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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
COMMON STOCK $.16 2/3 PAR VALUE NEW YORK STOCK EXCHANGE
Title of Each Class Name of Each Exchange on Which Registered
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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 aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $3,960,793,548 based on the closing price of
the Common Stock on the New York Stock Exchange Composite Tape reporting system
on December 31, 1996.
Indicate the number of shares outstanding of each class of Common
Stock: 159,479,013 shares of $.16 2/3 par value Common Stock as of December 31,
1996.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION 10-K PART
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Portions of the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held March 11, 1997................ III
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PART I
ITEM 1. BUSINESS
Analog Devices, Inc. ("Analog" or the "Company") designs, manufactures and
markets a broad line of high-performance linear, mixed-signal and digital
integrated circuits ("ICs") that address a wide range of real-world signal
processing applications. The Company's two principal product groups are
general-purpose, standard-function linear and mixed-signal ICs ("SLICs") and
system-level ICs. The latter group includes general-purpose digital signal
processing ICs (DSPs) and application-specific devices that typically
incorporate analog and mixed-signal circuitry and a DSP core. Analog's third
product group consists of devices manufactured using assembled product
technology.
Nearly all of the Company's products are components, which are typically
incorporated by original equipment manufacturers (OEMs) in a wide range of
equipment and systems for use in communications, computer, industrial,
instrumentation, military/aerospace, automotive and high-performance consumer
electronics applications. The Company sells its products worldwide;
approximately 42% of fiscal 1996's revenues was derived from customers in North
America, while most of the balance was derived from customers in Western Europe
and the Far East.
INDUSTRY BACKGROUND
Real-world phenomena, such as temperature, pressure, sound, images, speed,
acceleration, position and rotation angle, are inherently analog in nature,
consisting of continuously varying information. This information can be detected
and measured using analog sensors, which represent real-world phenomena by
generating continuously varying voltages and currents. The signals from these
sensors are initially processed using analog methods, such as amplification,
filtering and shaping. They are then usually converted to digital form for input
to a microprocessor, which is used to manipulate, store or display the
information. In many cases the signals are further processed after conversion to
digital form using a technology called "digital signal processing," or DSP. In
addition, digital signals are frequently converted to analog form to provide
signals for analog display, sound, or control functions. These manipulations and
transformations are known collectively as "real-world signal processing."
Significant advances in semiconductor technology over the past 10 to 15 years
have led to substantial increases in the performance and functionality of ICs
used in signal processing applications. These advances include the ability to
create VLSI (Very Large Scale Integration) mixed-signal ICs that contain both
high-performance analog circuitry and large amounts of high-density digital
circuitry. The analog circuitry portion of the IC is used for manipulating
real-world signals while still in analog form and for converting analog signals
into digital form (or vice versa), and the digital portion is used for further
processing analog signals subsequent to their conversion to digital form. The
ICs resulting from these advances are used as components in equipment and
systems to achieve higher performance and more efficient signal processing.
COMPANY OVERVIEW
Analog believes it is one of the world's largest suppliers of SLIC products. The
Company's SLIC products are primarily high-performance, single-function devices.
The majority of the Company's SLIC revenues are attributable to data converters
(analog-to-digital and digital-to-analog) and amplifiers. SLICs are sold to a
very large customer base for a wide variety of applications, including
applications in the medical, engineering and scientific instruments market,
factory automation market and military/aerospace market.
Building upon its expertise in linear IC technology, the Company has developed
VLSI system-level mixed-signal ICs tailored to specific high-volume applications
in target markets. These products typically provide a high level of
functionality (i.e., many functions on one chip) to satisfy OEMs' requirements
for integrated solutions at a low cost per function. The Company also has
extended its expertise in analog signal processing and data conversion to
develop DSP ICs. The Company's system-level ICs address the emerging demand for
high levels of performance in many communications, computer and other
high-volume applications.
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PRINCIPAL PRODUCTS
The Company operates predominantly in one industry segment: the design,
manufacture and marketing of a broad line of high-performance linear,
mixed-signal and digital integrated circuits that address a wide range of
real-world signal processing applications. Analog's products can be divided into
three classifications: Standard Linear ICs (SLICs), system-level ICs (which
includes all products previously classified as SPLICs, DSP ICs, and hard disk
drive ICs) and assembled products.
A substantial portion of the Company's products are proprietary, while
equivalents to most of its other products are available from a limited number of
other suppliers. Many of the Company's products tend to be less price sensitive
than other types of ICs, such as DRAM (Dynamic Random Access Memory) ICs,
primarily because there are fewer suppliers and because OEMs, in many cases,
after qualifying one manufacturer's high-performance linear or mixed-signal IC
for a specific application, are reluctant to switch manufacturers due to the
risk of degradation in the performance of their product and/or the effort
required to qualify additional suppliers.
The following table sets forth the approximate percentage of revenue
attributable to each of the Company's three product groups for the past three
fiscal years:
PRODUCTS 1996 1995 1994
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SLICs 57% 64% 60%
System-level ICs (including DSPs) 38 28 29
Assembled Products 5 8 11
SLICS
SLIC products have been the foundation of the Company's business for more than
20 years, and Analog believes it is one of the world's largest SLIC suppliers.
The Company's SLICs are primarily high-performance, single-function devices. The
majority of the Company's SLIC revenues are attributable to data converters
(analog-to-digital and digital-to-analog) and amplifiers. Other SLIC products
offered by the Company include analog signal-processing devices (such as analog
multipliers), voltage references and comparators. Over the past few years the
Company has been expanding its SLIC product offerings into product areas where
it has traditionally had limited focus, principally interface circuits and power
management ICs. It is also expanding its SLIC product line to include a much
larger number of products designed to operate from single-supply 3 or 5 volt
power sources to better meet the needs of customers designing portable,
battery-operated equipment.
Analog's SLIC products tend to be general purpose in nature, which allows
customers to incorporate them in a wide variety of equipment and systems.
Analog's product portfolio includes several hundred SLICs, any one of which can
have as many as several hundred customers. SLICs typically have long product
life cycles. The Company's SLIC customers include both OEMs and customers who
build equipment for their own use. Historically, most SLICs have been purchased
by OEMs which serve the instrumentation, factory automation and
military/aerospace markets, but they are now also being used for applications in
commercial and consumer communications equipment, personal computers (PCs) and
peripheral equipment used with PCs and computers.
By using standard, high-performance, readily available, off-the-shelf components
in their designs, Analog's customers can reduce the time required to develop and
bring new products to market. Given the high cost of developing customized ICs,
SLICs usually provide the most cost-effective solutions for low to medium volume
applications. In addition, combinations of SLICs connected together on a printed
circuit board can provide functionality not currently achievable using a single
IC.
SYSTEM-LEVEL ICS
Analog's system-level ICs include general-purpose DSP ICs and multi-function
devices that feature high levels of functional integration on a single chip.
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The Company's general-purpose DSP ICs are designed to efficiently execute
specialized programs (algorithms) associated with processing digitized
real-time, real-world data. General-purpose DSP IC customers typically write
their own algorithms using software tools provided by the Company and software
tools obtained from third-party suppliers. All of these devices share a common
architecture and code compatibility, which allows system designers to address
cost, performance and time-to-market constraints. Analog supports these products
with specialized applications and easy-to-use, low-cost design tools, which
reduce product development cost and time to market.
Most of Analog's system-level ICs other than its general-purpose DSP ICs are
mixed-signal devices (some of which include a DSP core). The balance are
linear-only devices. These devices are nearly always designed to meet the
requirements of a specific application, and the design process often includes
significant input from one or more potential key customers. Market demand for
these types of devices is driven by the benefits that result from combining a
number of functions on a single circuit, as opposed to a combination of SLICs
and other ICs. These benefits include higher performance, lower cost per
function, smaller size, lower weight, fewer parts and decreased power
consumption. These products allow Analog's customers to design smaller, lighter,
higher performance, more power-efficient and lower cost end products. The
Company believes that these benefits are important to the Company's OEM
customers as they increase their focus on high-performance, small, lightweight
products, many of which are battery powered.
ASSEMBLED PRODUCTS
The Company's assembled products include multi-chip modules ("MCMs"), hybrids
and printed-board modules. A MCM is a device made up of several IC chips
assembled in an automated fashion in a multilayer package that provides high
interconnect density at low cost. A hybrid consists of several chips and
discrete components mounted and wired together on a substrate, which is then
enclosed in a package. A printed-board module consists of surface-mount
components assembled on a small printed board that is then encapsulated in a
small plastic case.
Revenues from this product group have been declining for several years,
primarily because hybrids have been replaced in many new designs with smaller,
lower-cost monolithic ICs that offer higher levels of performance and
integration at lower cost.
MARKETS AND APPLICATIONS
The Company's products are sold primarily to OEMs for incorporation into
equipment, instruments and systems sold to end users for a wide variety of
applications, including communications equipment; computers and computer
peripherals; engineering, medical and scientific instruments; factory automation
equipment; military/aerospace equipment; high-end consumer electronics products;
and automotive products. The Company's growth has been aided both by the
expansion of these markets and the increasing use of computer technology in the
equipment and systems sold in these markets.
For fiscal 1996, Analog's 20 largest customers accounted for approximately 28%
of the Company's net sales. The largest single customer represented less than 5%
of net sales. Sales of the Company's products are not highly seasonal.
Listed below are some of the characteristics of each of the Company's major
served markets:
COMMUNICATIONS -- includes data and fax modems, digital cellular telephones and
portable, wireless communications equipment and broadband wired applications.
The need for ever higher speed, coupled with more reliable, more
bandwidth-efficient communications is creating increasing demand for systems
that include both digital and analog signal processing capability. Demand for
signal processing ICs for this market is also being driven by the equipment
manufacturers' need for components that enable them to develop cost-effective
products that feature high performance, small size, low weight and minimal power
consumption.
COMPUTERS AND COMPUTER PERIPHERALS -- includes high-performance personal
computers, workstations and peripheral devices such as hard disk drives and
scanners. The Company currently supplies a variety of ICs used in this market
for functions such as graphic displays; interfaces between PCs and peripherals
such as modems and printers; power and battery management; and enhanced sound
input and output capability for business and entertainment applications.
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5
INSTRUMENTATION -- includes engineering, medical and scientific instruments.
These products are usually designed using the highest performance SLICs
available, where production volumes generally do not warrant custom or
application-specific ICs.
FACTORY AUTOMATION -- includes data acquisition systems, automatic process
control systems, robotics, environmental control systems and automatic test
equipment ("ATE"). These products generally require ICs that offer performance
greater than that available from commodity-level ICs, but generally do not have
production volumes that warrant custom or application-specific ICs. Combinations
of SLICs are therefore usually employed to achieve the necessary functionality,
except in ATE applications where the high level of electronic circuitry required
per tester has created opportunities for the design of system-level ICs for this
application.
MILITARY/AEROSPACE -- includes military, commercial avionics and space markets,
all of which require high-performance ICs that meet rigorous environmental and
reliability specifications. Nearly all of the Company's SLICs can be supplied in
versions that meet appropriate military standards. In addition, many products
can be supplied to meet the standards required for broadcast satellites and
other commercial space applications. Most of the Company's products sold into
this market are derived from standard commercial grade ICs, although the Company
sometimes develops products expressly for military/aerospace applications.
CONSUMER ELECTRONICS -- The emergence of high-performance consumer products,
such as compact disc players, digital VCRs, digital audio tape equipment and
digital camcorders, has led to the need for high-performance system-level ICs
with a high level of functionality. Although the Company's revenues from this
market have not been significant, the Company expects to supply ICs for
sophisticated products used by consumers for computing, communications and
entertainment applications, and believes that many of these applications will
involve digital signal processing.
AUTOMOTIVE -- Although the automotive market has historically been served with
low-cost, low-performance ICs, demand has emerged for higher performance devices
for a wide range of applications. In response, Analog is developing products
specifically for the automotive market. The Company is supplying a micromachined
IC used as a crash sensor in airbag systems, which serves as an alternative to
an electromechanical sensor. The Company anticipates that other micromachined
devices derived from this product may be suitable for other automotive
applications, such as anti-lock brakes and "smart" suspension systems.
RESEARCH AND DEVELOPMENT
The markets served by Analog are characterized by rapid technological changes
and advances. Accordingly, the Company makes substantial investments in the
design and development of new products and processes, and for significant
improvement of existing products and processes. Analog spent $177.8 million
during fiscal 1996 for the design, development and improvement of new and
existing products and processes, compared to $134.3 million during fiscal 1995
and $106.9 million during fiscal 1994.
In fiscal 1996, approximately half of the Company's R&D expenditures were
devoted to the design and development of system-level ICs, including DSP ICs,
and the development and improvement of processes used for these products. In
support of its research and development activities, the Company employs several
hundred engineers involved in product and process development at several design
centers and manufacturing sites located throughout the world.
As of November 2, 1996, the Company owned 387 U.S. patents and had 220 patent
applications on file with the United States patent office. The Company believes
that while its patents may provide some advantage, its competitive position is
largely determined by such factors as the knowledge, ability and experience of
the Company's personnel, new product development, market recognition and ongoing
marketing efforts, customer service and technical support.
SALES CHANNELS
Analog sells its products in both North America and internationally through a
direct sales force, third-party distributors and independent sales
representatives. Approximately 42% of fiscal 1996 revenue was derived from
customers in North America. As of December 1, 1996, the Company had 13 sales
offices in the United States, and its third-party distribution channel consisted
of eight national and regional third-party distributors and several independent
sales representatives with numerous locations throughout the U.S. and Canada.
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Approximately 31% of the Company's fiscal 1996 revenue was derived from sales to
customers in Europe; 14% to customers in Japan; and 13% to customers in other
international markets. As of December 1, 1996, the Company had direct sales
offices in Australia, Austria, Denmark, France, Germany, Hong Kong, India,
Israel, Italy, Japan, Korea, The Netherlands, Singapore, Sweden, Taiwan and the
United Kingdom. The Company also had sales representatives and/or distributors
in approximately 36 countries outside North America, including countries where
the Company also has direct sales offices.
Approximately 41% of Analog's fiscal 1996 revenue was derived from sales made
through distributors. The Company's distributors typically maintain an inventory
of Analog products. Some of these distributors also sell products competitive
with the Company's products, including those for which the Company is an
alternate source. Sales to certain distributors are made under agreements which
provide protection to the distributors for their inventory of Company products
against price reductions and products that are slow-moving or have been
discontinued by the Company. These agreements generally contain a provision for
the return of the products to the Company in the event the relationship with the
distributor is terminated.
Sales to North American distributors are not recognized until the products are
resold by distributors to their customers. Sales made to distributors outside
North America are recognized upon shipment to the distributor, but the Company
provides specific reserves for possible returns and allowances.
The Company's worldwide sales efforts are supported by an extensive promotional
program that includes editorial coverage and paid advertising in trade
publications; direct mail programs; promotional brochures; technical seminars;
and participation in trade shows. The Company publishes and distributes
full-length databooks, short-form catalogs, applications guides, technical
handbooks and detailed data sheets for individual products. The Company also
provides products and application information via CD ROMs and its worldwide web
site on the Internet. The Company also maintains a staff of application
engineers who aid customers in incorporating Analog's products into their
products during their product development cycles.
PRODUCTION AND RAW MATERIALS
Monolithic integrated circuit components are manufactured in a sequence of
production steps that include wafer fabrication, wafer testing, cutting the
wafer into individual "chips" (or dice), assembly of the dice into packages and
electrical testing of the devices in final packaged form. The raw materials used
to manufacture these devices include silicon wafers, processing chemicals
(including liquefied gases), precious metals, ceramic packages and plastic used
for plastic packaging.
In addition to using industry-standard bipolar and CMOS wafer fabrication
processes, Analog employs a wide variety of Company-developed proprietary
processes specifically tailored for use in fabricating high-performance linear
and mixed-signal SLICs and system-level ICs.
