FORM 1O-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 26, 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 154,312,237 shares of the Registrant's Common Stock issued and
outstanding as of October 22, 1999.
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 26, 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 months ended September 26, 1999 and
September 27, 1998
Condensed Consolidated Balance Sheets at 3-4
September 26, 1999 and June 27, 1999
Condensed Consolidated Statements of Cash Flows for the 5
three months ended September 26, 1999 and
September 27, 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
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 26, September 27,
1999 1998
----------- ----------
Net sales $147,531 $116,032
Cost of sales 37,969 33,662
-------- --------
Gross profit 109,562 82,370
-------- --------
Expenses:
Research and development 17,885 11,537
Selling, general and administrative 15,515 12,638
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33,400 24,175
-------- --------
Operating income 76,162 58,195
Interest income 8,558 7,072
-------- --------
Income before income taxes 84,720 65,267
Provision for income taxes 26,263 20,885
-------- --------
Net income $ 58,457 $ 44,382
======== ========
Earnings per share:
Basic $ 0.38 $ 0.29
======== ========
Diluted $ 0.36 $ 0.28
======== ========
Weighted average shares outstanding:
Basic 153,959 152,188
======== ========
Diluted 162,370 158,298
======== ========
Cash dividends per share $ 0.04 $ 0.035
======== ========
See accompanying notes
2
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
September 26, June 27,
1999 1999
----------- -----------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 117,822 $ 154,220
Short-term investments 743,309 632,487
Accounts receivable, net of allowance for
doubtful accounts of $803 ($803 at
June 27, 1999) 69,257 62,188
Inventories:
Raw materials 2,961 2,705
Work-in-process 8,658 8,178
Finished goods 4,804 4,641
----------- -----------
Total inventories 16,423 15,524
Deferred tax assets 28,116 28,116
Prepaid expenses and other current assets 11,505 12,577
----------- -----------
Total current assets 986,432 905,112
----------- -----------
Property, plant and equipment, at cost:
Land, buildings and improvements 80,273 78,555
Manufacturing and test equipment 174,756 166,863
Office furniture and equipment 3,238 3,234
----------- -----------
258,267 248,652
Less accumulated depreciation and
amortization (112,776) (106,850)
----------- -----------
Net property, plant and equipment 145,491 141,802
----------- -----------
$ 1,131,923 $ 1,046,914
=========== ===========
<FN>
See accompanying notes
</FN>
3
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands)
September 26, June 27,
1999 1999
----------- ----------
(unaudited) (audited)
Current liabilities:
Accounts payable $ 10,333 $ 7,873
Accrued payroll and related benefits 28,671 33,653
Deferred income on shipments to distributors 39,266 35,464
Income taxes payable 41,771 27,404
Other accrued liabilities 23,073 20,881
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Total current liabilities 143,114 125,275
Deferred tax liabilities 14,845 14,845
Shareholders' equity:
Common stock, no par value, 240,000
shares authorized; 154,232
shares issued and outstanding at
September 26, 1999 (153,731 shares
at June 27, 1999) 326,891 312,027
Retained earnings 647,073 594,767
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Total shareholders' equity 973,964 906,794
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$1,131,923 $1,046,914
========== ==========
<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)
Three Months Ended
------------------
September 26, September 27,
1999 1998
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Cash flow from operating activities:
Net income $ 58,457 $ 44,382
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,926 5,263
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (7,069) 3,145
Decrease (increase) in inventories (899) 462
Decrease (increase) in deferred tax assets/liabilities,
prepaid expenses and other current assets 1,072 2,519
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities 14,037 5,154
Tax benefit from stock option transactions 8,845 2,404
Increase (decrease) in deferred income 3,802 (1,326)
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Cash provided by operating activities 84,171 62,003
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Cash flow from investing activities:
Purchase of short-term investments (189,353) (78,621)
Proceeds from maturities of short-term investments 78,531 113,149
Purchase of property, plant and equipment (9,615) (20,837)
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Cash provided by (used in) investing activities (120,437) 13,691
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Cash flow from financing activities:
Issuance of common stock under employee stock plans 6,019 1,776
Purchase of common stock -- (99,983)
Payment of cash dividends (6,151) (5,379)
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Cash provided by (used in) financing activities (132) (103,586)
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Increase (decrease) in cash and cash equivalents (36,398) (27,892)
Cash and cash equivalents, beginning of period 154,220 128,733
--------- ---------
Cash and cash equivalents, end of period $ 117,822 $ 100,841
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 2,921 $ 1,146
========= =========
<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 26, 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 27, 1999 included in
the Company's Annual Report to Shareholders. The accompanying balance sheet
at June 27, 1999 has been derived from audited financial statements as of
that date. All share and per share information has been adjusted for the
effect of the Company's two-for-one stock split which occurred in February
1999. There were no material differences between comprehensive income and
net income for all periods presented. Because the Company is viewed as a
single operating segment for management purposes, no segment information
has been disclosed.
2. The Company operates on a 52/53 week year ending on the Sunday nearest June
30. Fiscal 2000 will consist of 53 weeks, compared to 52 weeks for fiscal
1999.
