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 March 28, 1999
[ ] 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
of 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 153,046,612 shares of the Registrant's Common Stock issued and
outstanding as of March 28, 1999.
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED MARCH 28, 1999
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 and nine months ended March 28, 1999 and
March 29, 1998
Condensed Consolidated Balance Sheets at March 28, 1999 3-4
and June 28, 1998
Condensed Consolidated Statements of Cash Flows for the 5
nine months ended March 28, 1999 and March 29, 1998
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 Nine Months Ended
------------------ -----------------
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net sales $ 130,093 $ 125,982 $ 366,145 $ 352,788
Cost of sales 35,643 35,924 103,334 100,954
----------- ----------- ----------- -----------
Gross profit 94,450 90,058 262,811 251,834
----------- ----------- ----------- -----------
Expenses:
Research and development 14,544 11,973 38,704 33,368
Selling, general and administrative 13,387 13,401 38,430 38,468
----------- ----------- ----------- -----------
27,931 25,374 77,134 71,836
----------- ----------- ----------- -----------
Operating income 66,519 64,684 185,677 179,998
Interest income 6,758 6,043 20,373 17,004
----------- ----------- ----------- -----------
Income before income taxes 73,277 70,727 206,050 197,002
Provision for income taxes 23,449 23,553 65,936 65,603
----------- ----------- ----------- -----------
Net income $ 49,828 $ 47,174 $ 140,114 $ 131,399
=========== =========== =========== ===========
Basic earnings per share $ 0.33 $ 0.31 $ 0.92 $ 0.86
=========== =========== =========== ===========
Shares used in the calculation
of basic earnings per share 152,029 152,260 151,537 152,382
=========== =========== =========== ===========
Diluted earnings per share $ 0.31 $ 0.30 $ 0.89 $ 0.82
=========== =========== =========== ===========
Shares used in the calculation of diluted
earnings per share 159,197 159,322 158,102 159,720
=========== =========== =========== ===========
Cash dividends declared per share $ 0.035 $ 0.03 $ 0.105 $ 0.09
=========== =========== =========== ===========
<FN>
See accompanying notes
</FN>
2
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
March 28, June 28,
1999 1998
------------------ ----------------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 103,911 $ 128,733
Short-term investments 591,381 509,160
Accounts receivable, net of allowance for
doubtful accounts of $803 ($803 at
June 28, 1998) 64,833 68,539
Inventories:
Raw materials 3,396 4,726
Work-in-process 8,027 6,502
Finished goods 4,352 4,892
------------ ------------
Total inventories 15,775 16,120
Deferred tax assets 35,817 35,817
Prepaid expenses and other current assets 8,337 9,807
------------ ------------
Total current assets 820,054 768,176
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Property, plant and equipment, at cost:
Land, building and improvements 78,417 54,893
Manufacturing and test equipment 160,578 151,484
Office furniture and equipment 3,200 3,147
------------ ------------
242,195 209,524
Less accumulated depreciation and
amortization (100,998) (84,878)
------------ -----------
Net property, plant and equipment 141,197 124,646
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$ 961,251 $ 892,822
========= =========
<FN>
See accompanying notes
</FN>
3
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands)
March 28, June 28,
1999 1998
----------- ------------
(unaudited) (audited)
Current liabilities:
Accounts payable $ 10,343 $ 8,241
Accrued payroll and related benefits 21,745 32,130
Deferred income on shipments to distributors 33,089 33,377
Income taxes payable 21,114 32,749
Other accrued liabilities 21,018 16,529
----------- ------------
Total current liabilities 107,309 123,026
Deferred tax liabilities 13,882 13,883
Shareholders' equity:
Common stock, no par value, 240,000
shares authorized; 153,047
shares issued and outstanding at
March 28, 1999 (153,646 shares
at June 28, 1998) 293,347 230,655
Retained earnings 546,713 525,258
----------- ------------
Total shareholders' equity 840,060 755,913
----------- ------------
$ 961,251 $ 892,822
=========== ============
<FN>
See accompanying notes
</FN>
4
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
Nine Months Ended
---------------------------------------------
March 28, March 29,
1999 1998
--------------------- -------------------
Cash flow from operating activities:
Net income $ 140,114 $ 131,399
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,120 14,799
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 3,706 (2,247)
Decrease (increase) in inventories 345 (2,810)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets 1,470 4,716
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities (15,429) 14,916
Tax benefit from stock option transactions 39,389 27,778
Increase (decrease) in deferred income (288) 4,239
Increase (decrease) in deferred tax liabilities (1) 660
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Cash provided by operating activities 185,426 193,450
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Cash flow from investing activities:
Purchase of short-term investments (406,455) (338,480)
Proceeds from sales and maturities of short-term
investments 324,234 281,932
Purchase of property, plant and equipment (32,671) (20,439)
--------- ---------
Cash used in investing activities (114,892) (76,987)
--------- ---------
Cash flow from financing activities:
Issuance of common stock under employee stock plans 29,340 20,955
Purchase of common stock (108,736) (56,445)
Payment of cash dividends (15,960) (13,717)
--------- ---------
Cash used in financing activities (95,356) (49,207)
--------- ---------
Increase (decrease) in cash and cash equivalents (24,822) 67,256
Cash and cash equivalents, beginning of period 128,733 50,114
--------- ---------
Cash and cash equivalents, end of period $103,911 $117,370
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 32,973 $ 25,066
========= =========
<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 and
nine months ended March 28, 1999 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 28, 1998
included in the Company's Annual Report to Shareholders. The accompanying
balance sheet at June 28, 1998 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 1999 and 1998 each have 52 weeks.
