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S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from_______________ to ________________
Commission File No. 1-7819
Analog Devices, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2348234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Technology Way, Norwood, MA 02062-9106
(Address of principal executive offices) (Zip Code)
(617) 329-4700
(Registrant's telephone number, including area code)
------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
The number of shares outstanding of each of the issuer's classes of Common
Stock as of August 31, 1994 was 50,083,606 shares of Common Stock.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands except per share amounts)
Three Months Ended
------------------
July 30, 1994 July 31, 1993
------------- -------------
Net sales $197,058 $173,104
Cost of sales 99,890 91,378
-------- --------
Gross margin 97,168 81,726
Operating expenses:
Research and development 27,205 24,307
Selling, marketing, general and
administrative 43,333 40,184
-------- --------
70,538 64,491
-------- --------
Operating income 26,630 17,235
Nonoperating expenses (income):
Interest expense 1,796 2,005
Other (891) (31)
-------- --------
905 1,974
-------- --------
Income before income taxes 25,725 15,261
Provision for income taxes 6,046 3,099
-------- --------
Net income $ 19,679 $ 12,162
======== ========
Shares used to compute earnings
per share 51,657 50,847
======== ========
Earnings per share of common stock $ 0.38 $ 0.24
======== ========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)(thousands except per share amounts)
Nine Months Ended
July 30, 1994 July 31, 1993
-------------- -------------
Net sales $570,173 $487,319
Cost of sales 292,991 256,686
-------- --------
Gross margin 277,182 230,633
Operating expenses:
Research and development 77,821 69,153
Selling, marketing, general and
administrative 126,534 117,600
-------- --------
204,355 186,753
Operating income 72,827 43,880
Nonoperating expenses (income):
Interest expense 5,455 5,298
Other (1,022) 148
-------- --------
4,433 5,446
-------- --------
Income before income taxes 68,394 38,434
Provision for income taxes 15,571 7,992
-------- --------
Net income $ 52,823 $ 30,442
======== ========
Shares used to compute earnings per share 51,336 50,328
======== ========
Earnings per share of common stock $ 1.03 $ 0.60
======== ========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)(thousands except share amounts)
Assets July 30, 1994 October 30, 1993 July 31, 1993
------------- ---------------- -------------
Cash and cash equivalents $121,336 $ 80,668 $ 61,231
Short-term investments 36,424 - -
Accounts receivable less allowances
of $6,618 ($2,395 in October 1993
and $2,480 in July 1993) 154,316 145,663 126,229
Inventories:
Finished goods 47,854 51,359 50,379
Work in process 70,346 80,418 79,122
Raw materials 15,870 18,645 22,915
-------- -------- --------
134,070 150,422 152,416
Prepaid income taxes 23,455 22,207 20,000
Prepaid expenses 6,071 4,240 3,628
-------- -------- --------
Total current assets 475,672 403,200 363,504
-------- -------- --------
Property, plant and equipment,
at cost:
Land and buildings 87,790 81,110 81,567
Machinery and equipment 461,177 451,248 438,615
Office equipment 37,039 33,170 32,086
Leasehold improvements 32,010 26,429 23,916
-------- -------- --------
618,016 591,957 576,184
Less accumulated depreciation
and amortization 370,105 343,527 330,071
-------- -------- --------
Net property, plant and
equipment 247,911 248,430 246,113
-------- -------- --------
Intangible assets, net 19,770 21,306 21,819
Deferred charges and other
assets 8,779 5,556 5,286
-------- -------- --------
Total other assets 28,549 26,862 27,105
-------- -------- --------
$752,132 $678,492 $636,722
======== ======== ========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)(thousands except share amounts)
Liabilities and Stockholders' Equity July 30, 1994 October 30, 1993 July 31, 1993
------------- ---------------- -------------
Short-term borrowings and current
portion of long-term debt $ 22,246 $ 2,006 $ 1,932
Obligations under capital leases 307 335 330
Accounts payable 52,176 48,779 42,549
Deferred income on shipments to
domestic distributors 19,598 16,417 12,496
Income taxes payable 19,207 15,405 5,803
Accrued liabilities 49,340 49,893 38,214
