<PAGE> 1
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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 APRIL 29, 2000
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)
<TABLE>
<CAPTION>
<S> <C>
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)
</TABLE>
(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 27, 2000 was 355,239,991 shares of Common Stock.
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<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
----------------------------------
April 29, 2000 May 1, 1999
-------------- -----------
<S> <C> <C>
Net sales $ 580,995 $ 340,067
Cost of sales 257,184 176,435
----------- -----------
Gross margin 323,811 163,632
Operating expenses:
Research and development 90,702 61,899
Write-off of purchased in-process research and development - 5,140
Selling, marketing, general and
administrative 71,073 49,167
----------- -----------
161,775 116,206
Operating income 162,036 47,426
Nonoperating (income) expense, net (12,324) (3,278)
----------- -----------
Income before income taxes 174,360 50,704
Provision for income taxes 52,308 11,598
----------- -----------
Net income $ 122,052 $ 39,106
=========== ===========
Shares used to compute earnings per share - basic 352,706 334,024
======= =======
Shares used to compute earnings per share - diluted 382,321 361,396
======= =======
Earnings per share - basic $0.35 $0.12
===== =====
Earnings per share - diluted $0.32 $0.11
===== =====
</TABLE>
See accompanying notes.
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
April 29, 2000 May 1, 1999
-------------- -----------
<S> <C> <C>
Net sales $ 1,071,272 $ 640,567
Cost of sales 482,271 339,240
----------- -----------
Gross margin 589,001 301,327
Operating expenses:
Research and development 173,714 114,483
Write-off of purchased in-process research and development - 5,140
Selling, marketing, general and
administrative 135,597 95,348
----------- -----------
309,311 214,971
Operating income 279,690 86,356
Equity in loss of WaferTech - 1,149
Nonoperating (income) expense, net (21,735) (2,858)
----------- -----------
Income before income taxes 301,425 88,065
Provision for income taxes 86,366 19,065
----------- -----------
Net income $ 215,059 $ 69,000
=========== ===========
Shares used to compute earnings per share - basic 351,029 326,584
======= =======
Shares used to compute earnings per share - diluted 378,389 357,556
======= =======
Earnings per share - basic $0.61 $0.21
===== =====
Earnings per share - diluted $0.57 $0.20
===== =====
</TABLE>
See accompanying notes.
3
<PAGE> 4
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Assets April 29, 2000 October 30, 1999 May 1, 1999
-------------- ---------------- -----------
<S> <C> <C> <C>
Cash and cash equivalents $ 514,894 $ 355,891 $ 401,307
Short-term investments 416,559 406,553 117,788
Accounts receivable, net 351,538 267,127 225,127
Inventories:
Raw materials 13,105 13,735 22,221
Work in process 150,002 150,427 147,184
Finished goods 117,291 84,774 89,969
------------ ------------ ------------
280,398 248,936 259,374
Deferred tax assets 98,000 89,780 95,000
Prepaid expenses 11,236 10,823 13,654
------------ ------------ ------------
Total current assets 1,672,625 1,379,110 1,112,250
------------ ------------ ------------
Property, plant and equipment, at cost:
Land and buildings 179,068 166,130 161,109
Machinery and equipment 1,151,759 1,088,939 1,050,673
Office equipment 80,718 74,530 73,766
Leasehold improvements 113,807 108,530 104,749
------------ ------------ ------------
1,525,352 1,438,129 1,390,297
Less accumulated depreciation and amortization 860,591 795,323 729,696
------------ ------------ ------------
Net property, plant and equipment 664,761 642,806 660,601
------------ ------------ ------------
Investments 260,755 119,301 88,376
Intangible assets, net 34,956 30,563 30,731
Other assets 35,925 46,574 46,900
------------ ------------ ------------
Total other assets 331,636 196,438 166,007
------------ ------------ ------------
$ 2,669,022 $ 2,218,354 $ 1,938,858
============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity April 29, 2000 October 30, 1999 May 1, 1999
-------------- ---------------- -----------
<S> <C> <C> <C>
Short-term borrowings and current
portion of long-term debt $ - $ 82,344 $ 101
