<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 May 2, 1998
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)
(781) 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 May 29, 1998 was 162,924,214 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
---------------------------
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
Net sales $333,109 $300,813
Cost of sales 169,426 150,544
-------- --------
Gross margin 163,683 150,269
Operating expenses:
Research and development 56,190 47,768
Selling, marketing, general and
administrative 57,014 46,859
Gain on sale of business, net (13,100) --
-------- --------
100,104 94,627
-------- --------
Operating income 63,579 55,642
Nonoperating expenses (income):
Interest expense 3,103 2,973
Interest income (4,318) (3,976)
Other 996 477
-------- --------
(219) (526)
-------- --------
Income before income taxes 63,798 56,168
Provision for income taxes 15,358 14,051
-------- --------
Net income $ 48,440 $ 42,117
======== ========
Shares used to compute basic earnings per share 162,124 158,714
======== ========
Basic earnings per share $ 0.30 $ 0.27
======== ========
Shares used to compute diluted earnings per share 179,427 176,104
======== ========
Diluted earnings per share $ 0.28 $ 0.25
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 3
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
Net sales $663,830 $592,876
Cost of sales 332,086 299,165
-------- --------
Gross margin 331,744 293,711
Operating expenses:
Research and development 111,165 93,472
Selling, marketing, general and
administrative 112,660 91,990
Gain on sale of business, net (13,100) --
-------- --------
210,725 185,462
-------- --------
Operating income 121,019 108,249
Nonoperating expenses (income):
Interest expense 5,532 6,753
Interest income (8,299) (7,370)
Other 1,781 470
-------- --------
(986) (147)
-------- --------
Income before income taxes 122,005 108,396
Provision for income taxes 29,281 27,099
-------- --------
Net income $ 92,724 $ 81,297
======== ========
Shares used to compute basic earnings per share 161,574 158,615
======== ========
Basic earnings per share $ 0.58 $ 0.52
======== ========
Shares used to compute diluted earnings per share 178,787 176,027
======== ========
Diluted earnings per share $ 0.54 $ 0.48
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Assets May 2, 1998 November 1, 1997 May 3, 1997
----------- ---------------- -----------
<S> <C> <C> <C>
Cash and cash equivalents $ 286,105 $ 289,601 $ 234,393
Short-term investments 33,819 51,006 68,198
Accounts receivable, net 242,981 255,886 233,327
Inventories:
Finished goods 97,554 66,253 59,243
Work in process 141,867 128,187 129,092
Raw materials 27,558 31,526 29,444
---------- ---------- ----------
266,979 225,966 217,779
Deferred tax assets 63,500 54,761 54,500
Prepaid expenses 18,473 18,209 16,060
---------- ---------- ----------
Total current assets 911,857 895,429 824,257
---------- ---------- ----------
Property, plant and equipment, at cost:
Land and buildings 158,598 145,952 143,677
Machinery and equipment 1,022,398 938,602 856,606
Office equipment 63,091 58,714 53,230
Leasehold improvements 95,939 87,407 81,599
---------- ---------- ----------
1,340,026 1,230,675 1,135,112
Less accumulated depreciation
and amortization 619,059 569,040 525,933
---------- ---------- ----------
Net property, plant and
equipment 720,967 661,635 609,179
---------- ---------- ----------
Investments 191,623 131,468 122,343
Intangible assets, net 17,227 14,768 15,817
Other assets 57,875 60,553 31,838
---------- ---------- ----------
Total other assets 266,725 206,789 169,998
---------- ---------- ----------
$1,899,549 $1,763,853 $1,603,434
========== ========== ==========
</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 May 2, 1998 November 1, 1997 May 3, 1997
------------ ---------------- -----------
<S> <C> <C> <C>
Short-term borrowings and current
portion of long-term debt $ 332 $ -- $ 2,472
Obligations under capital leases 11,954 11,733 11,651
Accounts payable 95,811 97,654 84,566
Deferred income on shipments to
domestic distributors 47,788 37,013 36,311
Income taxes payable 64,335 52,550 56,586
Accrued liabilities 84,268 75,444 71,595
---------- ---------- ----------
Total current liabilities 304,488 274,394 263,181
---------- ---------- ----------
