-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PVN2DF646y1QrJMa5smB4oycFleQyHfEpsyLDe6u687ECpxELgeNCT0hXqUHYG6y s0Wduc1TD3BiU/IcqZpbjA== 0000950005-02-000907.txt : 20020918 0000950005-02-000907.hdr.sgml : 20020918 20020918155554 ACCESSION NUMBER: 0000950005-02-000907 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020918 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINEAR TECHNOLOGY CORP /CA/ CENTRAL INDEX KEY: 0000791907 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942778785 STATE OF INCORPORATION: DE FISCAL YEAR END: 0627 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14864 FILM NUMBER: 02766979 BUSINESS ADDRESS: STREET 1: 1630 MCCARTHY BLVD CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4084321900 MAIL ADDRESS: STREET 1: 1630 MCCARTHY BLVD CITY: MILPITAS STATE: CA ZIP: 95035 10-K 1 p16038_10k.txt ANNUAL REPORT 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 For the fiscal year ended June 30, 2002 [ ] 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 INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1630 McCarthy Boulevard Milpitas, California 95035 (408) 432-1900 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE AND TELEPHONE NUMBER) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 Pare Value 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. [X] The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $7,388,044,304.00 as of September 9, 2002, 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 314,384,864 shares of the Registrant's common stock issued and outstanding as of September 9, 2002. DOCUMENTS INCORPORATED BY REFERENCE: (1) Items 1 and 2 of Part I and Items 5, 6, 7, 7A and 8 of Part II incorporate information by reference from Exhibit 13.1 to this Form 10-K which contains certain information included in Registrant's Annual Report to Stockholders for the fiscal year ended June 30, 2002. (2) Items 10, 11 and 12 of Part III incorporate information by reference from the definitive proxy statement (the "2002 Proxy Statement") for the Annual Meeting of Stockholders to be held on November 6, 2002. PART I Item 1. Business Except for historical information contained in this annual report on Form 10-K, certain statements set forth herein, including certain statements in this Item 1, 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 for the Company's products, timely ramp-up of new facilities, the timely introduction of new processes and products, general conditions in the world economy and financial markets and other factors described below. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," variations of such words and similar expressions are intended to identify such forward looking statements. 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 such as optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products such as digital cameras and MP3 players, complex medical devices, 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. During fiscal year 2001, the Company reincorporated from California to Delaware. 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. 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 1 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 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. 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 and battery charging. 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 digital 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. Radio Frequency Circuits - These circuits include mixers, modulators, demodulators, amplifiers, drivers, and power detectors and controllers. They are used in wireless and cable infrastructure, cellphones, and wireless data communications. Other - Other linear circuits include buffers, battery monitors, motor controllers, hot swap circuits, comparators, sample-and-hold devices, modulators/demodulators, drivers and filters, both switched capacitor and continuous time, 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 such as optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products such as digital cameras and MP3 players, complex medical devices, 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. 2 The following table sets forth, examples of product families by end market application and end-market:
Market End Applications/Products Example Product Families -- Industrial Flow or rate metering | Position/pressure/ | temperature sensing and control | Robotics | Energy management | Process control data communication | Network and factory automation | Security and surveillance systems | Curve tracers | Data acquisition products Logic analyzers | High performance operational Multimeters | amplifiers Oscilloscopes | Interface (RS 485/232) products Test equipment | Instrumentation amplifiers Voltmeters | Line drivers Network analyzers | Line receivers Scales | Precision comparators Analytic instruments | Precision voltage references Gas chromatic graphs | Monolithic filters EKG, CAT scanners | Switching voltage regulators DNA analysis | Voltage references Blood analyzers | Hot swap circuits | DC-DC converters Space/Military Communications | and Automotive Satellite | Guidance and navigation systems | Displays | Firing control | Ground support equipment | Radar systems | Sonar systems | Surveillance equipment | GPS | Entertainment | Safety systems | Suspension systems __| -- Communications Cellular phones (CDMA/WCDMA/GPRS/3G) | DC - DC converters Cellular basestations | V.35 transceiver Pagers | High-speed amplifiers Modems/fax machines | Line drivers PBX switches | Line receivers GPS systems | Low noise operational amplifiers Optical networking | Micropower products ADSL modems | Power management Channel service unit/data service unit | Switched capacitor filters Cable modems | Voltage references Internet appliances | Voltage regulators Servers | Data acquisition products Routers | Hot Swap controllers Switches | Multi-protocol circuits | Thermal Electric Cooler | Power Amplifier Control | Modulators/Demodulators | Battery Chargers __| Multi-Phase Switching Regulators 3 -- Computer Communications/interface modems | Battery charging 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 still cameras | Micropower products Power supplies | Multi-Phase Switching Regulators Handheld PCs | PCMCIA power switching Battery chargers | Power management Video/multimedia | MP3 players | PDAs | Pet Robots __|
Marketing and customers The Company markets its products worldwide, through a direct sales staff, electronics distributors, and a small network of independent sales representatives, to a broad range of customers in diverse industries. Within the United States, in late fiscal 2001, the Company transitioned its sales effort from a network of independent sales representatives primarily to a direct sales staff. Additionally in fiscal 2001 the Company reduced its number of large national distributors from two to one. The Company sells to over 15,000 Original Equipment Manufacturer (OEM) customers directly and/or through the sales distributor channel. Distributor and direct customers generally buy on an individual purchase order basis, rather than pursuant to long-term agreements. Of the Company's domestic distributors, one domestic distributor accounted for 16% of net sales and 17% of accounts receivable during fiscal 2002, and 12% of net sales and 13% of accounts receivable during fiscal 2001, two distributors accounted for approximately 14% and 11% of net sales in fiscal 2000. 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 2002, 2001 or 2000. The Company's sales organization is divided into domestic and international regions, with sales offices located in the following metropolitan areas: Seattle, Baltimore, Denver, Philadelphia, Raleigh, Chicago, Dallas, Austin, Houston, San Jose, Los Angeles, Irvine, San Diego, Huntsville, Minneapolis, Cleveland, Portland, London, Stockholm, Helsinki, Ascheberg, Munich, Stuttgart, Paris, Lyon, Tokyo, Osaka, Taipei, Singapore, Seoul, Hong Kong, Bejing and Shanghai. The Company's products typically require a sophisticated technical sales effort. The Company has agreements with 4 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 2 independent distributors in North America, 5 in Europe, 2 in Japan, 2 each in China and Taiwan, and 1 each in Korea, Singapore, Malaysia, Thailand, South Africa, Philippines, India, Israel, Australia, and New Zealand. 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 protection on inventory if the Company lowers the prices of its products. The agreements also generally permit distributors to exchange up to 3% of purchases on a semi-annual basis. See Note 1 of Notes to Consolidated Financial Statements incorporated herein by reference to Exhibit 13.1 of this Form 10-K, which contains certain information included in the Company's 2002 Annual Report to Stockholders. During fiscal 2002, 2001 and 2000, export sales were primarily to Europe, Japan and Asia and represented approximately 64%, 54% and 54% 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. 4 The Company's backlog of released and firm orders was approximately $46.1 million at June 30, 2002 as compared with $71.5 million at July 1, 2001. In addition to its backlog, the Company had $28.8 million of products sold to and held by domestic distributors at June 30, 2002 as compared to $31.8 million at July 1, 2001. Generally, shipments to domestic distributors are not recognized as sales until the distributor has sold the products to its customers. The Company defines backlog as consisting of distributor stocking orders and OEM orders for which a delivery schedule has been specified by the OEM customer for product shipment within six months. Although the Company receives volume purchase orders, most of these purchase orders are cancelable, generally outside of thirty days of delivery, by the customer without significant penalty. Lead-time for the release of purchase orders depends upon the scheduling practices of the individual customer and the availability of individual products, 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 in concert with the Company's lead times. Also, the Company's agreements with certain distributors provide for 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 in Milpitas, California ("Hillview") and Camas, Washington ("Camas"). 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 facility is used to produce six-inch diameter wafers for use in the production of the Company's devices. In fiscal 1999, the Company added 40,000 square feet to the Camas facility and during fiscal 2001 the Company purchased an additional 16.5 acres adjacent to its Camas facility for future expansion. The Company's Hillview facility located in Milpitas, California was completed in fiscal 2001. Production for this six-inch wafer fabrication plant commenced in the third quarter of fiscal 2001. The Company currently uses similar manufacturing processes in both its Hillview and Camas facilities. During fiscal 2002, the Company discontinued production in its oldest 4-inch wafer fabrication plant located at the Milpitas, California headquarters. The Company's basic process technologies include high speed bipolar, high gain, low noise bipolar, radio frequency 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, high frequency, 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. A minor portion of the Company's wafer manufacturing, particularly very small features size CMOS products, is done at an independent foundry. The accompanying chart provides a brief overview of the Company's IC process capabilities: 5
