SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 3, 2005
[ ] 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1630 McCarthy Boulevard, Milpitas, California 95035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including are code (408) 432-1900
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $9,593,000,000 as of December 31, 2004 based upon
the closing sale price on the Nasdaq National Market System reported for such
date. Shares of common stock held by each officer and director and by each
person who owns 5% or more of the outstanding common stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
There were 306,792,088 shares of the registrant's common stock issued and
outstanding as of July 31, 2005.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Items 10, 11, 12 and 14 of Part III incorporate information by reference
from the definitive proxy statement (the "2005 Proxy Statement") for the
2005 Annual Meeting of Stockholders, to be filed subsequently
EXPLANATORY NOTE
This Annual Report on Form 10-K/A for the fiscal year ended July 3, 2005
is being filed for the purposes of refiling Exhibits 31.1 and 31.2, and
supersedes the prior filing of the Annual Report on Form 10-K for the fiscal
year ended July 3, 2005 in its entirety. No changes other than the changes to
Exhibit 31.1 and 31.2 are being made by means of this filing.
PART I
ITEM 1. BUSINESS
Except for historical information contained in this Form 10-K, certain
statements set forth herein, including statements regarding future revenues and
profits; future conditions in the Company's markets; availability of resources
and manufacturing capacity; and the anticipated impact of current and future
lawsuits and investigations 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 for the Company's products, 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. Therefore, actual outcomes and results may differ
materially from what is expressed or forecast in such forward-looking
statements. Words such as "expect," "anticipate," "intend," "plan," "believe,"
"seek," "estimate," and variations of such words and similar expressions are
intended to identify such forward-looking statements. See "Risks and
Competition" in the "Business" section of this Annual Report on Form 10-K for a
more thorough list of potential risks and uncertainties.
General
Linear Technology Corporation (together with its consolidated subsidiaries,
"Linear Technology" or the "Company") designs, manufactures and markets a broad
line of standard high performance linear integrated circuits. Applications for
the Company's products include telecommunications, cellular telephones,
networking products, notebook computers, computer peripherals, video/multimedia,
industrial instrumentation, security monitoring devices, high-end consumer
products such as digital cameras and MP3 players, complex medical devices,
automotive electronics, factory automation, process control, and military and
space systems. The Company is a Delaware corporation; it was organized and
incorporated in California in 1981. The Company competes primarily on the basis
of performance, functional value, quality, reliability and service.
Available Information
We make available free of charge through our website, www.linear.com, our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on
Form 8-K, proxy statements and all amendments to those reports as soon as
reasonably practicable after such materials are electronically filed with the
Securities and Exchange Commission ("SEC"). These reports may also be requested
by contacting Paul Coghlan, 1630 McCarthy Blvd., Milpitas, CA 95035. Our
Internet website and the information contained therein or incorporated therein
are not intended to be incorporated into this Annual Report on Form 10-K. In
addition, the public may read and copy any materials we file with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549 or may
obtain information by calling the SEC at 1-800-SEC-0330. Moreover, the SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding reports that we file electronically
with them at http://www.sec.gov.
The Linear Circuit Industry
Semiconductor components are the electronic building blocks used in
electronic systems and equipment. These components are classified as either
discrete devices (such as individual transistors) or integrated circuits (in
which a number of transistors and other elements are combined to form a more
complicated electronic circuit). Integrated circuits ("ICs") may be divided into
two general categories, digital and linear (or analog). Digital circuits, such
as memory devices and microprocessors, generally process on-off electrical
signals, represented by binary digits, "1" and "0." In contrast, linear circuits
monitor, condition, amplify or transform continuous analog signals associated
with physical properties, such as temperature, pressure, weight, light, sound or
speed, and play an important role in bridging between real world phenomena and a
variety of electronic systems. Linear circuits also provide voltage regulation
and power control to electronic systems, especially in hand-held battery powered
systems.
The Company believes that several factors generally distinguish the linear
integrated circuit business from the digital circuit business, including:
Importance of Individual Design Contribution. The Company believes that
the creativity of individual design engineers is of particular importance
in the linear circuit industry. The design of a linear integrated circuit
generally involves a greater variety and less repetition of circuit
elements than digital design. In addition, the interaction of linear
circuit elements is complex, and the exact placement of these elements in
1
the circuit is critical to the circuit's precision and performance.
Computer-aided engineering and design tools for linear circuits are not
as accurate in modeling circuits as those tools used for designing
digital circuits. As a result, the contributions of a relatively small
number of individual design engineers are generally of greater importance
in the design of linear circuits than in the design of digital circuits.
Smaller Capital Requirements. Digital circuit design attempts to minimize
device size and maximize speed by increasing circuit densities. The
process technology necessary for increased density requires very
expensive wafer fabrication equipment. In contrast, linear circuit design
focuses on precise matching and placement of circuit elements, and linear
circuits often require large feature sizes to achieve precision and high
voltage operation. Accordingly, the linear circuit manufacturing process
generally requires smaller initial capital expenditures, particularly for
photomasking equipment and clean room facilities, and less frequent
replacement of manufacturing equipment because the equipment has, to
date, been less vulnerable to technological obsolescence.
Market Diversity; Relative Pricing Stability. Because of the varied
applications for linear circuits, manufacturers typically offer a greater
variety of device types to a more diverse group of customers, who
typically have smaller volume requirements per device. As a result,
linear circuit manufacturers are often less dependent upon particular
products or customers; linear circuit markets are generally more
fragmented; and competition within those markets tends to be more
diffused.
The Company believes that competition in the linear circuit market is
particularly dependent upon performance, functional value, quality,
reliability and service. As a result, linear circuit pricing has
generally been more stable than most digital circuit pricing. In recent
years the average selling price of the Company's products in total has
declined. This is primarily a result of an increase in sales of smaller
package products as a percentage of total units sold, which have lower
average selling prices and lower manufacturing costs.
Less Japanese And Other Asian Competition. To date, Japanese and other
Asian firms have concentrated their efforts on the high volume digital
and consumer linear markets, as opposed to the high performance end of
the linear circuit market served by the Company.
Products and Markets
Linear Technology produces a wide range of products for a variety of
customers and markets. The Company emphasizes standard products to address
larger markets and to reduce the risk of dependency upon a single customer's
requirements. The Company targets the high performance segment of the analog
integrated circuit market. "High performance" may be characterized by higher
precision, higher efficiency, lower noise, higher speed, more subsystem
integration on a single chip and many other special features. The Company
focuses virtually all of its design efforts on proprietary products, which at
the time of introduction are original designs by the Company offering unique
characteristics differentiating them from those offered by competitors.
Although the types and mix of linear products vary by application, the
principal product categories are as follows:
Amplifiers - These circuits amplify the output voltage or current of a
device. The amplification represents the ratio of the output voltage or current
to the input voltage or current. The most widely used device is the operational
amplifier due to its versatility and precision.
High Speed Amplifiers - These amplifiers are used to amplify signals from 5
megahertz to several hundred megahertz for applications such as video, fast data
acquisition and communications.
Voltage Regulators - Voltage regulators deliver a tightly controlled
voltage to power electronic systems. This category of product consists primarily
of two types, the linear regulator and the switch mode-regulator. Switch mode
regulators are also used to convert voltage up or down within an electronic
system for power management and battery charging.
2
Voltage References - These circuits serve as electronic benchmarks
providing a constant voltage for measurement systems usage. Precision references
have a constant output independent of input, temperature changes or time.
Interface - Interface circuits act as an intermediary to transfer digital
signals between or within electronic systems. These circuits are used in
computers, modems, instruments and remote data acquisition systems.
Data Converters - These circuits change linear (analog) signals into
digital signals, or visa versa, and are often referred to as data acquisition
subsystems, A/D converters and D/A converters. The accuracy and speed with which
the analog signal is converted to its digital counterpart (and visa versa) is
considered a key characteristic for these devices. Low speed data converters may
have resolution up to 24 bits, while high speed converters may operate in the
region of 100 megahertz sample rate.
Radio Frequency Circuits - These circuits include mixers, modulators,
demodulators, amplifiers, drivers, and power detectors and controllers. They are
used in wireless and cable infrastructure, cellphones, and wireless data
communications infrastructure.
Other - Other linear circuits include buffers, battery monitors, motor
controllers, hot swap circuits, comparators, sample-and-hold devices, drivers
and filters (both switched capacitor and continuous time,) which are used to
limit and/or manipulate signals in such applications as cellular telephones,
base stations, navigation systems and industrial applications.
Linear circuits are used in various applications including
telecommunications, cellular telephones, networking products such as power over
Ethernet switches, notebook computers, computer peripherals, video/multimedia,
industrial instrumentation, security monitoring devices, high-end consumer
products such as digital cameras and MP3 players, complex medical devices,
automotive electronics, factory automation, process control, and military and
space systems. The Company focuses its product development and marketing efforts
on high performance applications where the Company believes it can position
itself competitively with respect to product performance and functional value.
The following table sets forth examples of product families by end-market
application and end-market:
Market End Applications/Products Example Product Families
- ------ ------------------------- ------------------------
__
Industrial Flow or rate metering |
Position/pressure/ |
temperature sensing and controls |
Robotics |
Energy management |
Process control data communication |
Network and factory automation |
Security and surveillance systems |
Curve tracers | Data acquisition products
Logic analyzers | High performance operational
Multimeters | amplifiers
Oscilloscopes | Interface (RS 485/232) products
Test equipment | Instrumentation amplifiers
Voltmeters | Line drivers
Network analyzers | Line receivers
Weighing scales | Precision comparators
Analytic instruments | Precision voltage references
Gas chromatographs | Monolithic filters
EKG, CAT scanners | Switching voltage regulators
DNA analysis | Voltage references
Blood analyzers | Hot swap circuits
| DC-DC converters
Space/Military Communications |
Satellites |
Guidance and navigation systems |
3
Displays |
Firing controls |
Ground support equipment |
Radar systems |
Sonar systems |
Surveillance equipment |
GPS |
|
Automotive Entertainment |
Navigation systems |
Daytime running lights |
Dashboard instrumentation |
Emission controls |
Safety systems |
Collision avoidance systems __|
__
Communications Cellular phones(CDMA/WCDMA/GPRS/3G) | DC - DC converters
Cellular basestations | V.35 transceivers
Pagers | High-speed amplifiers
Modems/fax machines | Line drivers
PBX switches | Line receivers
Optical networking | Low noise operational amplifiers
ADSL modems | Micropower products
Channel service unit/data service units | Power management products
Cable modems | Switched capacitor filters
Internet appliances | Voltage references
Servers | Voltage regulators
Routers | Data acquisition products
Switches | Hot Swap controllers
Power over Ethernet | Multi-protocol circuits
| Thermoelectric coolers
| Power amplifier controllers
| Mixers/Modulators/Demodulators
| Battery chargers
| Power over Ethernet controllers
__| Multi-Phase switching regulators
__
Computer/High- Communications/interface modems | Battery chargers
End Consumer Disk drives | DC - DC converters
Notebook computers | Data acquisition products
Desktop computers | Hot Swap controllers
Workstations | Line drivers
LCD monitors | Line receivers
Plotters/printers | Low drop out linear regulators
Digital still cameras | Micropower products
High Definition TVs | Multi-Phase switching regulators
Handheld PCs | PCMCIA power switching
Battery chargers | Power management
Electronic Toys | Power sequencing/monitoring
Video/multimedia systems |
MP3 players |
Digital video recorders |
Set top boxes/Satellite receivers |
Plasma and LCD display TVs |
PDAs |
__|
4
Marketing and Customers
The Company markets its products worldwide, through a direct sales staff,
electronics distributors and a small network of independent sales
representatives, to a broad range of customers in diverse industries. The
Company sells to over 15,000 Original Equipment Manufacturer (OEM) customers
directly and/or through the sales distributor channel. Distributor and direct
customers generally buy on an individual purchase order basis, rather than
pursuant to long-term agreements. The Company's primary domestic distributor,
Arrow Electronics, accounted for 13% of net revenues during fiscal 2005 and 18%
of accounts receivable as of fiscal 2005 year-end; 15% of net revenues during
fiscal 2004 and 20% of accounts receivable as of fiscal 2004 year-end; and 15%
of net revenues for fiscal 2003 and 18% of accounts receivable as of fiscal 2003
year-end. Distributors are not end customers, but rather serve as a channel of
sale to many end users of the Company's products. No other distributor or
customer accounted for 10% or more of net revenues for fiscal 2005, 2004 or
2003.
The Company's products typically require a sophisticated technical sales
effort. The Company's sales organization is divided into domestic and
international regions. The Company's sales offices located in the United States
are in the following metropolitan areas: Seattle, Boston, Baltimore, Denver,
Philadelphia, Raleigh, Chicago, Dallas, Austin, Houston, San Jose, Los Angeles,
Irvine, San Diego, Huntsville, Minneapolis, Cleveland and Portland.
Internationally, the Company has sales offices in: London, Stockholm, Ascheberg,
Munich, Stuttgart, Paris, Lyon, Milan, Helsinki, Tokyo, Nagoya, Osaka, Taipei,
Singapore, Seoul, Hong Kong, Bejing, Shanghai and Shenzhen.
The Company has agreements with 3 independent sales representatives in the
United States and 1 in Canada. Commissions are paid to sales representatives
upon shipments either directly from the Company or through distributors. The
Company has agreements with 3 independent distributors in North America, 4 in
Europe, 3 in China, 2 each in Japan and Taiwan, and 1 each in Korea, Singapore,
Malaysia, Thailand, South Africa, Philippines, India, Israel, Brazil, Australia,
and New Zealand. The Company's distributors purchase the Company's products for
resale to customers. Additionally, domestic distributors often sell competitors'
products. Under certain agreements, the Company's domestic distributors are
entitled to price protection on inventory if the Company lowers the prices of
its products. The agreements also generally permit distributors to exchange up
to 3% of purchases on a semi-annual basis.
