FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 1, 1995 OR
/ / 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)
CALIFORNIA 94-2778785
---------- ----------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
1630 MCCARTHY BLVD.
MILPITAS, CALIFORNIA 95035-7487
(408) 432-1900
--------------
(ADDRESS INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
There were 36,500,556 shares of the Registration's Common Stock issued and
outstanding as of January 27, 1995.
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND SIX MONTHS ENDED JANUARY 1, 1995
INDEX
Page
----
Part I: Financial Information
Item 1. Financial Statements
Consolidated Statement of Income for the 2
three and six months ended January 1, 1995
and January 2, 1994.
Consolidated Balance Sheet at January 1, 1995 3-4
and July 3, 1994.
Consolidated Statement of Cash Flows for the 5-6
six months ended January 1, 1995 and
January 2, 1994.
Notes to consolidated financial statements 7
Item 2. Management's discussion and analysis of 8-10
financial condition and results of operations
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
---------------------- -------------------------
January 1, January 2, January 1, January 2,
1995 1994 1995 1994
---------- ---------- ----------- ----------
Net sales $62,103 $48,027 $120,185 $93,067
Cost of sales 19,992 16,713 38,613 32,908
------- ------- -------- -------
Gross profit 42,111 31,314 81,572 60,159
------- ------- -------- -------
Expenses:
Research & development 5,675 4,525 11,122 8,663
Selling, general and
administrative 9,164 7,931 17,653 15,657
------- ------- -------- -------
14,839 12,456 28,775 24,320
------- ------- -------- -------
Operating income 27,272 18,858 52,797 35,839
Interest income 1,885 1,080 3,498 2,071
------- ------- -------- -------
Income before income
taxes 29,157 19,938 56,295 37,910
Provision for income
taxes 9,913 6,839 19,221 13,003
------- ------- -------- -------
Net income $19,244 $13,099 $ 37,074 $24,907
======= ======= ======== =======
Net income per share $ 0.51 $ 0.35 $ 0.98 $ 0.67
======= ======= ======== =======
Shares used in the
calculation of net
income per share 37,983 37,523 37,949 37,444
======= ======= ======== =======
See accompanying notes
2
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(In thousands)
January 1, July 3,
1995 1994
----------- ---------
(unaudited)
Current assets:
Cash and cash equivalents $ 36,460 $ 39,950
Short-term investments 163,384 136,851
Accounts receivable, net of allowance for
doubtful accounts of $580 ($550 at July 3,
1994) 28,154 26,517
Inventories:
Raw materials 1,311 1,315
Work in process 5,445 6,233
Finished goods 2,476 2,468
-------- --------
Total inventories 9,232 10,016
Deferred tax assets 15,486 14,691
Prepaid expenses and other current assets 4,795 3,101
-------- --------
Total current assets 257,511 231,126
-------- --------
Property, plant and equipment, at cost:
Land, building and improvements 25,632 21,530
Manufacturing and test equipment 57,476 50,532
Office furniture and equipment 2,200 1,952
-------- --------
85,308 74,014
Less accumulated depreciation and
amortization (39,664) (36,741)
-------- --------
Net property, plant and equipment 45,644 37,273
-------- --------
$303,155 $268,399
======== ========
See accompanying notes
3
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
January 1, July 3,
1995 1994
---------- ---------
(unaudited)
Current liabilities:
Accounts payable $ 6,285 $ 5,255
Accrued payroll and related benefits 12,457 11,202
Deferred income on shipments to distributors 13,982 12,165
Income taxes payable 5,020 8,027
Other accrued liabilities 6,731 6,272
-------- --------
Total current liabilities 44,475 42,921
Deferred tax liabilities 2,503 2,003
Shareholders' equity:
Common stock, no par value, 60,000,000 shares
authorized; 36,433,706 shares
issued and outstanding at January 1, 1995
(36,308,413 shares at July 3, 1994) 91,084 84,979
Retained earnings 165,093 138,496
-------- --------
Total shareholders' equity 256,177 223,475
-------- --------
$303,155 $268,399
======== ========
See accompanying notes
4
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
-----------------------------
January 1, January 2,
1995 1994
------------ ------------
Cash flow from operating activities:
Net income $ 37,074 $ 24,907
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,548 3,106
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (1,637) 1,004
Decrease (increase) in inventories 784 (1,369)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets (2,489) (882)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities (263) 1,721
Increase (decrease) in deferred income 1,817 2,900
Increase (decrease) in deferred tax
liabilities 500 (384)
-------- --------
Cash provided by operating activities 39,334 31,003
-------- --------
Cash flow from investing activities:
Purchase of short-term investments (71,963) (73,711)
