FORM 10Q
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 28, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-14864
LINEAR TECHNOLOGY CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
California 94-2778785
---------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
1630 McCarthy Blvd.
Milpitas, California 95035-7417
(408) 432-1900
--------------
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
There were 75,805,094 shares of the Registrant's Common Stock issued and
outstanding as of January 25, 1998.
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND SIX MONTHS ENDED DECEMBER 28, 1997
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 28, 1997 and
December 29, 1996
Condensed Consolidated Balance Sheets at 3-4
December 28, 1997 and June 29, 1997
Condensed Consolidated Statements of Cash Flows for the 5
six months ended December 28, 1997 and December 29, 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 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</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 28, December 29, December 28, December 29,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $117,004 $ 90,080 $226,806 $180,143
Cost of sales 33,646 26,033 65,030 51,812
-------- -------- -------- --------
Gross profit 83,358 64,047 161,776 128,331
-------- -------- -------- --------
Expenses:
Research and development 10,777 8,207 21,395 16,393
Selling, general and administrative 12,906 11,427 25,067 23,498
-------- -------- -------- --------
23,683 19,634 46,462 39,891
-------- -------- -------- --------
Operating income 59,675 44,413 115,314 88,440
Interest income 5,665 3,733 10,961 7,433
-------- -------- -------- --------
Income before income taxes 65,340 48,146 126,275 95,873
Provision for income taxes 21,758 16,515 42,050 32,884
-------- -------- -------- --------
Net income $ 43,582 $ 31,631 $ 84,225 $ 62,989
======== ======== ======== ========
Basic earnings per share $ 0.57 $ 0.42 $ 1.10 $ 0.84
======== ======== ======== ========
Shares used in the calculation
of basic earnings per share 76,212 74,616 76,222 74,566
======== ======== ======== ========
Diluted earnings per share $ 0.55 $ 0.40 $ 1.05 $ 0.81
======== ======== ======== ========
Shares used in the calculation of
diluted earnings per share 79,849 78,256 79,960 77,926
======== ======== ======== ========
Cash dividends declared per share $ 0.06 $ 0.05 $ 0.12 $ 0.10
======== ======== ======== ========
<FN>
See accompanying notes
</FN>
</TABLE>
2
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
December 28, June 29,
1997 1997
--------- ---------
(unaudited)
Current assets:
Cash and cash equivalents $ 60,800 $ 50,114
Short-term investments 451,900 393,325
Accounts receivable, net of allowance for
doubtful accounts of $806 ($803 at
June 29, 1997) 56,855 64,836
Inventories:
Raw materials 4,515 4,001
Work-in-process 5,713 4,820
Finished goods 4,879 3,364
--------- ---------
Total inventories 15,107 12,185
Deferred tax assets 30,698 30,698
Prepaid expenses and other current assets 7,814 8,128
--------- ---------
Total current assets 623,174 559,286
--------- ---------
Property, plant and equipment, at cost:
Land, building and improvements 55,106 53,312
Manufacturing and test equipment 143,154 130,175
Office furniture and equipment 3,129 2,707
--------- ---------
201,389 186,194
Less accumulated depreciation and
amortization (75,438) (65,847)
--------- ---------
Net property, plant and equipment 125,951 120,347
--------- ---------
$ 749,125 $ 679,633
========= =========
See accompanying notes
3
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands)
December 28, June 29,
1997 1997
-------- --------
(unaudited)
Current liabilities:
Accounts payable $ 17,214 $ 7,872
Accrued payroll and related benefits 25,333 21,423
Deferred income on shipments to distributors 30,236 29,986
Income taxes payable 28,944 16,124
Other accrued liabilities 13,765 13,581
-------- --------
Total current liabilities 115,492 88,986
Deferred tax liabilities 1,596 1,596
Shareholders' equity:
Common stock, no par value, 120,000
shares authorized; 75,743
shares issued and outstanding at
December 28, 1997 (75,956 shares
at June 29, 1997) 194,309 172,403
Retained earnings 437,728 416,648
-------- --------
Total shareholders' equity 632,037 589,051
-------- --------
$749,125 $679,633
======== ========
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 28, December 29,
1997 1996
--------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 84,225 $ 62,989
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,670 5,825
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 7,981 (13,904)
Decrease (increase) in inventories (2,922) 1,282
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets 314 (396)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities 20,351 (5,448)
Tax benefit from stock option transactions 13,976 1,425
Increase (decrease) in deferred income 250 2,698
--------- ---------
Cash provided by operating activities 133,845 54,471
--------- ---------
Cash flow from investing activities:
Purchase of short-term investments (214,468) (109,812)
Proceeds from sales and maturities of short-term
investments 155,893 83,902
Purchase of property, plant and equipment (15,274) (12,869)
--------- ---------
Cash used in investing activities (73,849) (38,779)
--------- ---------
Cash flow from financing activities:
Issuance of common stock under employee stock plans 10,399 7,313
Purchase of common stock (50,540) (11,598)
Payment of cash dividends (9,169) (7,434)
--------- ---------
Cash used in financing activities (49,310) (11,719)
--------- ---------
Increase in cash and cash equivalents 10,686 3,973
Cash and cash equivalents, beginning of period 50,114 54,393
--------- ---------
Cash and cash equivalents, end of period $ 60,800 $ 58,366
========= =========
Supplemental disclosure of non-cash financing activities:
Accrued liability for purchase and retirement of common stock $ 5,905 $ --
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 14,999 $ 28,575
========= =========
<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 months and six
months ended December 28, 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 29, 1997
included in the Company's Annual Report to Shareholders. The accompanying
balance sheet at June 29, 1997 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 1998 and 1997 each have 52 weeks.
<TABLE>
3. In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards Number 128, Earnings Per Share ("FAS
128"). As required, the Company adopted FAS 128 during the quarter ended
December 28, 1997. Under the requirements of FAS 128, the Company is
required to disclose both basic earnings per share and diluted earnings per
share in place of primary earnings per share previously reported by the
Company. Basic earnings per share is based upon the weighted average number
of shares of common stock outstanding during the period and, unlike primary
earnings per share, excludes the dilutive effect of employee stock options.
Diluted earnings per share includes the dilutive effect of employee stock
options and accordingly, is comparable to primary earnings per share
previously reported by the Company. All earnings per share amounts for the
periods presented have been restated to conform to the requirements of FAS
128. The following table sets forth the computation of basic and diluted
earnings per share:
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------- ----------------------------------------
December 28, December 29, December 28, December 29,
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Numerator - Net income $ 43,582 $ 31,631 $ 84,225 $ 62,989
---------- ---------- ---------- -----------
Denominator for basic
earnings per share - weighted
average shares 76,212 74,616 76,222 74,566
Effect of dilutive securities
- employee stock options 3,637 3,640 3,738 3,360
---------- ---------- ---------- -----------
Denominator for diluted
earnings per share 79,849 78,256 79,960 77,926
---------- ---------- ---------- -----------
Basic earnings per share $ 0.57 $ 0.42 $ 1.10 $ 0.84
========== ========== ========== ===========
Diluted earnings per share $ 0.55 $ 0.40 $ 1.05 $ 0.81
========== ========== ========== ===========
</TABLE>
4. In June 1997, the FASB issued Statement of Financial Accounting Standards
Number 131, Disclosures About Segments of an Enterprise and Related
Information. This statement replaces Statement Number 14 and changes the
way public companies report segment information. This statement is
effective for fiscal years beginning after December 15, 1997 and will be
adopted by the Company for the fiscal year ending June 27, 1999.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
<TABLE>
Results of Operations
The table below states the income statement items for the three and six
months ended December 28, 1997 and December 29, 1996 as a percentage of net
sales and provides the percentage change in absolute dollars of such items
comparing the interim periods ended December 28, 1997 to the corresponding
periods from the prior fiscal year:
<CAPTION>
Three Months Ended Six Months Ended
- ------------------------------------------------------------------------------------------------------------------------------
December 28, December 29, Increase December 28, December 29, Increase
1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 30% 100.0% 100.0% 26%
Cost of sales 28.8 28.9 29 28.7 28.8 26
----- ----- ----- -----
Gross profit 71.2 71.1 30 71.3 71.2 26
----- ----- ----- -----
Expenses:
Research & development 9.2 9.1 31 9.4 9.1 31
Selling, general &
administrative 11.0 12.7 13 11.0 13.0 7
----- ----- ----- -----
20.2 21.8 21 20.4 22.1 16
----- ----- ----- -----
-- ----- ----- --
Operating income 51.0 49.3 34 50.9 49.1 30
Interest income 4.8 4.1 52 4.8 4.1 47
----- ----- ----- -----
Income before income taxes 55.8% 53.4% 36 55.7% 53.2% 32
==== ==== ==== ====
Effective tax rates 33.3% 34.3% 33.3% 34.3%
==== ==== ==== ====
</TABLE>
Net sales for the second quarter ended December 28, 1997 increased
$26.9 million or 30% as compared to the second quarter of the prior fiscal year.
