1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 29, 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 February 25, 1994 was 49,530,241 shares of Common Stock. 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (thousands except per share amounts)
See accompanying notes.Three Months Ended ------------------ January 29, 1994 January 30, 1993 ---------------- ---------------- Net sales $181,088 $151,303 Cost of sales 94,593 78,978 -------- -------- Gross margin 86,495 72,325 Operating expenses: Research and development 24,256 21,752 Selling, marketing, general and administrative 40,997 38,671 -------- -------- 65,253 60,423 -------- -------- Operating income 21,242 11,902 Nonoperating expenses: Interest expense 1,830 1,527 Other (28) 215 -------- -------- 1,802 1,742 -------- -------- Income before income taxes 19,440 10,160 Provision for income taxes 4,180 2,032 -------- -------- Net income $ 15,260 $ 8,128 ======== ======== Shares used to compute earnings per share 50,970 49,637 ======== ======== Earnings per share of common stock $0.30 $0.16 ======== ======== 3 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (thousands except share amounts)
========= ======== ======== See accompanying notes.Assets January 29, 1994 October 30, 1993 January 30, 1993 ---------------- ---------------- ---------------- Cash and cash equivalents $ 94,363 $ 80,668 $ 22,405 Accounts receivable, net 151,056 145,663 117,074 Inventories: Finished good 47,960 51,359 50,626 Work in process 79,939 80,418 71,943 Raw materials 15,160 18,645 25,828 --------- -------- -------- 143,059 150,422 148,397 Prepaid income taxes 22,500 22,207 20,549 Prepaid expenses 5,932 4,240 5,604 --------- -------- -------- Total current assets 416,910 403,200 314,029 --------- -------- -------- Property, plant and equipment, at cost: Land and buildings 81,900 81,110 78,214 Machinery and equipment 452,549 451,248 414,780 Office equipment 38,607 33,170 28,738 Leasehold improvements 27,616 26,429 22,524 --------- -------- -------- 600,672 591,957 544,256 Less accumulated depreciation and amortization 357,258 343,527 305,464 --------- -------- -------- Net property, plant and equipment 243,414 248,430 238,792 --------- -------- -------- Intangible assets, net 20,794 21,306 22,864 Deferred charges and other assets 5,497 5,556 4,279 --------- -------- -------- Total other assets 26,291 26,862 27,143 --------- -------- -------- $ 686,615 $678,492 $579,964 4 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (thousands except share amounts)
See accompanying notes.Liabilities and Stockholders' Equity January 29, 1994 October 30, 1993 January 30, 1993 ---------------- ---------------- ---------------- Short-term borrowings and current portion of long- term debt $ 23,531 $ 2,006 $ 2,424 Obligations under capital leases 342 335 318 Accounts payable 43,501 48,779 43,498 Deferred income on shipments to domestic distributors 17,263 16,417 13,371 Income taxes payable 15,410 15,405 3,738 Accrued liabilities 43,014 49,893 34,798 -------- -------- -------- Total current liabilities 143,061 132,835 98,147 -------- -------- -------- Long-term debt 80,000 100,000 80,000 Noncurrent obligations under capital leases 209 297 551 Deferred income taxes 9,025 8,540 12,860 Other noncurrent liabilities 4,868 4,802 3,901 -------- -------- -------- Total noncurrent liabilities 94,102 113,639 97,312 -------- -------- -------- 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, 51,048,855 shares issued (50,924,637 in October 1993, 50,393,179 in January 1993) 8,508 8,488 8,399 Capital in excess of par value 144,358 143,502 136,268 Retained earnings 302,958 287,698 251,369 Cumulative translation adjustment 5,657 5,473 4,436 -------- -------- -------- 461,481 445,161 400,472 Less 1,573,917 shares in treasury, at cost (1,727,396 in October 1993 and 2,143,466 in January 1993) 12,029 13,143 15,967 -------- -------- -------- Total stockholders' equity 449,452 432,018 384,505 -------- -------- -------- $686,615 $678,492 $579,964 ======== ======== ======== 5 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
See accompanying notes.(thousands) Three Months Ended ------------------ January 29, 1994 January 30, 1993 ---------------- ---------------- OPERATIONS Cash flows from operations: Net income $15,260 $ 8,128 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 15,301 14,240 Deferred income taxes 493 226 Other noncash expenses 816 777 Changes in operating assets and liabilities (10,555) (15,296) ------- ------- Total adjustments 6,055 (53) ------- ------- Net cash provided by operations 21,315 8,075 ------- ------- INVESTMENTS Cash flows from investments: Additions to property, plant and equipment, net (10,047) (15,438) ------- ------- Net cash used for investments (10,047) (15,438) ------- ------- FINANCING ACTIVITIES Cash flows from financing activities: Net increase in variable rate borrowings 1,500 30,192 Proceeds from employee stock plans 869 1,211 Payments on capital lease obligations (81) (76) Payments on fixed rate borrowings - (20,048) ------- ------- Net cash provided by financing activities 2,288 11,279 ------- ------- Effect of exchange rate changes on cash 139 759 ------- ------- Net increase in cash and cash equivalents 13,695 4,675 Cash and cash equivalents at beginning of period 80,668 17,730 ------- ------- Cash and cash equivalents at end of period $94,363 $22,405 ======= ======= SUPPLEMENTAL INFORMATION Cash paid during the period for: Income taxes $ 3,323 $885 ======= ======= Interest $ 794 $ 1,691 ======= ======= 6 Analog Devices, Inc. Notes to Condensed Consolidated Financial Statements January 29, 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 - Litigation 