SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 27, 1999 COMMISSION FILE NO. 0-14864
LINEAR TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2778785
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1630 MCCARTHY BOULEVARD 95035-7417
MILPITAS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 432-1900
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $6,766,883,400 as of September 10, 1999, based
upon the closing sale price on the Nasdaq National Market System reported for
such date. Shares of common stock held by each officer and director and by each
person who owns 5% or more of the outstanding common stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
There were 154,222,197 shares of the Registrant's common stock issued
and outstanding as of September 10, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Items 1 and 2 of Part I, Items 5, 6, 7, 7A and 8 of Part II, and Item 14(a)
1. of Part IV incorporate information by reference from Exhibit 13.1 to
this Form 10-K which contains certain information included in Registrant's
Annual Report to Shareholders for the fiscal year ended June 27, 1999.
(2) Items 10, 11 and 12 of Part III incorporate information by reference from
the definitive proxy statement (the "1999 Proxy Statement") for the Annual
Meeting of Shareholders to be held on November 3, 1999.
<PAGE>
PART I
Item 1. Business
General
Linear Technology Corporation (together with its consolidated
subsidiaries, "Linear Technology" or the "Company") designs, manufactures and
markets a broad line of standard high performance linear integrated circuits.
Applications for the Company's products include telecommunications, cellular
telephones, networking products and satellite systems, notebook and desktop
computers, computer peripherals, video/multimedia, industrial instrumentation,
automotive electronics, factory automation, process control, and military and
space systems. The Company was organized and incorporated in 1981 by a
management team with significant experience in the design, manufacture and
marketing of linear circuits. The Company competes primarily on the basis of
performance, functional value, quality, reliability and service.
The linear circuit industry
Semiconductor components are the electronic building blocks used in
electronic systems and equipment. These components are classified as either
discrete devices (such as individual transistors) or integrated circuits (in
which a number of transistors and other elements are combined to form a more
complicated electronic circuit). Integrated circuits ("ICs") may be divided into
two general categories, digital and linear (or analog). Digital circuits, such
as memory devices and microprocessors, generally process on-off electrical
signals, represented by binary digits, "1" and "0." In contrast, linear circuits
monitor, condition, amplify or transform continuous analog signals associated
with physical properties, such as temperature, pressure, weight, light, sound or
speed, and play an important role in bridging between real world phenomena and a
variety of electronic systems. Linear circuits also provide voltage regulation
and power control to electronic systems, especially in hand-held battery powered
systems.
According to World Semiconductor Trade Statistics, worldwide monolithic
linear integrated circuit sales, estimated to be approximately $19.1 billion in
1998, represent approximately 17% of the total integrated circuit market. Linear
Technology competes primarily in the non-consumer segment of the linear IC
market, which was approximately 71% of the total monolithic linear IC market for
1998.
The Company believes that several factors generally distinguish the
linear integrated circuit business from the digital circuit business, including:
Importance of Individual Design Contribution. The Company
believes that the creativity of individual design engineers is of
particular importance in the linear circuit industry. The design of a
linear integrated circuit generally involves a greater variety and less
repetition of circuit elements than digital design. In addition, the
interaction of linear circuit elements is complex, and the exact
placement of these elements in the circuit is critical to the circuit's
precision and performance. Computer-aided engineering and design tools
for linear circuits are not as accurate in modeling circuits as those
tools used for designing digital circuits. As a result, the
contributions of a relatively small number of individual design
engineers are generally of greater importance in the design of linear
circuits than in the design of digital circuits.
Smaller Capital Requirements. Digital circuit design attempts
to minimize device size and maximize speed by increasing circuit
densities. The process technology necessary for increased density
requires very expensive wafer fabrication equipment. In contrast,
linear circuit design focuses on precise matching and placement of
circuit elements, and linear circuits often require large feature sizes
to achieve precision and high voltage operation. Accordingly, the
linear circuit manufacturing process generally requires smaller initial
capital expenditures, particularly for photomasking equipment and clean
room facilities, and less frequent replacement of manufacturing
equipment because the equipment has, to date, been less vulnerable to
technological obsolescence.
Market Diversity; Relative Pricing Stability. Because of the
varied applications for linear circuits, manufacturers typically offer
a greater variety of device types to a more diverse group of customers,
who typically have smaller volume requirements per device. As a result,
linear circuit manufacturers are often less dependent upon particular
products or customers, linear circuit markets are generally more
fragmented, and competition within those markets tends to be more
diffused. The Company believes that
<PAGE>
competition in the linear circuit market is particularly dependent upon
performance, functional value, quality, reliability and service. As a
result, linear circuit pricing has generally been more stable than most
digital circuit pricing.
Less Japanese And Other Asian Competition. To date, Japanese
and other Asian firms have concentrated their efforts on the high
volume digital and consumer linear markets, as opposed to the high
performance end of the linear circuit market served by the Company.
The Semiconductor Industry. The semiconductor industry is characterized
by rapid technological change, price erosion, cyclical market patterns,
occasional shortages of materials, capacity constraints, variations in
manufacturing efficiencies, and significant expenditures for capital equipment
and product development. Furthermore, new product introductions and patent
protection of existing products are critical factors for future sales growth and
sustained profitability. Although the Company believes that the high performance
segment of the linear circuit market is generally less affected by price
erosion, cyclical market patterns and significant expenditures for capital
equipment and product development than other semiconductor market sectors,
future operating results may reflect substantial period to period fluctuations
due to these or other factors.
Although the Company believes that it has the product lines,
manufacturing facilities and technical and financial resources for its current
operations, sales and profitability can be significantly affected by the above
and other factors. Additionally, the Company's common stock could be subject to
significant price volatility should sales and/or earnings fail to meet the
expectations of the investment community. Furthermore, stocks of high technology
companies are subject to extreme price and volume fluctuations that are often
unrelated or disproportionate to the operating performance of these companies.
Products and markets
Linear Technology produces a wide range of products for a variety of
customers and markets. The Company emphasizes standard products to address
larger markets and to reduce the risk of dependency upon a single customer's
requirements. The Company targets the high performance segment of the linear
circuit market. "High performance" is characterized by higher precision, both
high power or micropower, higher speed, more subsystem integration on a single
chip and many other special features. The Company focuses virtually all of its
design efforts on proprietary products which, at the time of introduction, are
original designs by the Company offering unique characteristics differentiating
them from those offered by competitors.
Although the types and mix of linear products vary by application, the
principal product categories are as follows:
Amplifiers - These circuits amplify the voltage or output current of a
device. The amplification represents the ratio of the output voltage or current
to the input voltage or current. The most widely used device is the operational
amplifier due to its versatility and precision.
High Speed Amplifiers - These amplifiers are used to amplify signals
above 5MHz for applications such as video, fast data acquisition and data
communication.
Voltage Regulators - Voltage regulators control the voltage of a device
or circuit at a specified level. This category of product consists primarily of
two types, the linear regulator and the switch mode regulator. Switch mode
regulators are also used to convert voltage up or down within an electronic
system for power management.
Voltage References - These circuits serve as electronic benchmarks
providing a constant voltage for system usage. Precision references have a
constant output independent of input, temperature changes or time.
Interface - Interface circuits act as an intermediary to transfer
signals between or within electronic systems. These circuits are used in
computers, modems, instruments and remote data acquisition systems.
Data Converters - These circuits change linear (analog) signals into
digital signals, or vice versa, and are often referred to as data acquisition
subsystems, A/D converters and D/A converters. The accuracy and speed with which
the analog signal is converted to its digital counterpart is considered a key
characteristic for these devices.
<PAGE>
Other - Other linear circuits include buffers, comparators,
sample-and-hold devices, and switched capacitor filters, which are used to limit
and/or manipulate signals in such applications as cellular telephones, base
stations, navigation system instrumentation and detection circuitry.
Linear circuits are used in various applications including
telecommunications, cellular telephones, networking products and satellite
systems, notebook and desktop computers, computer peripherals, video/multimedia,
industrial instrumentation, automotive electronics, factory automation, process
control, and military and space systems. The Company focuses its product
development and marketing efforts on high performance applications where the
Company believes it can position itself competitively with respect to product
performance and functional value.
<TABLE>
The following table sets forth, with respect to each of the market areas served
by the Company, examples of specific end applications of the Company's products.
<PAGE>
<CAPTION>
Market End Applications/Products Example Product Families
- ------ ------------------------- ------------------------
<S> <C> <C>
____
Industrial/Process Flow or rate metering |
Control Position/pressure/ |
temperature sensing and control |
Robotics |
Energy management |
Process control data communication |
Network and factory automation |
Security systems |
| Data acquisition products
| High performance operational
| amplifiers
| Interface (RS 485/232) products
| Instrumentation amplifiers
Instrumentation/ Curve tracers ------- Linear voltage regulators
Measurement Logic analyzers | Line drivers
Multimeters | Line receivers
Oscilloscopes | Precision comparators
Test equipment | Precision voltage references
Voltmeters | Switched capacitor filters
Network analyzers | Switching voltage regulators
Scales | Voltage references
Analytic instruments |
Blood analyzers |
Gas chromatic graphs |
EKG, CAT scanners |
|
|
Space/Military Communications |
and Transportation Satellites |
Guidance and navigation systems |
Displays |
Firing control |
Ground support equipment |
Radar systems |
Sonar systems |
Surveillance equipment ____|
____
|
Communications/ Cellular phones (CDMA/TDMA/GSM) | DC - DC converters
Networking Cellular basestations | V.35 transceiver
Pagers | High-speed amplifiers
Modems/fax machines | Line drivers
PBX switches | Line receivers
GPS systems | Low noise operational amplifiers
HDSL modems ------ Micropower products
ADSL modems | Power management
Channel service unit/data service unit | Switched capacitor filters
Cable modems | Voltage references
Fiber optic systems | Voltage regulators
Servers | Data acquisition products
Routers | Hot Swap controllers
Switches ___| Multi-protocol circuits
<PAGE>
Market End Applications/Products Example Product Families
- ------ ------------------------- ------------------------
____
Computer/Computer Communications/interface modems | Battery charging
Peripherals Disk drives | DC - DC converters
Notebook computers | Data acquisition products
Desktop computers | Hot Swap controllers
Workstations | Line drivers
LCD displays/monitors | Line receivers
Plotters/printers ------ Low drop out linear regulators
Digital cameras | Micropower products
Power supplies | Precision operational amplifiers
Handheld information appliances | Precision voltage references
Battery chargers | PCMCIA power switching
Video/multimedia | Power management
| Switched capacitor filters
___| Switching voltage regulators
</TABLE>
Marketing and customers
The Company markets its products worldwide, primarily through a network
of independent sales representatives and electronics distributors, to a broad
range of customers in diverse industries. In certain limited geographical
markets the Company has direct sales staff. The Company sells to over 15,000
Original Equipment Manufacturer (OEM) customers, many of which purchase on an
individual purchase order basis, rather than pursuant to long-term agreements.
