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 29, 1997 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) DENTIFICATION 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. [X]
The aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $5,468,491,200 as of September 8, 1997, 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 76,482,395 shares of the Registrant's common stock issued
and outstanding as of September 8, 1997.
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 29, 1997.
(2) Items 10, 11 and 12 of Part III incorporate information by reference
from the definitive proxy statement (the "1997 Proxy Statement") for the
Annual Meeting of Shareholders to be held on November 5, 1997.
<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 $17 billion in
1996, 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 64% of the total monolithic linear IC market for
1996.
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.
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
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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 And Other Asian Competition. To date, Japanese
and other Asian 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 characterized by higher precision, both
high power or micropower, higher speed, more subsystem integration on a single
chip and many other special features. The Company focuses virtually all of its
design efforts on proprietary products which, at the time of introduction, are
original designs by the Company offering unique characteristics differentiating
them from those offered by competitors. For fiscal 1997, sales of proprietary
products were approximately 93% 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.
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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 high performance 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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<PAGE>
<TABLE>
<CAPTION>
Market End Applications/Products Example Product Families
- ------ ------------------------- ------------------------
<S> <C> <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 ----
----
|
Telecommunications Cellular phones | DC - DC converters
Cells and basestations | V.35 transceiver
Pagers | High-speed amplifiers
Modems/fax machines | Line drivers
PBX | Line receivers
Global positioning systems | Low noise operational amplifiers
T1 telecommunication ------ Micropower products
High bit rate digital subscriber loop | Power management
Channel service unit/data service unit | Switched capacitor filters
| Voltage references
| Voltage regulators
| Data acquisition products
| Hot Swap controllers
___| Multi-protocol circuits
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Market End Applications/Products Example Product Families
- ------ ------------------------- ------------------------
<S> <C> <C> <C>
----
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
</TABLE>
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 13,000
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 26%, 20% and 23%
of net sales for fiscal 1997, 1996 and 1995, 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 1997, 1996 or 1995.
The Company has agreements with 18 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, Hong Kong and Taiwan, and
1 each in Singapore, South Africa, Philipines, 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 1997 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 1997, 1996, and 1995, export sales were primarily to
Europe, Japan and Asia and represented approximately 49%, 52%, and 49% 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.
The Company's backlog of released and firm orders was approximately
$67.0 million at June 29, 1997, as compared with $65.3 million at June 30, 1996.
In addition to its backlog, the Company had $25.9 million of product sold to and
held by domestic distributors at June 29, 1997 as compared to $21.4 million at
June 30, 1996. 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 29, 1997 prior to June
28, 1998. The Company defines backlog as consisting of distributor stocking
orders and OEM orders for which a delivery schedule
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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. The ordering practices of many semiconductor customers has shifted from a
practice of placing orders with delivery dates extending over several months to
the practice of placing orders with shorter delivery dates. Also, 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 facilities are
located at its headquarters in Milpitas, California, and at its new wafer
fabrication plant in Camas, Washington. Each facility 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 Milpitas and
Singapore manufacturing facilities have received ISO9001 and ISO9002
certification, respectively.
The Company's new wafer fabrication facility located in Camas,
Washington commenced manufacturing operations in the second half of fiscal 1997.
The Camas wafer fabrication facility is used to produce six-inch diameter wafers
for use in the production of the Company's devices; the Company's Milpitas wafer
fabrication plant produces four-inch diameter wafers. The Company currently uses
similar manufacturing processes in both its Milpitas and Camas facilities. The
Company intends to expand the manufacturing capacity of the Camas facility as
needed to meet its future wafer requirements.
The Company's basic process technologies include high speed bipolar,
high gain, low noise bipolar, silicon gate complementary metal-oxide
semiconductor ("CMOS") and BiCMOS processes. The Company also has two
proprietary complementary bipolar processes. The Company's bipolar processes are
typically 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 processes were 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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<PAGE>
<TABLE>
PROCESS CAPABILITIES
<CAPTION>
Process Families Benefit/Market Advantage Product Application
- ---------------- ------------------------ -------------------
<S> <C> <C>
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 facilities have 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.
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. In 1994, the Company received transitional approval
for MIL-PRF-38535 QML (Qualified Manufacturers Listing) from DESC.
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, Carsem Semiconductor Sdn and Unisem(M)
Sdn in Malaysia, Anam Industrial Co. and Team Pacific in the Philippines, and
IEPS in Bangkok. The Company also maintains domestic assembly operations to
satisfy particular
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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 1998.
Patents, licenses and trademarks
The Company has been awarded 82 United States patents, and has filed 56
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.
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.
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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 29, 1997, the Company had 137 employees engaged in new
product design at its Milpitas facility. In addition, at fiscal year end, the
Company had 12 employees at its Singapore design center, 15 employees at its
Boston design center and 6 employees at its new Colorado design center opened in
fiscal 1997.
