FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-14864
LINEAR TECHNOLOGY CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
California 94-2778785
---------- -----------
(State or jurisdiction of incorporation) (I.R.S. Employer Identification No.)
1630 McCarthy Blvd.
Milpitas, California 95035-7417
(408) 432-1900
-------------
(Address, including zip code and telephone number,
including area code of registrant's principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceeding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
There were 75,172,933 shares of the Registrant's Common Stock issued
and outstanding as of January 24, 1997.
<PAGE>
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND SIX MONTHS ENDED DECEMBER 29, 1996
<TABLE>
INDEX
<CAPTION>
Page
----
<S> <C>
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the 2
three and six months ended December 29, 1996 and
December 31, 1995
Condensed Consolidated Balance Sheets at 3-4
December 29, 1996 and June 30, 1996
Condensed Consolidated Statements of Cash Flows for the 5-6
six months ended December 29, 1996 and December 31, 1995
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8-10
Condition and Results of Operations
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
1
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 90,080 $ 96,017 $180,143 $183,022
Cost of sales 26,033 27,646 51,812 53,071
-------- -------- -------- --------
Gross profit 64,047 68,371 128,331 129,951
-------- -------- -------- --------
Expenses:
Research and development 8,207 7,741 16,393 14,769
Selling, general and administrative 11,427 11,643 23,498 22,794
-------- -------- -------- --------
19,634 19,384 39,891 37,563
-------- -------- -------- --------
Operating income 44,413 48,987 88,440 92,388
Interest income 3,733 3,255 7,433 6,308
-------- -------- -------- --------
Income before income taxes 48,146 52,242 95,873 98,696
Provision for income taxes 16,515 17,919 32,884 33,853
-------- -------- -------- --------
Net income $ 31,631 $ 34,323 $ 62,989 $ 64,843
======== ======== ======== ========
Net income per share $ 0.40 $ 0.44 $ 0.81 $ 0.83
======== ======== ======== ========
Cash dividends declared per share $ 0.05 $ 0.04 $ 0.10 $ 0.08
======== ======== ======== ========
Shares used in the calculation of net
income per share 78,256 77,965 77,926 77,832
======== ======== ======== ========
<FN>
See accompanying notes
</FN>
</TABLE>
2
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
December 29, June 30,
1996 1996
----------- ----------
(unaudited)
Current assets:
Cash and cash equivalents $ 58,366 $ 54,393
Short-term investments 293,989 268,079
Accounts receivable, net of allowance for
doubtful accounts of $806 ($776 at
June 30, 1996) 62,299 48,395
Inventories:
Raw materials 3,374 3,003
Work-in-process 4,680 5,479
Finished goods 3,594 4,448
--------- ---------
Total inventories 11,648 12,930
Deferred tax assets 27,200 27,200
Prepaid expenses and other current assets 8,279 7,883
--------- ---------
Total current assets 461,781 418,880
--------- ---------
Property, plant and equipment, at cost:
Land, building and improvements 53,014 50,964
Manufacturing and test equipment 121,926 111,174
Office furniture and equipment 2,711 2,667
--------- ---------
177,651 164,805
Less accumulated depreciation and
amortization (59,685) (53,883)
--------- ---------
Net property, plant and equipment 117,966 110,922
--------- ---------
$ 579,747 $ 529,802
========= =========
See accompanying notes
3
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands)
December 29, June 30,
1996 1996
------------ --------
(unaudited)
Current liabilities:
Accounts payable $ 12,534 $ 18,075
Accrued payroll and related benefits 18,795 21,319
Deferred income on shipments to distributors 27,626 24,928
Income taxes payable 11,279 8,395
Other accrued liabilities 13,414 13,681
-------- --------
Total current liabilities 83,648 86,398
Deferred tax liabilities 2,917 2,917
Shareholders' equity:
Common stock, no par value, 120,000
shares authorized; 74,864
shares issued and outstanding at
December 29, 1996 (74,662 shares
at June 30, 1996) 140,388 132,482
Retained earnings 352,794 308,005
-------- --------
Total shareholders' equity 493,182 440,487
-------- --------
$579,747 $529,802
======== ========
See accompanying notes
4
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
<CAPTION>
Six Months Ended
----------------------------------
December 29, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 62,989 $ 64,843
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,825 4,891
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (13,904) (4,999)
