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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_______________ TO ________________
COMMISSION FILE NO. 1-7819
ANALOG DEVICES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2348234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TECHNOLOGY WAY, NORWOOD, MA 02062-9106
(Address of principal executive offices) (Zip Code)
(781) 329-4700
(Registrant's telephone number, including area code)
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The number of shares outstanding of each of the issuer's classes of Common
Stock as of August 26, 2000 was 357,604,596 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 29, 2000 JULY 31, 1999
------------- -------------
Net sales $ 700,658 $ 378,776
Cost of sales 300,519 190,481
--------- ---------
Gross margin 400,139 188,295
Operating expenses:
Research and development 103,429 67,142
Selling, marketing, general
and administrative 77,198 54,589
--------- ---------
180,627 121,731
Operating income 219,512 66,564
Nonoperating (income) expenses:
Interest expense 360 1,632
Interest income (15,769) (6,881)
Other, net (44,020) (31)
--------- ---------
(59,429) (5,280)
Income before income taxes 278,941 71,844
Provision for income taxes 86,740 17,243
--------- ---------
Net income $ 192,201 $ 54,601
========= =========
Shares used to compute earnings
per share - basic 355,018 345,420
========= =========
Shares used to compute earnings
per share - diluted 383,544 366,960
========= =========
Earnings per share - basic $ 0.54 $ 0.16
========= =========
Earnings per share - diluted $ 0.50 $ 0.15
========= =========
See accompanying notes.
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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)
NINE MONTHS ENDED
-------------------------------
JULY 29, 2000 JULY 31, 1999
------------- -------------
Net sales $ 1,771,930 $ 1,019,343
Cost of sales 782,790 529,721
----------- -----------
Gross margin 989,140 489,622
Operating expenses:
Research and development 277,143 181,625
Write-off of purchased in-process
research and development -- 5,140
Selling, marketing, general
and administrative 212,795 149,937
----------- -----------
489,938 336,702
Operating income 499,202 152,920
Equity in loss of WaferTech -- 1,149
Nonoperating (income) expenses:
Interest expense 2,863 8,182
Interest income (41,270) (17,298)
Other, net (42,757) 978
----------- -----------
(81,164) (8,138)
Income before income taxes 580,366 159,909
Provision for income taxes 173,106 36,308
----------- -----------
Net income $ 407,260 $ 123,601
=========== ===========
Shares used to compute earnings
per share - basic 352,359 332,862
=========== ===========
Shares used to compute earnings
per share - diluted 380,107 360,690
=========== ===========
Earnings per share - basic $ 1.15 $ 0.37
=========== ===========
Earnings per share - diluted $ 1.07 $ 0.35
=========== ===========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
Assets JULY 29, 2000 OCTOBER 30, 1999 JULY 31, 1999
------------- ---------------- -------------
Cash and cash equivalents $ 619,084 $ 355,891 $ 405,627
Short-term investments 439,323 406,553 231,505
Accounts receivable, net 420,440 260,871 247,674
Inventories:
Raw materials 16,101 13,735 13,909
Work in process 172,682 150,427 155,096
Finished goods 125,118 84,774 86,580
---------- ---------- ----------
313,901 248,936 255,585
Deferred tax assets 115,000 89,780 95,000
Prepaid expenses and other
current assets 25,629 17,079 13,844
---------- ---------- ----------
Total current assets 1,933,377 1,379,110 1,249,235
---------- ---------- ----------
Property, plant and equipment,
at cost:
Land and buildings 201,488 166,130 162,840
Machinery and equipment 1,195,596 1,088,939 1,066,595
Office equipment 83,334 74,530 73,627
Leasehold improvements 115,945 108,530 106,685
---------- ---------- ----------
1,596,363 1,438,129 1,409,747
Less accumulated depreciation
and amortization 892,481 795,323 763,423
---------- ---------- ----------
Net property, plant and equipment 703,882 642,806 646,324
---------- ---------- ----------
Investments 249,566 119,301 104,297
Intangible assets, net 36,652 30,563 29,619
Other assets 27,822 46,574 46,702
---------- ---------- ----------
Total other assets 314,040 196,438 180,618
---------- ---------- ----------
$2,951,299 $2,218,354 $2,076,177
========== ========== ==========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
Liabilities and Stockholders' Equity JULY 29, OCTOBER 30, JULY 31,
2000 1999 1999
