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 27, 1998
[ ] 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 75,316,987 shares of the Registrant's Common Stock issued
and outstanding as of December 27, 1998.
<PAGE>
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND SIX MONTHS ENDED DECEMBER 27, 1998
<TABLE>
INDEX
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<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 27, 1998 and
December 28, 1997
Condensed Consolidated Balance Sheets at 3-4
December 27, 1998 and June 28, 1998
Condensed Consolidated Statements of Cash Flows for the 5
six months ended December 27, 1998 and December 28, 1997
Notes to Condensed Consolidated Financial Statements 6-7
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 27, December 28, December 27, December 28,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $120,020 $117,004 $236,052 $226,806
Cost of sales 34,029 33,646 67,691 65,030
-------- -------- -------- --------
Gross profit 85,991 83,358 168,361 161,776
-------- -------- -------- --------
Expenses:
Research and development 12,623 10,777 24,160 21,395
Selling, general and administrative 12,405 12,906 25,043 25,067
-------- -------- -------- --------
25,028 23,683 49,203 46,462
-------- -------- -------- --------
Operating income 60,963 59,675 119,158 115,314
Interest income 6,543 5,665 13,615 10,961
-------- -------- -------- --------
Income before income taxes 67,506 65,340 132,773 126,275
Provision for income taxes 21,602 21,758 42,487 42,050
-------- -------- -------- --------
Net income $ 45,904 $ 43,582 $ 90,286 $ 84,225
======== ======== ======== ========
Basic earnings per share $ 0.61 $ 0.57 $ 1.19 $ 1.10
======== ======== ======== ========
Shares used in the calculation of
basic earnings per share 75,197 76,212 75,646 76,222
======== ======== ======== ========
Diluted earnings per share $ 0.59 $ 0.55 $ 1.15 $ 1.05
======== ======== ======== ========
Shares used in the calculation of diluted
earnings per share 78,405 79,849 78,777 79,960
======== ======== ======== ========
Cash dividends declared per share $ 0.07 $ 0.06 $ 0.14 $ 0.12
======== ======== ======== ========
<FN>
See accompanying notes
</FN>
</TABLE>
2
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
December 27, June 28,
1998 1998
--------- ---------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 95,788 $ 128,733
Short-term investments 515,314 509,160
Accounts receivable, net of allowance for
doubtful accounts of $803 ($803 at
June 28, 1998) 63,383 68,539
Inventories:
Raw materials 3,691 4,726
Work-in-process 8,096 6,502
Finished goods 4,157 4,892
--------- ---------
Total inventories 15,944 16,120
Deferred tax assets 35,817 35,817
Prepaid expenses and other current assets 8,215 9,807
--------- ---------
Total current assets 734,461 768,176
--------- ---------
Property, plant and equipment, at cost:
Land, building and improvements 76,111 54,893
Manufacturing and test equipment 155,921 151,484
Office furniture and equipment 3,190 3,147
--------- ---------
235,222 209,524
Less accumulated depreciation and
amortization (95,379) (84,878)
--------- ---------
Net property, plant and equipment 139,843 124,646
--------- ---------
$ 874,304 $ 892,822
========= =========
See accompanying notes
3
<PAGE>
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & SHAREHOLDERS' EQUITY
(In thousands)
December 27, June 28,
1998 1998
-------- --------
(unaudited) (audited)
Current liabilities:
Accounts payable $ 6,501 $ 8,241
Accrued payroll and related benefits 29,142 32,130
Deferred income on shipments to distributors 32,105 33,377
Income taxes payable 31,346 32,749
Other accrued liabilities 18,934 16,529
-------- --------
Total current liabilities 118,028 123,026
Deferred tax liabilities 13,883 13,883
Shareholders' equity:
Common stock, no par value, 120,000
shares authorized; 75,317
shares issued and outstanding at
December 27, 1998 (76,823 shares
at June 28, 1998) 240,176 230,655
Retained earnings 502,217 525,258
-------- --------
Total shareholders' equity 742,393 755,913
-------- --------
$874,304 $892,822
======== ========
See accompanying notes
4
<PAGE>
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
<CAPTION>
Six Months Ended
-------------------------
December 27, December 28,
1998 1997
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 90,286 $ 84,225
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,501 9,670
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 5,156 7,981
Decrease (increase) in inventories 176 (2,922)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets 1,592 314
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities (3,726) 20,351
Tax benefit from stock option transactions 7,258 13,976
Increase (decrease) in deferred income (1,272) 250
--------- ---------
Cash provided by operating activities 109,971 133,845
--------- ---------
Cash flow from investing activities:
Purchase of short-term investments (303,708) (214,468)
Proceeds from sales and maturities of short-term
investments 297,554 155,893
Purchase of property, plant and equipment (25,698) (15,274)
--------- ---------
Cash used in investing activities (31,852) (73,849)
--------- ---------
Cash flow from financing activities:
Issuance of common stock under employee stock plans 8,300 10,399
Purchase of common stock (108,736) (50,540)
Payment of cash dividends (10,628) (9,169)
--------- ---------
Cash used in financing activities (111,064) (49,310)
--------- ---------
Increase (decrease) in cash and cash equivalents (32,945) 10,686
Cash and cash equivalents, beginning of period 128,733 50,114
--------- ---------
Cash and cash equivalents, end of period $ 95,788 $ 60,800
========= =========
Supplemental disclosure of non-cash financing activities:
Accrued liability for purchase and retirement of common stock $ 0 $ 5,905
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 31,925 $ 14,999
========= =========
<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 27, 1998 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 28, 1998
included in the Company's Annual Report to Shareholders. The accompanying
balance sheet at June 28, 1998 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 1999 and 1998 each have 52 weeks.