PROCESS CAPABILITIES Process Families Benefit/Market Advantage Product Application - ---------------- ------------------------ ------------------- 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
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 ISO 9001/9002 international quality standard and QS 9000 automotive 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 60% to 90% of the Company's assembly requirements for plastic packages. The Company completed an extension of approximately 75,000 square feet to the Penang facility in late fiscal 2000. Significant assembly subcontractors used by the Company are Carsem(M) Sdn, Carsem Semiconductor Sdn and Unisem(M) Sdn located in 6 Malaysia. The Company also maintains domestic 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 could 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 2003. Patents, licenses and trademarks The Company has been awarded over 166 United States and International patents, and has filed 103 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. Risks and Competition In addition to the risks discussed below and elsewhere in this "Business section", see the "Factors Affecting Future Operating Results" section included in Exhibit 13.1-3, "Management's Discussion and Analysis," for further discussion of other risks and uncertainties that may affect the business. Semiconductor Industry The semiconductor market has historically been cyclical and subject to significant economic downturns at various times, including the recent decline in demand experienced during fiscal 2002. Many OEM customers have significant excess inventories in their channels thus making it difficult for the Company to know real end user demand. The cyclical nature of the semiconductor industry may cause the Company to experience substantial period-to-period fluctuations in results of operations. Typically, the Company's ability to meet its revenue goals and projections is dependent to a large extent on the orders it receives from its customers within the period. Historically, the Company has maintained low lead times, which have enabled customers to place orders close to their true needs for product. In defining its goals and projections the Company considers inventory on hand, backlog, production cycles and expected order patterns from customers. If the Company's estimates in these areas become inaccurate, it may not be able to meet its revenue goals and projections. In addition, some customers 7 require the Company to manufacture product and have it available for shipment, even though the customer is unwilling to make a binding commitment to purchase all, or even some, of the product. The semiconductor industry is characterized by rapid technological change, price erosion, occasional shortages of materials, capacity constraints, variations in manufacturing efficiencies, and significant expenditures for capital equipment and product development. New product introductions are a critical factor 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 or by 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. Manufacturing The Company relies on its internal manufacturing facilities located in California and Washington to fabricate most of its wafers; however, the Company is dependent on outside silicon foundries for a small portion of its wafer fabrication. The Company could be adversely affected in the event of a major earthquake, which could cause temporary loss of capacity, loss of raw materials, and damage to manufacturing equipment. Additionally the Company relies on its internal and external assembly and testing facilities located in Singapore and Malaysia. The Company is subject to economic and political risks inherent to international operations, including changes in local governmental policies, currency fluctuations, transportation delays and the imposition of export controls or increased import tariffs. The Company could be adversely affected if any such changes are applicable to the Company's foreign operations. The Company's manufacturing yields are a function of product design and process technology, both of which are developed by the Company. The manufacture and design of integrated circuits is highly complex. To the extent the Company does not achieve acceptable manufacturing yields or there are delays in wafer fabrication, its results of operations could be adversely affected. Litigation The Company is subject to various legal proceedings arising out of a wide range of matters, including, among others, patent suits and employment claims. From time to time, as is typical in the semiconductor industry, the Company receives notice from third parties alleging that the Company's products or processes infringe such third parties' intellectual property rights. If the Company is unable to obtain a necessary license, and one or more of its products or processes is determined to infringe any such intellectual property rights of others, a court might enjoin the Company from further manufacture and/or sale of the affected products. In that case, the Company would need to reengineer the affected products or processes in such a way as to avoid the alleged infringement, which may or may not be possible. An adverse result in litigation arising from such a claim could involve an injunction to prevent the sales of a portion of the Company's products, a reduction or the elimination of the value of related inventories, and/or the assessment of a substantial monetary award for damages related to past sales. The Company does not believe that the current suits will have a material impact on its business or financial condition. However, current lawsuits and any future lawsuits will divert resources and could result in the payment of substantial damages. See "Item 3. Legal Proceedings." Key Personnel The Company's performance is substantially dependent on the performance of the executive officers and key employees. The loss of the services of the key officers, technical personnel or other key employees could harm the business. The success of the Company depends on its ability to identify, hire, train, develop and retain highly qualified technical and managerial personnel. Failure to attract and retain the necessary technical and managerial personnel could harm the Company. Competition Linear Technology competes in the high performance segment of the linear market. The Company's competitors include Analog Devices, Inc., Maxim Integrated Products, Inc., Motorola, Inc., Micrel 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 8 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. 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. 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 30, 2002, the Company had 681 employees involved in research, development and engineering related functions of which 336 employees are engaged in new product design. The Company had 214 employees engaged in new product design at its Milpitas headquarters as well as 14 employees at its Singapore design center, 46 employees at its Boston design center, 24 employees at its Colorado design center, 12 employees at its New Hampshire design center, 11 employees at its Raleigh design center which opened in fiscal 2000, 7 employees at its Santa Barbara design center which opened in fiscal 2001, and 8 at its Burlington design center which opened in fiscal 2002. For the fiscal years 2002, 2001, and 2000, the Company spent approximately $79.8 million, $102.5 million, and $78.3 million, respectively, on research and development. The reduction in expenses in 2002 from 2001 was due primarily to a reduction in profit sharing expense. Headcount in total R&D personnel increased from 670 in fiscal 2001 to 681 in fiscal 2002. Within R&D the number of actual circuit designers increased from 139 to 161 in fiscal 2002. 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 30, 2002, the Company had 2,691 employees, including 256 in marketing and sales, 681 in research, development and engineering related functions, 1,664 in manufacturing and production, and 90 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. 9 Executive Officers of the Registrant The executive officers of the Company, and their ages as of September 9, 2002, are as follows:
Name Age Position - ---- --- -------- Robert H. Swanson, Jr...........64 Chairman and Chief Executive Officer Clive B. Davies.................59 President Paul Chantalat..................52 Vice President Quality and Reliability Paul Coghlan....................57 Vice President of Finance and Chief Financial Officer Robert C. Dobkin................58 Vice President of Engineering and Chief Technical Officer Lothar Maier....................47 Vice President and Chief Operating Officer Richard Nickson.................52 Vice President of North American Sales David A. Quarles................36 Vice President of International Sales David B. Bell...................46 Vice President and General Manager, Power Business Unit William Gross...................53 Vice President and General Manager, Signal Conditioning Unit Robert Reay.....................41 Vice President and General Manager, Mixed Signal Business Unit Arthur F. Schneiderman..........60 Secretary