The Company's two largest domestic distributors accounted for 24%, 25% and 26%
of net sales for fiscal 1999, 1998 and 1997, respectively. Distributors are not
end customers, but rather serve as a channel of sale to many end users of the
Company's products. No other distributor or customer accounted for 10% or more
of net sales for fiscal 1999, 1998 or 1997.
The Company has agreements with 16 independent sales representatives in
the United States and 2 in Canada. Commissions are paid to sales representatives
upon shipments either directly from the Company or through distributors. The
Company has agreements with 5 independent distributors in North America, 18 in
Europe, 3 in Japan, 2 each in Hong Kong and Taiwan, and 1 each in Korea,
Singapore, South Africa, Philippines, India, Israel and Australia. The Company's
distributors purchase the Company's products for resale to customers.
Additionally, domestic distributors often sell competitors' products. Under
certain agreements, the Company's domestic distributors are entitled to price
rebates on inventory if the Company lowers the prices of its products. The
agreements also generally permit distributors to exchange up to 5% of purchases
on a quarterly basis. See Note 1 of Notes to Consolidated Financial Statements
incorporated by reference to Exhibit 13.1 of this Form 10-K, which contains
certain information included in the Company's 1999 Annual Report to
Shareholders.
The Company's sales organization is divided into domestic and
international regions, with sales managers based at the Company's headquarters
and in the metropolitan areas of Boston, Philadelphia, Raleigh, Chicago, Dallas,
Austin, Houston, Los Angeles, Irvine, London, Stockholm, Dusseldorf, Munich,
Stuttgart, Paris, Singapore, Tokyo, Osaka, Taipei, Seoul and Hong Kong. The
Company's products typically require a sophisticated technical sales effort.
During fiscal 1999, 1998 and 1997, export sales were primarily to
Europe, Japan and Asia and represented approximately 54%, 52% and 49% of net
sales, respectively. Because most of the Company's export sales are billed and
payable in United States dollars, export sales are generally not directly
subject to fluctuating currency exchange rates. A strengthening of the dollar in
relation to other currencies may, however, create pricing pressure. Although
export sales are subject to certain control restrictions, including approval by
the Office of Export Administration of the United States Department of Commerce,
the Company has not experienced any material difficulties relating to such
restrictions.
The Company's backlog of released and firm orders was approximately
$89.4 million at June 27, 1999 as compared with $64.3 million at June 28, 1998.
In addition to its backlog, the Company had $29.0 million of product sold to and
held by domestic distributors at June 27, 1999 as compared to $29.1 million at
June 28, 1998. Generally, shipments to domestic distributors are not recognized
as sales until the distributor has sold the products to its customers. The
Company expects to ship virtually all of its backlog as of June 27, 1999 during
fiscal 2000. The Company defines backlog as consisting of distributor stocking
orders and OEM orders for which a delivery schedule
<PAGE>
has been specified by the OEM customer for product shipment within six months.
Although the Company receives volume purchase orders, most such purchase orders
are cancelable by the customer without significant penalty. Lead time for the
release of purchase orders depends upon the scheduling practices of the
individual customer, so the rate of booking new orders varies from month to
month. The ordering practices of many semiconductor customers has shifted from a
practice of placing orders with delivery dates extending over several months to
the practice of placing orders with shorter delivery dates. Also, the Company's
agreements with certain distributors provide for limited price protection.
Consequently, the Company does not believe that its backlog at any time is
necessarily representative of actual sales for any succeeding period.
In the operating history of the Company, seasonality of business has
not been a material factor, although the results of operations for the first
fiscal quarter of each year are impacted slightly by customary summer holidays,
particularly in Europe.
The Company warrants that its products, until they are incorporated in
other products, are free from defects in workmanship and materials and conform
to the Company's published specifications. Warranty expense has been nominal to
date.
Manufacturing
The Company's wafer fabrication and manufacturing facilities are
located at its headquarters in Milpitas, California, and at its wafer
fabrication plant in Camas, Washington. Each facility was built to Company
specifications to support a number of sophisticated process technologies and to
satisfy rigorous quality assurance and reliability requirements of United States
military specifications and major worldwide OEM customers. All of the Company's
manufacturing facilities have received ISO 9001/ISO 9002 certification.
The Company's wafer fabrication facility located in Camas, Washington
commenced manufacturing operations in the second half of fiscal 1997. The Camas
wafer fabrication facility is used to produce six-inch diameter wafers for use
in the production of the Company's devices; the Company's Milpitas wafer
fabrication plant produces four-inch diameter wafers. The Company currently uses
similar manufacturing processes in both its Milpitas and Camas facilities. The
Company has commenced construction of a new wafer fabrication facility, near its
existing facilities in Milpitas. This new six-inch wafer fabrication plant is
expected to be completed by the end of fiscal 2000, with production to commence
in fiscal 2001. The Company has also recently completed an addition of
approximately 40,000 square feet to its Camas facility for future expansion.
When completed, this addition will at least double the current Camas wafer
fabrication capacity.
The Company's basic process technologies include high speed bipolar,
high gain, low noise bipolar, silicon gate complementary metal-oxide
semiconductor ("CMOS") and BiCMOS processes. The Company also has two
proprietary complementary bipolar processes. The Company's bipolar processes are
typically used in linear circuits where high voltages, high power, low noise or
effective component matching is necessary. The Company's proprietary silicon
gate CMOS processes provide switch characteristics required for many linear
circuit functions, as well as an efficient mechanism for combining linear and
digital circuits on the same chip. The Company's CMOS processes were developed
to address the specific requirements of linear circuit functions. The
complementary bipolar processes were developed to address higher speed analog
functions. The Company's basic processes can be combined with a number of
adjunct processes to create a diversity of IC components. The accompanying chart
provides a brief overview of the Company's IC process capabilities:
<PAGE>
<TABLE>
PROCESS CAPABILITIES
<CAPTION>
Process Families Benefit/Market Advantage Product Application
- ---------------- ------------------------ -------------------
<S> <C> <C>
P-Well SiGate CMOS General purpose, stability Switches, filters, data conversion,
chopper amplifiers
N-Well SiGate CMOS Speed, density, stability Switches, data conversion
BICMOS Speed, density, stability, flexibility Data conversion
High Power Bipolar Power (100 watts), high current Linear and smart power products,
(10 amps) switching regulators
Low Noise Bipolar Precision, low current, low noise, Op amps, voltage references
high gain
High Speed Bipolar Fast, wideband, video high data Op amps, video, comparators,
rate switching regulators
JFETS Speed, precision, low current Op amps, switches, sample and
hold
Rad - Hard Total dose radiation hardened All space products
Complementary Bipolar Speed, low distortion, precision Op amps, video amps, converters
CMOS/ Thin Films Stability, precision Filters, data conversion
High Voltage CMOS High voltage general-purpose, Switches, chopper amplifiers
compatible with Bipolar
Bipolar/Thin Films Precision, stability, matching Converters, amplifiers
RF Bipolar High speed, low power RF wireless, high speed
data communications
</TABLE>
The Company emphasizes quality and reliability from initial product
design through manufacturing, packaging and testing. The Company's design team
focuses on fault tolerant design and optimum location of circuit elements to
enhance reliability. Linear Technology's wafer fabrication facilities have been
designed to minimize wafer handling and the impact of operator error through the
use of microprocessor-controlled equipment. The Company has obtained Defense
Supply Center, Columbus (DSCC) qualification to participate in high reliability
JAN38510 (class B) military business. The Company has also received Jan Class S
Microcircuit Certification, which enables the Company to manufacture products
intended for use in space or for critical applications where replacement is
extremely difficult or impossible and where reliability is imperative.
The Company is certified to comply with the ISO9001 international
quality standard. This certification covers the Company's design, manufacturing
and service organizations and is an important standard especially in the
European marketplace. The Company has received MIL-PRF-38535 Qualified
Manufacturers Listing (QML) certification for military products from DSCC.
Processed wafers are sent to either the Company's assembly facility in
Penang, Malaysia or to offshore independent assembly contractors where the
wafers are separated into individual circuits and packaged. The Penang facility
opened in October 1994 and services approximately two-thirds of the Company's
assembly requirements for plastic packages. The Company plans to build an
extension of approximately 75,000 square feet to the Penang facility in fiscal
2000. Significant assembly subcontractors used by the Company are Carsem(M) Sdn,
Carsem Semiconductor Sdn and Unisem(M) Sdn located in Malaysia. The Company also
maintains domestic
<PAGE>
assembly operations to satisfy particular customer requirements, especially
those for military applications, and to provide rapid turnaround for new product
development.
After assembly, most products are sent to the Company's Singapore
facility for final testing, inspection and packaging as required. Some products
are returned to Milpitas for the same back-end processing.
Linear Technology from time to time has experienced competition from
other manufacturers seeking assembly of circuits by independent contractors. The
Company currently believes that alternative foreign assembly sources could be
obtained without significant interruption. Foreign assembly is subject to risks
normally associated with foreign operations, including changes in local
governmental policies, currency fluctuations, transportation delays and the
imposition of export controls or increased import tariffs.
From time to time certain materials, including silicon wafers and
plastic molding compounds, have been in short supply. To date the Company has
experienced no delays in obtaining raw materials which have adversely affected
production. As is typical in the industry, the Company must allow for
significant lead times in delivery of its materials.