Long-term debt 309,989 310,000 310,000
Noncurrent obligations under
capital leases 32,863 38,852 44,627
Deferred income taxes 24,000 20,740 20,000
Other noncurrent liabilities 36,716 31,737 17,024
---------- ---------- ----------
Total noncurrent liabilities 403,568 401,329 391,651
---------- ---------- ----------
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,
163,578,201 shares issued
(161,941,094 in November 1997,
160,285,212 in May 1997) 27,264 26,991 26,715
Capital in excess of par value 233,297 223,885 182,678
Retained earnings 924,308 831,584 734,663
Cumulative translation adjustment 7,195 6,724 5,199
---------- ---------- ----------
1,192,064 1,089,184 949,255
Less 24,682 shares in treasury,
at cost (35,094 in November 1997
and 26,464 in May 1997) 571 1,054 653
---------- ---------- ----------
Total stockholders' equity 1,191,493 1,088,130 948,602
---------- ---------- ----------
$1,899,549 $1,763,853 $1,603,434
========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE> 6
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
OPERATIONS
Cash flows from operations:
Net income $ 92,724 $ 81,297
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 61,002 48,564
Deferred income taxes 3,253 2,985
Other noncash expense (income) 838 (116)
Changes in operating assets and liabilities (3,319) (6,232)
--------- ---------
Total adjustments 61,774 45,201
--------- ---------
Net cash provided by operations 154,498 126,498
--------- ---------
INVESTMENTS
Cash flows from investments:
Additions to property, plant and equipment, net (119,292) (73,748)
Maturities of short-term investments
available for sale 94,370 89,810
Purchases of short-term investments
available for sale (77,183) (68,198)
Long-term investments (54,228) (53,961)
Increase in other assets (6,152) (5,524)
--------- ---------
Net cash used for investments (162,485) (111,621)
--------- ---------
FINANCING ACTIVITIES
Cash flows from financing activities:
Proceeds from employee stock plans 8,775 4,791
Payments on capital lease obligations (5,768) (5,505)
Proceeds from equipment financing -- 7,123
Net increase (decrease) in variable
rate borrowings 315 (1,964)
--------- ---------
Net cash provided by financing activities 3,322 4,445
--------- ---------
Effect of exchange rate changes on cash 1,169 4,962
--------- ---------
Net (decrease) increase in cash and cash equivalents (3,496) 24,284
Cash and cash equivalents at beginning of period 289,601 210,109
--------- ---------
Cash and cash equivalents at end of period $ 286,105 $ 234,393
========= =========
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Income taxes $ 18,962 $ 21,640
========= =========
Interest $ 7,830 $ 8,114
========= =========
</TABLE>
See accompanying notes.
6
<PAGE> 7
Analog Devices, Inc.
Notes to Condensed Consolidated Financial Statements
May 2, 1998
Note 1 - In the opinion of management, the information furnished in the
accompanying financial statements reflects all 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 1998 presentation.
Note 3 - Investments
During the first quarter of fiscal 1998 the Company made the final payment of
$56 million in connection with its joint venture with Taiwan Semiconductor
Manufacturing Company ("TSMC") and other investors for the construction and
operation of a semiconductor fabrication facility in Camas, Washington
("WaferTech"). The Company has invested $140 million in WaferTech and has an 18%
equity ownership in the joint venture.
Note 4 - Gain on Sale of Business
During the second quarter of fiscal 1998, the Company completed the sale of its
disk drive IC business to Adaptec, Inc. This disposal is in line with the
Company's strategic decision to concentrate on other areas of its business,
specifically analog ICs and DSP products. The Company received approximately $27
million in cash for the disk drive product line and after providing for the
write-off of inventory, fixed assets and other costs incurred to complete the
transaction, recorded a net gain of approximately $13 million. The Company has
entered into other arrangements with Adaptec that provide for payments to the
Company aggregating $13 million for assisting Adaptec in future research and
development efforts and up to $20 million in royalties based on sales by Adaptec
of products incorporating the acquired ADI technology.
