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 DECEMBER 31, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-14864
LINEAR TECHNOLOGY CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2778785
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
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 74,348,603 shares of the Registrant's Common Stock issued and
outstanding as of January 26, 1996.
<PAGE>
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND SIX MONTHS ENDED DECEMBER 31, 1995
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the three and six 2
months ended December 31, 1995 and January 1, 1995
Consolidated Balance Sheets at December 31, 1995 and 3-4
July 2, 1995
Consolidated Statements of Cash Flows for the six 5-6
months ended December 31, 1995 and January 1, 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 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
------------------------ -----------------------
December 31, January 1, December 31, January 1,
1995 1995 1995 1995
-------- -------- -------- --------
Net sales $ 96,017 $ 62,103 $183,022 $120,185
Cost of sales 27,646 19,992 53,071 38,613
-------- -------- -------- --------
Gross profit 68,371 42,111 129,951 81,572
-------- -------- -------- --------
Expenses:
Research and development 7,741 5,675 14,769 11,122
Selling, general and
administrative 11,643 9,164 22,794 17,653
-------- -------- -------- --------
19,384 14,839 37,563 28,775
-------- -------- -------- --------
Operating income 48,987 27,272 92,388 52,797
Interest income 3,255 1,885 6,308 3,498
-------- -------- -------- --------
Income before income taxes 52,242 29,157 98,696 56,295
Provision for income taxes 17,919 9,913 33,853 19,221
-------- -------- -------- --------
Net income $34,323 $19,244 $ 64,843 $ 37,074
======== ======= ======== ========
Net income per share $ 0.44 $ 0.25 $ 0.83 $ 0.49
======== ======= ======== ========
Shares used in the calculation
of net income per share 77,965 75,966 77,832 75,898
======== ======= ======== ========
See accompaning notes
2
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
December 31, July 2,
1995 1995
----------- ----------
(unaudited)
Current assets:
Cash and cash equivalents $ 74,920 $ 48,146
Short-term investments 229,372 202,076
Accounts receivable, net of allowance for
doubtful accounts of $758 ($728 at
July 2, 1995) 34,769 29,770
Inventories:
Raw materials 1,955 1,270
Work-in-process 4,832 4,726
Finished goods 4,982 3,723
--------- ---------
Total inventories 11,769 9,719
Deferred tax assets 21,808 20,608
Prepaid expenses and other current assets 7,441 6,432
--------- ---------
Total current assets 380,079 316,751
--------- ---------
Property, plant and equipment, at cost:
Land, building and improvements 37,329 26,978
Manufacturing and test equipment 76,482 65,235
Office furniture and equipment 2,389 2,277
--------- ---------
116,200 94,490
Less accumulated depreciation and
amortization (48,520) (43,688)
--------- ---------
Net property, plant and equipment 67,680 50,802
--------- ---------
$ 447,759 $ 367,553
========= =========
See accompanying notes
3
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
December 31, July 2,
1995 1995
---------- ---------
(unaudited)
Current liabilities:
Accounts payable $ 10,120 $ 6,545
Accrued payroll and related benefits 19,614 14,841
Deferred income on shipments to distributors 21,432 17,227
Income taxes payable 8,414 10,178
Other accrued liabilities 9,334 7,037
-------- --------
Total current liabilities 68,914 55,828
Deferred tax liabilities 3,795 3,195
Shareholders' equity:
Common stock, no par value, 120,000,000
shares authorized; 74,071,449
shares issued and outstanding at
December 31, 1995 (73,586,292 shares
at July 2, 1995) 111,882 100,939
Retained earnings 263,168 207,591
-------- --------
Total shareholders' equity 375,050 308,530
-------- --------
$447,759 $367,553
======== ========
See accompanying notes
4
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
Six Months Ended
------------------------
December 31, January 1,
1995 1995
-------- --------
Cash flow from operating activities:
Net income $ 64,843 $ 37,074
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,891 3,548
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (4,999) (1,637)
Decrease (increase) in inventories (2,050) 784
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets (2,209) (2,489)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities 8,881 (263)
Tax benefit from stock option transactions 5,795 3,185
Increase (decrease) in deferred income 4,205 1,817
Increase (decrease) in deferred tax liabilities 600 500
-------- --------
Cash provided by operating activities 79,957 42,519
-------- --------
Cash flow from investing activities:
Purchase of short-term investments (133,547) (71,963)
Proceeds from sales and maturities of short-term
investments 106,251 45,430
Purchase of property, plant and equipment (21,769) (11,919)
-------- --------
Cash used in investing activities (49,065) (38,452)
-------- --------
Cash flow from financing activities:
Issuance of common stock under employee stock
plans 5,281 3,294
Purchase of common stock (3,501) (6,139)
Payment of cash dividends (5,898) (4,712)
-------- --------
Cash used in financing activities (4,118) (7,557)
-------- --------
Increase (decrease) in cash and cash equivalents 26,774 (3,490)
Cash and cash equivalents, beginning of period 48,146 39,950
-------- --------
Cash and cash equivalents, end of period $ 74,920 $ 36,460
======== ========
See accompanying notes
5
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended
------------------------
December 31, January 1,
1995 1995
------------ ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 30,422 $ 19,338
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 six months
ended December 31, 1995 are not necessarily an indication of results to be
expected for the entire fiscal year. All information reported in this Form
10-Q should be read in conjunction with the Company's annual consolidated
financial statements for the fiscal year ended July 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
Results of Operations
<TABLE>
The table below states the income statement items for the three and six
months ended December 31, 1995 and January 1, 1995 as a percentage of net sales
