FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-14864
LINEAR TECHNOLOGY CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2778785
---------- ----------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION)
1630 MCCARTHY BLVD.
MILPITAS, CALIFORNIA 95035-7417
(408) 432-1900
--------------
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ----
There were 74,875,153 shares of the Registrant's Common Stock issued and
outstanding as of April 30, 1996.
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED MARCH 31, 1996
INDEX
<CAPTION>
Page
<S> <C>
Part I: Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the three and nine 2
months ended March 31, 1996 and April 2, 1995
Consolidated Balance Sheets at March 31, 1996 and 3-4
July 2, 1995
Consolidated Statements of Cash Flows for the nine 5-6
months ended March 31, 1996 and April 2, 1995
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8-10
Condition and Results of Operations
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 104,710 $ 68,135 $ 287,732 $ 188,320
Cost of sales 28,473 21,152 81,544 59,765
---------- ---------- ---------- -----------
Gross profit 76,237 46,983 206,188 128,555
---------- ---------- ---------- -----------
Expenses:
Research and development 8,309 6,281 23,078 17,403
Selling, general and
administrative 13,832 9,907 36,626 27,560
---------- ----------- ----------- -----------
22,141 16,188 59,704 44,963
---------- ----------- ----------- -----------
Operating income 54,096 30,795 146,484 83,592
Interest income 3,383 2,243 9,691 5,741
---------- ----------- ------------ -----------
Income before income taxes 57,479 33,038 156,175 89,333
Provision for income taxes 19,715 11,233 53,568 30,454
---------- ----------- ----------- -----------
Net income $ 37,764 $ 21,805 $ 102,607 $ 58,879
========== ========== =========== ===========
Net income per share $ 0.48 $ 0.28 $ 1.32 $ 0.77
========== ========== =========== ===========
Shares used in the calculation of net
income per share 78,219 76,510 77,961 76,102
========== ========== =========== ===========
<FN>
See accompanying notes
</FN>
</TABLE>
2
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
March 31, July 2,
1996 1995
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 67,866 $ 48,146
Short-term investments 243,236 202,076
Accounts receivable, net of allowance for
doubtful accounts of $761 ($728 at
July 2, 1995) 49,610 29,770
Inventories:
Raw materials 2,533 1,270
Work-in-process 5,294 4,726
Finished goods 3,719 3,723
----------- -----------
Total inventories 11,546 9,719
Deferred tax assets 24,608 20,608
Prepaid expenses and other current assets 6,949 6,432
----------- -----------
Total current assets 403,815 316,751
----------- -----------
Property, plant and equipment, at cost:
Land, building and improvements 41,861 26,978
Manufacturing and test equipment 102,435 65,235
Office furniture and equipment 2,412 2,277
----------- ------------
146,708 94,490
Less accumulated depreciation and
amortization (51,140) (43,688)
----------- -----------
Net property, plant and equipment 95,568 50,802
----------- -----------
$ 499,383 $ 367,553
=========== ============
See accompanying notes
3
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
March 31, July 2,
1966 1995
----------- ---------
(unaudited)
Current liabilities:
Accounts payable $ 18,908 $ 6,545
Accrued payroll and related benefits 16,043 14,841
Deferred income on shipments to distributors 24,734 17,227
Income taxes payable 1,581 10,178
Other accrued liabilities 13,207 7,037
---------- ----------
Total current liabilities 74,473 55,828
Deferred tax liabilities 4,095 3,195
Shareholders' equity:
Common stock, no par value, 120,000,000
shares authorized; 74,832,741
shares issued and outstanding at
March 31, 1996 (73,586,292 shares
at July 2, 1995) 127,595 100,939
Retained earnings 293,220 207,591
---------- ----------
Total shareholders' equity 420,815 308,530
---------- ----------
$ 499,383 $ 367,553
========= ==========
See accompanying notes
4
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
<CAPTION>
Nine Months Ended
----------------------
March 31, April 2,
1996 1995
--------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 102,607 $ 58,879
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,511 5,708
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (19,840) (4,583)
Decrease (increase) in inventories (1,827) 1,235
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets (4,517) (3,819)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities 11,138 (711)
Tax benefit from stock option transactions 17,245 6,025
Increase (decrease) in deferred income 7,507 4,790
Increase (decrease) in deferred tax liabilities 900 800
--------- ---------
Cash provided by operating activities 120,724 68,324
--------- ---------
Cash flow from investing activities:
Purchase of short-term investments (183,252) (91,113)
Proceeds from sales and maturities of short-term
investments 142,092 71,364
Purchase of property, plant and equipment (52,277) (16,083)
--------- ---------
Cash used in investing activities (93,437) (35,832)
--------- ---------
Cash flow from financing activities:
Issuance of common stock under employee stock
plans 9,772 5,645
Purchase of common stock (8,473) (6,139)
Payment of cash dividends (8,866) (7,267)
--------- ---------
Cash used in financing activities (7,567) (7,761)
--------- ---------
Increase in cash and cash equivalents 19,720 24,731
Cash and cash equivalents, beginning of period 48,146 39,950
--------- ---------
Cash and cash equivalents, end of period $ 67,866 $ 64,681
========= =========
<FN>
See accompanying notes
</FN>
</TABLE>
5
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
----------------------------
March 31, April 2,
1996 1995
------------ ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 48,020 $ 26,882
See accompanying notes
6
<PAGE>
LINEAR TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Interim financial statements and information are unaudited; however, in the
opinion of management all adjustments necessary for a fair and accurate
presentation of the interim results have been made. All such adjustments
were of a normal recurring nature. The results for the three and nine
months ended March 31, 1996 are not necessarily an indication of results to
be expected for the entire fiscal year. All information reported in this
Form 10-Q should be read in conjunction with the Company's annual
consolidated financial statements for the fiscal year ended July 2, 1995,
included in the Company's Annual Report to Shareholders.
