------- -------- --------
Numerator - Net income $ 85,549 $ 60,622 $229,355 $170,587
Denominator for basic earnings
per share - weighted average
shares 311,993 312,782 312,924 313,184
Effect of dilutive securities -
employee stock options 9,514 8,060 9,690 8,033
-------- -------- -------- --------
Denominator for diluted
earnings per share 321,507 320,842 322,614 321,217
Basic earnings per share $ 0.27 $ 0.19 $ 0.73 $ 0.54
======== ======== ======== ========
Diluted earnings per share $ 0.27 $ 0.19 $ 0.71 $ 0.53
======== ======== ======== ========
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 Nine Months Ended
----------------------------- ----------------------------
March 28, March 30, March 28, March 30,
2004 2003 2004 2003
------------- ------------- ------------- -----------
Net income as reported $ 85,549 $ 60,622 $229,355 $170,587
Deduct: total stock-based
compensation expense
determined under the fair
value method, net of tax (19,238) (19,065) (56,800) (57,476)
-------- -------- -------- --------
Pro forma net income $ 66,311 $ 41,557 $172,555 $113,111
======== ======== ======== ========
Earning per share:
Basic-as reported $ 0.27 $ 0.19 $ 0.73 $ 0.54
======== ======== ======== ========
Basic-pro forma $ 0.21 $ 0.13 $ 0.55 $ 0.36
======== ======== ======== ========
Diluted-as reported $ 0.27 $ 0.19 $ 0.71 $ 0.53
======== ======== ======== ========
Diluted-pro forma $ 0.21 $ 0.13 $ 0.53 $ 0.35
======== ======== ======== ========
5. Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of unrealized gains and losses
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 Nine Months Ended
--------------------- ----------------------
March 28, March 30, March 28, March 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Net income $ 85,549 $ 60,622 $ 229,355 $ 170,587
Increase (decrease) in
unrealized gains and losses on
available-for-sale securities 123 (1,800) (3,875) 13,800
--------- --------- --------- ---------
Total comprehensive income $ 85,672 $ 58,822 $ 225,480 $ 184,387
========= ========= ========= =========
6. Product Warranty and Indemnification
The Company's warranty policy provides for the replacement of defective parts.
In certain large contracts, the Company has agreed to negotiate in good faith a
warranty expense in the event that an epidemic failure of its parts were to take
place. To date there have been no such occurrences. 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
7
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 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 adoption of FIN 46 did not have an impact on
the Company's 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 March 28, 2004
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
nine months ended March 28, 2004 and March 30, 2003 as a percentage of net sales
and provides the percentage change in absolute dollars of such items comparing
the interim period ended March 28, 2004 to the corresponding period from the
prior fiscal year:
Three Months Ended Nine Months Ended
------------------------------------------ ---------------------------------------
March 28, March 30, Increase/ March 28, March 30, Increase/
2004 2003 (Decrease) 2004 2003 (Decrease)
------------ ----------- ------------ ----------- ---------- ----------
Net sales 100.0% 100.0% 36% 100.0% 100.0% 29%
Cost of sales 22.8 25.6 21 23.3 26.0 16
----- ----- ----- -----
Gross profit 77.2 74.4 41 76.7 74.0 34
----- ----- ----- -----
Expenses:
Research and development 12.7 14.7 18 13.3 15.2 13
Selling, general and
administrative 9.8 10.4 29 10.1 11.2 16
----- ----- ----- -----
22.5 25.1 22 23.4 26.4 15
----- ----- ----- -----
Operating income 54.7 49.3 51 53.3 47.6 44
Interest income, net 2.9 6.2 ( 36) 3.5 6.9 (35)
----- ----- ----- -----
Income before income taxes 57.6% 55.5% 41 56.8% 54.5% 34
===== ===== ===== =====
Effective tax rate 29.0% 29.0% 29.0% 29.0%
===== ===== ===== =====
Net sales for the quarter ended March 28, 2004 were $209.1 million, an
increase of $55.3 million or 36% over net sales of $153.8 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 industrial and communication
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 third quarter of fiscal 2003 to $1.41 per unit in the third quarter
of fiscal 2004. Geographically, international sales were $143.1 million or 69%
of net sales, an increase of $37.8 million as compared to international sales of
$105.3 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 $79.0 million or 38% of net sales, while sales to
Europe and Japan were $35.6 million or 17% of net sales and $28.5 million or 14%
of net sales, respectively. Domestic sales were $66.0 million or 31% of net
sales in the third quarter of fiscal 2004 compared to $48.5 million or 32% of
net sales in the same period in fiscal 2003.