----------- ----------- ---------
Short-term borrowings and current
portion of long-term debt $ 8,832 $ 82,344 $ 2,606
Obligations under capital leases 11,884 14,717 14,607
Accounts payable 162,744 103,368 88,115
Deferred income on shipments to
distributors 134,269 100,788 103,763
Income taxes payable 161,667 66,761 61,582
Accrued liabilities 138,251 111,285 87,119
---------- ---------- ----------
Total current liabilities 617,647 479,263 357,792
---------- ---------- ----------
Long-term debt -- -- 80,000
Non-current obligations under
capital leases 11,168 16,214 19,842
Deferred income taxes 49,000 40,002 38,000
Other non-current liabilities 214,730 66,844 61,458
---------- ---------- ----------
Total non-current liabilities 274,898 123,060 199,300
---------- ---------- ----------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $1.00 par
value, 471,934 shares authorized,
none outstanding -- -- --
Common stock, $.16 2/3 par value,
600,000,000 shares authorized,
357,314,704 shares issued
(178,049,189 in October 1999
and 177,481,502 in July 1999) 59,554 29,675 29,581
Capital in excess of par value 479,532 523,106 501,609
Retained earnings 1,518,071 1,110,811 1,037,593
Accumulated other comprehensive income 3,765 12,209 7,942
---------- ---------- ----------
2,060,922 1,675,801 1,576,725
Less 26,593 shares in treasury, at
cost (3,161,774 in October 1999
and 3,133,179 in July 1999) 2,168 59,770 57,640
---------- ---------- ----------
Total stockholders' equity 2,058,754 1,616,031 1,519,085
---------- ---------- ----------
$2,951,299 $2,218,354 $2,076,177
========== ========== ==========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands)
NINE MONTHS ENDED
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JULY 29, 2000 JULY 31, 1999
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OPERATIONS
Cash flows from operations:
Net income $ 407,260 $ 123,601
Adjustments to reconcile net
income to net cash provided
by operations:
Depreciation and amortization 110,444 106,827
Gain on sale of investment (43,857) --
Write-off of purchased research
and development -- 5,140
Equity in loss of WaferTech,
net of dividends -- 1,149
Deferred income taxes (20,865) 9,314
Other non-cash expense 558 3,127
Changes in operating assets
and liabilities (17,984) 14,798
--------- ---------
Total adjustments 28,296 140,355
--------- ---------
Net cash provided by operations 435,556 263,956
--------- ---------
INVESTMENTS
Cash flows from investments:
Purchase of short-term investments
available for sale (589,408) (356,918)
Maturities of short-term investments
available for sale 556,638 166,988
Payments for acquisitions, net of
cash acquired (5,176) (20,019)
Proceeds from sale of investment 64,641 --
Change in long-term investments 348 105,501
Additions to property, plant and
equipment, net (167,895) (46,451)
Decrease in other assets 4,904 5,040
--------- ---------
Net cash used for investments (135,948) (145,859)
--------- ---------
FINANCING ACTIVITIES
Cash flows from financing activities:
Proceeds from employee stock plans 41,093 31,444
Payments on capital lease
obligations (7,878) (10,591)
Net (decrease) increase in variable
rate borrowings (73,317) 2,265
--------- ---------
Net cash (used for) provided by
financing activities (40,102) 23,118
--------- ---------
Effect of exchange rate changes on cash 3,687 1,081
--------- ---------
Net increase in cash and cash equivalents 263,193 142,296
Cash and cash equivalents at beginning
of period 355,891 263,331
--------- ---------
Cash and cash equivalents at end of period $ 619,084 $ 405,627
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SUPPLEMENTAL INFORMATION Non-cash disclosure:
Conversion of 3 1/2% Subordinated Notes
to common stock $ -- $ 229,952
========= =========
See accompanying notes.
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Analog Devices, Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended July 29, 2000
(all tabular amounts in thousands except per share amounts)
Note 1 - In the opinion of management, the information furnished in the
accompanying condensed consolidated financial statements reflects all normal
recurring adjustments that are necessary to fairly state the results for this
interim period and should be read in conjunction with Analog Devices, Inc. (the
"Company") Annual Report to Stockholders on Form 10-K for the fiscal year ended
October 30, 1999 (1999 Annual Report).
Note 2 - Certain amounts reported in the previous year have been reclassified to
conform to the fiscal 2000 presentation.