3. During the first quarter of fiscal 1999 the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
("FAS 130"). FAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. Components of comprehensive income
include net income and certain transactions that have generally been
reported in the consolidated statement of shareholders' equity. FAS 130
requires that these transactions be included with net income and presented
separately as comprehensive income in the financial statements. The
adoption of this Statement had no impact on the Company's net income or
shareholders' equity and, during the periods presented, the Company had no
material transactions other than net income that should be reported as
comprehensive income.
<TABLE>
4. The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
December 27, December 28, December 27, December 28,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator - net income $45,904 $43,582 $90,286 $84,225
------- ------- ------- -------
Denominator for basic earnings
per share - weighted average
shares 75,197 76,212 75,646 76,222
Effect of dilutive securities -
employee stock options 3,208 3,637 3,131 3,738
------- ------- ------- -------
Denominator for diluted
earnings per share 78,405 79,849 78,777 79,960
------- ------- ------- -------
Basic earnings per share $ 0.61 $ 0.57 $ 1.19 $ 1.10
======= ======= ======= =======
Diluted earnings per share $ 0.59 $ 0.55 $ 1.15 $ 1.05
======= ======= ======= =======
</TABLE>
5. 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>
6. In January 1999, the Company's Board of Directors declared a two-for-one
split of the Company's common stock to be effective February 19, 1999, for
shareholders of record as of January 29, 1999. All share and per share
information have been presented on a pre-split basis and therefore do not
reflect the stock split.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
<TABLE>
The table below states the income statement items for the three and six
months ended December 27, 1998 and December 28, 1997 as a percentage of net
sales and provides the percentage change in absolute dollars of such items
comparing the interim periods ended December 27, 1998 to the corresponding
periods from the prior fiscal year:
<CAPTION>
Three Months Ended Six Months Ended
- --------------------------------------------------------------------------------------------------------------------------------
December 27, December 28, Increase/ December 27, December 28, Increase
1998 1997 (Decrease) 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 3% 100.0% 100.0% 4%
Cost of sales 28.4 28.8 1 28.7 28.7 4
------ ------ ------ ------
Gross profit 71.6 71.2 3 71.3 71.3 4
------ ------ ------ ------
Expenses:
Research & development 10.5 9.2 17 10.2 9.4 13
Selling, general &
administrative 10.3 11.0 (4) 10.6 11.0 --
------ ------ ------ ------
20.8 20.2 6 20.8 20.4 6
------ ------ ------ ------
Operating income 50.8 51.0 2 50.5 50.9 3
Interest income 5.4 4.8 15 5.7 4.8 24
------ ------ ------ ------
Income before income taxes 56.2% 55.8% 3 56.2% 55.7% 5
====== ====== ====== ======
Effective tax rates 32.0% 33.3% 32.0% 33.3%
====== ====== ====== ======
</TABLE>
Net sales for the second quarter ended December 27, 1998 increased $3.0
million or 3% 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. International sales
increased by 12%. Gains in Europe and rest of Asia were partially offset by a
decrease in Japan from the prior year quarter. Sales to the domestic market were
down 7% primarily due to a reduction in sales in the U.S. distribution channel
as the OEM channel remained relatively unchanged. The Company added a third
major distributor, Wyle Electronics, late in the quarter, who is expected to
have a gradual positive impact on sales in future quarters. For the second
quarter of fiscal 1999, U.S. sales and International sales represented
approximately 45% and 55% of total net sales, respectively, with Europe, Japan
and rest of world representing 26%, 12% and 17% of total net sales,
respectively. The Company's major end-markets are communication, computer and
industrial. Sales into the communication end-market increased whereas sales into
the other areas were relatively unchanged.