Obligations under capital leases 13,457 14,717 14,496
Accounts payable 139,903 103,368 68,797
Deferred income on shipments to distributors 112,795 100,788 96,749
Income taxes payable 135,720 66,761 52,783
Accrued liabilities 152,007 111,285 79,022
------------ ------------ ------------
Total current liabilities 553,882 479,263 311,948
------------ ------------ ------------
Long-term debt - - 80,000
Non-current obligations under capital leases 12,655 16,214 23,510
Deferred income taxes 55,000 40,002 34,000
Other non-current liabilities 180,346 66,844 47,100
------------ ------------ ------------
Total non-current liabilities 248,001 123,060 184,610
------------ ------------ ------------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $1.00 par value, 471,934 shares
authorized, none outstanding - - -
Common stock, $.16 2/3 par value, 600,000,000 shares
authorized, 355,095,676 shares issued
(178,049,189 in October 1999 and 176,297,695
in May 1999) 59,183 29,675 29,384
Capital in excess of par value 457,887 523,106 489,907
Retained earnings 1,325,870 1,110,811 982,992
Accumulated other comprehensive income 25,702 12,209 7,822
------------ ------------ ------------
1,868,642 1,675,801 1,510,105
Less 19,552 shares in treasury, at cost (3,161,774 in
October 1999 and 3,765,989 in May 1999) 1,503 59,770 67,805
------------ ------------ ------------
Total stockholders' equity 1,867,139 1,616,031 1,442,300
------------ ------------ ------------
$ 2,669,022 $ 2,218,354 $ 1,938,858
============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------
April 29, 2000 May 1, 1999
-------------- -----------
<S> <C> <C>
OPERATIONS
Cash flows from operations:
Net income $ 215,059 $ 69,000
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 73,315 70,891
Write-off of purchased research and development - 5,140
Equity in loss of WaferTech, net of dividends - 1,149
Deferred income taxes (9,717) 2,236
Other non-cash expense 559 2,318
Changes in operating assets and liabilities 39,282 (8,063)
----------- -----------
Total adjustments 103,439 73,671
----------- -----------
Net cash provided by operations 318,498 142,671
----------- -----------
INVESTMENTS
Cash flows from investments:
Purchase of short-term investments
available for sale (418,662) (162,038)
Maturities of short-term investments
available for sale 408,656 85,825
Payments for acquisitions, net of cash acquired (2,176) (20,019)
Change in long-term investments 348 108,354
Additions to property, plant and equipment, net (92,846) (26,009)
(Increase) decrease in other assets 6,737 5,902
----------- -----------
Net cash used for investments (97,943) (7,985)
----------- -----------
FINANCING ACTIVITIES
Cash flows from financing activities:
Proceeds from employee stock plans 20,693 10,540
Payments on capital lease obligations (4,818) (7,033)
Net decrease in variable rate borrowings (82,215) (119)
----------- -----------
Net cash (used for) provided by financing activities (66,340) 3,388
----------- -----------
Effect of exchange rate changes on cash 4,788 (98)
----------- -----------
Net increase in cash and cash equivalents 159,003 137,976
Cash and cash equivalents at beginning of period 355,891 263,331
----------- -----------
Cash and cash equivalents at end of period $ 514,894 $ 401,307
=========== ===========
SUPPLEMENTAL INFORMATION
Non-cash disclosure:
Conversion of 3 1/2% Subordinated Notes to common stock $ - $ 229,952
=========== ===========
Unrealized gains on available-for-sale securities $ 26,981 $ -
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE> 7
Analog Devices, Inc.
Notes to Condensed Consolidated Financial Statements For the three months and
six months ended April 29, 2000
(all tabular amounts in thousands except per share amounts)
Note 1 - In the opinion of management, the information furnished in the
accompanying condensed consolidated financial statements reflects all normal
recurring adjustments that are necessary to fairly state the results for this
interim period and should be read in conjunction with the Company's Annual
Report to Stockholders on Form 10-K for the fiscal year ended October 30, 1999
(1999 Annual Report).
Note 2 - Certain amounts reported in the previous year have been reclassified to
conform to the 2000 presentation.