Analog's IC products are fabricated both at the Company's production facilities
and by third-party wafer fabricators. Assuming that the Company can continue to
maintain favorable relationships with its third-party wafer fabricators, it
intends to continue using such suppliers for meeting most of its needs for
wafers that can be fabricated using industry-standard digital processes. The
Company intends to rely primarily on its own facilities for fabricating wafers
that require linear and mixed-signal processes. The Company operates wafer
fabrication facilities in Wilmington, Massachusetts; Santa Clara, California;
and Limerick, Ireland for production of linear and mixed-signal devices. The
Company also operates assembly and test facilities located in the United States,
Ireland, the Philippines and Taiwan. The Company uses two principal foundries,
Taiwan Semiconductor Manufacturing Company ("TSMC") and Chartered Semiconductor
Manufacturing Pte., Ltd. ("CSM") for the production of digital and VLSI
mixed-signal devices. To provide access to advanced process technology at
competitive costs, the Company has entered into a joint venture agreement
(WaferTech, LLC) with TSMC, Altera, Integrated Silicon Solutions and several
individual investors to build an eight-inch wafer fabrication facility in Camas,
Washington. Analog is an 18% equity partner in the joint venture which is
expected to become operational late in 1998.
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Hybrid products are manufactured by mounting and connecting together several
integrated circuit chips in a single package. Some of the chips used in the
Company's hybrids are manufactured by the Company and some are purchased from
outside suppliers. The production process for modular components, subsystems and
systems consists primarily of assembly, packaging and testing. Some of the
Company's assembled products are assembled and tested within the Company's U.S.
manufacturing facilities, while others are assembled and tested at Company-owned
facilities outside the United States or by subcontractors, principally in the
Far East.
To respond to production capacity shortages which existed during 1995, the
Company significantly expanded its manufacturing capacity during 1996. Major
wafer fabrication expansions have been undertaken in Wilmington, Massachusetts;
Cambridge, Massachusetts; Sunnyvale, California and Limerick, Ireland.
In addition, the Company is completing construction of an additional
manufacturing facility in Cavite, Philippines which will significantly increase
assembly and test capacity. Most of these initiatives are either in production
or nearing completion and are expected to satisfy the anticipated customer
demand.
BACKLOG
Backlog at the end of fiscal year 1996 was approximately $290.7 million; it was
approximately $286.8 million at the end of the fiscal year 1995. The quantities
of the Company's products to be delivered and their delivery schedules are
frequently revised by customers to reflect changes in their needs. As is
customary in the semiconductor industry, the Company allows such orders to be
canceled or deliveries delayed by the customer without significant penalty.
Accordingly, the Company believes that its backlog at any time should not be
used as a measure of future revenues.
GOVERNMENT CONTRACTS
The Company estimates that approximately 12% of its fiscal 1996 total worldwide
revenue was attributable to sales to the U.S. government and government
contractors and subcontractors. Analog's government contract-related business is
predominantly in the form of negotiated, firm fixed-priced subcontracts. All
such contracts and subcontracts contain standard provisions related to
termination at the election of the United States government.
COMPETITION
Analog competes with a large number of semiconductor companies in markets that
are highly competitive. The Company believes it is one of the largest suppliers
of high-performance linear and mixed-signal signal-processing components. These
types of products fall into both the SLIC and system-level IC product
categories. Competitors for the Company's linear and mixed-signal products
include Burr-Brown Corp., Cirrus Logic Inc., Exar Corp., Harris Corp., Linear
Technology Corp., Maxim Integrated Products, Inc., National Semiconductor Corp.,
Rockwell International Corp., Sierra Semiconductor Corp., Siliconix Inc.,
Texas Instruments, Inc. and others.
Sales of DSP ICs represent a growing percentage of the Company's total sales.
Analog's competitors in the DSP IC market include Lucent Technologies (formerly
part of AT&T), Integrated Device Technology, Inc., Motorola Semiconductor
Products and Texas Instruments, Inc.
Many other companies offer components that compete with Analog's products; some
also offer other electronic products, and some have financial resources
substantially larger than Analog's. Also, some formerly independent competitors
have been purchased by larger companies (which in some cases may be viewed as a
means by which the acquiring company gains in-house capability). However, to the
Company's knowledge, no manufacturer competes with Analog across all of the
product types offered by the Company in its signal-processing components product
line.
Analog believes that competitive performance in the marketplace for real-world
signal-processing components depends upon several factors, including product
price, technical innovation, product quality and reliability, range of products,
customer service and technical support. Analog believes its aggressive technical
innovation emphasizing product performance and reliability, supported by its
commitment to strong customer service and technical support, will allow the
Company to continue to compete successfully in its chosen markets against both
foreign and domestic semiconductor manufacturers.
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ENVIRONMENT
Analog's manufacturing facilities are subject to numerous environmental laws and
regulations, particularly with respect to industrial waste and emissions.
Compliance with these laws and regulations has not had a material impact on the
Company's capital expenditures, earnings or competitive position.
EMPLOYEES
As of November 2, 1996, the Company employed approximately 6,900 persons. The
Company's future success depends in large part on the continued service of its
key technical and senior management personnel, and on its ability to continue to
attract, retain and motivate qualified employees, particularly those highly
skilled design, process and test engineers involved in the manufacture of
existing products and the development of new products and processes. The
competition for such personnel is intense, and the loss of key employees could
have a material adverse effect on the Company. The Company believes that
relations with its employees are good.
INTERNATIONAL OPERATIONS
Analog has direct sales offices in 16 countries outside the United States. For
fiscal 1996, Analog's international sales accounted for approximately 58% of
total sales, the majority of which were made through its direct international
sales offices while the balance, approximately 37% of the total, were made
through distributors. In addition, the Company has manufacturing facilities in
Ireland, the Philippines and Taiwan. The Company also has arrangements with
subcontractors, principally in the Far East, for wafer fabrication and the
assembly and testing of certain products.
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ITEM 2. PROPERTIES
The Company's corporate headquarters is located in Norwood, Massachusetts.
Manufacturing and other operations are carried on in several locations
worldwide. The following tables provide certain information as to the Company's
principal general offices and manufacturing facilities:
PLANT LOCATION
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OWNED: USE FLOOR SPACE
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Wilmington, Wafer fabrication, components assembly and testing, engineering 245,200 sq. ft.
Massachusetts and administrative offices
Wilmington, Engineering, marketing and administrative offices 108,000 sq. ft.
Massachusetts
Wilmington, Components engineering, marketing and administrative offices 67,200 sq. ft.
Massachusetts
Westwood, Components and subsystems assembly and testing, engineering 100,400 sq. ft.
Massachusetts and administrative offices
Limerick, Wafer fabrication, components assembly and testing, engineering 286,200 sq. ft.
Ireland and administrative offices
Greensboro, Components and board assembly and testing, engineering and 100,000 sq. ft.
North Carolina administrative offices
Cavite, Philippines Components assembly and testing, engineering and administrative 125,000 sq. ft.
offices
Manila, Philippines Components assembly and testing, engineering and administrative 85,000 sq. ft.
offices
PRINCIPAL LEASE
--------- -----
PROPERTIES USE FLOOR SPACE EXPIRATION RENEWALS
---------- --- ----------- ---------- --------
LEASED (FISCAL YEAR)
------
Norwood, Corporate headquarters, engineering, components 135,000 sq. ft. 2007 3, five-yr.
Massachusetts testing, sales and marketing offices periods
Cambridge, Wafer fabrication, engineering and administrative 68,000 sq. ft. 2001 2, five-yr.
Massachusetts offices periods
Santa Clara, Wafer fabrication, components assembly and 72,800 sq. ft. 2002 3, five-yr.
California testing, engineering and administrative offices periods
Santa Clara, Administrative offices and engineering 43,500 sq. ft. 2002 3, five-yr.
California periods
Sunnyvale, Wafer fabrication 40,000 sq. ft. 2000 3, five-yr.
California periods
Taipei, Components testing, engineering and 47,700 sq. ft. 1997 3 to 5 yr.
Taiwan administrative offices option to extend
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ITEM 2. PROPERTIES -- (CONTINUED)
In addition to the principal leased properties listed in the previous table, the
Company also leases sales offices and other premises at 28 locations in the
United States and 28 locations overseas under operating lease agreements. These
leases expire at various dates through the year 2010. The Company anticipates no
difficulty in retaining occupancy of any of its manufacturing, office or sales
facilities through lease renewals prior to expiration or through month-to-month
occupancy, or in replacing them with equivalent facilities. See Note 7 - "Lease
Commitments" in the Notes to Consolidated Financial Statements for information
concerning the Company's obligations under all operating and capital leases.
ITEM 3. LEGAL PROCEEDINGS
The Company was a defendant in two lawsuits brought in Texas by Texas
Instruments, Inc. ("TI"), alleging patent infringement, including patent
infringement arising from certain plastic encapsulation processes, and seeking
an injunction and unspecified damages against the Company. The alleged
infringement of one of these patents was also the subject matter of a proceeding
brought by TI against the Company before the International Trade Commission
("ITC"). On January 10, 1994, the ITC brought an enforcement proceeding against
the Company alleging that the Company had violated the ITC's cease and desist
order of February 1992 (as modified in July 1993), which prohibited the
Company's importation of certain plastic encapsulated circuits, and seeking
substantial penalties against the Company for these alleged violations. In
addition, in June 1992, the Company commenced a lawsuit against TI in
Massachusetts alleging certain TI digital signal processors infringed one of the
Company's patents. Effective April 1, 1995, the Company and TI settled both
Texas lawsuits and the Massachusetts lawsuit principally by means of a
royalty-free cross license of certain of the Company's and TI's patents.
On April 25, 1995, the Company filed with the ITC a motion to terminate the ITC
enforcement proceeding on the grounds that further action by the ITC was
unnecessary in light of the Company's settlement with TI. On May 8, 1995, an
Administrative Law Judge issued a recommended determination to the ITC to grant
the Company's motion to terminate the ITC proceeding. The investigative office
of the ITC opposed the motion, claiming that, notwithstanding the Company's
settlement with TI, the Company's alleged violation of the ITC's cease and
desist order warranted the imposition of substantial penalties. On September 11,
1996, the ITC adopted the determination of the Administrative Law Judge to
terminate the enforcement proceeding and referred to the Department of Justice
certain allegations that the Company made false representations in reports filed
with the ITC. The Company advised the Department of Justice that it has
consistently and vigorously denied such allegations during the entire course of
the proceedings before the ITC and the Department of Justice informed the
Company that its statement would be considered in connection with any action it
may take on the matter. The Company is aware of no further activity by the
Department of Justice, and is unable to determine whether further activity will
occur regarding the foregoing matter.
In addition, from time to time as a normal incidence of the nature of the
Company's business, various claims, charges and litigation are asserted or
commenced against the Company arising from or related to contractual matters,
patents, trademarks, personal injury, environmental matters and product
liability. Such litigation includes patent infringement actions brought against
the Company by Sextant Avionique, S.A. in France and the United States and
Commissariat A. L'energie Atomique C.E.A. in France, claiming that the Company's
accelerometer infringes certain patents. While there can be no assurance that
the Company will prevail in any of these matters, the Company does not believe
that these matters will have a material adverse effect on the Company's
consolidated financial position or consolidated results of operations. However,
an unfavorable outcome could have an adverse effect on the Company's
consolidated results of operations in the quarter in which these matters are
resolved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of the fiscal year ended November 2, 1996.
9
11
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth (i) the name and age of each present executive
officer of the Company; (ii) the position(s) presently held by each person
named; and (iii) the principal occupations held by each person named for at
least the past five years.
EXECUTIVE OFFICER AGE POSITION BUSINESS EXPERIENCE
----------------- --- -------- -------------------
Ray Stata..................62 Chairman of the Board Chairman of the Board since 1973; Chief
Executive Officer from 1973 to November
1996; President from 1971 to November
1991.
Jerald G. Fishman..........51 President, Chief Executive Chief Executive Officer since November
Officer and Director 1996; President and Director since
November 1991; Executive Vice President
from 1988 to November 1991; Group Vice
President Components from 1982 to 1988.
Ross Brown.................52 Vice President, Human Resources Vice President, Human Resources since May
1993; U.S. Personnel Manager for Digital
Equipment Corp. from 1990 to 1993; Senior
Group Personnel Manager at Digital from 1986
to 1990.
David D. French............40 Vice President and General Vice President and General Manager, Computer
Manager, Computer Products Products Division since May 1994; Vice
Division President and General Manager of Systems IC
Products Division from November 1991 to May
1994; Division General Manager from February
1988 to November 1991.
Russell K. Johnsen.........42 Vice President and General Vice President and General Manager,
Manager, Communications Division Communications Division since May 1994; Vice
President and General Manager Analog Devices
Semiconductor Division from November 1993 to
May 1994; General Manager of the Wide Area
Networks Division of National Semiconductor
Corp. from 1992 to 1993.
Robert R. Marshall.........42 Vice President, Worldwide Vice President, Worldwide Manufacturing since
Manufacturing February 1994; Vice President, Manufacturing,
Limerick Site, Analog Devices, B.V. -
Limerick, Ireland from November 1991 to
February 1994; Plant Manager, Analog Devices,
B.V. - Limerick, Ireland from January 1991 to
November 1991.
10
12
EXECUTIVE OFFICER AGE POSITION BUSINESS EXPERIENCE
----------------- --- -------- -------------------
William A. Martin..........37 Treasurer Treasurer since March 1993; Assistant
. Treasurer from October 1991 to March 1993;
Manager of Treasury Finance from March 1987
to October 1991; Manager of International
Treasury from October 1985 to March 1987.
Robert McAdam..............46 Vice President and General Vice President and General Manager, Standard
Manager, Standard Linear Linear Products Division since February 1994;
Products Division Vice President and General Manager, Analog
Devices, B.V. - Limerick, Ireland from
January 1991 to February 1994; Product Line
Manager, Analog Devices, B.V. - Limerick,
Ireland from October 1988 to January 1991.
Brian P. McAloon...........46 Vice President, Sales Vice President, Sales since May 1992; Vice
President, Sales and Marketing - Europe and
Southeast Asia from 1990 to 1992; General
Manager, Analog Devices, B.V. - Limerick,
Ireland from 1987 to 1990.
Joseph E. McDonough........49 Vice President, Finance and Vice President, Finance and Chief Financial
Chief Financial Officer Officer since November 1991; Vice President
since 1988 and Treasurer from 1985 to March
1993; Director of Taxes from 1983 to 1985.
H. Goodloe Suttler.........45 Vice President, Marketing, Vice President, Marketing Quality and
Quality and Planning Planning since October 1993; Vice President
and General Manager, Analog Devices
Semiconductor Division from November 1991 to
October 1993; General Manager of Analog
Devices Semiconductor Division from August
1988 to November 1991.
Franklin Weigold...........57 Vice President and General Vice President and General Manager,
Manager, Transportation and Transportation and Industrial Products
Industrial Products Division Division since March 1992; President and
Chief Operating Officer of Unitrode from June
1990 to March 1992.
There is no family relationship among the named officers.
11
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under the
symbol ADI. The table below sets forth the high and low prices of the Common
Stock during the two most recent fiscal years.
1996 1995
----------------------- ------------------------
PERIOD HIGH LOW HIGH LOW
------ ---- --- ---- ---
First Quarter $ 19.38 $ 13.13 $ 12.25 $ 10.25
Second Quarter $ 22.63 $ 16.13 $ 14.13 $ 10.00
Third Quarter $ 22.38 $ 12.75 $ 19.00 $ 12.88
Fourth Quarter $ 22.25 $ 14.63 $ 19.75 $ 14.88
On December 3, 1996, the Company's Board of Directors authorized a
four-for-three stock split effected in the form of a 33 1/3% stock dividend
distributed on January 6, 1997 to stockholders of record December 16, 1996. All
stock prices in the table above have been restated to reflect the split.