Manufacturing of individual products, from wafer fabrication through
final testing, may take from ten to sixteen weeks. Since the Company sells a
wide variety of device types, and customers typically expect delivery of
products within a short period of time following order, the Company maintains a
substantial work-in-process and finished goods inventory.
Based on its anticipated production requirements, the Company believes
it will have sufficient available resources and manufacturing capacity for
fiscal 2000.
Patents, licenses and trademarks
The Company has been awarded 100 United States patents, and has filed
89 additional patent applications. Although the Company believes that these
patents and patent applications may have value, the Company's future success
will depend primarily upon the technical abilities and creative skills of its
personnel, rather than on its patents.
As is common in the semiconductor industry, the Company has at times
been notified of claims that it may be infringing patents issued to others. If
it appears necessary or desirable, the Company may seek licenses under such
patents, although there can be no assurance that all necessary licenses can be
obtained by the Company on acceptable terms.
In addition, from time to time the Company may negotiate with other
companies to license patents, products or process technology for use in its
business.
Government sales
The Company currently has no material U.S. Government contracts.
Competition
Linear Technology competes in the high performance segment of the
linear market. The Company's competitors include Analog Devices, Inc.,
Burr-Brown Corporation, Maxim Integrated Products, inc., Motorola, Inc.,
National Semiconductor Corporation and Texas Instruments, Inc. Competition among
manufacturers of linear integrated circuits is intense, and certain of the
Company's competitors may have significantly greater financial, technical,
manufacturing and marketing resources than the Company. The principal elements
of competition include product performance, functional value, quality and
reliability, technical service and support, price, diversity of product line and
delivery capabilities. The Company believes it competes favorably with respect
to these factors, although it may be at a disadvantage in comparison to larger
companies with broader product lines and greater technical service and support
capabilities.
<PAGE>
Research and development
The Company's ability to compete depends in part upon its continued
introduction of technologically innovative products on a timely basis. To
facilitate this need, the Company has organized its product development efforts
into four groups: power management, signal conditioning, mixed signal and high
frequency. Linear Technology's product development strategy emphasizes a broad
line of standard products to address a diversity of customer applications. The
Company's research and development efforts are directed primarily at designing
and introducing new products and, to a lesser extent, developing new processes
and advanced packaging.
As of June 27, 1999, the Company had 183 employees engaged in new
product design at its Milpitas facility. In addition, at fiscal year end, the
Company had 17 employees at its Singapore design center, 21 employees at its
Boston design center, 12 employees at its Colorado design center, and 7
employees at its New Hampshire design center which was opened in fiscal 1999.
For the fiscal years 1999, 1998 and 1997, the Company spent
approximately $54.7 million, $46.2 million and $35.4 million, respectively, on
research and development.
Environmental regulation
Federal, state and local regulations impose various environmental
controls on the storage, use, discharge and disposal of certain chemicals and
gases used in semiconductor processing. The Company's facilities have been
designed to comply with these regulations, and the Company believes that its
activities conform to present environmental regulations. Increasing public
attention has, however, been focused on the environmental impact of electronics
manufacturing operations. While the Company to date has not experienced any
materially adverse business effects from environmental regulations, there can be
no assurance that changes in such regulations will not require the Company to
acquire costly remediation equipment or to incur substantial expenses to comply
with such regulations. Any failure by semiconductor companies, including the
Company, to control the storage, use or disposal of, or adequately restrict the
discharge of hazardous substances could also subject them to significant
liabilities.
Employees
As of June 27, 1999, the Company had 2,337 employees, including 185 in
marketing and sales, 509 in research, development and engineering related
functions, 1,564 in manufacturing and production, and 79 in management,
administration and finance. The Company's success depends upon a number of key
employees, the loss of whom could adversely impact the Company. The Company
believes that its future success will depend in large part upon its ability to
attract, retain and motivate highly skilled employees. In the San Jose/Silicon
Valley area, where the Company's principal facilities are located, competition
for such employees is intense.
The Company has never had a work stoppage, no employees are represented
by a labor organization, and the Company considers its employee relations to be
good.
Executive Officers of the Registrant
The executive officers of the Company, and their ages as of June 27,
1999, are as follows:
Name Age Position
- ---- --- --------
Robert H. Swanson, Jr........... 60 Chairman and Chief Executive Officer
Clive B. Davies................. 56 President
Paul Chantalat.................. 49 Vice President Quality and Reliability
Paul Coghlan.................... 54 Vice President of Finance and Chief
Financial Officer
Timothy D. Cox.................. 51 Vice President of North American Sales
Robert C. Dobkin................ 55 Vice President of Engineering and Chief
Technical Officer
Louis Di Nardo.................. 40 Vice President of Marketing
Lothar Maier.................... 44 Vice President and Chief Operating
Officer
Hans J. Zapf.................... 59 Vice President of International Sales
Arthur F. Schneiderman.......... 57 Secretary
<PAGE>
Mr. Swanson, a founder of the Company, has served as Chairman of the
Board of Directors and Chief Executive Officer since April 1999, and prior to
that time as President, Chief Executive Officer and a director of the Company
since its incorporation in September 1981. From August 1968 to July 1981, he was
employed in various positions at National Semiconductor Corporation
("National"), a manufacturer of integrated circuits, including Vice President
and General Manager of the Linear Integrated Circuit Operation and Managing
Director in Europe. Mr. Swanson has a BS degree in Industrial Engineering from
Northeastern University.
Dr. Davies has served as President since April 1999, and as Vice
President and Chief Operating Officer from January 1989 to April 1999. From July
1982 to January 1989, Dr. Davies held the position of Vice President of Quality,
Reliability and Customer Service. From April 1971 to July 1982, he was employed
in various positions at National, including Group Director for Advanced
Technology, Group Managing Director of the Singapore and Hong Kong Manufacturing
Operations and Business Director of Standard Linear Integrated Circuit
Operations. Dr. Davies received a B.Sc. (Honors) in Physics in 1964 and a Ph.D.
in Physics in 1967 from the University of Reading, England.
Mr. Chantalat has served as Vice President of Quality and Reliability
since July 1991. From January 1989 to July 1991, he held the position of
Director of Quality and Reliability. From July 1983 to January 1989 he held the
position of Manager of Quality and Reliability. From February 1976 to July 1983,
he was employed in various positions at National, where his most recent position
was Group Manager of Manufacturing Quality Engineering. Mr. Chantalat received a
BS and an MS in Electrical Engineering from Stanford University in 1970 and
1972, respectively.
Mr. Coghlan has served as Vice President of Finance and Chief Financial
Officer of the Company since December 1986. From October 1981 until joining the
Company, he was employed in various positions at GenRad, Inc., a manufacturer of
automated test equipment, including Corporate Controller, Vice President of
Corporate Quality and most recently Vice President and General Manager of the
Structural Test Products Division. Before joining GenRad, Inc., Mr. Coghlan was
associated with Price Waterhouse & Company in the United States and Paris,
France for twelve years. Mr. Coghlan received a BA from Boston College in 1966
and an MBA from Babson College in 1968.
Mr. Cox has served as Vice President of North American Sales since July
1991. From February 1991 to July 1991 he held the position of Director of
National Sales. From January 1990 to February 1991, and February 1983 to October
1987 he was employed at National where his most recent position was Director of
Northwestern Sales. From October 1987 to June 1989, he was Vice President of
Sales for Micro Linear. Prior to 1983, Mr. Cox was employed for seven years as
Vice President & Principal of Micro Sales Inc. Mr. Cox received a BSEE in 1970
from Valparaiso Technical Institute, Valparaiso, Indiana.
Mr. Dobkin, a founder of the Company, has served as Vice President of
Engineering and Chief Technical Officer since April 1999, and as Vice President
of Engineering from September 1981 to April 1999. From January 1969 to July
1981, he was employed in various positions at National, where his most recent
position was Director of Advanced Circuit Development. Mr. Dobkin has extensive
experience in linear circuit design. Mr. Dobkin attended the Massachusetts
Institute of Technology.
Mr. Maier joined the Company as Chief Operating Officer in April 1999.
From 1983 to 1999, he was employed at Cypress Semiconductor Corporation in
various management positions, mostly recently as Senior Vice President and
Executive Vice President of Worldwide Operations. Mr. Maier received a BS in
Chemical Engineering in 1978 from the University of California at Berkeley.
Mr. Di Nardo has served as Vice President of Marketing since January
1997. Prior to this appointment he held the position of Manager of North America
Distribution since 1992. Previously he held several management positions in the
northeastern United States since joining the Company in 1988. From 1981 to 1988,
Mr. Di Nardo held several sales management positions in the mid-Atlantic states
area with Analog Devices, Inc. Mr. Di Nardo received a B.S. degree from Ursinus
College, Pennsylvania in 1981.
Mr. Zapf has served as Vice President of International Sales since July
1991. From June 1982 to July 1991, he was Director of International Marketing
and Sales. From September 1972 to June 1982, Mr. Zapf was with Teledyne
Semiconductor where he held several management positions in Europe and the
United States including Vice President of Marketing and Sales. Prior to
September 1972, Mr. Zapf worked as a designer for Brown Boveri in Switzerland.
Mr. Zapf holds an MSEE degree from Zurich University.
<PAGE>
Mr. Schneiderman has served as Secretary of the Company since September
1981. He is an attorney and a member of the law firm of Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation, general counsel to the Company.
Item 2. Properties
In Milpitas, California, the Company owns the land and a building
totaling approximately 41,000 square feet used for its four-inch wafer
fabrication lines and adjunct support services, and owns the land and a building
totaling approximately 70,000 square feet used for its worldwide headquarters.
The Company leases two other buildings in the same business complex: a 42,000
square foot building used primarily for engineering and prototype testing of new
products, and a 60,000 square foot building used primarily for circuit design
activities. During fiscal 1999, the Company purchased a 96,000 square foot
building near its existing facilities in Milpitas, California. This building
will be converted to a new six-inch wafer fabrication plant expected to be
completed in fiscal 2000, with production commencing during fiscal 2001.