For the fiscal years 1997, 1996, and 1995, the Company spent
approximately $35.4 million, $31.1 million and $23.9 million, 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
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 29, 1997, the Company had 1,804 employees, including 136 in
marketing and sales, 372 in research, development and engineering related
functions, 1,226 in manufacturing and production, and 70 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
<TABLE>
The executive officers of the Company, and their ages as of June 29,
1997, are as follows:
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert H. Swanson, Jr........... 58 President, Director and Chief Executive Officer
Paul Chantalat.................. 47 Vice President Quality and Reliability
Paul Coghlan.................... 52 Vice President of Finance and Chief Financial Officer
Timothy D. Cox.................. 49 Vice President of North American Sales
Clive B. Davies................. 54 Vice President and Chief Operating Officer
Robert C. Dobkin................ 53 Vice President of Engineering
Sean T. Hurley.................. 59 Vice President of Operations
Louis Di Nardo.................. 38 Vice President of Marketing
Hans J. Zapf.................... 57 Vice President of International Sales
Arthur F. Schneiderman.......... 55 Secretary
</TABLE>
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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 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. Di Nardo was appointed Vice President of Marketing in January,
1997. Prior to this appointment he held the position of Manager of North America
Distribution since 1992. Previously he held several management positions in the
northeastern United States since joining the Company in 1988. From 1981 to 1988,
Mr. Di Nardo held several sales management positions in the mid-Atlantic states
area with Analog Devices, Inc. Mr. Di Nardo received a B.S. degree from Ursinus
College, Pennsylvania in 1981.
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.
11
<PAGE>
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 the land and a building
totaling approximately 40,600 square feet used for its four-inch wafer
fabrication lines and adjunct support services. The Company leases two other
buildings in the same business complex: a 43,000 square foot building used for
testing, shipping and administration, and a 60,000 square foot building used to
house circuit design activities and regional staff. During fiscal 1996, the
Company purchased neighboring land and two buildings totaling approximately
57,000 square feet that it had previously leased. The Company demolished the
existing buildings and intends to construct a new administration building on
this land in fiscal 1998.
The Company occupies a 72,000 square foot manufacturing facility in
Singapore. Test and packaging operations are performed at this facility along
with certain design and product distribution activity. The Company has a 30-year
lease on the land where the plant is located that commenced in 1994, with an
option to extend for an additional 30 years.
In 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 a new 60,000
square foot facility on land it owns in Camas, Washington. This facility is used
to fabricate six-inch wafers. Manufacturing operations commenced at this
facility in the second half of fiscal 1997.
The Company leases design facilities located in Colorado Springs,
Colorado and the metropolitan area of Boston, Massachusetts. The Company also
leases sales offices in the areas of Boston, Philadelphia, Raleigh, Chicago,
Dallas, San Jose, 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 1997 Annual Report
to Shareholders.
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.
12
<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 1997 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 1997 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 1997 Annual Report to
Shareholders.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements of Linear Technology at June 29, 1997
and June 30, 1996 and for each of the three years in the period ended June 29,
1997, the report of Ernst & Young LLP, independent auditors, thereon and
unaudited quarterly financial data for the two year period ended June 29, 1997
are incorporated by reference to Exhibit 13.1 of this Form 10-K which contains
certain information included in the Registrant's 1997 Annual Report to
Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
13
<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 1997 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 1997 Proxy Statement, the section
titled "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the 1997 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.
14
<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 StockPurchase
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)
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)
10.47 1996 Incentive Stock Option Plan, form of Incentive Stock Option
Agreement and form of Nonstatutory Stock Option Agreement.(*)(9)
10.48 1996 Senior Executive Bonus Plan.(*)(9)
15
<PAGE>
13.1 Certain information included in the Registrant's Annual Report to
Shareholders for the fiscal year ended June 29, 1997.
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors. (see page 21)
24.1 Power of Attorney. (see page 18)
27.1 Financial Data Schedule.
(d) Financial Statement Schedule filed as a part of this Annual Report is
listed below:
Schedule
Number Description
- ------ -----------
II Valuation and qualifying accounts.
- --------------------------------------------------------------------------------
(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.
(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.
(9) 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 29, 1996.
16
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(Item 14(a)1)
<CAPTION>
Page Reference to
Exhibit 13.1
<S> <C>
Consolidated balance sheets at June 29, 1997 and June 30, 1996 E13.1-7
Consolidated statements of income for each of the three
years in the period ended June 29, 1997 E13.1-6
Consolidated statements of shareholders' equity for each of
the three years in the period ended June 29, 1997 E13.1-9
Consolidated statements of cash flows for each of the three
years in the period ended June 29, 1997 E13.1-8
Notes to consolidated financial statements E13.1-10 to
E13.1-15
Report of Ernst & Young LLP, independent auditors E13.1-16
</TABLE>
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 29, 1997.
17
<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 22, 1997
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.
<TABLE>
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.
<CAPTION>
<S> <C>
/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 22, 1997 September 22, 1997
/s/ David S. Lee /s/ Thomas S. Volpe
- ---------------- -------------------
David S. Lee Thomas S. Volpe
Director Director
September 22, 1997 September 22, 1997
/s/ Leo T. McCarthy /s/ Richard M. Moley
- ------------------- --------------------
Leo T. McCarthy Richard M. Moley
Director Director
September 22, 1997 September 22, 1997
</TABLE>
18
<PAGE>
<TABLE>
SCHEDULE II
LINEAR TECHNOLOGY CORPORATION
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 2, 1995 ............ $550 $181 $ 3 $728
==== ==== ==== ====
Year ended June 30, 1996 ........... $728 $ 60 $ 12 $776
==== ==== ==== ====
Year ended June 29, 1997 ........... $776 $ 30 $ 3 $803
==== ==== ==== ====
<FN>
(1) Write-offs of doubtful accounts.
