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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[FEE REQUIRED]
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996 COMMISSION FILE NO. 0-14864
LINEAR TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2778785
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1630 MCCARTHY BOULEVARD 95035-7417
MILPITAS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 432-1900
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $2,080,946,500 as of September 9, 1996, based upon
the closing sale price on the Nasdaq National Market System reported for such
date. Shares of common stock held by each officer and director and by each
person who owns 5% or more of the outstanding common stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
There were 74,328,759 shares of the Registrant's common stock issued and
outstanding as of September 9, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Items 1 and 2 of Part I, Items 5, 6, 7 and 8 of Part II, and Item 14(a) 1.
of Part IV incorporate information by reference from Exhibit 13.1 to this
Form 10-K which contains certain information included in Registrant's
Annual Report to Shareholders for the fiscal year ended June 30, 1996.
(2) Items 10, 11 and 12 of Part III incorporate information by reference from
the definitive proxy statement (the "1996 Proxy Statement") for the Annual
Meeting of Shareholders to be held on November 6, 1996.
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<PAGE>
PART I
Item 1. Business
General
Linear Technology Corporation (together with its consolidated
subsidiaries, "Linear Technology" or the "Company") designs, manufactures and
markets a broad line of standard high performance linear integrated circuits.
Applications for the Company's products include telecommunications, notebook and
desktop computers, video/multimedia, computer peripherals, cellular telephones,
industrial, automotive and process controls, network and factory automation
products and satellites. The Company was organized and incorporated in 1981 by a
management team with significant experience in the design, manufacture and
marketing of linear circuits. The Company competes primarily on the basis of
performance, functional value, quality, reliability and service.
The linear circuit industry
Semiconductor components are the electronic building blocks used in
electronic systems and equipment. These components are classified as either
discrete devices (such as individual transistors) or integrated circuits (in
which a number of transistors and other elements are combined to form a more
complicated electronic circuit). Integrated circuits ("ICs") may be divided into
two general categories, digital and linear (or analog). Digital circuits, such
as memory devices and microprocessors, generally process on-off electrical
signals, represented by binary digits, "1" and "0." In contrast, linear circuits
monitor, condition, amplify or transform continuous analog signals associated
with physical properties, such as temperature, pressure, weight, light, sound or
speed, and play an important role in bridging between real world phenomena and a
variety of electronic systems. Linear circuits also provide voltage regulation
and power control to electronic systems, especially in hand-held battery powered
systems.
According to World Semiconductor Trade Statistics, worldwide monolithic
linear integrated circuit sales, estimated to be approximately $16.6 billion in
1995, represent approximately 13% of the total integrated circuit market. Linear
Technology competes primarily in the non-consumer segment of the linear IC
market, which was approximately 61% of the total monolithic linear IC market for
1995.
The Company believes that several factors generally distinguish the
linear integrated circuit business from the digital circuit business, including:
Importance of Individual Design Contribution. The Company
believes that the creativity of individual design engineers is of
particular importance in the linear circuit industry. The design of a
linear integrated circuit generally involves a greater variety and less
repetition of circuit elements than digital design. In addition, the
interaction of linear circuit elements is complex, and the exact
placement of these elements in the circuit is critical to the circuit's
precision and performance. Computer-aided engineering and design tools
for linear circuits are not as accurate in modeling circuits as those
tools used for designing digital circuits. As a result, the
contributions of a relatively small number of individual design
engineers are generally of greater importance in the design of linear
circuits than in the design of digital circuits.
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Smaller Capital Requirements. Digital circuit design attempts
to minimize device size and maximize speed by increasing circuit
densities. The process technology necessary for increased density
requires very expensive wafer fabrication equipment. In contrast,
linear circuit design focuses on precise matching and placement of
circuit elements, and linear circuits often require large feature sizes
to achieve precision and high voltage operation. Accordingly, the
linear circuit manufacturing process generally requires smaller initial
capital expenditures, particularly for photomasking equipment and clean
room facilities, and less frequent replacement of manufacturing
equipment because the equipment has, to date, been less vulnerable to
technological obsolescence.
Market Diversity; Relative Pricing Stability. Because of the
varied applications for linear circuits, manufacturers typically offer
a greater variety of device types to a more diverse group of customers,
who typically have smaller volume requirements per device. As a result,
linear circuit manufacturers are often less dependent upon particular
products or customers, linear circuit markets are generally more
fragmented, and competition within those markets tends to be more
diffused. The Company believes that competition in the linear circuit
market is particularly dependent upon performance, functional value,
quality, reliability and service. As a result, linear circuit pricing
has generally been more stable than most digital circuit pricing.
Less Japanese Competition. To date, Japanese firms have
concentrated their efforts on the high volume digital and consumer
linear markets, as opposed to the high performance end of the linear
circuit market served by the Company.
The Semiconductor Industry. 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 the high
performance segment of the linear circuit market is generally less
affected by price erosion, cyclical market patterns and significant
expenditures for capital equipment and product development than other
semiconductor market sectors, future operating results may reflect
substantial period to period fluctuations due to these or other
factors.
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 the
expectations of the investment community.
Products and markets
Linear Technology produces a wide range of products for a variety of
customers and markets. The Company emphasizes standard products to address
larger markets and to reduce the risk of dependency upon a single customer's
requirements. The Company targets the high performance segment of the linear
circuit market. "High performance" is
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characterized by higher precision, both high power or micropower, higher speed,
more subsystem integration on a single chip and many other special features. For
the past several years, the Company has been focusing virtually all of its
design efforts on proprietary products which are original designs by the Company
offering unique characteristics differentiating them from those offered by
competitors. For fiscal 1996, sales of proprietary products were approximately
94% of the Company's net sales.
Although the types and mix of linear products vary by application, the
principal product categories are as follows:
Amplifiers - These circuits amplify the voltage or output current of a
device. The amplification represents the ratio of the output voltage or current
to the input voltage or current. The most widely used device is the operational
amplifier due to its versatility and precision.
High Speed Amplifiers - These amplifiers are used to amplify signals
above 5MHz for applications such as video, fast data acquisition and data
communication.
Voltage Regulators - Voltage regulators control the voltage of a device
or circuit at a specified level. This category of product consists primarily of
two types, the linear regulator and the switch mode regulator. Switch mode
regulators are also used to convert voltage up or down within an electronic
system for power management.
Voltage References - These circuits serve as electronic benchmarks
providing a constant voltage for system usage. Precision references have a
constant output independent of input, temperature changes or time.
Interface - Interface circuits act as an intermediary to transfer
signals between or within electronic systems. These circuits are used in
computers, modems, instruments and remote data acquisition systems.
Data Converters - These circuits change linear (analog) signals into
digital signals, or vice versa, and are often referred to as data acquisition
subsystems, A/D converters and D/A converters. The accuracy and speed with which
the analog signal is converted to its digital counterpart is considered a key
characteristic for these devices.
Other - Other linear circuits include buffers, comparators,
sample-and-hold devices, and switched capacitor filters, which are used to limit
and/or manipulate signals in such applications as cellular telephones, base
stations, navigation system instrumentation and detection circuitry.
Linear circuits are used in various applications including:
telecommunications, notebook and desktop computers, video/multimedia, computer
peripherals, cellular telephones, industrial, automotive and process controls,
network and factory automation products and satellites. The Company focuses its
product development and marketing efforts on non-consumer applications where the
Company believes it can position itself competitively with respect to product
performance and functional value.
The following table sets forth, with respect to each of the market
areas served by the Company, examples of specific end applications of the
Company's products.
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<TABLE>
<CAPTION>
Market End Applications/Products Example Product Families
- ------------------- -------------------------------------- ------ ---- --------------------------------------
------
<S> <C> <C>
Industrial Process Flow or rate metering |
Control Position/pressure/ |
temperature sensing and control |
Robotics
Energy management
Process control data communication
Network and factory automation
Data acquisition products
High performance operational
| amplifiers
| Interface (RS 485/232) products
| Instrumentation amplifiers
Instrumentation/ Curve tracers ---- Linear voltage regulators
Measurement Logic analyzers | Line drivers
EKG, CAT scanners | Line receivers
Multimeters | Precision comparators
Network analyzers Precision voltage references
Oscilloscopes Switched capacitor filters
Scales Switching voltage regulators
Test equipment Voltage references
Voltmeters
Military/Space Communications
Displays
Firing control
Ground support equipment
Guidance control
Radar systems
Sonar systems |
Surveillance equipment |
Satellites |
------
------
Computer/Data Communications/interface modems | Battery charging
Processing DC - DC converters | DC - DC converters
Disk drives | Data acquisition products
Notebook computers Linear voltage regulators
Desktop computers Line drivers
Monitors Line receivers
Plotters ---- Micropower products
Printers Precision operational amplifiers
Power supplies Precision voltage references
Personal digital assistance systems Switched capacitor filters
Battery chargers | Switching voltage regulators
Video/multimedia | PCMCIA power switching
| Power management
------
------
Telecommunications Cellular phones | DC - DC converters
and Other Pagers | High-speed amplifiers
(Automotive, Engine/transmission control | Line drivers
Audio) Modems/fax machines Line receivers
PBX Low noise operational amplifiers
Security systems ---- Micropower products
Global positioning systems Power management
T1 telecommunication Switched capacitor filters
High bit rate digital subscriber loop Voltage references
Channel service unit/data service unit | Voltage regulators
| Data acquisition products
| V.35 transceiver
------
</TABLE>
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Marketing and customers
The Company markets its products worldwide, primarily through a network
of independent sales representatives and electronics distributors, to a broad
range of customers in diverse industries. In certain limited geographical
markets the Company has direct sales staff. The Company sells to over 12,000
Original Equipment Manufacturer (OEM) customers, many of which purchase on an
individual purchase order basis, rather than pursuant to long-term agreements.