Note 3 - Comprehensive Income
Total comprehensive income, i.e., net income plus available-for-sale securities
valuation adjustments and currency translation adjustments to stockholders'
equity, for the second quarters of fiscal 2000 and fiscal 1999 was $109 million
and $40 million, respectively. For the first six months of fiscal 2000 and
fiscal 1999, total comprehensive income was $229 million and $71 million,
respectively.
Note 4 - Earnings Per Share
Basic earnings per share is computed based only on the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding during
the period, plus the dilutive effect of future issues of common stock relating
to stock option programs and convertible debt financing. In calculating diluted
earnings per share, the dilutive effect of stock options is computed using the
average market price for the period. The following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
April 29, 2000 May 1, 1999
-------------- -----------
<S> <C> <C>
Basic:
Net income $ 122,052 $ 39,106
========== ==========
Weighted shares outstanding 352,706 334,024
========== ==========
Earnings per share $0.35 $0.12
===== =====
Diluted:
Net income $ 122,052 $ 39,106
Interest related to convertible subordinated notes,
net of tax - 481
---------- ----------
Earnings available for common stock $ 122,052 $ 39,587
========== ==========
Weighted shares outstanding 352,706 334,024
Assumed exercise of common stock equivalents 29,615 18,928
Assumed conversion of subordinated notes - 8,444
---------- ----------
Weighted average common and common equivalent shares 382,321 361,396
========== ==========
Earnings per share $0.32 $0.11
===== =====
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
April 29, 2000 May 1, 1999
-------------- -----------
<S> <C> <C>
Basic:
Net income $ 215,059 $ 69,000
========== ==========
Weighted shares outstanding 351,029 326,584
========== ==========
Earnings per share $0.61 $0.21
===== =====
Diluted:
Net income $ 215,059 $ 69,000
Interest related to convertible subordinated notes, net of tax - 1,906
---------- ----------
Earnings available for common stock $ 215,059 $ 70,906
========== ==========
Weighted shares outstanding 351,029 326,584
Assumed exercise of common stock equivalents 27,360 22,528
Assumed conversion of subordinated notes - 8,444
---------- ----------
Weighted average common and common equivalent shares 378,389 357,556
========== ==========
Earnings per share $0.57 $0.20
===== =====
</TABLE>
Note 5 - Investments
During the first quarter of fiscal 1999 Analog Devices Inc., (the Company),
completed the sale of approximately 78% of its equity ownership in WaferTech,
LLC, its joint venture with Taiwan Semiconductor Manufacturing Company and other
investors. As a result of this sale, the Company's equity ownership in WaferTech
was reduced from 18% to 4%. The Company sold 78% of its investment to other
WaferTech partners and received $105 million in cash, which was equal to the
carrying value of the 14% equity ownership at October 31, 1998.
Note 6 - Convertible Debt
As of March 11, 1999 the Company had converted $229,967,000 of the $230 million
principal amount of its 3 1/2% Convertible Subordinated Notes (Notes) due 2000
into an aggregate of 10,983,163 shares of the Company's common stock, and the
remaining Notes were redeemed by a cash payment of $33,000. This conversion did
not have an impact on diluted earnings per share.
Note 7 - Acquisitions
During the second quarter of fiscal 1999, the Company acquired two DSP tools
companies, White Mountain DSP, Inc. of Nashua, New Hampshire and Edinburgh
Portable Compilers Limited, of Edinburgh, Scotland. The total cost of these
acquisitions was approximately $21 million in cash and $2 million in common
stock of the Company, with additional contingent cash consideration up to a
maximum of $10 million (to be accounted for as additional goodwill) payable if
the acquired companies achieve certain revenue and operational objectives. As of
April 29, 2000, approximately $4 million of contingent consideration had been
paid. These acquisitions were accounted for as purchases. The excess of the
purchase price over the fair value of assets acquired was allocated to existing
technology, workforce in place, and tradenames, which are being amortized over
periods ranging from six to ten years and goodwill which is being amortized on
the straight-line basis over ten years. In connection with these acquisitions,
the Company recorded a charge of $5.1 million for the write-off of in-process
research and development in the second quarter of fiscal 1999.
