Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Analog Devices, Inc.

(781) 329-4700

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

      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 ü     NO      

      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.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     YES ü     NO      

      The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $12,588,076,971 based on the last reported sale of the Common Stock on the New York Stock Exchange Composite Tape reporting system on May 3, 2002.

      As of December 31, 2002 there were 363,754,360 shares of Common Stock, $0.16 2/3 par value per share, outstanding.

Documents Incorporated by Reference

Table of Contents

PART I

ITEM 1.     BUSINESS

Company Overview

      We are a leader in the design, manufacture and marketing of high-performance analog, mixed-signal and digital signal processing integrated circuits. Since our inception in 1965, we have focused on solving the engineering challenges associated with signal processing in electronic equipment. Our products play a fundamental role in converting real-world phenomena such as temperature, motion, pressure, light and sound into electrical signals to be used in a wide array of electronic equipment ranging from industrial process control, factory automation systems equipment, smart munitions, base stations, central office equipment, wireless telephones, computers, cars, CAT scanners, digital cameras and DVD players.

      Signal processing is the cornerstone of high-speed communications, digital entertainment, and other consumer, computer and industrial applications. As new generations of digital applications evolve, they generate new needs for high-performance analog and digital signal processing, or DSP, technology. Signal processing is where the analog and digital worlds meet to provide the advantages of digital technology to the real world.

      We produce a wide range of products that are designed to meet the technology needs of a broad base of customers. Markets for our products include communications, computers and computer peripherals, consumer electronics and industrial instrumentation.

      During fiscal 2002, approximately 40% of our revenue came from the industrial market, which includes factory automation, medical equipment, scientific instrumentation, automatic test equipment and aerospace and defense systems.

      Revenues from the communications market represented approximately one-third of our fiscal 2002 revenues. Communications applications include wireless handsets and base stations, as well as products used for high-speed access to the Internet, including broadband modems and central office networking equipment.

      We also serve the personal computer market with products that monitor and manage power usage, process signals used in flat panel displays and multimedia projectors and enable CD-quality audio. In fiscal 2002, the computer market accounted for approximately 15% of our revenue.

      The demand for our products in high-performance consumer electronics has been increasing and reached approximately 10% of our revenue during fiscal 2002. Applications in this market include digital cameras and camcorders, DVD players, digital televisions and surround sound audio systems.

      We sell our products worldwide through a direct sales force, third-party distributors and independent sales representatives. We have direct sales offices in 18 countries, including the United States.

      We are headquartered near Boston, in Norwood, Massachusetts, and have manufacturing facilities in Massachusetts, California, North Carolina, Ireland, the United Kingdom, the Philippines and Taiwan. We were founded in 1965 and are incorporated in Massachusetts. As of November 2, 2002, we employed approximately 8,600 people worldwide. Our common stock is listed on the New York Stock Exchange under the symbol ADI and is included in the Standard & Poor’s 500 Index.

      We maintain a website with the address www.analog.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission. In addition, we intend to disclose on our website any amendments to, or waivers from, our code of business conduct and ethics that are required to be publicly disclosed pursuant to rules of the Securities and Exchange Commission.

1

Table of Contents

Industry Background

      All electronic signals fall into one of two categories, analog or digital. Analog, also known as linear, signals represent real-world phenomena, such as temperature, pressure, sound, speed and acceleration. 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 storage or further manipulation. The further manipulation of the signals after conversion to digital form is called “digital signal processing.” Digital signals represent the “ones” and “zeros” of binary arithmetic and are either on or off. Digital signals are frequently converted back to analog form for functions such as video display, audio output or control. These manipulations and transformations from analog to digital and back to analog are known as “real-world signal processing” within the signal chain.

      Significant advances in semiconductor technology in recent years have substantially increased the performance and functionality of ICs used in signal processing applications. These advances include the ability to combine analog and digital signal processing capability on a single chip, thereby making possible more highly-integrated solutions. The widespread application of low-cost microprocessor-based systems and of digital communication technologies has increased the need for signal conditioning interfaces between the analog and digital world. At the same time, the convergence of computing and communications has resulted in end products that incorporate state-of-the-art signal processing capability onto as few chips as possible. Our products are designed to be used within electronic equipment to achieve higher performance, including greater speed, improved accuracy, more efficient signal processing and minimized power consumption.

Principal Products

      We design, manufacture and market a broad line of high-performance ICs that incorporate analog, mixed-signal and digital signal processing technologies. Our ICs are designed to address a wide range of real-world signal processing applications. Across the entire range of our signal processing ICs are both general purpose products as well as custom products designed for specific applications and customers. By using readily available, high-performance, general-purpose products in their systems, our customers can reduce the time they need to bring new products to market. Given the high cost of developing customized ICs, our standard products often provide the most cost-effective solution for many low to medium volume applications. In many emerging markets, including communications, computer and consumer products, we focus on working with leading customers to design application-specific solutions. We begin with our existing core technologies in analog, DSP and mixed-signal, and devise a solution to more closely meet the needs of a specific customer or group of customers. Because we have already developed the core technology for our general-purpose products, we can create application-specific solutions quickly.

