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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2003
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-14864
LINEAR TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2778785
- ------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1630 McCarthy Boulevard
Milpitas, California 95035
(408) 432-1900
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE AND TELEPHONE NUMER)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
There were 312,989,424 shares of the Registrant's Common Stock issued and
outstanding as of April 25, 2003.
1
LINEAR TECHNOLOGY CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED MARCH 30, 2003
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the 3
three and nine months ended March 30, 2003 and March 31, 2002
Condensed Consolidated Balance Sheets at March 30, 2003 4-5
and June 30, 2002
Condensed Consolidated Statements of Cash Flows for the 6
nine months ended March 30, 2003 and March 31, 2002
Notes to Condensed Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial 10-12
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 13
Part II: Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures: 15
Certification of Chief Executive Officer 16
Certification of Chief Financial Officer 17
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
March 30, March 31, March 30, March 31,
2003 2002 2003 2002
------------- ------------- ------------- --------------
Net sales $ 153,750 $ 130,155 $ 440,806 $ 371,525
Cost of sales 39,390 34,518 114,611 107,898
------------- ------------- ------------- --------------
Gross profit 114,360 95,637 326,195 263,627
------------- ------------- ------------- --------------
Expenses:
Research and development 22,609 20,127 67,014 58,318
Selling, general and administrative 15,916 15,565 49,345 45,870
------------- ------------- ------------- --------------
38,525 35,692 116,359 104,188
------------- ------------- ------------- --------------
Operating income 75,835 59,945 209,836 159,439
Interest income 9,548 12,562 30,427 41,399
------------- ------------- ------------- --------------
Income before income taxes 85,383 72,507 240,263 200,838
Provision for income taxes 24,761 21,027 69,676 58,243
------------- ------------- ------------- --------------
Net income $ 60,622 $ 51,480 $ 170,587 $ 142,595
============= ============= ============= ==============
Basic earnings per share $ 0.19 $ 0.16 $ 0.54 $ 0.45
============= ============= ============= ==============
Shares used in the calculation
of basic earnings per share 312,782 317,136 313,184 317,359
============= ============= ============= ==============
Diluted earnings per share $ 0.19 $ 0.16 $ 0.53 $ 0.43
============= ============= ============= ==============
Shares used in the calculation of diluted
earnings per share 320,842 328,526 321,217 329,026
============= ============= ============= ==============
Cash dividends per share $ 0.05 $ 0.04 $ 0.15 $ 0.12
============= ============= ============= ==============
See accompanying notes
3
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
March 30, June 30,
2003 2002
-------------- ---------------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 149,594 $ 211,706
Short-term investments 1,415,587 1,340,324
Accounts receivable, net of allowance for
doubtful accounts of $1,662 ($1,302 at
June 30, 2002) 83,600 81,447
Inventories:
Raw materials 2,751 2,997
Work-in-process 25,169 22,941
Finished goods 3,446 3,004
-------------- ---------------
Total inventories 31,366 28,942
Deferred tax assets 42,550 43,754
Prepaid expenses and other current assets 18,906 21,408
-------------- ---------------
Total current assets 1,741,603 1,727,581
-------------- ---------------
Property, plant and equipment, at cost:
Land, building and improvements 142,361 140,468
Manufacturing and test equipment 324,016 326,388
Office furniture and equipment 3,399 3,384
-------------- ---------------
469,776 470,240
Less accumulated depreciation and amortization (236,785) (209,388)
-------------- ---------------
Net property, plant and equipment 232,991 260,852
Other non current assets 57,099 --
-------------- ---------------
Total assets $ 2,031,693 $ 1,988,433