</FN>
</TABLE>
19
<TABLE>
LINEAR TECHNOLOGY CORPORATION
QUARTERLY RESULTS AND STOCK MARKET DATA
(UNAUDITED)
<CAPTION>
In thousands, except per share amounts
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1997
Quarter Ended June 29, 1997 March 30, 1997 Dec. 29, 1996 Sept. 29, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 104,075 $ 95,033 $ 90,080 $ 90,063
Gross profit 73,574 67,598 64,047 64,284
Net income 37,402 33,980 31,631 31,358
Net income per share 0.47 0.43 0.40 0.40
Cash dividend paid per share 0.05 0.05 0.05 0.05
Stock price range per share:
High 56.25 50.13 48.50 39.75
Low 44.25 42.25 32.25 23.25
Fiscal 1996
Quarter Ended June 30, 1996 March 31, 1996 Dec. 31, 1995 Oct. 1, 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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income per share amounts are based on the weighted average common and common
equivalent shares outstanding during the quarter and may not add to 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
System under the symbol LLTC.
At June 29, 1997, there were approximately 1,119 shareholders of record.
Exhibit 13.1-1
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
SELECTED FINANCIAL INFORMATION/FIVE-YEAR TREND
<CAPTION>
In thousands, except per share amounts
- ------------------------------------------------------------------------------------------------------------------------------------
FIVE FISCAL YEARS ENDED JUNE 29, 1997 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement information
Net sales $379,251 $377,771 $265,023 $200,538 $150,867
Net income 134,371 133,964 84,696 56,827 36,435
Net income per share 1.71 1.72 1.11 0.75 0.49
Shares used in the calculation
of net income per share 78,545 77,888 76,328 75,352 73,814
Balance sheet information
Cash and short-term
investments $443,439 $322,472 $250,222 $176,801 $127,878
Total assets 679,633 529,802 367,553 268,399 196,492
Long-term debt and non-current
capital lease obligations -- -- -- -- 259
Cash dividends paid per share $ 0.20 $ 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 13.1-2
<PAGE>
LINEAR TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
<TABLE>
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 Change
--------------------------------------- ------------------
1997 1996
June 29, June 30, July 2, over over
1997 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% -- % 43%
Cost of sales 28.9 28.3 31.4 3 28
- --------------------------------------------------------------------------------------------------------------
Gross profit 71.1 71.7 68.6 (1) 49
- --------------------------------------------------------------------------------------------------------------
Expenses:
Research and development 9.3 8.2 9.0 14 30
Selling, general and administrative 12.1 13.0 14.3 (7) 30
- --------------------------------------------------------------------------------------------------------------
21.4 21.2 23.3 1 30
- --------------------------------------------------------------------------------------------------------------
Operating income 49.7 50.5 45.3 (1) 59
- --------------------------------------------------------------------------------------------------------------
Interest income 4.2 3.5 3.2 22 55
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 53.9% 54.0% 48.5% -- 59%
- --------------------------------------------------------------------------------------------------------------
Effective tax rates 34.3% 34.3% 34.1%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales of $379.3 million in fiscal 1997 were generally flat as compared to
net sales of $377.8 million in fiscal 1996. Net sales in fiscal 1996 reflected a
period of significant sales growth as net sales increased 43% over net sales of
$265.0 million in fiscal 1995 due to higher unit sales and average selling
prices. This robust sales growth began to decelerate for the Company and much of
the semiconductor industry during the fourth quarter of fiscal 1996 and resulted
in excess inventory levels in end customer channels entering fiscal 1997. This
led to generally flat sequential sales for the first half of fiscal 1997 as
customers reduced or delayed orders to reduce their excess inventory levels.
This trend began to reverse in the second half of the fiscal year as the Company
returned to quarterly sequential sales growth in the third and fourth fiscal
quarters. During the second half of fiscal 1997, sales were particularly strong
in the communications area which now represents 30% of sales up from 18% in the
previous year. Average selling prices and unit volumes for fiscal 1997 were
generally unchanged as compared to fiscal 1996.
International sales represented 49%, 52% and 49% of net sales in fiscal 1997,
1996 and 1995, respectively. International sales declined slightly in fiscal
1997 due primarily to lower sales to the Japanese market after a period of
significant sales growth in Japan in fiscal 1996. This decline was partially
offset by an increase in sales to the European market.
NET SALES BY GEOGRAPHIC AREA
1997 1996 1995
---- ---- ----
NORTH AMERICA 51% NORTH AMERICA 48% NORTH AMERICA 51%
EUROPE 24% EUROPE 23% EUROPE 22%
JAPAN 12% JAPAN 16% JAPAN 10%
ASIA PACIFIC ASIA PACIFIC ASIA PACIFIC
AND OTHER 13% AND OTHER 13% AND OTHER 17%
$379,251,000 $377,771,000 $265,023,000
Gross profit was $269.5 million, or 71.1% of net sales in fiscal 1997 as
compared to $270.9 million, or 71.7% of net sales in fiscal 1996. The decrease
in gross profit as a percentage of net sales in fiscal 1997 was due to
additional start-up costs for the Company's new wafer fabrication plant in
Camas, Washington. Minor changes in period costs, product mix and average
selling prices generally offset one another during fiscal 1997. The
Exhibit 13.1-3
<PAGE>
increase in gross profit as a percentage of net sales of 71.7% for fiscal 1996
from 68.6% in fiscal 1995 was primarily due to higher average selling prices and
a more favorable product mix offset partially by initial start-up costs for the
Camas wafer fabrication facility. Production commenced at this new facility
during the second half of fiscal 1997.
