FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-14864
LINEAR TECHNOLOGY CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
California 94-2778785
---------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1630 McCarthy Blvd.
Milpitas, California 95035-7417
(408) 432-1900
--------------
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---
There were 75,444,734 shares of the Registrant's Common Stock issued
and outstanding as of April 25, 1997.
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED MARCH 30, 1997
INDEX
<CAPTION>
Page
----
<S> <C> <C>
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the 2
three and nine months ended March 30, 1997 and
March 31, 1996
Condensed Consolidated Balance Sheets at March 30, 1997 3-4
and June 30, 1996
Condensed Consolidated Statements of Cash Flows for the 5
nine months ended March 30, 1997 and March 31, 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7-9
Condition and Results of Operations
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
<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 Nine Months Ended
------------------ -----------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
----------------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Net sales $ 95,033 $ 104,710 $ 275,176 $ 287,732
Cost of sales 27,435 28,473 79,247 81,544
--------- --------- ---------- ---------
Gross profit 67,598 76,237 195,929 206,188
--------- --------- ---------- ---------
Expenses:
Research and development 9,268 8,309 25,661 23,078
Selling, general and administrative 10,641 13,832 34,139 36,626
--------- --------- ---------- ---------
19,909 22,141 59,800 59,704
--------- --------- ---------- ---------
Operating income 47,689 54,096 136,129 146,484
Interest income 4,031 3,383 11,464 9,691
--------- --------- ---------- ---------
Income before income taxes 51,720 57,479 147,593 156,175
Provision for income taxes 17,740 19,715 50,624 53,568
--------- --------- ---------- ---------
Net income $ 33,980 $ 37,764 $ 96,969 $ 102,607
========= ========= ========== =========
Net income per share $ 0.43 $ 0.48 $ 1.24 $ 1.32
========= ========= ========== =========
Cash dividends declared per share $ 0.05 $ 0.04 $ 0.15 $ 0.12
========= ========= ========== =========
Shares used in the calculation of net
income per share 78,993 78,219 78,281 77,961
========= ========= ========== =========
<FN>
See accompanying notes
</FN>
</TABLE>
2
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
<CAPTION>
March 30, June 30,
1997 1996
------------------ ------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 44,108 $ 54,393
Short-term investments 342,813 268,079
Accounts receivable, net of allowance for
doubtful accounts of $806 ($776 at
June 30, 1996) 62,072 48,395
Inventories:
Raw materials 2,926 3,003
Work-in-process 5,106 5,479
Finished goods 3,664 4,448
--------- ---------
Total inventories 11,696 12,930
Deferred tax assets 27,200 27,200
Prepaid expenses and other current assets 7,013 7,883
--------- ---------
Total current assets 494,902 418,880
--------- ---------
Property, plant and equipment, at cost:
Land, building and improvements 53,084 50,964
Manufacturing and test equipment 128,325 111,174
Office furniture and equipment 2,741 2,667
--------- ---------
184,150 164,805
Less accumulated depreciation and
amortization (62,414) (53,883)
--------- ---------
Net property, plant and equipment 121,736 110,922
--------- ---------
$ 616,638 $ 529,802
========= =========
<FN>
See accompanying notes
</FN>
</TABLE>
3
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands)
<CAPTION>
March 30, June 30,
1997 1996
---------------- ----------------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,698 $ 18,075
Accrued payroll and related benefits 14,681 21,319
Deferred income on shipments to distributors 26,635 24,928
Income taxes payable 8,808 8,395
Other accrued liabilities 13,035 13,681
--------- ---------
Total current liabilities 72,857 86,398
Deferred tax liabilities 2,917 2,917
Shareholders' equity:
Common stock, no par value, 120,000
shares authorized; 75,412
shares issued and outstanding at
March 30, 1997 (74,662 shares
at June 30, 1996) 157,848 132,482
Retained earnings 383,016 308,005
--------- ---------
Total shareholders' equity 540,864 440,487
--------- ---------
$ 616,638 $ 529,802
========= =========
<FN>
See accompanying notes
</FN>
</TABLE>
4
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
<CAPTION>
Nine Months Ended
-------------------------------------------
March 30, March 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 96,969 $ 102,607
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,835 7,511
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (13,677) (19,840)
Decrease (increase) in inventories 1,234 (1,827)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets 870 (4,517)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities (15,248) 11,138
Tax benefit from stock option transactions 13,573 17,245
Increase (decrease) in deferred income 1,707 7,507
Increase (decrease) in deferred tax liabilities -- 900
--------- ---------
Cash provided by operating activities 94,263 120,724
--------- ---------
Cash flow from investing activities:
Purchase of short-term investments (184,090) (183,252)
Proceeds from sales and maturities of short-term
investments 109,356 142,092
Purchase of property, plant and equipment (19,649) (52,277)
--------- ---------
Cash used in investing activities (94,383) (93,437)
--------- ---------
Cash flow from financing activities:
Issuance of common stock under employee stock plans 12,625 9,772
Purchase of common stock (11,598) (8,473)
Payment of cash dividends (11,192) (8,866)
--------- ---------
Cash used in financing activities (10,165) (7,567)
--------- ---------
Increase (decrease) in cash and cash equivalents (10,285) 19,720
Cash and cash equivalents, beginning of period 54,393 48,146
--------- ---------
Cash and cash equivalents, end of period $ 44,108 $ 67,866
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 36,303 $ 48,020
========= =========
<FN>
See accompanying notes
</FN>
</TABLE>
5
<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 nine
months ended March 30, 1997 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 March 30, 1997 is
approximately $60.4 million ($47.9 million at June 30, 1996) related to the
Company's new wafer fabrication facility in Camas, Washington. This
facility will be fully placed in service and depreciation will commence in
the fourth quarter of fiscal 1997.