2. The Company operates on a 52/53 week year ending on the Sunday nearest June
30. Fiscal 1996 and 1995 each have 52 weeks.
3. Net income per share is based upon the weighted average number of shares of
common stock outstanding and common equivalent shares, if dilutive.
4. In July 1995, the Company's Board of Directors declared 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.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
<TABLE>
Results of Operations
The table below states the income statement items for the three and nine
months ended March 31, 1996 and April 2, 1995 as a percentage of net sales and
provides the percentage increase in absolute dollars of such items comparing the
interim periods ended March 31, 1996 to the corresponding periods from the prior
fiscal year:
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ----------------------------------
Dollar Dollar
March 31, April 2, Increase March 31, April 2, Increase
1996 1995 Percentage 1996 1995 Percentage
--------- -------- ------------ -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 54% 100.0% 100.0% 53%
Cost of sales 27.2 31.0 35 28.3 31.7 36
----- ----- ------ ------
Gross profit 72.8 69.0 62 71.7 68.3 60
----- ----- ------ ------
Expenses:
Research & development 7.9 9.2 32 8.0 9.3 33
Selling, general &
administrative 13.2 14.6 40 12.8 14.6 33
----- ----- ------ ------
21.1 23.8 37 20.8 23.9 33
----- ----- ------ ------
Operating income 51.7 45.2 76 50.9 44.4 75
Interest income 3.2 3.3 51 3.4 3.0 69
----- ----- ------ ------
Income before income taxes 54.9% 48.5% 74 54.3% 47.4% 75
===== ===== ====== ======
Effective tax rates 34.3% 34.0% 34.3% 34.1%
===== ===== ====== ======
</TABLE>
Net sales for the third quarter and first nine months of fiscal 1996
increased 54% and 53%, respectively, over the corresponding periods in fiscal
1995. The increases in net sales were due mostly to higher unit sales and in
part due to higher average selling prices, resulting from firmer pricing and
changes in product mix. Each of the Company's major geographic markets showed
increases in net sales for the third quarter and first nine months of fiscal
1996 as compared to the same periods in the prior year, with the Japan market
experiencing the largest increase as a percentage of net sales.
Gross profit increased by $29.3 million and $77.6 million for the third
quarter and first nine months of fiscal 1996 over the corresponding periods in
fiscal 1995. Gross profit as a percentage of net sales was 72.8% and 71.7% in
the third quarter and first nine months of fiscal 1996, respectively, as
compared to 69.0% and 68.3% for the corresponding periods of fiscal 1995. The
increase in gross profit as a percentage of net sales was due to the absorption
of fixed costs over the increased sales volume, the cost savings from the
increasing activity at the Company's Singapore test manufacturing operations and
the cost savings from the Company's Malaysia assembly operations versus outside
assembly contractors. Also contributing to the increase in gross profit was the
increase in the average selling prices referred to above. Gross profit was
slightly negatively impacted by higher raw material costs.
Research and development expenses increased by $2.0 million and $5.7
million for the third quarter and first nine months of fiscal 1996,
respectively, as compared to the same periods in fiscal 1995 due primarily to
increased staffing of and compensation to design engineering personnel. Although
design engineering staffing increased significantly, research and development
labor expense, especially support staff labor expense, did not increase at the
same rate as the sales growth from fiscal 1995 to fiscal, 1996, thereby causing
research and development expenses to decrease as a percent of sales.
Additionally, mask sets and test wafer expense was approximately the same for
the third quarter and first nine months of fiscal 1996 as compared to the same
periods in the prior fiscal year.
8
<PAGE>
Results of Operations, continued:
Selling, general and administrative expenses were 13.2% and 12.8% of net
sales for the third quarter and first nine months of fiscal 1996, respectively,
as compared to 14.6% of net sales for both the third quarter and first nine
months of fiscal 1995. Although selling, general and administrative expenses
increased in absolute dollars, as a percentage of net sales, selling, general
and administrative expenses continued to decline primarily due to proportionally
lower labor costs and advertising and promotion expense. External commission
expense as a percentage of net sales was down slightly from the third quarter of
fiscal 1995 to the third quarter of fiscal 1996 due to the proportional increase
in commission-free international sales, but remained relatively constant for the
first nine months of fiscal 1996 as compared to the same period in fiscal 1995.