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. 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. 10 Mr. Nickson has served as Vice President of North American Sales since October 2001. From February 1998 until July 2001, he was European Sales Director. From August 1993 until January 1998, he held the position of Northwest Area Sales Manager. From April 1991 to August 1993, he was President and Co-founder of Focus Technical Sales. From August 1983 to April 1991, he served with National Semiconductor in various positions where his most recent position was Vice President of North American Sales. Mr. Nickson was Founder and President of Micro-Tex, Inc. from June 1980 to August 1983. Prior to 1980, Mr. Nickson spent seven years in semiconductor sales, including four years with Texas Instruments. He received a B.S. in Mathematics from Illinois Institute of Technology in 1971. Mr. Quarles has served as Vice President of International Sales since August 2001. From October 2000 to August 2001 he held the position of Director of Marketing. From July 1996 to September 2000 he held the position of Director of Asia-Pacific Sales stationed in Singapore. From June 1991 to July 1996 he worked as a Sales Engineer and later as District Sales Manager for the Bay Area sales team. Prior to Linear, Mr. Quarles worked two years as a Sales Engineer at National Semiconductor. Mr. Quarles received a BS in Electrical Engineering in 1988 from Cornell University. Mr. Bell has served as Vice President and General Manager of the Power Business Unit since January 2002 and as General Manager of the Power Business Unit since February 1999. From June 1994 to January 1999 he held the position of Manager of Strategic Product Development. From July 1991 to May 1994 he was employed as Director of Electrical Engineering at IDEO Product Development. Prior to July 1991 Mr. Bell was employed in various management and engineering positions at Bell Associates, Inc., Sydis, Inc., and Hewlett Packard, Inc. Mr. Bell has a BS degree in Electrical Engineering from the Massachusetts Institute of Technology. Mr. Gross has served as Vice President and General Manager of the Signal Conditioning Business Unit since January 2002 and as General Manager of the Signal Conditioning Business Unit since February 1999. He held the position of Design Manager from July 1989 to February 1999 responsible for amplifiers, comparators and voltage references. Previously he was Design Manager at Elantec from January 1984 to June 1989. From January 1973 to December 1983 he held several positions at National Semiconductor, including Design Engineer and Design Manager of the Japan Design Center. Mr. Gross received a BS in electronics engineering from California Polytechnic University in 1971 and a MS in electrical engineering from University of Arizona in 1973. Mr. Reay has served as Vice President and General Manager of the Mixed Signal Business Unit since January 2002 and as General Manager of the Mixed Signal Business Units since November 2000. From January 1992 to October 2000 he was the Design Engineering Manager responsible for a variety of product families including interface, supervisors, battery chargers and hot swap controllers. Mr. Reay joined Linear Technology in April 1988 as a design engineer after spending four years at GE Intersil. Mr. Reay received a B.S. and M.S. in electrical engineering from Stanford University in 1984. 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 At the Company's headquarter campus in Milpitas, California, the Company owns the land and 3 buildings of approximately 41,000, 42,000 and 70,000 square feet, respectively. These buildings are used for support services engineering, prototype testing of new products and worldwide headquarters. Additionally in the same campus the Company leases 60,000 and 31,000 square foot buildings used primarily for circuit design activities and future expansion. During fiscal 1999, the Company purchased a 96,000 square foot building near its headquarter campus in Milpitas, California. This building was converted to a new six-inch wafer fabrication plant completed during the first half of fiscal 2001, with production commencing during the third quarter of 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. During fiscal 2001, the Company leased 6 acres of land adjacent to its Singapore facility. 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 demolished the acquired building, and built a 75,000 square foot extension to its existing facility on the site. 11 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. During fiscal 2001, the Company purchased 16.5 acres of land adjacent to its Camas facility. The Company leases design facilities located in: Bedford, New Hampshire, Raleigh, North Carolina, Burlington, Vermont and Santa Barbara, California. In fiscal 2002, the Company purchased land in Colorado Springs, Colorado and constructed a new 20,000 square foot design center. In fiscal 1999, the Company purchased land in the Boston metropolitan area and constructed a new 20,000 square foot design and sales office. In fiscal 2002, the Company added 10,000 square feet to this facility. The Company leases sales offices in the areas of Bellevue, Baltimore, Denver, Milpitas, Philadelphia, Raleigh, Chicago, Dallas, Austin, Houston, Milpitas, Los Angeles, Irvine, San Diego, Huntsville, Minneapolis, Cleveland, Portland, London, Stockholm, Helsinki, Ascheberg, Munich, Stuttgart, Paris, Lyon, Tokyo, Osaka, Taipei, Singapore, Seoul, Hong Kong and Shanghai. See Note 3 of Notes to Consolidated Financial Statements incorporated herein by reference to Exhibit 13.1 of this Form 10-K which contains certain information included in the Company's 2002 Annual Report to Stockholders. Item 3. Legal Proceedings To protect its intellectual property, and in particular its patent rights, the Company has been the plaintiff in various patent infringement lawsuits. The defendants' responses to litigation initiated by the Company have in certain cases included counterclaims or separate actions alleging infringement by the Company of unrelated patents owned by the defendant. One such instance has arisen in which Texas Instruments, Inc. (TI) filed suit against the Company on January 6, 2001, in federal court in Texas. This suit alleges 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 suit seeks unspecified monetary damages and injunctive relief. In the course of defending the lawsuit brought by TI, the Company has filed third-party complaints against the manufacturers of the allegedly infringing equipment, seeking indemnity and alleging breach of contract, breach of warranty, fraud, and unfair business practices. While the Company believes that resolution of these actions should not have a material effect on the Company's financial position, it can give no assurances that it will prevail in them. Item 4. Submission of Matter to a Vote of Security Holders Not applicable. 12 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The information required by the Item is incorporated herein 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 2002 Annual Report to Stockholders. Item 6. Selected Financial Data The information required by the Item is incorporated herein 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 2002 Annual Report to Stockholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by the Item is incorporated herein 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 2002 Annual Report to Stockholders. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The information required by the Item is incorporated herein 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 2002 Annual Report to Stockholders. Item 8. Financial Statements and Supplementary Data Consolidated Financial Statements of Linear Technology at June 30, 2002 and July 1, 2001 and for each of the three years in the period ended June 30, 2002, the report of Ernst & Young LLP, independent auditors, thereon and unaudited quarterly financial data for the two year period ended June 30, 2002 are incorporated herein by reference to Exhibit 13.1 of this Form 10-K which contains certain information included in the Registrant's 2002 Annual Report to Stockholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 13 PART III Item 10. Directors and Executive Officers of the Registrant The information required by this item for the Company's directors is incorporated herein by reference to the 2002 Proxy Statement, under the caption "Proposal One - 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 2002 Proxy Statement, under the section titled "Executive Officer Compensation." Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Incorporated by reference to the 2002 Proxy Statement, under the section titled "Beneficial Security Ownership of Directors, Executive Officers and Certain Other Beneficial Owners" and "Securities Authorized for Issuance Under Equity Compensation Plans." Item 13. Certain Relationships and Related Transactions Not applicable. 14 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. No reports on Form 8-K were required to be filed for the three months ended June 30, 2002. (c) Exhibits 3.1 Certificate of Incorporation of Registrant. (9) 3.3 Bylaws of Registrant. (9) 10.1 1981 Incentive Stock Option Plan, as amended, and form of Stock Option Agreements, as amended (including Restricted Stock Purchase Agreement).(*)(3) 10.11 Agreement to Build and Lease dated January 8, 1986 between Callahan-Pentz Properties, McCarthy Six and the Registrant.(1) 10.25 1986 Employee Stock Purchase Plan, as amended, and form of Subscription Agreement.(*)(2) 10.35 1988 Stock Option Plan, as amended, form of Incentive Stock Option Agreement, as amended, and form of Non-statutory Stock Option Agreement, as amended.(*)(6) 10.36 Form of Indemnification Agreement. (9) 10.45 Land lease dated March 30, 1993 between the Registrant and the Singapore Housing and Development Board.(4) 10.46 Land lease dated November 20, 1993 between the Registrant and the Penang Development Corporation. (5) 10.47 1996 Incentive Stock Option Plan, form of Incentive Stock Option Agreement and form of Nonstatutory Stock Option Agreement.(*) (7) 10.48 1996 Senior Executive Bonus Plan, as amended July 25, 2000.(*) (8) 10.49 2001 Nonstatutory Stock Option Plan, as amended July 23, 2002, and form of Stock Option Agreement.(*) 10.50 Employment Agreement dated January 15, 2002 between the Registrant and Robert H. Swanson, Jr. (*) (10) 15 10.51 Employment Agreement dated January 15, 2002 between the Registrant and Clive B. Davies. (*) (10) 10.52 Employment Agreement dated January 15, 2002 between the Registrant and Paul Coghlan. (*) (10) 10.53 Employment Agreement dated January 15, 2002 between the Registrant and Robert C. Dobkin. (*) (10) 11.1 Computation of earnings per share. (see Exhibit 13.1). 13.1 Certain information included in the Registrant's Annual Report to Stockholders for the fiscal year ended June 30, 2002. 21.1 Subsidiaries of Registrant. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney. (see page 19) 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. (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 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. (2) 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. (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 December 30, 1990. (4) 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. (5) 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. (6) 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. (7) 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. (8) 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 2, 2000. 