This increase was due primarily to higher unit shipments as the average unit
selling price was down slightly from the prior year quarter. The increase in
sales was broad based across each of the Company's major geographic markets and
in the U.S. between OEM and distributor customers. Despite economic turmoil and
other financial difficulties experienced in certain Asian countries during the
second quarter, such difficulties did not have a material impact on the
Company's sales for the quarter ended December 28, 1997. For the second quarter
of fiscal 1998, U.S. sales and International sales represented approximately 49%
and 51% of total net sales, respectively with Europe, Japan and Rest of World
representing 22%, 14% and 15% of total net sales. Sales were also up across all
major end-markets during the quarter as compared to the prior year quarter.
Net sales for the six months ended December 28, 1997 increased $46.7
million or 26% as compared to the prior fiscal period due to higher shipment
volumes offset partially by a slightly lower average unit price. Both
international and domestic sales were higher during this period and sales
increased across all major end-markets as compared with the six months ended
December 29, 1996.
Gross profit increased $19.3 million and $33.4 million, respectively,
for the second quarter and first six months of fiscal 1998 over the
corresponding periods in fiscal 1997. Gross profit increased in line with the
higher net sales levels achieved during the fiscal 1998 periods as gross profit
as a percentage of net sales remained relatively stable at 71.2% and 71.3% for
the second quarter and first six months of fiscal 1998, respectively. During
each of these periods, higher manufacturing costs resulting from the Company's
new wafer fabrication facility in Camas, Washington were generally offset by
certain manufacturing efficiencies achieved at the Company's other fabrication,
assembly and test facilities and lower costs resulting from weaker local
currencies in Malaysia and Singapore where the Company operates its assembly and
test facilities.
Research and development ("R&D") expenses increased $2.6 million and
$5.0 million, respectively, for the second quarter and first six months of
fiscal 1998 and have stayed relatively flat as a percentage of net sales as
compared with the prior year periods. The increases in R&D expenses as compared
with the prior year periods were due primarily to an increase in design and
process engineering personnel, higher compensation costs due to higher profit
sharing and an increase in spending for development mask sets.
7
<PAGE>
The Results of Operations, continued:
Selling, general and administrative expenses ("SG&A") increased $1.5
million for the second quarter and increased $1.6 million for the first six
months of fiscal 1998 as compared with the prior year periods. The increases in
SG&A as compared to the prior year periods in fiscal 1997 were due primarily to
higher labor costs from an increase in staffing and higher commissions resulting
from the higher sales level offset partially by lower legal and sales meeting
expenses.
Interest income was $5.7 million and $11.0 million for the second
quarter and first six months of fiscal 1998, respectively, an increase of $1.9
million and $3.5 million over the corresponding periods of fiscal 1997. The
increase in interest income resulted from the significant increase in cash, cash
equivalents and short-term investments over these periods.