Research and development ("R&D") expenses were $35.4 million, $31.1 million and
$23.9 million in fiscal 1997, 1996 and 1995, respectively, or 9.3%, 8.2% and
9.0% of net sales. The increase in R&D expenses in fiscal 1997 and 1996 as
compared to the prior year periods was due to an increase in design and test
engineering personnel and an increase in spending for development mask sets.
Additionally, in fiscal 1997 the Company opened a new design center in Colorado
Springs, Colorado. The increase in R&D spending in fiscal 1996 as compared with
fiscal 1995 was also due to increases in staffing, primarily in the design area.
However, R&D spending grew 30% whereas net sales grew 43% resulting in a decline
in R&D spending as a percent of sales from 9.0% to 8.2%.
Selling, general and administrative ("SG&A") expenses declined in fiscal 1997 to
$45.7 million, or 12.1% of net sales, from $49.1 million, or 13.0% of net sales,
in fiscal 1996. The decline in SG&A expenses was due primarily to lower legal
costs, sales commissions and profit sharing expenses offset partially by higher
advertising costs. In fiscal 1996, SG&A expenses increased to $49.1 million from
$37.9 million in fiscal 1995 primarily due to higher labor charges including
profit sharing, legal expenses to protect intellectual property and advertising
costs. As a percentage of net sales, SG&A expenses decreased to 13.0% of net
sales in fiscal 1996 from 14.3% of net sales in fiscal 1995 as labor,
advertising, legal and other expenses increased at a much lower rate than the
net sales growth.
Interest income in fiscal 1997 increased 22% to $16.1 million from $13.1 million
in fiscal 1996 due primarily to an increase in invested cash, cash equivalents
and short-term investments while the average rate of return declined slightly
due to lower short-term interest rates. In fiscal 1996 interest income increased
to $13.1 million from $8.5 million in fiscal 1995 due to higher invested cash,
cash equivalents and short-term investments balances and in part due to an
increase in the average rate of return of the investment portfolio. The Company
had no debt and therefore had no interest expense during each of the three years
presented.
The Company's effective tax rate was 34.3% in fiscal 1997, consistent with
fiscal 1996. The effective tax rate in fiscal 1995 was 34.1%.
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.
During the second half of fiscal 1997, initial manufacturing commenced with
relatively low volume production in the Company's new wafer fabrication plant in
Camas, Washington. The Company intends to increase the production volume of this
facility throughout fiscal 1998. Certain fixed and variable costs associated
with the ramp-up of production of the Camas facility are not expected to be
fully absorbed until higher production volumes are achieved. As a result, gross
profit margins during the first half of fiscal 1998 may be negatively impacted
until higher production volumes are attained. These higher volumes are currently
expected to occur during the second half of fiscal 1998.
During the fourth quarter of fiscal 1997, the Company received an extension of
its tax holiday for its Singapore operations for an additional three years
through September 1999. An expected increase in business activity in foreign
jurisdictions and an increase in business activity and assets employed outside
of California is expected to lower the Company's effective tax rate in fiscal
1998. The Company expects that its overall fiscal 1998 effective tax rate will
be in the 33% to 33.5% range.
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 13.1-4
<PAGE>
CASH FLOW SUMMARY
FISCAL YEAR ENDED JUNE 29, 1997
(IN MILLIONS)
SOURCES OF CASH USES OF CASH
NET INCOME $134.4 INCREASE IN CASH AND
DEPRECIATION AND AMORTIZATION $ 12.4 SHORT-TERM INVESTMENTS $120.9
EMPLOYEE COMMON STOCK CAPITAL EXPENDITURES $ 21.8
TRANSACTIONS $ 40.7 PURCHASE OF COMMON STOCK $ 11.6
NET CHANGE IN OPERATING
ASSETS AND LIABILITIES $ 18.2
PAYMENT OF CASH DIVIDENDS $ 15.0
Liquidity and Capital Resources
The Company's operating results for fiscal 1997 provided the resources for the
Company to expand its manufacturing operations, increase its dividends to
shareholders, repurchase common stock and increase cash, cash equivalents and
short-term investments by $121.0 million during the fiscal year. At the end of
fiscal 1997, working capital was $470.3 million and the Company had no long-term
debt.
The issuance of common stock under stock option plans provided $40.8 million in
proceeds and tax benefits in fiscal 1997 as compared to $32.7 million in fiscal
1996. The proceeds from stock issuances increased by $5.7 million in fiscal 1997
as compared to fiscal 1996 due primarily to higher overall exercise prices. The
tax benefit from stock option transactions increased by $2.3 million from fiscal
1996 to 1997 due mainly to shares being exercised during a period of higher
market prices. Generally, the gain the employee receives upon exercise of a
nonqualified stock option is a tax deduction to the company and is recorded as
an increase in common stock.
The Company spent $21.9 million for capital assets in fiscal 1997, including
approximately $12.5 million for plant construction and equipment for its new
wafer fabrication facility in Camas, Washington. The Camas facility was
completed and placed in service in the second half of fiscal 1997 at a total
capitalized cost of approximately $60 million. The Company expects that fiscal
1998 expenditures for capital assets will increase significantly as compared to
fiscal 1997 capital expenditures as the Company plans to expand its
manufacturing operations in Camas and Malaysia.
