<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from_______________ to ________________
Commission File No. 1-7819
Analog Devices, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2348234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Technology Way, Norwood, MA 02062-9106
(Address of principal executive offices) (Zip Code)
(617) 329-4700
(Registrant's telephone number, including area code)
----------------------
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 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
The number of shares outstanding of each of the issuer's classes of
Common Stock as of August 29, 1997 was 161,458,818 shares of Common Stock.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
August 2, 1997 August 3, 1996
-------------- --------------
<S> <C> <C>
Net sales $318,139 $305,042
Cost of sales 158,816 152,331
-------- --------
Gross margin 159,323 152,711
Operating expenses:
Research and development 49,895 45,569
Selling, marketing, general and
administrative 48,939 48,562
-------- --------
98,834 94,131
-------- --------
Operating income 60,489 58,580
Nonoperating expenses (income):
Interest expense 2,950 3,266
Interest income (4,166) (3,688)
Other 413 (181)
-------- --------
(803) (603)
-------- --------
Income before income taxes 61,292 59,183
Provision for income taxes 15,323 15,387
-------- --------
Net income $ 45,969 $ 43,796
======== ========
Shares used to compute earnings per share 177,773 172,921
======== ========
Earnings per share of common stock $ 0.27 $ 0.26
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 3
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
August 2, 1997 August 3, 1996
-------------- --------------
<S> <C> <C>
Net sales $911,015 $889,139
Cost of sales 457,981 440,912
-------- --------
Gross margin 453,034 448,227
Operating expenses:
Research and development 143,367 131,274
Selling, marketing, general and
administrative 140,929 147,382
-------- --------
284,296 278,656
-------- --------
Operating income 168,738 169,571
Nonoperating expenses (income):
Interest expense 9,703 8,134
Interest income (11,536) (12,394)
Other 882 1,019
-------- --------
(951) (3,241)
-------- --------
Income before income taxes 169,689 172,812
Provision for income taxes 42,422 44,931
-------- --------
Net income $127,267 $127,881
======== ========
Shares used to compute earnings per share 176,815 170,361
======== ========
Earnings per share of common stock $ 0.75 $ 0.77
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Assets August 2, 1997 November 2, 1996 August 3, 1996
-------------- ---------------- --------------
<S> <C> <C> <C>
Cash and cash equivalents $ 235,699 $ 210,109 $ 198,929
Short-term investments 80,770 89,810 82,438
Accounts receivable, net 258,383 241,847 217,699
Inventories:
Finished goods 59,953 72,039 66,482
Work in process 135,082 115,799 117,480
Raw materials 26,823 31,039 31,046
---------- ---------- ----------
221,858 218,877 215,008
Deferred tax assets 55,800 44,879 45,600
Prepaid expenses 15,402 14,728 16,283
---------- ---------- ----------
Total current assets 867,912 820,250 775,957
---------- ---------- ----------
Property, plant and equipment,
at cost:
Land and buildings 144,744 140,776 136,058
Machinery and equipment 893,452 800,086 762,903
Office equipment 56,054 46,307 45,297
Leasehold improvements 83,440 80,099 73,506
---------- ---------- ----------
1,177,690 1,067,268 1,017,764
Less accumulated depreciation
and amortization 548,600 483,946 465,078
---------- ---------- ----------
Net property, plant and
equipment 629,090 583,322 552,686
---------- ---------- ----------
Investments 122,081 68,382 67,623
Intangible assets, net 15,280 16,846 17,351
Deferred charges and other
assets 42,074 26,885 26,753
---------- ---------- ----------
Total other assets 179,435 112,113 111,727
---------- ---------- ----------
$1,676,437 $1,515,685 $1,440,370
========== ========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 5
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands except share amounts)
<TABLE>
<CAPTION>
Liabilities and Stockholders'