and provides the percentage increase in absolute dollars of such items comparing
the interim periods ended December 31, 1995 to the corresponding periods from
the prior fiscal year:
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------- ------------------------------------
Dollar Dollar
December 31, January 1, Increase December 31, January 1, Increase
1995 1995 Percentage 1995 1995 Percentage
------------ ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 55% 100.0% 100.0% 52%
Cost of sales 28.8 32.2 38 29.0 32.1 37
------ ------ ------ ------
Gross profit 71.2 67.8 62 71.0 67.9 59
------ ------ ------ ------
Expenses:
Research & development 8.1 9.1 36 8.1 9.3 33
Selling, general &
administrative 12.1 14.8 27 12.4 14.7 29
------ ------ ------ ------
20.2 23.9 31 20.5 24.0 31
------ ------ ------ ------
Operating income 51.0 43.9 80 50.5 43.9 75
Interest income 3.4 3.0 73 3.4 2.9 80
------- ------- ------- -------
Income before income taxes 54.4% 46.9% 79 53.9% 46.8% 75
====== ====== ====== ======
Effective tax rates 34.3% 34.0% 34.3% 34.1%
====== ====== ====== ======
</TABLE>
Net sales for the second quarter and first six months of fiscal 1996
increased 55% and 52%, 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. Each
of the Company's major geographic markets showed increases in net sales for the
second quarter and first six 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 $26.3 million and $48.4 million for the
second quarter and first six months of fiscal 1996 over the corresponding
periods in fiscal 1995. Gross profit as a percentage of net sales was 71.2% and
71.0% in the second quarter and first six months of fiscal 1996, respectively,
as compared to 67.8% and 67.9% 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 $2.1 million and $3.6
million for the second quarter and first six 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 slightly lower in the second
quarter of fiscal 1996 as compared to the second quarter of fiscal 1995 and
approximately the same in the first six months of fiscal 1996 versus 1995.
8
<PAGE>
Results of Operations, continued:
Selling, general and administrative expenses were 12.1% and 12.4% of
net sales for the second quarter and first six months of fiscal 1996, as
compared to 14.8% and 14.7% of net sales for the corresponding periods in the
previous fiscal year. Although selling, general and administrative expenses
increase in absolute dollars, as a percentage of net sales, selling, general and
administrative expenses continued to decline due to proportionally lower labor
costs, advertising and promotion expense and other expenses. External commission
expense as a percentage of net sales remained relatively constant in the second
quarter and first six months of fiscal 1996 as compared to the same periods in
fiscal 1995.
Interest income was $3.3 million and $6.3 million for the second
quarter and first six months of fiscal 1996, respectively, compared to $1.9
million and $3.5 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 and in part from the increase in the
average interest rate of the investment portfolio year over year.
Factors Affecting Future Operating Results
Past performance of the Company may not be a good indicator of future
performance due to factors affecting the Company, its competitors, the
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.
Liquidity and Capital Resources
At December 31, 1995, cash, cash equivalents and short-term investments
totaled $304.3 million, and working capital was $311.2 million.
During the first six months of fiscal 1996, the Company generated $80.0
million of cash from operating activities. In addition, the Company generated
$5.3 million from proceeds from common stock issued under employee stock option
and stock purchase plans.
The Company purchased $21.8 million of capital assets during the first
six months of fiscal 1996 including approximately $1.5 million for wafer
fabrication equipment for the Company's Milpitas wafer fab and $12.6 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 $13 million has
been spent to date. Manufacturing production is scheduled to begin in the second
half of calendar 1996.
The Company continues to expand its manufacturing capacity at its
Malaysia assembly plant and Singapore test and back-end facility. During the
first six months of fiscal 1996, the Company spent approximately $6.2 million
for equipment for its manufacturing operations in Singapore and Malaysia.
The Company purchased and retired 100,000 shares of its common stock in
the first six months of fiscal 1996 for $3.5 million. During the first six
months of fiscal 1996, the Company paid its shareholders dividends which totaled
$5.9 million. In January 1996, the Company's Board of Directors announced that a
quarterly cash dividend of $0.04 per share will be paid during the third quarter
of fiscal 1996. The payment of future dividends will be based on quarterly
financial performance.
9
<PAGE>
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 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company, held on November
8, 1995, in Milpitas, California, the shareholders elected members of the
Company's Board of Directors and ratified the Company's appointment of Ernst &
Young LLP as independent auditors.
The vote for nominated directors was as follows:
NOMINEE FOR WITHHELD
- ------- --- --------
Robert H. Swanson, Jr. 66,206,797 46,596
David S. Lee 66,201,425 51,968
Thomas S. Volpe 66,201,025 52,368
Leo T. McCarthy 66,187,511 65,882
Richard M. Moley 66,202,025 51,368
The vote for ratifying the appointment of Ernst & Young LLP as independent
auditors for fiscal 1996 was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
66,146,162 23,394 83,837
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: February 13, 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 DECEMBER 31, 1995
</LEGEND>
<CIK> 0000791907
<NAME> LINEAR TECHNOLOGY CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-03-1995
<PERIOD-END> DEC-31-1995
<CASH> 304,292
<SECURITIES> 0
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<INVENTORY> 11,769
<CURRENT-ASSETS> 380,079
<PP&E> 116,200
<DEPRECIATION> 48,520
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<COMMON> 111,882
0
0
<OTHER-SE> 263,168
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<CGS> 53,071
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