Decrease (increase) in inventories 1,282 (2,050)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets (396) (2,209)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities (5,448) 8,881
Tax benefit from stock option transactions 1,425 5,795
Increase (decrease) in deferred income 2,698 4,205
Increase (decrease) in deferred tax liabilities -- 600
--------- ---------
Cash provided by operating activities 54,471 79,957
--------- ---------
Cash flow from investing activities:
Purchase of short-term investments (109,812) (133,547)
Proceeds from sales and maturities of short-term
investments 83,902 106,251
Purchase of property, plant and equipment (12,869) (21,769)
--------- ---------
Cash used in investing activities (38,779) (49,065)
--------- ---------
Cash flow from financing activities:
Issuance of common stock under employee stock plans 7,313 5,281
Purchase of common stock (11,598) (3,501)
Payment of cash dividends (7,434) (5,898)
--------- ---------
Cash used in financing activities (11,719) (4,118)
--------- ---------
Increase in cash and cash equivalents 3,973 26,774
Cash and cash equivalents, beginning of period 54,393 48,146
--------- ---------
Cash and cash equivalents, end of period $ 58,366 $ 74,920
========= =========
<FN>
See accompanying notes
</FN>
</TABLE>
5
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended
---------------------------
December 29, December 31,
1996 1995
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $28,575 $30,422
See accompanying notes
6
<PAGE>
LINEAR TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Interim financial statements and information are unaudited; however, in the
opinion of management all adjustments necessary for a fair and accurate
presentation of the interim results have been made. All such adjustments
were of a normal recurring nature. The results for the three and six months
ended December 29, 1996 are not necessarily an indication of results to be
expected for the entire fiscal year. All information reported in this Form
10-Q should be read in conjunction with the Company's annual consolidated
financial statements for the fiscal year ended June 30, 1996 included in
the Company's Annual Report to Shareholders. The accompanying balance sheet
at June 30, 1996 has been derived from audited financial statements as of
that date.
2. The Company operates on a 52/53 week year ending on the Sunday nearest June
30. Fiscal 1997 and 1996 each have 52 weeks.
3. Net income per share is based upon the weighted average number of shares of
common stock outstanding and common equivalent shares, if dilutive.
4. Included in property, plant and equipment at December 29, 1996 is
approximately $55.2 million ($47.9 million at June 30, 1996) of
construction in progress related to the Company's new wafer fabrication
facility in Camas, Washington. This facility is expected to be completed
and placed in service during the second half of fiscal 1997.
5. On July 23, 1996 the Board of Directors approved the repricing of stock
option grants of 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.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
<TABLE>
The table below states the income statement items for the three and six
months ended December 29, 1996 and December 31, 1995 as a percentage of net
sales and provides the percentage change in absolute dollars of such items
comparing the interim periods ended December 29, 1996 to the corresponding
periods from the prior fiscal year:
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------------- -----------------------------------------------
December 29, December 31, Increase December 29, December 31, Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% (6)% 100.0% 100.0% (2)%
Cost of sales 28.9 28.8 (6) 28.8 29.0 (2)
----- ----- ----- -----
Gross profit 71.1 71.2 (6) 71.2 71.0 (1)
----- ----- ----- -----
Expenses:
Research & development 9.1 8.1 6 9.1 8.1 11
Selling, general &
administrative 12.7 12.1 (2) 13.0 12.4 3
----- ----- ----- -----
21.8 20.2 1 22.1 20.5 6
----- ----- ----- -----
Operating income 49.3 51.0 (9) 49.1 50.5 (4)
Interest income 4.1 3.4 15 4.1 3.4 18
----- ----- ----- -----
Income before income taxes 53.4% 54.4% (8) 53.2% 53.9% (3)
==== ==== ==== ====
Effective tax rates 34.3% 34.3% 34.3% 34.3%
==== ==== ==== ====
</TABLE>
Net sales for the second quarter ended December 29, 1996 decreased $5.9
million or 6% as compared to the second quarter of the prior fiscal year. This
decrease was due primarily to lower unit shipments as the average unit selling
price was generally unchanged from the prior year quarter. Lower unit shipments
resulted from lower order backlog entering the quarter as certain customers
reduced or delayed orders to lower their own excess inventory levels.