The Company's sales to international distributors are made under agreements
which permit limited stock return privileges but not sales price rebates. The
agreements generally permit distributors to exchange up to 5% of purchases on a
semi-annual basis. See Critical Accounting Estimates and Note 1 of Notes to
Consolidated Financial Statements of this Annual Report on Form 10-K, which
contains information regarding the Company's revenue recognition policy.
During fiscal 2005, 2004 and 2003, export sales were primarily to Europe,
Japan and Rest of the World ("ROW"), which is primarily Asia excluding Japan,
and represented approximately 70%, 71% and 68% of net revenues, respectively.
Because most of the Company's export sales are billed and payable in United
States dollars, export sales are generally not directly subject to fluctuating
currency exchange rates. Although export sales are subject to certain control
restrictions, including approval by the Office of Export Administration of the
United States Department of Commerce, the Company has not experienced any
material difficulties relating to such restrictions.
The Company's backlog of released and firm orders was approximately $90.1
million at July 3, 2005 as compared with $151.2 million at June 27, 2004. In
addition to its backlog, the Company had $37.9 million of products sold to and
held by domestic distributors at July 3, 2005 as compared to $36.0 million at
June 27, 2004. Generally, shipments to domestic distributors are not recognized
as revenues until the distributor has sold the products to its customers. The
Company defines backlog as consisting of distributor stocking orders and OEM
orders for which a delivery schedule has been specified by the OEM customer for
product shipment within six months. Although the Company receives volume
purchase orders, most of these purchase orders are cancelable, generally outside
of thirty days of delivery, by the customer without significant penalty.
Lead-time for the release of purchase orders depends upon the scheduling
practices of the individual customer and the availability of individual
products, so the rate of booking new orders varies from month to month. The
ordering practices of many semiconductor customers has shifted from a practice
of placing orders with delivery dates extending over several months to the
practice of placing orders with shorter delivery dates in concert with the
Company's lead times. Also, the Company's agreements with certain distributors
provide for price protection. Consequently, the Company does not believe that
its backlog at any time is necessarily representative of actual sales for any
succeeding period.
5
In the operating history of the Company, seasonality of business has not
been a material factor, although the results of operations for the first fiscal
quarter of each year are impacted slightly by customary summer holidays,
particularly in Europe.
The Company warrants that its products, until they are incorporated in
other products, are free from defects in workmanship and materials and conform
to the Company's published specifications. Warranty expense has been nominal to
date. Refer to Note 1 of Notes to Consolidated Financial Statements of this
Annual Report on Form 10-K, which contains information regarding the Company's
warranty policy.
Manufacturing
The Company's wafer fabrication facilities are located in Camas, Washington
("Camas") and Milpitas, California ("Hillview"). Each facility was built to
Company specifications to support a number of sophisticated process technologies
and to satisfy rigorous quality assurance and reliability requirements of United
States military specifications and major worldwide OEM customers. In addition to
wafer fabrication facilities, the Company has an assembly facility located in
Malaysia and a test facility located in Singapore. All of the Company's
facilities have received ISO 9001/ISO 9002, QS9000 and ISO 14001 certifications.
In addition, the Company's Milpitas, Camas and Singapore manufacturing
facilities are certified to TS 16949.
The Company's wafer fabrication facility located in Camas, Washington is
used to produce six-inch diameter wafers for use in the production of the
Company's devices. During fiscal 2001, the Company purchased an additional 16.5
acres adjacent to its Camas facility for future expansion. The Company's
Hillview facility is also a six-inch wafer fabrication plant. The Company
currently uses similar manufacturing processes in both its Hillview and Camas
facilities.
The Company's basic process technologies include high-speed bipolar, high
gain low noise bipolar, radio frequency bipolar, silicon gate complementary
metal-oxide semiconductor ("CMOS") and BiCMOS processes. The Company also has
two proprietary complementary bipolar processes. The Company's bipolar processes
are typically used in linear circuits where high voltages, high power, high
frequency, low noise or effective component matching is necessary. The Company's
proprietary silicon gate CMOS processes provide switch characteristics required
for many linear circuit functions, as well as an efficient mechanism for
combining linear and digital circuits on the same chip. The Company's CMOS
processes were developed to address the specific requirements of linear circuit
functions. The complementary bipolar processes were developed to address higher
speed analog functions. The Company's basic processes can be combined with a
number of adjunct processes to create a diversity of IC components. A minor
portion of the Company's wafer manufacturing, particularly very small feature
size CMOS products, is done at an independent foundry. The accompanying chart
provides a brief overview of the Company's IC process capabilities:
Process Families Benefit/Market Advantage Product Application
- ---------------- ------------------------ -------------------
P-Well SiGate CMOS General purpose, stability Switches, filters, data conversion,
chopper amplifiers
N-Well SiGate CMOS Speed, density, stability Switches, data conversion
BiCMOS Speed, density, stability, flexibility Data conversion
High Power Bipolar Power (100 watts), high current Linear and smart power products,
(10 amps) switching regulators
Low Noise Bipolar Precision, low current, low noise, Op amps, voltage references
high gain
High Speed Bipolar Fast, wideband, video high data Op amps, video, comparators,
rate switching regulators
JFETS Speed, precision, low current Op amps, switches, sample and hold
Rad - Hard Total dose radiation hardened All space products
Complementary Bipolar Speed, low distortion, precision Op amps, video amps, converters
CMOS/ Thin Films Stability, precision Filters, data conversion
High Voltage CMOS High voltage general-purpose, Switches, chopper amplifiers
compatible with Bipolar
Bipolar/Thin Films Precision, stability, matching Converters, amplifiers
RF Bipolar High speed, low power RF wireless, high speed data communications
6
The Company emphasizes quality and reliability from initial product design
through manufacturing, packaging and testing. The Company's design team focuses
on fault tolerant design and optimum location of circuit elements to enhance
reliability. Linear Technology's wafer fabrication facilities have been designed
to minimize wafer handling and the impact of operator error through the use of
microprocessor-controlled equipment. The Company has received Defense Supply
Center, Columbus (DSCC,) Jan Class S Microcircuit Certification, which enables
the Company to manufacture products intended for use in space or for critical
applications where replacement is extremely difficult or impossible and where
reliability is imperative. The Company has also received MIL-PRF-38535 Qualified
Manufacturers Listing (QML) certification for military products from DSCC.
Processed wafers are sent to either the Company's assembly facility in
Penang, Malaysia or to offshore independent assembly contractors where the
wafers are separated into individual circuits and packaged. The Penang facility
opened in October 1994 and services approximately 70% to 90% of the Company's
assembly requirements for plastic packages. The Company's primary subcontractors
are Carsem Sdn, located in Malaysia; and NSE, located in Thailand. The Company
also maintains domestic assembly operations to satisfy particular customer
requirements, especially those for military applications, and to provide rapid
turnaround for new product development.
After assembly, most products are sent to the Company's Singapore facility
for final testing, inspection and packaging as required. Some products are
returned to Milpitas for the same back-end processing. In addition, the
Company's Singapore facility serves as a major warehouse and distribution center
with the bulk of the Company's shipments to end customers originating from this
facility. The expansion of the Singapore facility is nearing completion and is
expected to be available for use in the first quarter of fiscal 2006. The
expansion will be used primarily to increase the facility's capacity for test
and distribution operations.
Linear Technology from time to time has experienced competition for
assembly services from other manufacturers seeking assembly of circuits by
independent contractors. The Company currently believes that alternative foreign
assembly sources could be obtained without significant interruption. Foreign
assembly is subject to risks normally associated with foreign operations,
including changes in local governmental policies, currency fluctuations,
transportation delays and the imposition of export controls or increased import
tariffs.
From time to time certain materials, including silicon wafers and plastic
molding compounds, have been in short supply. To date the Company has
experienced no delays in obtaining raw materials which could have adversely
affected production. As is typical in the industry, the Company must allow for
significant lead times in delivery of certain materials.
Manufacturing of individual products, from wafer fabrication through final
testing, may take from eight to sixteen weeks. Since the Company sells a wide
variety of device types, and customers typically expect delivery of products
within a short period of time following order, the Company maintains a
substantial work-in-process and finished goods inventory.
Based on its anticipated production requirements, the Company believes it
will have sufficient available resources and manufacturing capacity for fiscal
2006.
7
Patents, Licenses and Trademarks
The Company has been awarded 281 United States and International patents
and has filed 147 additional patent applications. Although the Company believes
that these patents and patent applications may have value, the Company's future
success will depend primarily upon the technical abilities and creative skills
of its personnel, rather than on its patents.
The Company relies on patents, trademarks, international treaties and
organizations, and foreign laws to protect and enforce its intellectual
property. The Company continuously assesses whether to seek formal protection
for particular innovation and technologies. As part of the Company's enforcement
of its intellectual property, the Company entered into a royalty agreement
during fiscal 2005. The agreement resulted in a $40.0 million increase to the
Company's revenues for past royalties. Under the terms of the agreement the
Company also expects to earn future royalties, which are dependent on the other
company's sales of licensed products, quarterly from July 2005 through June
2013.
As is common in the semiconductor industry, the Company has at times been
notified of claims that it may be infringing patents issued to others. If it
appears necessary or desirable, the Company may seek licenses under such
patents, although there can be no assurance that all necessary licenses can be
obtained by the Company on acceptable terms. In addition, from time to time the
Company may negotiate with other companies to license patents, products or
process technology for use in its business. On March 7, 2003, the Company
entered into a ten-year patent portfolio cross license agreement with Texas
Instruments, Inc.
Research and Development
The Company's ability to compete depends in part upon its continued
introduction of technologically innovative products on a timely basis. To
facilitate this need, the Company has organized its product development efforts
into four groups: power management, signal conditioning, mixed signal and high
frequency. Linear Technology's product development strategy emphasizes a broad
line of standard products to address a diversity of customer applications. The
Company's research and development ("R&D") efforts are directed primarily at
designing and introducing new products and to a lesser extent developing new
processes and advanced packaging.
As of July 3, 2005, the Company had 833 employees involved in research,
development and engineering related functions of which 445 employees are engaged
in new product design. In recent years, the Company has opened remote design
centers throughout the United States, Singapore and Malaysia as part of the
Company's strategy of obtaining and retaining analog engineering design talent.
For fiscal years 2005, 2004, and 2003, the Company spent approximately $131.4
million, $104.6 million and $91.4 million, respectively, on R&D. The increase in
R&D expenses in 2005 over 2004 was primarily due to an increase in labor
expenses caused by increases to profit sharing, restricted stock charges and
headcount. Headcount in R&D personnel increased to 833 in fiscal 2005 from 752
in fiscal 2004.
Government Sales
The Company currently has no material U.S. Government contracts.
Risks and Competition
In addition to the risks discussed below and elsewhere in this "Business"
section, see "Factors Affecting Future Operating Results" included in
"Management's Discussion and Analysis" for further discussion of other risks and
uncertainties that may affect the Company.
Semiconductor Industry. The semiconductor market has historically been cyclical
and subject to significant economic downturns at various times, including the
recent decline in demand experienced during fiscal 2002 and 2003. The cyclical
nature of the semiconductor industry may cause the Company to experience
substantial period-to-period fluctuations in its results of operations.
Typically, the Company's ability to meet its revenue goals and projections
is dependent to a large extent on the orders it receives from its customers
within the period. Historically, the Company has maintained low lead times,
which have enabled customers to place orders close to their true needs for
product. In defining its financial goals and
8
projections, the Company considers inventory on hand, backlog, production cycles
and expected order patterns from customers. If the Company's estimates in these
areas become inaccurate, it may not be able to meet its revenue goals and
projections. In addition, some customers require the Company to manufacture
product and have it available for shipment, even though the customer is
unwilling to make a binding commitment to purchase all, or even some, of the
product.
The semiconductor industry is characterized by rapid technological change,
price erosion, occasional shortages of materials, capacity constraints,
variations in manufacturing efficiencies, and significant expenditures for
capital equipment and product development. New product introductions are a
critical factor for future sales growth and sustained profitability. Although
the Company believes that the high performance segment of the linear circuit
market is generally less affected by price erosion or by significant
expenditures for capital equipment and product development than other
semiconductor market sectors, future operating results may reflect substantial
period-to-period fluctuations due to these or other factors.
Manufacturing. The Company relies on its internal manufacturing facilities
located in California and Washington to fabricate most of its wafers; however,
the Company is dependent on outside silicon foundries for a small portion of its
wafer fabrication. The Company could be adversely affected in the event of a
major earthquake, which could cause temporary loss of capacity, loss of raw
materials, and damage to manufacturing equipment. Additionally, the Company
relies on its internal and external assembly and testing facilities located in
Singapore and Malaysia. The Company is subject to economic and political risks
inherent to international operations, including changes in local governmental
policies, currency fluctuations, transportation delays and the imposition of
export controls or increased import tariffs. The Company could be adversely
affected if any such changes are applicable to the Company's foreign operations.
The Company's manufacturing yields are a function of product design and
process technology, both of which are developed by the Company. The manufacture
and design of integrated circuits is highly complex. To the extent the Company
does not achieve acceptable manufacturing yields or there are delays in wafer
fabrication, its results of operations could be adversely affected.
Dependence on Independent Subcontractors and Foundries. A portion of the
Company's wafers (10% to 30%) are processed by offshore independent assembly
subcontractors located in Malaysia and Thailand. These subcontractors separate
wafers into individual circuits and assemble them into various finished package
types. Reliability problems experienced by the Company's assemblers could cause
problems in delivery and quality resulting in potential product liability to the
Company. The Company could also be adversely affected by political disorders,
labor disruptions, and natural disasters in these locations.
The Company is dependent on outside silicon foundries for a small portion
(less than 5%) of its wafer fabrication. If these foundries are unable or
unwilling to produce adequate supplies of processed wafers conforming to the
Company's quality standards, the Company's business and relationships with its
customers for the limited quantities of products produced by these foundries
could be adversely affected. Finding alternate sources of supply or initiating
internal wafer processing for these products may not be economically feasible.