The Company's effective tax rate for the second quarter and first six
months of fiscal 1998 was 33.3%, down from 34.3% in the prior year periods of
fiscal 1997. The lower tax rate is due to higher business activity in foreign
jurisdictions and an increase in assets employed outside of California into
states where the company experiences lower tax rates.
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 the Company continues to invest in the plant
infrastructure and technical talent to maximize its opportunities. In the
short-term, the Company' second quarter of fiscal 1998 was its fourth
consecutive quarter of quarterly sequential sales growth after experiencing
three quarters of generally flat sales during the 1996 calendar year. During the
first half of fiscal 1998, customer orders continued to be strong. These orders
continue to be well diversified across products, end markets, customers and most
major geographic regions. Should this pattern continue, the Company expects to
grow sales moderately over the near term.
The Company sells its products to distributors and manufacturers
located within certain Asian countries that are currently experiencing economic
and/or other financial difficulties. Although the Company has seen a decline in
customer orders in certain of these countries, this decline did not have a
material impact on the Company's second quarter ended December 28, 1997. In
addition, the Company does not expect that this decline will have a significant
impact on the Company's results of operations in the near term. However, should
the financial difficulties experienced in these countries become prolonged or
should such problems affect other countries where the Company generates
significant revenues, there can be no assurance that the Company's results of
operations will not be adversely impacted in the future.
The Company continues to ramp-up production volumes in its new wafer
fabrication facility in Camas, Washington. During the first six months of fiscal
1998, the fixed and variable costs associated with this ramp-up of production
had a negative impact on the Company's gross margin. Currently, the Company
expects that certain manufacturing efficiencies and other cost savings will be
achieved to offset any further impact on cost of goods sold and gross margin
resulting from the ramp-up of Camas production volumes. However, there can be no
assurance that such cost savings will be achieved or that other factors will not
arise that will adversely affect gross margin.
8
<PAGE>
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.
Liquidity and Capital Resources
At December 28, 1997, cash, cash equivalents and short-term investments
totaled $512.7 million, and working capital was $507.7 million.
During the first half of fiscal 1998, the Company generated $133.8
million of cash from operating activities. Additionally, the Company generated
$10.4 million in proceeds from common stock issued under employee stock option
and stock purchase plans.
During the first half of fiscal 1998, significant cash expenditures
included net purchases of short-term investments of $58.6 million and $15.3
million for the purchase of capital assets, primarily manufacturing equipment
for the Company's fabrication facilities in Camas, Washington and Penang,
Malaysia. During the second quarter of fiscal 1998, the Company purchased
1,002,500 shares of its common stock for $56.4 million of which $5.9 million was
paid subsequent to December 28, 1997. The Company also paid $9.2 million for
cash dividends to shareholders representing $0.06 per share. In January 1998,
the Company's Board of Directors declared a quarterly cash dividend of $0.06 per
share to be paid during the third quarter of fiscal 1998. 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 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company, held on November
5, 1997, in Milpitas, California, the shareholders elected members of the
Company's Board of Directors and ratified the Company's proposals to amend the
1986 Employee Stock Purchase 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. 65,183,664 514,569
David S. Lee 65,183,801 514,432
Thomas S. Volpe 65,183,771 514,462
Leo T. McCarthy 65,171,935 526,298
Richard M. Moley 65,180,745 517,488
The vote to ratify the amendment of the 1986 Employee Stock Purchase Plan was as
follows:
FOR AGAINST ABSTAIN
--- ------- -------
64,789,162 415,427 183,249
The vote to ratify the appointment of Ernst & Young LLP as independent auditors
for fiscal 1998 was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
65,450,767 101,195 146,271
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.25 1986 Employee Stock Option Plan, as amended, and
form of Subscription Agreement
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: February 9, 1998 BY /s/Paul Coghlan
------------------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
11
LINEAR TECHNOLOGY CORPORATION
1986 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED)
The following constitute the provisions of the 1986 Employee Stock
Purchase Plan of Linear Technology Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock, no par value,
of the Company.