Proceeds from sales and maturities of
short-term investments 45,430 46,220
Purchase of property, plant and equipment (11,919) (8,779)
-------- --------
Cash used in investing activities (38,452) (36,270)
-------- --------
Cash flow from financing activities:
Issuance of common stock under employee
stock plans 3,294 2,323
Tax benefit from stock option transactions 3,185 2,400
Purchase of common stock (6,139) --
Payment of cash dividends (4,712) (3,933)
-------- --------
Cash provided by (used in) financing
activities (4,372) 790
-------- --------
Decrease in cash and cash equivalents (3,490) (4,477)
Cash and cash equivalents,
beginning of period 39,950 24,881
-------- --------
Cash and cash equivalents,
end of period $ 36,460 $ 20,404
======== ========
See accompanying notes
5
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended
-------------------------
January 1, January 2,
1995 1994
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $19,338 $11,428
See accompanying notes
6
LINEAR TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Interim financial statements and information are unaudited; however, in
the opinion of management, all adjustments necessary for a fair and
accurate presentation of the interim results have been made. All such
adjustments were of a normal recurring nature. The results for the
three and six months ended January 1, 1995 are not necessarily an
indication of results to be expected for the entire fiscal year. All
information reported in this Form 10-Q should be read in conjunction
with the Company's annual consolidated financial statements for the
fiscal year ended July 3, 1994, included in the Company's Annual Report
to Shareholders.
2. The Company operates on a 52/53 week year ending on the Sunday nearest
June 30. Fiscal year 1995 will have 52 weeks, while fiscal year 1994
had 53 weeks with 14 weeks during the quarter ended January 2, 1994.
3. Net income per share is based upon the weighted average number of
shares of common stock outstanding and common equivalents, if dilutive.
4. Effective the beginning of fiscal 1995, the Company adopted Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with the
Statement, prior period financial statements have not been restated to
reflect the change in accounting principle. The cumulative effect of
adopting the Statement was not material to the Company's shareholders'
equity.
The Company determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as
of each balance sheet date. Debt securities are classified as
available-for-sale securities and are carried at amortized cost. Should
fair value be materially different than cost, debt securities would be
adjusted to fair value with unrealized gains and losses, net of tax,
reported in shareholders' equity.
5. On November 2, 1994, the shareholders approved an amendment to the 1988
Incentive Stock Option Plan increasing the number of shares reserved
for issuance under the plan by two million to a total of eight million.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The table below states the income statement items for the three and six
months ended January 1, 1995 and January 2, 1994 as a percentage of net sales
and provides the percentage increase in absolute dollars of such items comparing
the interim periods ended January 1, 1995 to the corresponding periods from the
prior fiscal year:
Three Months Ended Six Months Ended
--------------------------- -------------------------
Dollar Dollar
Jan. 1, Jan. 2, Increase Jan. 1, Jan. 2, Increase
1995 1994 Percentage 1995 1994 Percentage
------- ------- ---------- ------- ------- ----------
Net sales 100.0% 100.0% 29% 100.0% 100.0% 29%
Cost of sales 32.2 34.8 20 32.1 35.4 17
------- ------- ------- -------
Gross profit 67.8 65.2 34 67.9 64.6 36
------- ------- ------- -------
Expenses:
Research &
development 9.1 9.4 25 9.3 9.3 28
Selling, general
& administrative 14.8 16.5 16 14.7 16.8 13
------- ------- ------- -------
23.9 25.9 19 24.0 26.1 18
------- ------- ------- -------
Operating income 43.9 39.3 45 43.9 38.5 47
Interest income 3.0 2.2 75 2.9 2.2 69
------- ------- ------- -------
Income before income
taxes 46.9% 41.5% 46 46.8% 40.7% 48
======= ======= ======= =======
Effective tax rates 34.0% 34.3% 34.1% 34.3%
======= ======= ======= =======
Net sales for both the second quarter and first six months of fiscal
1995 increased 29% over the corresponding periods of fiscal 1994. For both the
second quarter and the first six months of fiscal 1995, net sales increased over
comparable periods in the prior fiscal year primarily due to higher unit sales
as the average selling price increased only slightly. Both domestic and
international sales grew during the second quarter and first six months of
fiscal 1995 as compared to the corresponding periods in the prior year. The
percentage of sales growth was especially strong in the Japan and Asia/Pacific
areas.