Worldwide Operations. During fiscal 2005 70% of the Company's net revenues were
derived from customers in international markets. Also, the Company has test and
assembly facilities outside the United States in Singapore and Malaysia.
Accordingly, the Company is subject to the economic and political risks inherent
in international operations and their impact on the United States economy in
general, including the risks associated with ongoing uncertainties and political
and economic instability in many countries around the world as well as the
economic disruption from acts of terrorism, and the response to them by the
United States and its allies.
Litigation. The Company is subject to various legal proceedings arising out of a
wide range of matters, including, among others, patent suits and employment
claims. From time to time, as is typical in the semiconductor industry, the
Company receives notice from third parties alleging that the Company's products
or processes infringe the third parties' intellectual property rights. If the
Company is unable to obtain a necessary license, and one or more of its products
or processes is determined to infringe intellectual property rights of others, a
court might enjoin the Company from further manufacture and/or sale of the
affected products. In that case, the Company would need to re-engineer the
affected products or processes in such a way as to avoid the alleged
infringement, which may or may not be possible. An adverse result in litigation
arising from such a claim could involve an injunction to prevent the sales of a
portion of the Company's products, a reduction or the elimination of the value
of related inventories, and/or the assessment of a substantial monetary award
for damages related to past sales. The Company does not believe that its current
lawsuits will have a material impact on its business or financial condition.
However, current lawsuits and any future lawsuits
9
will divert resources and could result in the payment of substantial damages. In
addition, the Company may incur significant legal costs to assert its
intellectual property rights when the Company believes its products or processes
have been infringed by third parties
Key Personnel. The Company's performance is substantially dependent on the
performance of its executive officers and key employees. The loss of the
services of key officers, technical personnel or other key employees could harm
the business. The success of the Company depends on its ability to identify,
hire, train, develop and retain highly qualified technical and managerial
personnel. Failure to attract and retain the necessary technical and managerial
personnel could harm the Company.
Competition. Linear Technology competes in the high performance segment of the
linear market. The Company's competitors include among others, Analog Devices,
Inc., Maxim Integrated Products, Inc., National Semiconductor Corporation and
Texas Instruments, Inc. Competition among manufacturers of linear integrated
circuits is intense, and certain of the Company's competitors may have
significantly greater financial, technical, manufacturing and marketing
resources than the Company. The principal elements of competition include
product performance, functional value, quality and reliability, technical
service and support, price, diversity of product line and delivery capabilities.
The Company believes it competes favorably with respect to these factors,
although it may be at a disadvantage in comparison to larger companies with
broader product lines and greater technical service and support capabilities.
Environmental regulations. Federal, state and local regulations impose various
environmental controls on the storage, use, discharge and disposal of certain
chemicals and gases used in semiconductor processing. The Company's facilities
have been designed to comply with these regulations, and the Company believes
that its activities conform to present environmental regulations. Increasing
public attention has, however, been focused on the environmental impact of
electronics manufacturing operations. While the Company to date has not
experienced any materially adverse business effects from environmental
regulations, there can be no assurance that changes in such regulations will not
require the Company to acquire costly remediation equipment or to incur
substantial expenses to comply with such regulations. Any failure by the Company
to control the storage, use or disposal of, or adequately restrict the discharge
of hazardous substances could subject it to significant liabilities.
Summary. Although the Company believes that it has the product lines,
manufacturing facilities and technical and financial resources for its current
operations, revenues 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 the 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.
Employees
As of July 3, 2005, the Company had 3,217 employees, including 330 in
marketing and sales, 833 in research, development and engineering related
functions, 1,960 in manufacturing and production, and 94 in management,
administration and finance. The Company has never had a work stoppage, no
employees are represented by a labor organization, and the Company considers its
employee relations to be good.
Executive Officers of the Registrant
The executive officers of the Company, and their ages as of September 2,
2005, are as follows:
Name Age Position
- ---- --- --------
Robert H. Swanson, Jr. ..... 67 Executive Chairman of the Board of Directors
Lothar Maier................ 50 Chief Executive Officer
David B. Bell............... 49 President
Paul Chantalat.............. 55 Vice President Quality and Reliability
Paul Coghlan................ 60 Vice President of Finance and Chief Financial Officer
Robert C. Dobkin............ 61 Vice President of Engineering and Chief Technical Officer
Alexander R. McCann ........ 39 Vice President and Chief Operating Officer
Richard Nickson............. 55 Vice President of North American Sales
David A. Quarles............ 39 Vice President of International Sales
Donald Paulus............... 48 Vice President and General Manager, Power Products
Robert Reay................. 44 Vice President and General Manager, Mixed Signal Products
10
Mr. Swanson, a founder of the Company, has served as Executive Chairman of
the Board of Directors since January 2005. Prior to that time he served as
Chairman of the Board of Directors and Chief Executive Officer since April 1999,
and prior to that time as President, Chief Executive Officer and a director of
the Company since its incorporation in September 1981. From August 1968 to July
1981, he was employed in various positions at National Semiconductor Corporation
("National"), a manufacturer of integrated circuits, including Vice President
and General Manager of the Linear Integrated Circuit Operation and Managing
Director in Europe. Mr. Swanson has a B.S. degree in Industrial Engineering from
Northeastern University.
Mr. Maier was named Chief Executive Officer of Linear Technology in January
2005. Prior to that, Mr. Maier served as the Company's Chief Operating Officer
for more than five years. Before joining Linear Technology, Mr. Maier held
various management positions at Cypress Semiconductor Corp. from 1983 to 1999,
most recently as Senior Vice President and Executive Vice President of Worldwide
Operations. He holds a BS degree in Chemical Engineering from the University of
California at Berkeley.
Mr. Bell has served as President since June 2003. Prior to becoming
President, Mr. Bell served as Vice President and General Manager of Power
Products from January 2002 to June 2003 and as General Manager of Power Products
from February 1999. From June 1994 to January 1999, he held the position of
Manager of Strategic Product Development. From July 1991 to May 1994, he was
employed as Director of Electrical Engineering at IDEO Product Development.
Prior to July 1991, Mr. Bell was employed in various management and engineering
positions at Bell Associates, Inc., Sydis, Inc., and Hewlett Packard, Inc. Mr.
Bell has a B.S. degree in Electrical Engineering from the Massachusetts
Institute of Technology.
Mr. Chantalat has served as Vice President of Quality and Reliability since
July 1991. From January 1989 to July 1991, he held the position of Director of
Quality and Reliability. From July 1983 to January 1989 he held the position of
Manager of Quality and Reliability. From February 1976 to July 1983, he was
employed in various positions at National where his most recent position was
Group Manager of Manufacturing Quality Engineering. Mr. Chantalat received a
B.S. and an M.S. in Electrical Engineering from Stanford University in 1970 and
1972, respectively.
Mr. Coghlan has served as Vice President of Finance and Chief Financial
Officer of the Company since December 1986. From October 1981 until joining the
Company, he was employed in various positions at GenRad, Inc., a manufacturer of
automated test equipment, including Corporate Controller, Vice President of
Corporate Quality and most recently Vice President and General Manager of the
Structural Test Products Division. Before joining GenRad, Inc., Mr. Coghlan was
associated with Price Waterhouse & Company in the United States and Paris,
France for twelve years. Mr. Coghlan received a B.A. from Boston College in 1966
and an MBA from Babson College in 1968.
Mr. Dobkin, a founder of the Company, has served as Vice President of
Engineering and Chief Technical Officer since April 1999, and as Vice President
of Engineering from September 1981 to April 1999. From January 1969 to July
1981, he was employed in various positions at National, where his most recent
position was Director of Advanced Circuit Development. Mr. Dobkin has extensive
experience in linear circuit design. Mr. Dobkin attended the Massachusetts
Institute of Technology.
Mr. McCann was named Chief Operating Officer of Linear Technology in
January 2005, prior to that Mr. McCann served as Vice President of Operations
since January 2004. Prior to joining Linear, he was Vice President of Operations
at NanoOpto Corporation in Somerset, NJ (2002-2003), Vice President of Worldwide
Operations at Anadigics Inc. in Warren, NJ (1998-2002) and held various
management positions at National Semiconductor UK Ltd. (1985-1998). Mr. McCann
received a B.S. (equivalent) in Electrical and Electronic Engineering in 1985
from James Watt College and an MBA in 1998 from the University of Glasgow
Business School.
Mr. Nickson has served as Vice President of North American Sales since
October 2001. From July 2001 until October 2001 he was Director of USA Sales.
From February 1998 until July 2001, he was European Sales Director. From August
1993 until January 1998, he held the position of Northwest Area Sales Manager.
From April 1991 to August 1993, he was President and Co-founder of Focus
Technical Sales. From August 1983 to April 1991, he served with National in
various positions where his most recent position was Vice President of North
American Sales. Mr. Nickson was Founder and President of Micro-Tex, Inc. from
June 1980 to August 1983. Prior to 1980, Mr. Nickson spent seven years in
semiconductor sales, including four years with Texas Instruments. He received a
B.S. in Mathematics from Illinois Institute of Technology in 1971.
11
Mr. Quarles has served as Vice President of International Sales since
August 2001. From October 2000 to August 2001, he held the position of Director
of Marketing. From July 1996 to September 2000, he held the position of Director
of Asia-Pacific Sales stationed in Singapore. From June 1991 to July 1996, he
worked as a Sales Engineer and later as District Sales Manager for the Bay Area
sales team. Prior to Linear, Mr. Quarles worked two years as a Sales Engineer at
National. Mr. Quarles received a B.S. in Electrical Engineering in 1988 from
Cornell University.
Mr. Paulus has served as Vice President and General Manager of Power
Products since June 2003. He joined the Company in October 2001 as Director,
Satellite Design Centers. Prior to joining the Company, he was a founder of
Integrated Sensor Solutions, Inc. (ISS) serving as Vice President of Engineering
and Chief Operating Officer from 1990 to 1999. ISS was acquired by Texas
Instruments, Inc. (TI) in 1999, and Mr. Paulus served as TI's General Manager,
Automotive Sensors and Controls in San Jose until October 2001. Prior to ISS,
Mr. Paulus served in various engineering and management positions with Sierra
Semiconductor (1989-1991), Honeywell Signal Processing Technologies (1984-1989)
and Bell Laboratories (1979-1984). Mr. Paulus received a B.S. in Electrical
Engineering from Lehigh University, an M.S. in Electrical Engineering from
Stanford University and an MBA from the University of Colorado.
Mr. Reay has served as Vice President and General Manager of Mixed Signal
Products since January 2002 and as General Manager of Mixed Signal Products
since November 2000. From January 1992 to October 2000 he was the Design
Engineering Manager responsible for a variety of product families including
interface, supervisors, battery chargers and hot swap controllers. Mr. Reay
joined Linear Technology in April 1988 as a design engineer after spending four
years at GE Intersil. Mr. Reay received a B.S. and M.S. in electrical
engineering from Stanford University in 1984.
ITEM 2. PROPERTIES
At July 3, 2005, the Company owned the major facilities described below:
- ------------ ------------------------------ ---------------- ---------------------------------------------------------------------
No. of
Bldgs Location Total Sq. Ft Use
- ------------ ------------------------------ ---------------- ---------------------------------------------------------------------
4 Milpitas, California 267,000 Executive and administrative offices, wafer fabrication, test and
assembly operations, research and development, sales and marketing,
and warehousing and distribution
- ------------ ------------------------------ ---------------- ---------------------------------------------------------------------
1 Camas, Washington 105,000 Wafer fabrication
- ------------ ------------------------------ ---------------- ---------------------------------------------------------------------
1 Chelmsford, Massachusetts 30,000 Research and development; sales and administration
- ------------ ------------------------------ ---------------- ---------------------------------------------------------------------
1 Colorado Springs, Colorado 20,000 Research and development
- ------------ ------------------------------ ---------------- ---------------------------------------------------------------------
2 Singapore (A) 189,000 Test and packaging operations, warehousing and distribution,
research and development
- ------------ ------------------------------ ---------------- ---------------------------------------------------------------------
1 Malaysia (B) 130,000 Assembly operations, research and development
- ------------ ------------------------------ ---------------- ---------------------------------------------------------------------
(A) Leases on the land used for this facility expire in 2021 through 2022 with
an option to extend the lease for an additional 30 years. The Company is nearing
completion of the expansion of this facility that will add an additional 117.0
thousand square feet to the facility.
(B) Leases on the land used for this facility expire in 2054 through 2057.
The Company leases design facilities located in: Milpitas, California;
Bedford, New Hampshire; Raleigh, North Carolina; Burlington, Vermont; Santa
Barbara, California; Grass Valley, California; and Phoenix, Arizona. The Company
leases sales offices in the United States in the areas of Bellevue, Baltimore,
Denver, Milpitas, Philadelphia, Raleigh, Chicago, Dallas, Austin, Houston, Los
Angeles, Irvine, San Diego, Huntsville, Minneapolis, Cleveland and Portland; and
internationally in London, Stockholm, Helsinki, Ascheberg, Munich, Stuttgart,
Paris, Lyon, Milan, Tokyo, Nagoya, Osaka, Taipei, Singapore, Seoul, Hong Kong,
Bejing, Shanghai and Shenzhen. In addition to the above, the Company leases two
buildings at its corporate headquarters used for warehousing, distribution and
future expansion. See Note 6 of Notes to Consolidated Financial Statements of
this Annual Report on Form 10-K. The Company believes that its existing
facilities are suitable and adequate for its business purposes through fiscal
year 2006.
12
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business which consist of a wide range of matters,
including, among others, patent suits and employment claims. The Company does
not believe that any of the current suits will have a material impact on its
business or financial condition. However, current lawsuits and any future
lawsuits will divert resources and could result in the payment of substantial
damages.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 2005.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information regarding market, market price range and dividend
information may be found in Note 7 of Notes to Consolidated Financial Statements
on this Annual Report on Form 10-K.