(d) "Company" shall mean Linear Technology Corporation, a
California corporation.
(e) "Compensation" shall mean all regular straight time gross
earnings, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses or other compensation.
(f) "Continuous Status as an Employee" shall mean the absence
of any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company, provided that such leave is for a
period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.
(g) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
<PAGE>
(h) "Employee" shall mean any person, including an officer,
who is customarily employed for at least twenty (20) hours per week and more
than five (5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(i) "Exercise Date" shall mean the last day of each offering
period of the Plan.
(j) "Offering Date" shall mean the first day of each offering
period of the Plan.
(k) "Plan" shall mean this 1986 Employee Stock Purchase Plan.
(l) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who is an Employee as of the Offering Date of a
given offering period shall be eligible to participate in such offering period
under the Plan, subject to the requirements of paragraph 5(a) and the
limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 425(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any subsidiary of the Company, or (ii)
which permits his rights to purchase stock under all employee stock purchase
plans (described in Section 423 of the Code) of the Company and its subsidiaries
to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by one offering
during each six-month period of the Plan, commencing on or about November 1,
1986, and continuing thereafter until terminated in accordance with paragraph 19
hereof. The Board of Directors of the Company shall have the power to change the
duration of offering periods with respect to future offerings without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first offering period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deduction on the form
provided by the Company and filing it with the Company's payroll office prior to
the applicable Offering Date, unless a later time
-2-
<PAGE>
for filing the subscription agreement is set by the Board for all eligible
Employees with respect to a given offering.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Offering Date and shall end on the Exercise Date of
the offering to which such authorization is applicable, unless sooner terminated
by the participant as provided in paragraph 10.
6. Payroll Deductions.
(a) At the time a participant files his subscription
agreement, he shall elect to have payroll deductions made on each payday during
the offering period in an amount not less than five percent (5%) and not
exceeding ten percent (10%) of the Compensation which he received on the payday
immediately preceding the Offering Date, and the aggregate of such payroll
deductions during the offering period shall not exceed ten percent (10%) of his
aggregate Compensation during said offering period.
(b) All payroll deductions made by a participant shall be
credited to his account under the Plan. A participant may not make any
additional payments into such account.
(c) A participant may discontinue his participation in the
Plan as provided in paragraph 10, or may lower, but not increase, the rate of
his payroll deductions during the offering period by completing or filing with
the Company a new authorization for payroll deduction. The change in rate shall
be effective fifteen (15) days following the Company's receipt of the new
authorization.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period which is scheduled to end during the current calendar year that
the aggregate of all payroll deductions accumulated with respect to such
Offering Period and any other Offering Period ending within the same calendar
year equal $21,250. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in paragraph 10.
7. Grant of Option.
(a) On the Offering Date of each offering period, each
eligible Employee participating in the Plan shall be granted an option to
purchase (at the per share option price) up to a number of shares of the
Company's Common Stock determined by dividing such Employee's payroll deductions
to be accumulated during such offering period (to be an amount not less than
five percent (5%) and not to exceed an amount equal to ten percent (10%) of his
Compensation as of the date of the commencement of the applicable offering
period) by the lower of (i) eighty-five percent (85%) of the fair market value
of a share of the Company's Common Stock on the Offering Date, or
-3-
<PAGE>
(ii) eighty-five percent (85%) of the fair market value of a share of Common
Stock on the Exercise Date, subject to the limitations set forth in Section 3(b)
and 12 hereof, provided that the number of shares of the Company's Common Stock
subject to any option granted to a participant pursuant to this Plan shall not
exceed 300. Fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 7(b) herein.
(b) The option price per share of the shares offered in a
given offering period shall be the lower of: (i) 85% of the fair market value of
a share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion; provided, however, that
where there is a public market for the Common Stock, the fair market value per
Share shall be the mean of the bid and asked prices of the Common Stock for such
date, as reported in the Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a
stock exchange, the fair market value per Share shall be the closing price on
such exchange on such date, as reported in the Wall Street Journal.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in paragraph 10, his option for the purchase of shares will be
exercised automatically on the Exercise Date of the offering period, and the
maximum number of full shares subject to option will be purchased for him at the
applicable option price with the accumulated payroll deductions in his account.
The shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Exercise Date. During his lifetime, a
participant's option to purchase shares hereunder is exercisable only by him.
9. Delivery. As promptly as practicable after the Exercise Date of each
offering period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his option. Any cash remaining to the credit of a participant's account under
the Plan after a purchase by him of shares at the termination of each offering
period, or which is insufficient to purchase a full share of Common Stock of the
Company, shall be returned to said participant.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his account under the Plan at any time prior to
the Exercise Date of the offering period by giving written notice to the
Company. All of the participant's payroll deductions credited to his account
will be paid to him promptly after receipt of his notice of withdrawal and his
option for the current period will be automatically terminated, and no further
payroll deductions for the purchase of shares will be made during the offering
period.
-4-
<PAGE>
(b) Upon termination of the participant's Continuous Status as
an Employee prior to the Exercise Date of the offering period for any reason,
including retirement or death, the payroll deductions credited to his account
will be returned to him or, in the case of his death, to the person or persons
entitled thereto under paragraph 14, and his option will be automatically
terminated.
(c) In the event an Employee fails to remain in Continuous
Status as an Employee of the Company for at least twenty (20) hours per week
during the offering period in which the employee is a participant, he will be
deemed to have elected to withdraw from the Plan and the payroll deductions
credited to his account will be returned to him and his option terminated.
(d) A participant's withdrawal from an offering will not have
any effect upon his eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 2,100,000*
shares, subject to adjustment upon changes in capitalization of the Company as
provided in paragraph 18. If the total number of shares which would otherwise be
subject to options granted pursuant to Section 7(a) hereof on the Offering Date
of an offering period exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary.
(b) The participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his spouse.
13. Administration. The Plan shall be administered by the Board of the
Company or a committee of members of the Board appointed by the Board. The
administration, interpretation or application of the Plan by the Board or its
committee shall be final, conclusive and binding upon all participants. Members
of the Board who are eligible Employees are permitted to participate in the
Plan, provided that:
- --------
* Available share number reflects two-for-one stock splits effected in
1992 and 1995.
-5-
<PAGE>
(a) Members of the Board who are eligible to participate in
the Plan may not vote on any matter affecting the administration of the Plan or
the grant of any option pursuant to the Plan.
(b) If a Committee is established to administer the Plan, no
member of the Board who is eligible to participate in the Plan may be a member
of the Committee.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of the offering period but prior to delivery to him of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to the Exercise Date of
the offering period.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with paragraph 10.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees promptly following the Exercise Date, which statements will set forth
the amounts of payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of shares of Common Stock
covered by each option under
-6-
<PAGE>
the Plan which has not yet been exercised and the number of shares of Common
Stock which have been authorized for issuance under the Plan but have not yet
been placed under option (collectively, the "Reserves"), as well as the price
per share of Common Stock covered by each option under the Plan which has not
yet been exercised, 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 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 issue
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.
In the event of the proposed dissolution or liquidation of the Company,
the offering period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock, including shares as to
which the option would not otherwise be exercisable. If the Board makes an
option fully exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the participant that the option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and the option will terminate upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
19. Amendment or Termination. The Board of Directors of the Company may
at any time and for any reason terminate or amend the Plan. Except as provided
in paragraph 18, no such termination can affect options previously granted,
provided that an Offering Period may be terminated by the Board of Directors on
any Exercise Date if the Board determines that the termination of the Plan is in
the best interests of the Company and its shareholders. Except as provided in
paragraph 18, no amendment may make any change in any option theretofore granted
which adversely affects the rights of any participation. In addition, to the
extent necessary to comply with Rule 16b-3 under the Securities Exchange Act of
1934, as amended, or under Section 423 of the
-7-
<PAGE>
Code (or any successor rule or provision or any other applicable law or
regulation), the Company shall obtain shareholder approval in such a manner and
to such a degree as so required.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve months before or after
the date the Plan is adopted. Such shareholder approval shall be obtained in the
manner and degree required under the California General Corporate Law.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
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 by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in paragraph 21. It shall continue in
effect for a term of twenty (20) years unless sooner terminated under paragraph
19.