Note 3 - Comprehensive Income
Total comprehensive income, i.e., net income plus available-for-sale securities
valuation adjustments and currency translation adjustments to stockholders'
equity, for the third quarters of fiscal 2000 and fiscal 1999 was $170 million
and $55 million, respectively. For the first nine months of fiscal 2000 and
fiscal 1999, total comprehensive income was $399 million and $126 million,
respectively.
Note 4 - Earnings Per Share
Basic earnings per share is computed based only on the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding during
the period, plus the dilutive effect of future issues of common stock relating
to stock option programs and convertible debt financing. In calculating diluted
earnings per share, the dilutive effect of stock options is computed using the
average market price for the period. The following table sets forth the
computation of basic and diluted earnings per share:
THREE MONTHS ENDED
-----------------------------------
JULY 29, 2000 JULY 31, 1999
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Basic:
Net income $192,201 $ 54,601
======== ========
Weighted shares outstanding 355,018 345,420
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Earnings per share $ 0.54 $ 0.16
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Diluted:
Net income $192,201 $ 54,601
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Weighted shares outstanding 355,018 345,420
Assumed exercise of common
stock equivalents 28,526 21,540
-------- --------
Weighted average common and
common equivalent shares 383,544 366,960
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Earnings per share $ 0.50 $ 0.15
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NINE MONTHS ENDED
-----------------------------------
JULY 29, 2000 JULY 31, 1999
------------- -------------
Basic:
Net income $407,260 $123,601
======== ========
Weighted shares outstanding 352,359 332,862
======== ========
Earnings per share $ 1.15 $ 0.37
======== ========
Diluted:
Net income $407,260 $123,601
Interest related to convertible
subordinated notes, net of tax -- 1,906
-------- --------
Earnings available for common stock $407,260 $125,507
======== ========
Weighted shares outstanding 352,359 332,862
Assumed exercise of common stock
equivalents 27,748 27,828
-------- --------
Weighted average common and common
equivalent shares 380,107 360,690
======== ========
Earnings per share $ 1.07 $ 0.35
======== ========
Note 5 - Investments
During the third quarter of fiscal 2000, the Company sold its investment in the
common stock of Chartered Semiconductor Manufacturing Pte., Ltd. The Company
received approximately $65 million in cash and realized a pretax gain of
approximately $44 million. The realized gain is included in other nonoperating
income.
During the first quarter of fiscal 1999, the Company completed the sale of
approximately 78% of its equity ownership in WaferTech, LLC, its joint venture
with Taiwan Semiconductor Manufacturing Company and other investors. As a result
of this sale, the Company's equity ownership in WaferTech was reduced from 18%
to 4%. The Company sold 78% of its investment to other WaferTech partners and
received $105 million in cash, which was equal to the carrying value of the 14%
equity ownership at October 31, 1998.
Note 6 - Convertible Debt
As of March 11, 1999 the Company had converted $229,967,000 of the $230 million
principal amount of its 3 1/2% Convertible Subordinated Notes (Notes) due 2000
into an aggregate of 10,983,163 shares of the Company's common stock, and the
remaining Notes were redeemed by a cash payment of $33,000. This conversion did
not have an impact on diluted earnings per share.
Note 7 - Acquisitions
On June 30, 2000, the Company announced an offer to acquire BCO Technologies plc
(BCO), a company incorporated in Northern Ireland and based in Belfast, in a
cash-for-stock transaction valued at approximately $150 million. BCO is a
leading supplier of silicon-on-insulator wafers used for fabricating
micromechanical optical devices for optical switching and communications
applications. The offer has been unconditionally accepted by BCO's shareholders
under applicable laws and the transaction is anticipated to be completed in the
fourth quarter of fiscal 2000. The Company expects no significant in-process
research and development charge related to this acquisition.
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During the second quarter of fiscal 1999, the Company acquired two DSP tools
companies, White Mountain DSP, Inc. of Nashua, New Hampshire and Edinburgh
Portable Compilers Limited, of Edinburgh, Scotland. The total cost of these
acquisitions was approximately $21 million in cash and $2 million in common
stock of the Company, with additional contingent cash consideration up to a
maximum of $10 million (to be accounted for as additional goodwill) payable if
the acquired companies achieve certain revenue and operational objectives. As of
July 29, 2000, approximately $7 million of contingent consideration had been
paid. These acquisitions were accounted for as purchases. The excess of the
purchase price over the fair value of assets acquired was allocated to existing
technology, workforce in place, and tradenames, which are being amortized over
periods ranging from six to ten years and goodwill which is being amortized on
the straight-line basis over ten years. In connection with these acquisitions,
the Company recorded a charge of $5.1 million for the write-off of in-process
research and development in the second quarter of fiscal 1999.