5. On July 23, 1996 the Board of Directors approved the re-pricing 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.
6. 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, primary earnings per share will be replaced by basic 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 third quarter ended March 30, 1997 and March 31, 1996 is
expected to be $0.45 and $0.51, respectively. Under FAS 128, diluted
earnings per share, which will include the dilutive effect of stock
options, is expected to remain at $0.43 and $0.48 per share for the third
quarter ended March 30, 1997 and March 31, 1996, respectively.
6
<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
nine months ended March 30, 1997 and March 31, 1996 as a percentage of net sales
and provides the percentage change in absolute dollars of such items comparing
the interim periods ended March 30, 1997 to the corresponding periods from the
prior fiscal year:
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------------------- ---------------------------------------------
March 30, March 31, Increase March 30, March 31, Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
------------- ----------- ------------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% (9)% 100.0% 100.0% (4)%
Cost of sales 28.9 27.2 (4) 28.8 28.3 (3)
------ ------ ------ ------
Gross profit 71.1 72.8 (11) 71.2 71.7 (5)
------ ------ ------ ------
Expenses:
Research & development 9.7 7.9 12 9.3 8.0 11
Selling, general &
administrative 11.2 13.2 (23) 12.4 12.8 (7)
------ ------ ------ ------
20.9 21.1 (10) 21.7 20.8 --
------ ------ ------ ------
Operating income 50.2 51.7 (12) 49.5 50.9 (7)
Interest income 4.2 3.2 19 4.1 3.4 18
------ ------ ------ ------
Income before income taxes 54.4% 54.9% (10) 53.6% 54.3% (5)
====== ====== ====== ======
Effective tax rates 34.3% 34.3% 34.3% 34.3%
====== ====== ====== ======
</TABLE>
Net sales for the third quarter and nine months ended March 30, 1997
decreased $9.7 million or 9% and $12.6 million or 4%, respectively over net
sales for the same periods of the previous year. This decrease was due primarily
to lower unit shipments while the average selling price was slightly lower for
the quarter but generally unchanged for the nine-month period. Geographically,
the sales decline for the quarter was attributed to the international markets,
particularly Japan, while domestic sales increased slightly over the same
quarter of the prior year. Relative to end application markets, communications
products now represent approximately 20% of sales, up from 15% last year, and
computer products are now approximately 25% of sales, down from 30% a year ago.
The prior year quarter reflects record shipments for the Company and a period of
significant sales growth. Subsequent to that quarter, customers began to reduce
or delay orders to lower their own excess inventory levels which resulted in
lower order backlog and a period of flat sequential quarterly sales from the
fourth quarter of fiscal 1996 through the second quarter of fiscal 1997. This
trend began to reverse in the third quarter as the Company returned to quarterly
sequential sales growth and increased its order backlog.
Gross profit decreased $8.6 million or 11% and $10.3 million or 5% for
the third quarter and first nine months of fiscal 1997 over the corresponding
periods in fiscal 1996. Gross profit as a percentage of net sales also declined
slightly over these periods primarily due to pre-production costs attributed to
the Company's new wafer fabrication facility in Camas, Washington, lower
absorbed manufacturing costs, and for the quarterly period, slightly lower
average sales prices.