The Company's two largest domestic distributors accounted for 20%, 23% and 21%
of net sales for fiscal 1996, 1995, and 1994, respectively. Distributors are not
end customers, but rather serve as a channel of sale to many end users of the
Company's products. No other distributor or customer accounted for 10% or more
of net sales for fiscal 1996, 1995 or 1994.
The Company has agreements with 21 independent sales representatives
in the United States and 2 in Canada. Commissions are paid to sales
representatives upon shipments either directly from the Company or through
distributors. The Company has agreements with 6 independent distributors in the
United States, 2 in Canada, 18 in Europe, 3 in Japan, 2 each in Korea and
Taiwan, and 1 each in Singapore, South Africa, Hong Kong, India, Israel and
Australia. The Company's distributors purchase the Company's products for resale
to customers. Additionally, domestic distributors often sell competitors'
products. Under certain agreements, the Company's domestic distributors are
entitled to price rebates on inventory if the Company lowers the prices of its
products. The agreements also generally permit distributors to exchange up to 5%
of purchases semi-annually. See Note 1 of Notes to Consolidated Financial
Statements incorporated by reference to Exhibit 13.1 of this Form 10-K, which
contains certain information included in the Company's 1996 Annual Report to
Shareholders.
The Company's sales organization is divided into domestic and
international regions, with sales managers based at the Company's headquarters
and in the metropolitan areas of Boston, Philadelphia, Raleigh, Chicago, Dallas,
Los Angeles, Irvine, London, Stockholm, Dusseldorf, Munich, Stuttgart, Paris,
Singapore, Tokyo, Taipei and Seoul. The Company's products typically require a
sophisticated technical sales effort.
During fiscal 1996, 1995, and 1994, export sales were primarily to
Europe, Japan and Asia and represented approximately 52%, 49%, and 45% of net
sales, respectively. Because most of the Company's export sales are billed and
payable in United States dollars, export sales are generally not directly
subject to fluctuating currency exchange rates. A strengthening of the dollar in
relation to other currencies may, however, create pricing pressure. Although
export sales are subject to certain control restrictions, including approval by
the Office of Export Administration of the United States Department of Commerce,
the Company has not experienced any material difficulties relating to such
restrictions.
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The Company's backlog of released and firm orders was approximately
$65.3 million at June 30, 1996, as compared with $93.3 million at July 2, 1995.
In addition to its backlog, the Company had $21.4 million of product sold to and
held by domestic distributors at June 30, 1996 as compared to $15.6 million at
July 2, 1995. Shipments to domestic distributors are not recognized as sales
until the distributor has sold the products to its customers. The Company
expects to ship virtually all of its backlog as of June 30, 1996 prior to June
29, 1997. The Company defines backlog as consisting of distributor stocking
orders and OEM orders for which a delivery schedule has been specified by the
OEM customer for product shipment. Although the Company receives volume purchase
orders, most such purchase orders are cancelable by the customer without
significant penalty. Lead time for the release of purchase orders depends upon
the scheduling practices of the individual customer, so the rate of booking new
orders varies from month to month. During fiscal 1996, the ordering practices of
many semiconductor customers shifted from a practice of placing orders with
delivery dates extending over several months to the practice of placing orders
with shorter delivery dates. The change in ordering pattern was in part due to
the increase in product availability from the overall slowdown in the
semiconductor industry. The Company's agreements with certain distributors
provide for limited price protection. Consequently, the Company does not believe
that its backlog at any time is necessarily representative of actual sales for
any succeeding period.
In the operating history of the Company, seasonality of business has
not been a material factor, although the results of operations for the first
fiscal quarter of each year are impacted slightly by customary summer holidays,
particularly in Europe.
The Company warrants that its products, until they are incorporated in
other products, are free from defects in workmanship and materials and conform
to the Company's published specifications. Warranty expense has been nominal to
date.
Manufacturing
The Company's wafer fabrication and manufacturing facility located at
its headquarters in Milpitas, California, was built to Company specifications to
support a number of sophisticated process technologies and to satisfy rigorous
quality assurance and reliability requirements of United States military
specifications and major worldwide OEM customers. The Company currently uses
four-inch diameter wafers in the production of its devices. The Company's basic
process technologies include high speed bipolar, high gain, low noise bipolar
and silicon gate complementary metal-oxide semiconductor ("CMOS") processes. The
Company has also a proprietary complementary bipolar process. The Company's
bipolar processes are used in linear circuits where high voltages, high power,
low noise or effective component matching is necessary. The Company's
proprietary silicon gate CMOS processes provide switch characteristics required
for many linear circuit functions, as well as an efficient mechanism for
combining linear and digital circuits on the same chip. The Company's CMOS
processes were developed to address the specific requirements of linear circuit
functions. The complementary bipolar process was developed to address higher
speed analog functions. The Company's basic processes can be combined with a
number of adjunct processes to create a diversity of IC components. The
accompanying chart provides a brief overview of the Company's IC process
capabilities:
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PROCESS CAPABILITIES
- ---------------------- ---------------------------------------- -----------------------------------
<S> <C> <C>
Process Families Benefit/Market Advantage Product Application
- ---------------- ------------------------ -------------------
P-Well SiGate CMOS General purpose, stability Switches, filters, data conversion,
chopper amplifiers
N-Well SiGate CMOS Speed, density, stability Switches, data conversion
BICMOS Speed, density, stability, flexibility Data conversion
High Power Bipolar Power (100 watts), high current Linear and smart power products,
(10 amps) switching regulators
Low Noise Bipolar Precision, low current, low noise, Op amps, voltage references
high gain
High Speed Bipolar Fast, wideband, video high data Op amps, video, comparators,
rate switching regulators
JFETS Speed, precision, low current Op amps, switches, sample and
hold
Rad - Hard Total dose radiation hardened All space products
Complementary Bipolar Speed, low distortion, precision Op amps, video amps, converters
CMOS/ Thin Films Stability, precision Filters, data conversion
High Voltage CMOS High voltage general-purpose, Switches, chopper amplifiers
compatible with Bipolar
Bipolar/Thin Films Precision, stability, matching Converters, amplifiers
- ---------------------- ---------------------------------------- -----------------------------------
</TABLE>
The Company emphasizes quality and reliability from initial product
design through manufacturing, packaging and testing. The Company's design team
focuses on fault tolerant design and optimum location of circuit elements to
enhance reliability. Linear Technology's wafer fabrication facility has been
designed to minimize wafer handling and the impact of operator error through the
use of microprocessor-controlled equipment. In 1984, the Company obtained
Defense Electronics Supply Center (DESC) qualification to participate in high
reliability JAN38510 (class B) military business. In 1987, the Company received
Jan Class S Microcircuit Certification, which enables the Company to manufacture
products intended for use in space or for critical applications where
replacement is extremely difficult or impossible and where reliability is
imperative. The Company has been recertified by a joint team from DESC, Naval
Weapons Support Center (NWSC), National Aeronautics and Space Administration
(NASA), and the space division of the United States Air Force (USAF).
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In 1993, the Company was certified to comply with the ISO9001
international quality standard. This certification covers the Company's design,
manufacturing and service organizations and is an important standard especially
in the European marketplace.
The Company has completed construction of its new wafer fabrication
facility in Camas Washington and is in the process of installing and testing
equipment. The Company intends to use and enhance some of its existing processes
and develop new processes at this facility. Manufacturing operations are
scheduled to begin in the first half of calendar 1997.
Processed wafers are sent to either the Company's assembly facility in
Penang, Malaysia or to offshore independent assembly contractors where the
wafers are separated into individual circuits and packaged. The Penang facility
opened in October 1994 and services approximately two-thirds of the Company's
assembly requirements for plastic packages. Significant assembly subcontractors
used by the Company are Carsem(M) Sdn and Unisem(M) Sdn in Malaysia, ASAT in
Hong Kong, Anam Industrial Co., Team Pacific and Pacific Semiconductor in the
Philippines, and Chinteik in Bangkok. The Company also maintains domestic
assembly operations to satisfy particular customer requirements, especially
those for military applications, and to provide rapid turnaround for new product
development.
After assembly, most products are sent to the Company's Singapore
facility for final testing, inspection and packaging as required. Some products
are returned to Milpitas for the same back-end processing.
Linear Technology from time to time has experienced competition from
other manufacturers seeking assembly of circuits by independent contractors. The
Company currently believes that alternative foreign assembly sources could be
obtained without significant interruption. Foreign assembly is subject to risks
normally associated with foreign operations, including changes in local
governmental policies, currency fluctuations, transportation delays and the
imposition of export controls or increased import tariffs.