The Company occupies a 72,000 square foot manufacturing facility in
Singapore. Test and packaging operations are performed at this facility along
with certain design and product distribution activity. The Company has a 30-year
lease on the land where the plant is located that commenced in 1994, with an
option to extend for an additional 30 years.
In 1994, the Company opened a 55,000 square foot assembly plant in
Penang, Malaysia. The Company has a 60-year lease on the land where the plant
was constructed. In fiscal 1999, the Company purchased a 23,400 square foot
building adjacent to its existing facility. The Company plans to demolish the
recently acquired building, and build a 75,000 square foot extension to its
existing facility on the site.
During fiscal 1996, the Company completed construction of a 60,000
square foot facility on land it owns in Camas, Washington. This facility is used
to fabricate six-inch wafers. Manufacturing operations commenced at this
facility in the second half of fiscal 1997. In fiscal 1999, the Company added
40,000 square feet to this facility for future expansion.
The Company leases design facilities located in Colorado Springs,
Colorado and Bedford, New Hampshire. In fiscal 1999, the Company purchased land
in the Boston metropolitan area and constructed a new 20,000 square foot sales
and design center. The Company leases sales offices in the areas of
Philadelphia, Raleigh, Chicago, Dallas, Austin, Houston, San Jose, Los Angeles,
Irvine, London, Stockholm, Dusseldorf, Munich, Stuttgart, Paris, Tokyo, Osaka,
Taipei, Seoul and Hong Kong. See Note 3 of Notes to Consolidated Financial
Statements incorporated by reference to Exhibit 13.1 of this Form 10-K which
contains certain information included in the Company's 1999 Annual Report to
Shareholders.
Item 3. Legal Proceedings
The Company is involved in various legal actions arising in the
ordinary course of business. While the outcome of such matters is uncertain, the
Company believes that these matters will not have a material adverse effect on
the Company's financial condition or results of operations.
Item 4. Submission of Matter to a Vote of Security Holders
Not applicable.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information required by the Item is incorporated by reference to
the section entitled "Quarterly Results and Stock Market Data" of Exhibit 13.1
to this Form 10-K which contains certain information included in the
Registrant's 1999 Annual Report to Shareholders.
Item 6. Selected Financial Data
The information required by the Item is incorporated by reference to
the section entitled "Selected Financial Information/Five-Year Trend" of Exhibit
13.1 to this Form 10-K which contains certain information included in the
Registrant's 1999 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by the Item is incorporated by reference to
the section entitled "Management's Discussion and Analysis of Results of
Operations and Financial Condition" of Exhibit 13.1 to this Form 10-K which
contains certain information included in the Registrant's 1999 Annual Report to
Shareholders.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information required by the Item is incorporated by reference to
the section entitled "Management's Discussion and Analysis of Results of
Operations and Financial Condition" of Exhibit 13.1 to this Form 10-K which
contains certain information included in the Registrant's 1999 Annual Report to
Shareholders.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements of Linear Technology at June 27, 1999
and June 28, 1998 and for each of the three years in the period ended June 27,
1999, the report of Ernst & Young LLP, independent auditors, thereon and
unaudited quarterly financial data for the two year period ended June 27, 1999
are incorporated by reference to Exhibit 13.1 of this Form 10-K which contains
certain information included in the Registrant's 1999 Annual Report to
Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item for the Company's directors is
incorporated by reference to the 1999 Proxy Statement, under the caption
"Election of Directors," and for the executive officers of the Company, the
information is included in Part I hereof under the caption "Executive Officers
of the Registrant."
Item 11. Executive Compensation
Incorporated by reference to the 1999 Proxy Statement, the section
titled "Executive Officer Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the 1999 Proxy Statement, the section
titled "Record Date and Voting Securities" and the section titled "Security
Ownership."
Item 13. Certain Relationships and Related Transactions
Not applicable.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying Index to
Consolidated Financial Statements are filed as part of this Annual
Report.
2. Schedules
The financial statement schedule listed in Item 14(d) is filed
as part of this Annual Report.
All other schedules are omitted since the information required
by the schedule is not applicable, or is not present in amounts
sufficient to require submission of the schedule, or because the
information required is included in the Consolidated Financial
Statements and notes thereto.
3. Exhibits
The exhibits listed in Item 14(c) are filed as part of this
Annual Report. Each compensatory plan required to be filed has been
indicated in Item 14(c).
(b) Reports on Form 8-K.
None
(c) Exhibits
3.1 Articles of Incorporation of Registrant, as amended.(1)
3.3 Bylaws of Registrant, as amended.(3)
10.1 1981 Incentive Stock Option Plan, as amended, and form of Stock Option
Agreements, as amended (including Restricted Stock Purchase
Agreement).(*)(5)
10.11 Agreement to Build and Lease dated January 8, 1986 between
Callahan-Pentz Properties, McCarthy Six and the Registrant.(2)
10.25 1986 Employee Stock Purchase Plan, as amended, and form of Subscription
Agreement.(*)(4)
10.35 1988 Stock Option Plan, as amended, form of Incentive Stock Option
Agreement, as amended, and form of Nonstatutory Stock Option Agreement,
as amended.(*)(8)
10.36 Form of Indemnification Agreement.(3)
10.45 Land lease dated March 30, 1993 between the Registrant and the
Singapore Housing and Development Board.(6)
10.46 Land lease dated November 20, 1993 between the Registrant and the
Penang Development Corporation.(7)
10.47 1996 Incentive Stock Option Plan, form of Incentive Stock Option
Agreement and form of Nonstatutory Stock Option Agreement.(*)(10)
10.48 1996 Senior Executive Bonus Plan.(*)(9)
13.1 Certain information included in the Registrant's Annual Report to
Shareholders for the fiscal year ended June 27, 1999.
21.1 Subsidiaries of Registrant.
<PAGE>
23.1 Consent of Ernst & Young LLP, Independent Auditors. (see page 21)
24.1 Power of Attorney. (see page 18)
27.1 Financial Data Schedule for the year ended June 27, 1999
(d) Financial Statement Schedule filed as a part of this Annual Report is listed
below:
Schedule
Number Description
- ------ -----------
II Valuation and qualifying accounts.
- --------------------------------------------------------------------------------
(Footnotes to Item 14 (c))
(*) The item listed is a compensatory plan of the Company.
(1) Incorporated by reference to identically numbered exhibit filed in
response to Item 14(a)(3) "Exhibits," of the Company's Annual Report on
Form 10-K for the fiscal year ended July 2, 1995.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 16(a), "Exhibits," of the Registrant's Registration
Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto
(File No. 33-4766), which became effective on May 28, 1986.
(3) Incorporated by reference to identically numbered exhibit filed in
response to Item 6, "Exhibits and Reports on Form 8-K," of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 2, 1988.
(4) Incorporated by reference to identically numbered exhibit filed in
response to Item 6, "Exhibits and Reports on Form 8-K," of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 28, 1997.
(5) Incorporated by reference to identically numbered exhibit filed in
response to Item 6, "Exhibits and Reports on Form 8-K," of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 30, 1990.
(6) Incorporated by reference to identically numbered exhibit filed in
response to Item 14(a)(3) "Exhibits," of the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 27, 1993.
(7) Incorporated by reference to identically numbered exhibit filed in
response to Item 14(a)(3) "Exhibits," of the Registrant's Annual Report
on Form 10-K for the fiscal year ended July 3, 1994.
(8) Incorporated by reference to identically numbered exhibit filed in
response to Item 6, "Exhibits and Reports on Form 8-K," of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 2, 1994.
(9) Incorporated by reference to identically numbered exhibit filed in
response to Item 6, "Exhibits and Reports on Form 8-K," of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 29, 1996.
(10) Incorporated by reference to Exhibits 4.1 and 4.2 of the Registrant's
Registration Statement on Form S-8 filed with the Commission on July
30, 1999.
<PAGE>
LINEAR TECHNOLOGY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(Item 14(a)1)
Page Reference to
Exhibit 13.1
Consolidated balance sheets at June 27, 1999 and June 28, 1998 E13.1-7
Consolidated statements of income for each of the three
years in the period ended June 27, 1999 E13.1-6
Consolidated statements of shareholders' equity for each of
the three years in the period ended June 27, 1999 E13.1-9
Consolidated statements of cash flows for each of the three
years in the period ended June 27, 1999 E13.1-8
Notes to consolidated financial statements E13.1-10 to
E13.1-15
Report of Ernst & Young LLP, independent auditors E13.1-16
The Consolidated Financial Statements listed in the above index are
hereby incorporated by reference to Exhibit 13.1 of this Form 10-K which
contains certain information included in the Registrant's Annual Report to
Shareholders for the year ended June 27, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LINEAR TECHNOLOGY CORPORATION
-----------------------------
(Registrant)
By: /s/ Robert H. Swanson, Jr.
------------------------------
Robert H. Swanson, Jr.
Chairman of the Board and
Chief Executive Officer
September 24, 1999
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Robert H. Swanson, Jr. and Paul Coghlan,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Robert H. Swanson, Jr. /s/ Paul Coghlan
- -------------------------- -----------------
Robert H. Swanson, Jr. Paul Coghlan
Chairman of the Board and Vice President of Finance and Chief
Chief Executive Officer Financial Officer (Principal Financial
(Principal Executive Officer) Officer and Principal Accounting Officer)
September 24, 1999 September 24, 1999
/s/ David S. Lee /s/ Thomas S. Volpe
- ----------------- -------------------
David S. Lee Thomas S. Volpe
Director Director
September 24, 1999 September 24, 1999
/s/ Leo T. McCarthy /s/ Richard M. Moley
- ------------------- --------------------
Leo T. McCarthy Richard M. Moley
Director Director
September 24, 1999 September 24, 1999
<PAGE>
<TABLE>
SCHEDULE II
LINEAR TECHNOLOGY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions(1) Period
--------- -------- ------------- ------
Allowance for doubtful accounts:
<S> <C> <C> <C> <C>
Year ended June 29, 1997 ............................. $776 $ 30 $ 3 $803
==== ===== ===== ====
Year ended June 28, 1998 ............................. $803 $-- $-- $803
==== ===== ===== ====
Year ended June 27, 1999 ............................. $803 $-- $-- $803
==== ===== ===== ====
<FN>
(1) Write-offs of doubtful accounts.
