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 OCTOBER 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
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2778785
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1630 MCCARTHY BLVD.
MILPITAS, CALIFORNIA 95035-7417
(408) 432-1900
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(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 73,796,392 shares of the Registrant's Common Stock issued and
outstanding as of October 27, 1995.
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE MONTHS ENDED OCTOBER 1, 1995
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the three 2
months ended October 1, 1995 and October 2, 1994.
Consolidated Balance Sheets at October 1, 1995 and 3-4
July 2, 1995.
Consolidated Statements of Cash Flows for the three 5-6
months ended October 1, 1995 and October 2, 1994.
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8-10
Condition and Results of Operations
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K. 11
Signatures 12
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
Three Months Ended
----------------------
October 1, October 2,
1995 1994
---------- ----------
Net sales $87,005 $58,082
Cost of sales 25,425 18,621
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Gross profit 61,580 39,461
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Expenses:
Research and development 7,028 5,447
Selling, general and administrative 11,151 8,489
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18,179 13,936
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Operating income 43,401 25,525
Interest income 3,053 1,613
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Income before income taxes 46,454 27,138
Provision for income taxes 15,934 9,308
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Net income $30,520 $17,830
======= =======
Net income per share $ 0.39 $ 0.24
======= =======
Shares used in the calculation of net
income per share 77,699 75,830
======= =======
See accompanying notes
2
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
October 1, July 2,
1995 1995
----------- ----------
(unaudited)
Current assets:
Cash and cash equivalents $ 63,384 $ 48,146
Short-term investments 220,638 202,076
Accounts receivable, net of allowance for
doubtful accounts of $743 ($728 at
July 2, 1995) 32,305 29,770
Inventories:
Raw materials 1,522 1,270
Work-in-process 4,780 4,726
Finished goods 4,515 3,723
-------- --------
Total inventories 10,817 9,719
Deferred tax assets 20,608 20,608
Prepaid expenses and other current
assets 6,174 6,432
-------- --------
Total current assets 353,926 316,751
-------- --------
Property, plant and equipment, at cost:
Land, building and improvements 29,471 26,978
Manufacturing and test equipment 71,397 65,235
Office furniture and equipment 2,240 2,277
-------- --------
103,108 94,490
Less accumulated depreciation and
amortization (46,001) (43,688)
-------- --------
Net property, plant and equipment 57,107 50,802
-------- --------
$411,033 $367,553
======== ========
See accompanying notes
3
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
October 1, July 2,
1995 1995
----------- --------
(unaudited)
Current liabilities:
Accounts payable $ 6,683 $ 6,545
Accrued payroll and related benefits 13,096 14,841
Deferred income on shipments to distributors 17,866 17,227
Income taxes payable 21,954 10,178
Other accrued liabilities 8,327 7,037
-------- --------
Total current liabilities 67,926 55,828
Deferred tax liabilities 3,495 3,195
Shareholders' equity:
Common stock, no par value, 120,000,000
shares authorized; 73,800,092
shares issued and outstanding at
October 1, 1995 (73,586,292 shares
at July 2, 1995) 104,448 100,939
Retained earnings 235,164 207,591
-------- --------
Total shareholders' equity 339,612 308,530
-------- --------
$411,033 $367,553
======== ========
See accompanying notes
4
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
Three Months Ended
---------------------
October 1, October 2,
1995 1994
---------- ----------
Cash flow from operating activities:
Net income $ 30,520 $ 17,830
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,372 1,656
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (2,535) (912)
Decrease (increase) in inventories (1,098) 1
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets 258 (791)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities 11,459 6,064
Tax benefit from stock option transactions 2,020 1,060
Increase (decrease) in deferred income 639 1,734
Increase (decrease) in deferred tax liabilities 300 235
-------- --------
Cash provided by operating activities 43,935 26,877
-------- --------
Cash flow from investing activities:
Purchase of short-term investments (67,773) (54,337)
Proceeds from sales and maturities of short-term
investments 49,211 27,456
Purchase of property, plant and equipment (8,677) (5,601)
-------- --------
Cash used in investing activities (27,239) (32,482)
-------- --------
Cash flow from financing activities:
Issuance of common stock under employee stock
plans 1,489 1,141
Purchase of common stock -- (6,139)
Payment of cash dividend (2,947) (2,172)
-------- --------
Cash used in financing activities (1,458) (7,170)
-------- --------
Increase (decrease) in cash and cash equivalents 15,238 (12,775)
Cash and cash equivalents, beginning of period 48,146 39,950
-------- --------
Cash and cash equivalents, end of period $ 63,384 $ 27,175
======== ========
See accompanying notes
5
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended
October 1, October 2,
1995 1994
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 1,838 $ 1,167
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 months ended
October 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 2, 1995, 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 1996 and 1995 each have 52 weeks.
3. Net income per share is based upon the weighted average number of shares of
common stock outstanding and common equivalent shares, if dilutive.