Note 8 - Segment Information
The Company operates in two segments: the design, manufacture and marketing of a
broad range of integrated circuits, which comprises approximately 97% of the
Company's revenue, and the design, manufacture and marketing of a range of
assembled products, which accounts for the remaining 3% of the Company's
revenue. Effectively, the Company operates in one reportable segment.
Note 9 - New Accounting Standard
Effective October 31, 1999, the Company adopted Statement of Position 98-1, (SOP
98-1), "Accounting for the Cost of Computer Software Developed for or Obtained
for Internal Use." The adoption of SOP 98-1 did not have a material impact on
the results of operations or financial position.
Note 10 - Stock Split
On February 15, 2000, the Company's Board of Directors approved a 2-for-1 split
of the Company's common stock, effected as a 100% stock dividend on March 15,
2000 by the distribution of one share of common stock for every share held on
the record date of February 28, 2000. All historical per share amounts in this
report have been restated to reflect the split.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information should be read in conjunction with the unaudited condensed
consolidated financial statements and the notes thereto included in Item 1 of
this Quarterly Report and the audited consolidated financial statements and
notes thereto and Management Analysis for the fiscal year ended October 30,
1999, contained in the Company's 1999 Annual Report.
The following discussion and analysis may contain forward-looking statements.
Such statements are subject to certain risks and uncertainties, including those
discussed below or in the Company's 1999 Annual Report, which could cause actual
results to differ materially from the Company's expectations. Readers are
cautioned not to place undue reliance on any forward-looking statements, as they
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to release the results of any revision to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Results of Operations
Net sales for the third quarter of fiscal 2000 were $701 million, an increase of
85% from the $379 million reported for the third quarter of fiscal 1999. Net
sales for the first nine months of fiscal 2000 were $1,772 million, an increase
of 74% from the $1,019 million reported for the comparable period of fiscal
1999. Analog IC product sales increased by 71% over the same quarter in fiscal
1999 and 62% over the same nine month period in fiscal 1999. Sales of DSP
products increased 143% from the same quarter in fiscal 1999 and 124% over the
same nine month period in fiscal 1999. For the quarter and the nine months ended
July 29, 2000, sales increased in all markets with communications showing the
highest increase. For the third quarter of fiscal 2000, sales to the
communications market increased by 131% over the prior year quarter and
represented 45% of total sales. The sales increase and growth in the
communications market was driven by continued growth in demand for high-speed
broadband access to the Internet, wireless infrastructure applications and
wireless Internet appliances.
Sales increased in all geographic regions for both the third quarter and first
nine months of fiscal 2000 over the same periods in fiscal 1999, with the
largest quarter over quarter increases occurring in Europe and Southeast Asia.
International sales for the third quarter of fiscal 2000 represented 57% of
sales compared to 54% of sales for the third quarter of fiscal 1999.
Gross margin was 57.1% for the third quarter of fiscal 2000, compared to 49.7%
for the third quarter of fiscal 1999. Gross margin was 55.8% for the first three
quarters of fiscal 2000 compared to 48.0% for the first three quarters of fiscal
1999. For the quarter and nine months ended July 29, 2000, the improvement in
gross margin was primarily due to the favorable effect of fixed costs allocated
across a higher sales base and improved manufacturing efficiencies at the
Company's wafer fabrication, assembly and test facilities.
Research and development (R&D) expenses were $103 million and $277 million for
the three months and nine months ended July 29, 2000, respectively, compared to
$67 million and $182 million for the corresponding periods of fiscal 1999. As a
percentage of sales, R&D spending decreased during the third quarter of fiscal
2000 to 14.8%, down from 17.7% in the third quarter of fiscal 1999. However, R&D
spending in absolute dollar amounts increased by 54% and 53% in the quarter and
first nine months ended July 29, 2000, respectively, over the same periods in
fiscal 1999 as the Company continued to invest in various opportunities in the
Company's served markets. The Company believes that a continued commitment to
research and development is essential in order to further exploit existing
product offerings and to provide innovative new product offerings. As a result,
the Company expects to continue to make significant R&D investments in the
future.