</FN>
</TABLE>
EXHIBIT 13.1
<TABLE>
LINEAR TECHNOLOGY CORPORATION
QUARTERLY RESULTS AND STOCK MARKET DATA
(UNAUDITED)
<CAPTION>
In thousands, except per share amounts
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1999
Quarter Ended June 27, 1999 March 28, 1999 Dec. 27, 1998 Sept. 27, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 140,524 $ 130,093 $ 120,020 $ 116,032
Gross profit 104,037 94,450 85,991 82,370
Net income 54,179 49,828 45,904 44,382
Diluted earnings per share 0.34 0.31 0.29 0.28
Cash dividends per share 0.04 0.035 0.035 0.035
Stock price range per share:
High 65.69 52.38 42.09 38.00
Low 51.25 41.25 20.50 23.50
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1998
Quarter Ended June 28, 1998 March 29, 1998 Dec. 28, 1997 Sept. 28, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 132,011 $ 125,982 $ 117,004 $ 109,802
Gross profit 95,186 90,058 83,358 78,418
Net income 49,503 47,174 43,582 40,643
Diluted earnings per share 0.31 0.30 0.27 0.25
Cash dividends per share 0.03 0.03 0.03 0.03
Stock price range per share:
High 40.25 39.13 36.44 37.07
Low 29.38 25.97 26.35 25.88
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Diluted earnings per share amounts are based on the weighted average common
shares and dilutive stock options outstanding during the quarter and may not add
to diluted earnings per share for the year. All share and per share amounts
reflect the Company's two-for-one stock split in February 1999.
The stock activity in the above table is based on the high and low closing
prices. These prices represent quotations between dealers without adjustment for
retail markups, markdowns or commissions, and may not represent actual
transactions. The Company's common stock is traded on the NASDAQ National market
System under the symbol LLTC.
At June 27, 1999, there were approximately 1,281 shareholders of record.
<PAGE>
EXHIBIT 13.1-2
<TABLE>
LINEAR TECHNOLOGY CORPORATION
SELECTED FINANCIAL INFORMATION/FIVE-YEAR TREND
<CAPTION>
In thousands, except per share amounts
- ------------------------------------------------------------------------------------------------------------------------------------
FIVE FISCAL YEARS ENDED JUNE 27, 1999 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement information
Net sales $ 506,669 $ 484,799 $ 379,251 $ 377,771 $ 265,023
Net income 194,293 180,902 134,371 133,964 84,696
Basic earnings per share 1.28 1.19 0.90 0.90 0.58
Diluted earnings per share 1.22 1.13 0.86 0.86 0.55
Weighted average shares outstanding - Basic 152,020 152,636 149,976 148,380 146,204
Weighted average shares outstanding - Diluted 158,944 159,939 157,090 155,776 152,656
Balance sheet information
Cash, cash equivalents and short-term
investments $ 786,707 $ 637,893 $ 443,439 $ 322,472 $ 250,222
Total assets 1,046,914 892,822 679,633 529,802 367,553
Long-term debt -- -- -- -- --
Cash dividends per share $ 0.145 $ 0.12 $ 0.10 $ 0.08 $ 0.07
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All share and per share amounts reflect the Company's two-for-one stock split in
February 1999.
<PAGE>
EXHIBIT 13.1-3
LINEAR TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
<TABLE>
The table below states the income statement items as a percentage of net sales
and provides the percentage change of such items compared to the prior fiscal
year amount.
<CAPTION>
Percentage
Fiscal Year Ended Change
------------------------------------------- -----------------------
1999 1998
June 27, June 28, June 29, Over Over
1999 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 5% 28%
Cost of sales 27.6 28.4 28.9 1 26
- -------------------------------------------------------------------------------------------------
Gross profit 72.4 71.6 71.1 6 29
- -------------------------------------------------------------------------------------------------
Expenses:
Research and development 10.8 9.5 9.3 18 30
Selling, general and administrative 10.7 11.0 12.1 2 17
- -------------------------------------------------------------------------------------------------
21.5 20.5 21.4 9 23
- -------------------------------------------------------------------------------------------------
Operating income 50.9 51.1 49.7 4 31
- -------------------------------------------------------------------------------------------------
Interest income 5.5 4.9 4.2 17 47
- -------------------------------------------------------------------------------------------------
Income before income taxes 56.4% 56.0% 53.9% 5 33
- -------------------------------------------------------------------------------------------------
Effective tax rates 32.0% 33.3% 34.3%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales were a record $506.7 million in fiscal 1999, an increase of 5% over
net sales of $484.8 million in fiscal 1998. The increase in net sales was
primarily due to an increase in unit shipments, while the average selling price
for the Company's products declined slightly during the year. Geographically,
international sales represented 54% of net sales, up from 52% in fiscal 1998.
International sales to Europe, Japan and the Rest of the World represented 24%,
12% and 18% of net sales, respectively. In absolute dollars, sales were
relatively flat year over year in the United States, declined by 5% in Europe,
increased by 2% in Japan, and increased significantly by 39% in the Rest of the
World. The increase in the Rest of the World was due primarily to the overall
economic environment in Asia, which improved throughout the year, after having
declined significantly during the first quarter of fiscal 1999. The Company's
major end-markets are communications, computer and industrial. Sales into the
communications end-market increased during the year whereas sales into the other
areas were relatively unchanged.
Net sales were $484.8 million in fiscal 1998, an increase of 28% over net sales
of $379.3 million in fiscal 1997. The increase in net sales was primarily due to
an increase in unit shipments, while the average selling price for the Company's
products declined slightly during the year. The Company experienced strong sales
growth in each of its major end-markets. International sales represented 52% and
49% of net sales in fiscal 1998 and 1997, respectively. The increase in
international sales was due primarily to a strong European market where sales
increased 38% over the prior year. Sales to Japan and Rest of World, primarily
Pacific Rim countries, increased 24% and 37%, respectively, over fiscal 1997
despite the economic and financial difficulties experienced by Japan and other
countries in this region.
Gross profit was $366.8 million or 72.4% of net sales in fiscal 1999. The
increase in gross profit as a percentage of sales as compared to 71.6% in fiscal
1998 was due primarily 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. These
improvements were partially offset by a modest reduction in average selling
price.
Gross profit was $347.0 million or 71.6% of net sales in fiscal 1998 compared to
$269.5 million or 71.1% of net sales in fiscal 1997. The slight increase in
gross profit as a percentage of sales was due primarily to the absorption of
fixed costs over a larger sales base, lower costs from favorable exchange rates
and manufacturing efficiencies. This was partially offset by slightly lower
average selling prices, a change in product mix and higher costs associated with
the ramp-up of the Company's newer fabrication facility in Camas, Washington.
Research and development ("R&D") expenses were $54.7 million, $46.2 million and
$35.4 million in fiscal 1999, 1998 and 1997, respectively, or 10.8%, 9.5% and
9.3% of net sales, respectively. The increase in R&D expenses in fiscal 1999 as
compared to 1998 was due primarily to an increase in staffing, particularly
design and test engineering personnel, which resulted in higher compensation
costs. In addition, development costs in new product areas and an increase in
patent related expenses contributed to the increase in R&D expenses. The
increase in R&D expenses in fiscal 1998 as compared to 1997 was due primarily to
an increase in staffing, particularly design engineering personnel, an increase
in spending for development mask sets and the addition of a new design center.
<PAGE>
EXHIBIT 13.1-4
Selling, general and administrative ("SG&A") expenses were $54.3 million, $53.3
million and $45.7 million in fiscal 1999, 1998 and 1997, respectively, or 10.7%,
11.0% and 12.1% of net sales, respectively. The slight increase in SG&A expenses
in fiscal 1999 as compared to 1998 resulted from the Company's move towards a
direct sales force in certain domestic regions, which resulted in higher
compensation costs, and increased marketing expenses. The effect of these
increases was offset partially by lower external commissions. The increase in
SG&A expenses in fiscal 1998 as compared to 1997 was due primarily to an
increase in staffing, particularly sales personnel, an increase in commissions
and profit sharing costs and higher legal costs.
Interest income increased 17% in fiscal 1999 to $27.8 million and increased 47%
in fiscal 1998 to $23.7 million from $16.1 million in fiscal 1997. The year over
year increases were due primarily to the significant increases in cash, cash
equivalents and short-term investments which grew $148.8 million and $194.5
million in fiscal 1999 and 1998, respectively. The Company also repurchased
$108.7 million and $56.4 million of its common stock during fiscal 1999 and
1998, respectively. The increase in interest income in fiscal 1999 was
proportionately less than the overall increase in cash, cash equivalents and
short-term investments, due to a decrease in interest rates in domestic
financial markets.
The Company's effective tax rate was 32.0%, 33.3% and 34.3% in fiscal 1999, 1998
and 1997, respectively. The lower tax rates in fiscal 1999 and 1998 were due to
higher business activity in foreign jurisdictions, an increase in assets
employed outside of California where the Company experiences lower state tax
rates, and an increase in tax-exempt income.
Factors Affecting Future Operating Results
Except for historical information contained herein, the matters set forth in
this Annual Report, including the statements in the following paragraphs, are
forward-looking statements that are dependent on certain risks and uncertainties
including such factors, among others, as the timing, volume and pricing of new
orders received and shipped during the quarter, timely ramp-up of new
facilities, the timely introduction of new processes and products, general
conditions in the world economy, the market for the Company's goods and other
factors as described below.
During fiscal 1997, the Company received an extension of its tax holiday for its
Singapore operations through September 1999. The Company has applied for a
second extension of its Singapore tax holiday; it expects but has not assumed
that an extension will be granted. An increase in business activity and assets
employed outside of California and an increase in tax-exempt interest income
resulted in a lower effective tax rate in fiscal 1999 as compared to fiscal
1998. The Company currently expects its effective tax rate for fiscal 2000 to be
approximately 32.0%; however, the rate may decline to the 31.0% range if the
Company receives an extension of its Singapore tax holiday.