Cash dividends of $15 million, or $0.20 per share, were paid by the Company in
fiscal 1997 as compared to $11.9 million, or $0.16 per share in fiscal 1996. In
July 1997, the Company's Board of Directors announced that the quarterly cash
dividend was increased to $0.06 per share. Future dividends will be based on
quarterly financial performance.
As of June 29, 1997, the Company's cash, cash equivalents and short-term
investments totaled $443.4 million. These investments are subject to market
risk, primarily interest rate and credit risk. The Company's investments are
managed by outside professional managers within investment guidelines set by the
Company. Such guidelines include security type, credit quality and maturity and
are intended to limit market risk by restricting the Company's investments to
high quality debt instruments with relatively short-term maturities. Based upon
the weighted average duration of the Company's investments at June 29, 1997, a
1% (100 basis points) increase in short-term interest rates would result in an
unrealized loss in market value of the Company's investments totaling
approximately $3.5 million. However, because the Company's debt securities are
carried as available for sale, no gains or losses are recognized by the Company
due to changes in interest rates unless such securities are sold prior to
maturity. The Company generally holds securities until maturity and carries the
securities at amortized cost, which approximates fair market value.
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 13.1-5
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share amounts
- --------------------------------------------------------------------------------
THREE YEARS ENDED JUNE 29, 1997 1997 1996 1995
- --------------------------------------------------------------------------------
Net sales $379,251 $377,771 $265,023
Cost of sales 109,748 106,832 83,263
- --------------------------------------------------------------------------------
Gross profit 269,503 270,939 181,760
- --------------------------------------------------------------------------------
Expenses:
Research and development 35,401 31,058 23,931
Selling, general and administrative 45,670 49,127 37,867
- --------------------------------------------------------------------------------
81,071 80,185 61,798
- --------------------------------------------------------------------------------
Operating income 188,432 190,754 119,962
- --------------------------------------------------------------------------------
Interest income 16,090 13,148 8,488
- --------------------------------------------------------------------------------
Income before income taxes 204,522 203,902 128,450
- --------------------------------------------------------------------------------
Provision for income taxes 70,151 69,938 43,754
- --------------------------------------------------------------------------------
Net income $134,371 $133,964 $ 84,696
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net income per share $ 1.71 $ 1.72 $ 1.11
- --------------------------------------------------------------------------------
Shares used in the calculation of
net income per share 78,545 77,888 76,328
See accompanying notes.
Exhibit 13.1-6
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
In thousands
- -------------------------------------------------------------------------------
JUNE 29, 1997 AND JUNE 30, 1996 1997 1996
- -------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 50,114 $ 54,393
Short-term investments 393,325 268,079
Accounts receivable, net of allowance for
doubtful accounts of $803 ($776 in 1996) 64,836 48,395
Inventories
Raw materials 4,001 3,003
Work-in-process 4,820 5,479
Finished goods 3,364 4,448
- -------------------------------------------------------------------------------
Total inventories 12,185 12,930
Deferred tax assets 30,698 27,200
Prepaid expenses and other current assets 8,128 7,883
- -------------------------------------------------------------------------------
Total current assets 559,286 418,880
- -------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land, buildings and improvements 53,312 50,964
Manufacturing and test equipment 130,175 111,174
Office furniture and equipment 2,707 2,667
- -------------------------------------------------------------------------------
186,194 164,805
- -------------------------------------------------------------------------------
Accumulated depreciation and amortization (65,847) (53,883)
- -------------------------------------------------------------------------------
Net property, plant and equipment 120,347 110,922
- -------------------------------------------------------------------------------
Total assets $ 679,633 $ 529,802
================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 7,872 $ 18,075
Accrued payroll and related benefits 21,423 21,319
Deferred income on shipments to distributors 29,986 24,928
Income taxes payable 16,124 8,395
Other accrued liabilities 13,581 13,681
- -------------------------------------------------------------------------------
Total current liabilities 88,986 86,398
- -------------------------------------------------------------------------------
Deferred tax liabilities 1,596 2,917
Commitments
Shareholders' equity:
Preferred stock, no par value, 2,000 shares
authorized, none issued or outstanding -- --
Common stock, no par value, 120,000 shares
authorized; 75,956 shares issued and
autstanding (74,662 shares in 1996) 172,403 132,482
Retained earnings 416,648 308,005
- -------------------------------------------------------------------------------
Total shareholders' equity 589,051 440,487
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 679,633 $ 529,802
================================================================================
See accompanying notes.