Geographically, sales were down a similar percentage both internationally and
domestically.
Net sales for the six months ended December 29, 1996 decreased $2.9
million or 2% as compared to the prior fiscal period due to lower shipment
volumes offset partially by a higher average unit price resulting from a more
favorable product mix. Both international and domestic sales were down slightly
during this period.
Gross profit decreased $4.3 million and $1.6 million, respectively, for
the second quarter and first six months of fiscal 1997 over the corresponding
periods in fiscal 1996. Gross profit declined in line with the lower net sales
levels achieved during the fiscal 1997 periods as gross profit as a percentage
of net sales remained relatively stable at 71.1% and 71.2% for the second
quarter and first six months of fiscal 1997, respectively. Pre-production costs
attributable to the Company's new wafer fabrication facility in Camus,
Washington were generally offset by lower period costs during the second quarter
of fiscal 1997 and a more favorable product mix for the six month period ended
December 29, 1996.
Research and development expenses increased $0.5 million or 6% and $1.6
million or 11%, respectively, for the second quarter and first six months of
fiscal 1997 as compared with the prior year periods. These increases were due
primarily to additions of design and test engineering personnel as well as an
increase in spending for development mask sets.
8
<PAGE>
The Results of Operations, continued:
Selling, general and administrative expenses decreased $.02 million or
2% for the second quarter and increased $0.7 million or 3% for the first six
months of fiscal 1997 as compared with the prior year periods. The decrease in
spending in the second quarter of fiscal 1997 over the second quarter of fiscal
1996 is due primarily to lower commissions resulting from the lower sales level
offset partially by higher advertising expenses. The increase in spending for
the first six months of fiscal 1997 over the comparable period of fiscal 1996 is
due to an increase in advertising, sales seminars and travel expenses offset to
some extent by lower commissions.
Interest income was $3.7 million and $7.4 million for the second
quarter and first six months of fiscal 1997, respectively, compared to $3.3
million and $6.3 million for the corresponding periods of fiscal 1996. The
increases in interest income for these periods resulted from an increase in
invested cash balances.
The Company's effective tax rate for the second quarter and first six
months of fiscal 1997 was 34.3% consistent with the prior year periods of fiscal
1996.
Factors Affecting Future Operating Results
Except for historical information contained herein, the matters set
forth in this Form 10-Q, including the statements in the following paragraphs,
are forward-looking statements that are dependent on certain risks and
uncertainties including such factors, among others, as the timing, volume and
pricing of new orders received and shipped during the quarter, timely ramp-up of
new facilities and the timely introduction of new processes and products.
Management of the Company believes the long-term prospects for the
business are excellent and continues to invest in the plant infrastructure and
technical talent to maximize its opportunities. In the short-term the Company's
business appears to be positioned to resume sales growth beginning in the third
quarter after the past three quarters of generally flat sales. During the second
quarter, customer orders began to accelerate moderately. This increase in orders
appears to be widely distributed across geographic areas and end markets and
appears to indicate a return to steady moderate sales growth. However, coming
off this flat sales period, reduced backlog and shorter lead times continue to
cause the business to be more dependent on orders that are received and shipped
in the same quarter. Although customer order growth appears to be increasing
now, there is no guarantee that this trend will continue.
In response to this growth in customer orders, the Company is
commencing initial production during the third quarter at its newly constructed
fabrication plant in Camas, Washington. As a result, gross profit may be
adversely impacted in the remainder of fiscal 1997 by approximately 1% to 2% of
net sales. The plant is not expected to fully absorb this incremental increase
in fixed start-up costs until higher production levels are achieved. This is
expected to occur in the second half of the 1997 calendar year.
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, variations in
manufacturing efficiencies and significant expenditures for capital equipment
and product development. Furthermore, new product introductions and patent
protection of existing products are critical factors for future sales growth and
sustained profitability.
Although the Company believes that it has the product lines,
manufacturing facilities and technical and financial resources for its current
operations, sales and profitability can be significantly affected by the above
and other factors. Additionally, the Company's common stock could be subject to
significant price volatility should sales and/or earnings fail to meet
expectations of the investment community.