The Company's $60,000,000 credit agreement restricts the aggregate of all cash
dividend payments declared or made subsequent to November 2, 1996 to an amount
not exceeding $150,000,000 plus 50% of the consolidated net income of the
Company for the period from November 3, 1996 through the end of the Company's
then most recent fiscal quarter. At November 2, 1996 this amount was equal to
$150,000,000. Although prior credit agreements may not have restricted the
payment of dividends, the Company has never paid any cash dividends on its
Common Stock.
The approximate number of holders of record of the Company's Common Stock at
December 31, 1996 was 4,956. This number does not include shareholders for whom
shares are held in a "nominee" or "street" name.
ITEM 6. SELECTED FINANCIAL DATA
(thousands except per share amounts) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
Statement of Operations data:
Net sales.................. $ 1,193,786 $ 941,546 $773,474 $666,319 $567,315
Net income................. 171,901 119,270 74,496 44,457 14,935
Net income per
share (1)................ 1.03 .75 .48 .29 .10
Balance Sheet data:
Total assets............... $ 1,515,685 $ 1,001,648 $815,871 $678,492 $561,867
Long-term debt and non-
current obligations under
capital leases........... 353,666 80,000 80,061 100,297 70,632
- ----------------------------------------------------------------------------------------------------------------------
(1) All references to per share amounts have been restated to reflect the
four-for-three stock split effected in the form of a 33 1/3% stock dividend
distributed on January 6, 1997 to stockholders of record December 16, 1996.
12
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
The Company reported net sales of $1,194 million in fiscal 1996, up $252 million
or 27% from net sales of $942 million in fiscal 1995. Fiscal year 1996 sales
growth was attributable to significant increases in sales volumes of both the
Company's standard linear IC and system-level IC products as worldwide demand
for precision integrated circuit products continued to increase in the first
half of fiscal 1996. During the third and fourth quarters a broad-based
inventory correction by end users, customers and distributors in response to the
shorter lead times available for many products from the Company and other
suppliers caused sales levels to be flat with the second quarter.
Demand for the Company's ICs was strong both in its core industrial and
instrumentation markets and in high-growth applications in the communications,
computer and portable wireless equipment markets. Total IC sales, representing
both standard linear and system-level ICs, constituted approximately 95% of
total sales in fiscal 1996, continuing the long-term trend of IC sales being a
major portion of the Company's revenues.
Sales of the Company's standard linear IC products, which continues to make up
the largest and most profitable part of the Company's business, increased 12% in
fiscal 1996 to $678 million. Standard linear IC sales, however, declined as a
percentage of total sales, accounting for 57% of total sales in fiscal 1996
compared to 64% in fiscal 1995, reflecting the significant revenue growth
experienced in the system-level IC business. The growth in sales of standard
linear ICs continues to be driven by the greater use of standard linear IC
products in new high-volume applications in wireless and broadband
communications, computer and consumer markets including digital cellular
handsets and base stations, video applications and imaging applications. In
fiscal 1996, the distributor channel continued to be a significant growth
channel for the Company's standard linear IC product line.
Sales of system-level ICs increased in fiscal 1996 to $453 million, as the
Company achieved substantial gains in its general-purpose digital signal
processing products and mixed-signal ICs for application-specific
system-on-a-chip solutions. The largest end user market growth for the Company's
system-level IC products was experienced in wireless communications
applications, including digital mobile phones and base stations. As a percentage
of total sales, system-level IC products, increased to 38% of total sales
compared to 28% in fiscal 1995.
Sales of the Company's assembled products decreased approximately $12 million
or 17% from fiscal 1995 to fiscal 1996 and as a percentage of total sales
decreased from 8% to 5% over this same period. The Company believes this sales
decrease reflects the decline in the market opportunities for this product line.
In fiscal 1996, sales to North American customers followed the trend of the
prior year and increased $90 million or 22% over fiscal 1995 to $503 million.
Sales to customers outside North America, primarily Europe and Southeast Asia,
increased $162 million or 31% to $691 million. Sales to European customers
increased $100 million or 38% to $364 million, with much of this growth
resulting from the Company's increased penetration of applications in the
communications market, particularly in handsets and base stations used in the
GSM (Global System for Mobile Communications) digital cellular telephone system
now widely deployed in Western Europe. Sales in Japan increased slightly by 1%
to $167 million largely as a result of a reduction in sales of standard linear
IC products for factory automation and other industrial market applications and
the weaker Japanese industrial economy. A strengthening average U.S. dollar
exchange rate also contributed to the lack of growth in Japanese sales. Sales to
customers in Southeast Asia increased 60% or $60 million to $160 million
compared to fiscal 1995 due to increased demand for products in the hard disk
drive, communications and computer products segments. As a percentage of total
sales, North American and international sales accounted for 42% and 58%,
respectively, compared to 44% and 56% in fiscal 1995.
In fiscal 1995 the distributor channel was a major contributor to sales growth
in North America as well as in Europe and Japan, especially for standard linear
IC and DSP products. Worldwide sales through distribution increased
approximately 23% from fiscal 1995 to fiscal 1996 and represented 41% of the
Company's total sales. Worldwide OEM sales increased by approximately 30% and
represented 59% of the Company's sales.
13
15
During fiscal 1996 the Company continued the multi-faceted manufacturing
capacity expansion program started in 1995 to substantially increase the number
of fabricated wafers available to it in fiscal 1996 and beyond. See "Liquidity
and Capital Resources" below for a discussion of the Company's actions to
address its capacity issues.
Gross margin was 50.3% of sales in fiscal 1996 compared to 50.7% of sales in
fiscal 1995. The reduction in gross margin was principally due to a lower
proportion of standard linear IC products in the mix of products sold, which
generally have higher gross margins than the Company's system-level IC products.
The reduction in gross margin in fiscal 1996 was also attributable to the
increase in capacity combined with the leveling off of sales in the latter half
of the year.
Research and development expenses increased approximately 32% in fiscal 1996 to
$178 million or 14.9% of sales. This increase was mainly due to the continued
development of innovative SLIC products and processes and higher spending in the
development of new products and technologies targeted for the communications,
computer and automotive markets, including initiatives in general-purpose
digital signal processing such as the Company's SHARC product family,
system-level ICs for computer audio and wireless communications applications, RF
signal processing, surface micromachining technology, accelerometer products.
The increase in R&D expenditures in fiscal 1996 was also attributable to
increased staffing of design engineering personnel and the start up of new
design centers. The Company believes that technical leadership in the
semiconductor industry is critical to its future success and is committed to
maintaining a high level of research and development effort.
Selling, marketing, general and administrative (SMG&A) expense growth in fiscal
1996 was held to 5.9%, as SMG&A increased from $185 million in fiscal 1995 to
$196 million in fiscal 1996. SMG&A expenses continued to decline as a percentage
of sales to 16.4% in fiscal 1996 compared to 19.6% in fiscal 1995 and 22.0% in
fiscal 1994, consistent with the Company's goal of constraining SMG&A spending
growth to a rate significantly below sales growth. The increase in SMG&A
expenses in absolute dollars was primarily related to higher incentive expenses
associated with improved revenue and profitability levels, and greater product
advertising and related promotional costs and commissions in support of the
Company's product lines and customer base.
Operating income grew 44% to 19% of sales compared to 17% of sales in fiscal
1995. This performance gain reflected the combination of accelerated demand for
the Company's products and continuing commitment to growing expenses more slowly
than sales.
Nonoperating income of $1.7 million in fiscal 1995 improved to $3.6 million in
fiscal 1996. Interest expense in fiscal 1996 increased from fiscal 1995 as a
result of the issuance of $230,000,000 of 3-1/2% Convertible Subordinated Notes
in December 1995 but this increase was more than offset by increased investment
income as a result of the positive spread between the coupon rate and the
investment rates achieved on available cash balances through fiscal 1996.
The effective income tax rate increased to 25.5% in fiscal 1996 from 25.2% in
fiscal 1995 due to earnings growth in higher tax rate jurisdictions including
the U.S. The Company maintained a valuation allowance for deferred tax assets of
$7.4 million at November 2, 1996 based on management's assessment that
realization of such deferred tax assets was not assured for book and tax capital
losses. The valuation allowance balance was $10.0 million at October 28, 1995.
The net change in the valuation allowance for the fiscal year ended November 2,
1996 was a decrease of $2.6 million as a result of the utilization of book basis
foreign tax credits and the use of capital tax loss carryforwards.
The growth in sales, improved operating performance and lower nonoperating
expenses yielded a 44.1% increase in net income to $171.9 million or 14.4% of
sales compared to $119.3 million or 12.7% of sales. Earnings per share in fiscal
1996 grew 37% to $1.03 from $0.75 in fiscal 1995.
The Company has not yet adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" which will require adoption in
fiscal 1997. The Company does not believe the adoption of these statements will
have a material impact on its consolidated financial statements.
The impact of inflation on the Company's business during the past three years
has not been significant.
14
16
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales of $942 million for fiscal 1995 increased 22% from net sales of $773
million for fiscal 1994. The sales increase was due to higher sales volumes of
standard linear IC and system-level IC products which comprise approximately 92%
of total sales for fiscal 1995.
Standard linear IC sales rose $137 million or 30% to $605 million in fiscal
1995. This increase was primarily due to the combination of increased
penetration of the Company's data converter and amplifier products in
high-performance instrumentation and factory automation applications and greater
use of standard linear IC products in new high-volume applications in the
communications, computer and consumer markets including digital cellular
handsets and base stations, video and imaging applications.
Sales of system-level IC products grew $70 million or 46% to $262 million in
fiscal 1995. This growth was attributable largely to increased demand for
applications in personal computers and wireless communications products
including digital mobile phones and base stations, and the Company's broader
participation in these growing markets.
Sales of assembled products declined approximately 3% from fiscal 1994 to fiscal
1995 and as a percentage of total sales decreased from 11% to 8% over the same
period.
Sales to North American customers increased 20% over fiscal 1994 levels to $412
million with much of this increase coming from the distributor channel as sales
through North American distributors increased 40% from the prior year. Sales to
international customers grew 23% led by sales increases of approximately 24% and
34% in Japan and Europe, respectively. Sales growth in Japan was mainly
attributable to increased demand for standard linear IC products, and the weaker
U.S. dollar exchange rate also contributed to some of the sales improvement in
Japan. The sales increase in Europe represented continued strength in sales of
products in the communications markets, particularly in handsets and base
stations used in GSM digital cellular telephone systems. Southeast Asia sales of
$100 million for fiscal 1995 were flat compared to the prior year due to
significant decline in hard disk drive sales. As a percentage of total net
sales, North American and international sales remained at 44% and 56%,
respectively, which were comparable to fiscal 1994.
Gross margin improved to 50.7% of sales for fiscal 1995 compared to 49.0% for
fiscal 1994. This increase was principally due to a higher proportion of
standard linear IC products in the mix of products sold which typically generate
higher gross margins than the Company's system-level IC products. The fiscal
1995 improvement in gross margin was also attributable to greater capacity
utilization, resulting in the absorption of fixed manufacturing costs over
increased production levels.
R&D expenses for fiscal 1995 increased 26% from fiscal 1994 as the Company
continued to invest in new product development. As a percentage of sales, R&D
expenses were 14.3% in fiscal 1995 compared to 13.8% in fiscal 1994.
Selling, marketing, general and administrative (SMG&A) expense growth was held
to 8.6% compared to fiscal 1994, increasing at a lower rate than sales. As a
result, SMG&A as a percentage of sales decreased to 19.6% for fiscal 1995 from
22% for fiscal 1994. The increase in SMG&A expenses related mostly to increased
incentive expenses associated with improved revenue and profitability levels and
greater product advertising and related promotional costs in support of the
Company's product lines and customers.
In total, operating expenses were reduced to 33.9% of sales, down from 35.8% in
fiscal 1994, consistent with the Company's emphasis on maintaining tight control
over all costs in order to gain better operating leverage on increases in
revenues.
Operating income reached 16.8% of sales for fiscal 1995, an increase of 3.6
percentage points from 13.2% of sales for fiscal 1994. This performance gain
reflected the higher sales level, improvement in gross margin as a percentage of
sales and slower rate of expense growth versus sales.
Nonoperating expenses decreased $6.6 million in fiscal 1995, benefiting from a
reduction in interest expense of $2.9 million and an increase in interest income
of $2.9 million for the year. The maturity of a term loan of $20 million in
early fiscal 1995 and on average higher cash balances invested at a higher
weighted average investment rate were the main causes of the change over fiscal
1994.
15
17
The effective income tax rate increased to approximately 25% in fiscal 1995 from
approximately 23% in fiscal 1994 due to a shift in the mix of worldwide income.
The Company maintained a deferred tax asset valuation allowance of $10 million
at both October 28, 1995 and October 29, 1994 based on management's assessment
that realization of such deferred tax assets was not assured for book and tax
capital losses and book basis foreign tax credits.
The growth in sales, improved operating performance and lower nonoperating
expenses resulted in a 60% increase in net income to $119.3 million or 12.7% of
sales in fiscal 1995 compared to $74.5 million or 9.6% of sales in fiscal 1994.
Earnings per share in fiscal 1995 grew 56% to $0.75 from $0.48 in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
At November 2, 1996, the Company had $300 million of cash, cash equivalents and
short-term investments compared to $151 million at October 28, 1995. The
Company's operating activities generated net cash of $144 million, or 12% of
sales, and $210 million, or 22.3% of sales, in fiscal 1996 and fiscal 1995,
respectively. Investing activities used $305 million in fiscal 1996 and $239
million in fiscal 1995 while financing activities generated $301 million in
fiscal 1996 and used $11 million in fiscal 1995. Working capital increased to
$550 million at the end of fiscal 1996 from $272 million at the end of fiscal
1995. This increase was primarily due to higher cash and cash equivalents and
short-term investments and higher receivable and inventory associated with the
expanded scale of operations.
The Company's primary source of funds in fiscal year 1995 was net cash generated
by operations, but in fiscal year 1996 the primary source of funding was from
financing, the major item being the issuance of long-term convertible debt which
generated net proceeds of $224 million. There was a $67 million reduction in
operating cash flows from $210 million in fiscal 1995 to $144 million fiscal
1996. Net income was higher in fiscal 1996 by $53 million but this increase was
offset by increases in receivables and inventory which were only partially
offset by increases in depreciation and various liability accounts. The non-cash
effect of depreciation and amortization expense was $84 million and $64 million
in fiscal 1996 and fiscal 1995, respectively. As a result of internal capacity
expansion, depreciation expense is expected to be higher in fiscal 1997 as these
additions continue to ramp up.
Accounts receivable of $242 million at the end of fiscal 1996 increased $61
million or 33% from $181 million at the end of fiscal 1995. This increase was
caused by an increase in revenue and non-linearity of shipments at the year end.
As a percentage of annualized fourth quarter sales, accounts receivable was
19.8% at the end of fiscal 1996 compared to 17.6% at the end of fiscal 1995 and
20.0% at the end of fiscal 1994.
Inventories rose $75 million or 52% over the prior year to $219 million at the
end of fiscal 1996. This increase was primarily due to an increase in standard
linear inventory levels needed to service increasing sales volumes and to offset
unusually low inventory levels at the end of fiscal 1995 caused by the capacity
shortages at that time and to improve customer response times. Additional
manufacturing capacity during fiscal 1996 also caused inventory levels to
increase. Accordingly, year-end inventories as a percentage of annualized fourth
quarter sales increased from 14% in fiscal 1995 to 18% in fiscal 1996.
Accounts payable and accrued liabilities remained essentially flat at
approximately $174 million at the end of both fiscal 1996 and 1995, as increases
caused by increased expense activity related to the higher revenue level were
offset by reductions in capital expenditures in the fourth quarter of fiscal
1996 when compared to the year-earlier period.