Exhibit 13.1-7
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
In thousands
THREE YEARS ENDED JUNE 29, 1997 1997 1996 1995
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 134,371 $ 133,964 $ 84,696
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,425 10,263 8,563
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (16,441) (18,625) (3,253)
Decrease (increase) in inventories 745 (3,211) 297
Decrease (increase) in deferred tax assets (3,498) (6,592) (5,917)
Decrease (increase) in prepaid expenses
and other current assets (245) (1,451) (3,331)
Increase (decrease) in accounts payable,
payroll and other accrued liabilities (10,199) 24,652 5,694
Increase (decrease) in deferred income
on shipments to distributors 5,058 7,701 5,062
Tax benefit from stock option transactions 22,272 19,989 8,734
Increase (decrease) in income taxes payable 7,729 (1,783) 2,151
Increase (decrease) in deferred tax liabilities (1,321) (278) 1,192
Cash provided by operating activities 150,896 164,629 103,888
Cash flow from investing activities:
Purchase of short-term investments (301,746) (224,717) (146,832)
Proceeds from sales and maturities of short-term
investments 176,500 158,714 81,607
Purchase of property, plant and equipment (21,850) (70,383) (22,092)
Cash used in investing activities (147,096) (136,386) (87,317)
Cash flow from financing activities:
Issuance of common shares under employee stock plans 18,481 12,736 7,600
Purchase of common stock (11,598) (22,871) (6,139)
Payment of cash dividends (14,962) (11,861) (9,836)
Cash used in financing activities (8,079) (21,996) (8,375)
Increase (decrease) in cash and cash equivalents (4,279) 6,247 8,196
Cash and cash equivalents, beginning of period 54,393 48,146 39,950
Cash and cash equivalents, end of period $ 50,114 $ 54,393 $ 48,146
Supplemental disclosures of cash flow information:
Cash paid during the fiscal year for income taxes $ 44,844 $ 58,602 $ 37,594
<FN>
See accompanying notes.
</FN>
</TABLE>
Exhibit 13.1-8
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
In thousands
THREE YEARS ENDED JUNE 29, 1997
Total
Common Stock Retained Shareholders'
Shares Amount Earnings Equity
<S> <C> <C> <C> <C>
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 - $0.12 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
Issuance of common stock for cash under employee
stock option and stock purchase plans 1,764 18,481 -- 18,481
Tax benefit from stock option transactions -- 22,272 -- 22,272
Purchase and retirement of common stock (470) (832) (10,766) (11,598)
Net income -- -- 134,371 134,371
Cash dividends - $0.20 per share -- -- (14,962) (14,962)
Balance at June 29, 1997 75,956 $ 172,403 $ 416,648 $ 589,051
<FN>
See accompanying notes.
</FN>
</TABLE>
Exhibit 13.1-9
<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, cellular telephones, networking products
and satellite systems, notebook and desktop computers, computer peripherals,
video/multimedia, industrial instrumentation, factory automation, process
control and military and space systems.
Export sales by geographic area were as follows:
In thousands
1997 1996 1995
Europe $ 91,927 $ 87,920 $ 58,243
Japan 46,332 57,954 26,371
Asia Pacific and other 49,340 49,718 44,870
-------- -------- --------
Total export sales $187,599 $195,592 $129,484
======== ======== ========
Basis of Presentation
The Company's fiscal year ends on the Sunday nearest June 30. Fiscal 1997, 1996
and 1995 were 52 week periods. The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries
after elimination of all significant inter-company accounts and transactions.
Accounts denominated in foreign currencies have been translated using the U.S.
dollar as the functional currency.
The preparation of financial statements in conformity 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 original maturities of three
months or less. Investments with a maturity of over three months at the time of
purchase are classified as short-term investments.
At June 29, 1997 and June 30, 1996, 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 are carried at amortized cost which
approximates fair market value. At June 29, 1997 and June 30, 1996, the Company
held no equity securities.
Concentrations of Credit Risk and Off Balance Sheet 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 26%, 20% and 23%
of net sales for fiscal 1997, 1996 and 1995, 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 1997, 1996 and 1995.
The Company's assets, liabilities and cash flows are predominately U.S. dollar
denominated, including those of its foreign operations. However, the Company's
foreign subsidiaries have certain assets, liabilities and cash flows that are
subject to foreign currency risk. The Company considers this risk to be minor
and, for the three years ended June 29, 1997, had not utilized derivative
instruments to hedge foreign currency risk or for any other purpose. Gains and
losses resulting from foreign currency fluctuations are recognized in income
currently and were not material for all periods presented.
Inventories
Inventories are stated at the lower of standard cost, which approximates actual
cost determined on a first-in, first-out basis, or market.
Exhibit 13.1-10
<PAGE>
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.
In fiscal 1997, the Company adopted 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 did not 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 certain merchandise unsold by the
distributors. Because of the uncertainty associated with pricing concessions and
future returns, the Company defers recognition of such sales and profit 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.
Employee Stock Plans
As described in Note 4, the Company has elected to account for its employee
stock plans in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees" and to furnish the pro-forma disclosures required under Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
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.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" ("FAS 128"), which is required to be adopted by the
Company in its fiscal quarter ending December 28, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate prior periods. Under the requirements of FAS 128, basic
earnings per share will replace primary earnings per share and the dilutive
effect of stock options will be excluded in its calculation. Upon adoption of
FAS 128, the Company's basic earnings per share for the fiscal years ended June
29, 1997, June 30, 1996 and July 2, 1995 is expected to be $1.79, $1.80 and
$1.16, respectively. Under FAS 128, diluted earnings per share, which will
include the dilutive effect of stock options, is expected to remain at $1.71,
$1.72 and $1.11, respectively.
2. Cash Equivalents and Short-term Investments
The estimated fair values of cash equivalents and short-term investments are
based on market prices.