9
<PAGE>
Liquidity and Capital Resources
At December 29, 1996 cash, cash equivalents and short-term investments
totaled $352.4 million, and working capital was $378.1 million.
During the first six months of fiscal 1997, the Company generated $54.5
million of cash from operating activities. Additionally, the Company generated
$7.3 million from proceeds from common stock issued under employee stock option
and stock purchase plans. The Company paid $11.6 million to purchase and retire
approximately 470,000 shares of its common stock.
The Company purchased $12.9 million of capital assets during the first
six months of fiscal 1997, including approximately $7.3 million for construction
and equipment for its new wafer fabrication facility in Camas, Washington. The
total spending on this project through December 29, 1996 was approximately $55.2
million. Initial manufacturing production is scheduled to begin in the third
quarter of fiscal 1997.
During the first six months of fiscal 1997, the Company paid its
shareholders cash dividends totaling $7.4 million. In January 1997, the
Company's Board of Directors announced that a quarterly cash dividend of $0.05
per share will be paid during the third quarter of fiscal 1997. The payment of
future dividends will be based on quarterly financial performance.
Historically, the Company has satisfied its liquidity needs through
cash generated from operations, the placement of equity securities and the
utilization of lease financing for capital equipment and facilities. Given its
strong financial condition and performance, the Company believes that current
capital resources and cash generated from operating activities will be
sufficient to meet its liquidity and capital expenditures requirements for the
foreseeable future.
10
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company, held on November
6, 1996, in Milpitas, California, the shareholders elected members of the
Company's Board of Directors and ratified the Company's proposals to adopt the
1996 Incentive Stock Option Plan and the Senior Executive Bonus Plan and to
appoint Ernst & Young LLP as independent auditors.
The vote for nominated directors was as follows:
NOMINEE FOR WITHHELD
- ------- --- --------
Robert H. Swanson, Jr. 64,789,525 119,316
David S. Lee 64,786,294 122,547
Thomas S. Volpe 64,784,765 124,076
Leo T. McCarthy 64,772,339 136,502
Richard M. Moley 64,787,386 121,455
The vote to ratify the adoption of the 1996 Incentive Stock Option Plan was as
follows:
FOR AGAINST ABSTAIN
--- ------- -------
33,218,372 22,340,872 619,947
The vote to ratify the adoption of the Senior Executive Bonus Plan was as
follows:
FOR AGAINST ABSTAIN
--- ------- -------
62,218,372 1,011,157 485,656
The vote to ratify the appointment of Ernst & Young LLP as independent auditors
for fiscal 1997 was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
64,474,937 38,197 77,877
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.47 1996 Incentive Stock Option Plan
10.48 Senior Executive Bonus Plan
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINEAR TECHNOLOGY CORPORATION
DATE: February 7, 1997 BY /s/Paul Coghlan
-------------------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
12
LINEAR TECHNOLOGY CORPORATION
1996 INCENTIVE STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
o to attract and retain the best available personnel for positions
of substantial responsibility,
o to provide additional incentive to Employees, Directors and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Non-statutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Internal Revenue Code, any stock
exchange or quotation system on which the Common Stock is listed or quoted
and the applicable laws of any foreign country or jurisdiction where
Options are, or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended.
(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Linear Technology Corporation, a California
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Internal Revenue Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any
leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. For purposes of Incentive Stock Options, no
such leave may exceed ninety days, unless reemployment upon expiration of
such leave is guaranteed by statute or contract. If reemployment upon
expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held
by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Non-statutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall
be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq
Stock Market, its Fair Market Value shall be the closing bid price for
such
1
<PAGE>
stock as quoted on such exchange or system for the last market trading
day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the high
bid and low asked prices for the Common Stock on the last market
trading day prior to the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems
reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Internal
Revenue Code and the regulations promulgated thereunder.
(o) "Non-statutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice of
Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise
price.
(u) "Optioned Stock" means the Common Stock subject to an Option.
(v) "Optionee" means the holder of an outstanding Option granted under
the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Internal Revenue Code.
(x) "Plan" means this 1996 Incentive Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect
to the Plan.
(z) "Section 16(b)" means Section 16(b) of the Exchange Act.
(aa) "Service Provider" means an Employee, Director or Consultant.