Net sales for the nine months ended March 28, 2004 were $569.2 million,
an increase of $128.4 million or 29% over net sales of $440.8 million for the
same period of the previous fiscal year. The increase in net sales for the
nine-month period was due to similar factors as the three-month period increase
discussed above. The change in sales mix to smaller packaged products has been
the primary factor causing the average selling price to fall from $1.59 per unit
in the first nine-month period of fiscal 2003 to $1.40 per unit in the same
period of fiscal 2004. Geographically, international sales were $399.8 million
or 70% of net sales for the first nine-month period of fiscal 2004, an increase
of $102.4 million as compared to international sales of $297.4 million or 67% of
net sales for the same period in fiscal 2003. Internationally, sales to ROW,
represented
8
$217.3 million or 38% of net sales, while sales to Europe and Japan were $98.1
million or 17% of net sales and $84.4 million or 15% of net sales, respectively.
Domestic sales were $169.4 million or 30% of net sales in the first nine-month
period of fiscal 2004 compared to $143.4 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. In summary for the nine months ended March
28, 2004, 45% of the demand for the Company's sales was created in the USA of
which roughly 15% was shipped overseas.
Gross profit was $161.5 million and $436.4 million for the third
quarter and first nine-month period of fiscal 2004, an increase of $47.2 million
and $110.3 million, respectively, from the corresponding periods of fiscal 2003.
Gross profit as a percentage of net sales increased to 77.2% of net sales in the
third quarter of fiscal 2004 as compared to 74.4% of net sales for the same
period in the previous fiscal year. Gross profit as a percentage of net sales
increased to 76.7% of net sales for the first nine-month period of fiscal 2004
as compared to 74% 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
nine-month periods was primarily due to the favorable effect of fixed costs
allocated across higher net sales. Net sales increased 36% and 29% for the three
and nine-month period in fiscal 2004. The decrease in average selling price
referred to above did not have a commensurate effect on gross margin. Most of
the reduction in average selling price 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 March
28, 2004 were $26.6 million, an increase of $4.0 million or 18% over R&D
expenses of $22.6 million for the same period in the previous fiscal year. The
increase in R&D was primarily due to a $3.0 million increase in compensation
costs. Compensation costs increased as the result of increases to the profit
sharing accrual, employee headcount and annual merit increases. Since the
Company had better operating results, R&D profit sharing grew $1.5 million while
compensation related to headcount and annual merit increases together totaled
$1.5 million. In addition to compensation costs, the Company had a $1.0 million
increase in R&D related expenses such as software maintenance amortization and
depreciation.
Research and development expenses for the nine month period ended March
28, 2004 were $76.0 million, an increase of $8.9 million or 13% over R&D
expenses of $67.0 million for the same period in the previous fiscal year. The
increase in R&D was primarily due to a $6.9 million increase in compensation
costs. Compensation costs increased as the result of increases to the profit
sharing accrual, employee headcount and annual merit increases. Since the
Company had better operating results, R&D profit sharing grew $3.1 million while
compensation related to headcount and annual merit increases totaled $3.8
million. In addition to compensation costs, the Company had a $2.0 million
increase in R&D related expenses such as supplies, software maintenance
amortization, mask costs and depreciation.
Selling, general and administrative expenses ("SG&A") for the quarter
ended March 28, 2004 were $20.5 million, an increase of $4.6 million or 29% over
SG&A expenses of $15.9 million for the same period in the previous fiscal year.
The increase in SG&A was primarily due to a $3.2 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. Since the Company had better operating results, SG&A profit sharing
grew $1.1 million while compensation related to headcount, annual merit
increases and commissions together totaled $2.1 million. In addition to
compensation costs, the Company had a $1.4 million increase in expenses related
to advertising, legal and travel costs.
Selling, general and administrative expenses for the nine-month period
ended March 28, 2004 were $57.3 million, an increase of $8.0 million or 16% over
SG&A expenses of $49.3 million for the same period in the previous fiscal year.
The increase in SG&A was due to a $6.6 million increase in compensation costs.
Compensation costs grew as the result of increases to the profit sharing
accrual, employee headcount, annual merit increase and commissions. Since the
Company had better operating results, SG&A profit sharing grew $2.3 million
while compensation related to headcount, annual merit increases and commissions
together totaled $4.3 million. In addition to compensation costs, the Company
had a $1.4 million increase in expenses related to advertising, outside
services, legal and travel costs.
Interest income, net was $6.1 million and $19.9 million for the third
quarter and first nine-month period of fiscal 2004, a decrease of $3.4 million
and $10.5 million, respectively, from the corresponding periods of fiscal 2003.
Interest income, net 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 effect of these two factors was $4.1
million and $12.8 million for the three and nine month periods, respectively.
Offsetting the decreases in interest income, net was interest earned on the
higher average cash balance, which totaled $0.7 million and $2.3 million for the
three and nine-month periods of fiscal 2004, respectively.
