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 APRIL 2, 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
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2778785
---------------------------- -------------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
1630 MCCARTHY BLVD.
MILPITAS, CALIFORNIA 95035-7487
(408) 432-1900
----------------------------------------------------------------------
(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 36,687,021 shares of the Registrant's Common Stock issued and
outstanding as of April 28, 1995.
<PAGE>
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED APRIL 2, 1995
INDEX
Page
----
Part I: Financial Information
Item 1. Financial Statements
Consolidated Statement of Income for the 2
three and nine months ended April 2, 1995
and April 3, 1994
Consolidated Balance Sheet at April 2, 1995 3-4
and July 3, 1994
Consolidated Statement of Cash Flows for the 5-6
nine months ended April 2, 1995 and
April 3, 1994
Notes to consolidated financial statements 7
Item 2. Management's discussion and analysis of 8-10
financial condition and results of operations
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
--------------------- ---------------------
April 2, April 3, April 2, April 3,
1995 1994 1995 1994
--------- --------- --------- ---------
Net sales ...................... $ 68,135 $ 51,667 $ 188,320 $ 144,734
Cost of sales .................. 21,152 16,832 59,765 49,740
--------- --------- --------- ---------
Gross profit ................. 46,983 34,835 128,555 94,994
--------- --------- --------- ---------
Expenses:
Research & development ....... 6,281 4,671 17,403 13,334
Selling, general and
administrative ............... 9,907 8,178 27,560 23,835
--------- --------- --------- ---------
16,188 12,849 44,963 37,169
--------- --------- --------- ---------
Operating income ............... 30,795 21,986 83,592 57,825
Interest income ................ 2,243 1,175 5,741 3,246
--------- --------- --------- ---------
Income before income
taxes ........................ 33,038 23,161 89,333 61,071
Provision for income
taxes ........................ 11,233 7,944 30,454 20,947
--------- --------- --------- ---------
Net income ..................... $ 21,805 $ 15,217 $ 58,879 $ 40,124
========= ========= ========= =========
Net income per share ........... $ 0.57 $ 0.40 $ 1.55 $ 1.07
========= ========= ========= =========
Shares used in the
calculation of net
income per share ............. 38,255 37,841 38,051 37,576
========= ========= ========= =========
See accompanying notes
2
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(In thousands)
April 2, July 3,
1995 1994
--------- ---------
(unaudited)
Current assets:
Cash and cash equivalents ........................ $ 64,681 $ 39,950
Short-term investments ........................... 156,600 136,851
Accounts receivable, net of allowance for
doubtful accounts of $595 ($550 at July 3,
1994) .......................................... 31,100 26,517
Inventories:
Raw materials .................................. 1,209 1,315
Work in process ................................ 5,059 6,233
Finished goods ................................. 2,513 2,468
--------- ---------
Total inventories ............................ 8,781 10,016
Deferred tax assets ............................... 17,816 14,691
Prepaid expenses and other current assets ......... 3,795 3,101
--------- ---------
Total current assets ......................... 282,773 231,126
--------- ---------
Property, plant and equipment, at cost:
Land, building and improvements .................. 25,450 21,530
Manufacturing and test equipment ................. 60,930 50,532
Office furniture and equipment ................... 2,243 1,952
--------- ---------
88,623 74,014
Less accumulated depreciation and
amortization ................................... (40,975) (36,741)
--------- ---------
Net property, plant and equipment ................ 47,648 37,273
--------- ---------
$ 330,421 $ 268,399
========= =========
See accompanying notes
3
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
April 2, July 3,
1995 1994
--------- ---------
(unaudited)
Current liabilities:
Accounts payable ................................. $ 5,477 $ 5,255
Accrued payroll and related benefits ............. 10,074 11,202
Deferred income on shipments to distributors ..... 16,955 12,165
Income taxes payable ............................. 7,899 8,027
Other accrued liabilities ........................ 6,595 6,272
--------- ---------
Total current liabilities ...................... 47,000 42,921
Deferred tax liabilities ........................... 2,803 2,003
Shareholders' equity:
Common stock, no par value,
60,000,000 shares authorized;
36,644,181 shares issued
and outstanding at April 2,
1995 (36,308,413 shares
at July 3, 1994) ............................... 96,275 84,979
Retained earnings ................................ 184,343 138,496
--------- ---------
Total shareholders' equity ..................... 280,618 223,475
--------- ---------
$ 330,421 $ 268,399
========= =========
See accompanying notes
4
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
----------------------
April 2, April 3,
1995 1994
--------- ---------
Cash flow from operating activities:
Net income ......................................... $ 58,879 $ 40,124
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 5,708 4,650