-------- -------- --------
Total current liabilities 162,874 132,835 101,324
-------- -------- --------
Long-term debt 80,000 100,000 100,000
Noncurrent obligations under
capital leases 75 297 383
Deferred income taxes 8,000 8,540 14,000
Other noncurrent liabilities 4,647 4,802 4,339
-------- -------- --------
Total noncurrent liabilities 92,722 113,639 118,722
-------- -------- --------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $1.00 par value,
500,000 shares authorized,
none outstanding - - -
Common stock, $.16 2/3 par value,
150,000,000 shares authorized,
51,287,792 shares issued
(50,924,637 in October 1993,
50,746,609 in July 1993) 8,548 8,488 8,458
Capital in excess of par value 151,336 143,502 141,280
Retained earnings 340,521 287,698 273,683
Cumulative translation adjustment 5,763 5,473 5,874
-------- -------- --------
506,168 445,161 429,295
Less 1,231,610 shares in treasury,
at cost (1,727,396 in October 1993
and 1,688,530 in July 1993) 9,632 13,143 12,619
-------- -------- --------
Total stockholders' equity 496,536 432,018 416,676
-------- -------- --------
$752,132 $678,492 $636,722
======== ======== ========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands)
Nine Months Ended
-----------------
July 30, 1994 July 31, 1993
------------- -------------
OPERATIONS
Cash flows from operations:
Net income $ 52,823 $ 30,442
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 46,068 43,939
Deferred income taxes (595) 1,316
Other noncash expenses 2,052 2,206
Changes in operating assets and liabilities 11,686 (24,641)
-------- --------
Total adjustments 59,211 22,820
-------- --------
Net cash provided by operations 112,034 53,262
-------- --------
INVESTMENTS
Cash flows from investments:
Additions to property, plant and equipment, net (42,783) (49,007)
Purchase of short-term investments (36,424) -
-------- --------
Net cash used for investments (79,207) (49,007)
-------- --------
FINANCING ACTIVITIES
Cash flows from financing activities:
Proceeds from employee stock plans 8,987 8,602
Payments on capital lease obligations (250) (232)
Net (decrease) in variable rate borrowings (66) (30,027)
Proceeds from issuance of long-term debt - 80,000
Payments on fixed rate borrowings - (20,146)
-------- --------
Net cash provided by financing activities 8,671 38,197
-------- --------
Effect of exchange rate changes on cash (830) 1,049
-------- --------
Net increase in cash and cash equivalents 40,668 43,501
Cash and cash equivalents at beginning of period 80,668 17,730
-------- --------
Cash and cash equivalents at end of period $121,336 $ 61,231
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Income taxes $ 10,127 $ 2,905
======== ========
Interest $ 3,973 $ 3,751
======== ========
See accompanying notes.
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Analog Devices, Inc.
Notes to Condensed Consolidated Financial Statements
July 30, 1994
Note 1 - In the opinion of management, the information furnished in the
accompanying financial statements reflects all adjustments, consisting
only of normal recurring adjustments, which are necessary to a fair
statement of the results for this interim period and should be read in
conjunction with the most recent Annual Report to Stockholders.
Note 2 - Commitments and Contingencies
The Company is involved in claims as a defendant in various lawsuits
including patent infringement and anti-trust matters as previously
disclosed in the Company's Annual Report on Form 10-K for the fiscal
year ended October 30, 1993.
The lawsuit brought by Crystal Semiconductor Corporation ("Crystal") against
the Company on November 12, 1992 in the United States District Court for the
Western District of Texas (Austin Division) for patent infringement (as
previously reported in the Company's Annual Report on Form 10-K for the fiscal
year ended October 30, 1993 and Quarterly Reports for the quarters ending
January 29 and April 30, 1994) has been dismissed. Crystal and the Company
have executed a definitive agreement providing a cross-license of technology
between the Company and Crystal and the payment of related license fees for
technology to be used pursuant to the agreement. The Company does not believe
that compliance with the terms of this licensing agreement will have a material
adverse effect on the Company's financial position or overall trends in its
results of operations.