Investments as of June 29, 1997 were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
Cash equivalents:
Money market funds and floating
rate notes $ 24,777 $ -- $ -- 24,777
Municipal bonds 2,500 -- -- 2,500
-------- -------- -------- --------
27,277 -- -- 27,277
Short-term investments:
Municipal bonds 270,585 454 222 270,817
U.S. Treasury securities and
obligations of U.S. government
agencies 99,008 134 105 99,037
Other debt securities 23,732 5 33 23,704
-------- -------- -------- --------
393,325 593 360 393,558
-------- -------- -------- --------
Total cash equivalents and
short-term investments $420,602 $ 593 $ 360 $420,835
======== ======== ======== ========
Exhibit 13.1-11
<PAGE>
Investments as of June 30, 1996 were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
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
======== ======== ======== ========
The amortized cost and estimated fair value of investments in debt securities at
June 29, 1997, 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 $247,272 $247,345
Due in 1-3 years 173,330 173,490
-------- --------
Total cash equivalents and
short-term investments $420,602 $420,835
======== ========
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 29, 1997, the future minimum lease payments under noncancelable
operating leases having an initial term in excess of one year were approximately
as follows: fiscal 1998: $1,591,000; fiscal 1999: $1,544,000; fiscal 2000:
$1,329,000; fiscal 2001: $957,000; fiscal 2002: $976,000; and thereafter:
$12,387,000.
Total rent expense under operating leases was approximately $2,379,000,
$2,015,000 and $1,928,000 in fiscal 1997, 1996 and 1995, respectively.
4. Employee Benefit Plans
Stock option plans
The Company has stock option plans 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. At June 29, 1997, the
total authorized number of shares under all plans was 34,500,000. Options become
exercisable over a five-year period (generally 10% every six months). All
options expire ten years after the date of the grant.
In July 1996, the Board of Directors approved the re-pricing of stock option
grants totaling 2,510,600 shares granted during fiscal 1996. In exchange for
these new options, all vesting under the canceled options was lost and a new
five year vesting period was started.
Exhibit 13.1-12
<PAGE>
Option transactions during fiscal 1995, 1996 and 1997 are summarized as follows:
Stock Weighted-
Options Average
Outstanding Exercise Price
Outstanding options, July 3, 1994 9,078,712 $ 8.62
Granted 1,926,000 25.20
Forfeited (236,300) 17.53
Exercised (1,211,606) 5.29
---------- --------
Outstanding options, July 2, 1995 9,556,806 $12.17
Granted 2,744,500 34.80
Forfeited (209,080) 23.94
Exercised (1,734,278) 6.62
---------- --------
Outstanding options, June 30, 1996 10,357,948 $18.84
Granted 4,057,600 29.17
Re-priced options canceled (2,510,600) 34.80
Forfeited (324,000) 26.75
Exercised (1,701,702) 9.49
---------- ---------
Outstanding options, June 29, 1997 9,879,246 $20.38
========== =========
<TABLE>
The following table sets forth certain information with respect to employee
stock options outstanding and exercisable at June 29, 1997:
<CAPTION>
Weighted Weighted Weighted
Stock Average Average Stock Average
Options Exercise Remaining Options Exercise
Range of Exercise Prices Outstanding Price Contractual Exercisable Price
Life
(Years)
<S> <C> <C> <C> <C> <C>
$ 1.84 - $16.25 3,987,646 $ 9.66 4.6 3,345,746 $ 8.63
17.38 - 24.75 4,267,000 23.80 8.5 810,293 22.44
28.88 - 49.00 1,624,600 37.74 8.7 323,150 30.52
-------------------------------------- ---------------------
$ 1.84 - $49.00 9,879,246 $20.38 6.9 4,479,189 $12.71
</TABLE>
Stock Purchase Plan
The Company's stock purchase plan ("ESPP") 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, 1997, the shares reserved for issuance
under this plan totaled 1,600,000 and 1,567,392 shares had been issued under
this plan. During fiscal 1997, 81,079 shares were issued at a weighted-average
price of $29.20 per share pursuant to this plan.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees"and related Interpretations
("APB 25"). In accordance with APB 25, the Company does not recognize
compensation expense for stock options and other stock based awards issued to
employees. However, the dilutive effect of employee stock options is included in
the calculation of earnings per share.
In 1995, The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation" effective for the Company's 1997 fiscal year. FAS 123 attempts to
quantify and measure currently the potential future value of employee stock
options and other stock-based awards to employees. The valuation techniques it
recommends are highly subjective and these methods could result in amounts that
differ significantly from those amounts to be actually incurred. Consequently,
FAS 123 gives companies the choice of implementing the
Exhibit 13.1-13
<PAGE>
pronouncement in the primary financial statements or disclosing the pro-forma
effects of FAS 123 in the financial statement footnotes. The Company has elected
to continue to apply APB 25 in accounting for stock-based awards to employees
and to disclose the pro-forma effects of FAS 123. Had compensation cost for the
Company's stock-based awards to employees been determined consistent with FAS
123, the Company's net income and earnings per share would have been reduced to
the pro-forma amounts indicated below (in thousands, except per share amounts):
1997 1996
----- ----
Pro-forma net income $125,347 $128,986
Pro-forma earnings per share $1.62 $1.67
For purposes of the pro-forma information, the fair value of each stock option
and ESPP grant is estimated on the date of grant using the Black-Scholes option
pricing model and the following weighted average assumptions:
Employee
Stock Options ESPP Shares
------------- -----------
1997 1996 1997 1996
---- ---- ---- ----
Expected lives 6.5 6.5 0.5 0.5
Expected volatility 51.0% 51.0% 40.0% 40.0%
Dividend yield 0.5% 0.5% 0.5% 0.5%
Risk-free interest rates 6.6% 6.5% 5.4% 5.4%
Using the Black-Scholes option pricing model, the weighted average estimated
fair value of employee stock options granted in fiscal 1997 and 1996 was $20.07
and $19.85, respectively. The weighted average estimated fair value of ESPP
shares granted in fiscal 1997 and 1996 was $10.14 and $9.95, respectively. For
the purposes of the pro-forma information, the estimated fair values of the
employee stock options and ESPP shares are amortized to expense using the
straight-line method over the vesting or offering periods, which is generally
five years for employee stock options and six months for ESPP shares. The
pro-forma information is not representative of the pro-forma effect of the fair
value provisions of FAS 123 on the Company's income in future years because
pro-forma compensation expense related to grants made prior to fiscal 1996 have
not been taken into consideration, in compliance with FAS 123. Accordingly, the
pro-forma effect of FAS 123 will not be fully reflected until fiscal 2000.