4. In July 1995, the Company's Board of Directors declared a two-for-one split
of the Company's common stock for shareholders of record as of August 11,
1995. All share and per share information have been restated to reflect the
stock split.
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 months
ended October 1, 1995 and October 2, 1994 as a percentage of net sales and
provides the percentage increase of such items from October 2, 1994 to October
1, 1995.
Three Months Ended
----------------------
October 1, October 2,
1995 1994 Increase
---------- ---------- --------
Net sales 100.0% 100.0% 50%
Cost of sales 29.2 32.1 37
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Gross profit 70.8 67.9 56
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Expenses:
Research & development 8.1 9.4 29
Selling, general & administrative 12.8 14.6 31
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20.9 24.0 30
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Operating income 49.9 43.9 70
Interest income 3.5 2.8 89
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Income before income taxes 53.4% 46.7% 71
===== =====
Effective tax rates 34.3% 34.3%
===== =====
Net sales for the first quarter of fiscal 1996 increased 50% over net
sales for the first quarter of fiscal 1995. The increase in net sales was due
mostly to higher unit sales and in part due to a higher average selling price
resulting from firmer pricing. Each of the Company's major geographic markets
showed increases in net sales for the first quarter of fiscal 1996 as compared
to the same quarter in the prior year, with the Asia Pacific and Japan areas
experiencing the largest increase as a percentage of net sales.
Gross profit increased by $22.1 million for the first quarter of fiscal
1996 over the first quarter of fiscal 1995. Gross profit as a percentage of net
sales was 70.8% in the first quarter of fiscal 1996 compared to 67.9% for the
corresponding period of fiscal 1995. The increase in gross profit as a
percentage of net sales was due to the absorption of fixed costs over the
increased sales volume, the cost savings from the increasing activity at the
Company's Singapore test manufacturing operations and the cost savings from the
Company's Malaysia assembly operations versus assembly subcontractors. Also
contributing to the increase in gross profit was the increase in the average
selling price referred to above. Gross profit was slightly negatively impacted
by higher raw material costs.
8
Results of Operations, continued:
Research and development expenses increased by $1.6 million from the
first quarter of fiscal 1995 to the first quarter of fiscal 1996 due primarily
to increased staffing of and compensation to design engineering personnel.
Although design engineering staffing increased significantly, research and
development expenses, especially support staff labor costs and mask sets
expenses, did not increase at the same rate as the sales growth from the first
quarter of fiscal 1995 to the first quarter of fiscal 1996.
Selling, general and administrative expenses increased by $2.7 million
from the first quarter of fiscal 1995 to the first quarter of fiscal 1996 due
primarily to increases in labor costs, advertising and promotion, and commission
expense which increased due to the increase in commissionable sales. As a
percentage of net sales, selling, general and administrative expenses continued
to decline due to proportionally lower labor costs and other expenses as
compared to net sales.
Interest income was $3.1 million for the first quarter of fiscal 1996
compared to $1.6 million for the first quarter of fiscal 1995. The higher
interest income resulted from the increase in investment balances and the
increase in the average interest rate of the investment portfolio from the prior
year's 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, capacity constraints, variation in
manufacturing efficiencies and significant expenditures for capital equipment
and product development. Furthermore, new product introductions and patent
protection of existing products are critical factors 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 October 1, 1995, cash and short-term investments totaled $284.0
million, and working capital was $286.0 million.
During the first quarter of fiscal 1996, the Company generated $43.9
million of cash from operating activities. In addition, the Company generated
$1.5 million from proceeds from common stock issued under employee stock option
and stock purchase plans.
The Company purchased $8.7 million of capital assets during the first
quarter of fiscal 1996 including approximately $1.1 million for wafer
fabrication equipment for the Company's Milpitas wafer fab and $3.3 million for
building construction for the Company's next wafer fab in Camas, Washington. The
initial investment in the Camas wafer fabrication plant is estimated at
9
Liquidity and Capital Resources, continued:
approximately $40 million of which approximately $4 million has been spent.
Manufacturing production is scheduled to begin in the calendar 1996.
The Company continues to expand its manufacturing capacity at its
Malaysia assembly plant and Singapore test and back-end facility. During the
first quarter of fiscal 1996, the Company spent $3.2 million for equipment for
its manufacturing operations in Singapore and Malaysia.
During the first quarter of fiscal 1996, the Company paid its
shareholders a $0.04 per share cash dividend which totaled $2.9 million. In
October 1995, the Company's Board of Directors announced that a quarterly cash
dividend of $0.04 per share will be paid during the second quarter of fiscal
1996. The payment of future dividends will be based on quarterly financial
performance.
Historically, the Company has satisfied its liquidity needs through
cash generated from operations, 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
27.1 - Financial Data Schedule
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: November 14, 1995 BY /s/ Paul Coghlan
----------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
12