In the lawsuit brought by Maxim Integrated Products, Inc. ("Maxim") on
November 11, 1992 in the United States District Court for the Northern
District of California for antitrust and related business tort claims,
the court granted the Company's motion for summary judgment on September
7, 1994. The court determined that there were no material factual
issues existing and that as a matter of law Maxim was not entitled to
relief as to any of the claims asserted. Maxim has a 30-day period to
appeal the summary judgment granted by the District Court.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Third Quarter of Fiscal 1994 Compared to the Third Quarter of Fiscal 1993
Net sales of $197.1 million for the third quarter of fiscal 1994 grew
$24.0 million or 14% from net sales of $173.1 million for the third
quarter of fiscal 1993. Third quarter sales growth was attributable to
an increase in sales volumes of both standard linear and system-level IC
products which together grew 16% year-over-year and accounted for 90% of
sales. Broad demand for standard linear ICs continued strong during the
third quarter driven by increased penetration of the distribution
channel. System-level ICs also experienced strong growth compared to the
same quarter last year. Geographically, the strongest demand growth
occurred in the North American distributor channel for which sales rose
approximately 38% over the third quarter of 1993. Sales to international
customers were strongest in Japan, aided in part by a weaker dollar,
followed by Southeast Asia. European sales were down slightly from the
year ago period due to weaker economic conditions.
Gross margin improved to 49.3% of sales from 47.2% in the third quarter
of 1993. This increased resulted principally from continued improvement
in gross margins of system-level IC products year-over-year as further
volume efficiencies were realized in this product area. Gross margins in
the Company's standard linear IC business remained at a high level while
overall gross margin on all IC products was over 50%, up from the same
quarter last year. R&D expense for the third quarter of 1994 grew $2.9
million over the same quarter last year but as a percentage of sales was
relatively stable at 13.8% compared to 14.0% last year. R&D spending is
expected to increase slightly during the balance of fiscal 1994 as the
Company maintains its commitment to product development in the PC,
communications and automotive markets. The ratio of R&D to sales is
expected to be held at approximately 14% for the balance of the year.
Selling, marketing, general and administrative (SMG&A) expenses grew
7.8% in absolute dollars compared to the third quarter of 1993,
increasing at a lower rate than sales year-over-year. As a result, SMG&A
as a percentage of sales decreased to 22.0% from 23.2% in the third
quarter of 1993. The 7.8% or $3.1 million increase in SMG&A expenses
resulted mostly from increased marketing expenses associated with many
new product launches and additional incentive expense. In total,
operating expenses declined to 35.8% of sales, down from 37.3% one year
ago, in line with the Company's focus on maintaining operating expense
growth below that of sales.
Operating income of $26.6 million or 13.5% of sales was 55% higher than
the $17.2 million or 10.0% of sales for the year-earlier period. This
performance gain reflected the higher sales level, improvement in gross
margin as a percent of sales and reduction in the operating expense to
sales ratio.
Nonoperating expenses were reduced significantly from $2.0 million for
the third quarter of 1993 to $905,000 for the third quarter of 1994 as
net interest expense declined from $1.6 million to $261,000 over the
same period in response to increased cash balances.
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9
The effective income tax rate rose from 20.3% for the third quarter a
year ago to 23.5% for the third quarter of 1994 due to a shift in the
mix of worldwide profits to higher tax rate jurisdictions. The Company
expects the effective tax rate to migrate upwards due to anticipated
earnings growth in higher tax rate jurisdictions including the U.S.
The growth in sales, improved operating performance and lower nonoperating
expenses led to the generation of net income of $19.7 million or $0.38 per
share, up 62% from $12.2 million or $0.24 per share compared to the
year-earlier period.
Third Quarter of Fiscal 1994 Compared to the Second Quarter of Fiscal
1994
Net sales increased from $192.0 million for the second quarter of 1994
to $197.1 million for the third quarter of 1994, an increase of $5.0
million or approximately 3%. The sales increase resulted from continued
rising demand for system-level ICs used in application-specific computer
products as well as continuing strength in standard linear products.
Sales of system-level ICs were particularly strong in Southeast Asia for
high-performance hard disk drives. Growth in sales of standard linear IC
products was fueled largely by revenue increases in Japan and also in
the distributor channel in North America with sales to end customers
through North American distribution increasing again sequentially during
a typically seasonally slow period.
Gross margin widened from 48.7% in the second quarter of 1994 to 49.3%
in the third quarter driven primarily by a greater mix of higher-margin,
standard linear IC sales.
R&D expense for the third quarter rose $845,000 or 3.2% from the prior
quarter as the Company continued funding of its initiatives in
communications and computer products and expanded the scope of
development work in micromachined accelerometers. R&D expense as a
percentage of sales remained relatively flat at 13.8% compared to the
second quarter's 13.7%, reflecting efforts to target R&D expenditures
for the most promising strategic opportunities. SMG&A expenses increased
by $1.1 million or 2.7% from the second quarter and as a percentage of
sales remained at 22.0%.