Equity August 2, 1997 November 2, 1996 August 3, 1996
-------------- ---------------- --------------
<S> <C> <C> <C>
Short-term borrowings and current
portion of long-term debt $ 1,458 $ 178 $ 1,923
Obligations under capital leases 11,625 10,960 8,422
Accounts payable 83,814 90,177 102,006
Deferred income on shipments to
domestic distributors 32,874 38,400 39,559
Income taxes payable 68,570 46,459 46,560
Accrued liabilities 77,636 84,062 80,568
---------- ---------- -----------
Total current liabilities 275,977 270,236 279,038
---------- ---------- -----------
Long-term debt 310,000 310,000 310,000
Noncurrent obligations under
capital leases 41,703 43,666 30,932
Deferred income taxes 21,000 16,992 6,000
Other noncurrent liabilities 19,587 11,956 11,278
---------- ---------- -----------
Total noncurrent liabilities 392,290 382,614 358,210
---------- ---------- -----------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $1.00 par value,
500,000 shares authorized,
none outstanding - - -
Common stock, $.16 2/3 par value,
600,000,000 shares authorized,
161,296,898 shares issued
(158,745,219 in November 1996,
116,262,403 in August 1996) 26,883 26,458 19,377
Capital in excess of par value 194,909 176,357 168,838
Retained earnings 780,632 653,365 609,345
Cumulative translation adjustment 6,062 6,655 5,562
---------- ---------- ----------
1,008,486 862,835 803,122
Less 10,186 shares in treasury,
at cost (none in November 1996
and August 1996) 316 - -
---------- ---------- ----------
Total stockholders' equity 1,008,170 862,835 803,122
---------- ---------- ----------
$1,676,437 $1,515,685 $1,440,370
========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE> 6
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
August 2, 1997 August 3, 1996
-------------- --------------
<S> <C> <C>
OPERATIONS
Cash flows from operations:
Net income $127,267 $127,881
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 75,556 59,445
Deferred income taxes 4,016 988
Other noncash expense (income) 590 (633)
Changes in operating assets and liabilities (21,556) (91,438)
-------- --------
Total adjustments 58,606 (31,638)
-------- --------
Net cash provided by operations 185,873 96,243
-------- --------
INVESTMENTS
Cash flows from investments:
Maturities of short-term investments
available for sale 124,224 216,458
Purchases of short-term investments
available for sale (115,184) (222,086)
Additions to property, plant and equipment, net (119,121) (179,501)
Long-term investments (53,699) (53,643)
Maturities of short-term investments
held to maturity - 5,000
Increase in other assets (16,095) (8,976)
-------- --------
Net cash used for investments (179,875) (242,748)
-------- --------
FINANCING ACTIVITIES
Cash flows from financing activities:
Proceeds from employee stock plans 16,605 11,987
Payments on capital lease obligations (8,421) (4,734)
Proceeds from equipment financing 7,123 44,028
Net decrease in variable rate borrowings (2,500) (232)
Net proceeds from issuance of long-term debt - 224,385
-------- --------
Net cash used for financing activities 12,807 275,434
-------- --------
Effect of exchange rate changes on cash 6,785 697
-------- --------
Net increase in cash and cash equivalents 25,590 129,626
Cash and cash equivalents at beginning of period 210,109 69,303
-------- --------
Cash and cash equivalents at end of period $235,699 $198,929
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Income taxes $ 24,389 $ 47,773
======== ========
Interest $ 12,760 $ 7,045
======== ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
Analog Devices, Inc.
Notes to Condensed Consolidated Financial Statements
August 2, 1997
Note 1 - In the opinion of management, the information furnished in the
accompanying financial statements reflects all adjustments, consisting only of
normal recurring adjustments, which are necessary to fairly state the results
for this interim period and should be read in conjunction with the most recent
Annual Report to Stockholders.
Note 2 - Certain amounts reported in the previous year have been reclassified to
conform to the 1997 presentation.