Note 5 - Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which the Company adopted in the first quarter of
fiscal 1998. The Company changed the method used to compute earnings per share
and will restate all prior periods. Under the new requirements, primary and
fully diluted earnings per share were 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
future issues of common stock relating to stock option programs and convertible
debt financing is excluded. Diluted earnings per share is computed essentially
in the same manner as fully diluted earnings per share with some exceptions. The
primary exception affecting the Company's calculation of diluted EPS 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 which was required under APB 15. The following table sets forth the
computation of basic and diluted earnings per share:
7
<PAGE> 8
Analog Devices, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
May 2, 1998
Note 5 - Earnings Per Share (Continued)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
Net income $ 48,440 $ 42,117
======== ========
Weighted average common shares outstanding 162,124 158,714
======== ========
BASIC EARNINGS PER SHARE $ 0.30 $ 0.27
======== ========
Net income $ 48,440 $ 42,117
Interest related to convertible subordinated
notes, net of tax 1,453 1,425
-------- --------
Earnings available for common stock $ 49,893 $ 43,542
======== ========
Weighted average common shares outstanding 162,124 158,714
Assumed exercise of common stock equivalents 6,319 6,405
Assumed conversion of subordinated notes 10,984 10,985
-------- --------
Weighted average common and common
equivalent shares 179,427 176,104
======== ========
DILUTED EARNINGS PER SHARE $ 0.28 $ 0.25
======== ========
<CAPTION>
Six Months Ended
--------------------------
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
Net income $ 92,724 $ 81,297
======== ========
Weighted average common shares outstanding 161,574 158,615
======== ========
BASIC EARNINGS PER SHARE $ 0.58 $ 0.52
======== ========
Net income $ 92,724 $ 81,297
Interest related to convertible subordinated
notes, net of tax 2,864 2,850
-------- --------
Earnings available for common stock $ 95,588 $ 84,147
======== ========
Weighted average common shares outstanding 161,574 158,615
Assumed exercise of common stock equivalents 6,229 6,427
Assumed conversion of subordinated notes 10,984 10,985
-------- --------
Weighted average common and common
equivalent shares 178,787 176,027
======== ========
DILUTED EARNINGS PER SHARE $ 0.54 $ 0.48
======== ========
</TABLE>
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information should be read in connection 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 Analysis for the fiscal year ended November 1, 1997,
contained in the Annual Report 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 1, 1997, 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 second quarter of fiscal 1998 were $333 million, an increase
of 11% from the $301 million reported for the second quarter of fiscal 1997. Net
sales for the first two quarters of fiscal 1998 were $664 million, an increase
of 12% from the $593 million reported for the comparable period of fiscal 1997.
Excluding revenue from the disk drive IC business, which was sold during the
second quarter of fiscal 1998, revenue increased 16% as compared to the second
quarter of fiscal 1997 and 18% as compared to first half of fiscal 1997. For
both the second quarter of fiscal 1998 and the six months ended May 2, 1998 the
growth is due to higher sales volumes of standard linear IC products which more
than offset a decline in demand for GSM (Global Systems for Mobile
communications) chipsets. Consistent with the current market environment for the
semiconductor industry, the Company has experienced diminished backlog and a
softening of demand for its products, which has resulted in increased levels of
inventory and more dependence on orders that are received and shipped in the
same quarter.
The gross margin for the second quarter of fiscal 1998 was 49.1%, compared to
50.0% for the second quarter of fiscal 1997. The gross margin was 50.0% for the
first half of fiscal 1998 compared to 49.5% for the first half of fiscal 1997.
Overall, gross margin in fiscal 1998 benefited from a sales mix shift in favor
of higher margin products. The margin in the second quarter of fiscal 1998 was
adversely affected by additional inventory reserves of $8 million associated
with older GSM chipsets.
Research and development expenses were 16.9% and 16.7% of sales for the three
months and six months ended May 2, 1998, compared to 15.9% and 15.8% of sales
for the corresponding periods of fiscal 1997. These increases were partly due to
an increase in customer funded initiatives and to the continued development of
innovative SLIC products and processes and higher spending for the development
of new products utilizing the Company's high-speed linear and digital signal
processing technologies. The Company believes that a continued commitment to
research and development is essential in order to maintain product leadership
with 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 second
quarter of fiscal 1998 were $57 million an increase of $10 million from the $47
million reported for second quarter of fiscal 1997. SMG&A expense for the six
months ended May 2, 1998 were $113 million and increase of $21 million from the
$92 million for the six months ended May 3, 1997. These increases are primarily
attributable to a charge of $6 million recorded in the second quarter related to
the consolidation and realignment of the Company's North American third-party
distribution channel and initiatives to streamline the Company's cost structure.
