Linear Technology's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Linear Technology (LLTC)

Q1 2012 Earnings Call

October 19, 2011 11:30 am ET

Executives

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

Robert H. Swanson - Co-Founder and Executive Chairman

Lothar Maier - Chief Executive Officer and Director

Analysts

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

Romit Shah - Lehman Brothers

John Pitzer - Crédit Suisse AG, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

James Covello - Goldman Sachs Group Inc., Research Division

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

Uche X. Orji - UBS Investment Bank, Research Division

David Wu - Global Crown

Mark Lipacis - Jefferies & Company, Inc., Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Terence R. Whalen - Citigroup Inc, Research Division

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

JoAnne Feeney - Longbow Research LLC

Shawn R. Webster - Macquarie Research

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

Unknown Analyst -

Presentation

Operator

Good day, everyone, and welcome to the Linear Technology Corporation Fiscal 2012 First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Paul Coghlan, Chief Financial Officer. Please go ahead.

Paul Coghlan

Hello. Good morning. Welcome to the Linear Technology conference call. I'm joined this morning by Bob Swanson, our Executive Chairman; and Lothar Maier, our CEO. We're conducting this conference call from our facility in Singapore where as we speak, it's actually 11:30 at night. I will give you a brief overview of our recently completed first quarter and then address the current business climate. We'll then open up the conference call to questions to be directed at Bob, Lothar and 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 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 3, 2011, 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 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 income statement model and our balance sheet, this is the time we're free to respond to those questions.

As you can tell from our press release, we're in a difficult business environment. We reported revenue results for the quarter within our guidance but at the low end. Going into the quarter, we expected momentum to pick up, however, it did not. Bookings were flat in July and August and picked up somewhat in September. That is generally expected in a summer quarter. Customers continue to be very cautious and are concerned over general global macroeconomic conditions. We acknowledge in-demand opportunities that are in the wait-and-see mode, and running tight inventories in order to the low end of our lead times. Activity is quiet. We don't see many cancellations, pull-ins, nor pushouts. Our bookings are down from the prior quarter, and we continue to have a negative book-to-bill ratio at a similar level to recent quarters.

One bright spot is the automotive sector where we are experiencing good growth. Sales decreased by 8%. Gross margin decreased from 78% to 75.8%. We had shutdowns in all of our factories, and this adversely impacted absorption. ASP dropped modestly from $1.87 to $1.78, generally resulting from higher automotive content. Operating expenses decreased 4.5% or $4.4 million as we curtailed some variable spending, particularly in the profit-sharing area. Operating income at 47.8% was in the high 40s as a percent of sales, having been impacted mostly by the decrease in sales and the reduction in factory absorption.

Below the line, interest expense was unchanged while interest income and other income decreased $2.7 million, as a onetime gain last quarter on a lawsuit settlement did not repeat. Finally, income taxes increased as we had no discrete tax items this quarter, whereas we had a significant nonrecurring item last quarter, resulting from the finalization of the settlement with the IRS on previously opened tax years.

Resulting net income of $108,401,000 is a 33% return on sales, although down from last quarter still a very strong result. Headcount decreased by 2%, largely due to decreases in direct labor at our overseas manufacturing plants.

In summary, the effect of the items I just listed on the published quarterly results of that revenue was $329.9 million for the first quarter of fiscal 2012 compared to the previous quarter's revenue of $358.6 million and $388.6 million reported in the first quarter of fiscal year 2011.

GAAP diluted earnings per share of $0.47 decreased $0.21 from the previous quarter's EPS, of which $0.11 was due to a discrete tax benefit last quarter. And EPS decreased $0.12 from the $0.59 per share reported in the first quarter of fiscal 2011.

GAAP net income was $108.4 million, compared with $158.2 million last quarter and $137.3 million recorded in the first quarter of last year. EPS would be $0.53 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 to use straight bank debt.

During the June quarter, the company's cash and short-term investments balance increased by $45.1 million to $967.7 million, net of spending $25.2 million to purchase 885,000 shares of its common stock. The company announced that it would again pay a quarterly dividend of $0.24 per share. This current dividend will be paid on November 30 to stockholders of record on November 18.

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