Note 3 - Impairment of Long-Lived Assets
The adoption by the Company on November 3, 1996 of the Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", did not affect the Company's
consolidated financial statements.
Note 4 - Stock-Based Compensation
Effective November 3, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based Compensation".
SFAS No. 123 requires the recognition of, or disclosure of, compensation expense
for grants of stock options or other equity instruments issued to employees
based on their fair value at the date of grant. As permitted by SFAS No. 123,
the Company elected the disclosure requirements instead of recognition of
compensation expense and therefore will continue to apply existing accounting
rules.
Note 5 - Investments
During fiscal 1996 the Company entered into a joint venture agreement with
Taiwan Semiconductor Manufacturing Company and other investors for the
construction and operation of a semiconductor fabrication facility in Camas,
Washington. The Company acquired an 18% equity ownership in the joint venture,
known as WaferTech, in return for a $140 million investment. In December 1996,
the Company paid the second installment of $42 million to WaferTech. The
remaining installment of $56 million is due on November 3, 1997.
Note 6 - Pro Forma Earnings Per Share
The Company computes its earnings per share in accordance with the provisions
of the Accounting Principles Board's Opinion No. 15 ("APB 15"), "Earnings Per
Share". In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which supersedes APB 15 and is
required to be adopted in financial statements issued after December 31, 1997.
For the first quarter of fiscal 1998, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements, primary and fully diluted earnings
per share will be replaced by basic and diluted earnings per share. Basic
earnings per share is computed based only on the weighted average number of
common shares outstanding during the period and the dilutive effect of stock
options is excluded. Diluted earnings per share is computed essentially in the
same manner as fully diluted earnings per share with some exceptions. The
principal exception affecting the Company's calculation of dilutive earnings
per share is that the dilutive effect of stock options is always based on the
average market price of the stock during the period, not the higher of the
average and period end market price as required under APB 15.
7
<PAGE> 8
Analog Devices, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
August 2, 1997
Note 6 - Pro Forma Earnings Per Share (Continued)
Had the Company computed its earnings per share based on SFAS No. 128, the pro
forma amounts for basic and diluted earnings per share would have been as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 2, 1997 August 3, 1996 August 2, 1997 August 3, 1996
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic Earnings
Per Share $0.29 $0.29 $0.81 $0.84
Diluted Earnings
Per Share $0.27 $0.26 $0.75 $0.77
</TABLE>
Note 7 - Commitments and Contingencies
As previously reported in the Company's Annual Report on Form 10-K for the
fiscal year ended November 2, 1996, the Company is no longer engaged in an
enforcement proceeding brought by the International Trade Commission ("ITC")
related to previously settled patent infringement litigation with Texas
Instruments, Inc. However, the ITC has referred certain related matters to the
Department of Justice. The Company is unable to determine what, if any, action
may be taken by the Department of Justice, but the Company plans to vigorously
defend itself in the event that any enforcement action is taken by the
Department of Justice on any of the matters referred to it by the ITC.
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information should be read along with the unaudited consolidated condensed
financial statements and the notes thereto included in Item 1 of this Quarterly
Report and the audited consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the fiscal year ended November 2, 1996, contained in the Annual
Report to Shareholders on Form 10-K.
The following discussion and analysis may contain forward-looking statements.
Such statements are subject to certain risks and uncertainties, including those
discussed below or in the Company's Form 10-K for the fiscal year ended November
2, 1996, that could cause actual results to differ materially from the Company's
expectations. Readers are cautioned not to place undue reliance on any
forward-looking statements, as they reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to release the results of any
revision to these forward-looking statements which may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations
Net sales for the third quarter of fiscal 1997 were $318 million, an increase of
4.3% from the $305 million reported for the third quarter of fiscal 1996. Net
sales for the first three quarters of fiscal 1997 were $911 million, an increase
of 2.5% from the $889 million reported for the comparable period of fiscal 1996.