16 (9) 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 1, 2001. (10) 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 March 31, 2002. 17 LINEAR TECHNOLOGY CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (Item 14(a)1) Page Reference to Exhibit 13.1 Consolidated balance sheets at June 30, 2002 and July 1, 2001 E13.1-8 Consolidated statements of income for each of the three years in the period ended June 30, 2002 E13.1-7 Consolidated statements of stockholders' equity for each of the three years in the period ended June 30, 2002 E13.1-10 Consolidated statements of cash flows for each of the three years in the period ended June 30, 2002 E13.1-9 Notes to consolidated financial statements E13.1-11 to E13.1-18 Report of Ernst & Young LLP, independent auditors E13.1-19 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 Stockholders for the year ended June 30, 2002. 18 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 18, 2002 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 18, 2002 September 18, 2002 /s/ David S. Lee /s/ Thomas S. Volpe - ---------------- ------------------- David S. Lee Thomas S. Volpe Director Director September 18, 2002 September 18, 2002 /s/ Leo T. McCarthy /s/ Richard M. Moley - ------------------- -------------------- Leo T. McCarthy Richard M. Moley Director Director September 18, 2002 September 18, 2002 19 CERTIFICATIONS I, Robert H. Swanson, Jr. certify that: 1. I have reviewed this annual report on Form 10-K of Linear Technology Corporation; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report. Date: September 18, 2002 /s/ Robert H. Swanson, Jr. ----------------------------------- Robert H. Swanson, Jr. Chairman of the Board and Chief Executive Officer (Principal Executive Officer) I, Paul Coghlan, certify that: 1. I have reviewed this annual report on Form 10-K of Linear Technology Corporation; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report. Date: September 18, 2002 /s/ Paul Coghlan ----------------------------------- Paul Coghlan Vice President of Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 20 SCHEDULE II LINEAR TECHNOLOGY CORPORATION VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)
Additions Balance at Charged to Balance at Beginning Costs and End of of Period Expenses Deductions(1) Period ---------- ---------- ------------- ---------- Allowance for doubtful accounts: Year ended July 2, 2000.................. $803 $ -- $ -- $803 ==== ==== ==== ==== Year ended July 1, 2001.................. $803 $ -- $ -- $803 ==== ==== ==== ==== Year ended June 30, 2002................. $803 $800 $301 $1,302 ==== ==== ==== ======
(1) Write-offs of doubtful accounts. 21 EX-10.49 3 p16038_ex10-49.txt 2001 NONSTATUTORY STOCK OPTION PLAN LINEAR TECHNOLOGY CORPORATION 2001 NONSTATUTORY STOCK OPTION PLAN (Amended - July 23, 2002) 1. Purposes of the Plan. The purposes of this Nonstatutory Stock Option Plan are: o to attract and retain the best available personnel for positions of substantial responsibility, o to provide additional incentive to Employees and Consultants, and o to promote the success of the Company's business. Options granted under the Plan will be Nonstatutory Stock Options. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. (g) "Company" means Linear Technology Corporation, a Delaware corporation. (h) "Consultant" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (i) "Director" means a member of the Board. (j) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "Employee" means any person employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (m) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the lower of the last sale price or the closing bid price for such stock as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the lower of the last sale price or the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option grant. The Notice of Grant is part of the Option Agreement. (o) "Officer" means any Employee who holds office at the level of Vice President or above. (p) "Option" means a nonstatutory stock option granted pursuant to the Plan, that is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (q) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (r) "Option Exchange Program" means a program whereby outstanding options are surrendered in exchange for options with a lower exercise price. -2- (s) "Optioned Stock" means the Common Stock subject to an Option. (t) "Optionee" means the holder of an outstanding Option granted under the Plan. (u) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (v) "Plan" means this 2001 Nonstatutory Stock Option Plan. (w) "Service Provider" means an Employee or Consultant. (x) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan. (y) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 30,000,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). 4. Administration of the Plan. (a) Administration. The Plan shall be administered by (i) the Board or (ii) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock; (ii) to select the Service Providers to whom Options may be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each Option granted hereunder; (v) to approve forms of agreement for use under the Plan; -3- (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (viii) to institute an Option Exchange Program; (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (x) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws; (xi) to modify or amend each Option (subject to Section 14(b) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator; (xiii) to determine the terms and restrictions applicable to Options; (xiv) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and (xv) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options. -4- 5. Eligibility. Options may be granted to Service Providers; provided, however, that notwithstanding anything to the contrary contained in the Plan, Options may not be granted to Officers and Directors. 6. Limitation. Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. 7. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for ten (10) years, unless sooner terminated under Section 14 of the Plan. 8. Term of Option. The term of each Option shall be stated in the Option Agreement. 9. Option Exercise Price and Consideration. (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator. (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares, provided Shares acquired from the Company, (A) have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; -5- (vii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or (viii) any combination of the foregoing methods of payment. 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Option Agreement, and only to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement, to the extent the Option is vested on the date of -6- termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 11. Non-Transferability of Options. Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate. 12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. -7- (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of thirty (30) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock, immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 13. Date of Grant. The date of grant of an Option shall be, for all purposes, the date on which the Administrator makes the determination granting such Option, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. -8- 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to options granted under the Plan prior to the date of such termination. 15. Conditions Upon Issuance of Shares. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. -9- LINEAR TECHNOLOGY CORPORATION 2001 NONSTATUTORY STOCK OPTION PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT Name: Address: You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number ___________________________ Date of Grant ___________________________ Vesting Commencement Date ___________________________ Exercise Price per Share $__________________________ Total Number of Shares Granted ___________________________ Total Exercise Price $__________________________ Type of Option: Nonstatutory Stock Option Term/Expiration Date: ___________________________ Vesting Schedule: ___________________________ Subject to the Optionee continuing to be a Service Provider on such dates, this Option shall vest and become exercisable in accordance with the following schedule: [Vesting Schedule] Termination Period: This Option may be exercised, to the extent vested on the date of termination, for [three (3) months] after Optionee ceases to be a Service Provider. Notwithstanding the foregoing, upon the death or Disability of the Optionee, this Option may be exercised, to the extent vested on the date of termination, for [six (6) months] after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT 1. Grant of Option. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(b) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. 2. Exercise of Option. (a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. 3. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; -2- (c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or (d) surrender of other Shares, provided Shares acquired from the Company, (i) have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. 4. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 5. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. 6. Withholding Taxes. Optionee agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver the Shares if such withholding amounts are not delivered at the time of exercise. 7. Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. 8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. -3- By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE LINEAR TECHNOLOGY CORPORATION _______________________________ _______________________________ Signature By _______________________________ _______________________________ Print Name Title _______________________________ Residence Address _______________________________ -4- EXHIBIT A LINEAR TECHNOLOGY CORPORATION 2001 NONSTATUTORY STOCK OPTION PLAN EXERCISE NOTICE Linear Technology Corporation [ADDRESS] Attention: [Title] 1. Exercise of Option. Effective as of today, ________________, _____, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of Linear Technology Corporation (the "Company") under and pursuant to the 2001 Nonstatutory Stock Option Plan (the "Plan") and the Stock Option Agreement dated, _________, ___ (the "Option Agreement"). The purchase price for the Shares shall be $__________, as required by the Option Agreement. 2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares, and any and all withholding taxes due in connection with the exercise of the Option. 3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 12 of the Plan. 5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Entire Agreement; Governing Law. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by: PURCHASER LINEAR TECHNOLOGY CORPORATION _______________________________ _______________________________ Signature By _______________________________ _______________________________ Print Name Title _______________________________ Date Received Address: ______________________ Address: ______________________ ______________________ ______________________ ______________________ ______________________ -2- EX-13 4 p16038_ex13.txt REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS EXHIBIT 13.1 - Certain information included in the Registrant's Annual Report to Stockholders for the fiscal year ended June 30, 2002 LINEAR TECHNOLOGY CORPORATION QUARTERLY RESULTS AND STOCK MARKET DATA (UNAUDITED)