The Company's principal investment activities during fiscal 1996 were in support
of its manufacturing capacity expansion programs and included capital
expenditures of $234 million and an investment of $42 million (which was an
installment on an 18% share in a wafer fabrication facility on a joint venture
basis with Taiwan Semiconductor Manufacturing Company ("TSMC"))and a further
investment of approximately $7 million in Chartered Semiconductor Manufacturing,
Pte. Ltd. in Singapore.
Capital expenditures in fiscal 1996, of $234 million, were $21 million higher
than in fiscal 1995 with a significant portion of these expenditures related to
the construction of additional manufacturing capacity including further
development of the six-inch wafer fabrication plant at the Company's Limerick
manufacturing facility.
16
18
Also during fiscal 1996, the Company continued to upgrade its existing
Wilmington, Massachusetts wafer fabrication facility from four-inch to six-inch
wafer production. This additional capacity became available in the latter half
of fiscal 1996, and is used primarily for high-speed linear products. In
addition, the Company continued development of the six-inch wafer fabrication
module located in Sunnyvale, California. This six-inch facility is being
upgraded and modernized and a CBCMOS process is currently being developed.
Production was scheduled to start in late 1996 but because of the slowdown in
demand, production is temporarily delayed. The Company also signed an agreement
to lease a wafer fabrication facility in Cambridge, Massachusetts and is
upgrading this facility which will be used for the production of the
accelerometer and other micromachined products. The Company also expanded
assembly and test facilities in the Philippines during fiscal 1996 by adding a
new site which is expected to commence production in early 1997.
In June 1996, the Company entered into a joint venture agreement with TSMC, two
other companies and several individual 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 $140.4 million investment. The investment is to be
made in three installments of which the first and second were made on June 25,
1996 and December 2, 1996 both in the amount of $42.1 million. The remaining
installment of $56.2 million is due on November 3, 1997.
In fiscal 1995, the Company made an equity investment of $14 million in
Chartered Semiconductor Manufacturing Pte., Ltd. ("CSM") in Singapore and in
fiscal 1996 the Company made an additional investment of approximately $7
million, in exchange for less than 5% ownership interest.
In fiscal 1995, the Company entered into a supply agreement with its primary
wafer foundry, TSMC. Under this agreement, the Company agreed to make a series
of advance payments to TSMC aggregating $22.4 million, payable over a three-year
period, in order to secure access to a minimum level of wafer capacity over the
period from 1996 to 1999. However, during fiscal 1996 the arrangement was
modified whereby the Company would maintain a constant deposit of $6.4 million
with TSMC.
In January 1996, the Company entered into an additional agreement with CSM,
whereby the Company will provide a total deposit of approximately $20.0 million
to be paid in several installments in 1996 and 1997. In fiscal 1996 $8.0 million
was provided to CSM under this arrangement and is classified in the balance
sheet line item, "Deferred Charges and Other Assets." Under the terms of this
agreement, the deposit will guarantee access to certain quantities of sub-micron
wafers through fiscal 2000. If the Company does not purchase the minimum
quantities under the agreement, the deposit will be forfeited for the value of
the wafer shortfall up to the total amount of $20.0 million. At the end of the
agreement term, the Company's deposit will be returned, net of any forfeitures.
The Company currently plans to make capital expenditures of approximately $175
million in fiscal 1997, primarily in connection with the continued expansion of
its manufacturing capacity.
Financing activities in fiscal 1996 generated cash of $224 million from the
issuance of long-term convertible debt, $62 million from equipment financing and
$26 million from the issuance of common stock under the employee stock purchase
and stock option plans. Cash used in the Company's financing activities in
fiscal 1996 was for the repayment of $4 million of variable rate borrowings and
$7 million for the repayment of capital lease obligations.
At November 2, 1996, the Company's principal sources of liquidity included $300
million of cash, cash equivalents and short-term investments. Short-term
investments at the end of fiscal 1996 consisted of commercial paper,
certificates of deposit and Euro time deposits with maturities greater than
three months and less than six months at the 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 the end of fiscal 1996. At the end of fiscal 1996,
the Company's debt-to-equity ratio was 42%.
17
19
On December 18, 1995, the Company completed a public offering of $230,000,000 of
five-year 3-1/2% Convertible Subordinated Notes due December 1, 2000 with
semi-annual interest payments on June 1 and December 1 of each year, commencing
June 1, 1996. The Notes are convertible, at the option of the holder, into the
Company's common stock at any time unless previously redeemed by the Company, at
a conversion price of $20.938 per share, subject to adjustment in certain
events. The net proceeds of the offering were approximately $224 million after
payment of the underwriting discount and expenses of the offering which will be
amortized over the term of the Notes.
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 Item 3 - "Business-Legal Proceedings," 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. During the past six months demand for the
Company's product has leveled off, and the Company has used this opportunity to
replenish 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 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.
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 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, and such reliance involves several risks, including reduced
control over delivery schedules,
18
20
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. The Company also believes that other semiconductor manufacturers are
also expanding or planning to expand their production capacity over the next
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.
For fiscal 1996, 58% 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.
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" 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.
19
21
ANALOG DEVICES, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED NOVEMBER 2, 1996
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
20
22
ANALOG DEVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION INCLUDED IN ITEM 8:
Report of Ernst & Young LLP, Independent Auditors................................................ 22
Consolidated Statements of Income for the years ended November 2, 1996, October 28, 1995
and October 29, 1994 ......................................................................... 23
Consolidated Balance Sheets as of November 2, 1996, October 28, 1995 and October 29, 1994 ....... 24
Consolidated Statements of Stockholders' Equity for the years ended November 2, 1996,
October 28, 1995 and October 29, 1994 ........................................................ 25
Consolidated Statements of Cash Flows for the years ended November 2, 1996, October 28, 1995
and October 29, 1994 ......................................................................... 26
Notes to Consolidated Financial Statements....................................................... 27
Supplementary Financial Information
(Quarterly Financial Information/1996 and 1995 - Unaudited)................................... 43
21
23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Analog Devices, Inc.
We have audited the accompanying consolidated balance sheets of Analog Devices,
Inc. as of November 2, 1996, October 28, 1995 and October 29, 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended November 2, 1996. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Analog
Devices, Inc. at November 2, 1996, October 28, 1995 and October 29, 1994, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended November 2, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
December 3, 1996
22
24
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended November 2, 1996, October 28, 1995 and October 29, 1994
(thousands except per share amounts) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
REVENUE Net sales................................................ $ 1,193,786 $ 941,546 $ 773,474
COSTS AND Cost of sales............................................ 593,033 464,571 394,448
EXPENSES
Gross margin............................................. 600,753 476,975 379,026
Operating expenses:
Research and development............................... 177,772 134,265 106,869
Selling, marketing, general
and administrative................................... 195,842 184,943 170,341
----------- ----------- ----------
373,614 319,208 277,210
----------- ----------- ----------
Operating income......................................... 227,139 157,767 101,816
Nonoperating (income) expenses:
Interest expense....................................... 11,289 4,201 7,149
Interest income........................................ (16,535) (8,103) (5,165)
Other.................................................. 1,645 2,234 2,921
----------- ----------- ----------
(3,601) (1,668) 4,905
----------- ----------- ----------
EARNINGS Income before income taxes............................... 230,740 159,435 96,911
Provision for income taxes:
Payable currently...................................... 52,115 52,414 30,720
Deferred (prepaid)..................................... 6,724 (12,249) (8,305)
----------- ----------- ----------
58,839 40,165 22,415
----------- ----------- ----------
Net income .............................................. $ 171,901 $ 119,270 $ 74,496
=========== ========== ==========
Shares used to compute earnings per share................ 171,289 158,715 154,539
=========== ========== ==========
Earnings per share of common stock....................... $ 1.03 $ .75 $ .48
=========== ========== ==========
See accompanying notes.
23
25
ANALOG DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
November 2, 1996, October 28, 1995 and October 29, 1994
(thousands except share amounts)
ASSETS 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
CURRENT Cash and cash equivalents............................... $ 210,109 $ 69,303 $ 109,113
ASSETS Short-term investments.................................. 89,810 81,810 72,652
Accounts receivable less allowances of $7,374
($4,439 in 1995 and $6,403 in 1994)................... 241,847 181,327 162,337
Inventories............................................. 218,877 143,962 130,726
Deferred tax assets..................................... 44,879 39,650 25,587
Prepaid expenses and other current assets............... 14,728 9,966 5,042
---------- ---------- ----------
Total current assets.................................... 820,250 526,018 505,457
---------- ---------- ----------
PROPERTY, Land and buildings...................................... 140,776 139,718 111,857
PLANT AND Machinery and equipment................................. 800,086 633,124 477,339
EQUIPMENT, Office equipment........................................ 46,307 41,260 36,613
AT COST Leasehold improvements.................................. 80,099 42,165 33,070
---------- ---------- ----------
1,067,268 856,267 658,879
Less accumulated depreciation and amortization.......... 483,946 424,305 377,064
---------- ---------- ----------
Net property, plant and equipment....................... 583,322 431,962 281,815
---------- ---------- ----------
OTHER Investments............................................. 68,382 13,980 -
ASSETS Intangible assets, net.................................. 16,846 17,230 19,262
Deferred charges and other assets....................... 26,885 12,458 9,337
---------- ---------- ----------
Total other assets...................................... 112,113 43,668 28,599
---------- ---------- ----------
$1,515,685 $ 1,001,648 $ 815,871
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
CURRENT Short-term borrowings and current portion of
LIABILITIES long-term debt........................................ $ 178 $ 2,299 $ 22,917
Obligations under capital leases........................ 10,960 60 236
Accounts payable........................................ 90,177 100,217 74,506
Deferred income on shipments to domestic distributors... 38,400 27,588 18,881
Income taxes payable.................................... 46,459 50,086 29,425
Accrued liabilities..................................... 84,062 74,138 60,221
---------- ---------- ----------
Total current liabilities............................... 270,236 254,388 206,186
---------- ---------- ----------
NONCURRENT Long-term debt.......................................... 310,000 80,000 80,000
LIABILITIES Noncurrent obligations under capital leases............. 43,666 - 61
Deferred income taxes................................... 16,992 5,039 3,225
Other noncurrent liabilities............................ 11,956 6,255 4,484
---------- ---------- ----------
Total noncurrent liabilities............................ 382,614 91,294 87,770
---------- ---------- ----------
Commitments and Contingencies
STOCKHOLDERS' Preferred stock, $1.00 par value, 500,000 shares
EQUITY authorized, none outstanding.......................... - - -
Common stock, $.16 2/3 par value, 450,000,000
shares authorized, 158,745,219 shares issued
(114,583,932 in 1995 and 75,252,112 in 1994).......... 26,458 19,098 12,542
Capital in excess of par value, net of deferred compen-
sation of $4,679 ($3,181 in 1995 and $4,757 in 1994) 176,357 149,775 141,159
Retained earnings....................................... 653,365 481,464 362,194
Cumulative translation adjustment....................... 6,655 5,870 6,020
---------- ---------- ----------
862,835 656,207 521,915
Less shares in treasury, at cost, none in 1996
(51,876 in 1995 and none in 1994)..................... - 241 -
---------- ---------- ----------
Total stockholders' equity.............................. 862,835 655,966 521,915
---------- ---------- ----------
$1,515,685 $1,001,648 $ 815,871
========== ========== ==========
See accompanying notes.
24
26
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended November 2, 1996, CAPITAL IN CUMULATIVE
October 28, 1995 and October 29, 1994 COMMON STOCK EXCESS OF RETAINED TRANSLATION TREASURY STOCK
------------ --------------
(thousands) SHARES AMOUNT PAR VALUE EARNINGS ADJUSTMENT SHARES AMOUNT
====================================================================================================================================
Balance, October 30,
1993 50,925 $ 8,488 $143,502 $287,698 $5,473 (1,727) $ (13,143)
- ------------------------------------------------------------------------------------------------------------------------------------
ACTIVITY Net income - 1994 74,496
IN FISCAL Issuance of stock under
1994 stock plans and other,
net of repurchases 470 78 7,276 501 3,483
Compensation recognized
under Restricted Stock Plan 1,851
Tax benefit on exercise of non-
qualified stock options and
disqualifying dispositions
under stock plans 2,166
Three-for-two stock split 23,857 3,976 (13,636) 1,226 9,660
Currency translation
adjustment 547
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, October 29,
1994 75,252 12,542 141,159 362,194 6,020 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
ACTIVITY Net income - 1995 119,270
IN FISCAL Issuance of stock under
1995 stock plans and other,
net of repurchases 1,137 190 10,462 (35) (241)
Compensation recognized
under Restricted Stock Plan 1,672
Tax benefit on exercise of non-
qualified stock options and
disqualifying dispositions
under stock plans 2,848
Three-for-two stock split 38,195 6,366 (6,366) (17) --
Currency translation
adjustment (150)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, October 28,
1995 114,584 19,098 149,775 481,464 5,870 (52) (241)
- ------------------------------------------------------------------------------------------------------------------------------------
ACTIVITY Net income - 1996 171,901
IN FISCAL Issuance of stock under
1996 stock plans and other,
net of repurchases 2,228 371 15,474 52 241
Exercise of warrants 2,250 375 11,721
Compensation recognized
under Restricted Stock Plan 1,949
Tax benefit on exercise of non-
qualified stock options and
disqualifying dispositions
under stock plans 4,052
Four-for-three stock split* 39,683 6,614 (6,614)
Currency translation
adjustment 785
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at November 2,
1996 158,745 $ 26,458 $176,357 $653,365 $6,655 -- $ --
====================================================================================================================================
See accompanying notes.
* See Note 2(p)
25
27
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 2, 1996, October 28, 1995 and October 29, 1994
(thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS Cash flows from operations:
Net income ............................................. $ 171,901 $ 119,270 $ 74,496
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization....................... 83,809 64,098 61,284
Deferred income taxes............................... 6,565 (12,360) (6,024)
Other noncash expenses (income)..................... (638) 151 2,195
(Increase) in accounts receivable................... (66,860) (18,263) (7,661)
(Increase) decrease in inventories.................. (76,748) (14,402) 20,756
(Increase) in prepaid expenses and other
current assets................................... (4,782) (4,959) (598)
Increase in accounts payable,
deferred income and accrued liabilities.......... 23,844 51,332 28,939
Increase in income taxes payable.................... 425 23,784 14,063
Increase (decrease) in other liabilities............ 6,201 1,599 (839)
--------- --------- ----------
Total adjustments....................................... (28,184) 90,980 112,115
--------- --------- ----------
Net cash provided by operations............................ 143,717 210,250 186,611
--------- --------- ----------
INVESTMENTS Cash flows from investments:
Purchase of short-term investments available for sale... (262,648) (166,225) (72,652)
Maturities of short-term investments available for sale. 254,648 162,067 -
Additions to property, plant and equipment, net......... (234,099) (212,671) (90,856)
Long-term investments................................... (54,402) - -
(Increase) in other assets.............................. (8,971) (16,878) (3,269)
Purchase of short-term investments held to maturity..... - (7,200) -
Maturities of short-term investments held to maturity... - 2,200 -
--------- --------- ----------
Net cash used for investments.............................. (305,472) (238,707) (166,777)
--------- --------- ----------
FINANCING Cash flows from financing activities:
ACTIVITIES Proceeds from issuance of long-term debt................ 224,385 - -
Proceeds from equipment financing....................... 61,793 - -
Proceeds from employee stock plans...................... 14,028 10,126 9,821
Proceeds from warrants exercised........................ 12,096 - -
Net increase (decrease) in variable rate borrowings..... (3,580) (787) 485
Payments on capital lease obligations................... (7,227) (237) (335)
Payments on long-term debt.............................. - (20,000) -
--------- --------- ----------
Net cash (used for) provided by financing activities....... 301,495 (10,898) 9,971
--------- --------- ----------
Effect of exchange rate changes on cash.................... 1,066 (455) (1,360)
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents....... 140,806 (39,810) 28,445
Cash and cash equivalents at beginning of year............. 69,303 109,113 80,668
--------- --------- ----------
Cash and cash equivalents at end of year................... $ 210,109 $ 69,303 $ 109,113
========= ========= ==========
SUPPLE- Cash paid during the year for:
MENTAL Income taxes............................................ $ 52,541 $ 30,511 $ 12,965
========= ========= ==========
INFORMATION Interest................................................ $ 10,171 $ 6,685 $ 6,923
========= ========= ==========
See accompanying notes.