============== ===============
See accompanying notes
4
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & STOCKHOLDERS' EQUITY
(In thousands)
March 30, June 30,
2003 2002
---------------- ----------------
(unaudited) (audited)
Current liabilities:
Accounts payable $ 7,160 $ 5,098
Accrued payroll and related benefits 27,159 36,517
Deferred income on shipments to distributors 44,926 46,168
Income taxes payable 38,336 63,354
Other accrued liabilities 18,037 17,860
---------------- ----------------
Total current liabilities 135,618 168,997
---------------- ----------------
Deferred tax and other long-term liabilities 97,461 37,982
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 2,000 shares
shares authorized; none issued or outstanding --- ---
Common stock, $0.001 par value, 2,000,000
shares authorized; 312,406
shares issued and outstanding at
March 30, 2003 (316,150 shares
at June 30, 2002) 312 316
Additional paid-in capital 704,183 672,600
Accumulated other comprehensive income 13,800 ---
Retained earnings 1,080,319 1,108,538
---------------- ----------------
Total stockholders' equity 1,798,614 1,781,454
---------------- ----------------
Total liabilities and stockholders' equity $ 2,031,693 $ 1,988,433
================ ================
See accompanying notes
5
LINEAR TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(unaudited)
Nine Months Ended
-----------------------------------
March 30, March 31,
2003 2002
--------------- ---------------
Cash flow from operating activities:
Net income $ 170,587 $ 142,595
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 33,494 35,367
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (2,153) 8,395
Decrease (increase) in inventories (2,424) (1,750)
Decrease (increase) in deferred tax assets,
prepaid expenses and other current assets 2,706 (4,188)
Increase (decrease) in accounts payable,
accrued payroll, income taxes payable and
other accrued liabilities (35,345) (38,432)
Increase (decrease) in deferred income (1,242) 2,192
Increase (decrease) in deferred tax liabilities
and other long-term liabilities 6,117 (1,501)
Tax benefit from stock option transactions 18,103 29,348
--------------- ---------------
Cash provided by operating activities 189,843 172,026
--------------- ---------------
Cash flow from investing activities:
Purchase of short-term investments (614,921) (758,285)
Proceeds from sales and maturities of short-term
investments 553,458 650,641
Purchase of property, plant and equipment (5,162) (16,589)
--------------- ---------------
Cash provided by (used in) investing activities (66,625) (124,233)
--------------- ---------------
Cash flow from financing activities:
Issuance of common stock under employee stock plans 27,353 28,334
Stock repurchase (165,659) (155,033)
Payment of cash dividends (47,024) (38,134)
--------------- ---------------
Cash (used in) financing activities (185,330) (164,833)
--------------- ---------------
(Decrease) in cash and cash equivalents (62,112) (117,040)
Cash and cash equivalents, beginning of period 211,706 321,106
--------------- ---------------
Cash and cash equivalents, end of period $ 149,594 $ 204,066
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 68,999 $ 17,940
=============== ===============
See accompanying notes
6
LINEAR TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim financial statements and information are unaudited; however, in the
opinion of management all adjustments necessary for a fair and accurate
presentation of the interim results have been made. All such adjustments
were of a normal recurring nature. The results for the three and nine
months ended March 30, 2003 are not necessarily an indication of results to
be expected for the entire fiscal year. All information reported in this
Form 10-Q should be read in conjunction with the Company's annual
consolidated financial statements for the fiscal year ended June 30, 2002
included in the Company's Annual Report to Stockholders. The accompanying
balance sheet at June 30, 2002 has been derived from audited financial
statements as of that date. Because the Company is viewed as a single
operating segment for management purposes, no segment information has been
disclosed.