Net sales for the six months ended December 27, 1998 increased $9.2
million or 4% as compared to the prior fiscal period due to higher shipment
volumes partially offset by lower average unit selling prices. International
sales were 12% higher during this period while domestic sales declined 4%,
primarily in U.S. distribution.
Gross profit increased $2.6 million and $6.6 million, respectively, for
the second quarter and first six months of fiscal 1999 over the corresponding
periods in fiscal 1998. Gross profit increased in line with the higher net sales
levels achieved during the fiscal 1999 periods as gross profit as a percentage
of net sales remained relatively stable at 71.6% and 71.3% for the second
quarter and first six months of fiscal 1999, respectively. During each of these
periods, gross profit improved due to the favorable effect of fixed costs
allocated across a higher sales base, and slightly better manufacturing
efficiencies and yields achieved at the Company's fabrication, assembly and test
facilities.
Research and development ("R&D") expenses increased $1.8 million and
$2.8 million, respectively, for the second quarter and first six months of
fiscal 1999 and have increased to 10.5% and 10.2% of net sales, for the second
quarter and first six months of fiscal 1999, respectively. The increases in R&D
expenses as compared with the prior year periods were due primarily to an
increase in design and test engineering personnel
8
<PAGE>
and higher compensation costs due to higher profit sharing. During the quarter
the Company opened another satellite design center in New Hampshire.
Selling, general and administrative expenses ("SG&A") decreased $0.5
million for the second quarter and were flat for the first six months of fiscal
1999 as compared with the prior year periods. The decrease in SG&A as compared
to the prior year period in fiscal 1998 was primarily due to lower external
commission costs resulting from both fewer external sales representatives, as
the Company went to a direct sales force in three domestic regions, and from a
lower overall external commission rate due to a lower sales growth rate in the
first half of fiscal 1999 versus fiscal 1998. The lower external commissions
expense was partially offset by higher labor costs associated with an increase
in staffing and profit sharing.
Interest income was $6.5 million and $13.6 million for the second
quarter and first six months of fiscal 1999, respectively, an increase of $0.9
million and $2.7 million over the corresponding periods of fiscal 1998. The
increase in interest income resulted from the significant increase in cash, cash
equivalents and short-term investments during the fiscal 1999 periods.
The Company's effective tax rate for the second quarter and first six
months of fiscal 1999 was 32.0%, down from 33.3% in the prior year periods of
fiscal 1998. 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,
and under the heading "Year 2000", 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, and general conditions in the world's economies
and financial markets.
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 has resumed sequential quarterly sales growth and has had
two quarters of growing bookings which appear to be well diversified both
geographically and by end-market. Although there are concerns about the rate of
worldwide economic growth, the pessimism that prevailed in the financial markets
in the late summer has turned around. However, customers continue to be cautious
and generally order only to meet immediate needs. Consequently the Company
continues to be dependent on orders that book and ship in the same quarter. Lead
times are low and customers appear to have relatively low inventories and
generally order for rapid delivery. In summary, given the acceleration of
bookings throughout last quarter, the acceptance of new products at customers,
the historical seasonal strengthening of business in the March quarter,
particularly at U.S. distribution, and the first signs of some improvement in
Japan, the Company currently expects to grow sales in the near-term in the mid
to high single digit range sequentially over the quarter just reported. The
Company also expects that its profitability as a percentage of sales will be
maintained during this period.
Estimates of future performance are uncertain, and 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, periodic
oversupply conditions, 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.
9
<PAGE>
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 27, 1998, cash, cash equivalents and short-term investments
totaled $611.1 million, and working capital was $616.4 million.
During the first half of fiscal 1999, the Company generated $110.0
million of cash from operating activities. Additionally, the Company generated
$8.3 million in proceeds from common stock issued under employee stock option
and stock purchase plans.