Strengthening demand for standard linear IC ("SLICs") products was responsible
for the quarter-to-quarter and year-to-year increase. These increases more than
offset decreases in system-level IC sales which were due primarily to a decline
in sales for computer audio products and for GSM (Global Systems for Mobile
communications) chipsets during the second and third quarters of fiscal 1997.
Demand for the Company's SLICs was broad based across all served application
markets and geographies with the greatest strength in North America. SLIC
revenues comprised approximately 64% and 61% of total revenues for the third and
first three quarters of fiscal 1997 compared to 56% and 58% for the
corresponding periods of fiscal 1996. Applications such as cellular base
stations, ultrasound imaging, analog and digital camcorders, scanners and
graphics digitizing products for flat panel display monitors are continuing to
provide growth opportunities for the Company.
The gross margin for the third quarter of fiscal 1997 was 50.1%, the same as the
third quarter of fiscal 1996. The adverse affect of additional expenses
associated with new manufacturing facilities during the third quarter of fiscal
1997 was offset by a sales mix shift in favor of higher margin products. The
gross margin was 49.7% for the first three quarters of fiscal 1997 compared to
50.4% for the first three quarters of 1996. The reduction in gross margin for
the year-over-year period was principally due to a change in the mix of products
sold, increased costs associated with the new manufacturing facilities and
competitive pricing pressures.
For the third quarter and the first three quarters of fiscal 1997 research and
development expense increased by approximately 9% as compared to the
corresponding periods of fiscal 1996. This expense represented between 14.8% and
15.7% of revenue for all periods as the Company continued to increase its R&D
investment in opportunities in linear ICs, communications, computers, digital
signal processing, and accelerometers. The Company believes that a continued
commitment to research and development is essential in order to maintain product
leadership in its existing products and to provide innovative new product
offerings, and therefore expects to continue to make significant investments in
research and development in the future.
9
<PAGE> 10
Selling, marketing, general & administrative ("SMG&A") expenses for the third
quarter of fiscal 1997 of $49 million were essentially flat in comparison to the
third quarter of fiscal 1996. SMG&A expenses for the first three quarters of
fiscal 1997 were $141 million, a decrease of $6 million from the $147 million
reported for the comparable period of fiscal 1996. This decline is a result of
the Company's commitment to constrain spending during the recent period of
slower sales growth. As a result, SMG&A expense as a percentage of sales fell to
15.5% from 16.6% for the year earlier period.
The Company's operating income ratio decreased slightly to 19.0% and 18.5% of
sales in the three and nine months ended August 2, 1997, compared to 19.2% and
19.1% in the three and nine months ended August 3, 1996, as a result of all of
the factors cited above.
Nonoperating income (net of expense) of $0.8 million in the third quarter of
fiscal 1997 remained essentially flat in dollars in comparison to the third
quarter of fiscal 1996. Nonoperating income (net of expense) for the first three
quarters of fiscal 1997 decreased approximately $2 million from the comparable
period of fiscal 1996, due primarily to interest expense which increased from
the year earlier period. The majority of this increase relates to the
outstanding $230 million of 3 1/2% Convertible Subordinated Notes which were
issued midway into the first quarter of fiscal 1996, as well as increased
expense related to additional capitalized leases entered into during fiscal
1997. In addition, interest income decreased from the prior year period as a
result of a lower average level of invested cash during the first nine months of
fiscal 1997 as compared to the same period in the prior year.
The effective income tax rate decreased from 26% for the third quarter and the
first nine month period of fiscal 1996 to 25% for the third quarter and first
nine month period of fiscal 1997 due to a shift in the mix of worldwide profits.
Liquidity and Capital Resources
At August 2, 1997, cash, cash equivalents and short-term investments totaled
$316 million, an increase of $35 million from the third quarter of fiscal 1996
and an increase of $17 million from the fourth quarter of fiscal 1996. The
increase from the third and fourth quarters of fiscal 1996 primarily represented
continued generation of cash flow from operations.