From time to time certain materials, including silicon wafers and
plastic molding compounds, have been in short supply. To date the Company has
experienced no delays in obtaining raw materials which have adversely affected
production. As is typical in the industry, the Company must allow for
significant lead times in delivery of its materials.
Manufacturing of individual products, from wafer fabrication through
final testing, may take from ten to sixteen weeks. Since the Company sells a
wide variety of device types, and customers typically expect delivery of
products within a short period of time following order, the Company maintains a
substantial work-in-process and finished goods inventory.
Based on its anticipated production requirements, the Company believes
it will have sufficient available resources and manufacturing capacity for
fiscal 1997.
Patents, licenses and trademarks
The Company has been awarded 69 United States patents, and has filed 55
additional patent applications. Although the Company believes that these patents
and patent applications may have value, the Company's future success will depend
primarily upon the technical abilities and creative skills of its personnel,
rather than on its patents.
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As is common in the semiconductor industry, the Company has at times
been notified of claims that it may be infringing patents issued to others. If
it appears necessary or desirable, the Company may seek licenses under such
patents, although there can be no assurance that all necessary licenses can be
obtained by the Company on acceptable terms.
In addition, from time to time the Company may negotiate with other
companies to license patents, products or process technology for use in its
business.
Government sales
The Company currently has no material U.S. Government contracts.
Competition
Linear Technology competes in the high performance segment of the
linear market. Competition among manufacturers of linear integrated circuits is
intense, and many of the Company's competitors, including Analog Devices, Inc.,
Motorola, Inc., National Semiconductor Corporation and Texas Instruments, Inc.,
may have significantly greater financial, technical, manufacturing and marketing
resources than the Company. The principal elements of competition include
product performance, functional value, quality and reliability, technical
service and support, price, diversity of product line and delivery capabilities.
The Company believes it competes favorably with respect to these factors,
although it may be at a disadvantage in comparison to larger companies with
broader product lines and greater technical service and support capabilities.
Research and development
The Company's ability to compete depends in part upon its continued
introduction of technologically innovative products on a timely basis. Linear
Technology's product development strategy emphasizes a broad line of standard
products to address a diversity of customer applications. The Company's research
and development efforts are directed primarily at designing and introducing new
products and, to a lesser extent, developing new processes and advanced
packaging.
As of June 30, 1996, the Company had 122 employees engaged in new
product design at its Milpitas facility. In addition, at fiscal year end, the
Company had 13 employees at its Singapore design center and 15 employees at its
Boston design center.
For the fiscal years 1996, 1995, and 1994, the Company spent
approximately $31,058,000, $23,931,000, and $18,394,000, respectively, on
research and development.
Environmental regulation
Federal, state and local regulations impose various environmental
controls on the storage, use, discharge and disposal of certain chemicals and
gases used in semiconductor processing. The Company's facilities have been
designed to comply with these regulations, and the Company believes that its
activities conform to present environmental regulations. Increasing public
attention has, however, been focused on the environmental impact of electronics
manufacturing operations. While the Company to date has not experienced any
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materially adverse business effects from environmental regulations, there can be
no assurance that changes in such regulations will not require the Company to
acquire costly remediation equipment or to incur substantial expenses to comply
with such regulations. Any failure by semiconductor companies, including the
Company, to control the storage, use or disposal of, or adequately restrict the
discharge of hazardous substances could also subject them to significant
liabilities.
Employees
As of June 30, 1996, the Company had 1,638 employees, including 140 in
marketing and sales, 320 in research, development and engineering related
functions, 1,112 in manufacturing and production, and 66 in management,
administration and finance. The Company's success depends upon a number of key
employees, the loss of whom could adversely impact the Company. The Company
believes that its future success will depend in large part upon its ability to
attract, retain and motivate highly skilled employees. In the San Jose/Silicon
Valley area, where the Company's principal facilities are located, competition
for such employees is intense.
The Company has never had a work stoppage, no employees are represented
by a labor organization, and the Company considers its employee relations to be
good.
Executive Officers of the Registrant
The executive officers of the Company, and their ages as of June 30,
1996, are as follows:
Name Age Position
- ---- --- --------
Robert H. Swanson, Jr..... 57 President, Director and Chief Executive Officer
Paul Chantalat............ 46 Vice President Quality and Reliability
Paul Coghlan.............. 51 Vice President of Finance and Chief Financial
Officer
Timothy D. Cox............ 48 Vice President of North American Sales
Clive B. Davies........... 53 Vice President and Chief Operating Officer
Robert C. Dobkin.......... 52 Vice President of Engineering
Sean T. Hurley............ 58 Vice President of Operations
Thomas D. Recine.......... 58 Vice President of Marketing
Hans J. Zapf.............. 56 Vice President of International Sales
Arthur F. Schneiderman.... 54 Secretary
Mr. Swanson, a founder of the Company, has served as President, Chief
Executive Officer and a director of the Company since its incorporation in
September 1981. From August 1968 to July 1981, he was employed in various
positions at National Semiconductor Corporation ("National"), a manufacturer of
integrated circuits, including Vice President and General Manager of the Linear
Integrated Circuit Operation and Managing Director in Europe. Mr. Swanson has a
BS degree in Industrial Engineering from Northeastern University.
Mr. Chantalat has served as Vice President of Quality and Reliability
since July 1991. From January 1989 to July 1991, he held the position of
Director of Quality and Reliability. From July 1983 to January 1989 he held the
position of Manager of Quality and Reliability. From February 1976 to July 1983,
he was employed in various positions at National, where his
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most recent position was Group Manager of Manufacturing Quality Engineering. Mr.
Chantalat received a BS and an MS in Electrical Engineering from Stanford
University in 1970 and 1972, respectively.
Mr. Coghlan has served as Vice President of Finance and Chief Financial
Officer of the Company since December 1986. From October 1981 until joining the
Company, he was employed in various positions at GenRad, Inc., a manufacturer of
automated test equipment, including Corporate Controller, Vice President of
Corporate Quality and most recently Vice President and General Manager of the
Structural Test Products Division. Before joining GenRad, Inc., Mr. Coghlan was
associated with Price Waterhouse & Company in the United States and Paris,
France for twelve years. Mr. Coghlan received a BA from Boston College in 1966
and an MBA from Babson College in 1968.
Mr. Cox was appointed Vice President of North American Sales in July
1991. From February 1991 to July 1991 he held the position of Director of
National Sales. From January 1990 to February 1991, and February 1983 to October
1987 he was employed at National where his most recent position was Director of
Northwestern Sales. From October 1987 to June 1989, he was Vice President of
Sales for Micro Linear. Prior to 1983, Mr. Cox was employed for seven years as
Vice President & Principal of Micro Sales Inc. Mr. Cox received a BSEE in 1970
from Valparaiso Technical Institute, Valparaiso, Indiana.
Dr. Davies has served as Vice President and Chief Operating Officer
since January 1989. From July 1982 to January 1989, Dr. Davies held the position
of Vice President of Quality, Reliability and Customer Service. From April 1971
to July 1982, he was employed in various positions at National, including Group
Director for Advanced Technology, Group Managing Director of the Singapore and
Hong Kong Manufacturing Operations and Business Director of Standard Linear
Integrated Circuit Operations. Dr. Davies received a B.Sc. (Honors) in Physics
in 1964 and a Ph.D. in Physics in 1967 from the University of Reading, England.
Mr. Dobkin, a founder of the Company, has served as Vice President of
Engineering since its incorporation in September 1981. From January 1969 to July
1981, he was employed in various positions at National, where his most recent
position was Director of Advanced Circuit Development. Mr. Dobkin has extensive
experience in linear circuit design. Mr. Dobkin attended the Massachusetts
Institute of Technology.
Mr. Hurley has served as Vice President of Operations since January
1989. From January 1973 to January 1989 he was employed in various positions at
National, most recently as Director of Linear Operations. Before joining
National, Mr. Hurley was Director of European Operations for Applied Materials,
Inc. Mr. Hurley received a B.S. in Chemistry in 1961 and an M.S. in Solid State
Physics in 1965 from the University of London.
Mr. Recine joined Linear Technology in July 1991 from Marcon Sales, an
electronic sales representative firm, which he helped found in 1984. Prior to
that he was Vice President of Flagship Software Systems, of which he was also a
founder. From 1970 to 1982, he was with National as a Director of Marketing for
discrete transistors, linear integrated circuits, distribution marketing and
sales and field sales operations. He entered the semiconductor industry in 1962
with Motorola, becoming a Product Line Manager in 1970. Mr. Recine holds an MBA
from Northeastern University and a BS in physics from the University of Windsor
(Ontario, Canada).
12
<PAGE>
Mr. Zapf was appointed Vice President of International Sales in July
1991. From June 1982 to July 1991, he was Director of International Marketing
and Sales. From September 1972 to June 1982, Mr. Zapf was with Teledyne
Semiconductor where he held several management positions in Europe and the
United States including Vice President of Marketing and Sales. Prior to
September 1972, Mr. Zapf worked as a designer for Brown Boveri in Switzerland.
Mr. Zapf holds an MSEE degree from Zurich University.
