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Linear Technology Corporation (LLTC)

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Linear Technology Corporation (LLTC)

F4Q09 (Qtr End 06/28/09) Earnings Call Transcript

July 22, 2009 11:30 am ET

Executives

Paul Coghlan - Chief Financial Officer

Lothar Maier - Chief Executive Officer

Analysts

Tore Svanberg – Thomas Weisel Partners

Uche Orji – UBS

Auguste Richard - Piper Jaffray

Blayne Curtis – Jefferies

Craig Ellis - Caris & Company

Romit Shah – Barclays Capital

Steve Smigie – Raymond James

John Pitzer – Credit Suisse

Ross Seymore – Deutsche Bank

Joanne Feeney – FTN Equity Capital Markets

Jim Covello – Goldman Sachs

Craig Berger – FBR Capital Markets

Chris Stanley – JP Morgan

David Wu – Global Crown Research

Doug Freedman – Broadpoint AmTech

Presentation

Operator

Good day everyone, and welcome to the Linear Technology Corporation fiscal 2009 fourth quarter earnings conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Mr. Paul Coghlan, Chief Financial Officer. Please go ahead.

Paul Coghlan

Good morning, everyone. Welcome to the Linear Technology conference call. I am joined today by Bob Swanson, our Executive Chairman and Lothar Maier, our Chief Executive Officer. I will give you a brief overview of our recently completed fourth quarter and 2009 fiscal year and then address the current business climate.

We will then open up the conference call to questions to be addressed at either Bob Lothar, or myself. I trust you have all seen copies of our press release, which was published last night.

First however, I would like to remind you that except for historical information, the matters we will be describing this morning will be forward-looking statements that are dependent on certain risks and uncertainties, including such factors among others, as new orders received and shipped during the quarter, the timely introduction of new processes and products, and general conditions in the world economy and financial markets.

In addition to these risks, which we described in our press release issued yesterday, we refer you to the risk factors listed in the Company's Form 10-Quarter, for the quarter ended March 29, 2008, Particularly, management discussion and analysis of financial condition and results of operations.

Secondly, SEC regulation FD regarding selective disclosure influences our interaction with investors. We have opened up this conference call to enable all interested investors to listen in.

The press release and this conference call will be our forum to respond to questions regarding our estimated financial performance going forward. Consequently, should you have any questions regarding our estimates of sales and profits, or other financial matters for the upcoming quarter, as well as how they might impact our statement model and our balance sheet, this is the time we're free to respond to these questions.

Starting with the just completed fourth fiscal quarter, sales increased by 4% from the previous quarter, which was at the high end of the range of down 2% to up 4% that we had forecasted in our last conference call.

On a year-over-year basis, sales were down 32%, as the company continues to experience the fall out from the ongoing global recession. Weakness continues among smaller to mid-size customers, particularly in US distribution and in Europe, which affects our industrial business the most.

However, quarterly sales were up sequentially, bookings were up, we had a positive book-to-bill ratio, and we currently expect these quarterly trends to continue in the September quarter.

Bookings grew each month within the quarter. There were improvements in automotive, cellular, computer, and high-end consumer end markets, partially offset by reduction in the infrastructure end market largely in China, which had been particularly strong in the March quarter due to the 3G build-out.

The Company is continuing to control its variable costs were possible during this recession. To this point, the Company reduced its ongoing operating expenses by a further $2 million, after reducing them by $12.8 million in the previous two quarters. Offsetting this $2 million savings in the current quarter was a restructuring charge of $2.3 million for employee severance costs related to a reduction in workforce of approximately 130 employees.

Including this charge, the Company still improved its operating income to 38% of sales versus 36% last quarter. Improved pretax income to 35% versus 34% last quarter and maintained positive cash flow from operations during this economically challenging time.

Below the operating line, the Company continued to take advantage of the discounted trading price of its convertible debt, by purchasing and retiring another $64.4 million in face value, of its three and an eighth convertible senior notes callable in November 2010. This resulted in a gain of $1.6 million net of deferred issuance costs.

The Company's quarterly tax rate of 23%, increased from 19.5% last quarter, as both quarters were positively impacted by discreet tax items. This quarter is related to truing up the annual rate and to state tax items. Whereas last quarter, is related to the Company's domestic manufacturing deductions.

In summary, the effects of the items I just listed on the published quarterly results was that revenue of $208 million for the fourth quarter of fiscal 2009, increased 4% compared to the previous quarters revenue of $200.9 million, and decreased 32%, or $99.1 million from the $307.1 million, reported in the fourth quarter of fiscal 2008.

Diluted earnings per share of $0.25 were flat compared to the third quarter of fiscal 2009, which had benefited from a lower tax rate and no restructuring charge. EPS decreased $0.21 per share or 46% from the fourth quarter of 2008. Net income of $56.2 million increased $1.8 million, or 3% from the third quarter of fiscal year 2009, and decreased $46.9 million or 45% from the fourth quarter of fiscal 2008.

During the June quarter, the Company's cash and short-term investments balance decreased by $51.3 million to $868.7 million net of spending approximately $62.8 million to purchase $64.4 million face value, of its convertible debt. The Company also announced, continuing payment of its quarterly dividend of $0.22 per share.

This cash dividend will be paid on August 26, to shareholders of record on August 14. June was also the end of our fiscal year. As with most companies fiscal 2009 was a very difficult year, as we dealt with the global recession instigated by worldwide credit crisis.

We started the year with record quarterly revenues of $310.4 million, and then the subsequent three quarters had substantial year-over-year revenue declines, with the low point being quarterly revenues of $200.9 million in the third quarter. The Company addressed its cost structure. The employee head count was reduced by approximately 10%.

Employees have also had to deal with shutdowns ongoing temporary reductions in base pay and substantially reduced profit share. These and concurrent reductions in non-employee related expenses, enable the Company to continue to report industry-leading operating income as a percent of sales of 42.5% versus 48.4% in the prior year.

Revenue for the year ended, June 28, 2009 was $968.5 million, a decrease of 18% or $206.7 million from revenue of $1.175 billion for the previous fiscal-year. Diluted earnings per share, for the year ended June 28, 2009 was $1.41, a decrease also of 18% or $0.30 per share from fiscal year 2008 diluted earnings per share of $1.71.

Net income for the fiscal year decreased $74.1 million or 19% from the $387.6 million reported in the previous fiscal year. During the year, we also reduced our debt from $1.7 billion to $1,405.6 million as we purchased $294.5 million of our convertible debt for gain of $24.3 million, net of deferred issuance costs.

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