The Company's operating activities generated net cash of $186 million, or 20% of
sales, for the first nine months of fiscal 1997 compared to $96 million, or 11%
of sales, for the first nine months of fiscal 1996. The $90 million increase in
operating cash flows from the year-earlier period was principally due to greater
working capital requirements in the prior period associated with growth in
inventories and accounts receivable and the payment of income taxes, offset
partly by increased accounts payable and accrued liabilities. Cash flow from
operations generated in the third quarter of fiscal 1997 was $59 million or 18%
of sales versus $50 million or 17% for the third quarter of fiscal 1996. The
increase in operating cash flows compared to the prior year quarter was due
mainly to a change in net working capital requirements primarily associated with
inventory. The noncash effect of depreciation and amortization expense was $76
million for the first nine months of fiscal 1997 and $27 million for the third
quarter of fiscal 1997, higher than the $59 million and $22 million respectively
for the comparable periods of fiscal 1996, primarily as a result of increased
property, plant and equipment related to the Company's internal capacity
expansion programs. As a percentage of sales, depreciation and amortization
expense was 8% for the first nine months of fiscal 1997 compared to 7% for the
first nine months of fiscal 1996.
10
<PAGE> 11
Accounts receivable of $258 million increased $41 million, or 19% from the third
quarter of fiscal 1996. The number of days sales outstanding was 74 at the end
of the third quarter of fiscal 1997 as compared to 65 for the third quarter of
1996. The increase in the number of days sales outstanding from the prior year
period was primarily due to a change in the geographic mix of sales from the
third quarter of fiscal 1996 to the third quarter of 1997 which resulted in
increased sales in areas with typically longer payment terms.
Inventories of $222 million at the end of the first nine months of fiscal 1997
rose $7 million as compared to the end of the third quarter of fiscal 1996.
Inventories as a percentage of annualized quarterly sales declined from 17.6% to
17.4% as demand resumed during the third quarter of fiscal 1997.
Accounts payable and accrued liabilities declined $21 million or 12% compared to
the balance at the end of the third quarter of fiscal 1996 due principally to
decreased capital spending as the Company's capacity expansion programs were
more extensive in the prior year.
Net additions to property, plant and equipment of $119 million or 13% of sales
for the first nine months of fiscal 1997 and $45 million or 14% of sales for the
third quarter of fiscal 1997 were funded with a combination of cash on hand,
cash generated from financing activities and internally generated cash flow from
operations. The majority of these expenditures in fiscal 1997 were related to
the ongoing improvement of the Company's existing wafer fabrication facilities
in Wilmington, Massachusetts and Limerick, Ireland. The Company is continuing to
develop its facility in Cambridge, Massachusetts which will be used for the
production of the accelerometer and other micromachined products. In addition,
the Company continued the development of the six-inch wafer fabrication module
located in Sunnyvale, California. This facility is still in the process of being
upgraded and modernized and a CBCMOS process is being developed and production
output is expected in the fourth quarter of fiscal 1997. During the second
quarter of fiscal 1997 production output began in the new assembly and test site
in the Philippines. Production at this site is expected to increase during the
remainder of fiscal 1997. These expansion programs have caused depreciation
expense to increase in comparison to the prior year.
In June 1997, in accordance with a previous agreement, the Company made the
final payment of $6 million to Chartered Semiconductor Manufacturing Pte., Ltd.
for a total deposit of $20 million. The Company had previously paid $8 million
during fiscal 1996 and $6 million during the second quarter of fiscal 1997.
The deposit will guarantee access to additional quantities of sub-micron wafers
through fiscal 2000.
During fiscal 1996 the Company entered into a joint venture agreement with
Taiwan Semiconductor Manufacturing Company and other investors for the
construction and operation of a semiconductor fabrication facility in Camas,
Washington. For a total commitment of $140 million the Company acquired an 18%
equity ownership in the joint venture, known as WaferTech. The first installment
of $42 million was paid during fiscal 1996. The second installment of $42
million was paid in December 1996 and the remaining installment of $56 million
is due on November 3, 1997.
