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 28, 1997
[ ] 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
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There were 76,579,445 shares of the Registrant's Common Stock issued
and outstanding as of October 24, 1997.
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 28, 1997
INDEX
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Page
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Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the 2
three months ended September 28, 1997 and
September 29, 1996
Condensed Consolidated Balance Sheets at 3-4
September 28, 1997 and June 29, 1997
Condensed Consolidated Statements of Cash Flows for the 5
three months ended September 28, 1997 and
September 29, 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7-9
Condition and Results of Operations
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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
-----------------------------------------------
September 28, September 29,
1997 1996
------------------- ------------------
Net sales $ 109,802 $ 90,063
Cost of sales 31,384 25,779
--------- ---------
Gross profit 78,418 64,284
--------- ---------
Expenses:
Research and development 10,618 8,186
Selling, general and administrative 12,161 12,071
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22,779 20,257
--------- ---------
Operating income 55,639 44,027
Interest income 5,296 3,700
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Income before income taxes 60,935 47,727
Provision for income taxes 20,292 16,369
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Net income $ 40,643 $ 31,358
========= =========
Net income per share $ 0.51 $ 0.40
========= =========
Cash dividends declared per share $ 0.06 $ 0.05
========= =========
Shares used in the calculation of net
income per share 80,070 77,595
========= =========
<FN>
See accompanying notes
</FN>
2
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
September 28, June 29,
1997 1997
------------------- ---------------
(unaudited)
Current assets:
Cash and cash equivalents $ 54,207 $ 50,114
Short-term investments 451,777 393,325
Accounts receivable, net of allowance for
doubtful accounts of $806 ($803 at
June 29, 1997) 58,104 64,836
Inventories:
Raw materials 4,149 4,001
Work-in-process 5,320 4,820
Finished goods 4,117 3,364
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Total inventories 13,586 12,185
Deferred tax assets 30,698 30,698
Prepaid expenses and other current assets 6,766 8,128
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Total current assets 615,138 559,286
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Property, plant and equipment, at cost:
Land, building and improvements 53,330 53,312
Manufacturing and test equipment 136,530 130,175
Office furniture and equipment 2,727 2,707
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192,587 186,194
Less accumulated depreciation and
amortization (70,524) (65,847)
--------- ---------
Net property, plant and equipment 122,063 120,347
--------- ---------
$ 737,201 $ 679,633
========= =========
<FN>
See accompanying notes
</FN>
3
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands)
September 28, June 29,
1997 1997
-------------------- ----------------
(unaudited)
Current liabilities:
Accounts payable $ 8,324 $ 7,872
Accrued payroll and related benefits 17,681 21,423
Deferred income on shipments to distributors 28,830 29,986
Income taxes payable 26,319 16,124
Other accrued liabilities 13,377 13,581
--------- ---------
Total current liabilities 94,531 88,986
Deferred tax liabilities 1,596 1,596
Shareholders' equity:
Common stock, no par value, 120,000
shares authorized; 76,489
shares issued and outstanding at
September 28, 1997 (75,956 shares
at June 29, 1997) 188,357 172,403
Retained earnings 452,717 416,648
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Total shareholders' equity 641,074 589,051
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$ 737,201 $ 679,633
========= =========
<FN>
See accompanying notes
</FN>
4
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
Three Months Ended
--------------------------------------
September 28, September 29,
1997 1996
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Cash flow from operating activities:
Net income $ 40,643 $ 31,358
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,732 2,826
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 6,732 (4,866)
Decrease (increase) in inventories (1,401) 290
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets 1,362 829
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities 6,701 (2,331)
Tax benefit from stock option transactions 9,898 1,425
Increase (decrease) in deferred income (1,156) 143
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Cash provided by operating activities 67,511 29,674
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Cash flow from investing activities:
Purchase of short-term investments (135,455) (57,361)
Proceeds from maturities of short-term investments 77,003 54,109
Purchase of property, plant and equipment (6,448) (6,053)
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Cash used in investing activities (64,900) (9,305)
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Cash flow from financing activities:
Issuance of common stock under employee stock plans 6,056 1,591
Purchase of common stock -- (11,598)
Payment of cash dividends (4,574) (3,710)
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Cash provided by (used in) financing activities 1,482 (13,717)
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Increase in cash and cash equivalents 4,093 6,652
Cash and cash equivalents, beginning of period 50,114 54,393
-------- --------
Cash and cash equivalents, end of period $ 54,207 $ 61,045
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 53 $ 1,163
========= ========
<FN>
See accompanying notes
</FN>
5
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 28, 1997 are not necessarily an indication of results to be
expected for the entire fiscal year. All information reported in this Form
10-Q should be read in conjunction with the Company's annual consolidated
financial statements for the fiscal year ended June 29, 1997 included in
the Company's Annual Report to Shareholders. The accompanying balance sheet
at June 29, 1997 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 1998 and 1997 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 February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share ("FAS 128"), which is required to be adopted by
the Company in its fiscal quarter ending December 28, 1997. At that time,
the Company will be required to change the method currently used to compute
earnings per share and to restate prior periods. Under the requirements of
FAS 128, basic earnings per share will replace primary earnings per share
and the dilutive effect of stock options will be excluded in its
calculation. Upon adoption of FAS 128, the Company's basic earnings per
share for the first quarter ended September 28, 1997 and September 29, 1996
is expected to be $0.53 and $0.42, respectively. Under FAS 128, diluted
earnings per share, which will include the dilutive effect of stock
options, is expected to remain at $0.51 and $0.40 per share for the first
quarter ended September 28, 1997 and September 29, 1996, respectively.
