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Linear Technology Corporation (LLTC)

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Linear Technology (LLTC)

Q1 2013 Earnings Call

October 17, 2012 11:30 am ET

Executives

Paul Coghlan - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance and Secretary

Lothar Maier - Chief Executive Officer and Director

Robert H. Swanson - Co-Founder and Executive Chairman

Analysts

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Joseph Moore - Morgan Stanley, Research Division

John W. Pitzer - Crédit Suisse AG, Research Division

James Covello - Goldman Sachs Group Inc., Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Ambrish Srivastava - BMO Capital Markets U.S.

Christopher J. Muse - Barclays Capital, Research Division

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Parag Agarwal - UBS Investment Bank, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

JoAnne Feeney - Longbow Research LLC

Terence R. Whalen - Citigroup Inc, Research Division

Craig A. Ellis - Caris & Company, Inc., Research Division

Shawn R. Webster - Macquarie Research

Aashish Rao - BofA Merrill Lynch, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Linear Technology Corporation Fiscal 2013 First Quarter Earnings Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Paul Coghlan. Please go ahead, sir.

Paul Coghlan

Hello, good morning, everyone. This is Paul Coghlan, Chief Financial Officer. I'll be joined this morning by Bob Swanson, our Executive Chairman; and Lothar Maier, our CEO. Welcome to the Linear Technology conference call. I will give you a brief overview of our recently completed first quarter and then address the current business climate. We will then open up the conference call to questions to be directed at Bob, Lothar or myself.

I trust you've all seen copies of our press release, which was published last night. First, however, I'd like to remind you that except for historical information, the matters that 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-K for the year ended July 1, 2012, 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've opened up this conference call to enable 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 income statement model on our balance sheet, this is the time we're free to respond to these questions.

As you can tell from our press release, we're in a flat business environment. We reported revenue results for the quarter at the midpoint of our guidance, up 1.6% from the previous quarter. Although sales increased modestly, bookings did not but rather decreased modestly also. Bookings on a weekly basis were generally flat throughout the quarter. September is historically more robust than this September was. Customers continue to be very cautious and are concerned over general, global macroeconomic conditions.

Going into the quarter, we commented that worldwide macroeconomic concerns were greater than entering the previous quarter. Now, conditions are probably even a little worse, as there has been some deterioration in China and Japan, and the U.S.A. and Europe have not improved. Customers do acknowledge in-demand opportunities, but are in a wait-and-see mode. They are running tight inventories and order to the low end of our lead times.

Activity is quiet. We don't see many cancellations nor pull-ins nor push-outs. As I said, our bookings were down modestly from the prior quarter, and for the first time in 3 quarters, we had a modestly negative book-to-bill ratio. A bright spot is the automotive sector where we are experiencing growth.

Sales increased by 1.6%. Gross margin decreased from 75.4% to 75%. We had roughly similar shutdowns and holidays in our factories compared with last quarter. Average selling price at $1.80 was down from $1.82 in the previous quarter. The change in gross margin was due to several small factors, primarily costs associated with a small reduction in workforce in one of our foreign factories, the modest reduction in average selling price, a slight change in mix and finally, some higher factory spending.

On the other hand, operating expenses decreased modestly by $975,000 or 1%, mostly due to decreases in labor and legal costs. As we forecasted, operating income increased this quarter by $3.6 million or 2%. Operating income at 46.3% of sales improved from 45.9% last quarter. Below the line, interest income and expense were largely unchanged.

Finally, income taxes increased this quarter. Our quarterly effective tax rate was 27% as forecasted, compared with 26.5% last quarter. This change is due to the expiration this year of the R&D credit in the United States. The resulting net income of $105,182,000, an improvement of $1.9 million or 2% over last quarter, is due mostly to the increase in sales. Our return on sales of 31.4% was similar to last quarter's 31.3%. Headcount decreased marginally, primarily in our offshore manufacturing facilities.

In summary, the effect of these items I just listed on the published quarterly results was that revenue was $335.1 million for the first quarter of fiscal 2013, compared to the previous quarter's revenue of $330 million and $329.9 million reported in the first quarter of fiscal year 2012.

GAAP earnings per share of $0.45 increased $0.01 from the previous quarter and decreased $0.02 from the $0.47 per share reported in the first quarter of 2012. Compared with this quarter last year, the current quarter had modest net operating cost pertaining to our acquisition of Dust Networks, and also had a modest, higher effective tax rate due to the expiration of the R&D credits.

GAAP net income of $105.2 million compared with $103.3 million last quarter and $108.4 million reported in the first quarter of last year. Earnings per share would be $0.51 on a pro forma basis, which excludes the impact of stock option accounting and the amortization of debt discount, which is the theoretical difference between the company's convertible debt actual interest and the interest it would potentially have had to pay if it had used straight bank debt.

During the quarter -- during the June quarter -- pardon me, during the quarter, the company's cash and short-term investments balance increased by $116.9 million to $1,319.9 million. The company announced that it would again pay a quarterly dividend of $0.25 per share. This cash dividend will be paid on November 28 to stockholders of record on November 16. In addition, the Board of Directors authorized the company to purchase, depending on market conditions, up to 10 million shares of its outstanding common stock in the open market over the next 2 years.

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