The information required by this item regarding equity compensation plans
is incorporated by reference to the information set forth in Item 12 of this
Annual Report on Form 10-K.
The following table sets forth certain information with respect to common
stock purchased by the Company for the three-month period ended July 3, 2005. In
addition to the shares purchased in the table below, the Company also purchased
a total of 4,532,770 shares in the first, second and third quarter of fiscal
2005. During fiscal 2005, the Company purchased a total of 7,032,770 shares of
common stock for $257.2 million.
Total Number of Shares
Purchased as Part of Maximum Number of Shares
Total Number of Average Price Publicly Announced Plans that May Yet be Purchased
Period Shares Purchased Paid per Share or Programs (1) Under the Plans or Programs
- ------------------------------------------------------------------------------------------------------------------------------------
Month #1 (April 4, 2005 - May 1, 2005) 2,325,000 $ 36.10 2,325,000 14,801,182
- ------------------------------------------------------------------------------------------------------------------------------------
Month #2 (May 2, 2005 - May 29, 2005) 175,000 $ 35.53 175,000 14,626,182
- ------------------------------------------------------------------------------------------------------------------------------------
Month #3 (May 30, 2005 - July 3, 2005) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 2,500,000 $ 36.06 2,500,000 14,626,182
- ------------------------------------------------------------------------------------------------------------------------------------
(1) On July 26, 2005, the Company's Board of Directors authorized the
Company to purchase up to an additional 10,000,000 shares of its outstanding
common stock in the open market over a two year time period. The 10,000,000
shares authorized is included in the maximum number of shares that may yet be
purchased under the plans or programs above.
ITEM 6. SELECTED FINANCIAL DATA
FIVE FISCAL YEARS ENDED JULY 3, 2005 2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
In thousands, except per share amounts
Income statement information
Net revenues $ 1,049,694 $ 807,281 $ 606,573 $ 512,282 $ 972,625
Net income 433,974 328,171 236,591 197,629 427,456
Basic earnings per share 1.41 1.05 0.76 0.62 1.35
Diluted earnings per share 1.38 1.02 0.74 0.60 1.29
Weighted average shares outstanding - Basic 307,426 312,063 313,115 317,215 316,924
Weighted average shares outstanding - Diluted 315,067 321,456 321,375 328,538 332,527
Balance sheet information
Cash, cash equivalents and short-term
investments $ 1,790,912 $ 1,656,540 $ 1,593,567 $ 1,552,030 $ 1,549,002
Total assets 2,286,234 2,087,703 2,056,879 1,988,433 2,017,074
Long-term debt -- -- -- -- --
Cash dividends per share $ 0.36 $ 0.28 $ 0.21 $ 0.17 $ 0.13
- -----------------------------------------------------------------------------------------------------------------------
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Critical Accounting Estimates
The Company's financial statements have been prepared in accordance with
accounting principles generally accepted in the United States, which require it
to make estimates and judgments that significantly affect the reported amounts
of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. The Company regularly evaluates these
estimates, including those related to inventory valuation, revenue recognition
and income taxes. These estimates are based on historical experience and on
assumptions that are believed by management to be reasonable under the
circumstances. Actual results may differ from these estimates, which may impact
the carrying values of assets and liabilities.
The Company believes the following critical accounting policies affect the
more significant judgments and estimates used in the preparation of consolidated
financial statements.
Inventory Valuation
The Company values inventories at the lower of cost or market. The Company
records charges to write down inventories for unsalable, excess or obsolete raw
materials, work-in-process and finished goods. Newly introduced parts are
generally not valued until success in the market place has been determined by a
consistent pattern of sales and backlog among other factors. The Company arrives
at the estimate for newly released parts by analyzing sales and customer backlog
against ending inventory on hand. The Company reviews the assumptions on a
quarterly basis and makes decisions with regard to the reserve based on the
current business climate. In addition to write-downs based on newly introduced
parts, judgmental assessments are calculated for the remaining inventory based
on salability, obsolescence, historical experience and current business
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required that could
adversely affect operating results. If actual market conditions are more
favorable, the Company may have higher gross margins when products are sold.
Sales to date of such products have not had a significant impact on gross
margin.
Revenue Recognition
Revenue from product sales made directly to customers is recognized upon
the transfer of title, which generally occurs at the time of shipment. Revenue
from the Company's sales to domestic distributors is generally recognized under
agreements which provide for certain sales price rebates and limited product
return privileges. As a result, the Company defers recognition of such sales
until the domestic distributors sell the merchandise. The Company relieves
inventory and records a receivable on the initial sale to the distributor as
title has passed to the distributor and payment is collected on the receivable
within normal trade terms. The income to be derived from distributor sales is
recorded under current liabilities on the balance sheet as "Deferred income on
shipments to distributors" until such time as the distributor confirms a final
sale to its end customer.
The Company's sales to international distributors are made under agreements
which permit limited stock return privileges but not sales price rebates.
Revenue on these sales is recognized upon shipment at which time title passes.
The Company has reserves to cover expected product returns. If product returns
for a particular fiscal period exceed or are below expectations, the Company may
determine that additional or less sales return allowances are required to
properly reflect its estimated exposure for product returns. Generally, changes
to sales return allowances have not had a significant impact on operating
margin.
Income Taxes
The Company must make certain estimates and judgments in determining income
tax expense for financial statement purposes. These estimates and judgments
occur in the calculation of tax credits, tax benefits and deductions, such as
the tax benefit for export sales, and in the calculation of certain tax assets
and liabilities, which arise from differences in the timing of recognition of
revenue and expense for tax and financial statement purposes. Significant
changes to these estimates may result in an increase or decrease to the tax
provision in a subsequent period.
15
The calculation of the Company's tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. The Company
recognizes liabilities for anticipated tax audit issues in the U.S. and other
tax jurisdictions based on its estimate of whether, and the extent to which,
additional tax payments are probable. If the Company determines that payment of
these amounts is unnecessary, it will reverse the liability and recognize a tax
benefit during the period in which it determines that the liability is no longer
necessary. On the other hand, the Company will record an additional charge to
its provision for taxes in the period in which it determines that the recorded
tax liability is less than it expects the ultimate assessment to be. For a
discussion of current tax matters, see "Note 5. Income Taxes" and "Note 6.
Commitments and Contingencies" in Part II, Item 8 of this Form 10-K.
Results of Operations
The table below states the income statement items as a percentage of net
revenues and provides the percentage change of such items compared to the prior
fiscal year amount.
Fiscal Year Ended Percentage Change
--------------------------------------------------- -----------------------------------
July 3, June 27, June 29, 2005 Over 2004 Over
2005 2004 2003 2004 2003
-------------- -------------- --------------- --------------- ---------------
Net revenues 100.0% 100.0% 100.0% 30% 33%
Cost of sales 20.9 23.0 25.6 18 20
---- ---- ----
Gross profit 79.1 77.0 74.4 34 38
---- ---- ----
Expenses:
Research & development 12.5 13.0 15.1 26 14
Selling, general &
administrative 10.4 9.9 10.8 37 22
---- --- ----
22.9 22.9 25.9 30 18
---- ---- ----
Operating income 56.2 54.1 48.5 35 48
Interest income, net 2.9 3.2 6.4 19 (34)
---- ---- ----
Income before income taxes 59.1% 57.3% 54.9% 34 39
==== ==== ====
Effective tax rates 30.0% 29.0% 29.0%
==== ==== ====
Net revenues for the twelve months ended July 3, 2005 were $1,049.7
million, an increase of $242.4 million or 30% over net revenues of $807.3
million for the same period of the previous fiscal year. The $242.4 million
increase in net revenues is primarily due to a $202.4 million increase in
product sales, largely due to an increase in unit volume for the twelve-month
period. Demand increased for the Company's products in each of its major
end-markets, particularly in the industrial, communication and high-end consumer
markets. The average selling price for the twelve months ended July 3, 2005 was
relatively unchanged at $1.44 per unit as compared to $1.40 per unit in fiscal
2004.
In addition to product sales, the Company entered into a long-term royalty
agreement during the third quarter of fiscal 2005 that accounted for $40.0
million of net revenues for the year. The $40.0 million represents past
royalties under terms of the settlement and license agreement with the other
company. The Company expects to earn future royalties, which are dependent on
sales of licensed products by the other company, quarterly from July 2005
through June 2013. Such ongoing quarterly royalty revenue is not expected to be
material to each individual quarter's net revenues.
Geographically, international net revenues were $731.0 million or 70% of
net revenues for the twelve months ended July 3, 2005, an increase of $161.3
million as compared to international net revenues of $569.7 million or 71% of
net revenues for the same period in fiscal 2004. Internationally, sales to Rest
of the World ("ROW"), which is primarily Asia excluding Japan, represented
$414.3 million or 39% of net revenues, while sales to Europe and Japan were
$173.8 million or 17% of net revenues and $142.9 million or 14% of net revenues,
respectively. Domestic net revenues were $318.7 million or 30% of net revenues
for the twelve months ended July 3, 2005, an increase of $81.1 million as
compared to net domestic revenues of $237.6 million or 29% of net revenues in
the same period in fiscal 2004. The $81.1 million increase in domestic net
revenues includes the $40.0 million royalty mentioned above.
Net revenues for the twelve months ended June 27, 2004 were $807.3 million,
an increase of $200.7 million or 33% over net revenues of $606.6 million for the
same period of the previous fiscal year. The increase in net revenues for the
twelve-month period was due to a significant increase in unit volume as demand
increased for the
16
Company's products in each of its major end-markets, particularly in the
industrial and communication markets. This increase in unit volume was enhanced
by significant growth in sales of smaller packaged products that go into a wide
variety of hand-held products such as cellular phones and MP3 players. The
significant increase in unit volume was offset partially by a reduction in
average selling price, which decreased to $1.40 in fiscal 2004 from $1.57 in
fiscal 2003, primarily as a result of the change in sales mix towards smaller
packages which carry lower average selling prices.
Geographically, international net revenues were $569.7 million or 71% of
net revenue for the twelve months ended June 27, 2004, an increase of $156.3
million as compared to international net revenues of $413.4 million or 68% of
net revenues for the same period in fiscal 2003. Internationally, sales to ROW
represented $309.1 million or 38% of net revenues, while sales to Europe and
Japan were $140.4 million or 18% of net revenues and $120.2 million or 15% of
net revenues, respectively. Domestic net revenues were $237.6 million or 29% of
net revenues for the twelve months ended June 27, 2004, an increase of $44.4
million as compared to domestic net revenues of $193.2 million or 32% of net
revenues in the same period in fiscal 2003. Net revenues increased in absolute
dollars both internationally and domestically, however the decline in domestic
net revenues as a percentage of net revenues and the respective increase in
international net revenues as a percentage of net revenues resulted primarily
from the Company's domestic customers shifting more of their manufacturing
operations overseas.
The Company ends every fiscal quarter on the Sunday nearest calendar
month-end. Roughly, every five years the Company has a 53-week rather than a
52-week fiscal year. Fiscal 2005 is a 53-week year with the additional week
falling in the three-month period ending January 2, 2005. For the twelve months
ended July 3, 2005, the extra week had a minimal effect on net revenues. The
extra week resulted in slightly higher compensation costs in the Research and
Development and Selling, General and Administrative lines of the Income
Statement. The increase in compensation costs for Cost of Goods Sold was largely
offset by lower per unit manufacturing costs resulting from an extra week of
production volume. The Company received a benefit from the extra week in
Interest Income because it earned an extra week of interest income from its cash
investment balance.
Gross profit for the year ended July 3, 2005 was $830.5 million, an
increase of $209.2 million or 34% over gross profit of $621.3 million in fiscal
2004. Gross profit as a percentage of net revenues increased to 79.1% of net
revenues in fiscal 2005 as compared to 77.0% of net revenues in fiscal 2004. The
increase in gross profit as a percentage of net revenues in fiscal 2005 was
primarily due to the favorable effect of fixed costs allocated across higher net
revenues. The $40.0 million dollar royalty also caused a one-time improvement in
gross profit as a percentage of net revenues due to the royalty having minimal
incremental production costs.
Gross profit for the year ended June 27, 2004 was $621.3 million, an
increase of $169.8 million or 38% over gross profit of $451.5 million in fiscal
2003. Gross profit as a percentage of net revenues increased to 77.0% of net
revenues in fiscal 2004 as compared to 74.4% of net revenues in fiscal 2003. The
increase in gross profit as a percentage of net revenues in fiscal 2004 was
primarily due to the favorable effect of fixed costs allocated across higher net
revenues. 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") expense for the year ended July 3, 2005
was $131.4 million, an increase of $26.8 million or 26% over R&D expense of
$104.6 million in fiscal 2004. The increase in R&D was primarily due to a $22.8
million increase in compensation costs. The increase in compensation expense
related to the extra week of labor, increased headcount and annual merit
increases which totaled $6.8 million; the increase in compensation expense
related to restricted stock grants totaled $7.0 million; and, since the Company
had better operating results, increased R&D profit sharing totaled $7.1 million.
The related employer taxes and other fringe costs on these increases was $1.9
million. In addition to compensation costs, the Company had a $4.0 million
increase in R&D related expenses such as third party technology licenses, legal
fees, supplies, mask costs and test wafers.
R&D expense for the year ended June 27, 2004 was $104.6 million, an
increase of $13.2 million or 14% over R&D expense of $91.4 million in fiscal
2003. The increase in R&D was primarily due to a $10.6 million increase in
compensation costs. Compensation costs increased as the result of increases to
the profit sharing accrual, employee headcount, annual merit increases, and the
related fringe on these increases. Since the Company had better operating
results, R&D profit sharing grew $5.5 million while compensation related to
headcount, annual merit increases and the related fringe on these increases
together totaled $5.1 million. In addition, the Company had a $2.6 million
increase in non-compensation costs, primarily software maintenance amortization,
supplies and depreciation.