8
<PAGE> 9
Note 8 - Segment Information
The Company operates in two segments: the design, manufacture and marketing of a
broad range of integrated circuits, which comprises approximately 97% of the
Company's revenue, and the design, manufacture and marketing of a range of
assembled products, which accounts for the remaining 3% of the Company's
revenue. Effectively, the Company operates in one reportable segment.
Note 9 - New Accounting Standard
Effective October 31, 1999, the Company adopted Statement of Position 98-1, (SOP
98-1), "Accounting for the Cost of Computer Software Developed for or Obtained
for Internal Use." The adoption of SOP 98-1 did not have a material impact on
the results of operations or financial position.
Note 10 - Stock Split
On February 15, 2000, the Company's Board of Directors approved a 2-for-1 split
of the Company's common stock, effected as a 100% stock dividend on March 15,
2000 by the distribution of one share of common stock for every share held on
the record date of February 28, 2000. All historical per share amounts in this
report have been restated to reflect the split.
9
<PAGE> 10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information should be read in conjunction with the unaudited condensed
consolidated 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 Analysis for the fiscal year ended October 30,
1999, contained in the Company's 1999 Annual Report.
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 1999 Annual Report, which 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 that 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 2000 were $581 million, an increase
of 71% from the $340 million reported for the second quarter of fiscal 1999. Net
sales for the first two quarters of fiscal 2000 were $1,071 million, an increase
of 67% from the $641 million reported for the comparable period of fiscal 1999.
Analog IC product sales increased by 57% over the same quarter in fiscal 1999
and 58% over the same six month period in fiscal 1999. Sales of DSP products
increased 134% from the same quarter in fiscal 1999 and 110% over the same six
month period in fiscal 1999. For the quarter and the six months ended April 29,
2000, sales increased in all markets with communications showing the highest
increase. For the second quarter of fiscal 2000, sales to the communications
market increased to 45% of total sales from 34% of total sales in the second
quarter of fiscal 1999. The sales increase and growth in the communications
market was driven by continued growth in demand for high-speed access to the
Internet and wireless communications.
Sales increased in all geographic regions for both the second quarter and first
six months of fiscal 2000 over the same periods in fiscal 1999 with the largest
increases occurring in North America and Southeast Asia. International sales for
the second quarter of fiscal 2000 represented 56% of sales compared with 53% of
sales for the second quarter of fiscal 1999.
The gross margin was 55.7% for the second quarter of fiscal 2000, compared to
48.1% for the second quarter of fiscal 1999. The gross margin was 55% for the
first two quarters of fiscal 2000 compared to 47% for the first two quarters of
fiscal 1999. For the quarter and six months ended April 29, 2000, the
improvement in gross margin was primarily due to the favorable effect of fixed
costs allocated across a higher sales base and improved manufacturing
efficiencies at the Company's wafer fabrication, assembly and test facilities.
Research and development (R&D) expenses were $91 million and $174 million for
the three months and six months ended April 29, 2000, respectively, compared to
$62 million and $114 million for the corresponding periods of fiscal 1999. As a
percentage of sales, R&D spending decreased during the second quarter of fiscal
2000 to 15.6%, down from 18.2% in the second quarter of fiscal 1999. However,
R&D spending in absolute dollar amounts increased by 47% and 52% in the first
three months and six months of fiscal 2000, respectively, over the same periods
in fiscal 1999 as the Company continued to invest in various opportunities in
the served markets. The Company believes that a continued commitment to research
and development is essential in order to further exploit existing product
offerings and to provide innovative new product offerings. As a result, the
Company expects to continue to make significant R&D investments in the future.
During the second quarter of fiscal 1999, the Company incurred a charge of
$5,140,000 for the write-off of in-process R&D in connection with the
acquisition of two DSP tools companies, White Mountain DSP, Inc. of Nashua, New
Hampshire and Edinburgh Portable Compilers Limited, of Edinburgh, Scotland. The
total cost of these acquisitions was approximately $21 million in cash and $2
million in common stock of the Company, with additional contingent cash
consideration of up to a maximum of $10 million (to be accounted for as
goodwill) payable if the acquired companies achieve certain revenue and
operational objectives. Through the second quarter of fiscal 2000, $4 million of
the additional consideration has been paid.