The Company currently plans to make capital expenditures of approximately $175
million during fiscal 1997, primarily in connection with the continued expansion
of its manufacturing capacity.
At August 2, 1997, the Company's principal sources of liquidity included $236
million of cash and cash equivalents and $81 million of short-term investments.
Short-term investments at the end of the third quarter of fiscal 1997 consisted
of commercial paper, banker's acceptances, certificates of deposit and Euro time
deposits with maturities greater than three months and less than six months at
time of acquisition. The Company also has various lines of credit both in the
U.S. and overseas, including a $60 million credit facility in the U.S. which
expires in 2000, all of which were substantially unused at August 2, 1997. At
August 2, 1997, the Company's debt-to-equity ratio was 36%.
11
<PAGE> 12
The Company believes that its existing sources of liquidity and cash expected to
be generated from future operations, together with current and anticipated
available long-term financing, will be sufficient to fund operations, capital
expenditures and research and development efforts for the foreseeable future.
Litigation
As set forth in Note 7 to the Condensed Consolidated Financial Statements
contained in this Form 10-Q for the fiscal quarter ended August 2, 1997, the
Company is no longer engaged in an enforcement proceeding brought by the
International Trade Commission ("ITC") related to previously settled patent
infringement litigation with Texas Instruments, Inc. However, the ITC has
referred certain related matters to the Department of Justice. The Company is
unable to determine what, if any, action may be taken by the Department of
Justice, but the Company plans to vigorously defend itself in the event that any
enforcement action is taken by the Department of Justice on any of the matters
referred to it by the ITC.
Factors Which May Affect Future Results
The Company's future operating results are difficult to predict and may be
affected by a number of factors including the timing of new product
announcements or introductions by the Company and its competitors, competitive
pricing pressures, fluctuations in manufacturing yields, adequate availability
of wafers and manufacturing capacity, changes in product mix and economic
conditions in the United States and international markets. In addition, the
semiconductor market has historically been cyclical and subject to significant
economic downturns at various times. The Company has replenished inventory which
had been depleted in the prior year. These higher inventory levels expose the
Company to the risk of obsolescence depending on the mix of future business. As
a result of these and other factors, there can be no assurance that the Company
will not experience material fluctuations in future operating results on a
quarterly or annual basis.
The Company's success depends in part on its continued ability to develop and
market new products. There can be no assurance that the Company will be able to
develop and introduce new products in a timely manner or that such products, if
developed, will achieve market acceptance. In addition, the Company's growth is
dependent on its continued ability to penetrate new markets such as the
communications, computer and automotive segments of the electronics market,
where the Company has limited experience and competition is intense. There can
be no assurance that the markets being served by the Company will grow in the
future; that the Company's existing and new products will meet the requirements
of such markets; that the Company's products will achieve customer acceptance in
such markets; that competitors will not force prices to an unacceptably low
level or take market share from the Company; or that the Company can achieve or
maintain profits in these markets. Also, some of the customers in these markets
are less well established which could subject the Company to increased credit
risk.
The semiconductor industry is intensely competitive. Certain of the Company's
competitors have greater technical, marketing, manufacturing and financial
resources than the Company. The Company's competitors also include emerging
companies attempting to sell products to specialized markets currently served by
the Company. Competitors of the Company have, in some cases, developed and
marketed products having similar design and functionality as the Company's
products. There can be no assurance that the Company will be able to compete
successfully in the future against existing or new competitors or that the
Company's operating results will not be adversely affected by increased price
competition.
During fiscal 1996, the Company increased substantially its manufacturing
capacity through both expansion of its production facilities and increased
access to third-party foundries; there can be no assurance that the Company will
not encounter unanticipated production problems at either its own facilities or
at third-party foundries; or if the demand were to increase significantly that
12
<PAGE> 13
the increased capacity would be sufficient to satisfy demand for its products.