(bb) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue
Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 4,000,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
2
<PAGE>
however, that Shares that have actually been issued under the Plan, whether upon
exercise of an Option or Right, shall not be returned to the Plan and shall not
become available for future distribution under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be administered
by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m)
of the Internal Revenue Code, the Plan shall be administered by a
Committee of two or more "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding
any Option or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole
discretion, shall determine;
(vi) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option
was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
(x) to modify or amend each Option (subject to Section 15(c) of
the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionee to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued
upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market
Value
3
<PAGE>
of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in
such form and under such conditions as the Administrator may deem
necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Non-statutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Non-statutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Non-statutory Stock Options. For
purposes of this Section 6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of
the Shares shall be determined as of the time the Option with respect to
such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at
any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional
500,000 Shares which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be
counted against the limits set forth in subsections (i) and (ii)
above. For this purpose, if the exercise price of an Option is
reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.
4
<PAGE>
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on
the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Non-statutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case
of a Non-statutory Stock Option intended to qualify as
"performance-based compensation" within the meaning of Section 162(m)
of the Internal Revenue Code, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of
grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value
per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied
before the Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than
six months on the date of surrender, and (B) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement. Unless the
Administrator provides otherwise, vesting of Options granted hereunder
shall be suspended during any unpaid leave of absence. An Option may not be
exercised for a fraction of a Share.
5
<PAGE>
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized
by the Administrator and permitted by the Option Agreement and the Plan.
Shares issued upon exercise of an Option shall be issued in the name of the
Optionee or, if requested by the Optionee, in the name of the Optionee and
his or her spouse. Until the Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue
(or cause to be issued) such Shares promptly after the Option is exercised.
No adjustment will be made for a dividend or other right for which the
record date is prior to the date the Shares are issued, except as provided
in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period
of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for three (3) months following the
Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in
the Option Agreement to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for
twelve (12) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in
the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by
bequest or inheritance, but only to the extent that the Option is vested on
the date of death. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, at the time of death, the
Optionee is not vested as to his or her entire Option, the Shares covered
by the unvested portion of the Option shall immediately revert to the Plan.
The Option may be exercised by the executor or administrator of the
Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If
the Option is not so exercised within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
6
<PAGE>
11. Non-Transferability of Options. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of issued shares of Common
Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for
an Optionee to have the right to exercise his or her Option until ten (10)
days prior to such transaction as to all of the Optioned Stock covered
thereby, including Shares as to which the Option would not otherwise be
exercisable. In addition, the Administrator may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an
Option shall lapse as to all such Shares, provided the proposed dissolution
or liquidation takes place at the time and in the manner contemplated. To
the extent it has not been previously exercised, an Option will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent
option substituted by the successor corporation or a Parent or Subsidiary
of the successor corporation, unless the Administrator determines, in the
exercise of its sole discretion and in lieu of such assumption or
substitution, that the Optionee shall fully vest in and have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be vested or exercisable. If an Option becomes
fully vested and exercisable in lieu of assumption or substitution in the
event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested
and exercisable for a period of thirty (30) days from the date of such
notice, and the Option shall terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed
if, following the merger or sale of assets, the option confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the
merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the
consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock
7
<PAGE>
subject to the Option, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or
sale of assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the
Optionee and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to options granted under the Plan prior to the date of such
termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the
Company, such a representation is required.
16. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
8
LINEAR TECHNOLOGY CORPORATION
SENIOR EXECUTIVE BONUS PLAN
The Compensation Committee (the "Committee") of the Board of Directors
has approved the adoption of a new Senior Executive Bonus Plan (the "Plan").
Adoption of the Plan is subject to the approval of a majority of the shares of
the Company's Common Stock which are present in person or by proxy and entitled
to vote at the Annual meeting. The Plan provides the Company's senior key
executives with the opportunity to earn incentive awards based on the
achievement of goals relating to the performance of the Company.