17
Selling, general and administrative ("SG&A") expense for the year ended
July 3, 2005 was $109.4 million, an increase of $29.4 million or 37% over SG&A
expense of $80.0 million in fiscal 2004. The increase in SG&A was due to a $20.8
million increase in compensation costs. Compensation related to the extra week
of labor, increased headcount and annual merit increases totaled $3.5 million;
compensation expense related to restricted stock grants totaled $11.0 million;
and, since the Company had better operating results, increased SG&A profit
sharing totaled $5.2 million. The related employer taxes and other fringe costs
on these increases was $1.1 million. In addition to compensation costs, the
Company had a $5.5 million increase in legal expenses and a $3.1 million
increase in expenses related to advertising, commissions for the Company's
independent sales representatives and travel costs.
SG&A expense for the year ended June 27, 2004 was $80.0 million, an
increase of $14.4 million or 22% over SG&A expense of $65.6 million in fiscal
2003. The increase in SG&A was due to a $10.5 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 $4.0 million
while compensation related to headcount, annual merit increases and commissions
together totaled $6.5 million. In addition to compensation costs, the Company
had a $3.9 million increase in SG&A related expenses for advertising, outside
services and travel costs.
Interest income, net increased 19% in fiscal 2005 to $30.3 million from
$25.5 million in fiscal 2004. Interest income, net increased in fiscal 2005 when
compared to fiscal 2004 due to the higher average interest rate earned on the
Company's average cash balance; the interest income earned on the increase of
the Company's average cash balance and the extra week of accrued interest income
resulting from the 53-week work year.
Interest income, net decreased 34% in fiscal 2004 to $25.5 million from
$38.7 million in fiscal 2003. Interest income, net decreased in fiscal 2004 when
compared to fiscal 2003 due to the decline in average interest rates earned on
the Company's cash, cash equivalent and short-term investment balance which was
partially offset by the interest earned on the $63.0 million increase in cash,
cash equivalents and short-term investment balance. Also contributing to the
decline in interest income, net was the increase in interest expense on the
Company's long-term royalty agreement. Interest expense for the year ended June
27, 2004 was $2.1 million, an increase of $1.6 million over interest expense of
$0.5 million in fiscal 2003.
The Company's effective tax rate was 30% in fiscal 2005 and 29% in fiscal
2004 and 2003. The increase in the tax rate from 29% in fiscal 2004 to 30% in
fiscal 2005 is due to the diminishing percentage that tax-exempt interest income
is of total taxable income. 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 first quarter of fiscal 2006 the
Malaysian government agreed to extend the Company's partial tax holiday through
July 2015. In addition to the Malaysian tax holiday, the Company also has a
partial tax holiday in Singapore through 2011 that may be extended through 2014
provided that the Company fulfills additional investment requirements in
qualifying activities.
Factors Affecting Future Operating Results
Except for historical information contained herein, the matters set forth
in this Annual Report on Form 10-K, 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 and in "Risks and Competition" located in the
"Business" section of this Annual Report on Form 10-K.
Fiscal 2005 was a good year for the Company, net revenues and net income
grew 30% and 32%, respectively, over fiscal 2004. For the first time in the
Company's history net revenues reached $1.0 billon, which included a $40.0
million royalty. The royalty revenue was a significant event for the Company
since it confirms the strength of its intellectual property.
Going forward it continues to be a challenging environment to forecast
upcoming results. The June quarter book to bill ratio was slightly less than
one, which therefore lowered backlog. Consequently, the September quarter will
require a modestly higher percentage of "turns" business, which is orders that
must be booked and shipped in the same period. The Company expects that bookings
will increase in the September quarter. The Company's September quarter usually
begins to show strength in its consumer oriented business although the
industrial and communication
18
business is generally slower for the Company. Macro economic trends continue to
improve and the September quarter has started strong, with July being the
strongest four-week booking month that the Company has had in over a year. Given
the above data points and other factors, the Company expects that sales for the
September quarter will be similar to the quarter just completed. The Company
will begin expensing stock options in the September quarter, which will have an
adverse impact on earnings. The Company estimates that total stock based
compensation will impact net income by approximately 10% or roughly $0.03 cents
a share for the September 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 July 3, 2005, cash, cash equivalents and short-term investments totaled
$1.8 billion and working capital was $1.8 billion. During fiscal 2005, the
Company repurchased 7.0 million shares of its common stock for $257.2 million
and distributed $111.0 million in dividends. After taking into consideration the
cash used for these purchases and dividend payments, the Company generated
additional cash and short-term investments of $134.4 million.
The Company's accounts receivable balance increased $46.7 million from
$79.1 million at the end of fiscal 2004 to $125.8 million at the end of fiscal
2005. The increase is due to higher sales and higher day sales outstanding (DSO)
which increased from a historical low of 30 days at the end of the fourth
quarter of fiscal 2004 to a more representative 45 days at the end of the fourth
quarter of fiscal 2005. DSO of 30 days was unusually low last year due to
unusually high collections at the end of the period. Fourth quarter collections
in 2004 were $19.0 million higher than shipments.
The Company's accrued payroll and related benefits balance increased $9.5
million from $54.3 million at the end of fiscal 2004 to $63.8 million at the end
of fiscal 2005. The increase is primarily due to increases in the Company's
profit sharing accrual. The Company accrues for profit sharing on a quarterly
basis while distributing payouts to employees on a semi-annual basis during the
first and third quarters.
During fiscal 2005, the Company generated $492.7 million of cash from
operating activities and $72.7 million in proceeds from common stock issued
under employee stock plans. During fiscal 2005, significant cash expenditures
included repurchasing $257.2 million of common stock, payments of $111.0 million
in cash dividends to stockholders, representing $0.08 per share per quarter for
the first and second quarters and $0.10 per share per quarter for the third and
fourth quarters, $62.1 million for the purchase of capital assets and net
purchases of short-term investments of $15.4 million. In July, the Company's
Board of Directors declared a quarterly cash dividend of $0.10 per share to be
paid during the September quarter of fiscal 2006. The payment of future
dividends will be based on quarterly financial performance.
The Company has no debt and has historically satisfied its liquidity needs
through cash generated from operations. 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.
19
As of July 3, 2005, the Company had no off-balance sheet financing
arrangements. At the end of fiscal 2005 the Company entered into a purchase
agreement of approximately $22.0 million for two buildings it currently leases.
The agreement is contingent upon the owner selling a third building that the
Company currently leases. The effect of the agreement will not be significant to
the Company's overall results of operation or financial position. The Company
did not have any other significant contractual obligation outside of operating
leases as disclosed in Note 6 of Notes to Consolidated Financial Statements on
this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's cash equivalents and short-term investments are subject to
market risk, primarily interest rate and credit risk. The Company's investments
are managed by outside professional managers within investment guidelines set by
the Company. Such guidelines include security type, credit quality and maturity
and are intended to limit market risk by restricting the Company's investments
to high quality debt instruments with relatively short-term maturities. The
Company does not use derivative financial instruments in its investment
portfolio. Based upon the weighted average duration of the Company's investments
at July 3, 2005, a hypothetical 100 basis point increase in short-term interest
rates would result in an unrealized loss in market value of the Company's
investments totaling approximately $11.7 million. However, because the Company's
debt securities are classified as available-for-sale, no gains or losses are
recognized by the Company in its results of operations due to changes in
interest rates unless such securities are sold prior to maturity. These
investments are reported at fair value with the related unrealized gains or
losses being included in accumulated other comprehensive income, a component of
stockholders' equity. The Company generally holds securities until maturity.
The Company's sales outside the United States are 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.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
THREE YEARS ENDED JULY 3, 2005 2005 2004 2003
----------- --------- ---------
Net revenues $ 1,049,694 $ 807,281 $ 606,573
Cost of sales 219,188 185,960 155,066
----------- --------- ---------
Gross profit 830,506 621,321 451,507
----------- --------- ---------
Expenses:
Research and development 131,429 104,620 91,410
Selling, general and administrative 109,448 79,971 65,586
----------- --------- ---------
240,877 184,591 156,996
----------- --------- ---------
Operating income 589,629 436,730 294,511
Interest income, net 30,335 25,483 38,715
----------- --------- ---------
Income before income taxes 619,964 462,213 333,226
Provision for income taxes 185,990 134,042 96,635
----------- --------- ---------
Net income $ 433,974 $ 328,171 $ 236,591
=========== ========= =========
Basic earnings per share $ 1.41 $ 1.05 $ 0.76
=========== ========= =========
Shares used in the calculation of basic
earnings per share 307,426 312,063 313,115
=========== ========= =========
Diluted earnings per share $ 1.38 $ 1.02 $ 0.74
=========== ========= =========
Shares used in the calculation of diluted earnings
per share 315,067 321,456 321,375
=========== ========= =========
Cash dividends per share $ 0.36 $ 0.28 $ 0.21
=========== ========= =========
See accompanying notes.
21
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
JULY 3, 2005 AND JUNE 27, 2004 2005 2004
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 323,181 $ 203,542
Short-term investments 1,467,731 1,452,998
Accounts receivable, net of allowance for
doubtful accounts of $1,713 ($1,762 in 2004) 125,864 79,142
Inventories:
Raw materials 3,664 3,353
Work-in-process 22,854 22,217
Finished goods
7,810 7,134
------------ ------------
Total inventories 34,328 32,704
Deferred tax assets 38,298 44,912
Prepaid expenses and other current assets 17,907 18,797
------------ ------------
Total current assets 2,007,309 1,832,095
------------ ------------
Property, plant and equipment, at cost:
Land, buildings and improvements 167,218 143,077
Manufacturing and test equipment 375,163 338,208
Office furniture and equipment 3,389 3,399
------------ ------------
545,770 484,684
Accumulated depreciation and amortization (324,742) (283,604)
------------ ------------
Net property, plant and equipment 221,028 201,080
------------ ------------
Other non current assets 57,897 54,528
------------ ------------
Total assets $2,286,234 $2,087,703
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 11,800 $ 14,410
Accrued payroll and related benefits 63,787 54,339
Deferred income on shipments to distributors 43,708 41,862
Income taxes payable 68,389 71,985
Other accrued liabilities 20,055 20,018
------------ ------------
Total current liabilities 207,739 202,614
------------ ------------
Deferred tax and other long-term liabilities 71,461 74,484
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; 306,587 shares issued and
outstanding at July 3, 2005 (308,548 shares
at June 27, 2004) 307 309
Additional paid-in capital 926,456 815,163
Accumulated other comprehensive income, net of tax (2,839) (2,460)
Retained earnings 1,083,110 997,593
------------ ------------
Total stockholders' equity 2,007,034 1,810,605
------------ ------------
Total liabilities and stockholders' equity $2,286,234 $2,087,703
============ ============
See accompanying notes.
22
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE YEARS ENDED JULY 3, 2005 2005 2004 2003
------------ ----------- -----------
Cash flow from operating activities:
Net income $ 433,974 $ 328,171 $ 236,591
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 48,837 48,745 45,903
Tax benefit from stock option transactions 37,591 35,746 37,321
Stock-based compensation 20,782 -- --
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable (46,722) 952 1,353
Decrease (increase) in inventories (1,624) (610) (3,152)
Decrease (increase) in deferred tax assets (4,413) 7,809 (7,427)
Decrease (increase) in prepaid expenses
and other current assets 890 267 1,344
Decrease (increase) in long-term assets 1,000 (2,750) (1,750)
Increase (decrease) in accounts payable, accrued
payroll and other accrued liabilities 2,751 21,225 (52)
Increase (decrease) in deferred income
on shipments to distributors 1,846 (2,816) (1,490)
Increase (decrease) in income taxes payable (3,596) 18,707 (10,075)
Increase (decrease) in deferred tax liabilities 1,402 2,382 (14,333)
------------ ----------- -----------
Cash provided by operating activities 492,718 457,828 284,233
------------ ----------- -----------
Cash flow from investing activities:
Purchase of short-term investments (1,219,638) (908,557) (881,284)
Proceeds from sales and maturities of short-term
investments 1,204,225 897,550 775,617
Purchase of property, plant and equipment (62,127) (20,724) (6,609)
------------ ----------- -----------
Cash used in investing activities (77,540) (31,731) (112,276)
------------ ----------- -----------
Cash flow from financing activities:
Issuance of common shares under employee stock 72,651 60,626 48,422
plans
Purchase of common stock (257,218) (331,937) (230,005)
Payment of cash dividends (110,972) (87,520) (65,804)
------------ ----------- -----------
Cash used in financing activities (295,539) (358,831) (247,387)
------------ ----------- -----------
Increase (decrease) in cash and cash equivalents 119,639 67,266 (75,430)
Cash and cash equivalents, beginning of period 203,542 136,276 211,706
------------ ----------- -----------
Cash and cash equivalents, end of period $ 323,181 $ 203,542 $ 136,276
============ =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the fiscal year for income taxes $ 154,482 $ 68,496 $ 90,637
============ =========== ===========
See accompanying notes.