Mr. Schneiderman has served as Secretary of the Company since September
1981. He is an attorney and a member of the law firm of Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation, general counsel to the Company.
Item 2. Properties
In Milpitas, California, the Company owns three buildings and leases
two other buildings in the same business complex. Since 1987, the Company has
owned an approximately 40,600 square foot building currently being used for its
four-inch wafer fabrication lines and adjunct support services. During fiscal
1996, the Company purchased land and two buildings of approximately 45,000 total
square feet that it had previously leased. The Company is leasing a building of
approximately 43,000 square feet, which is currently being used for testing,
shipping and administration. Additionally, the Company leases approximately
50,000 square feet in neighboring buildings to house its circuit design
activities and regional sales staff.
In July 1994, the Company occupied a 50,000 square foot manufacturing
facility in Singapore. Test and packaging operations are performed at this
facility along with some design and product distribution activity. The Company
has a 30 year lease, with an option to extend for an additional 30 years, on the
land where the Singapore plant is located.
In October 1994, the Company opened a 55,000 square foot assembly plant
in Penang, Malaysia. The Company has a 60 year lease on the land where the plant
was constructed.
During fiscal 1996, the Company completed construction of its
approximately 60,000 square foot wafer fabrication facility in Camas,
Washington. The land for the site of the facility is owned by the Company.
The Company also leases sales offices in the metropolitan areas of
Boston, Philadelphia, Raleigh, Chicago, Dallas, Los Angeles, Irvine, London,
Stockholm, Dusseldorf, Munich, Stuttgart, Paris, Tokyo, Taipei and Seoul. See
Note 3 of Notes to Consolidated Financial Statements incorporated by reference
to Exhibit 13.1 of this Form 10-K which contains certain information included in
the Company's 1996 Annual Report to Shareholders.
13
<PAGE>
Item 3. Legal Proceedings
The Company is involved in various legal actions arising in the
ordinary course of business. While the outcome of such matters is uncertain, the
Company believes that these matters will not have a material adverse effect on
the Company's financial condition or results of operations.
Item 4. Submission of Matter to a Vote of Security Holders
Not applicable.
14
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information required by the Item is incorporated by reference to
the section entitled "Quarterly Results and Stock Market Data" of Exhibit 13.1
to this Form 10-K which contains certain information included in the
Registrant's 1996 Annual Report to Shareholders.
Item 6. Selected Financial Data
The information required by the Item is incorporated by reference to
the section entitled "Selected Financial Information/Five-Year Trend" of Exhibit
13.1 to this Form 10-K which contains certain information included in the
Registrant's 1996 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by the Item is incorporated by reference to
the section entitled "Management's Discussion and Analysis of Results of
Operations and Financial Condition" of Exhibit 13.1 to this Form 10-K which
contains certain information included in the Registrant's 1996 Annual Report to
Shareholders.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements of Linear Technology at June 30, 1996
and July 2, 1995 and for each of the three years in the period ended June 30,
1996, the report of Ernst & Young LLP, independent auditors, thereon and
unaudited quarterly financial data for the two year period ended June 30, 1996
are incorporated by reference to Exhibit 13.1 of this Form 10-K which contains
certain information included in the Registrant's 1996 Annual Report to
Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
15
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item for the Company's directors is
incorporated by reference to the 1996 Proxy Statement, under the caption
"Election of Directors," and for the executive officers of the Company, the
information is included in Part I hereof under the caption "Executive Officers
of the Registrant."
Item 11. Executive Compensation
Incorporated by reference to the 1996 Proxy Statement, the section
titled "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the 1996 Proxy Statement, the section
titled "Record Date and Voting Securities" and the section titled "Security
Ownership."
Item 13. Certain Relationships and Related Transactions
Not applicable.
16
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying Index to
Consolidated Financial Statements are filed as part of this Annual Report.
2. Schedules
The financial statement schedule listed in Item 14(d) is filed as part
of this Annual Report.
All other schedules are omitted since the information required by the
schedule is not applicable, or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the Consolidated Financial Statements and notes thereto.
3. Exhibits
The exhibits listed in Item 14(c) are filed as part of this Annual
Report. Each compensatory plan required to be filed has been indicated in Item
14(c).
(b) Reports on Form 8-K.
None
(c) Exhibits
3.1 Articles of Incorporation of Registrant, as amended.(1)
3.3 Bylaws of Registrant, as amended.(3)
10.1 1981 Incentive Stock Option Plan, as amended, and form of Stock
Option Agreements, as amended (including Restricted Stock
Purchase Agreement).(*)(5)
10.11 Agreement to Build and Lease dated January 8, 1986 between
Callahan-Pentz Properties, McCarthy Six and the Registrant.(2)
10.25 1986 Employee Stock Purchase Plan, as amended, and form of
Subscription Agreement.(*)(4)
10.35 1988 Stock Option Plan, as amended, form of Incentive Stock
Option Agreement, as amended, and form of Nonstatutory Stock
Option Agreement, as amended.(*)(8)
10.36 Form of Indemnification Agreement.(3)
17
<PAGE>
10.45 Land lease dated March 30, 1993 between the Registrant and the
Singapore Housing and Development Board.(6)
10.46 Land lease dated November 20, 1993 between the Registrant and
the Penang Development Corporation. (7)
13.1 Certain information included in the Registrant's Annual Report
to Shareholders for the fiscal year ended June 30, 1996.
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors. (see page
24)
24.1 Power of Attorney. (see page 21)
27.1 Financial Data Schedule.
- --------------------------------------------------------------------------------
(Footnotes to Item 14 (c))
(*) The item listed is a compensatory plan of the Company.
(1) Incorporated by reference to identically numbered exhibit filed in response
to Item 14(a)(3) "Exhibits," of the Company's Annual Report on Form 10-K
for the fiscal year ended July 2, 1995.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 16(a), "Exhibits," of the Registrant's Registration
Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto (File
No. 33-4766), which became effective on May 28, 1986.
(3) Incorporated by reference to identically numbered exhibit filed in response
to Item 6, "Exhibits and Reports on Form 8-K," of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 2, 1988.
(4) Incorporated by reference to identically numbered exhibit filed in response
to Item 6, "Exhibits and Reports on Form 8-K," of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
(5) Incorporated by reference to identically numbered exhibit filed in response
to Item 6, "Exhibits and Reports on Form 8-K," of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 30, 1990.
(6) Incorporated by reference to identically numbered exhibit filed in response
to Item 14(a)(3) "Exhibits," of the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 27, 1993.
18
<PAGE>
(7) Incorporated by reference to identically numbered exhibit filed in response
to Item 14(a)(3) "Exhibits," of the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 3, 1994.
(8) Incorporated by reference to identically numbered exhibit filed in response
to Item 6, "Exhibits and Reports on Form 8-K," of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 2, 1994.
(d) Financial Statement Schedule filed as a part of this Annual Report is
listed below:
Schedule
Number Description
- -------- -----------------------------------------------------------------
II Valuation and qualifying accounts.
19
<PAGE>
LINEAR TECHNOLOGY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(Item 14(a)1)
Page Reference to
Exhibit 13.1
Consolidated balance sheets at June 30, 1996 and July 2,
1995 E13.1-6
Consolidated statements of income for each of the three
years in the period ended June 30, 1996 E13.1-5
Consolidated statements of shareholders' equity for each of
the three years in the period ended June 30, 1996 E13.1-8
Consolidated statements of cash flows for each of the three
years in the period ended June 30, 1996 E13.1-7
Notes to consolidated financial statements E13.1-9 to
E13.1-14
Report of Ernst & Young LLP, independent auditors E13.1-15
The Consolidated Financial Statements listed in the above index are
hereby incorporated by reference to Exhibit 13.1 of this Form 10-K which
contains certain information included in the Registrant's Annual Report to
Shareholders for the year ended June 30, 1996.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LINEAR TECHNOLOGY CORPORATION
-----------------------------
(Registrant)
By: /s/ Robert H. Swanson, Jr.
----------------------------
Robert H. Swanson, Jr.
President and Chief
Executive Officer
September 23, 1996
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Robert H. Swanson, Jr. and Paul Coghlan,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Robert H. Swanson, Jr. /s/ Paul Coghlan
- ---------------------------------- ----------------------------------------
Robert H. Swanson, Jr. Paul Coghlan
President and Chief Executive Vice President of Finance and Chief
Officer (Principal Executive Financial Officer (Principal Financial
Officer) and Director Officer and Principal Accounting Officer)
September 23, 1996 September 23, 1996
/s/ David S. Lee /s/ Thomas S. Volpe
- ---------------------------------- ----------------------------------------
David S. Lee Thomas S. Volpe
Director Director
September 23, 1996 September 23, 1996
/s/ Leo T. McCarthy /s/ Richard M. Moley
- ---------------------------------- ----------------------------------------
Leo T. McCarthy Richard M. Moley
Director Director
September 23, 1996 September 23, 1996
21
<PAGE>
SCHEDULE II
LINEAR TECHNOLOGY CORPORATION
----------
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions(1) Period
---------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended July 3, 1994.......... $ 490 $ 60 $ --- $ 550
========== ========== ========== ==========
Year ended July 2, 1995.......... $ 550 $ 181 $ 3 $ 728
========== ========== ========== ==========
Year ended June 30, 1996......... $ 728 $ 60 $ 12 $ 776
========== ========== ========== ==========
<FN>
(1) Write-offs of doubtful accounts.
