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LLTC > SEC Filings for LLTC > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for LINEAR TECHNOLOGY CORP /CA/

Form 10-Q for LINEAR TECHNOLOGY CORP /CA/


8-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Linear Technology Corporation, a member of the S&P 500, has been designing, manufacturing and marketing a broad line of high performance analog integrated circuits for major companies worldwide for over three decades. The Company's products provide an essential bridge between our analog world and the digital electronics in communications, networking, industrial, automotive, computer, medical, instrumentation, consumer, and military and aerospace systems. Linear Technology produces power management, data conversion, signal conditioning, RF and interface ICs, ÁModule subsystems, and wireless sensor network products.

Quarterly revenues of $335.1 million for the first quarter of fiscal year 2013 increased $5.1 million or 2% over the previous quarter's revenue of $330.0 million and increased $5.2 million or 2% from $329.9 million reported in the first quarter of fiscal year 2012. Net income of $105.2 million increased $1.9 million or 2% over the fourth quarter of fiscal year 2012 and decreased $3.2 million or 3% from the first quarter of fiscal year 2012. Diluted earnings per share of $0.45 per share in the first quarter of fiscal year 2013 increased $0.01 per share or 2% over the fourth quarter of fiscal year 2012 and declined $0.02 per share or 4% from the first quarter of fiscal year 2012. Critical Accounting Estimates

There have been no significant changes to the Company's critical accounting policies during the three months ended September 30, 2012, as compared to the previous disclosures in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the fiscal year ended July 1, 2012.

Results of Operations

The table below summarizes the income statement items for the three months ended
September 30, 2012 and October 2, 2011 as a percentage of total revenue and
provides the percentage change in absolute dollars of such items comparing the
interim period ended September 30, 2012 to the corresponding period from the
prior fiscal year:


                                                     Three Months Ended
                                                                             Increase/
                                     September 30, 2012   October 2, 2011    (Decrease)
Revenues                                   100.0%             100.0%             2%
Cost of sales                               25.0               24.2              5
Gross profit                                75.0               75.8              1
Expenses:
Research and development                    17.5               16.6              7
Selling, general and administrative         11.2               11.4              -
                                            28.7               28.0              4
Operating income                            46.3               47.8             (2)
Interest expenses                          (3.6)               (3.6)             2
Interest and other income                   0.3                 0.4             (18)
Income before income taxes                 43.0%               44.6%            (2)
Tax rate                                   27.00%             26.25%

Revenue for the quarter ended September 30, 2012 was $335.1 million, an increase of $5.2 million or 2% over revenue of $329.9 million for the same quarter of the previous fiscal year. Revenues grew over the prior year quarter in the computer, automotive and industrial end-markets offset by decreases in the communication and consumer end-markets. Revenue for the quarter ended September 30, 2012 increased over the prior fiscal year quarter due to a higher number of units shipped and a higher average selling price ("ASP") . The number of units shipped increased by approximately 1% from 181.4 million units in the first quarter of fiscal year 2012 to 187.7 million units in the first quarter of fiscal year 2013. The ASP of $1.80 per unit in the first quarter of fiscal year 2013 increased slightly compared to the ASP of $1.78 per unit in the first quarter of fiscal year 2012.


Geographically, revenues for the quarter ended September 30, 2012 decreased in each major geographical region except for Rest of World ("ROW"), which is primarily Asia excluding Japan, compared to the same quarter of the previous fiscal year. International revenues for the quarter ended September 30, 2012 were $242.6 million or 72% of revenues, an increase of $6.8 million as compared to international revenues of $235.7 million or 71% of revenues for the same period in the previous fiscal year. Revenues for the quarter ended September 30, 2012 for ROW represented $130.3 million or 39% of revenues, while sales to Europe and Japan were $61.2 million or 18% of revenues and $51.1 million or 15% of revenues, respectively. Domestic revenues were $92.5 million or 28% of revenues in the first quarter of fiscal year 2013, a decrease of $1.7 million from $94.2 million or 29% of revenues in the same period of fiscal year 2012.

Gross profit of $251.4 million for the quarter ended September 30, 2012 increased $1.3 million or 1% from gross profit of $250.1 million in the first quarter of fiscal year 2012. Gross profit as a percentage of revenues decreased to 75.0% in the first quarter of fiscal year 2013 as compared to 75.8% for the same period in the previous fiscal year. The decrease in gross profit as a percentage of revenues for the quarter ended September 30, 2012 was due to costs associated with a small reduction in workforce at one of the Company's foreign factories, a slight change in mix of products sold and higher factory costs primarily due to stronger foreign currencies.

Research and development ("R&D") expense for the quarter ended September 30, 2012 was $58.8 million, an increase of $3.9 million or 7% over R&D expense of $54.9 million for the same period in the previous fiscal year. R&D increased $2.9 million due to higher labor costs primarily due to increased headcount from the Dust acquisition that occurred at the end of the second quarter of fiscal 2012. In addition, employee profit sharing increased $0.2 million and employee stock-based compensation increased $0.3 million. Other R&D expenses increased $0.5 million primarily due to intangible asset amortization related to the Dust acquisition in the prior year.

Selling, general and administrative expense ("SG&A") for the quarter ended September 30, 2012 was $37.5 million, a decrease of $0.2 million from SG&A expense of $37.7 million for the same period in the previous fiscal year. The decrease in SG&A expense was primarily due to a $0.5 million decrease in legal expenses and a $0.8 million decrease in other SG&A expense. Offsetting these decreases was a $0.7 million increase in compensation costs primarily due to an increase in annual merit compensation and a $0.2 million increase in employee profit sharing. In addition, stock-based compensation costs increased $0.2 million.