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ..... (4,583) (4,650)
Decrease (increase) in inventories ............. 1,235 (1,263)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets .... (3,819) (771)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities .................... (711) 282
Increase (decrease) in deferred income ......... 4,790 3,335
Increase (decrease) in deferred tax
liabilities .................................. 800 (384)
--------- ---------
Cash provided by operating activities ............ 62,299 41,323
--------- ---------
Cash flow from investing activities:
Purchases of short-term investments ................ (91,113) (97,614)
Proceeds from sales and maturities of
short-term investments ........................... 71,364 62,515
Purchase of property, plant and equipment .......... (16,083) (12,734)
--------- ---------
Cash used in investing activities ................ (35,832) (47,833)
--------- ---------
Cash flow from financing activities:
Issuance of common stock under employee
stock plans ...................................... 5,645 4,351
Tax benefit from stock option transactions ......... 6,025 5,500
Purchase of common stock ........................... (6,139) (526)
Payment of cash dividends .......................... (7,267) (6,094)
--------- ---------
Cash provided by (used in) financing
activities ..................................... (1,736) 3,231
--------- ---------
Increase (decrease) in cash and cash equivalents ..... 24,731 (3,279)
Cash and cash equivalents,
beginning of period ................................ 39,950 24,881
--------- ---------
Cash and cash equivalents,
end of period ...................................... $ 64,681 $ 21,602
========= =========
See accompanying notes
5
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
-------------------------
April 2, April 3,
1995 1994
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes ........ $26,882 $16,987
See accompanying notes
6
<PAGE>
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 and nine months ended April 2, 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 3, 1994, 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 year 1995 will have 52 weeks, while fiscal year 1994
had 53 weeks, with 14 weeks during the quarter ended January 2, 1994.
3. Net income per share is based upon the weighted average number of
shares of common stock outstanding and common equivalents, if dilutive.
4. Effective the beginning of fiscal 1995, the Company adopted Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with the
Statement, prior period financial statements have not been restated to
reflect the change in accounting principle. The cumulative effect of
adopting the Statement was not material to the Company's shareholders'
equity.
The Company determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as
of each balance sheet date. Debt securities are classified as
available-for-sale securities and are carried at amortized cost. Should
fair value be materially different than cost, debt securities would be
adjusted to fair value with unrealized gains and losses, net of tax,
reported in shareholders' equity.
5. On November 2, 1994, the shareholders approved an amendment to the 1988
Incentive Stock Option Plan increasing the number of shares reserved
for issuance under the plan by two million to a total of eight million.
7
<PAGE>
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 April 2, 1995 and April 3, 1994 as a percentage of net sales
and provides the percentage increase in absolute dollars of such items comparing
the interim periods ended April 2, 1995 to the corresponding periods from the
prior fiscal year:
Three Months Ended Nine Months Ended
---------------------------- -------------------------
Dollar Dollar
Apr. 2, Apr. 3, Increase Apr. 2, Apr. 3, Increase
1995 1994 Percentage 1995 1994 Percentage
------- ------- ---------- ------- ------- ----------
Net sales ...............100.0% 100.0% 32% 100.0% 100.0% 30%
Cost of sales ............31.0 32.6 26 31.7 34.4 20
----- ----- ----- -----
Gross profit ...........69.0 67.4 35 68.3 65.6 35
----- ----- ----- -----
Expenses:
Research & development . 9.2 9.0 34 9.3 9.2 31
Selling, general &
administrative .........14.6 15.8 21 14.6 16.5 16
----- ----- ----- -----
23.8 24.8 26 23.9 25.7 21
----- ----- ----- -----
Operating income .........45.2 42.6 40 44.4 39.9 45
Interest income, net ..... 3.3 2.2 91 3.0 2.3 77
----- ----- ----- -----
Income before income
taxes ...................48.5% 44.8% 43 47.4% 42.2% 46
===== ===== ===== =====
Effective tax rates ......34.0% 34.3% 34.1% 34.3%
===== ===== ===== =====
Net sales for the third quarter and first nine months of fiscal 1995
increased 32% and 30%, respectively, over the corresponding periods of fiscal
1994. For both the third quarter and the first nine months of fiscal 1995, net
sales increased over comparable periods in the prior fiscal year due to higher
unit sales, as the average selling price increased only slightly. Each of the
Company's major geographic markets showed increases in net sales for the third
quarter and first nine months of fiscal 1995 as compared to the corresponding
periods in the prior fiscal year. In absolute dollars, sales grew the most in
the United States, whereas, as a percentage of total sales, sales grew the most
in the Japan and Asia/Pacific areas.