</FN>
</TABLE>
22
Linear Technology Corporation
Quarterly Results and Stock Market Data (Unaudited)
In thousands, except per share amounts
- --------------------------------------------------------------------------------
Fiscal 1996 June 30, Mar. 31, Dec. 31, Oct. 1,
Quarter Ended 1996 1996 1995 1995
- ------------------------------------------------------------------------------
Net sales $90,039 $104,710 $96,017 $87,005
Gross profit 64,751 76,237 68,371 61,580
Net income 31,357 37,764 34,323 30,520
Net income per share 0.40 0.48 0.44 0.39
Cash dividend paid per share 0.04 0.04 0.04 0.04
Stock price range per share:
High 47.00 49.50 45.00 42.88
Low 27.00 31.75 36.00 32.00
Fiscal 1995 July 2, Apr. 2, Jan. 1, Oct. 2,
Quarter Ended 1995 1995 1995 1994
- ------------------------------------------------------------------------------
Net sales $76,703 $68,135 $62,103 $58,082
Gross profit 53,205 46,983 42,111 39,461
Net income 25,817 21,805 19,244 17,830
Net income per share 0.34 0.28 0.25 0.24
Cash dividend paid per share 0.035 0.035 0.035 0.030
Stock price range per share:
High 33.62 29.50 24.75 24.62
Low 26.88 23.00 20.00 18.88
- ------------------------------------------------------------------------------
All share and per share information have been restated to reflect the
two-for-one split of the Company's common stock as of August 11, 1995.
Net income per share amounts are based on the weighted average common and common
equivalent shares outstanding during the quarter. Therefore, the total of net
income per share for the four quarters may differ slightly from net income per
share for the year.
The stock activity in the above table is based on the high and low closing bid
prices. These prices represent quotations between dealers without adjustment for
retail markups, markdowns or commissions, and may not represent actual
transactions. The Company's common stock is traded on the Nasdaq National Market
under the symbol LLTC.
At June 30, 1996, there were approximately 1,186 shareholders of record.
<TABLE>
Selected Financial Information/Five-Year Trend
In thousands, except per share amounts
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FIVE YEARS ENDED JUNE 30, 1996 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement information
Net sales $377,771 $265,023 $200,538 $150,867 $119,440
Net income 133,964 84,696 56,827 36,435 25,017
Net income per share 1.72 1.11 0.75 0.49 0.35
Shares used in the calculation
of net income per share 77,888 76,328 75,352 73,814 72,432
Balance sheet information
Cash and short-term investments $322,472 $250,222 $176,801 $127,878 $95,278
Total assets 529,802 367,553 268,399 196,492 159,799
Long-term debt and non-current
capital lease obligations -- -- -- 259 1,726
Cash dividends paid per share $0.16 $0.14 $0.12 $0.08 --
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
During fiscal year 1993, the Company initiated a quarterly cash dividend
program. No cash dividends were declared or paid prior to fiscal year 1993.
Exhibit 13.1-1
<PAGE>
Linear Technology Corporation
Management's Discussion and Analysis
of Results of Operations and Financial Condition
- --------------------------------------------------------------------------------
<TABLE>
Results of Operations
The table below states the income statement items as a percentage of net
sales and provides the percentage change of such items compared to the prior
fiscal year amount.
<CAPTION>
Percentage
Fiscal Year Ended Increase
------------------------------------- ------------------
1996 1995
June 30, July 2, July 3, over over
1996 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 43% 32%
Cost of sales 28.3 31.4 33.7 28 23
- --------------------------------------------------------------------------------------
Gross profit 71.7 68.6 66.3 49 37
- --------------------------------------------------------------------------------------
Expenses:
Research and development 8.2 9.0 9.2 30 30
Selling, general and administrative 13.0 14.3 16.3 30 16
- --------------------------------------------------------------------------------------
21.2 23.3 25.5 30 21
- --------------------------------------------------------------------------------------
Operating income 50.5 45.3 40.8 59 46
- --------------------------------------------------------------------------------------
Interest income, net 3.5 3.2 2.3 55 85
- --------------------------------------------------------------------------------------
Income before income taxes 54.0% 48.5% 43.1% 59% 49%
======================================================================================
Effective tax rates 34.3% 34.1% 34.3%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales in fiscal 1996 increased 43% over fiscal 1995 and 88% over
fiscal 1994, as net sales were $377.8 million in fiscal 1996 compared to $265.0
million in fiscal 1995 and $200.5 million in fiscal 1994. Sales increased 53%
year over year for the first nine months and fell back to 17% in the fourth
quarter. This deceleration in the fourth quarter was representative of a trend
throughout the semiconductor industry as the robust earlier growth led to excess
inventory in end customer channels. The increases in net sales were due mostly
to higher unit sales and in part due to higher average selling prices, resulting
from firmer prices and changes in product mix. As a percentage of net sales,
proprietary product sales were approximately 94% in fiscal 1996, 92% in fiscal
1995, and 89% in fiscal 1994.
Each of the Company's major geographic markets showed increases in net
sales in fiscal 1996 as compared to the prior fiscal year with the Japan area
experiencing the largest percentage increase. International sales constituted
52% of net sales in fiscal 1996 as compared to 49% for fiscal 1995 and 45% for
fiscal 1994.
Net Sales by Geographic Area
1996 1995 1994
NORTH AMERICA 48% NORTH AMERICA 51% NORTH AMERICA 55%
EUROPE 23% EUROPE 22% EUROPE 24%
JAPAN 16% JAPAN 10% JAPAN 8%
ASIA PACIFIC ASIA PACIFIC ASIA PACIFIC
AND OTHER 13% AND OTHER 17% AND OTHER 13%
$377,771,000 $265,023,000 $200,538,000
Exhibit 13.1-2
<PAGE>
Gross profit was $270.9 million, or 71.7% of net sales, in fiscal 1996
as compared to $181.8 million or 68.6% of net sales in fiscal 1995. The increase
in gross profit as a percentage of net sales for fiscal 1996 as compared to
fiscal 1995 was primarily due to the absorption of fixed costs over a larger
sales base, higher average selling prices and changes in product mix referred to
above. Initial start-up costs for the Company's wafer fabrication plant in
Camas, Washington and costs for capacity increases for the Milpitas wafer
fabrication lines had a slight negative impact on gross margin.
Research and development expenses in fiscal 1996 were $31.1 million, or
8.2% of net sales, compared to $23.9 million, or 9.0% of net sales, in fiscal
1995 and $18.4 million, or 9.2% of net sales, in fiscal 1994. Although design
engineering staffing and compensation increased significantly in fiscal 1996,
research and development labor expense, especially support labor expense,
increased at a lower rate than sales growth, thereby causing research and
development expense to decrease as a percent of sales. Additionally, mask sets
and test wafer expenses were approximately the same in fiscal 1996 as compared
to fiscal 1995 but lower as a percent of sales.
Selling, general and administrative expenses continued to decline as a
percentage of net sales as fiscal 1996 expenses were $49.1 million, or 13.0% of
net sales, compared to $37.9 million, or 14.3% of net sales, in fiscal 1995 and
$32.6 million, or 16.3% of net sales, in fiscal 1994. As a percentage of net
sales, selling, general and administrative expenses continued to decline as
headcount, advertising and promotion expense and other expenses grew at a lower
rate than sales. Commission expense as a percentage of net sales stayed
approximately the same from fiscal 1995 to 1996.
Net interest income in fiscal 1996 increased 55% from fiscal 1995, as
net interest income was $13.1 million in fiscal 1996 versus $8.5 million in
fiscal 1995 and $4.6 million in fiscal 1994. The increase in interest income for
fiscal 1996 as compared to fiscal 1995 resulted mostly from the increase in
cash, cash equivalents and short-term investments and in part due to the
increase in the average interest rate of the investment portfolio. Net interest
income for fiscal 1995 increased 85% over net interest income in fiscal 1994 due
to higher overall rates and the additional interest income realized on higher
investment balances.
Factors Affecting Future Operating Results
Except for historical information contained herein, the matters set forth
in the annual report, 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 referred to
above, have caused the business to be more dependent on orders that are received
and shipped in the same quarter.
Gross profit for fiscal 1997 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. Manufacturing production is scheduled to begin there
in the first half of calendar 1997.
The Company's tax holiday for its Singapore operations is scheduled to
expire in September 1996. Should the Company not receive an extension of the tax
holiday, the increase in income taxes from the Singapore operations is expected
to be mostly offset by a lower effective state tax rate and other tax benefit
items. Therefore, the Company expects that its overall fiscal 1997 effective tax
rate will approximate fiscal 1996's rate of 34.3%.
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.