9
The Company's effective tax rate for the third quarter and first nine
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, tax-exempt interest income and the tax credits received by the
Company for qualified R&D expenditures. During the third quarter of fiscal 2004
the Singapore government agreed to extend the Company's tax holiday for seven
years, provided that the Company fulfills certain investment requirements in
qualifying activities. With still additional investment in qualifying
activities, the tax holiday may be extended to ten years.
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 the
Company's 10-K for the fiscal year ended June 29, 2003.
During the quarter ended March 28, 2004, the Company exceeded its
expectations by growing sales 12% sequentially over the December fiscal 2004
quarter. 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 will discontinue having quarterly production shutdowns at
its Camas, Washington wafer fabrication plant and expects to add to the direct
labor pool in Camas during the June quarter. In addition to Camas, the Company
has added approximately 20% to headcount at its assembly and test operations in
Malaysia and Singapore. The Company anticipates that the effect of no shutdowns
and additional headcount on its cost structure will be negligible as the Company
expects that the increase in costs will be offset by an increase in sales
volume. The Company is experiencing good bookings momentum in all major
geographies and all end-markets. 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
low double digit range sequentially in the June quarter, roughly similar
percentages to that just achieved in sales growth in the March 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 March 28, 2004, cash, cash equivalents and short-term investments
totaled $1,648.4 million, and working capital was $1,669.6 million.
Accounts receivable totaled $98.4 million at the end of the third
quarter of fiscal 2004, an increase of $18.3 million from the fourth quarter of
fiscal 2003. The increase is due to higher sales while days sales outstanding
(DSO) improved slightly from 44 days to 43 days at the end on the third quarter
of fiscal 2004.
During the first nine months of fiscal 2004, the Company generated
$292.6 million of cash from operating activities, $44.2 million in proceeds from
common stock issued under employee stock plans and $16.8 million from net sales
and maturities of short-term investments.
10
During the first nine months of fiscal 2004, significant cash
expenditures included repurchasing $204.9 million of common stock, payments of
$62.7 million in cash dividends to stockholders, representing $0.06 per share
per quarter for the first and second quarters and $0.08 per share per quarter
for the third quarter, and $8.1 million for the purchase of capital assets. In
April, the Company's Board of Directors declared a quarterly cash dividend of
$0.08 per share to be paid during the June quarter of fiscal 2004. The payment
of future dividends will be based on quarterly financial performance.
During the third quarter of fiscal 2004, the Company announced that it
intends to commence with the development of certain leasehold property located
in Singapore adjacent to its existing facility. The construction of a new
building on this site is expected to cost approximately $9.0 to $11.0 million
and is expected to be completed by the end of fiscal 2005. The new building will
be used primarily for test operations and warehousing operations, supportive of
final shipments to customers worldwide.
As of March 28, 2004, 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 March 28, 2004, 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.
The Company's sales outside the United States are predominantly
transacted in U.S. dollars; accordingly the Company's sales are not generally
impacted by foreign currency rate changes. To date, fluctuations in foreign
currency exchange rates have not had a material impact on the results of
operations.
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 third 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 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
e) Stock Repurchases
- -----------------------------------------------------------------------------------------------------------------
Total Average Total Number of Shares Maximum Number of
Number of Price Purchased as Part of Shares that May Yet be
Shares Paid per Publicly Announced purchased Under the
Period Purchased Share Plans or Programs Plans or Programs
- -----------------------------------------------------------------------------------------------------------------
Month #1 (December 29, 2003
- - January 25, 2004) 1,000,000 $ 42.98 1,000,000 7,015,152
- -----------------------------------------------------------------------------------------------------------------
Month #2 (January 26, 2004 -
February 22, 2004) 1,500,000 $ 40.10 1,500,000 5,515,152
- -----------------------------------------------------------------------------------------------------------------
Month #3 (February 22, 2004
- - March 28, 2004) 450,000 $ 40.14 450,000 5,065,152
- -----------------------------------------------------------------------------------------------------------------
Total 2,950,000 $ 41.08 2,950,000 5,065,152
- -----------------------------------------------------------------------------------------------------------------
On October 15, 2002, the Company's Board of Directors authorized the Company to
purchase up to 10,000,000 shares of it's outstanding common stock in the open
market over a two year time period.
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 March 28, 2004, the Company filed two reports
on Form 8-K as follows:
A report on Form 8-K was filed January 13, 2004, furnishing to the
Securities and Exchange Commission a press release announcing the
Company's quarterly financial results for the fiscal quarter ending
December 28, 2003.
A report on Form 8-K was filed February 9, 2004, furnishing to the
Securities and Exchange Commission a press release announcing an
increase in the Company's March quarter revenue and profit guidance.
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: May 7, 2004 BY /s/ PAUL COGHLAN
------------------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
13