23
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share amounts)
THREE YEARS ENDED JULY 3, 2005
Accumulated
Common Stock Additional Other Total
------------------------ Paid-In Comprehensive Retained Stockholders'
Shares Amount Capital Income Earnings Equity
----------- ----------- ----------- ---------- ----------- -----------
Balance at June 30, 2002 316,150 $ 316 $ 672,600 $ -- $ 1,108,538 $ 1,781,454
Issuance of common stock for cash under employee
stock option and stock purchase plans 4,946 5 48,417 -- -- 48,422
Tax benefit from stock option transactions -- -- 37,321 -- -- 37,321
Purchase and retirement of common stock (8,390) (8) (18,254) -- (211,743) (230,005)
Cash dividends - $0.21 per share -- -- -- -- (65,804) (65,804)
Comprehensive income:
Unrealized gain on available for sale
investments, net of tax -- -- -- 6,950 -- 6,950
Net income -- -- -- -- 236,591 236,591
-----------
Comprehensive income -- -- -- -- -- 243,541
----------- ----------- ----------- ---------- ----------- -----------
Balance at June 29, 2003 312,706 313 740,084 6,950 1,067,582 1,814,929
Issuance of common stock for cash under employee
stock option and stock purchase plans 4,253 4 60,622 -- -- 60,626
Tax benefit from stock option transactions -- -- 35,746 -- -- 35,746
Purchase and retirement of common stock (8,411) (8) (21,289) -- (310,640) (331,937)
Cash dividends - $0.28 per share -- -- -- -- (87,520) (87,520)
Comprehensive income:
Unrealized loss on available for sale
investments, net of tax -- -- -- (9,410) -- (9,410)
Net income -- -- -- -- 328,171 328,171
-----------
Comprehensive income -- -- -- -- -- 318,761
----------- ----------- ----------- ---------- ----------- -----------
Balance at June 27, 2004 308,548 309 815,163 (2,460) 997,593 1,810,605
Issuance of common stock for cash under employee
stock option, restricted stock and
stock purchase plans 5,078 5 72,646 -- -- 72,651
Tax benefit from stock option transactions -- -- 37,591 -- -- 37,591
Purchase and retirement of common stock (7,039) (7) (19,726) -- (237,485) (257,218)
Cash dividends - $0.36 per share -- -- -- -- (110,972) (110,972)
Stock-based compensation expense -- -- 20,782 -- -- 20,782
Comprehensive income:
Unrealized loss on available for sale
investments, net of tax -- -- -- (379) -- (379)
Net income -- -- -- -- 433,974 433,974
-----------
Comprehensive income -- -- -- -- -- 433,595
----------- ----------- ----------- ---------- ----------- -----------
Balance at July 3, 2005 306,587 $ 307 $ 926,456 $ (2,839) $ 1,083,110 $ 2,007,034
=========== =========== =========== ========== =========== ===========
See accompanying notes.
24
LINEAR TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business and Significant Accounting Policies
Description of Business
Linear Technology Corporation (together with its consolidated subsidiaries,
"Linear Technology" or the "Company") designs, manufactures and markets a broad
line of standard high performance linear integrated circuits. Applications for
the Company's products include telecommunications, cellular telephones,
networking products, notebook computers, computer peripherals, video/multimedia,
industrial instrumentation, security monitoring devices, high-end consumer
products such as digital cameras and MP3 players, complex medical devices,
automotive electronics, factory automation, process control, and military and
space systems. The Company was organized and incorporated in 1981.
Basis of Presentation
The Company operates on a 52/53-week work year, ending on the Sunday
nearest June 30. Fiscal year 2005 was a 53-week work year, with the additional
week falling in the three month period ended January 2, 2005, the Company's
second-quarter. Fiscal 2004 and 2003 were 52-week years. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries after elimination of all significant inter-company
accounts and transactions. Accounts denominated in foreign currencies have been
translated using the U.S. dollar as the functional currency.
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash Equivalents and Short-term Investments
Cash equivalents are highly liquid investments purchased with original
maturities of three months or less at the time of purchase. Investments with
maturities over three months at the time of purchase are classified as
short-term investments.
The Company accounts for its investment instruments in accordance with
Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for
Certain Investments in Debt and Equity Securities." At July 3, 2005 and June 27,
2004, all of the Company's short-term investments in debt and equity securities
were classified as available-for-sale under SFAS 115. Short-term investments
consist primarily of highly liquid debt securities with a maturity of greater
than three months when purchased. The Company classifies investments with
maturities greater than twelve months as short-term investment as it considers
all investments as a potential source of operating cash regardless of maturity
date. In addition to debt securities, a small portion of the Company's
short-term investment balance consists of an equity investment in a publicly
traded company. The Company's debt and equity securities are carried at fair
market value with the related unrealized gains and losses included in
accumulated other comprehensive income (loss), a component of stockholders'
equity, net of tax. The fair value of investments is determined using quoted
market prices for those securities.
Concentrations of Credit Risk
The Company's investment policy restricts investments to high credit
quality investments with maturities of three years or less and limits the amount
invested with any one issuer. Concentrations of credit risk with respect to
accounts receivable are generally not significant due to the diversity of the
Company's customers and geographic sales areas. The Company performs ongoing
credit evaluations of its customers' financial condition and requires
collateral, primarily letters of credit, as deemed necessary.
25
No single end customer has accounted for 10% or more of the Company's net
revenues. The Company's primary domestic distributor, Arrow Electronics,
accounted for 13% of net revenues during fiscal 2005 and 18% of accounts
receivable as of July 3, 2005; 15% of net revenues during fiscal 2004 and 20% of
accounts receivable as of June 27, 2004; 15% of net revenues during fiscal 2003
and 18% of accounts receivable as of June 29, 2003. Distributors are not end
customers, but rather serve as a channel of sale to many end users of the
Company's products. No other distributor or end customer accounted for 10% or
more of net revenues for fiscal 2005, 2004, and 2003.
The Company's assets, liabilities and cash flows are predominantly U.S.
dollar denominated, including those of its foreign operations. However, the
Company's foreign subsidiaries have certain assets, liabilities and cash flows
that are subject to foreign currency risk. The Company considers this risk to be
minor and, for the three years ended July 3, 2005, had not utilized derivative
instruments to hedge foreign currency risk or for any other purpose. Gains and
losses resulting from foreign currency fluctuations are recognized in income
currently and were not material for all periods presented.
Inventories
The Company values inventories at the lower of cost or market on a
first-in, first-out basis. The Company records charges to write-down inventories
for unsalable, excess or obsolete raw materials, work-in-process and finished
goods. Newly introduced parts are generally not valued until success in the
market place has been determined by a consistent pattern of sales and backlog
among other factors. In addition to write-downs based on newly introduced parts,
judgmental assessments are calculated for the remaining inventory based on
salability, obsolescence, historical experience and current business conditions.
Property, Plant and Equipment and Other Non Current Assets
Depreciation for property, plant and equipment is provided using the
straight-line method over the estimated useful lives of the assets (3-7 years
for equipment and 10-30 years for buildings and building improvements).
Leasehold improvements are depreciated over the shorter of the asset's useful
life or the expected term of the lease. Depreciation expense for fiscal 2005,
2004 and 2003 was $42.2 million, $43.1 million and $44.0 million, respectively.
Other non-current assets principally relate to technology agreements and
non-current deferred tax assets. Technology agreements are generally amortized
over their contractual periods, primarily 3 to 10 years using the straight-line
method of amortization. Non-current deferred tax assets totaled $11.0 million as
of July 3, 2005. Non-current deferred tax assets relate to stock based
compensation and foreign tax credits.
The Company performs reviews of its long-lived assets to determine whether
facts and circumstances exist which indicate that the carrying amount of the
assets may not be recoverable or that the useful life is shorter than originally
estimated.
Long-lived assets (including property, plant and equipment and intangible
assets) by geographic area were as follows:
In thousands 2005 2004
--------- ---------
United States $ 210,965 $ 209,813
Malaysia 25,383 24,549
Singapore 31,550 21,246
--------- ---------
Total long-lived assets $ 267,898 $ 255,608
========= =========
Advertising Expense
The Company expenses advertising costs in the period in which they occur.
Advertising expenses for fiscal 2005, 2004 and 2003 were approximately $7.1
million, $6.2 million and $5.3 million, respectively.
Revenue Recognition
The Company recognizes net revenues when the earning process is complete,
when persuasive evidence of an arrangement exists, the product has been
delivered, the price is fixed and determinable and collection is reasonably
assured. Revenue from the Company's sales to domestic distributors is recognized
under agreements which provide for certain sales price rebates and limited
product return privileges. As a result, the Company defers recognition of such
26
sales until the domestic distributors sell the merchandise. The Company relieves
inventory and records a receivable on the initial sale to the distributor as
title has passed to the distributor and payment is collected on the receivable
within normal trade terms. The income to be derived from distributor sales is
recorded under current liabilities on the balance sheet as "Deferred income on
shipments to distributors" until such time as the distributor confirms a final
sale to its end customer. The Company's sales to international distributors are
made under agreements which permit limited stock return privileges but not sales
price rebates. Revenue on these sales is recognized upon shipment at which time
title passes. The Company estimates international distributor returns based on
historical data and current business expectations and defers a portion of
international distributor sales and costs based on these estimated returns.
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 settlement 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.
Stock Based Compensation
As permitted by Statement of Financial Accounting Standard 148 (SFAS 148),
"Accounting for Stock-Based Compensation-Transition and Disclosure," and
Statement of Financial Accounting Standard 123 (SFAS 123), "Accounting for
Stock-Based Compensation," the Company continues to apply the accounting
provisions of Accounting Principles Board opinion 25 (APB 25), and related
interpretations, with regard to the measurement of compensation cost for options
granted under the Company's equity compensation plans. Compensation expense is
recorded if on the date of grant the current fair value per share of the
underlying stock exceeds the exercise price per share.
During the first quarter of fiscal 2005, the Company issued restricted
stock to certain officers and employees who had been with the Company at least
three years to encourage employee retention. Under this program, the Company
issued 1,578,440 restricted shares with an exercise price of $0.001 per share
and a grant date fair value of $37.05 per share. The right to sell the shares
generally vests annually at the rate of 1/3 per year based upon continued
employment; upon employee termination the Company has the right to buy back
unvested shares at the exercise price. Pursuant to APB 25, the Company records
compensation expense for the difference between the grant date fair value and
the exercise price on a straight-line basis over the vesting period, which was
$20.8 million for the twelve months ended July 3, 2005. There were no restricted
stock grants prior to fiscal 2005.
During the third quarter of fiscal 2005, the Company accelerated the
vesting of unvested stock options awarded more than one year prior to employees
and officers under its stock option plans that had exercise prices greater than
$37.04, the closing price of the stock on January 18, 2005. Unvested options to
purchase approximately 4.5 million shares became exercisable as a result of the
vesting acceleration. Typically, the Company grants stock options that vest
equally over a five-year period. The purpose of the accelerated vesting was to
enable the Company to avoid recognizing in its income statement, compensation
expense associated with these options in future periods, upon adoption of SFAS
123R in July 2005. The accumulated effect of the acceleration from January 18,
2005 onwards caused pro-forma stock-based compensation expense to increase for
the twelve-month period ended July 3, 2005 over the corresponding period in
fiscal 2004.
27
Had expense been recognized for stock options granted with a grant price equal
to the current fair market value of the stock at the date of grant 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:
---------- ---------- ----------
July 3, June 27, June 29,
In thousands, except per share amonts 2005 2004 2003
---------- ---------- ----------
Net income, as reported $ 433,974 $ 328,171 $ 236,591
Add: Stock based employee
compensation expense included
in reported net income, net of
related tax effects 14,563 -- --
Deduct: Total stock-based
compensation expense
determined under the fair
value method, net of tax (137,816) (75,207) (75,867)
---------- ---------- ----------
Pro forma net income $ 310,721 $ 252,964 $ 160,724
========== ========== ==========
Earning per share:
Basic-as reported $ 1.41 $ 1.05 $ 0.76
========== ========== ==========
Basic-pro-forma $ 1.01 $ 0.81 $ 0.51
========== ========== ==========
Diluted-as reported $ 1.38 $ 1.02 $ 0.74
========== ========== ==========
Diluted-pro-forma $ 0.99 $ 0.79 $ 0.50
========== ========== ==========
The financial effect of options granted was estimated using the
Black-Scholes valuation model. The following assumptions were used in valuing
the options for fiscal 2005, 2004 and 2003:
2005 2004 2003
------- ------- -------
Expected lives in years 5.6 6.9 6.4
Expected volatility 42.3% 67.0% 66.0%
Dividend yields 0.8% 0.7% 0.7%
Risk free interest rates 3.6% 3.1% 3.1%
During fiscal 2005, the Company reevaluated the assumptions used to
estimate the value of employee stock options granted during the year. The
Company determined that implied volatility is more reflective of market
conditions and a better indicator of expected volatility than historical
volatility. In the past, the Company used historical volatility to value
employee stock options. In addition, during the third and fourth quarter of
fiscal 2005, the Company began using the simplified calculation of expected
life, described in the SEC's Staff Accounting Bulletin 107, due to the Company
shortening the contractual life of employee stock options from ten years to
seven years. The Company believes this calculation provides a reasonable
estimate of expected life for the Company's employee stock options.
Using the Black-Scholes option pricing model, the weighted average
estimated fair value of employee stock options granted in fiscal 2005, 2004 and
2003 was $15.21, $26.06 and $16.35 per share, respectively. For the purposes of
the pro-forma information, the estimated fair values of the employee stock
options are amortized to expense using the straight-line method over the vesting
period.
28
Earnings Per Share
Basic earnings per share is calculated using the weighted average shares of
common stock outstanding during the period. Diluted earnings per share is
calculated using the weighted average shares of common stock outstanding, plus
the dilutive effect of stock options, calculated using the treasury stock
method. The dilutive effect of stock options and restricted stock was 7,641,000,
9,393,000, and 8,260,000 shares for fiscal 2005, 2004, and 2003, respectively.
The weighted average diluted common shares outstanding for fiscal 2005, 2004,
and 2003 excludes the dilutive effect of approximately 12,352,000, 9,069,000,
and 14,434,000 options, respectively, since such options have an exercise price
in excess of the average market value of the Company's common stock during the
fiscal year.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income
or loss. Other comprehensive income or loss components include unrealized gains
or losses on available-for-sale securities, net of tax.
Segment Reporting
The Company competes in a single operating segment, and as a result, no
segment information has been disclosed outside of geographical information.
Disclosures about products and services, and major customers are included above
in Note 1.