      We produce and market several thousand products. Our highest revenue product accounted for approximately 2% of our revenue for fiscal 2002. Approximately 80% of our products are proprietary and equivalent products are not available. Only a limited number of other companies may provide products with similar function.

      Our analog IC technology has been the foundation of our business for more than 30 years, and we believe we are one of the world’s largest suppliers of analog ICs. Our analog ICs are primarily high-performance, single-function devices. The majority of our analog IC product revenue is attributable to sales of data converters and amplifiers. The data converters and amplifiers product categories accounted for 55% of our fiscal 2002 revenues. Other analog IC products include analog signal processing devices such as analog multipliers, voltage references and comparators. Over the past few years we have been expanding our analog IC product offerings along the entire analog signal chain and into product areas such as radio frequency integrated circuits, or RF ICs, and power and thermal monitoring ICs. We are also expanding our analog IC product line to better meet the needs of customers designing portable battery-operated equipment.

2

Table of Contents

      Our analog IC products tend to be proprietary to us in their design and general purpose in their application. This allows customers to incorporate our products into a wide variety of electronic equipment and systems. Our product portfolio includes several thousand analog ICs, any one of which can have as many as several hundred customers. Our analog ICs typically have long product life cycles. Our analog IC customers include both original equipment manufacturers, or OEMs, and customers who build electronic subsystems for integration into larger systems. Most of our analog ICs have been purchased by OEMs to serve the industrial, instrumentation, defense/ aerospace and automotive markets, but during the past few years they have been increasingly used for applications in communications, computers and other consumer applications requiring high-performance real-world signal processing. The principal requirements these applications have in common include higher accuracy, lower cost per function, smaller size, lower weight and fewer components for improved reliability.

      Our analog technology base also includes products using an advanced IC technology known in the industry as surface micromachining, which is used to produce semiconductor products known as micro-electromechanical systems, or MEMS. This technology enables extremely small mechanical structures to be built on the surface of a chip along with supporting circuitry. In addition to incorporating an electro-mechanical structure, these devices also have analog circuitry for conditioning signals obtained from the sensing element. Our MEMS products are known as accelerometers and are used to monitor acceleration in a wide variety of applications. The majority of our current revenue from micromachined products is derived from accelerometers used by automotive manufacturers in airbag applications. Recently, we have combined our MEMS technology with silicon-on-insulator, or SOI, technology we obtained through the acquisition of BCO Technologies plc in fiscal 2000. SOI technology creates multiple layers of silicon as a single substrate. Our next generation of inertial sensors for the airbag market will incorporate both SOI and MEMS technology. SOI MEMS is a process where one layer is used for the MEMS device and the other layer is used for the circuitry. Emerging applications include global positioning satellite automobile navigation systems, earthquake detectors and high-end computer joysticks. We have recently introduced a MEMS gyroscope that could have applications in automobiles, industrial robotics and various navigation applications.

      DSPs are processors or microcomputers that are optimized for high-speed numeric processing, which is essential for real-time processing of digital data representing analog signals. Our DSP products are designed to be fully programmable and to efficiently execute specialized software programs, or algorithms, associated with processing digitized real-time, real-world data. Programmable DSPs provide the flexibility to modify the device’s function quickly and inexpensively in software. We offer both general-purpose and application-specific DSP products. General-purpose DSP IC customers typically write their own algorithms using software tools that we provide and software tools they obtain from third-party suppliers. Our application-specific DSP products typically include analog and DSP technology and the DSPs are preprogrammed to execute software for applications such as wireless telecommunications or image processing. Our DSPs are designed in families of products that share a common architecture and therefore can execute the same software. We support these products with specialized applications and easy-to-use, low-cost development tools, which reduce product development costs and time-to-market.

      Our products also include multi-function mixed-signal devices and chipsets that incorporate combinations of analog and DSP technology. The growing technological demands associated with the use of audio and video in computers and consumer products as well as the networking of communications systems has created new opportunities for these mixed-signal products. Examples of these products include chipsets for communication applications such as global system for mobile cellular phones, cable modems, and broadband modems. Other examples include audio input/output devices for computer applications and electric motor control devices for industrial instrumentation.

3

Table of Contents

Markets and Applications

      The following describes some of the characteristics of, and products supplied to, our major markets:

      Industrial — Our industrial market includes the following areas:

      Industrial Process Automation — Our industrial process automation market includes data acquisition systems, automatic process control systems, robotics, environmental control systems and automatic test equipment. 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 analog and mixed-signal ICs are usually employed to achieve the necessary functionality. Automatic test equipment applications have created opportunities for the design of system-level ICs that require a high level of electronic circuitry.