On June 30, 2000, the Company announced an offer to acquire BCO Technologies plc
(BCO), a company incorporated in Northern Ireland and based in Belfast, in a
cash-for-stock transaction valued at approximately $150 million. BCO is a
leading supplier of silicon-on-insulator wafers used for fabricating
micromechanical optical devices for optical switching and communications
applications. The offer has been unconditionally accepted by BCO's shareholders
under applicable laws and the transaction is anticipated to be completed in the
fourth quarter of fiscal 2000. The Company expects no significant in-process
research and development charge related to this acquisition.
During the second quarter of fiscal 1999, the Company incurred a charge of
$5,140,000 for the write-off of in-process R&D in connection with the
acquisition of two DSP tools companies, White Mountain DSP, Inc. of Nashua, New
Hampshire and Edinburgh Portable Compilers Limited, of Edinburgh, Scotland. The
total cost of these acquisitions was approximately $21 million in cash and $2
million in common stock of the Company, with additional contingent cash
consideration of up to a
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maximum of $10 million (to be accounted for as goodwill) payable if the acquired
companies achieve certain revenue and operational objectives. Through the third
quarter of fiscal 2000, $7 million of the additional consideration has been
paid.
Selling, marketing, general & administrative (SMG&A) expenses for the
third quarter of fiscal 2000 were $77 million, an increase of $22 million from
the $55 million reported for the third quarter of fiscal 1999. SMG&A expenses
for the nine months ended July 29, 2000 were $213 million, compared to $150
million for the nine months ended July 31, 1999. As a percentage of sales, SMG&A
expenses decreased from 14.4% for the third quarter of fiscal 1999 to 11.0% for
the third quarter of fiscal 2000 as a result of the significant growth in
revenue and continuing control over SMG&A spending.
The effective income tax rate increased to 31.1% for the third quarter of fiscal
2000 from 24.0% for the third quarter of fiscal 1999. The effective income tax
rate increased to 29.8% for the first nine months of fiscal 2000 from 22.7% for
the first nine months of fiscal 1999. These increases are primarily due to
increased profits in higher tax jurisdictions.
Liquidity and Capital Resources
At July 29, 2000, cash, cash equivalents and short-term investments totaled
$1,058 million, an increase of $296 million from the fourth quarter of fiscal
1999 and an increase of $421 million from the third quarter of fiscal 1999. The
increase in cash, cash equivalents and short-term investments in the first nine
months of fiscal 2000 was primarily due to operating cash inflows of $436
million and cash proceeds of $65 million received in the third quarter from the
sale of an investment, partially offset by increased capital expenditures and
debt repayment.
Accounts receivable totaled $420 million at the end of the third quarter of
fiscal 2000, an increase of $160 million from the fourth quarter of 1999 and of
$173 million from the third quarter of fiscal 1999 due to higher sales levels.
The Company's days sales outstanding improved from 60 days at July 31, 1999 to
55 days at July 29, 2000.
Inventories of $314 million at July 29, 2000 were $65 million higher than the
inventory levels at October 30, 1999 and $58 million higher than at the end of
the third quarter of fiscal 1999. The increase in inventory levels was a result
of production increases in response to increased demand for the Company's
products. Quarter over quarter, days cost of sales in inventory improved by 27
days.
During the third quarter of fiscal 2000, the Company sold its investment in the
common stock of Chartered Semiconductor Manufacturing Pte., Ltd. The Company
received approximately $65 million in cash and recognized a pretax gain of
approximately $44 million.
During the first quarter of fiscal 1999, the Company completed the sale of
approximately 78% of its equity ownership in WaferTech, LLC, its joint venture
with Taiwan Semiconductor Manufacturing Company (TSMC) and other investors. As a
result of this sale, the Company's equity ownership in WaferTech was reduced
from 18% to 4%. The Company sold 78% of its investment to other WaferTech
partners and received $105 million in cash, which was equal to the carrying
value of the 14% equity ownership at October 31, 1998.
Net additions to property, plant and equipment of $168 million for the first
nine months of fiscal 2000 were funded with a combination of cash on hand and
cash generated from operations. Capital spending in the first nine months of
fiscal 2000 was up substantially from the $46 million spent in the first nine
months of fiscal 1999. The increase in capital expenditures was attributable to
the expansion of manufacturing capability to meet current sales growth. The
Company currently plans to make capital expenditures of approximately $260
million during fiscal 2000.