Export sales by geographic area were as follows:
In thousands 2005 2004 2003
-------- -------- --------
Europe $173,823 $140,486 $111,149
Japan 142,889 120,180 98,785
Rest of the World 414,276 309,050 203,484
-------- -------- --------
Total export sales $730,988 $569,716 $413,418
======== ======== ========
Recent Accounting Pronouncements
In October 2004, the Financial Accounting Standards Board (FASB) released
FSP No. 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004 ("Jobs
Act")" which provides guidance under FASB Statement No. 109, "Accounting for
Income Taxes," with respect to recording the potential impact of the
repatriation provisions of the Jobs Act on enterprises' income tax expense and
deferred tax liability. FSP 109-2 states that an enterprise is allowed time
beyond the financial reporting period of enactment to evaluate the effect of the
Jobs Act on its plan for reinvestment or repatriation of foreign earnings for
purposes of applying FASB Statement No. 109. The Company has estimated that it
may repatriate up to approximately $250.0 million of unremitted foreign
earnings. However, the Company has not determined if it will repatriate these
earnings and has not yet completed evaluating the tax impact of the repatriation
provisions, if any. Accordingly, as provided for in FSP No. 109-2, the Company
has not adjusted its tax expense or deferred tax liability to reflect the effect
of the repatriation provisions of the Jobs Act. The Company has until the end of
fiscal 2006 to decide whether to repatriate the unremitted foreign earnings.
In December 2004, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standard 123R (SFAS 123R), "Share-Based
Payment." SFAS 123R addresses the requirements that an entity measure the cost
of employee services received in exchange for awards of equity instruments based
on the grant-date fair value of the award. The cost of such award will be
recognized in the income statement over the period during which an employee is
required to provide services in exchange for the award. The Company will be
required to adopt this Statement during the first quarter of fiscal year 2006.
SFAS 123R allows for either prospective recognition of compensation expense or
retrospective recognition. The Company currently intends on applying prospective
recognition.
As permitted by SFAS 123, the Company currently accounts for share-based
payments by applying the accounting provisions of APB 25's intrinsic value
method and, as such, the Company generally recognizes no compensation cost for
employee stock options. Accordingly, the adoption of SFAS 123R's fair value
method will have a significant impact on the Company's results of operations due
to the amortization of the outstanding unvested share-based awards through their
vesting period, although it will have no added impact on the Company's overall
29
financial position. The financial impact in future periods will depend on the
level of share-based awards granted in the future. Had the Company adopted SFAS
123R in prior periods, the impact of that standard would have approximated the
impact of SFAS 123 as described in the disclosure of pro-forma net income and
earnings per share in Note 1.
Note 2. Short-term Investments
The following is a summary of available-for-sale short-term investments at July
3, 2005:
In thousands
Amortized Unrealized Unrealized
Cost Gain (Loss) (1) Fair Value
----------- ----------- ----------- -----------
Publicly traded equity $ 524 $ 1,920 $ -- $ 2,444
securities
U.S. Treasury securities
and obligations of U.S.
government agencies 654,056 10 (2,900) 651,166
Municipal bonds 701,469 -- (3,000) 698,469
Corporate debt
securities and other 271,092 2 (712) 270,382
Money market funds 116,540 -- -- 116,540
----------- ----------- ----------- -----------
Total $ 1,743,681 $ 1,932 $ (6,612) 1,739,001
=========== =========== =========== ===========
Amounts included in:
Cash equivalents 271,270 $ -- $ -- $ 271,270
Short-term investments 1,472,411 1,932 (6,612) 1,467,731
----------- ----------- ----------- -----------
Total securities $ 1,743,681 $ 1,932 $ (6,612) $ 1,739,001
=========== =========== =========== ===========
The following is a summary of available-for-sale short-term investments at June
27, 2004:
In thousands
Amortized Unrealized Unrealized
Cost Gain (Loss) (1) Fair Value
----------- ----------- ----------- -----------
U.S. Treasury securities
and obligations of U.S.
government agencies $ 390,296 $ 207 $ (1,640) $ 388,863
Municipal bonds 685,036 407 (2,496) 682,947
Corporate debt
securities and other 555,898 136 (614) 555,420
----------- ----------- ----------- -----------
Total $ 1,631,230 $ 750 $ (4,750) $ 1,627,230
=========== =========== =========== ===========
Amounts included in:
Cash equivalents $ 174,232 $ -- $ -- $ 174,232
Short-term investments 1,456,998 750 (4,750) 1,452,998
----------- ----------- ----------- -----------
Total securities $ 1,631,230 $ 750 $ (4,750) $ 1,627,230
=========== =========== =========== ===========
(1) The Company evaluated the nature of the investments with a loss
position at July 3, 2005 and June 27, 2004, which are primarily obligations of
the U.S. government and its agencies, municipal bonds and U.S. corporate notes.
In evaluating the investments the Company considered the duration of the
impairments, and the amount of the impairments relative to the underlying
portfolio and concluded that such amounts were not "other-than-temporary" as
defined by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company principally holds securities until maturity, however,
they may be sold under certain circumstances. Unrealized losses greater than
twelve months old were not significant as of July 3, 2005 and June 27, 2004.
30
The estimated fair value of available-for-sale investments in debt securities by
effective maturity date, is as follows:
In thousands July 3, June 27,
2005 2004
----------- -----------
Due in one year or less $ 718,222 $ 745,834
Due after one year through three years 747,065 707,164
----------- -----------
Total $ 1,465,287 $ 1,452,998
=========== ===========
Note 3. Intangible Assets
The Company's intangible assets are a component of other non-current
assets. The Company amortizes its intangible assets with definite lives over
periods ranging from 3 to 10 years using the straight-line method of
amortization. The weighted remaining amortization period at July 3, 2005 is 7.3
years. The Company's intangible assets consist of technology licenses only.
Amortizable intangible assets at July 3, 2005 and June 27, 2004 are as follows:
In thousands July 3, June 27,
2005 2004
----------- -----------
Gross carrying amount $ 61,070 $ 61,070
Accumulated amortization (14,199) (7,542)
----------- -----------
Total intangible assets $ 46,871 $ 53,528
=========== ===========
Amortization expense associated with intangible assets for fiscal 2005 and
fiscal 2004 were $6.7 million and $5.7 million, respectively. Amortization
expense for the net carrying amount of intangible assets at July 3, 2005 is
estimated to be $6.8 million in fiscal 2006, $6.8 million in fiscal 2007, $6.8
million in fiscal 2008, $5.7 million in fiscal 2009, and $5.7 million in fiscal
2010.
Note 4. Employee Benefit Plans
Stock Option Plans
The Company has stock option plans under which options to purchase shares
of the Company's common stock may be granted to employees and directors. At July
3, 2005, the total authorized number of shares under all plans was 184 million.
At July 3, 2005, 17.9 million shares were available for grant under all plans.
Options generally become exercisable over a five-year period (generally 10%
every six months.) Options granted prior to January 11, 2005 expire ten years
after the date of grant, options granted after January 11, 2005 expire seven
years after the date of the grant.
31
The following table summarizes the stock option activity under all stock option
plans:
Stock Weighted-
Options Average
Outstanding Exercise Price
----------- --------------
Outstanding options, June 30, 2002 38,892,960 $22.72
-----------
Granted 8,075,530 25.68
Forfeited and expired (736,546) 34.85
Exercised (4,710,476) 9.06
-----------
Outstanding options, June 29, 2003 41,521,468 24.58
-----------
Granted 4,360,000 39.66
Forfeited and expired (824,630) 37.31
Exercised (4,063,488) 13.49
-----------
Outstanding options, June 27, 2004 40,993,350 27.03
-----------
Granted 4,212,250 36.62
Forfeited and expired (715,225) 39.88
Exercised (4,770,747) 13.88
-----------
Outstanding options, July 3, 2005 39,719,628 $29.39
===========
Options exercisable at:
June 29, 2003 27,474,426 $20.17
June 27, 2004 29,134,480 23.46
July 3, 2005 32,433,491 28.48
The following table sets forth certain information with respect to employee
stock options outstanding and exercisable at July 3, 2005:
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------
Weighted
Weighted Average Weighted
Stock Average Remaining Stock Average
Range of Exercise Options Exercise Contractual Options Exercise
Prices Outstanding Price Life (Years) Exercisable Price
- -------------------------------------------------------------------- -----------------------------
$ 6.19 - $ 12.97 7,855,850 $ 10.17 1.91 7,855,850 $ 10.17
$ 12.98 - $ 25.05 9,188,753 21.93 5.54 7,496,236 21.23
$ 25.06 - $ 40.90 16,712,725 35.40 6.41 11,119,105 35.06
$ 40.91 - $ 55.88 5,962,300 49.38 5.58 5,962,300 49.38
----------- -----------
$ 6.19 - $ 55.88 39,719,628 $ 29.39 5.20 32,433,491 $ 28.48
=========== ===========
Stock Purchase Plan
The Company's stock purchase plan ("ESPP") permits eligible employees to
purchase common stock through payroll deductions at the lower of 85% of the fair
market value of common stock at the beginning or end of each six month offering
period. The offering periods commence on approximately May 1 and November 1 of
each year. At July 3, 2005, the shares reserved for issuance under this plan
totaled 8.4 million and 7.9 million shares had been issued under this plan.
During fiscal 2005, 0.2 million shares were issued at a weighted-average price
of $30.68 per share pursuant to this plan.
Restricted Stock
During the first quarter of fiscal 2005, to encourage employee retention
the Company issued restricted stock to certain officers and employees who had
32
been with the Company at least three years. Under this program, the Company
issued 1,578,440 restricted shares with an exercise price of $0.001 per share
and a grant date fair value of $37.05 per share. The right to sell the shares
generally vests annually at the rate of 1/3 per year based upon continued
employment; upon employee termination the Company has the right to buy back
unvested shares at the exercise price. During fiscal 2005, approximately 90,000
restricted shares vested and 18,000 unvested restricted shares were repurchased.
Retirement Plan
The Company has established a 401(k) retirement plan for its qualified U.S.
employees. Contributions made by the Company to this plan were approximately
$10.1 million, $7.2 million and $5.7 million in fiscal 2005, 2004 and 2003,
respectively.
Note 5. Income Taxes
The components of income before income taxes are as follows:
In thousands 2005 2004 2003
-------- -------- --------
United States operations $567,146 $422,786 $299,828
Foreign operations 52,818 39,427 33,398
-------- -------- --------
$619,964 $462,213 $333,226
======== ======== ========
The provision for income taxes consists of the following:
In thousands
2005 2004 2003
-------- -------- --------
United States federal:
Current $174,973 $117,024 $105,972
Deferred (4,459) 8,129 (15,347)
-------- -------- --------
170,514 125,153 90,625
-------- -------- --------
State:
Current 11,103 4,718 6,493
Deferred 430 2,324 (2,960)
-------- -------- --------
11,533 7,042 3,533
-------- -------- --------
Foreign:
Current 2,925 2,108 1,580
Deferred 1,018 (261) 897
-------- -------- --------
3,943 1,847 2,477
-------- -------- --------
$185,990 $134,042 $ 96,635
======== ======== ========
Actual current federal and state tax liabilities are lower than the amounts
reflected above by the tax benefit from stock option activity of approximately
$37,591,000, $35,746,000, and $37,321,000, for fiscal 2005, 2004 and 2003,
respectively. The tax benefit from stock option activity is recorded as a
reduction in current income taxes payable and an increase in additional paid-in
capital.
The provision for income taxes reconciles to the amount computed by
applying the statutory U.S. Federal rate at 35% to income before income taxes as
follows:
In thousands
2005 2004 2003
---------- ---------- ----------
Tax at U.S. statutory rate $ 216,987 $ 161,775 $ 116,629
State income taxes, net of
federal benefit 7,497 4,577 2,296
Earnings of foreign subsidiaries
subject to lower rates (8,101) (6,676) (5,007)
Tax-exempt interest income (6,021) (5,824) (8,142)
Export sales benefit (15,816) (11,550) (6,825)
Other (8,556) (8,260) (2,316)
---------- ---------- ----------
$ 185,990 $ 134,042 $ 96,635
========== ========== ==========
33
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities recorded in the balance sheet
as of July 3, 2005 and June 27, 2004 are as follows:
In thousands 2005 2004
----------- ----------
Deferred tax assets:
Inventory valuation $ 14,545 $ 15,225
Deferred income on shipments to distributors 16,152 15,446
Taxes of foreign subsidiaries 6,910 6,137
Stock based compensation 6,175 --
Other 5,542 8,104
----------- ----------
Total deferred tax assets 49,324 44,912
Deferred tax liabilities:
Depreciation and amortization $ 7,113 $ 10,357
Unremitted earnings of subsidiaries 13,109 9,537
Interest income of subsidiaries 6,910 6,137
----------- ----------
Total deferred tax liabilities 27,132 26,031
----------- ----------
Net deferred tax assets $ 22,192 $ 18,881
=========== ==========
The Company has a partial tax holiday in Singapore whereby the local
statutory rate is significantly reduced. The tax holiday is effective through
August 2011 and may be extended through August 2014, if certain conditions are
met. The Company's current Malaysia tax holiday expired in July 2005. This has
been replaced by a partial tax holiday, which is effective through July 2015
whereby the local statutory rate is significantly reduced.
The impact of the Singapore and Malaysia tax holidays was to increase net
income by approximately $4,811,000 ($0.02 per diluted share) in fiscal 2005,
$4,271,000 ($0.01 per diluted share) in fiscal 2004, and $3,439,000 ($0.01 per
diluted share) in fiscal 2003. The Company does not provide a residual U.S. tax
on a portion of the undistributed earnings of its Singapore and Malaysia
subsidiaries, as it is the Company's intention to permanently invest these
earnings overseas. Should these earnings be remitted to the U.S. parent,
additional U.S. taxable income would be approximately $240,799,000.
The Internal Revenue Service (IRS) has examined the Company's consolidated
income tax returns through the fiscal year ending July 1, 2001. As a result of
the most recent examination for the five fiscal years ending July 1, 2001, the
IRS has proposed certain adjustments to the amounts reflected by the Company as
a tax benefit for its export sales. The Company disputes the proposed
adjustments and intends to pursue the matter through applicable IRS and judicial
procedures as appropriate (see "Note 6: Commitment and Contingencies").
The Company is currently under audit by the IRS for periods beginning July
02, 2001 and July 01, 2002. Management believes that an adequate amount of taxes
and related interest and penalty, if any, have been provided for any adjustment
that may result from these years.