The Company relies, and plans to continue to rely, on assembly and test
subcontractors and on third-party wafer fabricators to supply most of its
wafers that can be manufactured using industry-standard digital processes, and
such reliance involves several risks, including reduced control over delivery
schedules, manufacturing yields and costs. In addition, the Company's capacity
additions will result in a significant increase in operating expenses, and if
revenue levels do not increase to offset these additional expense levels, the
Company's future operating results could be adversely affected, including the
potential adverse impact in operating results for "take or pay" covenants in
certain of its supply agreements. With its greater capacity relative to demand,
the Company has increased its levels of inventory. The Company's business is
subject to rapid technological changes and there can be no assurance that
products stocked in inventory will not be rendered obsolete before they are
utilized by the Company.
For the first nine months of fiscal 1997, 55% of the Company's revenues were
derived from customers in international markets. The Company has manufacturing
facilities in Ireland, the Philippines and Taiwan. The Company is therefore
subject to the economic and political risks inherent in international
operations, including expropriation, air transportation disruptions, currency
controls and changes in currency exchange rates, tax and tariff rates and
freight rates. Although the Company engages in certain hedging transactions to
reduce its exposure to currency exchange rate fluctuations, there can be no
assurance that the Company's competitive position will not be adversely affected
by changes in the exchange rate of the U.S. dollar against other currencies.
While the Company tries to ensure that its manufacturing capacity and demand for
its products are in relative balance, no assurance can be given that from time
to time an imbalance between the Company's manufacturing capacity and the demand
for its products would not occur. Any such imbalance could adversely affect the
Company's consolidated results of operations.
The semiconductor industry is characterized by frequent claims and litigation
involving patent and other intellectual property rights. The Company has from
time to time received, and may in the future receive, claims from third parties
asserting that the Company's products or processes infringe their patents or
other intellectual property rights. In the event a third party makes a valid
intellectual property claim and a license is not available on commercially
reasonable terms, the Company's operating results could be materially and
adversely affected. Litigation may be necessary to enforce patents or other
intellectual property rights of the Company or to defend the Company against
claims of infringement, and such litigation can be costly and divert the
attention of key personnel. See Item 3 "Legal Proceedings" from the Company's
Annual Report on form 10-K for the fiscal year ended November 2, 1997 for
information concerning pending litigation involving the Company. An adverse
outcome in such litigation, may, in certain cases, have a material adverse
effect on the Company's consolidated financial position or on its consolidated
results of operations or cash flows in the period in which the litigation is
resolved.
Because of these and other factors, past financial performance should not be
considered an indicator of future performance. Investors should not use
historical trends to anticipate future results and should be aware that the
trading price of the Company's common stock may be subject to wide fluctuations
in response to quarter-to-quarter variations in operating results, general
conditions in the semiconductor industry, changes in earnings estimates and
recommendations by analysts or other events.
13
<PAGE> 14
PART II - OTHER INFORMATION
ANALOG DEVICES, INC.
Item 6. Exhibits and reports on Form 8-K
(a) See Exhibit Index
(b) There were no reports on Form 8-K filed for the three months ended
August 2, 1997.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Analog Devices, Inc.
--------------------
(Registrant)
Date: September 11, 1997 By: /s/ Jerald G. Fishman
-----------------------------------
Jerald G. Fishman
President and
Chief Executive Officer
(Principal Executive Officer)
Date: September 11, 1997 By: /s/ Joseph E. McDonough
-----------------------------------
Joseph E. McDonough
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
Analog Devices, Inc.
Item
11-1 Computation of Earnings per Share.
27 Financial Data Schedule
16
<PAGE> 1
Exhibit 11-1
Analog Devices, Inc.
