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 September 29, 1996 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
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(State or other jurisdiction (I.R.S. Employer
or incorporation) 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 74,470,559 shares of the Registrant's Common Stock and
outstanding as of October 28, 1996.
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 29, 1996
INDEX
Page
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Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income 2
for the three months ended September 29, 1996
and October 1, 1995.
Condensed Consolidated Balance Sheets at 3-4
September 29, 1996 and June 30, 1996.
Condensed Consolidated Statements of Cash 5-6
Flows for the three months ended September
29, 1996 and October 1, 1995.
Notes to Condensed 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
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
Three Months Ended
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September 29, October 1,
1996 1995
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Net sales $90,063 $87,005
Cost of sales 25,779 25,425
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Gross profit 64,284 61,580
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Expenses:
Research and development 8,186 7,028
Selling, general and administrative 12,071 11,151
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20,257 18,179
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Operating income 44,027 43,401
Interest income 3,700 3,053
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Income before income taxes 47,727 46,454
Provision for income taxes 16,369 15,934
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Net income $31,358 $30,520
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Net income per share $ 0.40 $ 0.39
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Cash dividends declared per share $ 0.05 $ 0.04
======= =======
Shares used in the calculation of net
income per share 77,595 77,699
======= =======
See accompanying notes
2
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
September 29, June 30,
1996 1996
------------ ---------
(unaudited)
Current assets:
Cash and cash equivalents $ 61,045 $ 54,393
Short-term investments 271,331 268,079
Accounts receivable, net of allowance
for doubtful accounts of $791 ($776
at June 30, 1996) 53,261 48,395
Inventories:
Raw materials 3,300 3,003
Work-in-process 5,352 5,479
Finished goods 3,988 4,448
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Total inventories 12,640 12,930
Deferred tax assets 27,200 27,200
Prepaid expenses and other current assets 7,054 7,883
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Total current assets 432,531 418,880
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Property, plant and equipment, at cost:
Land, building and improvements 51,584 50,964
Manufacturing and test equipment 116,587 111,174
Office furniture and equipment 2,687 2,667
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170,858 164,805
Less accumulated depreciation and
amortization (56,709) (53,883)
--------- ---------
Net property, plant and equipment 114,149 110,922
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$ 546,680 $ 529,802
========= =========
See accompanying notes
3
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
September 29, June 30,
1996 1996
------------ --------
(unaudited)
Current liabilities:
Accounts payable $ 10,351 $ 18,075
Accrued payroll and related benefits 14,679 21,319
Deferred income on shipments to distributors 25,071 24,928
Income taxes payable 22,176 8,395
Other accrued liabilities 11,933 13,681
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Total current liabilities 84,210 86,398
Deferred tax liabilities 2,917 2,917
Shareholders' equity:
Common stock, no par value, 120,000,000
shares authorized; 74,368,259
shares issued and outstanding at
September 29, 1996 (74,661,637 shares
at June 30, 1996) 134,666 132,482
Retained earnings 324,887 308,005
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Total shareholders' equity 459,553 440,487
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$546,680 $529,802
======== ========
See accompanying notes
4
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
Three Months Ended
-----------------------------
September 29, October 1,
1996 1995
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Cash flow from operating activities:
Net income $ 31,358 $ 30,520
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,826 2,372
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (4,866) (2,535)
Decrease (increase) in inventories 290 (1,098)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets 829 258
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities (2,331) 11,459
Tax benefit from stock option transactions 1,425 2,020
Increase (decrease) in deferred income 143 639
Increase (decrease) in deferred tax liabilities -- 300
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Cash provided by operating activities 29,674 43,935
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Cash flow from investing activities:
Purchase of short-term investments (57,361) (67,773)
Proceeds from sales and maturities of short-term
investments 54,109 49,211
Purchase of property, plant and equipment (6,053) (8,677)
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Cash used in investing activities (9,305) (27,239)
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Cash flow from financing activities:
Issuance of common stock under employee stock
plans 1,591 1,489
Purchase of common stock (11,598) --
Payment of cash dividends (3,710) (2,947)
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Cash used in financing activities (13,717) (1,458)
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Increase in cash and cash equivalents 6,652 15,238
Cash and cash equivalents, beginning of period 54,393 48,146
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Cash and cash equivalents, end of period $ 61,045 $ 63,384
======== ========
<FN>
See accompanying notes
</FN>
5
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended
-----------------------------
September 29, October 1,
1996 1995
------------- -------------
Supplemental disclosures of cash flow
information:
Cash paid during the period for income taxes $ 1,163 $ 1,838
See accompanying notes
6
LINEAR TECHNOLOGY CORPORATION
NOTES TO CONDENSED 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
September 29, 1996 are not necessarily an indication of results to be
expected for the entire fiscal year. All information reported in this Form
10-Q should be read in conjunction with the Company's annual consolidated
financial statements for the fiscal year ended June 30, 1996, included in
the Company's Annual Report to Shareholders. The accompanying balance sheet
at June 30, 1996 has been derived from audited financial statements as of
that date.
2. The Company operates on a 52/53 week year ending on the Sunday nearest June
30. Fiscal 1997 and 1996 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. Included in property, plant and equipment at September 29, 1996 is
approximately $50 million ($47.9 million at June 30, 1996) of construction
in progress related to the Company's new wafer fabrication facility in
Camas, Washington.