      Instrumentation — Our instrumentation market includes engineering, medical and scientific instruments. These products are usually designed using the highest performance analog and mixed-signal ICs available.

      Military/ Aerospace — The military, commercial avionics and space markets all require high-performance ICs that meet rigorous environmental and reliability specifications. Many of our analog ICs 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 our products sold in this market are specifically-tested versions of products derived from our standard product offering.

      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, we are developing products specifically for the automotive market. We supply a micromachined IC used as a crash sensor in airbag systems, which serves as an alternative to an electromechanical sensor. We believe that other micromachined devices derived from this product may be suitable for other automotive applications, such as roll-over sensing, global positioning satellite, or GPS, automotive navigation systems, anti-lock brakes and “smart” suspension systems and non-automotive applications including earthquake detectors and high-end computer joysticks.

      Communications — The development of broadband, wireless and Internet infrastructures around the world has created an important market for our communications products. Communications technology involves the acquisition of analog signals that are converted from analog to digital and digital to analog form as they are processed and transmitted. Our expertise in combining analog and digital functionality on a single chip or chip set has enabled us to develop products that address the technological challenges of this complex and rapidly expanding market space. The need for higher speed and reduced power consumption, coupled with more reliable, bandwidth-efficient communications, has been creating demand for our products, which are used in systems that include digital, analog and mixed-signal processing capability. Our products are used in the full spectrum of signal processing for audio, data, image or video communication. In broadband and wireless communication applications, our products are incorporated into data and digital subscriber line, or DSL, modems, cellular telephones, base station equipment and remote access servers.

      Computers and Computer Peripherals — Increased interface between users and PCs through monitors, printers, scanners and audio devices and the increasing need for power and thermal management capability in PCs have provided opportunities in the computer market. Our ability to integrate analog, DSP and mixed-signal functionality on ICs has enabled us to supply many high-performance critical components required by PC manufacturers. The computer industry seeks to develop and market ever smaller and lighter personal computers. This need increases demand for high- performance ICs to monitor power usage to enable manufacturers to use smaller batteries and extend battery life between charges. We currently supply 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 audio input and output capability for business and entertainment applications.

4

Table of Contents

      Consumer Electronics — Increased market demand from digital entertainment systems for acquisition, display and digital processing of signals has allowed us to combine analog and digital design capability to provide solutions that are designed to meet the rigorous cost, size and reliability constraints of the consumer electronics market. The emergence of high-performance, feature-rich consumer products, such as home theater systems, video projectors, DVD players and digital camcorders and cameras, has led to the need for high-performance, system-level ICs with a high level of specific functionality.

Research and Development

      Our markets are characterized by rapid technological changes and advances. Accordingly, we make substantial investments in the design and development of new products and processes, and for improving existing products and processes. We spent approximately $424 million during fiscal 2002 on the design, development and improvement of new and existing products and processes, compared to approximately $465 million during fiscal 2001 and approximately $390 million during fiscal 2000.

      Our R&D strategy focuses on building technical leadership in core technologies for signal conditioning, conversion and processing. In support of our research and development activities, we employ thousands of engineers involved in product and process development at over 30 design centers and manufacturing sites located throughout the world.

Patents and Other Intellectual Property Rights

      As of November 2, 2002, we held 704 United States patents and had 446 patent applications pending with the United States Patent and Trademark Office with expiration dates ranging from 2002 through 2022. We believe that while our patents may provide some advantage, our competitive position is largely determined by such factors as the system and application knowledge, ability and experience of our personnel, the range and number of new products being developed by us, our market brand recognition and ongoing marketing efforts, customer service and technical support. It is generally our policy to seek patent protection for significant inventions that may be patented, though we may elect, in certain cases, not to seek patent protection even for significant inventions, if other protection, such as maintaining the invention as a trade secret, is considered more advantageous. We also have trademarks that are used in the conduct of our business. These trademarks are valuable assets. In addition, we have registered certain of our mask sets under the Semiconductor Chip Protection Act of 1984.

      There can be no assurance that any patent will issue on pending applications or that any patent issued will provide substantive protection for the technology or product covered by it. There also can be no assurance that others will not develop or patent similar technology or reverse engineer our products or that our confidentiality agreements with employees, consultants, silicon foundries and other suppliers and vendors will be adequate to protect our interests. Moreover, the laws of countries in which we design, manufacture and market our products may afford little or no effective protection of our proprietary technology.