In addition, the first quarter of fiscal 1998 included an $8 million charge
related to bad debt reserves.
During the second quarter of fiscal 1998, the Company completed the sale of its
disk drive IC business to Adaptec, Inc. This disposal is in line with the
Company's strategic decision to concentrate on other areas of its business,
specifically analog ICs and DSP products. The Company received approximately $27
million in cash for the disk drive product line and after providing for the
write-off of inventory, fixed assets and other costs incurred to complete the
transaction, recorded a net gain of approximately $13 million. The Company has
entered into other arrangements with Adaptec that provide for payments to the
Company aggregating $13 million for assisting Adaptec in future research and
development efforts and up to $20 million in royalties based on sales by Adaptec
of products incorporating the acquired ADI technology.
The effective income tax rate decreased to 24% for the second quarter and the
first six month period of fiscal 1998 from 25% for the second quarter and first
six month period of fiscal 1997 due to a shift in the mix of worldwide profits.
Net income for the second quarter of fiscal 1998 of $48 million increased 15%
compared to the second quarter of fiscal 1997. Net income for the first half of
fiscal 1998 of $93 million increased 14% compared to the first half of fiscal
1997. Diluted earnings per share were $0.28 and $0.54 for the three months and
six months ended May 2, 1998, compared to $0.25 and $0.48 for the comparable
periods of fiscal 1997 an increase of 12% and 12.5%, respectively.
Liquidity and Capital Resources
At May 2, 1998, cash, cash equivalents and short-term investments totaled $320
million. The Company's primary source of funds for the first six months of
fiscal 1998 was $154 million of cash provided by operations. The principal uses
of funds in the first six months of fiscal 1998 were a $56 million payment made
in connection with the Company's joint venture agreement and the purchase of
$119 million of property, plant and equipment.
Accounts receivable totaled $243 million at the end of the second quarter of
fiscal 1998, a decrease of $3 million from the first quarter of fiscal 1998, and
$13 million from the fourth quarter of fiscal 1997 and an increase of $10
million from the second quarter of fiscal 1997. The number of days sales
outstanding has consistently decreased to 66 days for the second quarter of
fiscal 1998, compared to 68, 70 and 71 for the first quarter of fiscal 1998, the
fourth quarter of fiscal 1997 and the second quarter of fiscal 1997,
respectively.
Inventories of $267 million at May 2, 1998 rose $41 million compared to the
fourth quarter of fiscal 1997 and were $49 million above the second quarter of
fiscal 1997. Inventory as a percentage of annualized quarterly sales increased
to 20% at May 2, 1998 compared to 17% for the fourth quarter of fiscal 1997 and
18% for the second quarter of fiscal 1997. The increase in inventory levels was
a result of the increase in manufacturing capacity over the past year, combined
with the current slowdown in demand. The current inventory levels will allow the
Company to respond to the expected resumption in demand.
10
<PAGE> 11
Net additions to property, plant and equipment of $57 million for the second
quarter of fiscal 1998 were funded with cash generated from operations. Capital
expenditures related to the Company's continued upgrade and expansion of its
existing manufacturing facilities worldwide.
The Company currently plans to spend approximately $175 million on capital
expenditures during fiscal 1998, primarily in connection with the continued
expansion of its manufacturing capacity.
At May 2, 1998, the Company's principal sources of liquidity were $320 million
of cash and cash equivalents and short-term investments. In addition, the
Company 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 May 2, 1998. At May 2, 1998, the Company's
debt-to-equity ratio was 30%.
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.
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. This can cause customer and distributor
inventory levels to fluctuate and can disrupt the order patterns from both
customers and distributors. The Company is exposed to the risk of obsolescence
of its inventory 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.
11
<PAGE> 12
The Company has substantially increased 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 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. 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.