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) has been dismissed pursuant to a Memorandum of Understanding executed by Crystal and the Company. The Memorandum of Understanding provides for a cross-license arrangement between the Company and Crystal and the payment of license fees for technology to be used pursuant to this arrangement. The Memorandum of Understanding also provides for the execution of a definitive cross-licensing agreement and, in the event the parties cannot agree to the terms of such definitive agreement, resolution of such terms by binding arbitration. The Company does not believe that compliance with the terms of such cross-licensing agreement will have a material adverse effect on the Company's financial position or overall trends in the results of operations. Note 3 - Income Taxes Effective October 31, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). As permitted under the new rules, prior years' financial statements have not been restated. The cumulative effect of adopting FAS 109 as of October 31, 1993 was not material. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at October 31, 1993 are as follows:
Deferred tax assets: Inventory reserves $ 7,530 Capital loss carryover 7,371 General business tax credits 5,725 Deferred income on shipments to domestic distributors 4,683 Reserve for employee benefits 3,544 Restricted stock 2,653 Intercompany profits in foreign inventories 1,369 Foreign tax credit 810 Other 2,822 -------- Gross deferred assets 36,507 Valuation allowance (14,300) -------- Total deferred tax assets 22,207 Deferred tax liabilities: Tax over book depreciation (7,702) Other (838) -------- Total deferred tax liabilities (8,540) -------- Net deferred tax assets $ 13,667 ======== 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations First Quarter of Fiscal 1994 Compared to the First Quarter of Fiscal 1993 Net sales increased 20% to $181.1 million for the first fiscal quarter of 1994, compared to sales of $151.3 million for the first quarter of 1993. First quarter sales growth was strongest for system-level ICs, which increased approximately 55% from the same period last year. Sales growth in this product group continues to be fueled by production ramp-ups in major computer and communications applications. Sales of standard linear ICs increased 9% from the first quarter last year. On a geographic basis, sales were strongest in the Pacific Rim, driven by increased demand for disk drive and computer audio products. Much of the sales growth in the Pacific Rim resulted from design-ins in the United States and Europe. The Company also experienced year-over-year revenue gains in North America and Japan with sales growth in Japan aided by the translation of local currency sales to a weaker U.S. dollar. Sales to Western Europe decreased slightly due to weakened economic conditions. Sales of new products continued to drive revenue growth with approximately 45% of total orders in the first quarter of 1994 attributable to products introduced over the past five years. Gross margin at 47.8% of sales was unchanged compared to the first quarter of 1993. R&D expenses for the first quarter of 1994 grew approximately 12% over the same quarter last year but as a percentage of sales decreased to 13.4% , down from 14.4% of sales in the first quarter of 1993. R&D expenditures continue to be focused on only the most promising opportunities where the Company believes it can build a sustainable competitive advantage. R&D spending is expected to increase slightly during the balance of fiscal 1994 reflecting continued investment in high growth opportunities available in computer and communications products. Selling, marketing, general and administrative (SMG&A) expenses grew 6% in absolute dollars compared to the first quarter of 1993, increasing at a much lower rate than sales. As a result, the SMG&A-to-sales ratio declined three percentage points over the past year, in line with the Company's continuing commitment to maintaining tight control over all costs in order to gain good operating leverage on increased revenues. As a result of the reduction in total operating expenses as a percentage of sales, operating income improved to 11.7% of sales from 7.9% in the first quarter of 1993. In absolute dollars, operating income increased 78%. Interest expense increased from $1.5 million in the first quarter of 1993 to $1.8 million for the first quarter of 1994 due to a higher level of total borrowings. Interest expense net of interest income was reduced to $1.2 million from $1.4 million one year ago as increased interest expense on a higher level of debt was more than offset by interest income earned on a significantly higher level of invested cash. 8 The effective income tax rate increased from 20% for the year ago quarter to 21.5% for the first quarter of 1994 due to a shift in the mix of worldwide profits. In the first quarter of 1994, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). The adoption of FAS 109 changes the Company's method of accounting for income taxes from the deferred method to the liability method required by FAS 109. The impact of adopting FAS 109 was not material to the Company's financial position or results of operations. See Note 3 - "Income Taxes" in the Notes to Condensed Consolidated Financial Statements for information concerning the adoption of FAS 109. The growth in sales and reduction in total operating expenses as a percent of sales resulted in net income of $15.3 million or $0.30 per share, up 88% from $8.1 million or $0.16 per share compared to the year-earlier period. First Quarter of Fiscal 1994 Compared to the Fourth Quarter of Fiscal 1993 Continuing