In thousands, except per share amounts - ---------------------------------------------------------------------------------------------------------------------- Fiscal 2002 Quarter Ended June 30, 2002 March 31, 2002 Dec. 30, 2001 Sept. 31, 2001 - ---------------------------------------------------------------------------------------------------------------------- Net sales $140,757 $130,155 $121,266 $120,104 Gross profit 103,936 95,637 85,133 82,857 Net income 55,034 51,480 45,965 45,150 Diluted earnings per share 0.17 0.16 0.14 0.14 Cash dividends per share 0.05 0.04 0.04 0.04 Stock price range per share: High 45.87 46.72 44.52 48.08 Low 28.58 36.24 30.00 31.29 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Fiscal 2001 Quarter Ended July 1, 2001 April 1, 2001 Dec. 31, 2000 Oct. 1, 2000 - ---------------------------------------------------------------------------------------------------------------------- Net sales $200,013 $282,021 $258,450 $232,141 Gross profit 150,705 216,829 197,318 176,651 Net income 84,817 125,703 114,758 102,178 Diluted earnings per share 0.26 0.38 0.34 0.31 Cash dividends per share 0.04 0.03 0.03 0.03 Stock price range per share: High 58.00 65.06 67.44 73.00 Low 33.94 39.63 46.00 50.44 - ----------------------------------------------------------------------------------------------------------------------
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. Cash dividends of $0.17 per share totaling $54.0 million were paid by the Company in fiscal 2002 as compared to $0.13 per share totaling $41.2 million in fiscal 2001. In April 2002, the Company's Board of Directors announced that the quarterly cash dividend was increased to $0.05 per share from $0.04 per share. Future dividends will be based on quarterly financial performance. 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 30, 2002, there were approximately 1,838 stockholders of record. 25 EXHIBIT 13.1-2 LINEAR TECHNOLOGY CORPORATION SELECTED FINANCIAL INFORMATION/FIVE-YEAR TREND
In thousands, except per share amounts - ----------------------------------------------------------------------------------------------------------------- FIVE FISCAL YEARS ENDED JUNE 30, 2002 2002 2001 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Income statement information Net sales $ 512,282 $ 972,625 $ 705,917 $ 506,669 $484,799 Net income 197,629 427,456 287,906 194,293 180,902 Basic earnings per share 0.62 1.35 0.93 0.64 0.59 Diluted earnings per share 0.60 1.29 0.88 0.61 0.57 Weighted average shares outstanding - Basic 317,215 316,924 310,953 304,040 305,272 Weighted average shares outstanding - Diluted 328,538 332,527 328,002 317,888 319,878 Balance sheet information Cash, cash equivalents and short-term investments $1,552,030 $1,549,002 $1,175,558 $786,707 $637,893 Total assets 1,988,433 2,017,074 1,507,256 1,046,914 892,822 Long-term debt -- -- -- -- -- Cash dividends per share $0.17 $0.13 $0.09 $0.0725 $0.06 - -----------------------------------------------------------------------------------------------------------------
All share and per share amounts reflect the Company's two-for-one stock split effective in February 2000. 26 EXHIBIT 13.1-3 LINEAR TECHNOLOGY CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Critical Accounting Policies The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company regularly evaluates these estimates, including those related to inventory valuation and revenue recognition. These estimates are based on historical experience and on assumptions that are believed by management to be reasonable under the circumstances. Actual results may differ from these estimates, which may impact the carrying values of assets and liabilities. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of consolidated financial statements. Inventory Valuation We value our inventories at the lower of cost or market. We record charges to write down inventories for unsalable, excess or obsolete raw materials, work-in-process and finished goods. Newly introduced parts are generally not valued until success in the market place has been determined by a consistent pattern of sales and backlog among other factors. In addition to writedowns based on newly introduced parts, statistical and judgmental assessments are calculated for the remaining inventory based on salability and obsolescence. Revenue Recognition Revenue from product sales made directly to customers is recognized upon the transfer of title. Revenue from the Company's sales to domestic distributors is recognized under agreements which provide for certain sales price rebates and limited product return privileges. As a result, the Company defers recognition of such sales until the domestic distributors sell the merchandise. The Company relieves inventory and records a receivable on the initial sale to the distributor as title has passed to the distributor and payment is collected on the receivable within normal trade terms. The income to be derived from distributor sales is recorded under current liabilities on the balance sheet as "Deferred income on shipments to distributors" until such time as the distributor confirms a final sale to its end customer. The Company's sales to international distributors are made under agreements which permit limited stock return privileges but not sales price rebates. Revenue on these sales is recognized upon shipment at which time title passes. The Company estimates international distributor returns based on historical data and current business expectations and defers a portion of international distributor sales and profits based on these estimated returns. Such amounts are classified in "Deferred income on shipments to distributors" on the accompanying balance sheet. 27 Results of Operations 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.
Fiscal Year Ended Percentage Change ----------------------------------------- ------------------------------ June 30, July 1, July 2, 2002 Over 2001 Over 2002 2001 2000 2001 2000 ----------- -------- ------------ ------------- ------------ Net sales 100.0% 100.0% 100.0% (47%) 38% Cost of sales 28.2 23.8 25.4 (37) 29 ---- ---- ---- ---- ---- Gross profit 71.8 76.2 74.6 (50) 41 ---- ---- ---- ---- ---- Expenses: Research & development 15.6 10.5 11.1 (22) 31 Selling, general & administrative 12.2 9.5 10.5 (32) 25 ---- ---- ---- ---- ---- 27.8 20.0 21.6 (27) 28 ---- ---- ---- ---- ---- Operating income 44.0 56.2 53.0 (59) 46 Interest income 10.3 6.6 6.1 (17) 50 ---- ---- ---- ---- ---- Income before income taxes 54.3% 62.8% 59.1% (54) 46 ==== ==== ==== ==== ==== Effective tax rates 29.0% 30.0% 31.0% ==== ==== ====
Net sales for the year ended June 30, 2002 were $512.3 million, a decrease of $460.3 million or 47% from net sales of $972.6 million in fiscal 2001. The decrease in net sales was primarily due to a decrease in unit shipments, and marginally due to a decrease in the average selling price. Geographically, international sales represented 64% of net sales, 10% higher than fiscal 2001. International sales to Europe, Japan and the Rest of the World (primarily Asia excluding Japan,) represented 20%, 12% and 32% of net sales, respectively. In absolute dollars, sales decreased 58% year over year in the United States, decreased by 49% in Europe, decreased by 56% in Japan, and decreased 13% in the Rest of the World. The Company's major end-markets are communications, computer, industrial, auto and military. Sales fell in all major end-markets except military. Leading the decline in sales was communications; in absolute dollars sales in the communication end-market fell approximately 60% from fiscal 2001. Net sales were a record $972.6 million in fiscal 2001, an increase of 38% over net sales of $705.9 million in fiscal 2000. The increase in net sales was primarily due to an increase in unit shipments, while the average selling price for the Company's products increased slightly during the year. Geographically, international sales represented 54% of net sales, the same percentage as in fiscal 2000. International sales to Europe, Japan and the Rest of the World (primarily Asia excluding Japan), represented 21%, 14% and 19% of net sales, respectively. In absolute dollars, sales increased 38% year over year in the United States, increased by 41% in Europe, increased by 70% in Japan, and increased 19% in the Rest of the World. The Company's major end-markets are communications, computer, industrial, auto and military. Sales into all major end-markets were strong with communications leading computer, industrial, auto and military. Within communications the major end-markets were networking and telephone infrastructure, primarily cellular base stations and cellular phone handsets. After three quarters of strong sales growth, sales in the fourth quarter decreased by 29% from the previous quarter. This trend was prevalent in all major end markets, particularly in communications. To partially offset the impact of reduced sales on net profits during fiscal 2002 the Company reduced its variable expenses primarily in the area of compensation. This was achieved by lower profit sharing, plant shutdowns of approximately one week per month for the first three-quarters of fiscal 2002, and limited shutdowns in Q4 2002. The related savings in compensation were approximately $74.0 million, of which $60.0 million is related to profit sharing, for the fiscal year ended June 30, 2002. Additionally, in January 2002 the Company discontinued production in its oldest 4-inch wafer fabrication plant. The related ongoing labor savings from the closure of the 4-inch plant were approximately $3.0 million per quarter. The associated severance costs and equipment and inventory write-downs had been previously provided for in past financial statements and, therefore, no special one-time charges were