The Company plans to finish building a new wafer fabrication facility in
California in late fiscal 2000. As a result, total capital expenditures are
expected to increase significantly over fiscal 1999 levels, particularly towards
the end of fiscal 2000. The new facility is planned to be in production in
fiscal 2001, at which time depreciation will commence.
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, variation in manufacturing efficiencies and significant
expenditures for capital equipment and product development. Furthermore, new
product introductions and patent protection of existing products are critical
factors for future sales growth and sustained profitability.
Although the Company believes that it has the product lines, manufacturing
facilities and technical and financial resources for its current operations,
sales and profitability can be significantly affected by the above and other
factors. Additionally, the Company's common stock could be subject to
significant price volatility should sales and/or earnings fail to meet
expectations of the investment community. Furthermore, stocks of high technology
companies are subject to extreme price and volume fluctuations that are often
unrelated or disproportionate to the operating performance of these companies.
Liquidity and Capital Resources
At June 27, 1999, cash, cash equivalents and short-term investments totaled
$786.7 million, an increase of $148.8 million or 23.3% over cash, cash
equivalents and short-term investments of $637.9 million at the end of fiscal
1998.
The issuance of common stock under stock option plans provided $87.4 million in
proceeds and tax benefits in fiscal 1999 as compared to $60.7 million in fiscal
1998. The proceeds from stock issuances increased by $11.7 million in fiscal
1999 due to increases in the number of options exercised and the average
exercise price. The tax benefit from stock option transactions increased by
$15.0 million in fiscal 1999 due to increases in the number of options exercised
and the taxable gains on exercises resulting from higher market prices for the
Company's stock. generally, the Company receives a tax deduction for the gain
the employee recognizes on the exercise of a nonqualified stock option and
records this tax benefit as an increase in common stock and a reduction in
current income taxes payable. During fiscal 1999, the Company purchased
4,015,000 shares of its common stock on the open market for $108.7 million.
The Company's capital expenditures in fiscal 1999 totaled $39.1 million
primarily for the purchase of machinery and equipment for the Company's
fabrication, test and assembly facilities.
<PAGE>
EXHIBIT 13.1-5
Cash dividends of $0.145 per share totaling $22.1 million were paid by the
Company in fiscal 1999 as compared to $0.12 per share totaling $18.3 million in
fiscal 1998. In April 1999, the Company's Board of Directors announced that the
quarterly cash dividend was increased to $0.04 per share from $0.035 per share.
Future dividends will be based on quarterly financial performance.
The Company's cash equivalents and short-term investments are subject to market
risk, primarily interest-rate and credit risk. The Company's investments are
managed by outside professional managers within investment guidelines set by the
Company. Such guidelines include security type, credit quality and maturity and
are intended to limit market risk by restricting the Company's investments to
high quality debt instruments with relatively short-term maturities. Based upon
the weighted average duration of the Company's investments at June 27, 1999, a
hypothetical 100 basis point increase in short-term interest rates would result
in an unrealized loss in market value of the Company's investments totaling
approximately $6.8 million. However, because the Company's debt securities are
classified as available-for-sale, no gains or losses are recognized by the
Company due to changes in interest rates unless such securities are sold prior
to maturity. The Company generally holds securities until maturity and carries
the securities at amortized cost which approximates fair market value.
At the end of fiscal 1999, working capital was $779.8 million and the Company
had no long-term debt. For the past several years the Company has generally
satisfied its liquidity needs through cash generated from operations and its
existing cash and investment balances. Given its strong financial condition and
performance, the Company plans to continue to finance its capital needs through
these internal sources for the foreseeable future.
Year 2000 Readiness Disclosure
The Company's Year 2000 Readiness Program remains on plan and at this time the
Company does not foresee any problems which would hinder its ability to service
customers and vendors in calendar year 2000. As of date of this filing, the
Company has substantially completed its Year 2000 Readiness Program, and senior
management continues to review progress of the remaining action items at least
monthly.
The Company estimates the cost of implementation for Year 2000 compliance of its
internal computer systems to be under $1.5 million, 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 the remaining 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.
<PAGE>
EXHIBIT 13.1-6
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
In thousands, except per share amounts
====================================================================================================================================
THREE YEARS ENDED JUNE 27, 1999 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $506,669 $484,799 $379,251
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of sales 139,821 137,779 109,748
Gross profit 366,848 347,020 269,503
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Research and development 54,662 46,198 35,401
Selling, general and administrative 54,260 53,275 45,670
- ------------------------------------------------------------------------------------------------------------------------------------
108,922 99,473 81,071
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 257,926 247,547 188,432
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income 27,801 23,710 16,090
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 285,727 271,257 204,522
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 91,434 90,355 70,151
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $194,293 $180,902 $134,371
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
- ------------------------------------------------------------------------------------------------------------------------------------
Basic $ 1.28 $ 1.19 $ 0.90
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted $ 1.22 $ 1.13 $ 0.86
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 152,020 152,636 149,976
Diluted 158,944 159,939 157,090
Cash dividends per share $ 0.145 $ 0.12 $ 0.10
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
EXHIBIT 13.1-7
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
====================================================================================================================================
<CAPTION>
In thousands
- ------------------------------------------------------------------------------------------------------------------------------------
JUNE 27, 1999 AND JUNE 28, 1998 1999 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 154,220 $ 128,733
Short-term investments 632,487 509,160
Accounts receivable, net of allowance for
Doubtful accounts of $803 ($803 in 1998) 62,188 68,539
Inventories
Raw materials 2,705 4,726
Work-in-process 8,178 6,502
Finished goods 4,641 4,892
----------- -----------
Total inventories 15,524 16,120
Deferred tax assets 28,116 35,817
Prepaid expenses and other current assets 12,577 9,807
----------- -----------
Total current assets 905,112 768,176
----------- -----------
Property, plant and equipment, at cost:
Land, buildings and improvements 78,555 54,893
Manufacturing and test equipment 166,863 151,484
Office furniture and equipment 3,234 3,147
----------- -----------
248,652 209,524
Accumulated depreciation and amortization (106,850) (84,878)
----------- -----------
Net property, plant and equipment 141,802 124,646
----------- -----------
Total assets $ 1,046,914 $ 892,822
=========== ===========
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 7,873 $ 8,241
Accrued payroll and related benefits 33,653 32,130
Deferred income on shipments to distributors 35,464 33,377
Income taxes payable 27,404 32,749
Other accrued liabilities 20,881 16,529
----------- -----------
Total current liabilities 125,275 123,026
----------- -----------
Deferred tax liabilities 14,845 13,883
Commitments
Shareholders' equity:
Preferred stock, no par value, 2,000 shares
Authorized, none issued or outstanding -- --
Common stock, no par value, 240,000 shares
Authorized; 153,731 shares issued and
Outstanding (153,646 shares in 1998) 312,027 230,655
Retained earnings 594,767 525,258
----------- -----------
Total shareholders' equity 906,794 755,913
----------- -----------
Total liabilities and shareholders' equity $ 1,046,914 $ 892,822
=========== ===========
====================================================================================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
EXHIBIT 13.1-8
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
In thousands
THREE YEARS ENDED JUNE 27, 1999 1999 1998 1997
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 194,293 $ 180,902 $ 134,371
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 21,972 20,122 12,425
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 6,351 (3,703) (16,441)
Decrease (increase) in inventories 596 (3,935) 745
Decrease (increase) in deferred tax assets 7,701 (5,119) (3,498)
Decrease (increase) in prepaid expenses
and other current assets (2,770) (1,679) (245)
Increase (decrease) in accounts payable, accrued 5,507 14,024 (10,199)
payroll and other accrued liabilities
Increase (decrease) in deferred income
on shipments to distributors 2,087 3,391 5,058
Tax benefit from stock option transactions 49,077 34,125 22,272
Increase (decrease) in income taxes payable (5,345) 16,625 7,729
Increase (decrease) in deferred tax liabilities 962 12,287 (1,321)
--------- --------- ---------
Cash provided by operating activities 280,431 267,040 150,896
--------- --------- ---------
Cash flow from investing activities:
Purchase of short-term investments (529,740) (444,051) (301,746)
Proceeds from sales and maturities of short-term
investments 406,413 328,216 176,500
Purchase of property, plant and equipment (39,128) (24,421) (21,850)
--------- --------- ---------
Cash used in investing activities (162,455) (140,256) (147,096)
--------- --------- ---------
Cash flow from financing activities:
Issuance of common shares under employee stock plans 38,332 26,596 18,481
Purchase of common stock (108,736) (56,445) (11,598)
Payment of cash dividends (22,085) (18,316) (14,962)
--------- --------- ---------
Cash used in financing activities (92,489) (48,165) (8,079)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 25,487 78,619 (4,279)
Cash and cash equivalents, beginning of period 128,733 50,114 54,393
--------- --------- ---------
Cash and cash equivalents, end of period $ 154,220 $ 128,733 $ 50,114
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the fiscal year for income taxes $ 36,856 $ 31,742 $ 44,844
--------- --------- ---------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
EXHIBIT 13.1-9
<TABLE>
LINEAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
In thousands
THREE YEARS ENDED JUNE 27, 1999
Total
Common Stock Retained Shareholders'
Shares Amount Earnings Equity
<S> <C> <C> <C> <C>
Balance at June 30, 1996 149,324 $ 132,482 $ 308,005 $ 440,487
--------- --------- --------- ---------
Issuance of common stock for cash under employee
stock option and stock purchase plans 3,528 18,481 -- 18,481
Tax benefit from stock option transactions -- 22,272 -- 22,272
Purchase and retirement of common stock (940) (832) (10,766) (11,598)
Net income -- -- 134,371 134,371
Cash dividends - $0.10 per share -- -- (14,962) (14,962)
--------- --------- --------- ---------
Balance at June 29, 1997 151,912 172,403 416,648 589,051
Issuance of common stock for cash under employee
stock option and stock purchase plans 3,738 26,596 -- 26,596
Tax benefit from stock option transactions -- 34,125 -- 34,125
Purchase and retirement of common stock (2,004) (2,469) (53,976) (56,445)
Net income -- -- 180,902 180,902
Cash dividends - $0.12 per share -- -- (18,316) (18,316)
--------- --------- --------- ---------
Balance at June 28, 1998 153,646 230,655 525,258 755,913
Issuance of common stock for cash under employee
stock option and stock purchase plans 4,100 38,332 -- 38,332
Tax benefit from stock option transactions -- 49,077 -- 49,077
Purchase and retirement of common stock (4,015) (6,037) (102,699) (108,736)
Net income -- -- 194,293 194,293
Cash dividends - $0.145 per share -- -- (22,085) (22,085)
--------- --------- --------- ---------
Balance at June 27, 1999 153,731 $ 312,027 $ 594,767 $ 906,794
========= ========= ========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
EXHIBIT 13.1-10
LINEAR TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of business and significant accounting policies
Description of business and export sales
Linear Technology Corporation ("the Company") designs, manufactures and markets
high performance linear integrated circuits. Applications for the Company's
products include: telecommunications, cellular telephones, networking products
and satellite systems, notebook and desktop computers, computer peripherals,
video/multimedia, industrial instrumentation, factory automation, process
control and military and space systems.