26
28
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 2, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
(ALL TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
Analog Devices, Inc. ("Analog" or the "Company") designs, manufactures and
markets a broad line of high-performance linear, mixed-signal and digital
integrated circuits ("ICs") that address a wide range of real-world signal
processing applications. The Company's two principal product groups are
general-purpose, standard-function linear and mixed-signal ICs ("SLICs") and
system-level ICs. The latter group includes general-purpose digital signal
processing ICs (DSPs) and application-specific devices that typically
incorporate analog and mixed-signal circuitry and a DSP core. Analog's third
product group consists of devices manufactured using assembled product
technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all of its wholly owned subsidiaries. Upon consolidation, all significant
intercompany accounts and transactions are eliminated. The Company's fiscal year
ends on the Saturday closest to the last day in October. Fiscal year 1996 was a
53 week year, while 1995 and 1994 were each 52 week years.
Certain amounts reported in previous years have been reclassified to conform to
the 1996 presentation.
b. CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents are highly liquid investments with insignificant
interest rate risk and maturities of three months or less at the time of
acquisition. Investments with maturities between three and twelve months at time
of acquisition are considered short-term investments. Short-term investments
consist of debt securities such as commercial paper, time deposits, certificates
of deposit and bankers acceptances. Long-term investments consist of equity
securities and bank money market funds as well as time deposits which the
Company intends to renew at each maturity date.
Effective October 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115), which creates certain classification categories
for such investments, based on the nature of the securities and the intent and
investment goals of the Company. FAS 115 requires investments in debt and equity
securities to be classified as "held-to-maturity," "available-for-sale," or
"trading" at the time of purchase and for such designation to be reevaluated as
of each balance sheet date. Held-to-maturity securities, which are carried at
amortized cost, include only those securities the Company has the positive
intent and ability to hold to maturity. Available-for-sale securities are
carried at fair value with unrealized gains and losses, net of related tax, if
any, reported as a separate component of stockholders' equity. Realized gains
and losses, declines in value judged to be other than temporary, as well as
interest, dividends and capital gains distributions on all securities are
included in earnings. At November 2, 1996, the Company did not own any
securities classified as trading.
27
29
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
While it is the intent of management to hold securities to maturity, unforeseen
events, while not generally expected, could cause the Company to liquidate
certain securities prior to maturity. Accordingly, those securities which could
readily be sold back to the seller are classified as available-for-sale.
Securities, such as bank time deposits, which by their nature are typically
held-to-maturity are classified as such. The following is a summary of
available-for-sale and held-to-maturity securities at November 2, 1996 and
October 28, 1995:
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------------------------------ ----------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
1996 COST GAINS LOSSES FAIR VALUE COST
===================================================================================================
Cash equivalents:
Commercial paper $ 83,713 $ -- $- $ 83,713 $ --
Euro time deposits -- -- - -- 94,656
Certificates of deposit 8,000 -- - 8,000 --
Short-term investments:
Commercial paper 89,810 -- - 89,810 --
Long-term investments:
Equity securities 4,186 386 2 4,570 --
Euro time deposits -- -- - -- 836
Bank money market fund 19 -- - 19 --
- ---------------------------------------------------------------------------------------------------
Total $185,728 $386 $2 $186,112 $95,492
===================================================================================================
1995
===================================================================================================
Cash equivalents:
Commercial paper $ 27,727 $ -- $- $ 27,727 $ --
Euro time deposits -- -- - -- 31,300
Short-term investments:
Commercial paper 73,874 -- - 73,874 --
Bankers' acceptances 2,936 -- - 2,936 --
Euro time deposits -- -- - -- 5,000
- ---------------------------------------------------------------------------------------------------
Total $104,537 $ -- $- $104,537 $36,300
===================================================================================================
Cash equivalents and short-term investments classified as available-for-sale and
held-to-maturity at November 2, 1996 and October 28, 1995 have contractual
maturities of six months or less at time of acquisition. Because of the short
term to maturity, and hence relative price insensitivity to changes in market
interest rates, amortized cost approximates fair value for all of these
securities. As such, no unrealized gains or losses were recorded during each of
those years. Long-term bank time deposits, although renewed on a continual
basis, typically have original maturities of two weeks. As such, they are price
insensitive to changes in market interest rates and amortized cost therefore
approximates fair value. Bank money market funds, which have been categorized as
long-term investments, by their nature maintain a constant par value of $1 per
share. Amortized cost for these securities, therefore, approximates fair value.
The fair value of long-term equity securities was determined based on published
market quotes at November 1, 1996. The net unrealized gain of $384,000 is
included in stockholders' equity at November 2, 1996. There were no gross
realized gains from the sale of available-for-sale securities for the years
ended November 2, 1996 and October 28, 1995. Gross realized losses from the sale
of available-for-sale securities for the year ended November 2, 1996 were not
material. There were no gross realized losses from the sale of
available-for-sale securities for the year ended October 28, 1995.
28
30
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
c. INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market. Inventories at November 2, 1996, October 28, 1995 and October 29, 1994
were as follows:
1996 1995 1994
================================================================================================
Raw materials $ 31,039 $ 22,327 $ 15,277
Work in process 115,799 77,526 69,771
Finished goods 72,039 44,109 45,678
- ------------------------------------------------------------------------------------------------
Total inventories $ 218,877 $ 143,962 $ 130,726
================================================================================================
A director of a raw material supplier was also a director of the Company through
January 1995. Total purchases from this supplier approximated $11,038,000
through January 1995 and $28,435,000 in 1994. Accounts payable to this supplier
at October 29, 1994 approximated $1,090,000. The Company believes that the terms
of these purchases were comparable to those available from other suppliers.
d. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost less allowances for
depreciation and amortization. The straight-line method of depreciation is used
for all classes of assets for financial statement purposes; both straight-line
and accelerated methods are used for income tax purposes. Capitalized leases and
leasehold improvements are amortized based upon the lesser of the term of the
lease or the useful life of the asset. Depreciation and amortization are based
on the following useful lives:
Buildings & Building Equipment Up to 25 years
Machinery & Equipment 3-10 years
Office Equipment 3-8 years
Total depreciation and amortization of property, plant and equipment was
$81,740,000, $62,066,000 and $59,240,000 in 1996, 1995 and 1994, respectively.
e. INTANGIBLE ASSETS
Intangible assets at November 2, 1996 consist of goodwill, patents and other
intangibles. Goodwill is being amortized on a straight-line basis over a
fifteen-year period. Patents and other intangibles are being amortized on a
straight-line basis over their estimated economic lives which range from seven
to fifteen years. Amortization expense for all intangible assets was $2,069,000,
$2,032,000 and $2,044,000 in 1996, 1995 and 1994, respectively. Accumulated
amortization for all intangible assets was $12,737,000, $10,668,000 and
$8,636,000 at November 2, 1996, October 28, 1995 and October 29, 1994,
respectively. On a periodic basis, the Company estimates the future undiscounted
cash flows of the businesses to which the intangible assets relate in order to
ensure that the carrying value of such intangible assets has not been impaired.
f. GRANT ACCOUNTING
The Company's manufacturing facility in Limerick, Ireland has received various
grants from the Industrial Development Authority of the Republic of Ireland.
These grants include capital, employment, and research and development grants.
Capital grants for the acquisition of property and equipment are netted against
the related capital expenditures and amortized as a credit to depreciation
expense over the useful life of the related asset. Employment grants, which
relate to employee hiring and training, and research and development grants are
recognized in earnings in the period in which the related expenditures are
incurred by the Company.
29
31
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
g. TRANSLATION OF FOREIGN CURRENCIES
The functional currency for the Company's foreign sales operations is the
applicable local currency. Gains and losses resulting from translation of these
foreign currencies into U.S. dollars are accumulated in a separate component of
stockholders' equity. Transaction gains and losses are included in income
currently, including those at the Company's principal foreign manufacturing
operations where the functional currency is the U.S. dollar. Net foreign
currency transaction gains or losses included in other expenses, net, were not
material in fiscal 1996, 1995 and 1994.
h. FOREIGN CURRENCY INSTRUMENTS AND INTEREST RATE AGREEMENTS
The Company enters into forward foreign exchange contracts, foreign currency
option contracts and currency swap agreements to offset certain operational and
balance sheet exposures from changes in foreign currency exchange rates. Such
exposures result from the portion of the Company's operations, assets and
liabilities that are denominated in currencies other than the U.S. dollar,
primarily Japanese yen and European currencies. These foreign exchange contract,
option and swap transactions are entered into to support product sales,
purchases and financing transactions made in the normal course of business, and
accordingly, are not speculative in nature.
Forward foreign exchange contracts are utilized to manage the risk associated
with currency fluctuations on certain firm sales and purchase commitments
denominated in foreign currencies and certain non-U.S. dollar denominated asset
and liability positions. The Company's forward foreign exchange contracts are
primarily denominated in Japanese yen and certain European currencies and are
for periods consistent with the terms of the underlying transactions, generally
one year or less. The forward foreign exchange contracts that relate to firm,
foreign currency sales and purchase commitments are designated and effective as
hedges of firm, identifiable foreign currency commitments, and accordingly, the
gains and losses resulting from the impact of currency exchange rate movements
on these contracts are not recognized in operations until the underlying hedged
transactions are recognized. Upon recognition, such gains and losses are
recorded in operations as an adjustment to the carrying amount of the underlying
transactions in the period in which these transactions are recognized.
Unrealized gains and losses resulting from the impact of currency exchange rate
movements on forward foreign exchange contracts designated to offset certain
non-U.S. dollar denominated assets and liabilities are recognized as other
income or expense in the period in which the exchange rates change and offset
the foreign currency gains and losses on the underlying exposures being hedged.
The contract amounts of forward foreign exchange contracts outstanding were
$147.0 million, $181.7 million and $136.4 million at November 2, 1996, October
28, 1995 and October 29, 1994, respectively.
The Company also may periodically enter into foreign currency option contracts
to offset certain probable anticipated, but not firmly committed, foreign
currency transactions related to the sale of product during the ensuing nine
months. When the dollar strengthens significantly against the foreign
currencies, the decline in value of future currency cash flows is partially
offset by the gains in value of the purchased currency options designated as
hedges. Conversely, when the dollar weakens, the increase in value of future
foreign currency cash flows is reduced only by the premium paid to acquire the
options. The Company's foreign currency option contracts are primarily
denominated in Japanese yen and generally have maturities which do not exceed
six months. These foreign currency option contracts are designated and effective
as hedges of anticipated foreign currency sales transactions, and accordingly,
the premium cost and any realized gains associated with these contracts are
deferred and included in the consolidated balance sheet as prepaid expenses and
accrued liabilities, respectively, until such time as the underlying sales
transactions are recognized. Upon recognition, such premium costs and any
realized gains are recorded in sales as a component of the underlying sales
transactions being hedged. The contract amounts of foreign currency option
contracts outstanding were $27.6 million, $26.9 million and $28.6 million at
November 2, 1996, October 28, 1995 and October 29, 1994, respectively. Deferred
gains or losses attributable to foreign currency option contracts were not
material at November 2, 1996, October 28, 1995 and October 29, 1994.
30
32
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company uses currency swap agreements to hedge the value of its net
investment in certain of its foreign subsidiaries. Realized and unrealized gains
and losses on such agreements related to the net foreign investment being hedged
are recognized in the cumulative translation adjustment component of
stockholders' equity, with the related amounts due to or from counterparties
included in accrued liabilities or other current assets. The contract amount of
currency swap agreements outstanding, which were principally denominated in
Japanese yen, was $10.0 million at November 2, 1996, October 28, 1995 and
October 29, 1994. The currency swap agreement outstanding at November 2, 1996
has a remaining maturity of 3.5 years and is expected to remain in effect until
expiration.
The Company enters into interest rate swap and cap agreements to manage its
exposure to interest rate movements by effectively converting a portion of its
debt and certain financing arrangements from fixed to variable rates. Maturity
dates of interest rate swap and cap agreements generally match those of the
underlying debt or financing arrangements. These agreements, which have
maturities of up to eleven years involve the exchange of fixed rate payments for
variable rate payments without the exchange of the underlying principal amounts.
Variable rates are based on six-month U.S. dollar LIBOR and reset on a
semiannual basis. The differential between fixed and variable rates to be paid
or received is accrued as interest rates change in accordance with the
agreements and recognized over the life of the agreements as an adjustment to
interest expense. The notional principal amounts of interest rate swap and cap
agreements outstanding were $50.2 million, $50.3 million and $50.5 million at
November 2, 1996, October 28, 1995 and October 29, 1994.
The cash requirements of the above-described financial instruments approximate
their fair value. Cash flows associated with these financial instruments are
classified consistent with the cash flows from the transactions being hedged.
Derivative financial instruments involve, to a varying degree, elements of
market and credit risk not recognized in the consolidated financial statements.
The market risk associated with these instruments resulting from currency
exchange rate or interest rate movements is expected to offset the market risk
of the underlying transactions, assets and liabilities being hedged. The
counterparties to the agreements relating to the Company's foreign exchange and
interest rate instruments consist of a number of major international financial
institutions with high credit ratings. The Company does not believe that there
is significant risk of nonperformance by these counterparties because the
Company continually monitors the credit ratings of such counterparties, and
limits the financial exposure and the amount of agreements entered into with any
one financial institution. While the contract or notional amounts of derivative
financial instruments provide one measure of the volume of these transactions,
they do not represent the amount of the Company's exposure to credit risk. The
amounts potentially subject to credit risk (arising from the possible inability
of counterparties to meet the terms of their contracts) are generally limited to
the amounts, if any, by which the counterparties' obligations under the
contracts exceed the obligations of the Company to the counterparties.
31
33
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
i. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange.
NOVEMBER 2, 1996 OCTOBER 28, 1995 OCTOBER 29, 1994
---------------- ---------------- ----------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
(THOUSANDS OF DOLLARS) AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
====================================================================================================================================
Assets:
Cash and cash equivalents 210,109 210,109 69,303 69,303 109,113 109,113
Short-term investments 89,810 89,810 81,810 81,810 72,652 72,652
Long-term investments 5,425 5,425 -- -- -- --
Liabilities:
Short-term borrowings (178) (178) (2,299) (2,299) (2,917) (2,917)
Long-term debt, including
current portion (310,000) (369,513) (80,000) (80,130) (100,000) (93,800)
Foreign Currency Instruments and
Interest Rate Agreements:
Interest rate swap
and cap agreements 18 (491) (30) (175) 5 (3,065)
Forward foreign currency
exchange contracts 2,672 3,585 7,798 9,089 (1,458) 641
Foreign currency option
contracts 130 240 388 1,645 308 41
Currency swap agreements 1,131 922 413 485 (853) (840)
- ------------------------------------------------------------------------------------------------------------------------------------
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash, cash equivalents and investments -The carrying amounts of these items are
a reasonable estimate of their fair value due to the short term to maturity and
readily available market for these types of investments.
Short-term borrowings-The carrying amounts of these variable-rate borrowings
approximate fair value due to the short period of time to maturity.
Long-term debt-The fair value of long-term debt is estimated based on current
interest rates available to the Company for debt instruments with similar terms,
degree of risk and remaining maturities.