Gross profit increased by $10.8 million and $21.4 million for the
second quarter and the first six months of fiscal 1995, respectively, as
compared with the same periods in the previous year. As a percentage of net
sales, gross profit increased due primarily to the absorption of fixed costs
over the
8
Results of Operations, continued:
increased sales volume and the cost savings from the Singapore test
manufacturing operations, where the majority of incremental sales units have
been tested. The start-up costs for the new facilities in Singapore and Malaysia
had a minor adverse impact on gross margin for the second quarter and first six
months of fiscal 1995 but this impact was more than offset by the cost savings
mentioned above.
Research and development expenses increased by $1.2 million and $2.5
million for the second quarter and first six months of fiscal 1995,
respectively, as compared to the same periods in fiscal 1994. The spending
increases are mostly related to the increased staffing of and compensation to
design engineering professionals and increased mask sets expense. As a
percentage of net sales, research and development expenses for the second
quarter of fiscal 1995 declined as compared to the previous year due to support
engineering staffing and compensation increasing at a slower rate than sales
growth.
Selling, general and administrative expenses were 14.8% and 14.7% of
net sales for the second quarter and first six months of fiscal 1995,
respectively, as compared to 16.5% and 16.8% of net sales for the corresponding
periods in the previous fiscal year. As a percentage of net sales, selling,
general and administrative costs continued to decline due to proportionally
lower labor costs, commission expense and other expenses, partially offset by an
increase in legal expense. Additionally, advertising and promotion expense
remained approximately the same for the second quarter and first six months of
fiscal 1995 as compared to the expense for the same periods in the prior fiscal
year.
Interest income was $1.9 million and $3.5 million for the second
quarter and first six months of fiscal 1995, respectively, compared to $1.1
million and $2.1 million for the corresponding periods of fiscal 1994. The
increases in interest income for both the second quarter and first six months
resulted from higher investment balances and an increase in interest rates from
the prior year.
The effective tax rates for the second quarter and first six months of
fiscal 1995 were 34.0% and 34.1% as compared to 34.3% for both the second
quarter and first six months of fiscal 1994. The slight decline in the effective
tax rate from the second quarter and first six months of fiscal 1994 to the
rates for fiscal 1995 is due primarily to the increased tax benefits from
foreign operations and a slight reduction in the state effective tax rate.
Factors Affecting Future Operating Results
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, occasional shortages of materials, variations in manufacturing
efficiencies and significant expenditures for capital equipment and product
development. Furthermore, new product introductions and patent protection of
9
Results of Operations, continued:
existing products are critical factors for future sales growth and sustained
profitability.
Although the Company believes that it has the product lines,
manufacturing facilities and technical and financial resources for its current
operations, sales and profitability can be significantly affected by the above
and other factors. Additionally, the Company's common stock could be subject to
significant price volatility should sales and/or earnings fail to meet
expectations of the investment community.
Liquidity and Capital Resources
At January 1, 1995, cash and short-term investments were $199.8 million
and working capital was $213.0 million.
During the first six months of fiscal 1995, the Company generated $39.3
million of cash from operating activities. In addition, the Company generated
$6.5 million from proceeds of and tax benefits from common stock issued under
employee stock option and purchase plans.
The Company purchased $11.9 million of capital assets during the first
six months of fiscal 1995, including approximately $9.1 million for plant
construction and equipment for the Company's assembly facility in Penang,
Malaysia. As of January 1, 1995, the Company has spent $10 million of an
estimated $15 million for plant construction costs and equipment for the Penang
facility.
The Company plans to start construction of a wafer fabrication plant in
Camas, Washington in the fourth quarter of fiscal 1995. Manufacturing production
is scheduled to begin in late fiscal 1996. The initial investment in the plant
and equipment is estimated at approximately $30 million, with the potential of
growing to $85 million over a six-to-ten year period depending upon the
Company's manufacturing capacity needs.
The Company purchased and retired 160,000 shares of its common stock
during the first six months of fiscal 1995 for $6.1 million. During the first
six months of fiscal 1995, the Company paid its shareholders cash dividends
which totaled $4.7 million. In January 1995, the Company's Board of Directors
announced that a quarterly dividend of $0.07 per share will be paid during the
third quarter of fiscal 1995. The payment of any future dividends will be based
on quarterly financial performance.
Historically, the Company has satisfied its liquidity needs through
cash generated from operations, the placement of equity securities and the
utilization of lease financing for capital equipment and facilities. Given its
strong financial condition and performance, the Company's near-term plan is to
primarily finance its capital needs internally.
10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINEAR TECHNOLOGY CORPORATION
DATE: February 10, 1995 BY /s/ Paul Coghlan
-----------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
12