For the first six months of fiscal 1998, 51% of the Company's revenues were
derived from customers in international markets. The Company has manufacturing
facilities outside the U.S., in Ireland, the Philippines and Taiwan. The Company
also has supply agreements that include "take or pay" covenants with suppliers
located in Southeast Asia ("SEA") and as part of these arrangements, the Company
has $26 million on deposit with two of these suppliers. The Company also has a
$21 million investment with one of these suppliers. In addition, the Company's
major partner in its joint venture, WaferTech, is TSMC which is located in the
SEA region. The Company is therefore subject to the economic and political risks
inherent in international operations, including risks associated with the
ongoing uncertainties in the economies in SEA. These risks include air
transportation disruptions, expropriation, 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.
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 the Company's Annual Report on form 10-K for the
fiscal year ended November 1, 1997 for information concerning certain 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.
The Company has installed Year 2000 compliant software in many of its major
systems. A task force is engaged in the ongoing effort to complete this activity
for the balance of the Company's systems. The cost of these efforts is not
expected to be material. The Company presently believes that the Year 2000 issue
will not pose significant operational problems. However, Year 2000 issues could
have a significant impact on the Company's operations and its financial results
if modifications cannot be completed on a timely basis; unforeseen needs or
problems arise; or, if the systems operated by the Company's customers, vendors
or subcontractors are not Year 2000 compliant.
12
<PAGE> 13
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 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on March 10, 1998, the stockholders
of the Company elected Messers. Jerald G. Fishman and F. Grant Saviers to serve
as Class II Directors for a term of three years by the following votes:
<TABLE>
<CAPTION>
Nominee Votes for Votes Withheld Broker Non Votes
- ------- --------- -------------- ----------------
<S> <C> <C> <C>
Jerald G. Fishman 136,971,458 824,118 -0-
F. Grant Saviers 136,890,786 904,790 -0-
</TABLE>
The terms of office of Messrs. John L. Doyle, Samuel H. Fuller, Charles O.
Holliday, Jr., Joel Moses, Lester C. Thurow and Ray Stata continued after the
meeting.
At the same meeting, the stockholders approved the adoption of the 1998 Stock
Option Plan, which replaces the Company's 1988 Stock Option Plan, and allows for
the grant of up to 15 million shares of Common Stock (subject to adjustment in
the event of stock splits, stock dividends and other similar events), by a vote
of 78,460,614 in favor, 43,560,284 opposed and 354,859 abstaining. There were
15,419,819 broker non-votes on the proposal.
At the same meeting, the stockholders approved amendments to the Company's 1994
Director Option Plan, by a vote of 111,907,918 in favor, 9,785,761 opposed and
682,078 abstaining. There were 15,419,819 broker non-votes on the proposal.
Stockholders also ratified the selection by the Board of Directors of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
October 31, 1998, by a vote of 137,346,956 in favor, 110,002 opposed and 338,618
abstaining.
Item 6. Exhibits and reports on Form 8-K
(a) See Exhibit Index
(b) Form 8-K - Reporting Date - March 19, 1998
Item reported - Item 5. Other Events. On March 19, 1998 the Registrant
filed information relating to the March 10, 1998 declaration of a
dividend, by the Board of Directors of the Company, of one Right for
each outstanding share of the Company's Common Stock to stockholders
of record at the close of business on March 23, 1998.
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: June 15, 1998 By: /s/ Jerald G. Fishman
------------------------------
Jerald G. Fishman
President and
Chief Executive Officer
(Principal Executive Officer)
Date: June 15, 1998 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
27 Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-02-1998
<PERIOD-END> MAY-02-1998
<EXCHANGE-RATE> 1
<CASH> 286,105
<SECURITIES> 33,819
<RECEIVABLES> 242,981
<ALLOWANCES> 0
<INVENTORY> 266,979
<CURRENT-ASSETS> 911,857
<PP&E> 1,340,026
<DEPRECIATION> 619,059
<TOTAL-ASSETS> 1,899,549
<CURRENT-LIABILITIES> 304,488
<BONDS> 309,989
0
0
<COMMON> 27,264
<OTHER-SE> 1,164,229
<TOTAL-LIABILITY-AND-EQUITY> 1,899,549
<SALES> 663,830
<TOTAL-REVENUES> 663,830
<CGS> 332,086
<TOTAL-COSTS> 332,086
<OTHER-EXPENSES> 210,725
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,532
<INCOME-PRETAX> 122,005
<INCOME-TAX> 29,281
<INCOME-CONTINUING> 92,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,724
<EPS-PRIMARY> .58
<EPS-DILUTED> .54
</TABLE>