Interest rate swap and cap agreements-The fair value of interest rate swap and
cap agreements are obtained from dealer quotes. These values represent the
estimated amount the Company would receive or pay to terminate the agreements
taking into consideration current interest rates.
Forward foreign currency exchange contacts-The estimated fair value of forward
foreign currency exchange contracts is based on the estimated amount at which
they could be settled based on market exchange rates.
Foreign currency option contracts and currency swap agreements-The fair values
of foreign currency option contracts and currency swap agreements are obtained
from dealer quotes. These values represent the estimated net amount the Company
would receive or pay to terminate the agreements.
32
34
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
j. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingencies at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Such estimates relate to
the useful lives of fixed assets, allowances for doubtful accounts and customer
returns, inventory reserves, potential reserves relating to litigation matters,
accrued liabilities, and other reserves. Actual results could differ from those
estimates, and such differences may be material to the financial statements.
k. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of investments and trade accounts receivable.
The Company maintains cash, cash equivalents and short-term investments with
high credit quality financial institutions and monitors the amount of credit
exposure to any one financial institution.
The Company sells its products to distributors and original equipment
manufacturers involved in a variety of industries including industrial
automation, instrumentation, military/aerospace, and to an increasing degree,
communications, computers and peripherals, and high-performance consumer
electronics. The Company has adopted credit policies and standards to
accommodate growth into these markets. The Company performs continuing credit
evaluations of its customers' financial condition and although the Company
generally does not require collateral, letters of credit may be required from
its customers in certain circumstances. Bad debt losses to date have been
insignificant.
l. CONCENTRATION OF OTHER RISKS
The semiconductor industry is characterized by rapid technological change,
competitive pricing pressures, and cyclical market patterns. The Company's
financial results are affected by a wide variety of factors, including general
economic conditions worldwide, economic conditions specific to the semiconductor
industry, the timely implementation of new manufacturing technologies, the
ability to safeguard patents and intellectual property in a rapidly evolving
market, and reliance on assembly and test subcontractors, third-party wafer
fabricators and independent distributors. As a result, the Company may
experience significant period-to-period fluctuations in future operating results
due to the factors mentioned above or other factors.
m. REVENUE RECOGNITION
Revenue from product sales to end users is recognized upon shipment. A portion
of the Company's sales are made to domestic distributors under agreements
allowing for price protection and certain rights of return on merchandise unsold
by the distributors. Because of the uncertainty associated with pricing
concessions and future returns, the Company defers recognition of such sales and
related gross margin until the merchandise is sold by the distributors. For
sales to international distributors, the Company recognizes the sale upon
shipment to the distributor, but provides specific reserves for possible returns
and allowances.
n. INCOME TAXES
Income taxes have been provided in accordance with FAS 109, "Accounting for
Income Taxes," under which deferred tax liabilities and assets at the end of
each period are determined based on the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases using the tax rate expected to be
in effect when the taxes are actually paid or recovered. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance.
o. STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees (and intends to continue to do so)
and, accordingly, recognizes no compensation expense for the stock option
grants.
p. STOCK SPLIT
On December 3, 1996, the Company's Board of Directors authorized a
four-for-three stock split effected in the form of a 33 1/3% stock dividend
distributed on January 6, 1997 to stockholders of record December 16, 1996. The
split was accomplished through the issuance of common stock. All references to
share and per share amounts in this report have been restated to reflect the
split.
q. EARNINGS PER SHARE OF COMMON STOCK
Primary earnings per common share are computed based on the weighted average
number of common shares outstanding during the year, adjusted for incremental
shares assumed issued (including incremental shares for 3 1/2% convertible debt)
for dilutive common stock equivalents. Fully diluted earnings per share do not
differ materially from primary earnings per share.
r. NEW ACCOUNTING STANDARDS
The Company has not yet adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" which will require adoption in
fiscal 1997. The Company does not believe the adoption of these statements will
have a material impact on its consolidated financial statements.
33
35
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
INDUSTRY
The Company operates predominantly in one industry segment: the design,
manufacture and marketing of a broad line of high-performance linear,
mixed-signal and digital integrated circuits that address a wide range of
real-world signal processing applications.
GEOGRAPHIC INFORMATION
The Company operates in three major geographic areas. Information on the
Company's geographic operations is set forth in the table below. The predominant
countries comprising European operations are England, France, Germany and
Ireland. The predominant country comprising Asian operations is Japan. For
segment reporting purposes, sales generated by North American operations in the
table include export sales of $159,862,000, $97,446,000 and $96,700,000 in 1996,
1995 and 1994, respectively. Transfers between geographic areas are based on
market comparables and are consistent with prevailing tax regulations. Operating
income reflects the allocation of corporate expenses of $24,093,000, $23,190,000
and $19,718,000 in 1996, 1995 and 1994, respectively, to the appropriate
geographic area based upon their beneficial and causal relationship to each
area. Corporate identifiable assets consist of cash equivalents, short-term
investments and intangible assets.
GEOGRAPHIC SEGMENT INFORMATION 1996 1995 1994
======================================================================================================================
SALES North America, including export............. $ 658,627 $ 509,625 $ 440,609
Europe...................................... 364,308 264,401 198,000
Asia........................................ 170,851 167,520 134,865
----------- ----------- -----------
Total sales............................... $ 1,193,786 $ 941,546 $ 773,474
=========== =========== ===========
TRANSFERS North America, including export............. $ 348,574 $ 286,021 $ 192,442
BETWEEN Europe...................................... 189,911 141,925 110,801
AREAS Asia........................................ 39,749 30,180 19,603
----------- ----------- -----------
Total transfers between areas............. $ 578,234 $ 458,126 $ 322,846
=========== =========== ===========
OPERATING North America, including export............. $ 121,877 $ 92,640 $ 52,706
INCOME Europe...................................... 103,158 63,627 47,170
Asia........................................ 2,104 1,500 1,940
----------- ----------- -----------
Total operating income.................... $ 227,139 $ 157,767 $ 101,816
=========== =========== ===========
IDENTIFIABLE North America, including export............. $ 735,352 $ 440,660 $ 354,881
ASSETS Europe...................................... 368,682 294,094 176,755
Asia........................................ 118,627 108,827 95,988
Corporate................................... 293,024 158,067 188,247
----------- ----------- -----------
Total assets.............................. $ 1,515,685 $ 1,001,648 $ 815,871
=========== =========== ===========
34
36
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS
Investments at November 2, 1996 and October 28, 1995 were as follows:
1996 1995
================================================================================
WaferTech, LLC $ 42,073 $ -
CSM 20,784 13,980
Other 5,525 -
- --------------------------------------------------------------------------------
$ 68,382 $ 13,980
================================================================================
In June 1996, the Company entered into a joint venture agreement with Taiwan
Semiconductor Manufacturing Co., Ltd., two other companies and several
individual investors for the construction and operation of a semiconductor
fabrication facility in Camas, Washington. The Company received an 18% equity
ownership in the joint venture, known as WaferTech, in return for a $140.4
million investment. The investment is to be made in three installments. The
first installment of $42.1 million was paid in June 1996. A second installment
of $42.1 million was paid in December 1996 and the remaining installment of
$56.2 million is due November 3, 1997. In addition, the Company has an
obligation to guarantee its pro rata share of debt incurred by WaferTech, up to
a maximum for the Company of $45 million. The Company intends to apply the
equity basis of accounting to this investment in WaferTech based on the
Company's ability to exercise significant influence on the operating and
financial policies of the joint venture. The operating results of this joint
venture to date have not been material.
In January 1996, in accordance with a previous agreement, the Company made an
additional equity investment of approximately $7.0 million in Chartered
Semiconductor Manufacturing Pte., Ltd. in Singapore for a total equity
investment of approximately $21.0 million which represents a less than 5%
ownership interest. The Company accounts for this investment under the cost
method.
5. ACCRUED LIABILITIES
Accrued liabilities at November 2, 1996, October 28, 1995 and October 29, 1994
consisted of the following:
1996 1995 1994
================================================================================
Accrued compensation
and benefits $ 48,848 $ 47,785 $ 33,908
Other 35,214 26,353 26,313
- --------------------------------------------------------------------------------
Total accrued liabilities $ 84,062 $ 74,138 $ 60,221
================================================================================
6. DEBT AND CREDIT FACILITIES
3 1/2% NOTES
On December 18, 1995, the Company completed a public offering of $230,000,000 of
five-year 3-1/2% Convertible Subordinated Notes due December 1, 2000 with
semiannual interest payments due on June 1 and December 1. The Notes are
convertible, at the option of the holder, into the Company's common stock at any
time, unless previously redeemed by the Company, at a conversion price of
$20.938 per share, subject to adjustment in certain events. The net proceeds of
the offering were approximately $224 million after payment of the underwriting
discount and expenses of the offering which will be amortized over the term of
the Notes.
35
37
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6 5/8% NOTES
On March 11, 1993, the Company completed a public offering of $80 million of
seven-year 6 5/8% Notes due March 1, 2000 with semiannual interest payments due
on March 1 and September 1. The net proceeds of the offering were approximately
$79 million after payment of the underwriting discounts and expenses of the
offering which were deferred and are being amortized to interest expense over
the term of the Notes. Simultaneous with the sale of the Notes, the Company
entered into an interest rate swap and cap agreement for the term of the Notes
having a notional principal amount of $40 million whereby the effective net
interest rate on $40 million of the Notes will be the six-month LIBOR rate (up
to a maximum of 7%) plus 1.4%. For the year ended November 2, 1996, the net
effective interest rate on $40 million of the Notes was 7.3% after giving effect
to the interest rate swap agreement.
REVOLVING CREDIT AGREEMENT AND LINES OF CREDIT
The Company has a revolving credit agreement with several banks which commits
them to lend up to $60,000,000. The terms of the credit agreement provide that
interest on U.S. dollar borrowings may not exceed the greater of the prime rate
or the federal funds rate plus .50%. Under this agreement, the Company also has
the option to borrow both U.S. dollars and foreign currencies at interest rates
tied to various money market instruments, customarily below the prime rate.
Under the credit agreement, the Company is currently required to pay a fee of
.125 of 1% per annum on the total amount of the committed facility. All
borrowings under the credit agreement are due no later than October 25, 2000.
Borrowing from banks not participating in the agreement is permitted as long as
the Company maintains certain required financial ratios. The credit agreement
requires the Company to maintain stated minimum net worth and current ratio
levels, plus a stated maximum ratio of total liabilities to net worth. In
addition, the credit agreement restricts the aggregate of all cash dividend
payments declared or made subsequent to November 2, 1996 to an amount not
exceeding $150,000,000 plus 50% of the consolidated net income of the Company
for the period from November 3, 1996 through the end of the Company's then most
recent fiscal quarter. At November 2, 1996 this amount was equal to
$150,000,000. At November 2, 1996, the Company was in compliance with all
covenants under the credit agreement. There are no compensating balance
requirements under the credit agreement. In addition to the credit agreement,
the Company also has various unsecured, uncommitted money market lines of credit
with its credit agreement and other banks which provide for short-term
borrowings.
There were no variable rate U.S. dollar borrowings under the credit agreement or
the uncommitted money market lines of credit during 1996, 1995 and 1994 nor were
there any such borrowings outstanding at November 2, 1996, October 28, 1995 or
October 29, 1994. The weighted average interest rates of foreign currency
borrowings under foreign lines of credit were 5.2%, 7.2% and 8.7% during 1996,
1995 and 1994, respectively. The weighted average interest rates of foreign
currency borrowings were 7.0%, 6.2% and 7.4% at November 2, 1996, October 28,
1995 and October 29, 1994, respectively. There were $0.2 million of foreign
currency borrowings outstanding at November 2, 1996, which were at prevailing
money market rates for the respective currencies. Borrowings under the Company's
credit agreement and lines of credit are generally due within six months.
Long-term debt, including current maturities, at November 2, 1996, October 28,
1995 and October 29, 1994 consisted of the following:
1996 1995 1994
================================================================================
3 1/2% Convertible Subordinated
Notes due 2000 $ 230,000 $ - $ -
6 5/8% Notes due 2000 80,000 80,000 80,000
7.18% term loan - - 20,000
- --------------------------------------------------------------------------------
310,000 80,000 100,000
Less current portion of
long-term debt - - 20,000
- --------------------------------------------------------------------------------
Long-term debt $ 310,000 $ 80,000 $ 80,000
================================================================================
Aggregate principal payments on long-term debt and short-term borrowings for the
following fiscal years are: 1997-$0.2 million; 2000-$80.0 million; and
2001-$230.0 million.
36
38
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASE COMMITMENTS
The Company leases certain of its facilities and equipment under various
operating and capital leases which expire at various dates through 2010. The
lease agreements frequently include renewal and purchase provisions and require
the Company to pay taxes, insurance and maintenance costs.
Total rental expense under operating leases was $11,573,000, $11,243,000 and
$9,985,000 in 1996, 1995 and 1994, respectively.
The following is a schedule of future minimum lease payments under capital
leases and rental payments required under long-term operating leases at November
2, 1996:
OPERATING CAPITAL
FISCAL YEARS LEASES LEASES
================================================================================
1997 $ 9,941 $ 12,166
1998 9,155 12,126
1999 7,279 12,081
2000 6,602 12,044
2001 4,887 5,332
Later Years 13,131 6,919
- --------------------------------------------------------------------------------
Total $ 50,995 $ 60,668
=========
Less amount representing interest (6,042)
---------
Present value of minimum lease payments $ 54,626
=========
Net property, plant and equipment includes the following for capital leases:
1996 1995 1994
================================================================================
Land and buildings $ - $ 1,828 $ 1,828
Machinery and equipment 61,793 829 829
- --------------------------------------------------------------------------------
61,793 2,657 2,657
Less accumulated amortization (4,198) (2,639) (2,468)
- --------------------------------------------------------------------------------
Net capital leases $ 57,595 $ 18 $ 189
================================================================================
8. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company was a defendant in two lawsuits brought in Texas by Texas
Instruments, Inc. ("TI"), alleging patent infringement, including patent
infringement arising from certain plastic encapsulation processes, and seeking
an injunction and unspecified damages against the Company. The alleged
infringement of one of these patents was also the subject matter of a proceeding
brought by TI against the Company before the International Trade Commission
("ITC"). On January 10, 1994, the ITC brought an enforcement proceeding against
the Company alleging that the Company had violated the ITC's cease and desist
order of February 1992 (as modified in July 1993), which prohibited the
Company's importation of certain plastic encapsulated circuits, and seeking
substantial penalties against the Company for these alleged violations. In
addition, in June 1992, the Company commenced a lawsuit against TI in
Massachusetts alleging certain TI digital signal processors infringed one of the
Company's patents. Effective April 1, 1995, the Company and TI settled both
Texas lawsuits and the Massachusetts lawsuit principally by means of a
royalty-free cross license of certain of the Company's and TI's patents.
37
39
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On April 25, 1995, the Company filed with the ITC a motion to terminate the ITC
enforcement proceeding on the grounds that further action by the ITC was
unnecessary in light of the Company's settlement with TI. On May 8, 1995, an
Administrative Law Judge issued a recommended determination to the ITC to grant
the Company's motion to terminate the ITC proceeding. The investigative office
of the ITC opposed the motion, claiming that, notwithstanding the Company's
settlement with TI, the Company's alleged violation of the ITC's cease and
desist order warranted the imposition of substantial penalties. On September 11,
1996, the ITC adopted the determination of the Administrative Law Judge to
terminate the enforcement proceeding and referred to the Department of Justice
by letter certain allegations that the Company made false representations in
reports filed with the ITC. The Company advised the Department of Justice that
it has consistently and vigorously denied such allegations during the entire
course of the proceedings before the ITC and the Department of Justice informed
the Company that its statement would be considered in connection with any action
it may take on the matter. The Company is aware of no further activity by the
Department of Justice, and is unable to determine whether further activity will
occur regarding the foregoing matter.