3. During the first quarter of fiscal 1999 the Company adopted Statement on
Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
("FAS 130"). FAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. Components of comprehensive income
include shareholders' equity. FAS 130 requires that these transactions be
included with net income and presented separately as comprehensive income
in the financial statements. The adoption of this Statement had no impact
on the Company's net income or shareholders' equity and, during the periods
presented, the Company had no material transactions other than net income
that should be reported as comprehensive income.
4. The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
--------------------------------------- ---------------------------------------
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
Numerator -- Net income $ 49,828 $ 47,174 $ 140,114 $ 131,399
----------- ---------- ---------- -----------
Denominator for basic earnings
per share -- weighted average
shares 152,029 152,260 151,537 152,382
Effect of dilutive securities --
employee stock options 7,168 7,062 6,565 7,338
----------- ---------- ---------- -----------
Denominator for diluted
earnings per share 159,197 159,322 158,102 159,720
----------- ---------- ---------- -----------
Basic earnings per share $ 0.33 $ 0.31 $ 0.92 $ 0.86
=========== ========== ========== ===========
Diluted earnings per share $ 0.31 $ 0.30 $ 0.89 $ 0.82
=========== ========== ========== ===========
5. In June 1997, the Financial Accounting Standards Board ("FASB") issued FAS
131, Disclosures About Segments of an Enterprise and Related Information.
This statement replaces Statement Number 14 and changes the way public
companies report segment information. This statement is effective for
fiscal years beginning after December 15, 1997 and will be adopted by the
Company for the fiscal year ending June 27, 1999.
6. In January 1999, the Company's Board of Directors declared a two-for-one
split of the Company's common stock, effective February 19, 1999, for
shareholders of record as of January 29, 1999. All share and per share
information for the current year and prior year periods are presented on a
post-split basis.
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 and
nine months ended March 28, 1999 and March 29, 1998 as a percentage of net sales
and provides the percentage change in absolute dollars of such items comparing
the interim periods ended March 28, 1999 to the corresponding periods from the
prior fiscal year:
Three Months Ended Nine Months Ended
--------------------------------------------------- -------------------------------------------
March 28, March 29, Increase/ March 28, March 29, Increase/
1999 1998 (Decrease) 1999 1998 (Decrease)
Net sales 100.0% 100.0% 3% 100.0% 100.0% 4%
Cost of sales 27.4 28.5 (1) 28.2 28.6 2
----- ------ ------ ------
Gross profit 72.6 71.5 5 71.8 71.4 4
----- ------ ------ ------
Expenses:
Research & development 11.2 9.5 21 10.6 9.5 16
Selling, general &
administrative 10.3 10.7 --- 10.5 10.9 ---
----- ------ ------ ------
21.5 20.2 10 21.1 20.4 7
----- ------ ------ ------
Operating income 51.1 51.3 3 50.7 51.0 3
Interest income 5.2 4.8 12 5.6 4.8 20
----- ------ ------ ------
Income before income taxes 56.3% 56.1% 4 56.3% 55.8% 5
===== ====== ====== ======
Effective tax rates 32.0% 33.3% 32.0% 33.3%
===== ====== ====== ======
Net sales for the third quarter ended March 28, 1999 were a record
$130.1 million, an increase of $4.1 million or 3% over net sales for the same
quarter of the previous year. This increase was due primarily to higher unit
shipments since the average selling price was down modestly from the prior year
quarter. Geographically, sales were up internationally. Last year at this time
Asia was experiencing economic and financial difficulties which had an impact on
our business particularly in Japan and Korea, whereas this year our sales in
both of those countries have improved. Sales in Europe were down slightly for
the quarter. Domestically, sales were down modestly, predominantly in the OEM
area although sales in OEM escalated monthly throughout the quarter. Domestic
sales represented 45% and International represented 55% of net sales for the
quarter with Europe at 24%, Japan at 12% and Rest of World (primarily rest of
Asia) at 19% of net sales. The Company's major end-markets are communication,
computer and industrial. Sales into the communications end-market increased
whereas sales into the other areas were relatively unchanged.