Background and Reasons for Adoption
The Company has a performance-based bonus plan similar to the Plan,
pursuant to which the Company rewards management for achieving certain
performance objectives. However, under new section 162(m) of the Internal
Revenue Code, the federal income tax deductibility of compensation paid to the
Company's Chief Executive Officer and to each of its four other most highly
compensated executive officers may be limited to the extent that such
compensation exceeds $1 million in any one year. Under section 162(m), the
Company may deduct compensation in excess of that amount if it qualifies as
"performance-based compensation," as defined in section 162(m). The Plan is
designed to qualify payments thereunder as performance-based compensation, so
that the Company may continue to receive a federal income tax deduction for the
payment of incentive bonuses to its executives. The Company will continue to
operate its current bonus plan, as well, for the compensation of senior
executives and other key employees for whom section 162(m) is not an issue.
Description of the Plan
The following paragraphs provide a summary of the principal features of
the Plan and its operation.
Purpose of the Plan
The Plan is intended to increase stockholder value and the success of
the Company by aligning senior executive compensation with the Company's
business objectives and performance.
Administration of the Plan
The Plan will be administered by the Committee in accordance with (1)
the express provisions of the Plan and (2) the requirements of section 162(m).
Eligibility to Receive Awards
Participation in the Plan is determined annually in the discretion of
the Committee. In selecting participants for the Plan, the Committee will choose
officers of the Company who are likely to have a significant impact on Company
performance and be highly compensated. Participation in the Plan will be at
the discretion of the Committee, but it currently is expected that two to nine
officers will participate each year.
1
<PAGE>
Target Awards and Performance Goals
For each fiscal year, the Committee will establish: (1) a target award
for each participant, (2) the performance goals which must be achieved in order
for the participant to be paid the target award, and (3) a formula for
increasing or decreasing a participant's actual award depending upon how actual
performance compares to the pre-established performance goals.
Each participant's target award will be expressed as a percentage of
his or her base salary. Base salary under the Plan means the lesser of: (1) 125%
of the participant's annual salary rate on the first day of the fiscal year, or
(2) the participant's annual salary rate on the last day of the fiscal year.
There are several performance measures which the Committee may use in
setting the performance goals for any fiscal year. Specifically, the performance
goals applicable to any participant will provide for a targeted level of
achievement using one or more of the following measures: (1) annual revenue, and
(2) operating income expressed as a percent of sales.
For fisal 1997, the Committee has established for the two Plan
participants a combined performance goal with respect to: (1) operating profit
return on sales (i.e. fiscal 1997 operating profit as a percentage of revenue),
and (2) revenue growth from fiscal 1996 to fiscal 1997. The Committee has also
established a formula, with such measurements as variables, which will determine
actual awards.
Determination of Actual Awards
After the end of each fiscal year, the Committee must certify in
writing the extent to which the performance goals applicable to each participant
were achieved or exceeded. The actual award (if any) for each participant will
be determined by applying the formula to the level of actual performance which
has been certified by the Committee. However, the Committee retains discretion
to eliminate or reduce the actual award payable to any participant below that
which otherwise would be payable under the applicable formula. Also, no
participant's actual award under the Plan may exceed $3 million for any fiscal
year.
The Plan contains a continuous employment requirement. If a participant
terminates employment with the Company prior to the end of a fiscal year, he or
she generally will not be entitled to the payment of an award for the fiscal
year. However, if the participant's termination is due to retirement, disability
or death, the committee will proportionately reduce (or eliminate) his or her
actual award based on the date of termination and such other considerations as
the Committee deems appropriate.
Awards under the Plan generally will be payable in cash after the end
of the fiscal year during which the award was earned.
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Form 10-Q For The Quarterly Period Ended
December 29, 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-29-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> DEC-29-1996
<CASH> 58,366
<SECURITIES> 293,989
<RECEIVABLES> 62,299
<ALLOWANCES> 806
<INVENTORY> 11,648
<CURRENT-ASSETS> 461,781
<PP&E> 177,651
<DEPRECIATION> 59,685
<TOTAL-ASSETS> 579,747
<CURRENT-LIABILITIES> 83,648
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 140,388
<TOTAL-LIABILITY-AND-EQUITY> 579,747
<SALES> 90,080
<TOTAL-REVENUES> 90,080
<CGS> 26,033
<TOTAL-COSTS> 26,033
<OTHER-EXPENSES> 19,634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 48,146
<INCOME-TAX> 16,515
<INCOME-CONTINUING> 31,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,631
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