Approximately $1 million of expenses were incurred in this quarter for new
building occupancy and site preparation, and additional legal expenses as
certain patent related litigation progressed towards trial.
Interest income was $3.4 million and $9.7 million for the third quarter and
first nine months of fiscal 1996, respectively, compared to $2.2 million and
$5.7 million for the corresponding periods of fiscal 1995. The increases in
interest income resulted mostly from the increase in cash, cash equivalents and
short-term investments. Additionally, for the first nine months of fiscal 1996,
interest income increased over the prior year due in part to the increase in the
average interest rate of the investment portfolio.
Factors Affecting Future Operating Results
Except for historical information contained herein, the matters set forth
in this Form 10-Q, including the statements in the following paragraphs, are
forward-looking statements that are dependent on certain risks and uncertainties
including such factors, among others, as the timing, volume and pricing of new
orders received and shipped during the quarter, timely ramp-up of new
facilities, and the timely introduction of new processes and products.
Historically, new bookings accelerate particularly in March and April over
the December run rate. This did not happen this year and consequently new
business booked during this quarter fell short of our expectations. The two
end-markets that incurred this difficulty were computer and telecommunications.
The semiconductor industry overall has experienced a similar turndown in demand.
Should this softness in bookings continue, our sales in the upcoming quarter
ending June 30, 1996 would slip backwards by approximately 15% from the levels
just reported. We believe net margins as a percentage of sales will continue to
be strong and the reduction in net profits will track relatively closely to this
percentage slip in sales.
Commencing in the June quarter, we will have an increase in fixed costs of
approximately 1% to 2% of sales relative to our new wafer fabrication plant in
Camas, Washington. Manufacturing production had been scheduled to begin in the
second half of calendar 1996. Given the current softness in demand referred to
above, we will delay this until the first half of calendar 1997.
Looking out further, our fiscal year 1997 could have flat to modest growth
in profits and sales over the very robust growth of our fiscal year 1996 ending
June 30, 1996.
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.
9
<PAGE>
Liquidity and Capital Resources
At March 31, 1996, cash, cash equivalents and short-term investments
totaled $311.1 million, and working capital was $329.3 million.
During the first nine months of fiscal 1996, the Company generated $120.7
million of cash from operating activities. In addition, the Company received
$9.8 million from common stock issued under employee stock option and stock
purchase plans.
The Company purchased $52.3 million of capital assets during the first nine
months of fiscal 1996, including approximately $1.7 million for wafer
fabrication equipment for the Company's Milpitas wafer fab and $36.5 million for
building construction and equipment for the Company's next wafer fab in Camas,
Washington. The initial investment in the Camas wafer fabrication plant is
estimated to be approximately $47 million of which approximately $37 million has
been spent to date. Manufacturing production is now scheduled to begin in the
first half of calendar 1997.
The Company continues to expand its manufacturing capacity at its Malaysia
assembly plant and Singapore test and back-end facility. During the first nine
months of fiscal 1996, the Company spent approximately $6.2 million for building
improvements and equipment for its manufacturing operations in Singapore and
Malaysia.
The Company purchased and retired 250,000 shares of its common stock in the
first nine months of fiscal 1996 for $8.5 million. During the first nine months
of fiscal 1996, the Company paid its shareholders dividends which totaled $8.9
million. In April 1996, the Company's Board of Directors announced that a
quarterly cash dividend of $0.04 per share will be paid during the fourth
quarter of fiscal 1996. The payment of future dividends will be based on
quarterly financial performance.
Historically, the Company has satisfied its liquidity needs through cash
generated from operations, the placement of equity securities and the
utilization of lease financing for capital equipment and facilities. Given its
strong financial condition and performance, the Company's near-term plan is to
primarily finance its capital needs internally.
10
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINEAR TECHNOLOGY CORPORATION
DATE: May 14, 1996 BY /s/Paul Coghlan
-----------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Form 10-Q for the period ended March 31, 1996
</LEGEND>
<CIK> 0000791907
<NAME> Linear Technology Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-03-1995
<PERIOD-END> MAR-31-1996
<CASH> 311,102
<SECURITIES> 0
<RECEIVABLES> 50,371
<ALLOWANCES> 761
<INVENTORY> 11,546
<CURRENT-ASSETS> 403,815
<PP&E> 146,708
<DEPRECIATION> 51,140
<TOTAL-ASSETS> 499,383
<CURRENT-LIABILITIES> 74,473
<BONDS> 0
<COMMON> 127,595
0
0
<OTHER-SE> 293,220
<TOTAL-LIABILITY-AND-EQUITY> 499,383
<SALES> 287,732
<TOTAL-REVENUES> 287,732
<CGS> 81,544
<TOTAL-COSTS> 81,544
<OTHER-EXPENSES> 59,704
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 156,175
<INCOME-TAX> 53,568
<INCOME-CONTINUING> 102,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,607
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
</TABLE>