Interest expense was $12.0 million for the quarter ended September 30, 2012, an increase of $0.2 million over the corresponding period of fiscal year 2012 primarily due to higher non cash interest expense.

Interest income was $1.0 million for the quarter ended September 30, 2012, a decrease of $0.2 million from the corresponding period of fiscal year 2012. Interest income decreased due to a decrease in the average interest rate earned on the Company's cash, cash equivalents and marketable securities balances offset by a higher cash, cash equivalents and marketable security balance.

The Company's effective income tax rate for the first quarter of fiscal year 2013 was 27% as compared to 26.25% in the same quarter of fiscal year 2012. The increase in the effective income tax rate from the prior year period was primarily due to the expiration of the Federal Research and Development Tax Credit as of December 31, 2011.

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; changes in costs associated with utilities, transportation and raw materials; currency fluctuations; the effects of adverse economic conditions in the United States and or international markets and other factors described below and in "Item 1A - Risk Factors" section of this Quarterly Report on Form 10-Q.

The Company's revenues increased 2% compared to the preceding fourth quarter of fiscal 2012 and operating income as a percent of sales improved to 46.3%. During the first quarter of fiscal year 2013 external global market conditions continued to weaken. The Company's bookings in the automotive end-market continue to show strength, however, this increase was offset by lower bookings in the Company's other major markets, particularly the industrial and computer end-markets. Forecasting continues to be difficult in the current environment. Customer inventory levels of the Company's parts appear to be reasonable, however, demand continues to be sluggish and orders have not shown signs of improvement as the Company begins the second quarter. Given this weakness, the Company expects that this will be a difficult quarter as it remains cautious about the economy and the


global market. As a result, the Company is currently forecasting its revenues to decline sequentially in the 5% - 10% range in the second quarter of fiscal 2013.

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 factors described above and other factors. Additionally, the Company's common stock could be subject to significant price volatility should sales and/or earnings fail to meet expectations of the investment community.

Liquidity and Capital Resources

At September 30, 2012, the Company's cash, cash equivalents and marketable securities balances were $1.3 billion in aggregate, representing an increase of $116.9 million over the July 1, 2012 balances of $1.2 billion. The increase was primarily due to positive cash flows from operations of $173.1 million which was offset by $58.8 million for the payment of cash dividends, representing $0.25 per share for the quarter ended September 30, 2012, $5.1 million to purchase common stock to satisfy minimum statutory withholding requirements related to the vesting of employee restricted stock awards; and $3.4 million for capital additions. Working capital at September 30, 2012 was $1.4 billion.

Accounts receivable totaled $152.4 million at the end of the first quarter of fiscal year 2013, a decrease of $0.7 million from the July 1, 2012 balance of $153.1 million. Inventory totaled $81.7 million at the end of the first quarter of fiscal year 2013, an increase of $2.0 million over the fourth quarter of fiscal year 2012. The increase in inventory was primarily due to an increase in the Company's work in process inventory

Net property, plant and equipment decreased $9.0 million from the fourth quarter of fiscal year 2012 due to fixed assets additions of $3.4 million offset by $12.4 million in depreciation expense. Accrued payroll and related benefits decreased $19.2 million from the fourth quarter of fiscal year 2012 primarily due to the payment of employee profit sharing. The Company accrues for profit sharing on a quarterly basis, but distributes payouts to employees on a semi-annual basis during the first and third quarters of each fiscal year. Income taxes payable totaled $43.7 million at the end of the first quarter of fiscal year 2013, an increase of $30.2 million from the fourth quarter of fiscal year 2012 primarily due to the quarterly tax provision and no significant quarterly tax payments during the quarter.

In October 2012, the Company's Board of Directors declared a cash dividend of $0.25 per share. The dividend will be paid on November 28, 2012 to stockholders of record on November 16, 2012. The payment of future dividends will be based on the Company's financial performance. On October 10, 2012, the Company's Board of Directors authorized the Company to purchase up to 10.0 million shares of its outstanding common stock in the open market over a two-year time period

Historically, the Company has satisfied its liquidity needs through cash generated from operations. Given its financial condition and historical operating performance, the Company believes that current capital resources and cash generated from operating activities will be sufficient to meet its liquidity, capital expenditures requirements, and debt retirement for the near future.

Off Balance-Sheet Arrangements

As of September 30, 2012, the Company had no off-balance sheet financing arrangements.

Contractual Obligations

In April 2007, the Company issued $1.0 billion principal amount of its 3.0% Convertible Senior Notes due May 1, 2027. Through the first quarter of fiscal year 2013, the Company has retired $154.9 million in face value, leaving a remaining balance of $845.1 million. The Company pays cash interest at an annual rate of 3.0%, payable semiannually on November 1 and May 1 of each year. See Note 10 to the consolidated financial statements, included in Part 1, "Financial Information," for additional information.

Fair Value

As of September 30, 2012, the Company's cash equivalents and marketable securities investments in debt securities had a fair value of $1,201.3 million. The Company's cash equivalents and marketable securities investment portfolio consists of money-market funds, U.S. Treasury securities, obligations of U.S. government-sponsored enterprises, municipal bonds, commercial debt and corporate debt securities. See Note 5 to the consolidated financial statements, included in Part 1, "Financial


Information," for additional information. Most of the Company's investments in debt instruments have an investment rating of AA+ to AAA.

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