2. The Company operates on a 52/53 week year ending on the Sunday nearest June
30. Fiscal years 2003 and 2002 are 52-week years.
3. 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 following table sets forth the reconciliation of weighted
average common shares outstanding used in the computation of basic and
diluted earnings per share:
Three Months Ended Nine Months Ended
------------------ -----------------
March 30, March 31, March 30, March 31,
2003 2002 2003 2002
--------------- ---------------- ---------------- ---------------
Numerator - Net income $ 60,622 $ 51,480 $ 170,587 $ 142,595
--------------- ---------------- ---------------- ---------------
Denominator for basic earnings
per share - weighted average
shares 312,782 317,136 313,184 317,359
Effect of dilutive securities -
employee stock options 8,060 11,390 8,033 11,667
--------------- ---------------- ---------------- ---------------
Denominator for diluted
earnings per share 320,842 328,526 321,217 329,026
=============== ================ ================ ===============
Basic earnings per share $ 0.19 $ 0.16 $ 0.54 $ 0.45
=============== ================ ================ ===============
Diluted earnings per share $ 0.19 $ 0.16 $ 0.53 $ 0.43
=============== ================ ================ ===============
7
4. Stock-Based Compensation
The Company has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 148 (SFAS 148,) "Accounting for
Stock-Based Compensation - Transition and Disclosure" effective March 30,
2003. SFAS 148 amends Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based compensation and also amends the
disclosure requirements of SFAS 123 to require prominent disclosures in
both annual and interim financial statements about the methods of
accounting for stock-based employee compensation and the effect of the
method used on reported results. As permitted by SFAS 148 and SFAS 123, the
Company continues to apply the accounting provisions of APB 25, and related
interpretations, with regard to the measurement of compensation cost for
options granted under the Company's equity compensation plans. No employee
compensation expense has been recorded as all options granted had an
exercise price equal to the market value of the underlying common stock on
the date of grant. Had expense been recognized using the fair value method
described in SFAS 123, using the Black-Scholes option-pricing model, the
Company would have reported the following results of operations:
Three Months Ended Nine Months Ended
------------------ -----------------
March 30, March 31, March 30, March 31,
2003 2002 2003 2002
--------------- ---------------- ---------------- ---------------
Net income as reported $ 60,622 $ 51,480 $ 170,587 $ 142,595
Deduct: total stock-based
compensation expense determined
under the fair value method,
net of tax (19,065) (15,989) (57,476) (49,060)
--------------- ---------------- ---------------- ---------------
Pro forma net income $ 41,557 $ 35,491 $ 113,111 $ 93,535
=============== ================ ================ ===============
Earning per share:
Basic-as reported $ 0.19 $ 0.16 $ 0.54 $ 0.45
=============== ================ ================ ===============
Basic-pro forma $ 0.13 $ 0.11 $ 0.36 $ 0.29
=============== ================ ================ ===============
Diluted-as reported $ 0.19 $ 0.16 $ 0.53 $ 0.43
=============== ================ ================ ===============
Diluted-pro forma $ 0.13 $ 0.11 $ 0.35 $ 0.28
=============== ================ ================ ===============
5. Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of unrealized gains on
available-for-sale securities. The Company, in practice, primarily holds
its cash and short-term investments until maturity. The components of
comprehensive income were as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
March 30, March 31, March 30, March 31,
2003 2002 2003 2002
--------------- ---------------- ---------------- ---------------
Net income $ 60,622 $ 51,480 $ 170,587 $ 142,595
Increase (decrease) in unrealized
gains on available-for-sale
securities (1,800) --- 13,800 ---
--------------- ---------------- ---------------- ---------------
Total comprehensive income $ 58,822 $ 51,480 $ 184,387 $ 142,595
=============== ================ ================ ===============
8
6. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 142 requires that goodwill and
indefinite lived intangible assets are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
Company adopted SFAS 142 on July 1, 2002. The adoption of SFAS 142 did not
have any impact on the Company's financial position or results of
operations.
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 143 "Accounting for Asset
Retirement Obligations" (SFAS 143). SFAS 143 requires that the fair value
of asset retirement obligations be recognized as a liability when they are
incurred and that the associated retirement costs be capitalized as a
long-term asset and expensed over its useful life. The Company adopted SFAS
143 on July 1, 2002. The adoption of SFAS 143 did not have any impact on
the Company's financial position or results of operations.
In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and the accounting and reporting provisions of APB No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." The
Company adopted SFAS 144 on July 1, 2002. The adoption of SFAS 144 did not
have any impact on the Company's financial position or results of
operations.
In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146.) SFAS 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring)" and
must be applied beginning January 1, 2003. SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred rather than when the exit or
disposal plan is approved. The adoption of SFAS 146 has not had a
significant effect on the Company's financial position or results of
operations.
In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others"
(FIN 45.) FIN 45 elaborates on the existing disclosure requirements for
most guarantees, including loan guarantees such as standby letters of
credit, and provides new disclosure requirements regarding indemnification
provisions. FIN 45 also clarifies that at the time a guarantee is issued,
the Company must recognize an initial liability for the fair value of the
obligations it assumes under the guarantee and must disclose that
information in its financial statements. The provisions related to
recognizing a liability at inception of the guarantee do not apply to
product warranties, indemnification provisions, and to guarantees accounted
for as derivatives. The initial recognition and measurement provisions
apply on a prospective basis to guarantees issued or modified after
December 31, 2002, and the disclosure requirements apply to guarantees
outstanding as of December 31, 2002. The adoption of FIN 45 did not have a
significant effect on the Company's financial position or results of
operations. FIN 45 also requires additional disclosures by a guarantor in
its interim and annual financial statements about the obligations
associated with guarantees issued. As disclosed in the Company's Form 10-K
for the year ended June 30, 2002, the Company's warranty policy provides
for replacement of defective parts, however, warranty expense has
historically been negligible.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Critical Accounting Policies
Management believes there have been no significant changes to the
Company's critical accounting policies during the quarter ended March 30, 2003
as compared to the previous disclosures in Management's Discussion and Analysis
of Financial Condition and Results of Operations included in the Annual Report
on Form 10-K for the year ended June 30, 2002.