Operating income for the third quarter improved to 13.5% of sales from
13.0% in the second quarter due primarily to another sequential
improvement in gross margin as a percent of sales. This performance,
which was aided by continuing tight control over operating expenses,
together with a decrease in net interest expense associated with a rise
in cash balances, resulted in net income rising to $19.7 million or
10.0% of sales from $17.9 million or 9.3% for the immediately preceding
quarter.
First Nine Months of Fiscal 1994 Compared to the First Nine Months of
Fiscal 1993
Net sales of $570.2 million increased $82.9 million or approximately 17% from
the same period of 1993. The sales increase was due to growth in sales
volumes of both system-level ICs and standard linear IC products. Sales of
system-level IC products were strongest in Southeast Asia while the largest
sales gains for standard products were made through North American distributors
and to customers in Japan with sales in Japan aided in part by a weaker average
dollar exchange rate. Sales in Europe were essentially flat compared to the
first nine months of 1993 due to weakness in European industrial economies.
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Gross margin improved to 48.6% of sales for the first nine months of
1994 compared to 47.3% for the first nine months of 1993. This increase
resulted principally from improvement in gross margin for system-level
IC products as variable manufacturing costs declined and fixed costs
were spread over a larger revenue base. Gross margin on all IC products,
which include both standard linear and system-level ICs, exceeded 50% of
sales.
R&D expense increased 12.5% over the prior year but as a percentage of
sales decreased to 13.6%, down from 14.2% in 1993. The growth of SMG&A
expense was held to 7.6%, increasing at a much lower rate than sales. As
a result, the SMG&A to sales ratio was reduced to 22.2% from 24.1% for
the comparable period of 1993. Total operating expenses as a percentage
of sales were reduced from 38.3% one year ago to 35.8% consistent with
the Company's commitment to maintaining tight control over all costs in
order to gain good operating leverage on increased revenues. A key
factor in controlling operating expenses has been holding worldwide
employment virtually flat at approximately 5,400 employees, despite
continuing sales growth.
Operating income of $72.8 million or 12.8% of sales for the first nine
months of 1994 was significantly higher than the $43.9 million or 9.0%
of sales for the same period in 1993 reflecting increased sales, gross
margin improvement and expense control.
Nonoperating expenses decreased $1.0 million, benefiting from increased
interest income on a higher level of invested cash. The effective income
tax rate increased to 22.8% from 20.8% for the year ago period due to a
change in the mix of worldwide income.
Net income rose 73.5% to $52.8 million or 9.3% of sales compared to
$30.4 million or 6.2% for the first nine months of 1993. Earnings per
share improved to $1.03 from $0.60 for the year-earlier period.
Liquidity and Capital Resources
At July 30, 1994, cash and cash equivalents and short-term investments
totaled $157.8 million, an increase of $77.1 million and $96.5 million
from the end of the fourth and third quarters of 1993, respectively.
Cash and cash equivalents and short-term investments also increased
$26.4 million over the second quarter of 1994. The increase in cash and
cash equivalents and short-term investments compared to the fourth and
third quarters of 1993 was due principally to a substantial improvement
in cash provided from operations. The increase over the second quarter
of 1994 reflected continued generation of operating cash flows in
addition to cash generated from the issuance of shares under the
Company's employee stock purchase plan. During the third quarter of
1994, the Company invested $36.4 million of excess cash in short-term
investments including commercial paper and certificates of deposit with
maturities greater than three months and less than one year.
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For the first nine months of fiscal 1994, the Company generated cash
flow from operations of $112.0 million or 19.6% of sales compared to
$53.3 million or 10.9% of sales for the comparable period of 1993. Cash
flow from operations generated for the third quarter of 1994 was $37.0
million or 18.8% of sales versus $53.7 million or 28.0% of sales for the
prior quarter and $18.8 million or 10.9% of sales for the third quarter
of 1993. The increase in operating cash flows compared to the first nine
months of 1993 primarily reflected higher net income coupled with a
reduction in inventories. The increase in operating cash flows compared
to the third quarter of 1993 was due principally to increased net income
together with a reduction in accounts receivable. The decrease in cash
flow from operations compared to the second quarter of 1994 was mainly
attributable to a large decrease in accrued liabilities which was offset
in part by a decline in accounts receivable.