strength in orders coupled with a strong backlog led to a rise in net sales to $181.1 million for the first quarter of fiscal 1994 from $179.0 million for the fourth quarter of fiscal 1993. The sales increase was principally due to an increase in sales of the Company's system-level IC products which were strongest in the Pacific Rim. Gross margin improved modestly from 47.4% for the previous quarter to 47.8% of sales for the first quarter of 1994. Gross margin for the Company's standard linear ICs remained at a high level, while gross margin for system-level IC products improved. R&D expenses were down slightly from $25.0 million last quarter to $24.3 million for the first quarter of 1994, and also down as a percentage of sales from 13.9% to 13.4%. SMG&A expenses were flat to the fourth quarter, decreasing to 22.6% of sales from 22.9% in the prior quarter, despite increased incentive expense and additional marketing expenses associated with new product launches. Operating income increased 13% from the immediately prior quarter reaching 11.7% of sales compared to 10.5% of sales in the fourth quarter. This performance was partially the result of higher sales, and was aided by some improvement in gross margin and continued tight control over operating expenses. After nonoperating expenses of $1.8 million, comprised principally of interest expense, and income taxes of $4.2 million, the Company recorded net income of $15.3 million, or $0.30 per share, compared to $14.0 million or $0.28 per share last quarter. Net income improved to 8.4% of sales from 7.8% of sales in the fourth quarter. The effective income tax rate for the first quarter increased to 21.5% compared to an 18% rate for in the prior quarter reflecting a shift in the mix of worldwide profits to higher tax rate jurisdictions including the U.S. 9 Liquidity and Capital Resources As of January 29, 1994, cash and cash equivalents were $94.4 million, an increase of $13.7 million and $72.0 million from the end of the fourth and first quarters of 1993, respectively. The increase in cash from the end of fiscal 1993 was due primarily to cash generated by operations while the increase in cash from the year ago quarter reflected both a substantial improvement in cash provided from operations over the past year and an increase in cash generated from financing activities. Cash provided by operating activities was $21.3 million, or 11.8% of sales, in the first quarter of 1994 compared to $8.1 million, or 5.3% of sales in the first quarter of 1993. The increase in operating cash flows from the year earlier period was principally attributable to higher net income and a reduction in net working capital requirements resulting mainly from a reduction in inventories of $7.4 million during the first quarter of 1994. Inventories were also reduced $5.3 million from the first quarter of 1993. Accounts receivable of $151.1 million increased 3.7% or $5.4 million from the end of fiscal 1993 due to the increase in sales as well as a higher level of quarter-end shipments. Accounts receivable rose 29% or $34.0 million from the first quarter of 1993. The primary factors contributing to the year-over-year increase were the 20% growth in sales between the two quarters and elimination of a prompt payment discount to domestic distributors during the fourth quarter of 1993 which altered the distributor payment cycle. Cash flow from operations was used largely to fund capital expenditures of $10.0 million for the first quarter of 1994. Additions to property, plant and equipment for fiscal 1994 are currently estimated to be $90 million and directed principally toward continued investments in equipment to improve and increase manufacturing and test capabilities and capacity. The Company expects to finance its planned 1994 capital additions with existing cash and cash equivalent balances together with internally generated cash. 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. 10 PART II - OTHER INFORMATION ANALOG DEVICES, INC. Item 1. Legal Proceedings 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) has been dismissed pursuant to a Memorandum of Understanding executed by Crystal and the Company. The Memorandum of Understanding provides for a cross-license arrangement between the Company and Crystal and the payment of license fees for technology to be used pursuant to this arrangement. The Memorandum of Understanding also provides for the execution of a definitive cross-licensing agreement and, in the event the parties cannot agree to the terms of such definitive agreement, resolution of such terms by binding arbitration. Item 4. Submission of Matters to a Vote of Security holders At the Annual Meeting of Stockholders held on March 8, 1994 the stockholders of the Company elected Messrs. Philip L. Lowe, Joel Moses and Lester C. Thurow to serve as Class I Directors for a term of three years by the following votes:
The terms of office of Messrs. Morris Chang, John L. Doyle, Jerald G. Fishman, Gordon C. McKeague and Ray Stata continued after the meeting. 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 January 29, 1994.Nominee Votes For Votes Withheld Broker Non votes - ------- --------- -------------- ---------------- Philip L. Lowe 38,574,472 121,861 -0- Joel Moses 38,635,757 60,576 -0- Lester C. Thurow 38,630,747 65,586 -0- 11 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: March 11, 1994 By: /s/ RAY STATA ----------------------- Ray Stata Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: March 11, 1994 By: /s/ JOSEPH E. MCDONOUGH ----------------------- Joseph E. McDonough Vice President-Finance and Chief Financial Officer (Principal Financial and Accounting Officer)