Gross profit increased by $12.1 million and $33.6 million for the third
quarter and nine months periods, respectively, as compared with the previous
year. As a percentage of net sales, gross profit increased due primarily to
8
<PAGE>
Results of Operations, continued:
the absorption of fixed costs over the increased sales volume and the cost
savings from the Company's Singapore test manufacturing operations, where the
majority of incremental sales units have been tested. Start-up costs for the
Company's new facilities in Singapore and Malaysia had a minor adverse impact on
gross margin for the third quarter and first nine months of fiscal 1995, but
this impact was more than offset by the cost savings mentioned above.
Research and development expenses increased by $1.6 million and $4.1
million for the third quarter and first nine months of fiscal 1995,
respectively, as compared to the same periods in fiscal 1994 due primarily to
increased staffing of and compensation paid to design engineering professionals
and increased mask sets and prototype wafer expenses.
Selling, general and administrative expenses were 14.6% of net sales
for both the third quarter and first nine months of fiscal 1995 as compared to
15.8% and 16.5% for the third quarter and first nine months of fiscal 1994,
respectively. For the third quarter of fiscal 1995, selling, general and
administrative expenses as a percentage of net sales declined as compared to the
percentage for the third quarter of fiscal 1994 due primarily to proportionally
lower labor costs, as the rate of increase in selling, general and
administrative staff was lower than the rate of sales growth. Partially
offsetting the proportional decline in labor costs were proportional increases
in advertising and promotion expense and legal expense as a percentage of net
sales.
For the first nine months of fiscal 1995, selling, general and
administrative expense as a percentage of net sales declined as compared to the
percentage for the same period in the prior fiscal year due to proportionally
lower labor costs, advertising and promotion expense, and external commission
expense offset somewhat by proportionally higher legal expense.
Interest income was $2.2 million and $5.7 million for the third quarter
and first nine months of fiscal 1995, respectively, compared to $1.2 million and
$3.2 million for the corresponding periods of fiscal 1994. The increase in
interest income for both the third quarter and first nine months resulted from
higher investment balances and an increase in interest rates from the prior
year.
The effective tax rates for the third quarter and first nine months of
fiscal 1995 were 34.0% and 34.1%, respectively, as compared to 34.3% for both
the third quarter and first nine months of fiscal 1994. The slight declines in
the effective tax rates from the third quarter and first nine months of fiscal
1994 to the rates for fiscal 1995 are due primarily to the increased tax
benefits from foreign operations and a slight reduction in the state effective
tax 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
9
<PAGE>
Results of Operations, continued:
semiconductor industry and the overall economy. The semiconductor industry is
characterized by rapid technological change, price erosion, cyclical market
patterns, occasional shortages of materials, 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 April 2, 1995, cash and short-term investments were $221.3 million
and working capital was $235.8 million.
During the first nine months of fiscal 1995, the Company generated
$62.3 million of cash from operating activities. In addition, the Company
generated $11.7 million from proceeds and tax benefits from common stock issued
under employee stock option and purchase plans.
The Company purchased $16.1 million of capital assets during the first
nine months of fiscal 1995, including approximately $11.3 million for plant
construction and equipment for the Company's assembly facility in Penang,
Malaysia.
The Company plans to start construction of a wafer fabrication plant in
Camas, Washington in the fourth quarter of fiscal 1995. Manufacturing production
is scheduled to begin in late fiscal 1996. The initial investment in the plant
and equipment is estimated at approximately $35 to $40 million, with the
potential of growing to $85 to $100 million over a six-to-ten year period
depending upon the Company's manufacturing capacity needs.
The Company purchased and retired 160,000 shares of its common stock
during the first nine months of fiscal 1995 for $6.1 million. During the first
nine months of fiscal 1995, the Company paid its shareholders cash dividends
which totaled $7.3 million. In April 1995, the Company's board of directors
announced that the quarterly cash dividend will be $0.07 per share for the
dividend to be paid during the fourth quarter of fiscal 1995. 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
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 - Financial Date Schedule
b) Reports on Form 8-K
None
11
<PAGE>
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 15, 1995 BY /s/Paul Coghlan
----------------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
12
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FORM 10-Q FOR THE PERIOD ENDED APRIL 2, 1995.
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