At July 29, 2000, the Company's principal sources of liquidity were $1,058
million of cash and cash equivalents and short-term investments. In addition,
the Company has various lines of credit both in the U.S. and overseas, including
a $60 million credit facility in the U.S., which expires in October 2000, all of
which were substantially unused at July 29, 2000.
As of March 11, 1999 the Company had converted $229,967,000 of the $230 million
principal amount of its 3 1/2% Convertible Subordinated Notes (Notes) due 2000
into an aggregate of 10,983,163 shares of the Company's common stock, and the
remaining Notes were redeemed by a cash payment of $33,000.
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The Company believes that its existing sources of liquidity and cash expected to
be generated from future operations, together with current and anticipated
available long-term financing, will be sufficient to fund operations, capital
expenditures and research and development efforts for the foreseeable future.
Factors Which May Affect Future Results
The Company's future operating results are difficult to predict and may be
affected by a number of factors including the timing of new product
announcements or introductions by the Company and its competitors, competitive
pricing pressures, fluctuations in manufacturing yields, adequate availability
of wafers and manufacturing capacity, the ability of the Company to continue
hiring engineers and other qualified employees needed to meet the expected
demands of its largest customers, changes in product mix and economic conditions
in the United States and international markets. In addition, the semiconductor
market has historically been cyclical and subject to significant economic
downturns at various times. The Company's business is subject to rapid
technological changes and there can be no assurance, depending on the mix of
future business, that products stocked in inventory will not be rendered
obsolete before they are shipped by the Company. As a result of these and other
factors, there can be no assurance that the Company will not experience material
fluctuations in future operating results on a quarterly or annual basis.
The Company's success depends in part on its continued ability to develop and
market new products. There can be no assurance that the Company will be able to
develop and introduce new products in a timely manner or that such products, if
developed, will achieve market acceptance. In addition, the Company's growth is
dependent on its continued ability to penetrate new markets where the Company
has limited experience and competition is intense. There can be no assurance
that the markets being served by the Company will grow in the future; that the
Company's existing and new products will meet the requirements of such markets;
that the Company's products will achieve customer acceptance in such markets;
that competitors will not force prices to an unacceptably low level or take
market share from the Company; or that the Company can achieve or maintain
profits in these markets. Also, some of the Company's customers in these markets
are less well established which could subject the Company to increased credit
risk.
The semiconductor industry is intensely competitive. Certain of the Company's
competitors have greater technical, marketing, manufacturing and financial
resources than the Company. The Company's competitors also include emerging
companies attempting to sell products to specialized markets such as those
served by the Company. Competitors of the Company have, in some cases, developed
and marketed products having similar design and functionality as the Company's
products. There can be no assurance that the Company will be able to compete
successfully in the future against existing or new competitors or that the
Company's operating results will not be adversely affected by increased price
competition.
The cyclical nature of the industry has resulted in sustained or short-term
periods when demand for the Company's products has increased or decreased
rapidly. The semiconductor industry and the Company have experienced a period of
rapid increases in demand during fiscal 1999 and the first nine months of fiscal
2000. The Company has increased its manufacturing capacity over the past three
years through both expansion of its production facilities and increased access
to third-party foundries. However, the Company cannot be sure that it will not
encounter unanticipated production problems at either its own facilities or at
third-party foundries, or that the increased capacity will be sufficient to
satisfy demand for its products. The Company relies, and plans to continue to
rely, on assembly and test subcontractors and on third-party wafer fabricators
to supply most of its wafers that can be manufactured using industry-standard
digital processes. Such reliance involves several risks, including reduced
control over delivery schedules, manufacturing yields and costs. In addition,
the Company's capacity additions resulted in a significant increase in operating
expenses. If revenue levels are not sufficient to offset these additional
expense levels, the Company's future operating results could be adversely
affected. In addition, asset values could be impaired if the additional capacity
is underutilized for an extended period of time. Also, noncompliance with "take
or pay" covenants in certain of its supply agreements could adversely impact
operating results. The Company believes that other semiconductor manufacturers
have expanded their production capacity over the past several years, and there
can be no assurance that the expansion by the Company and its competitors will
not lead to overcapacity in the Company's target markets, which could lead to
price erosion that would adversely affect the Company's operating results. In
addition, the Company and many companies in the semiconductor industry rely on
internal manufacturing capacity located in California and Taiwan as well as
wafer fabrication foundries in Taiwan and other subcontractors in geographically
unstable locations around the world. Such reliance involves risks associated
with the impact of earthquakes on the Company and the semiconductor industry
including temporary loss of capacity, availability and cost of key raw materials
and equipment, and availability of key services including transport.