Results of Operations
The table below states the income statement items for the three and
nine months ended March 30, 2003 and March 31, 2002 as a percentage of net sales
and provides the percentage change in absolute dollars of such items comparing
the interim period ended March 30, 2003 to the corresponding period from the
prior fiscal year:
Three Months Ended Nine Months Ended
---------------------------------------------- -----------------------------------------------
March 30, March 31, Increase/ March 30, March 31, Increase/
2003 2002 (Decrease) 2003 2002 (Decrease)
------------- ----------- ------------- ------------- -------------- ------------
Net sales 100.0% 100.0% 18.1% 100.0% 100.0% 18.6%
Cost of sales 25.6 26.5 14.1 26.0 29.0 6.2
------------- ----------- ------------- ------------- -------------- ------------
Gross profit 74.4 73.5 19.6 74.0 71.0 23.7
------------- ----------- ------------- ------------- -------------- ------------
Expenses:
Research and development 14.7 15.5 12.3 15.2 15.7 14.9
Selling, general and
administrative 10.4 12.0 2.3 11.2 12.3 7.6
------------- ----------- ------------- ------------- -------------- ------------
25.1 27.5 7.9 26.4 28.0 11.7
------------- ----------- ------------- ------------- -------------- ------------
Operating income 49.3 46.0 26.5 47.6 43.0 31.6
Interest income 6.2 9.7 (24.0) 6.9 11.1 (26.5)
------------- ----------- ------------- ------------- -------------- ------------
Income before income taxes 55.5% 55.7% 17.8 54.5% 54.1% 19.6
============= =========== ============= ============= ============== ============
Effective tax rates 29.0% 29.0% 29.0% 29.0%
============= =========== ============= ==============
Net sales for the quarter ended March 30, 2003 were $153.8 million, an
increase of $23.6 million or 18.1% over net sales for the same quarter of the
previous year. The increase in net sales was due to higher unit shipments, which
was offset by a decrease in the average selling price. The decrease in average
selling price is the result of a continuing change in mix to smaller package
products and due to slight price reductions when compared to the previous fiscal
year. Sales increased in Japan, rest of the world (ROW) which is primarily Asia
excluding Japan, and the United States. Sales in Europe were down slightly when
compared to the third quarter of fiscal 2002. International sales were
approximately 68% of net sales for the third quarter of fiscal 2003 compared to
64% for the third quarter of fiscal 2002. International geographies as a percent
of worldwide net sales were ROW 35%, Europe 17%, and Japan 16%. Domestic sales
were approximately 32% of net sales for the third quarter of fiscal 2003
compared to 36% for the third quarter of fiscal 2002. The Company's major
end-market applications are communications, industrial and computer. Sales
increased over the prior year's quarter in each end-market application in
absolute dollars, led by communications.
Net sales for the nine months ended March 30, 2003 increased $69.3
million or 18.6% over net sales for the same period of the previous fiscal year.
The increase in net sales was due to higher unit shipments, which was partially
offset by a decrease in the average selling price. Sales increased in all
geographic areas, led by ROW, followed by Japan, Europe and the United States.
Relative to end-market applications, sales increased over the prior year's nine
month period in each of the Company's three major end-markets, led by
communications.
During the third quarter of fiscal 2003, the Company had one one-week
shutdown during the New Years holiday week. This resulted in one fewer week of
shutdown when compared to the third quarter of the previous fiscal year. For the
first nine months of fiscal 2003 the Company had four fewer one-week shutdowns
compared to the same period in the previous fiscal year. Due to having fewer
shutdowns during the third quarter and for the first nine-months, the Company
had greater compensation costs throughout the cost of sales and operating
expense lines.