5. On July 23, 1996 the Board of Directors approved the repricing of stock
option grants of 2,510,600 shares granted during fiscal 1996. In exchange
for these new options, all vesting under the canceled options was lost and
a new five year vesting period was started.
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 September 29, 1996 and October 1, 1995 as a percentage of net sales and
provides the percentage increase in absolute dollars of such items from October
1, 1995 to September 29, 1996.
Three Months Ended
-----------------------------------
September 29, October 1,
1996 1995 Increase
------------ ----------- ---------
Net sales 100.0% 100.0% 4%
Cost of sales 28.6 29.2 1
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Gross profit 71.4 70.8 4
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Expenses:
Research & development 9.1 8.1 16
Selling, general & administrative 13.4 12.8 8
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22.5 20.9 11
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Operating income 48.9 49.9 1
Interest income 4.1 3.5 21
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Income before income taxes 53.0% 53.4% 3
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Effective tax rates 34.3% 34.3%
===== =====
Net sales for the first quarter of fiscal 1997 increased 4% over net
sales for the first quarter of fiscal 1996. Unit sales were approximately the
same in the first quarter of fiscal 1997 as compared to the first quarter of
fiscal 1996. The average selling price for the first quarter of fiscal 1997
increased slightly over the first quarter of fiscal 1996 due to a shift in
product mix. Sales of Jan S class (space qualified) parts, which have a higher
average selling price due to extensive testing requirements, were higher in the
first quarter of fiscal 1997 as compared to the same quarter in the prior fiscal
year. Both international and domestic sales were slightly higher in the first
quarter of fiscal 1997 as compared to sales in the first quarter of fiscal 1996.
Gross profit increased by $2.7 million for the first quarter of fiscal
1997 over the first quarter of fiscal 1996. Gross profit as a percentage of net
sales was 71.4% in the first quarter of fiscal 1997 compared to 70.8% for the
corresponding period of fiscal 1996. Gross profit as a percentage of net sales
increased slightly from the first quarter of fiscal 1996 to the first quarter of
fiscal 1997 mainly due to the shift in product mix referred to above. Somewhat
offsetting the increase in gross profit were pre-production costs for the
Company's next wafer fab in Camas, Washington.
8
Results of Operations, continued:
Research and development expenses increased by $1.2 million from the
first quarter of fiscal 1996 to the first quarter of fiscal 1997 due primarily
to increased staffing of design engineering and support engineering personnel.
Also contributing to the increase in research and development spending were
increases in development mask sets and other expenses.
Selling, general and administrative expenses increased by $0.9 million
from the first quarter of fiscal 1996 to the first quarter of fiscal 1997 due
primarily to increases in advertising, sales seminars and other expenses, and a
slight increase in selling, general, and administrative staffing.
Interest income was $3.7 million for the first quarter of fiscal 1997
compared to $3.1 million for the first quarter of fiscal 1996. The additional
interest income earned resulted from the increase in investment balances. The
overall interest rate of the investment portfolio was approximately the same in
the first quarter of fiscal 1997 as compared to that in the first quarter of
fiscal 1996.
The Company's effective tax rate for both the first quarters of fiscal
1997 and 1996 was 34.3%.
Factors Affecting Future Operating Results
Except for historical information contained herein, the matters set
forth in this Form 10-Q, including the statements in the following paragraphs,
are forward-looking statements that are dependent on certain risks and
uncertainties including such factors, among others, as the timing, volume and
pricing of new orders received and shipped during the quarter, timely ramp-up of
new facilities, and the timely introduction of new processes and products.
We believe the long-term prospects for our business are excellent and
we continue to invest in the plant infrastructure and technical talent to
maximize our opportunities. In the short-term, however, reduced backlog and
shorter lead times resulting from the excess inventory in customer channels have
caused the business to be very dependent on orders that are received and shipped
in the same quarter.
Gross profit for fiscal 1997 as compared to that of fiscal 1996, may be
negatively impacted by approximately 1% to 2% of net sales for fixed costs
associated with our new wafer fabrication plant in Camas, Washington. The
initial equipment there is being tested and manufacturing processes are being
developed with manufacturing production scheduled to begin in the first half of
calendar 1997.
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.
9
Liquidity and Capital Resources
At September 29, 1996, cash and short-term investments totaled $332.4
million, and working capital was $348.3 million.
During the first quarter of fiscal 1997, the Company generated $29.7
million of cash from operating activities. Additionally, the Company generated
$1.6 million from proceeds from common stock issued under employee stock option
and stock purchase plans. The Company paid $11.6 million to purchase and retire
approximately 470,000 shares of its common stock.
The Company purchased $6.1 million of capital assets during the first
quarter of fiscal 1997, including approximately $2.1 million for construction
and equipment for its new wafer fabrication facility in Camas, Washington. The
total spending on this project through September 29, 1996 was approximately $50
million. Manufacturing production is scheduled to begin in the first half of
calendar 1997.
During the first quarter of fiscal 1997, the Company paid its
shareholders a $0.05 per share cash dividend which totaled $3.7 million. In
October 1996, the Company's Board of Directors announced that a quarterly cash
dividend of $0.05 per share will be paid during the second quarter of fiscal
1997. 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 12, 1996 BY /s/Paul Coghlan
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Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
12