Exhibit 13.1-3
<PAGE>
Cash Flow Summary
Fiscal Year Ended June 30, 1996
SOURCES OF CASH USES OF CASH
IN MILLIONS IN MILLIONS
NET INCOME $134.0 INCREASE IN CASH AND
DEPRECIATION AND AMORTIZATION $ 10.3 SHORT-TERM INVESTMENTS $72.2
EMPLOYEE COMMON STOCK CAPITAL EXPENDITURES $70.4
TRANSACTIONS $ 32.7 PURCHASE OF COMMON STOCK $22.9
OTHER $ 0.4 PAYMENT OF CASH DIVIDENDS $11.9
Liquidity and Capital Resources
The Company's operating results for fiscal 1996 provided the resources
for the Company to expand its manufacturing operations, increase its dividends
to shareholders and increase cash, cash equivalents and short-term investments
by $72.2 million during the fiscal year. At the end of fiscal 1996, working
capital was $332.5 million and the Company had no long-term debt.
The issuance of common stock under stock option plans provided $32.7
million in proceeds and tax benefits in fiscal 1996 as compared to $16.3 million
in fiscal 1995. This increase resulted principally from increased tax benefits
as more shares were exercised at higher spreads between current market prices
and option exercise prices. Generally, the gain the employee receives upon
exercise of a stock option is tax deductible to the Company and is recorded as
an increase in common stock.
In fiscal 1996, the Company purchased and retired 730,000 shares of its
common stock at a cost of $22.9 million, compared to 320,000 shares at a cost of
$6.1 million in fiscal 1995.
The Company spent a record $70.4 million for capital assets in fiscal
1996 including approximately $47 million for plant construction and equipment
for its new wafer fabrication facility in Camas, Washington. The initial
equipment for this fab is being installed and tested with manufacturing
production expected to begin in the first half of calendar 1997.
During fiscal 1996, the Company expanded its Milpitas facilities by
leasing office space for its design engineering group and also purchased two
buildings that were previously leased. Total cost of Milpitas facility purchases
and improvements were approximately $5 million in fiscal 1996. Additionally, the
Company spent approximately $5 million for equipment for its wafer fabrication
and test operations in Milpitas.
The Company continued to expand its assembly operations in Penang,
Malaysia and its test and back-end operations in Singapore. The Company added
facility improvements and equipment of approximately $12 million at these two
facilities during the fiscal year.
Cash dividends of $11.9 million, or $0.16 per share, were paid by the
Company in fiscal 1996 as compared to $9.8 million, or $0.14 per share in fiscal
1995. In July 1996, the Company's Board of Directors announced that the
quarterly cash dividend was increased to $0.05 per share. 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.
Exhibit 13.1-4
<PAGE>
<TABLE>
Linear Technology Corporation
Consolidated Statements of Income
In thousands, except per share amounts
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
THREE YEARS ENDED JUNE 30, 1996 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $377,771 $265,023 $200,538
Cost of sales 106,832 83,263 67,636
- --------------------------------------------------------------------------------------------------------------
Gross profit 270,939 181,760 132,902
- --------------------------------------------------------------------------------------------------------------
Expenses:
Research and development 31,058 23,931 18,394
Selling, general and administrative 49,127 37,867 32,612
- --------------------------------------------------------------------------------------------------------------
80,185 61,798 51,006
- --------------------------------------------------------------------------------------------------------------
Operating income 190,754 119,962 81,896
- --------------------------------------------------------------------------------------------------------------
Interest income, net 13,148 8,488 4,599
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 203,902 128,450 86,495
- --------------------------------------------------------------------------------------------------------------
Provision for income taxes 69,938 43,754 29,668
- --------------------------------------------------------------------------------------------------------------
Net income $133,964 $84,696 $56,827
==============================================================================================================
Net income per share $1.72 $1.11 $0.75
- --------------------------------------------------------------------------------------------------------------
Shares used in the calculation of net income per share 77,888 76,328 75,352
- --------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes.
</FN>
</TABLE>
Exhibit 13.1-5
<PAGE>
Linear Technology Corporation
Consolidated Balance Sheets
In thousands, except share amounts
- --------------------------------------------------------------------------------
JUNE 30, 1996 AND JULY 2, 1995 1996 1995
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $54,393 $48,146
Short-term investments 268,079 202,076
Accounts receivable, net of allowance for
doubtful accounts of $776 ($728 in 1995) 48,395 29,770
Inventories:
Raw materials 3,003 1,270
Work-in-process 5,479 4,726
Finished goods 4,448 3,723
- --------------------------------------------------------------------------------
Total inventories 12,930 9,719
Deferred tax assets 27,200 20,608
Prepaid expenses and other current assets 7,883 6,432
- --------------------------------------------------------------------------------
Total current assets 418,880 316,751
- --------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land, buildings and improvements 50,964 26,978
Manufacturing and test equipment 111,174 65,235
Office furniture and equipment 2,667 2,277
- --------------------------------------------------------------------------------
164,805 94,490
- --------------------------------------------------------------------------------
Accumulated depreciation and amortization (53,883) (43,688)
- --------------------------------------------------------------------------------
Net property, plant and equipment 110,922 50,802
- --------------------------------------------------------------------------------
Total assets $529,802 $367,553
================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $18,075 $6,545
Accrued payroll and related benefits 21,319 14,841
Deferred income on shipments to distributors 24,928 17,227
Income taxes payable 8,395 10,178
Other accrued liabilities 13,681 7,037
- --------------------------------------------------------------------------------
Total current liabilities 86,398 55,828
- --------------------------------------------------------------------------------
Deferred tax liabilities 2,917 3,195
Commitments
Shareholders' equity:
Preferred stock, no par value, 2,000,000 shares
authorized, none issued or outstanding -- --
Common stock, no par value, 120,000,000 shares
authorized; 74,661,637 shares issued and
outstanding (73,586,292 shares in 1995) 132,482 100,939
Retained earnings 308,005 207,591
- --------------------------------------------------------------------------------
Total shareholders' equity 440,487 308,530
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $529,802 $367,553
================================================================================
See accompanying notes.
Exhibit 13.1-6
<PAGE>
<TABLE>
Linear Technology Corporation
Consolidated Statements of Cash Flows
Increase in Cash and Cash Equivalents
In thousands
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
THREE YEARS ENDED JUNE 30, 1996 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $133,964 $84,696 $56,827
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 10,263 8,563 6,339
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (18,625) (3,253) (6,511)
Decrease (increase) in inventories (3,211) 297 (1,640)
Decrease (increase) in deferred tax assets (6,592) (5,917) (4,283)
Decrease (increase) in prepaid expenses
and other current assets (1,451) (3,331) (646)
Increase (decrease) in accounts payable,
payroll and other accrued liabilities 24,652 5,694 5,685
Increase (decrease) in deferred income
on shipments to distributors 7,701 5,062 4,138
Tax benefit from stock option transactions 19,989 8,734 7,775
Increase (decrease) in income taxes payable (1,783) 2,151 1,934
Increase (decrease) in deferred tax liabilities (278) 1,192 657
- ---------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 164,629 103,888 70,275
- ---------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities:
Purchase of short-term investments (224,717) (146,832) (119,044)
Proceeds from sales and maturities of short-term investments 158,714 81,607 85,190
Purchase of property, plant and equipment (70,383) (22,092) (16,243)
- ---------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (136,386) (87,317) (50,097)
- ---------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Payments on long-term debt and capital lease obligations -- -- (1,467)
Issuance of common stock under employee stock plans 12,736 7,600 5,962
Purchase of common stock (22,871) (6,139) (1,336)
Payment of cash dividends (11,861) (9,836) (8,268)
- ---------------------------------------------------------------------------------------------------------------------
Cash used in financing activities (21,996) (8,375) (5,109)
- ---------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 6,247 8,196 15,069
Cash and cash equivalents, beginning of period 48,146 39,950 24,881
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $54,393 $48,146 $39,950
=====================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the fiscal year for income taxes $58,602 $37,594 $23,585
- ---------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes.
</FN>
</TABLE>
Exhibit 13.1-7
<PAGE>
<TABLE>
Linear Technology Corporation
Consolidated Statements of Shareholders' Equity
In thousands
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Total
Common Stock Retained Shareholders'
THREE YEARS ENDED JUNE 30, 1996 Shares Amount Earnings Equity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 27, 1993 71,348 $ 71,314 $ 91,201 $ 162,515
Issuance of common stock for cash under
employee stock option and stock
purchase plans 1,335 5,962 -- 5,962
Tax benefit from stock option transactions -- 7,775 -- 7,775
Purchase and retirement of common stock (66) (72) (1,264) (1,336)
Net income -- -- 56,827 56,827
Cash dividends - $0.12 per share -- -- (8,268) (8,268)
- ------------------------------------------------------------------------------------------------------------------------
Balance at July 3, 1994 72,617 84,979 138,496 223,475
Issuance of common stock for cash under
employee stock option and stock
purchase plans 1,289 7,600 -- 7,600
Tax benefit from stock option transactions -- 8,734 -- 8,734
Purchase and retirement of common stock (320) (374) (5,765) (6,139)
Net income -- -- 84,696 84,696
Cash dividends - $0.14 per share -- -- (9,836) (9,836)
- ------------------------------------------------------------------------------------------------------------------------
Balance at July 2, 1995 73,586 100,939 207,591 308,530
Issuance of common stock for cash under
employee stock option and stock
purchase plans 1,806 12,736 -- 12,736
Tax benefit from stock option transactions -- 19,989 -- 19,989
Purchase and retirement of common stock (730) (1,182) (21,689) (22,871)
Net income -- -- 133,964
133,964
Cash dividends - $0.16 per share -- -- (11,861) (11,861)
- ------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 74,662 $ 132,482 $ 308,005 $ 440,487
========================================================================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
Exhibit 13.1-8
<PAGE>
Linear Technology Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Description of Business and Significant Accounting Policies
Description of Business and Export Sales
Linear Technology Corporation (the Company) designs, manufactures and
markets high performance linear integrated circuits. Applications for the
Company's products include telecommunications, notebook and desktop computers,
video/multimedia, computer peripherals, cellular telephones, industrial,
automotive and process controls, networking, factory automation products and
satellites.