10
Gross profit increased $18.7 million or 19.6% and $62.6 million or
23.7% for the third quarter and first nine months of fiscal 2003, respectively,
over the corresponding periods in fiscal 2002. The increase in gross profit as a
percentage of net sales for both periods was primarily due to the favorable
effect of fixed costs allocated across a higher sales base as well as a
reduction in headcount expenses from the previous fiscal year. The decrease in
average selling price referred to above did not have a commensurate effect on
gross margin since most of the reduction was due to a change in product mix as
the Company has had increased sales of products with smaller die and package
types, which have a smaller average selling price but also lower costs.
Research and development ("R&D") expenses increased by $2.5 million or
12.3% and $8.7 million or 14.9% for the third quarter and first nine months of
fiscal 2003, respectively, as compared to the same periods in fiscal 2002. The
increase in R&D expenses compared to the prior year periods was mainly due to
increases in labor expenses primarily related to increases in profit sharing,
engineering headcount, and the impact of fewer shutdowns during the periods as
explained above. The increases in labor costs were offset by a decrease in mask
costs.
Selling, general and administrative expenses ("SG&A") increased by $0.4
million or 2.3% and $3.5 million or 7.6% for the third quarter and first nine
months of fiscal 2003, respectively, as compared to the same periods in fiscal
2002. The increase in SG&A expenses compared to the prior year period was due
primarily to labor related expenses for increased profit sharing, increases in
commissions due to higher sales, and the impact of fewer shutdowns during the
periods as explained above. The increases in labor expenses were offset by a
decrease in third quarter legal and publication expenses.
Interest income was $9.5 million and $30.4 million for the third
quarter and first nine months of fiscal 2003, a decrease of $3.0 million and
$11.0 million respectively, from the corresponding periods of fiscal 2002. The
interest income earned on the increase in the Company's cash equivalents and
short-term investment balance was more than offset by a decline in the average
interest rates from period to period. The decrease in the interest rate was the
result of the Federal Funds rate dropping from 1.75% in the third quarter of
fiscal 2002 to 1.25% in the third quarter of fiscal 2003.
The Company's effective tax rate for the third quarter and first nine
months of fiscal 2003 and 2002 was 29%. The tax rate is impacted by business
activity in foreign jurisdictions with lower tax rates and tax-exempt interest
income.
Factors Affecting Future Operating Results
Except for historical information contained herein, the matters set
forth in this Form 10-Q, including the statements in the following paragraphs,
are forward-looking statements that are dependent on certain risks and
uncertainties including such factors, among others, as the timing, volume and
pricing of new orders received and shipped during the quarter, the timely
introduction of new processes and products, general conditions in the world
economy and financial markets and other factors described below and in our 10-K
for the fiscal year ended June 30, 2002.
The quarter just completed was a strong quarter when compared with both
the previous calendar quarter and the same quarter in the previous fiscal year.
The Company's backlog coming out of the third quarter of fiscal 2003 is up from
the second quarter of fiscal 2003, although still low by historic standards, but
within a range that the Company has operated under in the past year. The
conditions external to the Company remain largely unchanged, as general global
economic and political conditions remain causes for concern. Therefore,
accurately forecasting short-term future results is difficult in this
environment. Looking forward, the June quarter is customarily a good quarter for
the Company. Going into the quarter the Company has had good bookings momentum
in all major geographies and all major end-markets. Business has started to
improve in the USA again, particularly in some communications and industrial
applications. Additionally, the Company is well positioned in new programs in
Asia, primarily in cell phone, computer and high-end consumer products.
Consequently, when weighing all the factors, including improving bookings, good
positioning in new programs, responsive lead time and inventory mix positioning,
returning strength in the USA and partially offsetting these positive factors by
customer conservatism in response to worldwide economic conditions, political
concerns and travel concerns resulting from the SARS virus, the Company
estimates that sales and profits in the current quarter will grow in the mid to
high single digits, 5% to 8% from the March quarter.
11
Estimates of future performance are uncertain, and past performance of
the Company may not be a good indicator of future performance due to factors
affecting the Company, its competitors, the semiconductor industry and the
overall economy. The semiconductor industry is characterized by rapid
technological change, price erosion, cyclical market patterns, periodic
oversupply conditions, occasional shortages of materials, capacity constraints,
variations in manufacturing efficiencies and significant expenditures for
capital equipment and product development. Furthermore, new product
introductions and patent protection of existing products, as well as exposure
related to patent infringement suits if brought against the Company are factors
that can influence future sales growth and sustained profitability. The
Company's headquarters and a portion of its manufacturing facilities and
research and development activities and certain other critical business
operations are located near major earthquake fault lines in California,
consequently, the Company could be adversely affected in the event of a major
earthquake.