Accounts receivable of $154.3 million increased $8.7 million or 5.9%
from the end of the fourth quarter of 1993 and $28.1 million or 22.3%
from the end of the third quarter of 1993. The primary factors
contributing to the nine-month and year-over-year increases were higher
sales levels and a greater mix of sales outside the U.S. to regions
where standard payment terms are longer. Also contributing to the
increase compared to the third quarter of 1993 was a significant
increase in receivables from the Company's domestic distributors due to
the Company's decision in the fourth quarter of 1993 to eliminate prompt
payment discounts previously offered to domestic distributors which
altered the distributor payment cycle. Accounts receivable declined
$7.8 million or 4.8% from the second quarter of 1994 and as a percent of
annualized quarterly sales was reduced to 19.6% versus 21.1% in the
prior quarter. This decrease represented improved collection of
receivables.
The increase in accrued liabilities over the third quarter of 1993 was
attributable to an increased level of employee compensation, incentive
and benefit accruals at the end of the third quarter of 1994.
Cash flow from operations for both the third quarter and first nine
months of 1994 was used largely to fund capital expenditures of $16.1
million and $42.8 million, respectively. Additions to property, plant
and equipment for the fourth quarter of 1994 through the end of the
fourth quarter of fiscal 1995 are currently expected to be $150 million,
including capital expenditures associated with the Limerick, Ireland
wafer fabrication expansion discussed in the Company's Management
Discussion and Analysis of Financial Condition and Results of Operations
contained in Form 10-Q for the fiscal quarter ended April 30, 1994.
Capital expenditures for the fourth quarter of fiscal 1994 and for all
of fiscal 1995 are currently expected to be financed with cash, cash
equivalents and short-term investments on hand together with internally
generated cash flow from operations.
At July 30, 1994, substantially all of the Company's lines of credit
were unused, including its three-year $80 million credit facility. In
the first quarter of 1995, the Company's 7.18%, $20.0 million loan will
mature. Upon maturity, this loan will be repaid in full with cash and
cash equivalents on hand.
The Company believes that its strong financial condition, existing
sources of liquidity, available capital resources and cash expected to
be generated from operations leave it well positioned to obtain the
funds required to meet its current and future business requirements.
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PART II - OTHER INFORMATION
ANALOG DEVICES, INC.
Item 2. Legal Proceedings
The Company is involved in claims as a defendant in various lawsuits
including patent infringement and anti-trust matters as previously
disclosed in the Company's Annual Report on Form 10-K for the fiscal
year ended October 30, 1993.
The lawsuit brought by Crystal Semiconductor Corporation ("Crystal")
against the Company on November 12, 1992 in the United States District
Court for the Western District of Texas (Austin Division) for patent
infringement (as previously reported in the Company's Annual Report on
Form 10-K for the fiscal year ended October 30, 1993 and Quarterly
Reports for the quarters ending January 29 and April 30, 1994) has been
dismissed. Crystal and the Company have executed a definitive agreement
providing a cross-license of technology between the Company and Crystal
and the payment of related license fees for technology to be used
pursuant to the agreement. The Company does not believe that compliance
with the terms of this licensing agreement will have a material adverse
effect on the Company's financial position or overall trends in its
results of operations.
In the lawsuit brought by Maxim Integrated Products, Inc. ("Maxim") on
November 11, 1992 in the United States District Court for the Northern
District of California for antitrust and related business tort claims,
the court granted the Company's motion for summary judgment on September
7, 1994. The court determined that there were no material factual
issues existing and that as a matter of law Maxim was not entitled to
relief as to any of the claims asserted. Maxim has a 30-day period to
appeal the summary judgment granted by the District Court.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - None
(b) There were no reports on Form 8-K filed for the three months ended
July 30, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Analog Devices, Inc.
--------------------
(Registrant)
Date: September 12, 1994 By:/s/ Ray Stata
--------------------
Ray Stata
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: September 12, 1994 By:/s/ Joseph E. McDonough
---------------------
Joseph E. McDonough
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
5
1,000
U.S. DOLLARS
9-MOS
OCT-29-1994
OCT-31-1993
JUL-30-1994
1
121,336
36,424
160,934
6,618
134,070
475,672
618,016
370,105
752,132
162,874
80,075
8,548
0
0
487,988
752,132
570,173
570,173
292,991
292,991
204,355
0
5,455
68,394
15,571
52,823
0
0
0
52,823
1.03
1.03