6
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 28, 1997 and September 29, 1996 as a percentage of net sales and
provides the percentage change in absolute dollars of such items comparing the
three months ended September 28, 1997 to the corresponding period from the prior
fiscal year:
Three Months Ended
-------------------------------------------------------------
September 28, September 29,
1997 1996 Increase
-------------------- ------------------- -------------
Net sales 100.0% 100.0% 22%
Cost of sales 28.6 28.6 22
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Gross profit 71.4 71.4 22
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Expenses:
Research & development 9.6 9.1 30
Selling, general & administrative 11.1 13.4 1
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20.7 22.5 12
------ ------
Operating income 50.7 48.9 26
Interest income 4.8 4.1 43
------ ------
Income before income taxes 55.5% 53.0% 28
====== ======
Effective tax rates 33.3% 34.3%
====== ======
Net sales for the first quarter of fiscal 1998 were a record $109.8
million and increased $19.7 million or 22% over net sales for the first quarter
of fiscal 1997. This increase was due primarily to higher unit shipments while
the average selling price was slightly lower for the first quarter of fiscal
1998. Geographically, sales were up equitably in both the domestic and
international markets. International sales for the first quarter of fiscal 1998
remained 49% of net sales, consistent with the prior year's quarter and sales
increased in each of the Company's major international markets. Relative to
end-market applications, all of the sales growth over the prior year's quarter
was in the communications and computer area whereas the industrial and military
markets were relatively flat, although industrial remains the largest single end
market.
Gross profit increased $14.1 million or 22% in the first quarter of
fiscal 1998 over the corresponding quarter in fiscal 1997. Gross profit as a
percentage of net sales remained constant at 71.4% of net sales. The effects of
a slightly lower average selling price and higher manufacturing costs resulting
from the Company's new wafer fabrication facility in Camas, Washington were
offset by certain manufacturing efficiencies achieved at the Company's other
fabrication and test facilities and higher absorbed costs over the larger sales
base.
Research and development expenses increased by $2.4 million or 30% for
the first quarter of fiscal 1998 over the first quarter of fiscal 1997. This
increase was due primarily to an increase in staffing and compensation of design
and process engineering personnel, and to a lesser extent, spending for
development mask sets. In January, 1997 the Company opened a new design center
in Colorado Springs, Colorado.
Selling, general and administrative expenses were $12.2 million in the
first quarter of fiscal 1998, relatively constant as compared with the prior
year period but down to 11.1% of net sales from 13.4% of net sales in the
previous year's quarter. Lower legal and sales related expenses offset slightly
higher labor costs and higher commissions on the increased sales volumes.
7
Interest income increased $1.6 million to $5.3 million for the first
quarter of fiscal 1998 compared to $3.7 million for the first quarter of fiscal
1997. The increase in interest income resulted primarily from the significant
increase in cash, cash equivalents and short-term investments over this period.
The Company's effective tax rate for the first quarter of fiscal 1998
was 33.3%, down from 34.3% in the first quarter of fiscal 1997. The lower tax
rate is due to higher planned business activity in foreign jurisdictions and an
increase in assets employed outside of California into states where the Company
experiences lower tax rates.
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.
Management of the Company believes the long-term prospects for the
business are excellent and continues to invest in the plant infrastructure and
technical talent to maximize its opportunities. In the short-term, the Company'
first quarter of fiscal 1998 was its third consecutive quarter of quarterly
sequential sales growth after experiencing three quarters of generally flat
sales during the 1996 calendar year. During the first quarter of fiscal 1998,
customer orders continued to be strong. The increase in orders is diversified
across end markets, customers and geographic regions and, should it continue,
the Company expects to grow sales moderately over the near term.
The Company continues to ramp-up production volumes in its new wafer
fabrication facility in Camas, Washington. Certain fixed and variable costs
associated with the ramp-up of production volumes are not expected to be fully
absorbed until higher production volumes are achieved during the second half of
fiscal 1998. As in the Company's first quarter of fiscal 1998, the Company
expects that certain manufacturing efficiencies and other cost savings will be
achieved to offset any further negative impact on cost of goods sold and gross
margin resulting from the ramp-up of Camas production volumes. However, there
can be no assurance that such cost savings will be achieved or that other
factors will not arise that will adversely affect gross margin.
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, variations 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 September 28, 1997 cash, cash equivalents and short-term investments
totaled $506.0 million, and working capital was $520.6 million.
During the first quarter of fiscal 1998, the Company generated $67.5
million of cash from operating activities. Additionally, the Company generated
$6.1 million from proceeds from common stock issued under employee stock option
and stock purchase plans. Significant cash expenditures included net purchases
of short-term investments of $58.5 million and $6.4 million for the purchase of
capital assets, primarily manufacturing equipment for the Company's fabrication
facilities in Camas, Washington and Penang, Malaysia. The Company also paid $4.6
million for cash dividends to shareholders representing $0.06 per share. In
October 1997, the Company's Board of Directors announced that a quarterly cash
dividend of $0.06 per share will be paid during the second quarter of fiscal
1998. The payment of future dividends will be based on quarterly financial
performance.
8
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 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.
9
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
10
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 11, 1997 BY /s/Paul Coghlan
-------------------------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
11