Although the Company believes that it has the product lines,
manufacturing facilities and technical and financial resources for its current
operations, sales and profitability could 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 March 30, 2003, cash, cash equivalents and short-term investments
totaled $1,565.2 million, and working capital was $1,606.0 million.
Accounts receivable totaled $83.6 million at the end of the third
quarter of fiscal 2003, an increase of $2.2 million from the fourth quarter of
fiscal 2002. The increase is due to higher sales offset by days sales
outstanding (DSO) decreasing from the fourth quarter.
Other assets principally relates to technology agreements that are
generally amortized over their contractual periods, primarily 10 years using the
straight-line method of amortization. The related liability for this technology
agreement is recorded as a long-term liability.
Income taxes payable totaled $38.3 million at the end of the third
quarter of fiscal 2003 a decrease of $25.0 million from the fourth quarter of
fiscal 2002. The decrease is the result of federal tax payments made during the
second and third quarter of fiscal 2003.
During the first nine months of fiscal 2003, the Company generated
$189.8 million of cash from operating activities and $27.4 million in proceeds
from common stock issued under employee stock plans.
During the first nine months of fiscal 2003, significant cash
expenditures included repurchasing $165.7 million of common stock, net purchases
of short-term investment of $61.5 million, paying $47.0 million in cash
dividends to stockholders representing $0.05 per share per quarter and spending
$5.2 million for the purchase of capital assets. In April 2003, the Company's
Board of Directors declared an increase in the quarterly cash dividend to $0.06
per share to be paid during the June quarter of fiscal 2003. The payment of
future dividends will be based on quarterly financial performance.
As of March 30, 2003, the Company had no off-balance sheet financing
arrangements or activities.
Historically, the Company has satisfied its liquidity needs through
cash generated from operations and the placement of equity securities. Given its
strong financial condition and performance, the Company believes that current
capital resources and cash generated from operating activities will be
sufficient to meet its liquidity and capital expenditures requirements for the
foreseeable future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For additional quantitative and qualitative disclosures about market
risk affecting the Company, see item 7A of the 10-K for the fiscal year ended
June 30, 2002. There have been no material changes in the market risk affecting
the Company since the filing of the 10-K for fiscal 2002. At March 30, 2003, the
Company's cash and cash equivalents consisted primarily of bank deposits,
commercial paper and money market funds. The Company's short-term investments
consisted of municipal bonds, US treasuries, commercial paper, and federal
agency securities. The Company did not hold any derivative financial
instruments. The Company's interest income is sensitive to changes in the
general level of interest rates. In this regard, changes in interest rates can
affect the interest earned on cash and cash equivalents and short-term
investments.
12
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Within the 90-day period prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's Exchange Act
filings.
(b) Changes in internal controls
There have been no significant changes in the Company's internal controls or in
other factors, which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As has been previously disclosed in the Company's Form 10-K for the year
ended June 30, 2002, Texas Instruments, Inc. (TI) filed suit against the
Company on January 6, 2001, in federal court in Texas alleging that certain
semiconductor manufacturing equipment, purchased by the Company from
independent third party suppliers and used by the Company in its
manufacturing processes, infringed three patents owned by TI (the "TI
Patent Suit"). On March 7, 2003, TI and the Company agreed to settle all
litigation pending between them, including the TI Patent Suit, and entered
into a ten year patent portfolio cross license agreement. The agreement
also covers manufacturing equipment purchased by the Company and used in
its manufacturing process. The agreement calls for the Company to pay a
royalty to TI over the license term. The amortization expense for these
royalty payments will not have a material adverse effect on the Company's
financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit 99.1 Certification of Robert H. Swanson Jr.
and Paul Coghlan Pursuant to 18 U.S.C
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes Oxley Act of
2002.
b) Reports on Form 8-K:
None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINEAR TECHNOLOGY CORPORATION
DATE: May 9, 2003 BY /s/Paul Coghlan
--------------------------------
Paul Coghlan
Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
15
CERTIFICATIONS
I, Robert H. Swanson, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Linear Technology
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Robert H. Swanson, Jr.
--------------------------
Robert H. Swanson, Jr.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
16
I, Paul Coghlan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Linear Technology
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Paul Coghlan
------------------------------
Paul Coghlan
Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
17