10
<PAGE> 11
Selling, marketing, general & administrative (SMG&A) expenses for the second
quarter of fiscal 2000 were $71 million, an increase of $22 million from the $49
million reported for the second quarter of fiscal 1999. SMG&A expenses for the
six months ended April 29, 2000 were $136 million, compared to $95 million for
the six months ended May 1, 1999. As a percentage of sales, SMG&A decreased from
14.5% for the second quarter of fiscal 1999 to 12.2% for the second quarter of
fiscal 2000 as a result of the significant growth in revenue and continuing
control over SMG&A spending.
The effective income tax rate increased to 30% for the second quarter of fiscal
2000 compared to 22.9% for the second quarter of fiscal 1999. For the first
six-month period of fiscal 2000, the tax rate increased from 21.6% for six
months ended May 1, 1999 to 28.7% for the six months ended April 29, 2000. Both
the three and six month increases are due to increased profits in higher tax
jurisdictions.
Liquidity and Capital Resources
At April 29, 2000, cash, cash equivalents and short-term investments totaled
$931 million, an increase of $169 million from the fourth quarter of fiscal 1999
and an increase of $412 million from the second quarter of fiscal 1999. The
increase in cash, cash equivalents and short-term investments in the first six
months of fiscal 2000 was primarily due to operating cash inflows of $318
million, partially offset by increased capital expenditures and debt repayment.
Accounts receivable totaled $352 million at the end of the second quarter of
fiscal 2000, increases of $84 million from the fourth quarter of 1999 and $126
million from the second quarter of fiscal 1999 due to higher sales levels. The
Company's days sales outstanding improved from 60 days at May 1, 1999 to 53 days
at April 29, 2000.
Inventories of $280 million at April 29, 2000 were $31 million higher than the
inventory levels at October 30, 1999 and $21 million higher than at the end of
the second quarter of fiscal 1999. The increase in inventory levels was a result
of production increases in response to increased demand for the Company's
products. Days cost of sales in inventory improved by 43 days to 94 days at
April 29, 2000.
During the first quarter of fiscal 1999, the Company completed the sale of
approximately 78% of its equity ownership in WaferTech, LLC, its joint venture
with Taiwan Semiconductor Manufacturing Company (TSMC) and other investors. As a
result of this sale, the Company's equity ownership in WaferTech was reduced
from 18% to 4%. The Company sold 78% of its investment to other WaferTech
partners and received $105 million in cash, which was equal to the carrying
value of the 14% equity ownership at October 31, 1998.
Net additions to property, plant and equipment of $93 million for the first half
of fiscal 2000 were funded with a combination of cash on hand and cash generated
from operations. Capital spending in the first half of fiscal 2000 was up
substantially from the $26 million spent in the first half of fiscal 1999. The
increase in capital expenditures was attributable to the expansion of
manufacturing capability to meet current sales growth. The Company currently
plans to make capital expenditures of approximately $275 million during fiscal
2000.
At April 29, 2000, the Company's principal sources of liquidity were $931
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 October 2000, all of
which were substantially unused at April 29, 2000.
As of March 11, 1999 the Company had converted $229,967,000 of the $230 million
principal amount of its 3 1/2% Convertible Subordinated Notes (Notes) due 2000
into an aggregate of 10,983,163 shares of the Company's common stock, and the
remaining Notes were redeemed by a cash payment of $33,000.
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.
11
<PAGE> 12
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's business is subject to rapid
technological changes and there can be no assurance, depending on the mix of
future business, that products stocked in inventory will not be rendered
obsolete before they are shipped by the Company. 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 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 Company's 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 such as those
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.