Significant cash expenditures include the purchase of 2.0 million
shares of the Company's common stock for $108.7 million and capital expenditures
totaling $25.7 million. Capital expenditures include the purchase of land and a
building located in Milpitas, California. The Company intends to build a new
wafer fabrication facility at this location for a total capitalized cost of
approximately $95.0 million. This new facility is not expected to be operational
until the second half of fiscal 2000. The Company also paid $10.6 million for
cash dividends to shareholders representing $0.07 per share. In January 1999,
the Company's Board of Directors declared a quarterly cash dividend of $0.07 per
share to be paid during the third quarter of fiscal 1999. The payment of future
dividends will be based on quarterly financial performance.
The Company continues to satisfy its liquidity needs through its
existing cash and investment balances and cash generated from operations. 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.
Year 2000
The Company has a Year 2000 Compliance Program that is progressing on
plan and the Company does not foresee any problems in its ability to service
customers in the year 2000. This program encompasses both internal and external
systems. Internally, it covers enterprise-wide systems from order entry to EDI,
planning, manufacturing, design and shipping. Externally, it covers all
suppliers and service subcontractors, utilities, banks, insurance and telephone
companies. The Company's goal is to achieve year 2000 compliance by June 27,
1999, the end of the Company's 1999 fiscal year. To date, the Company is close
to implementing all the required changes to be year 2000 compliant and has
initiated the year 2000 compliance testing phase. This compliance testing is
designed to ensure that the order processing, production, delivery and invoicing
of the Company's product is not affected by dates prior to, during, and after
January 1, 2000. Progress is reviewed monthly, at a minimum, by senior
management.
Since the Company's products are not date sensitive, its finished
products are not affected by the year 2000 problem.
The Company estimates the cost of implementation for its internal
computer systems to be under $1.5 million dollars, and consequently, will not
have a material impact on the Company's financial position or results of
operations. However, year 2000 issues could have a significant impact on the
Company's operations and its financial results if modifications to internal
systems and equipment cannot be completed on a timely basis; unforeseen needs or
problems arise; or if the systems operated by third parties are not year 2000
compliant. Should any of these unforeseen events occur, the Company will attempt
to mitigate their adverse impacts. The Company is currently reviewing
contingency plans including, but not limited to, manual back-up systems for
current automated internal systems and alternate suppliers, where available, for
external systems and services.
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
4, 1998, in Milpitas, California, the shareholders elected members of the
Company's Board of Directors and ratified the Company's proposals to amend the
1996 Incentive Stock Option 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. 60,396,988 343,150
David S. Lee 60,391,798 348,340
Thomas S. Volpe 60,397,165 342,973
Leo T. McCarthy 60,386,946 353,192
Richard M. Moley 60,396,983 343,155
The vote to ratify the amendment of the 1996 Incentive Stock Option Plan was as
follows:
FOR AGAINST ABSTAIN
--- ------- -------
38,544,214 14,770,998 377,185
The vote to ratify the appointment of Ernst & Young LLP as independent auditors
for fiscal 1999 was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
60,647,853 39,774 52,511
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.25 1996 Incentive Stock Option Plan, as amended
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 9, 1999 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
(As amended July 1998)
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.
<PAGE>
(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 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.
-2-
<PAGE>
(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 8,000,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
-3-
<PAGE>
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,
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;
-4-
<PAGE>
(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 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-
<PAGE>
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 cancelled 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.
-6-
<PAGE>
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.
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:
-7-
<PAGE>
(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.
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
-8-
<PAGE>
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.
-9-
<PAGE>
(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.
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 or right substituted by the successor corporation or
-10-
<PAGE>
a Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option, 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 or
right 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 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.
-11-
<PAGE>
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.
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FORM 10-Q FOR THE SIX MONTHS ENDED DECEMBER 27, 1998
</LEGEND>
<CIK> 0000791907
<NAME> LINEAR TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-START> JUN-29-1998
<PERIOD-END> DEC-27-1998
<CASH> 95,788
<SECURITIES> 515,314
<RECEIVABLES> 63,383
<ALLOWANCES> 803
<INVENTORY> 15,944
<CURRENT-ASSETS> 734,461
<PP&E> 235,222
<DEPRECIATION> 95,379
<TOTAL-ASSETS> 874,304
<CURRENT-LIABILITIES> 118,028
<BONDS> 0
0
0
<COMMON> 240,176
<OTHER-SE> 502,217
<TOTAL-LIABILITY-AND-EQUITY> 874,304
<SALES> 236,052
<TOTAL-REVENUES> 236,052
<CGS> 67,691
<TOTAL-COSTS> 67,691
<OTHER-EXPENSES> 49,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 132,773
<INCOME-TAX> 42,487
<INCOME-CONTINUING> 90,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,286
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.15
</TABLE>