Note 6. Commitments and Contingencies
Contractual Obligations
The Company leases certain of its facilities under operating leases, some
of which have options to extend the lease period. In addition, the Company has
entered into long-term land leases for the sites of its Singapore and Malaysia
manufacturing facilities.
At July 3, 2005, future minimum lease payments under non-cancelable
operating leases having an initial term in excess of one year were as follows:
fiscal 2006: $3.9 million; fiscal 2007: $3.4 million; fiscal 2008: $2.9 million;
fiscal 2009: $2.5 million; fiscal 2010: $1.7 million; and thereafter: $2.7
million.
Total rent expense was $4.9 million, $4.7 million, and $4.0 million in
fiscal 2005, 2004 and 2003, respectively.
34
At the end of fiscal 2005 the Company entered into a purchase agreement of
approximately $22.0 million for two buildings it currently leases. The agreement
is contingent upon the owner selling a third building that the Company currently
leases. The effect of the agreement will not be significant to the Company's
overall results of operation or financial position.
Litigation
The Company is subject to contingencies, including legal proceedings
arising out of a wide range of matters, including, among others, patent suits
and employment claims. While it is impossible to ascertain the ultimate legal
and financial liability with respect to these lawsuits, the Company believes
that the aggregate amount of such liabilities, if any, will not have a material
adverse effect on the consolidated financial position or results of operation of
the Company.
Tax Matters
The Internal Revenue Service (IRS) has examined the Company's consolidated
income tax returns through the fiscal year ending July 1, 2001. As a result of
the most recent examination for the five fiscal years ending July 1, 2001, the
IRS has proposed certain adjustments to the amounts reflected by the Company as
a tax benefit for its export sales. The Company disputes the proposed
adjustments and intends to pursue the matter through applicable IRS and judicial
procedures as appropriate. If the IRS prevails in its position, the Company's
federal income tax due for the five fiscal years ending July 1, 2001 will
increase by approximately $24 million plus interest. The Company's income taxes
payable includes an estimated amount to cover a portion of this potential
liability. However, as the final outcome of the proposed adjustment is
uncertain, there is a possibility that this matter will be resolved either more
or less favorably and the adjustment, if any, may exceed the estimates provided
for by the Company. Accordingly, the resolution of this matter may have a
material adverse impact on the results of operations in the period in which the
matter is ultimately resolved or in the period that the outcome becomes probable
and reasonably estimable. However, the adjustment will not have a material
adverse effect on the Company's financial position or cashflows.
Note 7. Quarterly Information (Unaudited)
In thousands, except per
share amounts July 3, April 3, Jan. 2, Sept. 26,
Quarter Ended Fiscal 2005 2005 2005 2005 2004
- --------------------------------------------------------------------------------
Net revenues $ 255,811 $ 290,734 $ 250,121 $ 253,028
Gross profit 201,952 234,134 196,231 198,189
Net income 106,047 121,633 102,818 103,476
Basic earnings per share 0.35 0.39 0.33 0.34
Diluted earnings per share 0.34 0.39 0.33 0.33
Cash dividends per share 0.10 0.10 0.08 0.08
Stock price range per share:
High 39.21 40.31 40.04 39.74
Low 35.43 36.15 35.71 34.42
In thousands, except per
share amounts June 27, March 28, Dec. 28, Sept. 28,
Quarter Ended Fiscal 2004 2004 2004 2003 2003
- --------------------------------------------------------------------------------
Net revenues $ 238,050 $ 209,133 $ 186,021 $ 174,077
Gross profit 184,872 161,537 142,244 132,668
Net income 98,816 85,549 74,335 69,471
Basic earnings per share 0.32 0.27 0.24 0.22
Diluted earnings per share 0.31 0.27 0.23 0.22
Cash dividends per share 0.08 0.08 0.06 0.06
Stock price range per share:
High 39.78 44.95 44.33 41.94
Low 35.37 35.88 35.93 32.38
The stock activity in the above table is based on the high and low closing
prices. These prices represent quotations between dealers without adjustment for
retail markups, markdowns or commissions, and may not represent actual
transactions. The Company's common stock is traded on the NASDAQ National Market
System under the symbol LLTC.
At July 3, 2005, there were approximately 1,570 stockholders of record.
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Linear Technology Corporation
We have audited the accompanying consolidated balance sheets of Linear
Technology Corporation as of July 3, 2005 and June 27, 2004, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended July 3, 2005. Our audits also included
the financial statement schedule listed in the Index at Item 15(a)2. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States) Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Linear
Technology Corporation at July 3, 2005 and June 27, 2004, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended July 3, 2005, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Linear
Technology Corporation's internal control over financial reporting as of July 3,
2005, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated August 31, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
August 31, 2005
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Linear Technology Corporation
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Linear
Technology Corporation maintained effective internal control over financial
reporting as of July 3, 2005, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Linear Technology Corporation's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Linear Technology Corporation
maintained effective internal control over financial reporting as of July 3,
2005, is fairly stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Linear Technology Corporation maintained, in all material
respects, effective internal control over financial reporting as of July 3,
2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the 2005 consolidated financial
statements of Linear Technology Corporation and our report dated August 31, 2005
expressed an unqualified opinion thereon.
/s/Ernst & Young LLP
San Jose, California
August 31, 2005
37
ITEM 9. CHANGES IN AND DISAGREEEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
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 Annual Report on Form 10-K. 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.
Management's Report on Internal Control Over Financial Reporting
The management of Linear Technology is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in
Exchange Act Rules 13a-15(f). Linear's internal control system was designed to
provide reasonable assurance to the Company's management and Board of Directors
regarding the reliability of financial reporting and the preparation and fair
presentation of financial statements issued for external purposes in accordance
with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent
limitations and may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can only provide reasonable assurance with
respect to financial reporting reliability and financial statement preparation
and presentation.
Linear's management assessed the effectiveness of the Company's internal
control over financial reporting as of July 3, 2005. In making this assessment,
it used the criteria set forth by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission in Internal Control--Integrated Framework.
Based on its assessment management believes that, as of July 3, 2005, the
Company's internal control over financial reporting is effective based on the
COSO criteria.
Management's assessment of the effectiveness of internal control over
financial reporting as of July 3, 2005 has been audited by Ernst and Young LLP,
an independent registered public accounting firm, as stated in their report
which is included herein.
Changes in Internal Controls Over Financial Reporting
There was no change in the Company's internal controls over financial
reporting that occurred during the fourth quarter of fiscal 2005 that has
materially affected, or is reasonably likely to materially affect, its internal
controls over financial reporting.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICER OF THE REGISTRANT
The information required by this item for the Company's directors is
incorporated herein by reference to the 2005 Proxy Statement, under the caption
"Proposal One - Election of Directors," and for the executive officers of the
Company, the information is included in Part I hereof under the caption
38
"Executive Officers of the Registrant." The information required by this item
with respect to compliance with Section 16(a) of the Securities Exchange Act of
1934 is incorporated by reference to the 2005 Proxy Statement under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance."
The Company had adopted a Code of Business Conduct and Ethics that applies
to all of its employees, including its Chief Executive Officer, Chief Financial
Officer, and its principal accounting officers. The Company's Code of Business
Conduct and Ethics is posted on its website at http://www.linear-tech.com/. The
Company intends to satisfy the disclosure requirement under Item 5.05 of Form
8-K regarding any amendment to, or waiver from, a provision of the Code of
Business Conduct and Ethics by posting such information on its website, at the
address specified above.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the 2005 Proxy Statement, under the section
titled "Executive Officer Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Incorporated by reference to the 2005 Proxy Statement, under the section
titled "Beneficial Security Ownership of Directors, Executive Officers and
Certain Other Beneficial Owners" and "Securities Authorized for Issuance Under
Equity Compensation Plans."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference to the 2005 Proxy Statement, under the section
titled "Fees Billed To The Company By Ernst & Young LLP During The Fiscal Year
Ended July 3, 2005."
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS
(a) 1. Financial Statements
The following consolidated financial statements are included in Item 8:
Consolidated Statements of Income for each of the three years in
the period ended July 3, 2005
Consolidated Balance Sheets as of July 3, 2005 and June 27, 2004
Consolidated Statements of Cash Flows for each of the three years
in the period ended July 3, 2005
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended July 3, 2005
Report of Independent Registered Public Accounting Firm
39
2. Schedules
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Additions
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions(1) Period
Allowance for doubtful accounts:
Year ended June 29, 2003 $1,302 $1,000 $ 540 $1,762
====== ====== ====== ======
Year ended June 27, 2004 $1,762 $ -- $ -- $1,762
====== ====== ====== ======
Year ended July 3, 2005. $1,762 $ -- $ 49 $1,713
====== ====== ====== ======
(1) Write-offs of doubtful accounts.
Schedules other than the schedule listed above have been omitted since they
are either not required or the information is included elsewhere.
3. Exhibits
The Exhibits which are filed with this report or which are incorporated by
reference herein are set forth in the Exhibit Index.
(c) Exhibit Index
3.1 Certificate of Incorporation of Registrant. (9)
3.3 Bylaws of Registrant. (9)
10.1 1981 Incentive Stock Option Plan, as amended, and form of Stock Option
Agreements, as amended (including Restricted Stock Purchase
Agreement).(*)(3)
10.11 Agreement to Build and Lease dated January 8, 1986 between
Callahan-Pentz Properties, McCarthy Six and the Registrant.(1)
10.25 1986 Employee Stock Purchase Plan, as amended, and form of Subscription
Agreement.(*)(2)
10.35 1988 Stock Option Plan, as amended, form of Incentive Stock Option
Agreement, as amended, and form of Non-statutory Stock Option
Agreement, as amended.(*)(6)
10.36 Form of Indemnification Agreement. (9)
10.45 Land lease dated March 30, 1993 between the Registrant and the
Singapore Housing and Development Board.(4)
10.46 Land lease dated November 20, 1993 between the Registrant and the
Penang Development Corporation. (5)
10.47 1996 Incentive Stock Option Plan, form of Incentive Stock Option
Agreement and form of Nonstatutory Stock Option Agreement.(*) (7)
10.48 1996 Senior Executive Bonus Plan, as amended July 25, 2000.(*) (8)
40
10.49 2001 Nonstatutory Stock Option Plan, as amended July 23, 2002, and form
of Stock Option Agreement.(*)(11)
10.50 Employment Agreement dated January 15, 2002 between the Registrant and
Robert H. Swanson, Jr. (*) (10)
10.51 Employment Agreement dated January 15, 2002 between the Registrant and
Paul Coghlan. (*) (10)
10.52 Employment Agreement dated January 15, 2002 between the Registrant and
Robert C. Dobkin. (*) (10)
11.1 Computation of earnings per share. (see Consolidated Statements of
Income in Item 8).
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Registered Public Accounting Firm
24.1 Power of Attorney (see page 39)
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Lothar Maier and Paul Coghlan Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley
Act of 2002.
(*) The item listed is a compensatory plan of the Company.
(1) Incorporated by reference to identically numbered exhibits filed in
response to Item 16(a), "Exhibits," of the Registrant's Registration
Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto
(File No. 33-4766), which became effective on May 28, 1986.
(2) Incorporated by reference to identically numbered exhibit filed in
response to Item 6, "Exhibits and Reports on Form 8-K," of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 28, 1997.
(3) Incorporated by reference to identically numbered exhibit filed in
response to Item 6, "Exhibits and Reports on Form 8-K," of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 30, 1990.
(4) Incorporated by reference to identically numbered exhibit filed in
response to Item 14(a)(3) "Exhibits," of the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 27, 1993.
(5) Incorporated by reference to identically numbered exhibit filed in
response to Item 14(a)(3) "Exhibits," of the Registrant's Annual Report
on Form 10-K for the fiscal year ended July 3, 1994.
(6) Incorporated by reference to identically numbered exhibit filed in
response to Item 6, "Exhibits and Reports on Form 8-K," of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 2, 1994.
(7) Incorporated by reference to Exhibits 4.1 and 4.2 of the Registrant's
Registration Statement on Form S-8 filed with the Commission on July
30, 1999.
41
(8) Incorporated by reference to identically numbered exhibit filed in
response to Item 14(a)(3) "Exhibits," of the Registrant's Annual Report
on Form 10-K for the fiscal year ended July 2, 2000.
(9) Incorporated by reference to identically numbered exhibit filed in
response to Item 14(a)(3) "Exhibits," of the Registrant's Annual Report
on Form 10-K for the fiscal year ended July 1, 2001.
(10) Incorporated by reference to identically numbered exhibit filed in
response to Item 6 "Exhibits and reports on Form 8-K," of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 2002.
(11) Incorporate by reference to identically numbered exhibit filed in
response to Item 14(a)(3) "Exhibits," of the Registrants's Annual
Report on Form 10-K for the fiscal year ended June 30, 2002.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.
LINEAR TECHNOLOGY CORPORATION
-----------------------------
(Registrant)
By: /s/ Lothar Maier
--------------------
Lothar Maier
Chief Executive Officer
September 8, 2005
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Lothar Maier and Paul Coghlan, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K/A, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Lothar Maier /s/ Paul Coghlan
- ---------------- ----------------
Lothar Maier Paul Coghlan
Chief Executive Officer Vice President of Finance and Chief
(Principal Executive Officer) Financial Officer (Principal Financial
September 8, 2005 Officer and Principal Accounting Officer)
September 8, 2005
/s/ Robert H. Swanson, Jr. /s/ Thomas S. Volpe
- -------------------------- -------------------
Robert H. Swanson, Jr. Thomas S. Volpe
Executive Chairman of the Board Director
September 8, 2005 September 8, 2005
/s/ David S. Lee /s/ Richard M. Moley
- ---------------- --------------------
David S. Lee Richard M. Moley
Director Director
September 8, 2005 September 8, 2005
/s/ Leo T. McCarthy
- -------------------
Leo T. McCarthy
Director
September 8, 2005
43