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
approximately $5,038,000, $4,864,000 and $3,003,000 in fiscal 1997, 1996 and
1995, respectively.
5. Income Taxes
The components of income before income taxes are as follows:
In thousands 1997 1996 1995
United States operations $181,258 $189,275 $116,905
Foreign operations 23,264 14,627 11,545
-------- -------- --------
$204,522 $203,902 $128,450
======== ======== ========
The provision for income taxes consists of the following:
In thousands 1997 1996 1995
United States federal:
Current $ 64,694 $ 67,498 $ 39,924
Deferred (4,589) (6,725) (4,222)
-------- -------- --------
60,105 60,773 35,702
-------- -------- --------
State:
Current 9,526 8,897 8,132
Deferred (230) (145) (503)
-------- -------- --------
9,296 8,752 7,629
-------- -------- --------
Foreign-Current 750 413 423
-------- -------- --------
$ 70,151 $ 69,938 $ 43,754
======== ======== ========
Exhibit 13.1-14
<PAGE>
Actual current tax liabilities are lower than the amounts reflected above by the
tax benefit from stock option activity of approximately $22,272,000,
$19,989,000, $8,734,000 for fiscal 1997, 1996 and 1995, 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 1997 1996 1995
Tax at U.S. statutory rate $ 71,583 $ 71,366 $ 44,958
State income taxes, net of federal benefit 6,042 5,689 4,959
Earnings of foreign subsidiaries subject to
lower rates (6,060) (4,699) (3,853)
Other (1,414) (2,418) (2,310)
-------- -------- --------
$ 70,151 $ 69,938 $ 43,754
======== ======== ========
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 29, 1997 and June 30, 1996 are as follows:
In thousands 1997 1996
Deferred tax assets:
Inventory valuation $ 8,423 $ 8,113
Deferred income on shipments to distributors 11,395 9,971
State income taxes 7,675 5,595
Other 3,205 3,521
------- -------
Total deferred assets 30,698 27,200
------- -------
Deferred tax liabilities:
Depreciation and amortization 1,596 2,917
------- -------
Net deferred tax assets $29,102 $24,283
======= =======
The Company's Singapore subsidiary has been granted a ten year tax holiday,
which is scheduled to expire in September 1999. Also, the Company's Malaysia
subsidiary has been granted a five-year tax holiday. To date, no tax has been
provided for either Singapore or Malaysia income from operations.
The impact of the Singapore and Malaysia tax holidays was to increase net income
by approximately $5,002,000 ($0.06 per share) in fiscal 1997, $3,731,000 ($0.05
per share) in fiscal 1996 and $3,624,000 ($0.05 per share) in fiscal 1995. 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, additional U.S. taxable income would be approximately
$51,022,000.
Exhibit 13.1-15
<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 29, 1997 and June 30, 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended June 29, 1997. 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 29, 1997 and June 30, 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 29, 1997, in conformity with generally accepted accounting
principles.
San Jose, California /s/ Ernst & Young LLP
July 18, 1997
Exhibit 13.1-16
<PAGE>
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 and BiCMOS process technologies.
BOARD OF DIRECTORS
Thomas S. Volpe
Managing Partner
Volpe, Brown, Whelen & Co. LLC
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
Former Lieutenant Governor
State of California
Richard M. Moley
Senior Vice President
Cisco Systems, Inc.
Manufacturer, Telecommunication
Systems and Products
Robert H. Swanson, Jr.
President and Chief Executive Officer
Linear Technology Corporation
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
Exhibit 13.1-17
<PAGE>
Sean T. Hurley
Vice President, Operations
Louis Di Nardo
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 for the fiscal year
ended June 29, 1997, as filed with the Securities and Exchange Commission, 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
Hot Swap is a trademark of Linear Technology Corporation. LTC and LT are
registered trademarks of Linear Technology Corporation.
Exhibit 13.1-18
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. (Sweden)
20
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 18, 1997, included in
the 1997 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 18, 1997, 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 29, 1997.
/s/ Ernst & Young LLP
San Jose, California
September 24, 1997
21
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Form 10-K for the year ended June 29, 1997
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<NAME> LINEAR TECHNOLOGY CORPORATION
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