Export sales by geographic area were as follows:
In thousands 1996 1995 1994
- ----------------------------------------------------------------------------
Europe $87,920 $58,243 $48,099
Japan 57,954 26,371 15,593
Asia Pacific and other 49,718 44,870 27,053
- ----------------------------------------------------------------------------
Total export sales $195,592 $129,484 $90,745
- ----------------------------------------------------------------------------
Basis of Presentation
The Company's fiscal year ends on the Sunday nearest June 30. Fiscal
1996 and 1995 were 52 week periods, whereas fiscal 1994 was a 53 week period.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries after elimination of all significant
intercompany accounts and transactions. Accounts denominated in foreign
currencies have been translated using the U.S. dollar as the functional
currency. Foreign currency gains and losses, which were immaterial for fiscal
1996, 1995 and 1994, are reflected in income currently.
The preparation of financial statements in conforming with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents and Short-Term Investments
Cash equivalents are highly liquid investments with a maturity of three
months or less. Investments with a maturity of over three months at the time of
purchase are classified as short-term investments.
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 years
financial statements have not been restated to reflect the change in accounting
principle. The effect of adopting the Statement was not material to the
Company's shareholders' equity.
At the time of investment purchase and each balance sheet date, the
Company determines the appropriate classification of its investments in debt and
equity securities. At June 30, 1996 and July 2, 1995, all of the Company's
investments in debt securities were classified as available-for-sale which means
that although the Company principally holds securities until maturity, they may
be sold under certain circumstances. The debt securities were carried at
amortized cost which approximates fair market value. At June 30, 1996 and July
2, 1995, the Company had no investments in equity securities.
Exhibit 13.1-9
<PAGE>
Concentrations of Credit Risk
The Company's investment policy restricts investments to high credit
quality investments with a maturity of three years or less and limits the amount
invested with any one issuer. Concentrations of credit risk with respect to
accounts receivable are generally not significant due to the diversity of the
Company's customers and geographic sales areas. The Company performs ongoing
credit evaluations of its customers' financial condition and requires
collateral, primarily letters of credit, as deemed necessary.
The Company's two largest domestic distributors accounted for 20%, 23%
and 21% of net sales for fiscal 1996, 1995 and 1994, respectively. Distributors
are not end customers, but rather serve as a channel of sale to many end users
of the Company's products. No other distributor or customer accounted for 10% or
more of net sales for fiscal 1996, 1995 or 1994.
Inventories
Inventories are stated at the lower of standard cost, which approximates
actual cost determined on a first-in, first-out basis, or market.
Property, Plant and Equipment
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets (3-7 years for equipment
and 10-30 years for buildings and building improvements). Leasehold improvements
are amortized over the shorter of the asset's useful life or the term of the
lease. Included in property, plant and equipment at June 30, 1996 is $47.9
million of construction in progress related to the Company's new wafer
fabrication facility in Camas, Washington.
For fiscal 1997, the Company is required to adopt statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The adoption of the
statement is not expected to have a material impact on the Company's financial
statements.
Deferred Income on Shipments to Distributors
The Company sells to domestic distributors under agreements allowing
price protection and right of return on merchandise unsold by the distributors.
Because of the uncertainty associated with pricing concessions and future
returns, the Company defers recognition of such sales and profits in its
financial statements until the merchandise is sold by the domestic distributors.
The Company estimates international distributor returns and defers a portion of
international distributor sales and profits based on these estimated returns.
Common Stock and Employee Stock Plans
In July 1995, the Company's Board of Directors approved a two-for-one
split of the Company's common stock for shareholders of record as of August 11,
1995. All share and per share information have been restated to reflect the
stock split.
The Company accounts for its employee stock plans in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees." As allowed by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company intends to continue using APB No. 25 for determining
net income and will provide pro forma disclosures starting in fiscal 1997.
Net Income per Share
Net income per share is based upon the weighted average number of shares
of common stock outstanding and common equivalent shares, if dilutive.
Exhibit 13.1-10
<PAGE>
<TABLE>
2. Cash Equivalents and Short-Term Investments
The estimated fair values of cash equivalents and short-term investments
are based on quoted market prices. Cash equivalents and short-term investments
as of June 30, 1996 were as follows:
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash equivalents:
Money market funds and floating rate notes $ 25,138 $ -- $ -- $ 25,138
Municipal bonds 18,100 -- 4 18,096
- ----------------------------------------------------------------------------------------------------------------------
43,238 -- 4 43,234
- ----------------------------------------------------------------------------------------------------------------------
Short-term investments:
Municipal bonds 169,344 245 238 169,351
U.S. Treasury securities and obligations
of U.S. government agencies 82,207 83 562 81,728
Other debt securities 16,528 -- 18 16,510
- ----------------------------------------------------------------------------------------------------------------------
268,079 328 818 267,589
- ----------------------------------------------------------------------------------------------------------------------
Total cash equivalents and
short-term investments $311,317 $ 328 $ 822 $310,823
======================================================================================================================
</TABLE>
<TABLE>
Cash equivalents and short-term investments as of July 2, 1995 were as follows:
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash equivalents:
Money market funds and floating rate notes $ 26,952 $ 4 $ -- $ 26,956
Municipal bonds 12,368 -- 3 12,365
Other debt securities 4,934 4 -- 4,938
- ----------------------------------------------------------------------------------------------------------------------
44,254 8 3 44,259
- ----------------------------------------------------------------------------------------------------------------------
Short-term investments:
Municipal bonds 114,818 217 425 114,610
U.S. Treasury securities and obligations
of U.S. government agencies 85,306 174 353 85,127
Other debt securities 1,952 28 -- 1,980
- ----------------------------------------------------------------------------------------------------------------------
202,076 419 778 201,717
- ----------------------------------------------------------------------------------------------------------------------
Total cash equivalents and
short-term investments $246,330 $ 427 $ 781 $245,976
======================================================================================================================
</TABLE>
The amortized cost and estimated fair value of investments in debt
securities at June 30, 1996, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers of the
securities may have the right to repay obligations without prepayment penalties.
Amortized Estimated
In thousands Cost Fair Value
- --------------------------------------------------------------------------------
Due in 1 year or less $161,055 $161,042
Due in 1-3 years 150,262 149,781
- --------------------------------------------------------------------------------
Total cash equivalents and
short-term investments $311,317 $310,823
- --------------------------------------------------------------------------------
Exhibit 13.1-11
<PAGE>
3. Lease Commitments
The Company leases certain of its facilities under operating leases,
some of which have options to extend the lease period. In addition, the Company
has entered into long-term land leases for the sites of its Singapore and
Malaysia manufacturing facilities.
At June 30, 1996, the future minimum lease payments under noncancelable
operating leases having an initial term in excess of one year were as follows:
fiscal 1997: $1,555,000; fiscal 1998: $1,242,000; fiscal 1999: $1,157,000;
fiscal 2000: $1,153,000; fiscal 2001: $761,000; and thereafter: $12,248,000.
Total rent expense under operating leases was approximately $2,015,000,
$1,928,000, and $1,701,000 in fiscal 1996, 1995, and 1994, respectively.
4. Employee Benefit Plans
Stock Option Plans
The Company established stock option plans in 1981 and 1988 under which
options to purchase shares of the Company's common stock may be granted to
employees and directors at a price no less than the fair market value on the
date of the grant, as determined by the Board of Directors. The 1981 plan has
expired and, therefore, no additional shares may be granted under this plan. The
1988 plan shall continue in effect for a term of ten years, unless terminated by
the Board of Directors. At June 30, 1996, the total authorized number of shares
under both plans was 30,500,000.
Options become exercisable over a five-year period (generally 10% every
six months). All options expire ten years after the date of the grant.