In addition, from time to time as a normal incidence of the nature of the
Company's business, various claims, charges and litigation are asserted or
commenced against the Company arising from or related to contractual matters,
patents, trademarks, personal injury, environmental matters and product
liability. Such litigation includes patent infringement actions brought against
the Company by Sextant Avionique, S.A. in France and the United States and
Commissariat A. L'energie Atomique C.E.A. in France, claiming that the
Company's accelerometer infringes certain patents. While there can be no
assurance that the Company will prevail in any of these matters, the Company
does not believe that these matters will have a material adverse effect on the
Company's consolidated financial position or consolidated results of
operations. However, an adverse resolution could have an adverse effect on the
Company's consolidated results of operations in the quarter in which these
matters are resolved.
IRISH GRANTS
The Company's manufacturing facility in Limerick, Ireland has received operating
and capital grants from Ireland's Industrial Development Authority. A liability
to repay up to $21.4 million of the grants received by the Company would arise
in the unlikely event the Company should discontinue its Irish operations prior
to the commitment periods noted in the grant agreements which expire at various
dates through 2006.
WAFER SUPPLY AGREEMENTS
In fiscal 1995, the Company had entered into a supply agreement with its primary
wafer foundry, TSMC. Under this agreement, the Company was to make a series of
advance payments to TSMC aggregating $22.4 million, payable over a three-year
period, in order to secure access to a minimum level of wafer capacity over the
period from 1996 to 1999. However, during fiscal 1996 the arrangement was
modified whereby the Company would maintain a constant deposit of $6.4 million
with TSMC.
In January 1996, the Company entered into an additional agreement with CSM
whereby the Company will provide a total deposit of approximately $20.0 million
to be paid in several installments in 1996 and 1997. In fiscal 1996 $8.0 million
was provided to CSM under this arrangement and is classified in the balance
sheet line item "Deferred Charges and Other Assets." Under the terms of this
agreement, the deposit will guarantee access to certain quantities of sub-micron
wafers through fiscal 2000. If the Company does not purchase the minimum
quantities under the agreement, the deposit will be forfeited for the value of
the wafer shortfall up to the total amount of $20.0 million. At the end of the
agreement term, the Company's deposit will be returned, net of any forfeitures.
9. STOCKHOLDERS' EQUITY
COMMON STOCK
In March 1996, the stockholders approved an amendment to the Company's Articles
of Organization to increase the authorized number of shares of common stock from
300,000,000 to 450,000,000. In December 1996, the Board of Directors authorized
an amendment to the Company's Articles of Organization to increase the
authorized number of shares of common stock from 450,000,000 to 600,000,000
subject to stockholder approval in March 1997.
38
40
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS
The 1988 Stock Option Plan provides for the issuance of nonstatutory and
incentive stock options to purchase up to 29,900,000 shares of common stock.
Under this plan, options may be granted to key employees of the Company and its
subsidiaries at a price not less than 100% of the fair market value of the
underlying stock on the date of grant. The Company's 1980 Stock Option Plan was
terminated upon adoption of the 1988 Stock Option Plan; however, options to
purchase common stock remain outstanding under this plan.
While the Company may grant options to employees which become exercisable at
different times or within different periods, the Company has generally granted
options to employees which are exercisable on a cumulative basis in annual
installments of 33 1/3% each on the third, fourth and fifth anniversaries of the
date of grant.
Under the 1994 Director Stock Option Plan, each nonemployee director is granted
annually for four years a nonstatutory option to purchase 10,500 shares of
common stock at an exercise price equal to the fair market value on the date of
grant. A total of 400,000 shares of common stock may be issued under this plan.
These options are exercisable on a cumulative basis in annual installments of 33
1/3% each on the first, second and third anniversaries of the date of grant. The
Company also has options outstanding under the 1992 Director Option Plan and the
1989 Director Stock Option Plan. Options granted under these plans are
exercisable on a cumulative basis in annual installments of 33 1/3% each on the
third, fourth and fifth anniversaries of the date of grant.
Transactions under the Company's stock option plans are summarized in the table
below:
OPTIONS OUTSTANDING
SHARES --------------------------------
AVAILABLE OPTION PRICE AGGREGATE
STOCK OPTION ACTIVITY FOR GRANT NUMBER PER SHARE PRICE
=====================================================================================================================
Balance, October 30, 1993 11,617 10,085 $ 1.96 to $ 8.04 $ 30,067
- ---------------------------------------------------------------------------------------------------------------------
Options granted (4,121) 4,121 $ 7.04 to $ 10.00 30,482
Options exercised - (1,365) $ 1.96 to $ 6.13 (4,250)
Options canceled (1) 247 (248) $ 1.96 to $ 8.58 (844)
- ---------------------------------------------------------------------------------------------------------------------
Balance, October 29, 1994 7,743 12,593 $ 1.96 to $ 10.00 55,455
- ---------------------------------------------------------------------------------------------------------------------
Shares authorized for 1994 Director Stock Option Plan 400 - - -
Options granted (3,550) 3,550 $ 10.25 to $ 17.57 36,887
Options exercised - (1,416) $ 1.96 to $ 5.25 (3,960)
Options canceled (1) 495 (524) $ 1.96 to $ 10.25 (2,989)
Shares canceled upon termination of
1992 Director Option Plan (91) - - -
- ---------------------------------------------------------------------------------------------------------------------
Balance, October 28, 1995 4,997 14,203 $ 1.96 to $ 17.57 85,393
- ---------------------------------------------------------------------------------------------------------------------
Additional shares authorized for 1988 Stock Option Plan 9,200 - - - -
Options granted (3,881) 3,901 $ 14.63 to $ 20.25 63,286
Options exercised (2,072) $ 1.96 to $ 10.25 (5,808)
Options canceled (1) 451 (454) $ 1.96 to $ 20.25 (4,706)
- ---------------------------------------------------------------------------------------------------------------------
Balance, November 2, 1996 10,767 15,578 $ 1.96 to $ 20.25 $ 138,165
=====================================================================================================================
Options exercisable at November 2, 1996 3,588 $ 1.96 to $ 11.09 $ 10,853
=====================================================================================================================
(1) Options canceled which were originally issued from the 1988 Stock Option
Plan are available for subsequent grants. The remaining options canceled in
1996, 1995 and 1994 were issued from the 1980 Stock Option and 1992 Director
Option Plans under which no further options will be granted.
The Company has a stock purchase plan that allows eligible employees to
purchase, through payroll deductions, shares of the Company's common stock at
85% of the fair market value at specified dates. Employees purchased 664,200
shares in 1996 (835,700 and 1,047,600 in 1995 and 1994, respectively) for $9.0
million ($6.9 million and $6.0 million in 1995 and 1994, respectively). At
November 2, 1996, 1,543,400 common shares remained available for issuance under
the stock purchase plan.
39
41
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the 1991 Restricted Stock Plan, a maximum of 2,700,000 shares of common
stock may be awarded by the Company to key employees for nominal consideration.
This plan succeeded the Company's 1978 Restricted Stock Plan which provided for
the issuance of up to 7,372,800 shares of common stock. Shares awarded from both
plans are restricted as to transfer, usually for a period of five years and,
under certain conditions, may be subject to repurchase by the Company at the
original purchase price per share. Shares awarded under the Company's restricted
stock plans, net of cancellations, for 1996, 1995 and 1994 were 212,000, 20,000
and 471,000, respectively. The fair market value of the shares at the date of
award was accounted for as deferred compensation and is being amortized over the
restricted period. During 1996, 1995 and 1994, $1,949,000, $1,672,000 and
$1,851,000, respectively, of such compensation was charged to expense. At
November 2, 1996, there were 983,000 shares of common stock available for
issuance under the 1991 Restricted Stock Plan.
As of November 2, 1996, a total of 39,871,925 common shares were reserved for
issuance under the Company's stock plans.
PREFERRED STOCK
The Company has 500,000 authorized shares of $1.00 par value Preferred Stock.
The Board of Directors is authorized to fix designations, relative rights,
preferences and limitations on the preferred stock at the time of issuance.
COMMON STOCK PURCHASE RIGHTS
In 1988, the Board of Directors adopted a Stockholder Rights Plan which was
amended in 1989. Pursuant to the Stockholder Rights Plan, each share of common
stock has an associated right. Under certain circumstances, each right entitles
the holder to purchase from the Company one share of common stock at an exercise
price of $20.00 per share, subject to adjustment.
The rights are not exercisable and cannot be transferred separately from the
common stock until ten days after a person acquires 20% or more or makes a
tender offer for 30% or more of the Company's common stock. If, after the rights
become exercisable, (i) any person becomes the owner of 20% or more of the
Company's common stock, or (ii) the Company is the surviving entity in a merger
with a 20% or more stockholder, or (iii) a 20% or more stockholder engages in
certain "self-dealing" transactions with the Company, each right not owned by
such person will entitle its holder to purchase, at the right's exercise price,
common stock having a value of two times the exercise price of the right. In
addition, if the Company is either (i) acquired in a merger or other business
combination in which the Company is not the surviving entity, or (ii) sells or
transfers 50% or more of its assets or earning power to another party, each
right will entitle its holder to purchase, upon exercise, common stock of the
acquiring Company having a value equal to two times the exercise price of the
right.
The rights have certain anti-takeover effects, in that they would cause
substantial dilution to a person or group that attempts to acquire a significant
interest in the Company on terms not approved by the Board of Directors. The
rights expire on February 12, 1998 but may be redeemed by the Company for $.0067
per right at any time prior to the tenth day following a person's acquisition of
20% or more of the Company's common stock. So long as the rights are not
separately transferable, the Company will issue one right with each new share of
common stock issued.
40
42
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT PLANS
The Company and its subsidiaries have various savings and retirement plans
covering substantially all employees. The Company maintains a defined
contribution plan for the benefit of its eligible United States employees. This
plan provides for Company contributions of up to 5% of each participant's total
eligible compensation. In addition, the Company contributed an amount equal to
each participant's contribution, if any, up to a maximum of 2% of each
participant's total eligible compensation. During fiscal 1996, the Company's
contributions increased to match an additional 50% of employee contributions
between 2% and 4% of total eligible compensation. The Company also has various
defined benefit pension and other retirement plans for certain foreign employees
that are consistent with local statutes and practices. The total expense related
to all of the Company's retirement plans in 1996, 1995 and 1994 was $16.8
million, $14.0 million and $12.6 million, respectively, which primarily consists
of costs related to the domestic defined contribution plan. Also included in
total expense is pension expense related to foreign defined benefit plans of
$3.3 million for 1996, $2.5 million for 1995 and $2.5 million for 1994. Summary
data related to these foreign plans at November 2, 1996 is as follows:
accumulated benefit obligation, substantially vested, of $24.3 million;
projected benefit obligation of $40.7 million; plan assets at fair value of
$38.2 million; discount rates ranging from 4% to 15%; compensation increase
rates ranging from 3% to 12% and expected rate of return on assets ranging from
4% to 15%.
11. INCOME TAXES
The reconciliation of income tax computed at the U.S. federal statutory rates to
income tax expense is as follows:
LIABILITY METHOD
----------------
1996 1995 1994
=======================================================================================
U.S. federal statutory tax rate 35.0% 35.0% 35.0%
Income tax provision reconciliation:
Tax at statutory rate $ 80,759 $ 55,803 $ 33,919
Irish income subject to lower tax rate (17,813) (13,436) (7,299)
Change in valuation allowance (2,641) -- (4,265)
State income taxes, net of federal benefit 1,338 1,833 1,076
Research and development tax credits (1,300) (325) (1,074)
Foreign Sales Corporation (3,575) (3,200) (731)
Amortization of goodwill 506 503 503
Net foreign tax in excess of (less than)
U.S. federal statutory tax rate 957 (1,076) 247
Other, net 608 63 39
- ---------------------------------------------------------------------------------------
Total income tax provision $ 58,839 $ 40,165 $ 22,415
=======================================================================================
For financial reporting purposes, income before income taxes includes the
following components:
1996 1995 1994
=======================================================================================
Pretax income:
Domestic $ 101,760 $ 76,230 $35,621
Foreign 128,980 83,205 61,290
- ---------------------------------------------------------------------------------------
$ 230,740 $159,435 $96,911
=======================================================================================
41
43
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision for income taxes are as follows:
1996 1995 1994
================================================================================
Current:
Federal $ 34,278 $ 32,860 $ 18,479
Foreign 15,737 16,734 10,576
State 2,100 2,820 1,665
- --------------------------------------------------------------------------------
Total current $ 52,115 $ 52,414 $ 30,720
================================================================================
Deferred (prepaid):
Federal $ 1,318 $ (10,887) $ (7,601)
Foreign 5,406 (1,362) (704)
- --------------------------------------------------------------------------------
Total deferred (prepaid) $ 6,724 $ (12,249) $ (8,305)
================================================================================
The Company's practice is to reinvest indefinitely the earnings of certain
international subsidiaries. Accordingly, no U.S. income taxes have been provided
for approximately $366,410,000 of unremitted earnings of international
subsidiaries.
The Company has recorded a valuation allowance to reflect the estimated amount
of deferred tax assets that may not be realized due to the expiration for book
and tax capital loses. For tax purposes, the Company has a capital tax loss
carryforward of approximately $6,335,000 expiring through the year 2,000,
principally in 1997. The balance for the valuation allowance for deferred assets
was $7.4 million at November 2, 1996 and $10.0 million at both October 28, 1995
and October 29, 1994.
The significant components of the Company's deferred tax assets and liabilities
for the fiscal years ended November 2, 1996, October 28, 1995 and October 29,
1994 are as follows:
1996 1995 1994
============================================================================================================
Deferred tax assets:
Inventory reserves $ 20,061 $ 18,309 $ 12,261
Capital loss carryover 7,394 8,513 8,513
Deferred income on shipments to domestic distributors 12,518 7,898 5,254
Reserves for employee benefits 3,476 3,780 2,890
Restricted stock 1,893 2,031 2,123
Alternative Minimum Tax carryover - - 1,764
Intercompany profits in foreign inventories 3,965 5,335 1,709
Reserve for bad debts 2,242 1,171 1,650
Foreign tax credits 381 2,301 1,522
Other 5,039 6,351 3,314
- ------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 56,969 55,689 41,000
Valuation allowance for deferred tax assets (7,394) (10,035) (10,035)
- ------------------------------------------------------------------------------------------------------------
Total deferred tax assets $ 49,575 $ 45,654 $ 30,965
- ------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ (21,688) $ (11,043) $ (8,603)
- ------------------------------------------------------------------------------------------------------------
Total gross deferred liabilities $ (21,688) $ (11,043) $ (8,603)
- ------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 27,887 $ 34,611 $ 22,362
============================================================================================================
42
44
ANALOG DEVICES, INC.