Export sales by geographic area were as follows:
In thousands
1999 1998 1997
Europe $120,793 $126,726 $ 91,927
Japan 58,656 57,400 46,332
Asia Pacific and other 93,738 67,299 49,340
-------- -------- --------
Total export sales $273,187 $251,425 $187,599
======== ======== ========
Basis of presentation
The Company's fiscal year ends on the Sunday nearest June 30. Fiscal 1999, 1998
and 1997 were 52 week periods. The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries
after elimination of all significant inter-company accounts and transactions.
Accounts denominated in foreign currencies have been translated using the U.S.
dollar as the functional currency.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Stock split
In February 1999, the Company completed a two-for-one stock split. All share and
per share information has been adjusted for the effect of this stock split.
Cash equivalents and short-Term investments
Cash equivalents are highly liquid investments with original maturities of three
months or less. Investments with maturities over three months at the time of
purchase are classified as short-term investments.
At June 27, 1999 and June 28, 1998, all of the Company's investments in debt
securities were classified as available-for-sale, which means that, although the
Company principally holds securities until maturity, they may be sold under
certain circumstances. The debt securities are carried at amortized cost which
approximates fair market value, determined using quoted market prices for these
securities. Realized and unrealized gains and losses from short-term investments
were not material at any time during 1999, 1998 and 1997. At June 27, 1999 and
June 28, 1998, the Company held no equity securities.
Concentrations of Credit Risk and Off Balance Sheet Risk
The Company's investment policy restricts investments to high credit quality
investments with a maturity of three years or less and limits the amount
invested with any one issuer. Concentrations of credit risk with respect to
accounts receivable are generally not significant due to the diversity of the
Company's customers and geographic sales areas. The Company performs ongoing
credit evaluations of its customers' financial condition and requires
collateral, primarily letters of credit, as deemed necessary.
The Company's two largest domestic distributors accounted for 24%, 25% and 26%
of net sales for fiscal 1999, 1998 and 1997, respectively. Distributors are not
end customers, but rather serve as a channel of sale to many end users of the
Company's products. No other distributor or customer accounted for 10% or more
of net sales for fiscal 1999, 1998 and 1997.
The Company's assets, liabilities and cash flows are predominately U.S. dollar
denominated, including those of its foreign operations. However, the Company's
foreign subsidiaries have certain assets, liabilities and cash flows that are
subject to foreign currency risk. The Company considers this risk to be minor
and, for the three years ended June 27, 1999, had not utilized derivative
instruments to hedge foreign currency risk or for any other purpose. Gains and
losses resulting from foreign currency fluctuations are recognized in income
currently and were not material for all periods presented.
<PAGE>
EXHIBIT 13.1-11
Inventories
Inventories are stated at the lower of standard cost, which approximates actual
cost determined on a first-in, first-out basis, or market.
Property, plant and equipment
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the assets (3-7 years for equipment and 10-30
years for buildings and building improvements). Leasehold improvements are
amortized over the shorter of the asset's useful life or the expected term of
the lease. Net property, plant and equipment at June 27, 1999 was geographically
distributed as follows: United States - $108,836,000, Malaysia - $19,858,000,
Singapore - $13,015,000, and other - $93,000.
Deferred income on shipments to distributors
The Company sells to domestic distributors under agreements allowing price
protection and right of return on certain merchandise unsold by the
distributors. Because of the uncertainty associated with pricing concessions and
future returns, the Company defers recognition of such sales and profit in its
financial statements until the merchandise is sold by the domestic distributors.
The Company estimates international distributor returns and defers a portion of
international distributor sales and profits based on these estimated returns.
Stock Based Compensation
The Company accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123").
Earnings Per Share
Basic earnings per share is calculated using the weighted average shares of
common stock outstanding during the period. Diluted earnings per share is
calculated using the weighted average shares of common stock outstanding, plus
the dilutive effect of stock options, calculated using the treasury stock
method. The dilutive effect of stock options was 6,924,000, 7,303,000 and
7,114,000 shares for fiscal 1999, 1998 and 1997 respectively.
Comprehensive Income
The Company adopted FAS 130, "Reporting Comprehensive Income" , in fiscal 1999.
FAS 130 requires certain items, including unrealized gains and losses on the
Company's available-for-sale securities, to be included in other comprehensive
income. The adoption of FAS 130 had no impact on the Company's financial
position or results of operations, and there were no material differences
between comprehensive income and net income for fiscal 1999, 1998 and 1997.
Segment Reporting
The Company adopted FAS 131, "Disclosures About Segments of an Enterprise and
Related Information", in fiscal 1999. FAS 131 established new reporting
requirements for public companies based on the management approach to segment
reporting. In addition, FAS 131 also established new reporting requirements for
disclosures about products and services, geographical areas, and major
customers. Because the Company is viewed as a single operating segment for
management purposes, no segment information has been disclosed. The other
disclosures required by FAS 131 are included above in Note 1 to the consolidated
financial statements.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued FAS 133,
"Accounting for Derivative Investments and Hedging Activities." This statement
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. In July 1999, the FASB issued
FAS 137, which defers the effective date of FAS 133 for one year. Accordingly,
the Company will now be required to adopt FAS 133 during fiscal 2001. The
Company does not expect the adoption of FAS 133 to have a significant effect on
the Company's financial position or results of operations.
2. Short-term Investments
Short-term investments as of June 27, 1999 and June 28, 1998 were as follows:
In thousands June 27, 1999 June 28, 1998
Municipal bonds $468,115 $336,824
U.S. Treasury securities and
obligations of U.S. government
agencies 127,612 130,416
Corporate debt securities and other 36,760 41,920
-------- --------
$632,487 $509,160
======== ========
<PAGE>
EXHIBIT 13.1-12
The contractual maturities of short-term investments at June 27, 1999 were as
follows: one year or less - $49,286,000, one year to three years - $583,201,000.
Expected maturities may differ from contractual maturities because the issuers
of the securities may have the right to repay obligations without prepayment
penalties.
3. Lease commitments
The Company leases certain of its facilities under operating leases, some of
which have options to extend the lease period. In addition, the Company has
entered into long-term land leases for the sites of its Singapore and Malaysia
manufacturing facilities.
At June 27, 1999, future minimum lease payments under non-cancelable operating
leases having an initial term in excess of one year were as follows: fiscal
2000: $1,404,000; fiscal 2001: $916,000; fiscal 2002: $876,000; fiscal 2003:
$792,000; fiscal 2004: $792,000; and thereafter: $6,581,000.
Total rent expense was $2,261,000, $2,528,000 and $2,379,000 in fiscal 1999,
1998 and 1997, respectively.
4. Employee benefit plans
Stock option plans
The Company has stock option plans under which options to purchase shares of the
Company's common stock may be granted to employees and directors at a price no
less than the fair market value on the date of the grant. At June 27, 1999, the
total authorized number of shares under all plans was 77,000,000. Options become
exercisable over a five-year period (generally 10% every six months). All
options expire ten years after the date of the grant.
In fiscal 1997, the Board of Directors approved the repricing of stock option
grants totaling 5,021,200 shares granted during fiscal 1996. In exchange for
these new options, all vesting under the canceled options was lost and a new
five year vesting period was started.
Stock option transactions during the three years ended June 27, 1999 are
summarized as follows:
Stock Weighted-
Options Average
Outstanding Exercise Price
Outstanding options, June 30, 1996 20,715,896 $ 9.42
---------- ---------
Granted 8,115,200 14.59
Re-priced options canceled (5,021,200) 17.40
Forfeited (648,000) 13.38
Exercised (3,403,404) 4.75
---------- ---------
Outstanding options, June 29, 1997 19,758,492 $ 10.19
---------- ---------
Granted 5,751,150 28.07
Forfeited (455,368) 16.84
Exercised (3,605,282) 6.57
---------- ---------
Outstanding options, June 28, 1998 21,448,992 $ 15.46
---------- ---------
Granted 4,976,000 42.25
Forfeited (382,700) 22.92
Exercised (3,957,097) 8.81
---------- ---------
Outstanding options, June 27, 1999 22,085,195 22.56
========== =========
<PAGE>
EXHIBIT 13.1-13
<TABLE>
The following table sets forth certain information with respect to employee
stock options outstanding and exercisable at June 27, 1999:
<CAPTION>
Weighted Weighted Weighted
Stock Average Average Stock Average
Options Exercise Remaining Options Exercise
Range of Exercise Prices Outstanding Price Contractual Exercisable Price
Life (Years)
<S> <C> <C> <C> <C> <C>
$ 1.14 - $12.38 9,229,807 $9.88 5.5 6,222,107 $8.71
14.44 - 29.25 7,515,488 23.93 7.9 2,418,268 21.69
30.13 - 56.31 5,339,900 42.53 9.3 389,800 32.73
---------- ------ --- --------- ------
$ 1.14 - $56.31 22,085,195 $22.56 7.2 9,030,175 $13.22
========== ====== === ========= ======
</TABLE>
Stock purchase plan
The Company's stock purchase plan ("ESPP") permits eligible employees to
purchase common stock through payroll deductions at the lower of 85% of the fair
market value of common stock at the beginning or end of each six month offering
period. The offering periods commence on approximately May 1 and November 1 of
each year. At June 27, 1999, the shares reserved for issuance under this plan
totaled 4,200,000 and 3,410,287 shares had been issued under this plan. During
fiscal 1999, 142,935 shares were issued at a weighted-average price of $24.92
per share pursuant to this plan.