required. Gross profit for the year ended June 30, 2002 was $367.6 million, a decrease of $373.9 million or 50.4% from gross profit of $741.5 million in the corresponding period in fiscal 2001. Gross profit was 71.8% of net sales in fiscal 2002 as compared to 76.2% in fiscal 2001. The decrease in gross profit as a percentage of sales was due primarily to the unfavorable effect of fixed costs 28 allocated across a lower sales base. This effect was partially offset by the reduction in compensation costs referenced above and secondarily to the closure of the Company's 4-inch wafer fabrication plant. Gross profit was $741.5 million or 76.2% of net sales in fiscal 2001. The increase in gross profit as a percentage of sales compared to 74.6% in fiscal 2000 was due primarily to the favorable effect of fixed costs allocated across a higher sales base and improved manufacturing efficiencies and yields achieved at the Company's fabrication, assembly and test facilities, partially offset by costs associated with the start-up of the new wafer fabrication plant in Milpitas. Research and development ("R&D") expenses were $79.8 million, $102.5 million, and $78.3 million in fiscal 2002, 2001, and 2000, respectively, or 15.6%, 10.5%, and 11.1% of net sales, respectively. The dollar decrease in R&D expenses in fiscal 2002 as compared to fiscal 2001 was due to a decrease in compensation costs caused by lower profit sharing and by plant shutdowns of one week per month for the first three-quarters in fiscal 2002. The impact of lower compensation costs as explained above was offset by increases in staffing levels of design engineering personnel. The increase in R&D expenses in fiscal 2001 as compared to 2000 was due to increases in staffing levels of engineering personnel, which resulted in higher compensation costs, increased profit sharing costs driven by increases in sales and profitability, and development costs in new products. Selling, general and administrative ("SG&A") expenses were $62.6 million, $92.7 million, and $74.3 million in fiscal 2002, 2001, and 2000, respectively, or 12.2%, 9.5%, and 10.5% of net sales, respectively. The dollar decrease in SG&A expenses from fiscal 2002 to fiscal 2001 was due to a decrease in compensation costs caused by lower profit sharing and by plant shutdowns of one week per month for the first three-quarters in fiscal 2002. Additionally the Company had lower legal expenses and lower commissions caused by the decrease in sales levels. The increase in SG&A expenses in fiscal 2001 as compared to fiscal 2000 was due to an increase in staffing levels to support the increased sales volumes, higher profit sharing, higher commissions resulting from the increase in sales, and higher legal costs related to patent protection and infringement. Interest income decreased 17.3% in fiscal 2002 to $53.3 million and increased 50% in fiscal 2001 to $64.4 million from $42.9 million in fiscal 2000. The Company's cash, cash equivalent and short-term investment balance increased $3.0 million during fiscal 2002 after spending $221.6 million on repurchasing 6.4 million shares of the Company's common stock. However, the declining average interest rates earned on the Company's cash equivalent and short-term investment balance caused interest income to fall 17.3%. The year over year increases in fiscal 2001 and 2000 were due to the significant increases in cash, cash equivalents and short-term investments that grew $373.4 million and $388.9 million respectively. The Company's effective tax rate was 29.0%, 30.0%, and 31.0% in fiscal 2002, 2001, and 2000, respectively. The lower tax rates in fiscal 2002 and 2001 were primarily due to increased business activity in foreign jurisdictions with lower tax rates and an increase in tax-exempt interest income as a percentage of total interest 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 and financial markets and other factors described below. Although we have seen improvements across end-markets in the last two quarters, our backlog of $46.1 million as compared to $71.5 million at the end of the previous fiscal year, while improving within fiscal 2002, is still low. General business conditions continue to be tenuous and visibility remains low as customers order only to supply immediate demand. Therefore, confidently and accurately forecasting future financial results remains difficult. We are well positioned in some new programs with customers, which could ramp up late in the September quarter and in the following quarter. The summer, or September quarter, is historically our slowest and in the current business environment, we expect that to be true this year also. Consequently, we estimate that sales and profits in the September quarter will remain similar to the June quarter with growth resuming in the December quarter. 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 brought against the Company are critical factors influencing future sales growth and sustained profitability. The Company's headquarters and a portion of its manufacturing 29 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 June 30, 2002, cash, cash equivalents and short-term investments totaled $1.6 billion, and working capital was $1.6 billion. During fiscal 2002 the Company generated additional cash and short-term investments of $224.6 million before the repurchase of common stock. The Company repurchased 6,439,100 shares of its common stock for $221.6 million during fiscal 2002. During fiscal 2002, the Company generated $257.1 million of cash from operating activities. Additionally, the Company generated $39.3 million in proceeds from common stock issued under employee stock option and stock purchase plans. During fiscal 2002, significant cash expenditures included net purchases of short-term investments of $112.4 million and $17.9 million for the purchase of capital assets, primarily manufacturing equipment for the Company's fabrication, assembly and test facilities. The Company also paid $221.6 million to repurchase 6.4 million shares of its common stock. The Company paid $54.0 million for cash dividends to stockholders representing $0.17 per share per year compared to $0.13 per share in fiscal 2001. In April 2002, the Company's Board of Directors declared an increase in the quarterly cash dividend to $0.05 per share. The payment of 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 30, 2002, 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 $19.4 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. The Company has no debt and has historically 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. As of June 30, 2002, the Company had no off-balance sheet financing arrangements or activities other than minimal levels of operating leases for facilities and equipment. 30 EXHIBIT 13.1-7 LINEAR TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share amounts - ------------------------------------------------------------------------------------------- THREE YEARS ENDED JUNE 30, 2002 2002 2001 2000 - ------------------------------------------------------------------------------------------- Net sales $512,282 $972,625 $705,917 Cost of sales 144,719 231,122 178,949 - ------------------------------------------------------------------------------------------- Gross profit 367,563 741,503 526,968 - ------------------------------------------------------------------------------------------- Expenses: Research and development 79,839 102,487 78,299 Selling, general and administrative 62,625 92,731 74,273 - ------------------------------------------------------------------------------------------- 142,464 195,218 152,572 - ------------------------------------------------------------------------------------------- Operating income 225,099 546,285 374,396 - ------------------------------------------------------------------------------------------- Interest income 53,251 64,366 42,858 - ------------------------------------------------------------------------------------------- Income before income taxes 278,350 610,651 417,254 - ------------------------------------------------------------------------------------------- Provision for income taxes 80,721 183,195 129,348 - ------------------------------------------------------------------------------------------- Net income $197,629 $427,456 $287,906 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Earnings per share: - ------------------------------------------------------------------------------------------- Basic $0.62 $1.35 $0.93 - ------------------------------------------------------------------------------------------- Diluted $0.60 $1.29 $0.88 - ------------------------------------------------------------------------------------------- Weighted average shares outstanding: Basic 317,215 316,924 310,953 Diluted 328,538 332,527 328,002 Cash dividends per share $0.17 $0.13 $0.09 - -------------------------------------------------------------------------------------------
See accompanying notes. 31 EXHIBIT 13.1-8 LINEAR TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------- In thousands - ----------------------------------------------------------------------------------------------- JUNE 30, 2002 AND JULY 1, 2001 2002 2001 Assets Current assets: Cash and cash equivalents $211,706 $321,106 Short-term investments 1,340,324 1,227,896 Accounts receivable, net of allowance for doubtful accounts of $1,302 ($803 in 81,447 89,836 2001) Inventories: Raw materials 2,997 6,990 Work-in-process 22,941 14,090 Finished goods 3,004 4,512 ----- ----- Total inventories 28,942 25,592 Deferred tax assets 43,754 43,482 Prepaid expenses and other current assets 21,408 19,936 ------ ------ Total current assets 1,727,581 1,727,848 --------- --------- Property, plant and equipment, at cost: Land, buildings and improvements 140,468 136,978 Manufacturing and test equipment 326,388 316,501 Office furniture and equipment 3,384 3,343 ----- ----- 470,240 456,822 Accumulated depreciation and amortization (209,388) (167,596) --------- --------- Net property, plant and equipment 260,852 289,226 ------- ------- Total assets $1,988,433 $2,017,074 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 5,098 $ 10,615 Accrued payroll and related benefits 36,517 65,930 Deferred income on shipments to distributors 46,168 44,481 Income taxes payable 63,354 51,335 Other accrued liabilities 17,860 29,863 ------ ------ Total current liabilities 168,997 202,224 ------- ------- Deferred tax liabilities 37,982 32,893 Commitments and Contingencies Stockholders' equity: Preferred stock, $0.001 par value, 2,000 shares -- -- authorized, none issued or outstanding Common stock, $0.001 par value, 2,000,000 shares authorized; 316,150 shares issued and outstanding at June 30, 2002 (318,908 shares at July 1, 2001) 316 319 Additional paid-in capital 672,600 607,883 Retained earnings 1,108,538 1,173,755 --------- --------- Total stockholders' equity 1,781,454 1,781,957 --------- --------- Total liabilities and stockholders' equity $1,988,433 $2,017,074 ========== ========== - -----------------------------------------------------------------------------------------------