-8-
<PAGE>
LINEAR TECHNOLOGY CORPORATION
1986 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Offering Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. __________________________________ hereby elects to participate in the
Linear Technology Corporation 1986 Employee Stock Purchase Plan (the
"Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock, without par value, in accordance with this
Subscription Agreement and the Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of $__________ (which equals ____% of my Base compensation as of the
payday immediately preceding the Offering Date) in accordance with the
Stock Purchase Plan.
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock, without par value, at the
applicable purchase price determined in accordance with the Stock
Purchase Plan. I further understand that, except as otherwise set forth
in the Stock Purchase Plan, shares will be purchased for me
automatically on the Exercise Date of the offering period unless I
otherwise withdraw from the Stock Purchase Plan by giving written
notice to the Company for such purpose.
4. I have received a copy of the Company's most recent prospectus which
describes the Stock Purchase Plan and a copy of the complete "Linear
Technology Corporation 1986 Employee Stock Purchase Plan." I understand
that my participation in the Stock Purchase Plan is in all respects
subject to the terms of the Stock Purchase Plan.
5. Shares purchased for me under the Stock Purchase Plan should be issued
in the name(s) of:
----------------------------------------------------------------------.
6. I understand that if I dispose of any shares received by me pursuant to
the Stock Purchase Plan within 2 years after the Offering Date (the
first day of the offering period during which I purchased such shares)
or within 1 year after the date on which such shares were transferred
to me, I may be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount
equal to the excess of the fair market value of the shares at the time
such shares were transferred to me over the price which I paid for the
shares. I hereby agree to notify the Company in writing within 30 days
after the date of any such disposition. However, if I dispose of such
shares at any time after the expiration of the
-1-
<PAGE>
2 year and 1 year holding periods, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares
under the option, or (2) the excess of the fair market value of the
shares over the option price, measured as if the option had been
exercised on the Offering Date. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gains.
7. I hereby agree to be bound by the terms of the Stock Purchase Plan. The
effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Stock Purchase Plan.
<TABLE>
<CAPTION>
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Stock Purchase Plan:
<S> <C>
NAME: (Please print) _________________________________________________________________________________
(First) (Middle) (Last)
Relationship __________________________________________________________
__________________________________________________________
(Address)
NAME: (Please print)_________________________________________________________________________________
(First) (Middle) (Last)
Relationship __________________________________________________________
__________________________________________________________
(Address)
Dated: ______________________________ __________________________________________________________
Signature of Employee
</TABLE>
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FORM 10-Q FOR THE THREE MONTHS ENDED DECEMBER 28, 1997
</LEGEND>
<CIK> 0000791907
<NAME> LINEAR TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> DEC-28-1997
<CASH> 512,700
<SECURITIES> 0
<RECEIVABLES> 56,855
<ALLOWANCES> 806
<INVENTORY> 15,107
<CURRENT-ASSETS> 623,174
<PP&E> 201,389
<DEPRECIATION> 75,438
<TOTAL-ASSETS> 749,125
<CURRENT-LIABILITIES> 115,492
<BONDS> 0
<COMMON> 194,309
0
0
<OTHER-SE> 437,728
<TOTAL-LIABILITY-AND-EQUITY> 749,125
<SALES> 117,004
<TOTAL-REVENUES> 117,004
<CGS> 33,646
<TOTAL-COSTS> 33,646
<OTHER-EXPENSES> 23,683
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 65,340
<INCOME-TAX> 21,758
<INCOME-CONTINUING> 43,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,582
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.55
</TABLE>