Pro Forma Disclosure of the Effect of Stock-Based Compensation
The following table summarizes pro forma net income and pro forma earnings per
share, as if the Company had elected to recognize compensation expense for its
employee stock plans as prescribed by FAS 123 (in thousands, except per share
amounts):
1999 1998 1997
---------- ----------- -----------
Pro forma net income $ 166,847 $ 163,511 $ 125,347
Pro forma earnings per share:
Basic $ 1.10 $ 1.09 $ 0.85
Diluted $ 1.05 $ 1.04 $ 0.81
For purposes of the pro forma information, the fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option pricing
model and the following weighted average assumptions (the fair value of shares
issued under the Company's ESPP was not significant for all periods presented):
1999 1998 1997
---- ---- ----
Expected lives 6.5 6.0 6.5
Expected volatility 54.0% 51.0% 51.0%
Dividend yields 0.3% 0.4% 0.5%
Risk free interest 5.6% 5.7% 6.6%
rates
The Black-Scholes option valuation model was developed for use in estimating the
fair value of publicly traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of publicly traded options, and because changes in these
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not provide a reliable single
measure of the fair value of its stock options.
Using the Black-Scholes option pricing model, the weighted average estimated
fair value of employee stock options granted in fiscal 1999, 1998 and 1997 was
$25.09, $15.54 and $10.04 per share, respectively. For the purposes of the pro
forma information, the estimated fair values of the employee stock options are
amortized to expense using the straight-line method over the vesting period. The
pro forma information is not representative of the pro forma effect of the fair
value provisions of FAS 123 on the Company's income in future years because pro
forma compensation expense related to grants made prior to the implementation of
FAS 123 in fiscal 1996 has not been taken into consideration. Accordingly, the
pro forma effect of FAS 123 will not be fully reflected until fiscal 2000 when
the pro forma effect will include compensation expense for stock option grants
issued during the previous five years.
Retirement Plan
The Company has established a 401(k) retirement plan for its qualified U.S.
employees. Profit sharing contributions made by the Company to this plan were
approximately $7,577,000, $6,126,000 and $5,038,000 in fiscal 1999, 1998 and
1997, respectively.
<PAGE>
EXHIBIT 13.1-14
5. Income taxes
The components of income before income taxes are as follows:
In thousands 1999 1998 1997
United States operations $246,190 $240,072 $181,258
Foreign operations 39,537 31,185 23,264
-------- -------- --------
$285,727 $271,257 $204,522
======== ======== ========
The provision for income taxes consists of the following:
In thousands 1999 1998 1997
United States federal:
Current $ 71,433 $ 72,363 $ 64,694
Deferred 8,442 6,772 (4,589)
-------- -------- --------
79,875 79,135 60,105
-------- -------- --------
State:
Current 9,119 9,744 9,526
Deferred 222 396 (230)
-------- -------- --------
9,341 10,140 9,296
-------- -------- --------
Foreign-Current 2,218 1,080 750
-------- -------- --------
$ 91,434 $ 90,355 $ 70,151
======== ======== ========
Actual current tax liabilities are lower than the amounts reflected above by the
tax benefit from stock option activity of approximately $49,077,000, $34,125,000
and $22,272,000 for fiscal 1999, 1998 and 1997, respectively. The tax benefit
from stock option activity is recorded as a reduction in current income taxes
payable and an increase in common stock.
<TABLE>
The provision for income taxes reconciles to the amount computed by applying the
statutory U.S. Federal rate at 35% to income before income taxes as follows:
<CAPTION>
In thousands 1999 1998 1997
<S> <C> <C> <C>
Tax at U.S. statutory rate $ 100,005 $ 94,940 $ 71,583
State income taxes, net of federal benefit 6,072 6,591 6,042
Earnings of foreign subsidiaries subject to lower rates (8,043) (6,735) (6,060)
Tax-exempt interest income (5,922) (4,857) (2,913)
Other (678) 416 1,499
--------- --------- ---------
$ 91,434 $ 90,355 $ 70,151
========= ========= =========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities recorded in the balance sheet
as of June 27, 1999 and June 28, 1998 are as follows:
In thousands 1999 1998
Deferred tax assets:
Inventory valuation $10,764 $ 9,124
Deferred income on shipments to distributors 13,215 13,184
State income taxes 2,475 10,387
Other 1,662 3,122
------- -------
Total deferred tax assets 28,116 35,817
------- -------
Deferred tax liabilities:
Depreciation and amortization 6,892 9,183
Unremitted earnings of subsidiaries 7,953 4,700
------- -------
Total deferred tax liabilities 14,845 13,883
------- -------
Net deferred tax assets $13,271 $21,934
======= =======
<PAGE>
EXHIBIT 13.1-15
The Company's Singapore subsidiary has been granted a ten-year tax holiday,
which is scheduled to expire in September 1999. The Company has applied for a
second extension of its Singapore tax holiday; it expects but has not assumed
that an extension will be granted. Also, the Company's Malaysia subsidiary has
been granted a five-year tax holiday, which is scheduled to expire in June 2000.
The impact of the Singapore and Malaysia tax holidays was to increase net income
by approximately $6,086,000 ($0.04 per diluted share) in fiscal 1999, $5,135,000
($0.03 per diluted share) in fiscal 1998 and $5,002,000 ($0.03 per diluted
share) in fiscal 1997. The Company does not provide a residual U.S. tax on a
portion of the undistributed earnings of its Singapore and Malaysia
subsidiaries, as it is the Company's intention to permanently invest these
earnings overseas. Should these earnings be remitted to the U.S. parent,
additional U.S. taxable income would be approximately $94,244,000.
<PAGE>
EXHIBIT 13.1-16
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders of Linear Technology Corporation
We have audited the accompanying consolidated balance sheets of Linear
Technology Corporation as of June 27, 1999 and June 28, 1998, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended June 27, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Linear
Technology Corporation at June 27, 1999 and June 28, 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 27, 1999, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
San Jose, California
July 16, 1999
<PAGE>
EXHIBIT 13.1-17
COMPANY PROFILE
Linear Technology Corporation
designs, manufactures and markets
a broad line of standard high
performance linear integrated circuits
utilizing bipolar and silicon gate
CMOS and BiCMOS process technologies.
BOARD OF DIRECTORS
Thomas S. Volpe
Managing Partner
Volpe, Brown, Whelen & Co. LLC
Investment Banking Firm
David S. Lee
Chairman of the Board
Cortelco Systems Holding Corp.
Manufacturer, Telecommunication
Systems and Products
Leo T. McCarthy
President
The Daniel Group
International Consulting Firm
Former Lieutenant Governor
State of California
Richard M. Moley
Former President and Chief Executive Officer
StrataCom, Inc.
Manufacturer, Telecommunication
Systems and Products
Robert H. Swanson, Jr.
Chairman and Chief Executive Officer
Linear Technology Corporation
OFFICERS
Robert H. Swanson, Jr.
Chairman and Chief Executive Officer
Clive B. Davies, Ph.D.
President
Paul Chantalat
Vice President, Quality and Reliability
Paul Coghlan
Vice President, Finance and Chief Financial Officer
Timothy D. Cox
Vice President, North American Sales
Robert C. Dobkin
Vice President, Engineering and Chief Technical Officer
Louis Di Nardo
Vice President, Marketing
Lothar Maier
Vice President and Chief Operating Officer
<PAGE>
EXHIBIT 13.1-18
Hans J. Zapf
Vice President, International Sales
Arthur F. Schneiderman
Secretary
Attorney, Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation
Legal Counsel
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A.
Boston, Massachusetts
INDEPENDENT AUDITORS
Ernst & Young LLP
San Jose, California
CORPORATE AND INVESTOR INFORMATION
Please direct inquiries to:
Paul Coghlan
Vice President, Finance and CFO,
Linear Technology Corporation
1630 McCarthy Blvd.
Milpitas, California, 95035-7417
SEC FORM 10-K
If you would like a copy of our Annual Report on Form 10-K
for the fiscal year ended June 27, 1999, as filed with the
Securities and Exchange Commission,
you may obtain it without charge. Direct your request to:
Paul Coghlan,
Vice President, Finance and CFO
Linear Technology Corporation,
1630 McCarthy Blvd.
Milpitas, California, 95035-7417
EXHIBIT 21.1
LINEAR TECHNOLOGY CORPORATION
LIST OF SUBSIDIARIES
1. Linear Technology (U.K.) Limited
2. Linear Technology KK
3. Linear Technology GmbH
4. Linear Technology S.A.R.L.
5. Linear Technology PTE
6. Linear Technology Foreign Sales Corporation
7. Linear Technology (Taiwan) Corporation
8. Linear Technology Korea
9. Linear Semiconductor Sdn Bhd
10. Linear Technology A.B. (Sweden)
11. Linear Technology Corporation Limited (Hong Kong)
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Linear Technology Corporation of our report dated July 16, 1999, included in
the 1999 Annual Report to Shareholders of Linear Technology Corporation.
Our audits also included the financial statement schedule of Linear Technology
Corporation listed in Item 14(d). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-8306, 33-27367, 33-37432, 333-40595, 33-57330, 33-58745 and
333-84149) pertaining to the 1986 Employee Stock Purchase Plan, 1981 Incentive
Stock Option Plan, 1988 Incentive Stock Option Plan and 1996 Incentive Stock
Option Plan of our report dated July 16, 1999, with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedule
included in the Annual Report (Form 10-K) for the year ended June 27, 1999.
/s/ Ernst & Young LLP
San Jose, California
September 22, 1999
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