See accompanying notes. 32 EXHIBIT 13.1-9 LINEAR TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE IN CASH AND CASH EQUIVALENTS
In thousands THREE YEARS ENDED JUNE 30, 2002 2002 2001 2000 ----------- ----------- ----------- Cash flow from operating activities: Net income $ 197,629 $ 427,456 $ 287,906 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 46,261 35,788 24,958 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 8,389 (20,511) (7,137) Decrease (increase) in inventories (3,350) (3,680) (6,388) Decrease (increase) in deferred tax assets (272) (11,236) (4,130) Decrease (increase) in prepaid expenses and other current assets (1,472) (8,874) 1,515 Increase (decrease) in accounts payable, accrued payroll and other accrued liabilities (46,933) 4,135 39,866 Increase (decrease) in deferred income on shipments to distributors 1,687 9,993 (976) Tax benefit from stock option transactions 38,091 90,563 100,664 Increase (decrease) in income taxes payable 12,019 19,419 4,512 Increase (decrease) in deferred tax liabilities 5,089 16,511 1,537 ----------- ----------- ----------- Cash provided by operating activities 257,138 559,564 442,327 ----------- ----------- ----------- Cash flow from investing activities: Purchase of short-term investments (961,041) (1,722,358) (793,631) Proceeds from sales and maturities of short-term investments 848,613 1,439,565 481,015 Purchase of property, plant and equipment (17,887) (127,861) (80,309) ----------- ----------- ----------- Cash used in investing activities (130,315) (410,654) (392,925) ----------- ----------- ----------- Cash flow from financing activities: Issuance of common shares under employee stock plans 39,333 52,704 54,783 Purchase of common stock (221,551) (69,799) -- Payment of cash dividends (54,005) (41,164) (27,950) ----------- ----------- ----------- Cash (used in) provided by financing activities (236,223) (58,259) 26,833 ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents (109,400) 90,651 76,235 Cash and cash equivalents, beginning of period 321,106 230,455 154,220 ----------- ----------- ----------- Cash and cash equivalents, end of period $ 211,706 $ 321,106 $ 230,455 =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the fiscal year for income taxes $ 25,483 $ 67,656 $ 26,486 ----------- ----------- -----------
See accompanying notes. 33 EXHIBIT 13.1-10 LINEAR TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY In thousands THREE YEARS ENDED JUNE 30, 2002
Additional Total Common Stock Paid-In Retained Stockholders' Shares Amount Capital Earnings Equity ------- -------- -------- -------- -------- Balance at June 27, 1999 307,462 $312,027 --- $594,767 $906,794 Issuance of common stock for cash under employee stock option and stock purchase plans 7,705 54,783 --- --- 54,783 Tax benefit from stock option transactions --- 100,664 --- --- 100,664 Purchase and retirement of common stock --- --- --- --- --- Net income --- --- --- 287,906 287,906 Cash dividends - $0.09 per share --- --- --- (27,950) (27,950) ------- -------- -------- -------- -------- Balance at July 2, 2000 315,167 467,474 --- 854,723 1,322,197 ------- -------- -------- -------- -------- Issuance of common stock for cash under employee stock option and stock purchase plans 5,291 52,704 --- --- 52,704 Tax benefit from stock option transactions --- 90,563 --- --- 90,563 Purchase and retirement of common stock (1,550) (2,539) --- (67,260) (69,799) Reincorporation in Delaware --- (607,883) 607,883 --- Net income --- --- --- 427,456 427,456 Cash dividends - $0.13 per share --- --- --- (41,164) (41,164) ------- -------- -------- -------- -------- Balance at July 1, 2001 318,908 319 607,883 1,173,755 1,781,957 ------- -------- -------- -------- -------- Issuance of common stock for cash under employee stock option and stock purchase plans 3,681 3 39,330 --- 39,333 Tax benefit from stock option transactions --- --- 38,091 --- 38,091 Purchase and retirement of common stock (6,439) (6) (12,704) (208,841) (221,551) Net income --- --- --- 197,629 197,629 Cash dividends - $0.17 per share --- --- --- (54,005) (54,005) ------- -------- -------- -------- -------- Balance at June 30, 2002 316,150 $316 $672,600 $1,108,538 $1,781,454 ======= ======== ======== ========== ===========
See accompanying notes. 34 EXHIBIT 13.1-11 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, consumer, networking products, satellite systems, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, automotive electronics, factory automation, process control and military space systems. Export sales by geographic area were as follows: In thousands 2002 2001 2000 ---- ---- ---- Europe $102,413 $202,193 $143,204 Japan 60,759 137,352 80,637 Rest of the World 163,019 188,129 158,520 -------- -------- -------- Total export sales $326,191 $527,674 $382,361 ======== ======== ======== Basis of presentation The Company's fiscal year ends on the Sunday nearest June 30. Fiscal 2002 was a 52 week period, fiscal year 2001 was a 52 week period, and fiscal year 2000 was a 53 week period. 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. In fiscal 2001 the Company changed its state of incorporation from California to Delaware. As a consequence of this change stockholders' equity has been expanded to include both common stock and additional paid-in capital in conformance with Delaware reporting requirements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. 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 30, 2002 and July 1, 2001, 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 fiscal 2002, 2001 and 2000. At June 30, 2002 and July 1, 2001, the Company held no equity securities. Concentrations of Credit Risk, Off Balance Sheet Risk and Contingencies 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. No single end customer has accounted for 10% or more of the Company's net sales. However, in given years, one or more distributors may account for 10% or more of the Company's net sales. One domestic distributor accounted for 16% of net sales 35 and 17% of accounts receivable during fiscal 2002, one domestic distributor accounted for 12% of net sales and 13% of accounts recievable during fiscal 2001, and two distributors accounted for approximately 14% and 11% of net sales during fiscal 2000. 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 2002, 2001 and 2000. 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 30, 2002, 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. The Company is subject to contingencies, including legal proceedings arising out of a wide range of matters, including, among, others patent suits and employment claims. While it is impossible to ascertain the ultimate legal and financial liability with respect to these lawsuits, the Company believes that the aggregate amount of such liabilities, if any, will not have a material adverse effect on the consolidated financial position or results of operation of the Company. Inventories Inventories are stated at the lower of standard cost, which approximates actual cost determined on a first-in, first-out basis, or market. Write-downs to reduce the carrying value of obsolete, slow moving and non-usable inventory to net realizable value are charged to cost of sales. Property, plant and equipment Net property, plant and equipment at June 30, 2002 was geographically distributed as follows: United States - $210,925,000 Malaysia - $28,149,000 Singapore - $21,752,000 and other - $26,000. 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. Revenue Recognition Revenue from product sales made directly to customers is recognized upon the transfer of title. Revenue from the Company's sales to domestic distributors is recognized under agreements which provide for certain sales price rebates and limited product return privileges. As a result, the Company defers recognition of such sales until the domestic distributors sell the merchandise. The Company relieves inventory and records a receivable on the initial sale to the distributor as title has passed to the distributor and payment is collected on the receivable within normal trade terms. The income to be derived from distributor sales is recorded under current liabilities on the balance sheet as "Deferred income on shipments to distributors" until such time as the distributor confirms a final sale to its end customer. The Company's sales to international distributors are made under agreements which permit limited stock return privileges but not sales price rebates. Revenue on these sales is recognized upon shipment at which time title passes. The Company estimates international distributor returns based on historical data and current business expectations and defers a portion of international distributor sales and profits based on these estimated returns. Such amounts are classified in "Deferred income on shipments to distributors" on the accompanying balance sheet. The Company's warranty policy provides for replacement of defective parts. Warranty expense historically has been negligible. Stock Based Compensation The Company accounts for stock-based awards to employees under the intrinsic value method and discloses in Note 4 the pro-forma effects of accounting for such awards under the fair value method. 