Research and development expenses increased by $1.0 million or 12% and
$2.6 million or 11% for the third quarter and first nine months of fiscal 1997,
respectively, as compared to the same periods in fiscal 1996. These increases
were due primarily to an increase in staffing of design and test engineering
personnel and an increase in spending for development mask sets. In January,
1997 the Company opened a new design center in Colorado Springs, Colorado.
7
<PAGE>
Selling, general and administrative expenses decreased $3.2 million or
23% and $2.5 million or 7% for the third quarter and first nine months of fiscal
1997, respectively, as compared to the same periods of fiscal 1996. These
decreases were primarily due to lower commissions on the lower sales levels,
lower legal costs and lower expenses for employee benefits. For the nine-month
period, these decreases were partially offset by increases in advertising and
travel expenses.
Interest income was $4.0 million and $11.5 million for the third
quarter and first nine months of fiscal 1997, respectively, compared to $3.4
million and $9.7 million for the corresponding periods of fiscal 1996. The
increases in interest income resulted mostly from the increase in cash, cash
equivalents and short-term investments.
The Company's effective tax rate for the third quarter and the first
nine months of fiscal 1997 was 34.3% consistent with the prior year periods of
fiscal 1996. In April, 1997 the Company received approval for a three-year
extension of its tax holiday in Singapore. As a result, the Company's effective
tax rate in the future may decline by one to two-tenths of a percentage point.
The actual rate reduction, if any, is dependent on the actual amount of income
earned in this jurisdiction.
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
has returned to quarterly sequential sales growth in the third quarter after
three quarters of generally flat sales. During the second quarter, customer
orders began to accelerate moderately and this continued through the third
quarter allowing the Company to increase its order backlog and return to
sequential sales growth. This increase in orders appears to be distributed
across geographic areas and end markets, particularly communications, and
appears to indicate that the Company should continue to grow sales moderately
over the near term. However, lead times are shorter and order backlog continues
to be lower than historical levels relative to anticipated shipments. As a
result, the Company's quarterly results of operations are dependent on orders
that are received and shipped in the same quarter. Although customer order
growth and higher backlog have mitigated this dependency to some extent, there
is no guarantee that this trend will continue.
In response to this growth in customer orders, the Company initiated
production during the third quarter at its newly constructed fabrication plant
in Camas, Washington and will have a full quarter of expenses in the fourth
quarter. As a result, additional manufacturing costs will be incurred during
this quarter, particularly depreciation, that are not expected to be fully
absorbed until higher production levels are achieved. Such levels are not
expected to occur until the second half of the 1997 calendar year. These
additional unabsorbed costs may add up to a full percentage point to cost of
sales in the fourth quarter. However, the Company hopes to partially offset this
increase by other manufacturing efficiencies and/or expense reductions. There is
no guarantee that such production levels, manufacturing efficiencies or cost
reductions will be achieved.
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.
8
<PAGE>
Liquidity and Capital Resources
At March 30, 1997 cash, cash equivalents and short-term investments
totaled $386.9 million, and working capital was $422.0 million.
During the first nine months of fiscal 1997, the Company generated
$94.3 million of cash from operating activities. Additionally, the Company
generated $12.6 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 $19.6 million of capital assets during the first
nine months of fiscal 1997, including approximately $12.5 million for
construction and equipment for its new wafer fabrication facility in Camas,
Washington. The total spending on this project through March 30, 1997 was
approximately $60.4 million.
During the first nine months of fiscal 1997, the Company paid its
shareholders cash dividends totaling $11.2 million. In April 1997, the Company's
Board of Directors announced that a quarterly cash dividend of $0.05 per share
will be paid during the fourth 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.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINEAR TECHNOLOGY CORPORATION
DATE: May 12, 1997 BY /s/Paul Coghlan
---------------------------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-29-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 44,108
<SECURITIES> 342,813
<RECEIVABLES> 62,072
<ALLOWANCES> 806
<INVENTORY> 11,696
<CURRENT-ASSETS> 494,902
<PP&E> 184,150
<DEPRECIATION> 62,414
<TOTAL-ASSETS> 616,638
<CURRENT-LIABILITIES> 72,857
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 157,848
<TOTAL-LIABILITY-AND-EQUITY> 616,638
<SALES> 95,033
<TOTAL-REVENUES> 95,033
<CGS> 27,435
<TOTAL-COSTS> 27,435
<OTHER-EXPENSES> 19,909
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 51,720
<INCOME-TAX> 17,740
<INCOME-CONTINUING> 33,980
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,980
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