Activity during fiscal 1994, 1995 and 1996 was as follows:
Outstanding options, June 27, 1993 7,882,558
Granted 2,632,000
Canceled (207,400)
Exercised (option price range per share: $0.38 to $17.38) (1,228,446)
- ----------------------------------------------------------------------------
Outstanding options, July 3, 1994 9,078,712
Granted 1,926,000
Canceled (236,300)
Exercised (option price range per share: $0.38 to $22.50) (1,211,606)
- ----------------------------------------------------------------------------
Outstanding options, July 2, 1995 9,556,806
Granted 2,744,500
Canceled (209,080)
Exercised (option price range per share: $0.96 to $34.12) (1,734,278)
- ----------------------------------------------------------------------------
Outstanding options, June 30, 1996 10,357,948
============================================================================
At June 30, 1996:
Shares exercisable (4,624,206 at July 2, 1995) 4,715,248
Shares available for grant (4,615,780 at July 2, 1995) 2,080,360
Option price range per share:
Shares outstanding $1.84 - $41.50
Shares exercisable $1.84 - $41.50
- ----------------------------------------------------------------------------
Stock Purchase Plan
The Company's stock purchase plan permits eligible employees to purchase
common stock through payroll deductions at the lower of 85% of the fair market
value of common stock at the beginning or the end of each six month offering
period. The offering periods commence on approximately May 1 and November 1 of
each year. At June 30, 1996, the shares reserved for issuance under this plan
totaled 1,600,000 and 1,486,313 shares had been issued under this plan. During
fiscal 1996, 71,067 shares were issued at an average price of $27.51 per share
pursuant to this plan.
Retirement Plan
The Company has established a 401(k) retirement plan for its qualified
U.S. employees. Profit sharing contributions made by the Company to this plan
were $4,864,000, $3,003,000 and $1,801,000 for fiscal 1996, 1995 and 1994,
respectively.
Exhibit 13.1-12
<PAGE>
5. Income Taxes
The components of income before income taxes are as follows:
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
United States operations $189,275 $116,905 $ 80,174
Foreign operations 14,627 11,545 6,321
- --------------------------------------------------------------------------------
$203,902 $128,450 $ 86,495
================================================================================
The provision for income taxes consists of the following:
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
United States federal:
Current $ 67,498 $ 39,924 $ 27,712
Deferred (6,725) (4,222) (3,370)
- --------------------------------------------------------------------------------
60,773 35,702 24,342
- --------------------------------------------------------------------------------
State:
Current 8,897 8,132 5,500
Deferred (145) (503) (256)
- --------------------------------------------------------------------------------
8,752 7,629 5,244
- --------------------------------------------------------------------------------
Foreign-Current 413 423 82
- --------------------------------------------------------------------------------
$ 69,938 $ 43,754 $ 29,668
================================================================================
Actual current tax liabilities are lower than the amounts reflected
above by the tax benefit from stock option activity of $19,989,000, $8,734,000,
and $7,775,000 for fiscal 1996, 1995 and 1994, respectively. The tax benefit
from stock option activity is recorded as a reduction in current income taxes
payable and an increase in common stock.
The provision for income taxes reconciles to the amount computed by
applying the statutory U.S. federal rate at 35% to income before income taxes as
follows:
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Tax at U.S. statutory rate $71,366 $44,958 $30,273
State income taxes, net of federal benefit 5,689 4,959 3,409
Research and development credit -- (819) (644)
Earnings of foreign subsidiaries subject
to lower rates (4,699) (3,853) (1,294)
Tax exempt interest income (2,529) (1,525) (1,050)
Other 111 34 (1,026)
- --------------------------------------------------------------------------------
$69,938 $43,754 $29,668
================================================================================
Exhibit 13.1-13
<PAGE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities recorded in the
balance sheet as of June 30, 1996 and July 2, 1995 are as follows:
In thousands 1996 1995
- ------------------------------------------------------------------------------
Deferred tax assets:
Inventory valuation $8,113 $7,123
Deferred income 9,971 7,167
State income taxes 5,595 4,317
Other 3,521 2,001
- ------------------------------------------------------------------------------
Total deferred assets 27,200 20,608
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization 2,917 3,195
- ------------------------------------------------------------------------------
Net deferred tax assets $24,283 $17,413
==============================================================================
The Company's Singapore subsidiary has been granted a seven year tax
holiday, which is scheduled to expire in September 1996. The Company's Malaysia
subsidiary was granted a five year tax holiday. To date no tax has been provided
for either Singapore's or Malaysia's income from operations. The impact of the
Singapore and Malaysia tax holidays was to increase net income by approximately
$3,731,000 ($0.05 per share) in fiscal 1996, $3,624,000 ($0.05 per share) in
fiscal 1995 and $1,306,000 ($0.02 per share) in fiscal 1994.
The Company does not provide a residual U.S. tax on the undistributed
earnings of its Singapore and Malaysia subsidiaries, as it is the Company's
intention to permanently invest the earnings overseas. Should these earnings be
remitted to the U.S. parent, the additional U.S. taxable income would be
$34,047,000.
Exhibit 13.1-14
<PAGE>
Report of Ernst & Young LLP,
Independent Auditors
The Board of Directors and Shareholders of Linear Technology Corporation
We have audited the accompanying consolidated balance sheets of Linear
Technology Corporation as of June 30, 1996 and July 2, 1995 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended June 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Linear Technology Corporation at June 30, 1996 and July 2, 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
San Jose, California /s/ Ernst & Young LLP
July 19, 1996
COMPANY PROFILE
Linear Technology Corporation designs,
manufactures and markets a broad line of
standard high performance linear integrated
circuits utilizing bipolar and silicon gate
CMOS process technologies.
BOARD OF DIRECTORS
Thomas S. Volpe
Chief Executive Officer
Volpe, Welty & Co.
Investment Banking Firm
David S. Lee
Chairman of the Board
Cortelco Systems Holding Corp.
Manufacturer, Telecommunication
Systems and Products
Leo T. McCarthy
President
The Daniel Group
International Consulting Firm
Richard M. Moley
Senior Vice President
Cisco Systems, Inc.
Manufacturer, Telecommunication
Internetworking
Systems and Products
Robert H. Swanson, Jr.
President and Chief Executive Officer
Linear Technology Corporation
Exhibit 13.1-15
<PAGE>
OFFICERS
Robert H. Swanson, Jr.
President and Chief Executive Officer
Paul Chantalat
Vice President, Quality and Reliability
Paul Coghlan
Vice President, Finance and
Chief Financial Officer
Timothy D. Cox
Vice President, North American Sales
Clive B. Davies, Ph.D.
Vice President and Chief Operating Officer
Robert C. Dobkin
Vice President, Engineering
Sean T. Hurley
Vice President, Operations
Thomas D. Recine
Vice President, Marketing
Hans J. Zapf
Vice President, International Sales
Arthur F. Schneiderman
Secretary
Attorney, Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation
Legal Counsel
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston
Boston, Massachusetts
INDEPENDENT AUDITORS
Ernst & Young LLP
San Jose, California
CORPORATE AND INVESTOR INFORMATION
Please direct inquiries to Paul Coghlan,
Vice President, Finance and CFO,
Linear Technology Corporation, 1630 McCarthy Blvd.,
Milpitas, California, 95035-7417
SEC FORM 10-K
If you would like a copy of our annual report
on Form 10-K as filed with the Securities and
Exchange Commission for the fiscal year ended
June 30, 1996, you may obtain it without
charge. Direct your request to Paul Coghlan,
Vice President, Finance and CFO, Linear
Technology Corporation, 1630 McCarthy Blvd.,
Milpitas, California, 95035-7417
Exhibit 13.1-16
EXHIBIT 21.1
LINEAR TECHNOLOGY CORPORATION
LIST OF SUBSIDIARIES
1. Linear Technology (U.K.) Limited
2. Linear Technology KK
3. Linear Technology GmbH
4. Linear Technology S.A.R.L.
5. Linear Technology PTE
6. Linear Technology Foreign Sales Corporation
7. Linear Technology (Taiwan) Corporation
8. Linear Technology Korea
9. Linear Semiconductor Sdn Bhd
10. Linear Technology A.B.
23
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Linear Technology Corporation of our report dated July 19, 1996, included in
the 1996 Annual Report to Shareholders of Linear Technology Corporation.
Our audits also included the financial statement schedule of Linear Technology
Corporation listed in Item 14(d). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-8306, 33-27367, 33-37432, 33-57330 and 33-58745) pertaining to
the 1986 Employee Stock Purchase Plan, 1981 Incentive Stock Option Plan and 1988
Incentive Stock Option Plan of Linear Technology Corporation and in the related
Prospectuses of our report dated July 19, 1996, with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedule
included in the Annual Report (Form 10-K) for the year ended June 30, 1996.
/s/ Ernst & Young LLP
San Jose, California
September 23, 1996
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Form 10-K for the year ended June 30, 1996
</LEGEND>
<CIK> 0000791907
<NAME> LINEAR TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-03-1995
<PERIOD-END> JUN-30-1996
<CASH> 322,472
<SECURITIES> 0
<RECEIVABLES> 49,171
<ALLOWANCES> 776
<INVENTORY> 12,930
<CURRENT-ASSETS> 418,880
<PP&E> 164,805
<DEPRECIATION> 53,883
<TOTAL-ASSETS> 529,802
<CURRENT-LIABILITIES> 86,398
<BONDS> 0
<COMMON> 132,482
0
0
<OTHER-SE> 308,005
<TOTAL-LIABILITY-AND-EQUITY> 529,802
<SALES> 377,771
<TOTAL-REVENUES> 377,771
<CGS> 106,832
<TOTAL-COSTS> 106,832
<OTHER-EXPENSES> 80,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 203,902
<INCOME-TAX> 69,938
<INCOME-CONTINUING> 133,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,964
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.72
</TABLE>
