Linear Technology Corporation (Linear Technology) has reports revenues of $249.2 million for the second quarter of fiscal 2009, compared with the revenues of 288.7 million in the year-ago quarter. It has also reported a net income of $84.2 million, or $0.38 per diluted share, for the second quarter of fiscal 2009, compared with the net income of $93.7 million, or $0.48 per diluted share, in the year-ago quarter.
Results for the December quarter were impacted by four unusual items:
The company purchased and retired $200.0 million face value of its 3.125% Convertible Senior Notes, resulting in a gain of around $21.0 million net of deferred issuance costs.
The company accelerated the vesting of all “out-of-the-money” stock options previously awarded to its non-officer and non-director employees under its stock option plans. The unvested options to purchase around 1.4 million shares became exercisable as a result of the vesting acceleration on December 17, 2008. The additional charge to the income statement as a result of the acceleration totaled $15.0 million. This incremental charge increased Cost of Sales by $2.3 million; Research and Development expense by $7.5 million; and Selling, General and Administrative expense by $5.2 million. We believe these options were not fully achieving their original objective of incentive compensation and employee retention.
The company reported around $1.6 million in restructuring expenses for employee severance costs related to a reduction in workforce of approximately 100 employees. The $1.6 million charge represents the total amount in connection with this workforce reduction and the majority of these severance amounts were paid during the December quarter.
Lastly, the company’s quarterly tax rate of 22% was positively impacted as a result of the R&D tax credit which was restored by legislation retroactive to the beginning of calendar year 2008.
During the December quarter the company’s cash and short-term investments balance decreased by $121.7 million to $900.2 million, net of spending around $179.0 million to purchase $200.0 million face value of its 3.125% Convertible Senior Notes.
According to Lothar Maier, chief executive officer, “Entering the quarter there was greater than usual uncertainty in our revenue guidance in light of the global credit crisis. We continued to see further weakness in our bookings throughout the quarter and as a result, our revenue declined to the low end of our guidance. We reacted to this weakness by reducing labor and related costs through headcount reductions, weekly plant closures and otherwise limiting operating expenditures where possible. In addition, we took advantage of depressed market prices on our outstanding debt and repurchased $200 million of our convertible bonds resulting in a gain of approximately $21 million. Partially offsetting the favorable impact on earnings from these items is the effect of severance costs and the acceleration of employee stock options that are significantly underwater. Despite the significant reduction in revenues, we were able to continue to deliver pre-tax profits in excess of 40% during such a difficult period.
Looking ahead to the March quarter, we believe we have not yet seen the bottom from the economic fallout of the global credit crisis as our bookings continue to be weak in the early part of this quarter. At this time it is difficult to forecast when we will see some stabilization and subsequent recovery. Our current estimate anticipates that our third fiscal quarter revenues will be down in the 15% to 20% range from the second quarter. In order to meet these expectations, turnable bookings in February and March will need to exceed the depressed December and January run rate.
Nevertheless, we will continue to control costs where possible and make adjustments to our operations as necessary to mitigate the effect of declining revenues. However, pre-tax profits are likely to fall into the low to mid thirties range as a percentage of net sales and around 40% of net sales on a non-GAAP basis, excluding the impact of stock-based compensation. We anticipate having industry leading profitability as we successfully navigate through this difficult period.”