12
13
In the first nine months of fiscal 2000, 56% of the Company's revenues were
derived from customers in international markets. The Company has manufacturing
facilities outside the U.S. in Ireland, the Philippines and Taiwan. In addition
to being exposed to the ongoing economic cycles in the semiconductor industry,
the Company is also subject to the economic and political risks inherent in
international operations, including the risks associated with the ongoing
uncertainties in many developing economies around the world. These risks include
air transportation disruptions, expropriation, currency controls and changes in
currency exchange rates, tax and tariff rates and freight rates. Although the
Company engages in certain hedging transactions to reduce its exposure to
currency exchange rate fluctuations, there can be no assurance that the
Company's competitive position will not be adversely affected by changes in the
exchange rate of the U.S. dollar against other currencies.
The semiconductor industry is characterized by frequent claims and litigation
involving patent and other intellectual property rights. The Company has from
time to time received, and may in the future receive, claims from third parties
asserting that the Company's products or processes infringe their patents or
other intellectual property rights. In the event a third party makes a valid
intellectual property claim and a license is not available on commercially
reasonable terms, the Company's operating results could be materially and
adversely affected. Litigation may be necessary to enforce patents or other
intellectual property rights of the Company or to defend the Company against
claims of infringement, and such litigation can be costly and divert the
attention of key personnel. See the Company's 1999 Annual Report for information
concerning certain pending litigation involving the Company. An adverse outcome
in such litigation may, in certain cases, have a material adverse effect on the
Company's consolidated financial position or on its consolidated results of
operations or cash flows in the period in which the litigation is resolved.
Because of these and other factors, past financial performance should not be
considered an indicator of future performance. Investors should not use
historical trends to anticipate future results and should be aware that the
trading price of the Company's common stock may be subject to wide fluctuations
in response to quarter-to-quarter variations in operating results, general
conditions in the semiconductor industry, changes in earnings estimates and
recommendations by analysts or other events.
Year 2000
Over the past several years the Company made significant investments in new
manufacturing, financial and operating hardware and software. These investments
were made to support the growth of its operations; however, the by-product of
this effort was that the Company had year 2000 compliant hardware and software
running on many of its major platforms. The Company established a task force to
evaluate the remaining systems and equipment and upgrade or replace systems that
were not year 2000 compliant. The cost of this effort, which commenced at the
beginning of fiscal 1998 and continued through fiscal 1999, was approximately
$10 million.
The Company's computer systems and equipment did not experience any significant
disruptions as a result of the advent of the year 2000. However, there may be
latent problems that surface at key dates or events in the future. The Company
has not experienced, and does not anticipate, any significant problems related
to the transition to the year 2000. Furthermore, the Company does not anticipate
any significant expenditure in the future related to year 2000 compliance.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated herein by reference to the
"Management Analysis" set forth on pages 1 through 7 of the 1999 Annual Report
to Shareholders.
ITEM 6. Exhibits and reports on Form 8-K
(a) See Exhibit Index.
(b) Report on Form 8-K There were no reports on Form 8-K filed for the
three months ended July 29, 2000.
Items 1, 2, 3, 4 and 5 of PART II are not applicable and have been
omitted.
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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, 2000 By: /s/ Jerald G. Fishman
---------------------------------
Jerald G. Fishman
President and
Chief Executive Officer
(Principal Executive Officer)
Date: September 12, 2000 By: /s/ Joseph E. McDonough
---------------------------------
Joseph E. McDonough
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
14
15
EXHIBIT INDEX
ANALOG DEVICES, INC.
Item
27 Financial Data Schedule
15
5
1,000
U.S. DOLLARS
9-MOS
OCT-28-2000
OCT-31-1999
JUL-29-2000
1
619,084
439,323
420,440
0
313,901
1,933,377
1,596,363
892,481
2,951,299
617,647
0
0
0
59,554
1,999,200
2,951,299
1,771,930
1,771,930
782,790
782,790
489,938
0
2,863
580,366
173,106
407,260
0
0
0
407,260
1.15
1.07
Asset value represents net amount.