The cyclical nature of the industry has resulted in sustained or short-term
periods when demand for the Company's products has increased or decreased
rapidly. The semiconductor industry and the Company have experienced a period of
rapid increases in demand during fiscal 1999 and the first six months of fiscal
2000. The Company has increased its manufacturing capacity over the past three
years through both expansion of its production facilities and increased access
to third-party foundries. However, the Company cannot be sure that it will not
encounter unanticipated production problems at either its own facilities or at
third-party foundries, or that the increased capacity will 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. Such reliance involves several risks, including reduced
control over delivery schedules, manufacturing yields and costs. In addition,
the Company's capacity additions resulted in a significant increase in operating
expenses. If revenue levels are not sufficient to offset these additional
expense levels, the Company's future operating results could be adversely
affected. In addition, asset values could be impaired if the additional capacity
is underutilized for an extended period of time. Also, noncompliance with "take
or pay" covenants in certain of its supply agreements could adversely impact
operating results. The Company believes that other semiconductor manufacturers
have expanded their production capacity over the past several years, and there
can be no assurance that the expansion by the Company and its competitors will
not lead to overcapacity in the Company's target markets, which could lead to
price erosion that would adversely affect the Company's operating results. In
addition, the Company and many companies in the semiconductor industry, rely on
internal manufacturing capacity located in California and Taiwan as well as
wafer fabrication foundries in Taiwan and other subcontractors in geologically
unstable locations around the world. Such reliance involves risks associated
with the impact of earthquakes on the Company and the semiconductor industry
including temporary loss of capacity, availability and cost of key raw materials
and equipment, and availability of key services including transport.
12
<PAGE> 13
In the first six months of fiscal 2000, 56% 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 a supply agreement that includes "take or pay" covenants with a
supplier located in Southeast Asia (SEA) and as part of this arrangement, the
Company has $9 million on deposit as well as a $54 million investment in the
common stock of the supplier. In addition to being exposed to the ongoing
economic cycles in the semiconductor industry, the Company is also subject to
the economic and political risks inherent in international operations, including
the risks associated with the ongoing uncertainties in many developing economies
around the world. 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 1999 Annual Report 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.
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.
Year 2000
Over the past several years the Company made significant investments in new
manufacturing, financial and operating hardware and software. These investments
were made to support the growth of its operations; however, the by-product of
this effort was that the Company had year 2000 compliant hardware and software
running on many of its major platforms. The Company established a task force to
evaluate the remaining systems and equipment and upgrade or replace systems that
were not year 2000 compliant. The cost of this effort, which commenced at the
beginning of fiscal 1998 and continued through fiscal 1999, was approximately
$10 million.
The Company's computer systems and equipment did not experience any significant
disruptions as a result of the advent of the year 2000. However, there may be
latent problems that surface at key dates or events in the future. The Company
has not experienced, and does not anticipate, any significant problems related
to the transition to the year 2000. Furthermore, the Company does not anticipate
any significant expenditure in the future related to year 2000 compliance.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated herein by reference to the
"Management Analysis" set forth on pages 1 through 7 of the 1999 Annual Report
to Shareholders.
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 14, 2000, the stockholders
of the Company elected Messers. Joel Moses, Lester C. Thurow and Charles O.
Holliday, Jr. to serve as Class I 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>
Joel Moses 157,501,250 2,144,575 0
Lester C. Thurow 157,457,357 2,188,467 0
Charles O. Holliday, Jr. 158,342,294 1,303,531 0
</TABLE>
Each of the following directors who were not up for reelection at the Annual
Meeting of Stockholders will continue to serve as directors: Messrs. John
L. Doyle, Jerald G. Fishman, F. Grant Saviers and Ray Stata.
The stockholders also approved an amendment to the Company's 1998 Stock Option
Plan to increase the number of shares reserved for issuance thereunder from
15,000,000 to 32,000,000 (64,000,000 after giving effect for the 2-for-1 stock
split distributed on March 15, 2000), by a vote of 74,765,345 in favor,
64,562,946 opposed, 2,623,800 abstaining and 17,693,734 non-vote.
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 28, 2000, by a vote of 159,078,016 in favor, 96,565 opposed and 471,243
abstaining.
ITEM 6. Exhibits and reports on Form 8-K
(a) See Exhibit Index.
(b) Report on Form 8-K
There were no reports on Form 8-K filed for the three months ended April
29, 2000.
Items 1, 2, 3 and 5 of PART II are not applicable and have been omitted.
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 12, 2000 By: /s/ Jerald G. Fishman
---------------------
Jerald G. Fishman
President and
Chief Executive Officer
(Principal Executive Officer)
Date: June 12, 2000 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