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 11,323,000, 15,603,000, and 17,049,000 shares for fiscal 2002, 2001, and 2000 respectively. The weighted average diluted common shares outstanding for fiscal 2002, 2001, and 2000 excludes the dilutive effect of approximately 16,433,000, 19,842,000, and 23,817,000 options, respectively, since such options have an exercise price in excess of the average market value of the Company's common stock during the fiscal year. 36 Comprehensive Income Comprehensive income approximated net income for fiscal 2002, 2001, and 2000. Segment Reporting The Company competes in a single operating segment, and as a result, no segment information has been disclosed. Disclosures about products and services, geographical areas, and major customers are included above in Note 1 to the consolidated financial statements. Recent Pronouncements In June 2001, the FASB issued SFAS 141 "Business Combination" and SFAS 142 "Goodwill and Other Intangible Assets." SFAS 141 eliminates the pooling-of-interest method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. Statement 141 further clarifies the criteria to recognize intangible assets separately from goodwill. The requirements of SFAS 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001 (i.e., the acquisition date is July 1, 2001 or after.) Under SFAS 142, 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 will adopt SFAS 142 for its fiscal year beginning July 1, 2002. The Company does not expect the adoption of SFAS 142 to have a significant effect on its financial positions or results of operations. In October 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that the fair value of 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 provisions of SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002. The Company does not expect that the adoption of SFAS No. 143 will have a significant effect on its financial position or results of operations. In August 2001, the FASB issued SFAS No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," addressing financial accounting and reporting for the impairment or disposal of long-lived assets. This statement is effective for the fiscal year beginning July 1, 2002. The Company does not expect that the adoption of the Statement will have a significant impact on the Company's financial position and results of operations. The shutdown of the Company's 4-inch wafer fabrication facility in January 2002 did not result in any impairment charges as the charges had been previously anticipated and provided for in the financial statements. 2. Short-term Investments Short-term investments as of June 30, 2002 and July 1, 2001 were as follows: In thousands 2002 2001 ---- ---- Municipal bonds $727,884 $690,288 U.S. Treasury securities and obligations of U.S. government agencies 409,116 396,861 Corporate debt securities and other 203,324 140,747 --------- --------- $1,340,324 $1,227,896 The contractual maturities of short-term investments at June 30, 2002 were as follows: one year or less - $290,017, one year to three years - $1,050,307. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to repay obligations without prepayment penalties. 37 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 30, 2002, future minimum lease payments under non-cancelable operating leases having an initial term in excess of one year were as follows: fiscal 2003: $2,911,000; fiscal 2004: $2,595,000; fiscal 2005: $2,344,000; fiscal 2006: $2,065,000; fiscal 2007: $1,436,000; and thereafter: $3,139,000. Total rent expense was $3,418,000, $2,252,064, and $2,045,000 in fiscal 2002, 2001 and 2000, 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 30, 2002, the total authorized number of shares under all plans was 169,000,000. Options become exercisable over a five-year period (generally 10% every six months.) All options expire ten years after the date of the grant. Stock option transactions during the three years ended June 30, 2002 are summarized as follows: Stock Weighted- Options Average Outstanding Exercise Price Outstanding options, June 27, 1999 44,170,390 $11.28 ---------- Granted 3,812,200 37.62 Forfeited (558,070) 17.57 Exercised (7,535,600) 6.73 ---------- Outstanding options, July 2, 2000 39,888,920 $14.70 ---------- Granted 7,835,650 46.61 Forfeited (764,780) 22.55 Exercised (5,164,470) 9.14 ---------- Outstanding options, July 1, 2001 41,795,320 $21.21 ---------- Granted 1,838,000 38.96 Forfeited (1,220,650) 33.19 Exercised (3,519,710) 9.69 ---------- Outstanding options, June 30, 2002 38,892,960 $22.72 ========== 38 The following table sets forth certain information with respect to employee stock options outstanding and exercisable at June 30, 2002:
Weighted Average Weighted Remaining Weighted Stock Options Average Contractual Stock Average Range of Exercise Prices Outstanding Exercise Life Options Exercise Price (Years) Exercisable Price $ 2.80 - $ 8.53 9,305,880 $5.94 3.22 9,305,880 $5.94 $ 8.54 - $ 17.00 12,445,440 13.51 5.46 10,033,380 13.43 $ 17.01 - $ 40.90 11,350,290 32.35 7.76 4,403,640 29.49 $ 40.91 - $ 55.88 5,791,350 50.56 8.09 1,904,775 50.13 ---------- ---------- $ 2.80 - $55.88 38,892,960 $22.72 5.99 25,647,675 $16.19 ========== ==========
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 30, 2002, the shares reserved for issuance under this plan totaled 8,400,000 and 7,278,676 shares had been issued under this plan. During fiscal 2002, 161,130 shares were issued at a weighted-average price of $33.09 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 under the fair value method instead of the intrinsic value method (in thousands, except per share amounts): 2002 2001 2000 ---- ---- ---- Pro forma net income $131,936 $366,063 $247,009 Pro forma earnings per share: Basic $0.42 $1.16 $0.79 Diluted $0.40 $1.10 $0.75 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): 2002 2001 2000 ---- ---- ---- Expected lives 6.1 6.5 6.5 Expected volatility 69.0% 65.8% 59.1% Dividend yields 0.5% 0.2% 0.3% Risk free interest rates 4.4% 5.0% 5.9% 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. 39 Using the Black-Scholes option pricing model, the weighted average estimated fair value of employee stock options granted in fiscal 2002, 2001 and 2000 was $25.59, $31.64 and $24.26 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. 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 $8,873,000, $11,857,000 and $9,818,000 in fiscal 2002, 2001 and 2000, respectively. 40 5. Income taxes The components of income before income taxes are as follows:
In thousands 2002 2001 2000 United States operations $245,830 $541,112 $361,834 Foreign operations 32,520 69,539 55,420 -------- -------- -------- $278,350 $610,651 $417,254 ======== ======== ======== The provision for income taxes consists of the following: In thousands 2002 2001 2000 United States federal: Current $66,465 $155,390 $118,917 Deferred 4,751 4,747 (2,219) ------- -------- -------- 71,216 160,137 116,698 ------- -------- -------- State: Current 5,923 14,229 8,575 Deferred 66 528 (374) ------- -------- -------- 5,989 14,757 8,201 ------- -------- -------- Foreign-Current 3,516 8,301 4,449 ------- -------- -------- $80,721 $183,195 $129,348 ======= ======== ========
Actual current federal and state tax liabilities are lower than the amounts reflected above by the tax benefit from stock option activity of approximately $38,091,000, $90,563,000, and $100,664,000, for fiscal 2002, 2001, and 2000, respectively. The tax benefit from stock option activity is recorded as a reduction in current income taxes payable and an increase in additional paid-in capital. The provision for income taxes reconciles to the amount computed by applying the statutory U.S. Federal rate of 35% to income before income taxes as follows:
In thousands 2002 2001 2000 Tax at U.S. statutory rate $97,423 $213,728 $146,039 State income taxes, net of federal benefit 3,894 9,592 5,331 Earnings of foreign subsidiaries subject to lower rates (5,069) (10,230) (10,400) Tax-exempt interest income (10,850) (11,908) (8,934) FSC benefits - (13,224) (4,042) Other (4,677) (4,763) 1,354 ------- -------------- ------------ $80,721 $183,195 $129,348 ========= ========== =========
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 30, 2002 and July 1, 2001 are as follows: 41 In thousands 2002 2001 Deferred tax assets: Inventory valuation $17,680 $12,410 Deferred income on shipments to distributors 17,236 16,606 State income taxes 2,098 5,165 Non-deductible accrued benefits 1,954 2,523 Other 4,786 6,778 ------- ------- Total deferred tax assets 43,754 43,482 ------- ------- Deferred tax liabilities: Depreciation and amortization 11,642 10,234 Unremitted earnings of subsidiaries 26,340 22,659 ------- ------- Total deferred tax liabilities 37,982 32,893 ------- ------- Net deferred tax assets $5,772 $10,589 ======= ======= The Company has a tax holiday in Singapore which is effective through September 2004. The Company's Malaysia tax holiday is effective through July 2005. The impact of the Singapore and Malaysia tax holidays was to increase net income by approximately $4,328,000 ($0.01 per diluted share) in fiscal 2002, $11,669,000 ($0.04 per diluted share) in fiscal 2001, and $9,320,000 ($0.03 per diluted share) in fiscal 2000. 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 $191,814,000. The Company is currently under audit by the Internal Revenue Service for periods beginning July 1, 1996 and June 30, 1997. Management believes that an adequate amount of taxes and related interest and penalty, if any, have been provided for any adjustment that may result from these years. 42 EXHIBIT 13.1-19 Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Stockholders of Linear Technology Corporation We have audited the accompanying consolidated balance sheets of Linear Technology Corporation as of June 30, 2002 and July 1, 2001, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2002. 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 auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Linear Technology Corporation at June 30, 2002 and July 1, 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2002, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP San Jose, California July 19, 2002 EX-21.1 5 p16038_ex21.txt LIST OF SUBSIDIARIES 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) 22 EX-23.1 6 p16038_ex23.txt INDEPENDENT AUDITORS 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 19, 2002, included in the 2002 Annual Report to Stockholders 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, 333-84149 and 333-60946) pertaining to the 1986 Employee Stock Purchase Plan, 1981 Incentive Stock Option Plan, 1988 Incentive Stock Option Plan, 1996 Incentive Stock Option Plan, and 2001 Nonstatutory Stock Option Plan and Form of Stock Option Agreement of Linear Technology Corporation of our report dated July 19, 2002, 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 this Annual Report (Form 10-K) for the year ended June 30, 2002. /s/ Ernst & Young LLP San Jose, California September 12, 2002 23 EX-99.1 7 p16038_ex99.txt CERTIFICATION OF CEO AND CFO EXHIBIT 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert H. Swanson, Jr., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Linear Technology Corporation on Form 10-K for the fiscal year ended June 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Linear Technology Corporation. By: /s/ Robert H. Swanson, Jr ---------------------------- Name: Robert H. Swanson, Jr. Title: Chairman of the Board and Chief Executive Officer (Principal Executive Officer) I, Paul Coghlan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Linear Technology Incorporation on Form 10-K for the fiscal year ended June 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Linear Technology Corporation. By: /s/ Paul Coghlan ------------------------------ Name: Paul Coghlan Title: Vice President of Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 24 -----END PRIVACY-ENHANCED MESSAGE-----