Net sales for the nine months ended March 28, 1999 increased $13.4
million or 4% over net sales for the same period of the previous year. This
increase was due primarily to higher unit shipments while the average selling
price was slightly lower. Geographically the increase occurred internationally
with the largest increases occurring in Asia, excluding Japan.
Gross profit increased $4.4 million or 5% and $11.0 million or 4% for
the third quarter and first nine months of fiscal 1999 over the corresponding
periods in fiscal 1998. Gross profit as a percent of net sales increased over
these periods primarily due to the favorable effect of fixed costs allocated
across a higher sales base and slightly better manufacturing efficiencies and
yields achieved at the Company's fabrication, assembly and test facilities.
These improvements were partially offset by a modest reduction in average
selling price.
Research and development expenses increased by $2.6 million or 21% and
$5.3 million or 16% for the third quarter and first nine months of fiscal 1999,
respectively, as compared to the same periods in fiscal 1998. These increases
were due both to an increase in staffing of design and test engineering
personnel resulting in higher compensation costs and to development costs in new
product areas.
7
Selling, general and administrative expenses ("SG&A") were basically
flat for the third quarter and first nine months of fiscal 1999, respectively,
as compared to the same periods of fiscal 1998. Staffing increases, primarily in
Sales, resulted from the Company's move towards a direct sales force in certain
domestic regions. The staffing increases resulted in higher compensation costs,
which were offset by lower external commissions.
Interest income was $6.8 million and $20.4 million for the third
quarter and first nine months of fiscal 1999, an increase of $0.7 million and
$3.4 million respectively, over the corresponding periods of fiscal 1998. The
increases in interest income for these periods resulted primarily from the
increase in cash, cash equivalents and short-term investments, partially offset
by lower rates of return.
The Company's effective tax rate for the third quarter and the first
nine months of fiscal 1999 was 32.0%, down from 33.3% in fiscal 1998. The lower
tax rate is due to higher business activity in foreign jurisdictions and an
increase in assets employed outside of California in 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, the timely introduction of new processes and products, general
conditions in the world economy and the markets for the Company's goods, and
other factors described below.
Management of the Company believes the long-term prospects for the
business are excellent and the Company continues to invest in the plant
infrastructure and technical talent to maximize its opportunities. In the
short-term the Company has had two strong bookings quarters both in the
magnitudes of bookings and in their breadth across end-market applications and
geographic regions. Also, worldwide economic conditions have been improving and
global financial markets have been more positive. Our lead times continue to be
low and customers, although generally positive in their business outlook,
continue to order to meet immediate business needs and do not appear to be
building inventories. Consequently, the Company continues to be dependent on
orders that book and ship in the same quarter, although to a slightly lesser
extent than previous quarters. In summary, given the acceleration of bookings
throughout last quarter, the acceptance of new products at customers, and
improvement in Japan, the Company currently expects to grow sales in the
near-term in the mid-to-high single digit range sequentially over the quarter
just reported. The Company also expects that its profitability as a percentage
of sales will be maintained during this period.
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, occasional
oversupply and over capacity, 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 March 28, 1999, cash, cash equivalents and short-term investments
totaled $695.3 million, and working capital was $712.7 million.
8
During the first nine months of fiscal 1999, the Company generated
$185.4 million of cash from operating activities. Additionally, the Company
generated $29.3 million in proceeds from common stock issued under employee
stock option and stock purchase plans.
During the first nine months of fiscal 1999, significant cash
expenditures included net purchases of short-term investments of $82.2 million
and $32.7 million for the purchase of capital assets, primarily manufacturing
equipment for the Company's fabrication, assembly and test facilities. The
Company also paid $16.0 million for cash dividends to shareholders representing
$0.035 per share per quarter. In April 1999, the Company's Board of Directors
declared an increase in the quarterly cash dividend to $0.04 per share to be
paid during the fourth quarter of fiscal 1999. 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 and the placement of equity securities. 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.
Year 2000 Readiness Disclosure
The Company's Year 2000 Readiness Program remains on plan and at this
time the Company does not foresee any problems which would hinder its ability to
service customers and vendors in the year 2000. The Company's goal to be Year
2000 ready is targeted for June 27, 1999, the end of the Company's fiscal year.
Senior management continues to review progress of the program at least monthly.
The Company estimates the cost of implementation for Year 2000
compliance of its internal computer systems to be under $1.5 million, and
consequently, will not have a material impact on the Company's financial
position or results of operations. However, Year 2000 issues could have a
significant impact on the Company's operations and its financial results if
modifications to internal systems and equipment cannot be completed on a timely
basis; unforeseen needs or problems arise, or if the systems operated by third
parties are not year 2000 compliant. Should any of these unforeseen events
occur, the Company will attempt to mitigate their adverse impacts. The Company
is currently reviewing contingency plans including, but not limited to, manual
back-up systems for current automated internal systems and alternate suppliers,
where available, for external systems and services.
9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule for the nine months ended
March 28, 1999
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: May 10, 1999 BY /s/Paul Coghlan
----------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
11