3. Basic earnings per share is calculated using the weighted average shares of
common stock outstanding during the period. Diluted earnings per share is
calculated using the weighted average shares of common stock outstanding,
plus the dilutive effect of stock options calculated using the treasury
stock method. The following table sets forth the reconciliation of weighted
average common shares outstanding used in the computation of basic and
diluted earnings per share:
Three Months Ended
-------------------------------
September 26, September 27,
1999 1998
------------- -------------
Denominator for basic earnings
per share -- weighted average
shares outstanding 153,959 152,188
Effect of dilutive securities --
employee stock options 8,411 6,110
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Denominator for diluted
earnings per share 162,370 158,298
======= =======
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 26, 1999 and September 27, 1998 as a percentage of net sales and
provides the percentage change in absolute dollars of such items comparing the
three months ended September 26, 1999 to the corresponding period from the prior
fiscal year:
Three Months Ended
------------------------------------------
September 26, September 27,
1999 1998 Increase
------------- ------------- --------
Net sales 100.0% 100.0% 27%
Cost of sales 25.7 29.0 13
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Gross profit 74.3 71.0 33
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Expenses:
Research & development 12.1 9.9 55
Selling, general & administrative 10.6 10.9 23
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22.7 20.8 38
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Operating income 51.6 50.2 31
Interest income 5.8 6.1 21
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Income before income taxes 57.4% 56.3% 30
===== =====
Effective tax rates 31.0% 32.0%
===== =====
Net sales for the first quarter of fiscal 2000 were $147.5 million and
increased $31.5 million or 27% over net sales of $116.0 million for the first
quarter of fiscal 1999. This increase was due to higher unit shipments, while
the average selling price remained relatively constant. Sales increased in all
geographic areas, excluding Europe, which was relatively flat from year to year.
Sales increased the most in the Rest of the World, which consists primarily of
Asian countries excluding Japan. The significant increase in this area was
primarily due to an improved economic environment in Asia, relative to the
depressed economic conditions in this region in the prior year's quarter.
International sales for the first quarter of fiscal 2000 were 55% of net sales
compared with 52% of net sales in the same period of fiscal 1999. Relative to
end-market applications, sales increased significantly over the prior year's
quarter in each of the Company's three major end markets: communications,
computer and industrial.
Gross profit increased $27.2 million or 33% in the first quarter of
fiscal 2000 over the corresponding quarter in fiscal 1999. Gross profit as a
percentage of net sales improved to 74.3% from 71.0% of net sales. The
improvement in gross profit as a percentage of net sales was primarily due to
the favorable effect of fixed costs allocated across a higher sales base and
improved manufacturing efficiencies and yields achieved at the Company's
fabrication, assembly and test facilities.
Research and development expenses were $17.9 million and increased $6.3
million or 55% for the first quarter of fiscal 2000 over the first quarter of
fiscal 1999. This increase was due to a significant increase in staffing levels
of design and test engineering personnel which resulted in higher compensation
costs, increased profit sharing costs driven by the increases in sales and
profitability, and development costs in new product areas.
Selling, general and administrative expenses were $15.5 million and
increased $2.9 million or 23% for the first quarter of fiscal 2000 over the
first quarter of fiscal 1999. This increase was due primarily to an increase in
staffing levels to support the increased sales volume, higher profit sharing
costs and higher external commissions resulting from the increase in sales.
7
Interest income increased $1.5 million to $8.6 million for the first
quarter of fiscal 2000 compared to $7.1 million for the first quarter of fiscal
1999. The increase in interest income resulted from the increase in cash, cash
equivalents and short-term investments over this period, partially offset both
by the repurchase of common stock in the first quarter of fiscal 1999 and by a
decline in the average rate of return due to lower short-term interest rates.
The Company's effective tax rate for the first quarter of fiscal 2000
was 31.0%, down from 32.0% in the first quarter of fiscal 1999. The lower tax
rate is due primarily to increased business activity in foreign jurisdictions
and an increase in assets deployed outside of California in jurisdictions where
the Company experiences lower tax rates. Although the Company's tax holiday in
Singapore expired in September 1999, it is anticipated that the Company will
receive at least a partial rate reduction for its Singapore operations going
forward.
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 financial markets 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 four consecutive strong bookings quarters both in
the magnitude of bookings and in their breadth across end-market applications
and geographic regions. Management believes that the recent strength in bookings
has resulted from the improvement in worldwide economic conditions since the
first quarter of fiscal 1999, as well as the strength of the Company's product
offerings. The Company's 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
and the acceptance of new products at customers, the Company currently expects
to grow sales in the near-term in the mid single digit range sequentially over
the quarter just reported. The Company expects that its profitability as a
percentage of sales will be generally unchanged during this period.
Estimates of future performance are uncertain, and 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, periodic
oversupply conditions, 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. Furthermore, stocks of high technology
companies are subject to extreme price and volume fluctuations that are often
unrelated or disproportionate to the operating performance of these companies.
Liquidity and Capital Resources
At September 26, 1999 cash, cash equivalents and short-term investments
totaled $861.1 million, and working capital was $843.3 million.
During the first quarter of fiscal 2000, the Company generated $84.2
million of cash from operating activities and $6.0 million from proceeds from
common stock issued under the Company's employee stock plans. Capital
expenditures during the quarter totaled $9.6 million, and consisted primarily of
manufacturing equipment for the Company's fabrication, assembly and test
facilities. The Company also paid $6.2 million to shareholders
8
for cash dividends representing $0.04 per share. The payment of future dividends
will be based on quarterly financial performance.
The Company plans to finish building a new fabrication facility in
Milpitas, California in fiscal 2000. As a result, total capital expenditures for
the year are expected to increase significantly over fiscal 1999 levels,
particularly towards the end of fiscal 2000. This new facility is not expected
to be operational until fiscal 2001.
The Company continues to satisfy its liquidity needs through its
existing cash and investment balances and cash generated from operations. 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 expenditure 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 calendar year 2000. As of the date of this
filing, the Company has substantially completed its Year 2000 Readiness Program,
and senior management continues to review progress of the remaining action items
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 the
remaining 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
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 5, 1999 BY /s/Paul Coghlan
-----------------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
11