Computation of Earnings Per Share (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
August 2, 1997 August 3, 1996
-------------- --------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Weighted average common and common equivalent shares:
Weighted average common shares outstanding 159,649 152,950
Assumed exercise of common stock equivalents (1) 7,139 8,986
Assumed conversion of subordinated notes 10,985 10,985
-------- --------
Weighted average common and common
equivalent shares 177,773 172,921
======== ========
Net income $ 45,969 $ 43,796
Interest related to convertible subordinated
notes, net of tax 1,425 1,455
-------- --------
Earnings available for common stock $ 47,394 $ 45,251
======== ========
PRIMARY EARNINGS PER SHARE $ 0.27 $ 0.26
======== ========
FULLY DILUTED EARNINGS PER SHARE
Weighted average common and common equivalent shares:
Weighted average common shares outstanding 159,649 152,950
Assumed exercise of common stock equivalents (1) 7,835 9,046
Assumed conversion of subordinated notes 10,985 10,985
-------- --------
Weighted average common and common
equivalent shares 178,469 172,981
======== ========
Net income $ 45,969 $ 43,796
Interest related to convertible subordinated
notes, net of tax 1,425 1,455
-------- --------
Earnings available for common stock $ 47,394 $ 45,251
======== ========
FULLY DILUTED EARNINGS PER SHARE $ 0.27 $ 0.26
======== ========
</TABLE>
(1) Computed based on the treasury stock method.
17
<PAGE> 2
Exhibit 11-1(Continued)
Analog Devices, Inc.
Computation of Earnings Per Share (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
August 2, 1997 August 3, 1996
-------------- --------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Weighted average common and common equivalent shares:
Weighted average common shares outstanding 158,837 152,016
Assumed exercise of common stock equivalents (1) 6,993 9,266
Assumed conversion of subordinated notes 10,985 9,079
-------- --------
Weighted average common and common
equivalent shares 176,815 170,361
======== ========
Net income $127,267 $127,881
Interest related to convertible subordinated
notes, net of tax 4,275 3,575
-------- --------
Earnings available for common stock $131,542 $131,456
======== ========
PRIMARY EARNINGS PER SHARE $ 0.75 $ 0.77
======== ========
FULLY DILUTED EARNINGS PER SHARE
Weighted average common and common equivalent shares:
Weighted average common shares outstanding 158,837 152,016
Assumed exercise of common stock equivalents (1) 7,421 9,435
Assumed conversion of subordinated notes 10,985 9,079
-------- --------
Weighted average common and common
equivalent shares 177,243 170,530
======== ========
Net income $127,267 $127,881
Interest related to convertible subordinated
notes, net of tax 4,275 3,575
-------- --------
Earnings available for common stock $131,542 $131,456
======== ========
FULLY DILUTED EARNINGS PER SHARE $ 0.75 $ 0.77
======== ========
</TABLE>
(1) Computed based on the treasury stock method.
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-START> NOV-03-1996
<PERIOD-END> AUG-02-1997
<EXCHANGE-RATE> 1
<CASH> 235,699
<SECURITIES> 80,770
<RECEIVABLES> 258,383<F1>
<ALLOWANCES> 0
<INVENTORY> 221,858
<CURRENT-ASSETS> 867,912
<PP&E> 1,177,690
<DEPRECIATION> 548,600
<TOTAL-ASSETS> 1,676,437
<CURRENT-LIABILITIES> 275,977
<BONDS> 310,000
0
0
<COMMON> 26,883
<OTHER-SE> 981,287
<TOTAL-LIABILITY-AND-EQUITY> 1,676,437
<SALES> 911,015
<TOTAL-REVENUES> 911,015
<CGS> 457,981
<TOTAL-COSTS> 457,981
<OTHER-EXPENSES> 284,296
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,703
<INCOME-PRETAX> 169,689
<INCOME-TAX> 42,422
<INCOME-CONTINUING> 127,267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,267
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
<FN>
<F1> Asset value represents net amount.
</FN>
</TABLE>