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for fiscal 1996 and fiscal 1995 (thousands of
dollars except as noted):
4Q96 3Q96 2Q96 1Q96 4Q95 3Q95 2Q95 1Q95
=======================================================================================================================
Net sales 304,647 305,042 303,328 280,769 257,194 246,301 230,046 208,005
- -----------------------------------------------------------------------------------------------------------------------
Cost of sales 152,121 152,331 150,362 138,219 126,591 121,183 113,652 103,145
Gross margin 152,526 152,711 152,966 142,550 130,603 125,118 116,394 104,860
% of sales 50% 50% 50% 51% 51% 51% 51% 50%
- -----------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 46,498 45,569 44,848 40,857 35,714 35,035 33,266 30,250
Selling, marketing, general
and administrative 48,460 48,562 50,017 48,803 48,306 47,374 45,592 43,671
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses 94,958 94,131 94,865 89,660 84,020 82,409 78,858 73,921
% of sales 31% 31% 31% 32% 33% 33% 34% 36%
- -----------------------------------------------------------------------------------------------------------------------
Operating income 57,568 58,580 58,101 52,890 46,583 42,709 37,536 30,939
% of sales 19% 19% 19% 19% 18% 17% 16% 15%
- -----------------------------------------------------------------------------------------------------------------------
Nonoperating expenses (income):
Interest expense 3,155 3,266 3,040 1,828 959 938 1,022 1,282
Interest income (4,141) (3,688) (4,807) (3,899) (2,200) (1,721) (1,991) (2,191)
Other 626 (181) 417 783 208 562 732 732
- -----------------------------------------------------------------------------------------------------------------------
Total nonoperating
income (360) (603) (1,350) (1,288) (1,033) (221) (237) (177)
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 57,928 59,183 59,451 54,178 47,616 42,930 37,773 31,116
% of sales 19% 19% 20% 19% 19% 17% 16% 15%
- -----------------------------------------------------------------------------------------------------------------------
Provision for income taxes 13,908 15,387 15,458 14,086 12,482 11,149 9,066 7,468
- -----------------------------------------------------------------------------------------------------------------------
Net income 44,020 43,796 43,993 40,092 35,134 31,781 28,707 23,648
% of sales 14% 14% 15% 14% 14% 13% 12% 11%
Per share .26 .26 .26 .25 .22 .20 .18 .15
- -----------------------------------------------------------------------------------------------------------------------
Shares used to compute
earnings per share
(in thousands) 174,082 172,921 172,576 165,576 160,482 159,698 157,820 156,858
=======================================================================================================================
43
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "EXECUTIVE
OFFICERS OF THE COMPANY" in Part I hereof, and the remainder is contained in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
March 11, 1997 (the "1997 Proxy Statement") under the caption "Election of
Directors" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 1997 Proxy Statement
under the captions "Directors' Compensation," "Executive Compensation," and
"Severance and Other Agreements," and is incorporated herein by reference.
Information relating to a delinquent filing of a Form 4 by an Executive Officer
of the Company is contained in the Company's 1997 Proxy Statement under the
caption "Beneficial Ownership Reporting Compliance."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Company's 1997 Proxy Statement
under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is contained in the Company's 1997 Proxy Statement
under the caption "Transactions with Directors," and is incorporated herein by
reference.
44
46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements are included in Item 8:
- Consolidated Statements of Income for the years ended November
2, 1996, October 28, 1995 and October 29, 1994
- Consolidated Balance Sheets as of November 2, 1996, October
28, 1995 and October 29, 1994
- Consolidated Statements of Stockholders' Equity for the years
ended November 2, 1996, October 28, 1995 and October 29,
1994
- Consolidated Statements of Cash Flows for the years ended
November 2, 1996, October 28, 1995 and October 29, 1994
(a) 2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules are included in
Item 14(d):
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements or the notes thereto.
(a) 3. LISTING OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
3-1 Restated Articles of Organization of Analog Devices, Inc., as
amended, filed as an exhibit to the Company's Form S-8 filed
on May 30, 1996 and incorporated herein by reference.
3-2 By-laws of Analog Devices, Inc. as amended, filed as an
exhibit to the Company's Form 10-K for the fiscal year ended
October 31, 1992 and incorporated herein by reference.
4-1 Rights Agreement, as amended, between Analog Devices, Inc. and
The First National Bank of Boston, as Rights Agent, filed as
an exhibit to a Form 8 filed on June 27, 1989 amending the
Registration Statement on Form 8-A relating to Common Stock
Purchase Rights, and incorporated herein by reference.
4-2 Indenture dated as of March 1, 1993 between Analog Devices,
Inc. and The First National Bank of Boston, filed as an
exhibit to the Company's Form 10-K for the fiscal year ended
October 29, 1994 and incorporated herein by reference.
4-3 Indenture dated as of December 18, 1995 between Analog
Devices, Inc. and State Street Bank and Trust Company, as
Trustee, filed as exhibit to the Company's Form 10-K for the
fiscal year ended October 28, 1995 and incorporated herein by
reference.
* 4-4 Analog Devices, Inc. Deferred Compensation Plan, filed as
an exhibit to a Form S-8 filed on December 8, 1995 and
incorporated herein by reference.
* 10-1 Bonus Plan of Analog Devices, Inc., filed herewith.
45
47
EXHIBIT
NO. DESCRIPTION
------- -----------
* 10-2 1991 Restricted Stock Plan of Analog Devices, Inc., filed
herewith.
* 10-3 1980 Stock Option Plan of Analog Devices, Inc., as
amended, filed herewith.
* 10-4 1988 Stock Option Plan of Analog Devices, Inc., as
amended, filed as an exhibit to the Company's Form 10-K for
the fiscal year ended October 31, 1992 and incorporated herein
by reference.
* 10-5 1989 Director Stock Option Plan of Analog Devices, Inc.,
as amended, filed herewith.
* 10-6 1992 Director Option Plan of Analog Devices, Inc., filed
as an exhibit to the Company's Form 10-K for the fiscal year
ended October 31, 1992 and incorporated herein by reference.
* 10-7 1994 Director Stock Option Plan of Analog Devices, Inc.,
filed as an exhibit to the Company's Form 10-K for the fiscal
year ended October 29, 1994 and incorporated herein by
reference.
10-8 Lease agreement dated February 13, 1970 between Analog
Devices, Inc. and the trustees of Campanelli Investment Trust,
relating to the premises at 30 Perwal Street, Westwood,
Massachusetts, filed as an exhibit to the Company's Form 10-K
for the fiscal year ended October 29, 1994 and incorporated
herein by reference.
10-9 Amended and restated lease agreement dated May 1, 1992 between
Analog Devices, Inc. and the trustees of Everett Street Trust
relating to the premises at 3 Technology Way, Norwood,
Massachusetts, filed as an exhibit to the Company's Form 10-K
for the fiscal year ended October 31, 1992 and incorporated
herein by reference.
10-10 Guaranty dated as of May 1, 1994 between Analog Devices, Inc.
and Metropolitan Life Insurance Company relating to the
premises at 3 Technology Way, Norwood, Massachusetts, filed as
an exhibit to the Company's Form 10-Q for the fiscal quarter
ended April 30, 1994 and incorporated herein by reference.
10-11 Letter Agreement dated as of May 18, 1994 between Analog
Devices, Inc. and Metropolitan Life Insurance Company relating
to the premises at 3 Technology Way, Norwood, Massachusetts,
filed as an exhibit to the Company's Form 10-Q for the fiscal
quarter ended April 30, 1994 and incorporated herein by
reference.
10-12 Reimbursement Agreement dated May 18, 1992 between Analog
Devices, Inc. and the trustees of Everett Street Trust, filed
as an exhibit to the Company's Form 10-K for the fiscal year
ended October 31, 1992 and incorporated herein by reference.
10-13 Lease agreement dated August 8, 1990 between Precision
Monolithics, Inc. and Bourns, Inc. relating to the premises at
1525 Comstock Road, Santa Clara, California, filed herewith.
10-14 Lease amendment dated May 1, 1996 to the Lease Agreement dated
August 8, 1990 between Analog Devices, Inc. and Bourns, Inc.,
relating to premises located at 1525 Comstock Road, Santa
Clara, California, filed as an exhibit to the Company's Form
10-Q for the fiscal quarter ended May 4, 1996 and incorporated
herein by reference.
46
48
EXHIBIT
NO. DESCRIPTION
------- -----------
10-15 Lease agreement dated August 8, 1990, as amended, between
Precision Monolithics, Inc. and Bourns, Inc. relating to the
premises at 1500 Space Park Drive, Santa Clara, California,
filed herewith.
10-16 Lease amendment dated May 1, 1996 to the Lease Agreement dated
August 8, 1990 between Analog Devices, Inc. and Bourns, Inc.,
relating to premises located at 1500 Space Park Drive, Santa
Clara, California, filed as an exhibit to the Company's Form
10-Q for the fiscal quarter ended May 4, 1996 and incorporated
herein by reference.
10-17 Credit Agreement dated as of March 12, 1993 among Analog
Devices, Inc. and Morgan Guaranty Trust Company of New York,
Bank of America National Trust and Savings Association,
Continental Bank, N.A., The First National Bank of Boston and
Morgan Guaranty Trust Company of New York, as Agent, filed as
an exhibit to the Company's Form 10-Q for the fiscal quarter
ended May 1, 1993 and incorporated herein by reference.
10-18 Amendment No. 1 dated as of May 18, 1993 to the Company's
Credit Agreement dated March 12, 1993, filed as an exhibit to
the Company's Form 10-Q for the fiscal quarter ended July 31,
1993 and incorporated herein by reference.
10-19 Amendment No. 2 dated as of September 8, 1994 to the Company's
Credit Agreement dated March 12, 1993, filed as an exhibit to
the Company's Form 10-K for the fiscal year ended October 29,
1994 and incorporated herein by reference.
10-20 Amendment No. 3 dated as of October 25, 1996 to the Company's
Credit Agreement dated March 12, 1993, filed herewith.
10-21 Term loan agreement dated as of November 12, 1991 between
Analog Devices, Inc. and The First National Bank of Boston,
filed as an exhibit to the Company's Form 10-K for the fiscal
year ended November 2, 1991 and incorporated herein by
reference.
* 10-22 Form of Employee Retention Agreement, as amended, filed
as an exhibit to the Company's Form 10-K for the fiscal year
ended October 31, 1992 and incorporated herein by reference.
* 10-23 Employee Change in Control Severance Policy of Analog
Devices, Inc., as amended, filed as an exhibit to the
Company's 10-K for the fiscal year ended October 30, 1993 and
incorporated herein by reference.
* 10-24 Senior Management Change in Control Severance Policy of
Analog Devices, Inc., as amended, filed as an exhibit to the
Company's 10-K for the fiscal year ended October 30, 1993 and
incorporated herein by reference.
* 10-25 Description of Consulting Arrangement between Analog
Devices, Inc. and John L. Doyle, filed herewith.
* 10-26 Letter agreement between Analog Devices, Inc. and Jerald
G. Fishman dated December 15, 1994 relating to acceleration of
stock options and restricted stock awards upon termination of
employment, filed as an exhibit to the Company's Form 10-K for
the fiscal year ended October 29, 1994 and incorporated herein
by reference.
** 10-27 Option Agreement dated as of May 16, 1995 between Analog
Devices B.V. and Taiwan Semiconductor Manufacturing Company,
Ltd., filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended July 29, 1995 and incorporated herein by
reference.
47
49
EXHIBIT
NO. DESCRIPTION
------- -----------
** 10-28 Wafer Production Agreement dated as of May 16, 1995
between Taiwan Semiconductor Manufacturing Company, Ltd. and
Analog Devices B.V., filed as an exhibit to the Company's Form
10-Q for the fiscal quarter ended July 29, 1995 and
incorporated herein by reference.
10-29 Lease Agreement dated June 16, 1995 between Analog Devices,
Inc. and Ferrari Brothers, relating to the premises at 610
Weddell Drive, Sunnyvale, California, filed herewith.
10-30 Lease amendment dated March 1, 1996 to the Lease Agreement
dated June 16, 1995 between Analog Devices, Inc. and Ferrari
Brothers, relating to premises located at 610 Weddell Drive,
Sunnyvale, California, filed as an exhibit to the Company's
Form 10-Q for the fiscal quarter ended May 4, 1996 and
incorporated herein by reference.
** 10-31 Manufacturing Agreement dated as of March 17, 1995
between Chartered Semiconductor Manufacturing Pte. Ltd. and
Analog Devices B.V., filed as an exhibit to the Company's Form
10-Q for the fiscal quarter ended February 3, 1996 and
incorporated herein by reference.
** 10-32 Deposit Agreement dated January 30, 1996 between
Chartered Semiconductor Manufacturing Pte. Ltd. and Analog
Devices B.V., filed as an exhibit to the Company's Form 10-Q
for the fiscal quarter ended February 3, 1996 and incorporated
herein by reference.
10-33 Lease Agreement dated February 8, 1996 between Analog Devices,
Inc. and Massachusetts Institute of Technology, relating to
premises located at 21 Osborn Street, Cambridge,
Massachusetts, filed as an exhibit to the Company's Form 10-Q
for the fiscal quarter ended February 3, 1996 and incorporated
herein by reference.
** 10-34 Amended and Restated Limited Liability Company Agreement
of WaferTech, LLC, a Delaware limited liability company, dated
as of August 9, 1996. Filed as Exhibit 10.47 to the Form 10-Q
of Altera Corporation (File No. 0-16617) for the fiscal
quarter ended June 30, 1996, and incorporated herein by
reference.
** 10-35 Purchase Agreement by and between Taiwan Semiconductor
Manufacturing Co., Ltd., as seller and Analog Devices, Inc.,
Altera Corporation and Integrated Silicon Solutions, Inc., as
buyers dated as of June 25, 1996. Filed as Exhibit 10.48 to
the Form 10-Q of Altera Corporation (File No. 0-16617) for the
fiscal quarter ended June 30, 1996, and incorporated herein by
reference.
* 10-36 Amendment No. 1 dated December 3, 1996 to the Analog Devices,
Inc. Trust Agreement for Deferred Compensation Plan, filed
herewith.
11-1 Computation of Earnings Per Share
21 Subsidiaries of the Company, filed herewith.
23 Consent of Ernst & Young LLP filed herewith.
27 Financial Data Schedule
- ----------
* Management contracts and compensatory plan or arrangements required to
be filed as an Exhibit pursuant to Item 14(c) of Form 10-K.
** Confidential treatment has been granted as to certain portions of these
Exhibits.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K with the Securities and Exchange
Commission during the fiscal quarter ended November 2, 1996.
48
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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)
By: /s/ Jerald G. Fishman By: /s/ Joseph E. McDonough
----------------------------- ---------------------------
Jerald G. Fishman Joseph E. McDonough
President Vice President-Finance
Chief Executive Officer and Chief Financial Officer
and Director (Principal Financial and
(Principal Executive Officer) Accounting Officer)
Date: January 29, 1997 Date: January 29, 1997
------------------------------ ---------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Ray Stata Chairman of the Board January 29, 1997
- -------------------------
Ray Stata
/s/ Jerald G. Fishman President, January 29, 1997
- ------------------------- Chief Executive Officer
Jerald G. Fishman and Director
/s/ John L. Doyle Director January 29, 1997
- -------------------------
John L. Doyle
/s/ Samuel H. Fuller Director January 29, 1997
- -------------------------
Samuel H. Fuller
/s/ Philip L. Lowe Director January 29, 1997
- -------------------------
Philip L. Lowe
/s/ Gordon C. McKeague Director January 29, 1997
- -------------------------
Gordon C. McKeague
/s/ Joel Moses Director January 29, 1997
- -------------------------
Joel Moses
/s/ Lester C. Thurow Director January 29, 1997
- -------------------------
Lester C. Thurow
49
51
ANALOG DEVICES, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED NOVEMBER 2, 1996
ITEM 14(d)
FINANCIAL STATEMENT SCHEDULE
50
52
ANALOG DEVICES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED NOVEMBER 2, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
(THOUSANDS)
BALANCE AT ADDITION BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD EXPENSE DEDUCTIONS PERIOD
- ----------- ------ ------- ---------- ------
INVENTORY RESERVE:
Year ended October 29, 1994 $ 1,797 $ 1,281 $ - $ 3,078
========= ========= ========= =========
Year ended October 28, 1995 $ 3,078 $ 1,399 $ - $ 4,477
========= ========= ========= =========
Year ended November 2, 1996 $ 4,477 $ 6,041 $ - $ 10,518
========= ========= ========= =========
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended October 29, 1994 $ 2,395 $ 4,477 $ 469 $ 6,403
========= ========= ========= =========
Year ended October 28, 1995 $ 6,403 $ 435 $ 2,399 $ 4,439
========= ========= ========= =========
Year ended November 2, 1996 $ 4,439 $ 3,499 $ 564 $ 7,374
========= ========= ========= =========
51