      The semiconductor industry is characterized by frequent claims and litigation involving patent and other intellectual property rights, including claims arising under our contractual indemnification of our customers. We have received from time to time, and may receive in the future, claims from third parties asserting that our products or processes infringe their patents or other intellectual property rights. In the event a third party makes a valid intellectual property claim against us and a license is not available to us on commercially reasonable terms, or at all, we could be forced either to redesign or to stop production of products incorporating that intellectual property, and our operating results could be materially and adversely affected. Litigation may be necessary to enforce our patents or other of our intellectual property rights or to defend us against claims of infringement, and this litigation could be costly and divert the attention of our key personnel. See Note 11 in the Notes to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for information concerning pending litigation that involves us. An adverse outcome in this or other litigation could have a material adverse effect on our consolidated financial position or on our consolidated results of operations or cash flows in the period in which the litigation is resolved.

5

Table of Contents

Sales Channels

      We sell our products in North America and internationally through a direct sales force, third-party distributors and independent sales representatives. Approximately 30% of our fiscal 2002 net sales were to customers in North America. As of December 1, 2002, we had 13 sales offices in the United States, and our third-party distribution channel consisted of six national and regional third-party distributors and several independent sales representatives in numerous locations throughout the United States and Canada.

      Approximately 21% of our fiscal 2002 net sales were to customers in Europe, 17% to customers in Japan, and 32% to customers in other international markets. As of December 1, 2002, we had direct sales offices in Austria, Canada, China, Denmark, France, Germany, Hong Kong, India, Israel, Italy, Japan, Korea, the Netherlands, Singapore, Sweden, Taiwan and the United Kingdom. We also had sales representatives and/or distributors in approximately 45 countries outside North America, including countries where we also have direct sales offices. For further detail regarding financial information about geographic areas, see Note 4 in the Notes to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

      A significant portion of our fiscal 2002 revenue was derived from sales made through distributors. Revenue is deferred on sales made through distributors until the distributors resell the products to the end users. These distributors typically maintain an inventory of our products. Some of them also sell products competitive with our products, including those for which we are an alternate source. Sales to certain distributors are made under agreements that provide protection to the distributors for their inventory of our products against price reductions and products that are slow-moving or that we have discontinued, including limited product return privileges.

      Our worldwide technical direct field 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. We publish and distribute full-length databooks, short-form catalogs, applications guides, technical handbooks and detailed data sheets for individual products. We also provide product and application information and sell products via our worldwide website on the Internet. We maintain a staff of field application engineers who aid customers in incorporating our products into their products during their product development cycles.

      We have thousands of customers worldwide. Our largest single customer represented approximately 3% of net sales for fiscal 2002, and our 20 largest customers accounted for approximately 27% of our net sales in fiscal 2002.

      See Note 4 “Industry and Geographic Segment Information” of the Notes to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

Foreign Operations

      Through subsidiaries and affiliates, we conduct business in numerous countries outside the United States. Our international business is subject to risks customarily encountered in foreign operations, including fluctuations in foreign currency exchange rates and controls, import and export controls, and other laws, policies and regulations of foreign governments.

      During fiscal 2002, approximately 70% of our revenues were derived from customers in international markets. We have manufacturing facilities outside the United States in Ireland, the United Kingdom, the Philippines and Taiwan. In addition to being exposed to the ongoing economic cycles in the semiconductor industry, we are also subject to the economic and political risks inherent in international operations and their impact on the United States economy in general, including the risks associated with ongoing uncertainties and political and economic instability in many countries around the world as well as the economic disruption from acts of terrorism, particularly in the aftermath of the terrorist attacks of September 11, 2001 and the response to them by the United States and its allies. These risks include air transportation disruptions, expropriation, currency controls and changes in currency exchange rates, tax and tariff rates and freight rates, and social and political unrest. Although we engage in hedging transactions to reduce our exposure to currency exchange rate

6

Table of Contents

Production and Raw Materials

      Monolithic integrated circuit components are manufactured in a sequence of semiconductor 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 packaging.

      We develop and employ a wide variety of proprietary processes that are specifically tailored for use in fabricating high-performance linear, mixed-signal and micromachined ICs. We also use industry-standard bipolar and CMOS wafer fabrication processes.

      Our IC products are fabricated both at our production facilities and by third-party wafer fabricators. Most of our analog products are manufactured in our own wafer fabrication facilities using proprietary processes. Our DSP products, and a portion of our analog products, are manufactured at third-party foundries using sub-micron digital CMOS processes. We operate wafer fabrication facilities in Wilmington and Cambridge, Massachusetts; Santa Clara and Sunnyvale, California; Belfast, Northern Ireland and Limerick, Ireland. We also operate assembly and test facilities located in the Philippines and Taiwan and use third-party subcontractors.

      Some of our assembled products are assembled and tested within our U.S. manufacturing facilities, while others are assembled and tested at our facilities outside the United States or by subcontractors, principally in the Far East.

      To respond to production capacity requirements, we significantly expanded our analog manufacturing capacity over the past several years. Much of the capacity expansion was completed by the end of fiscal 2001 when we incurred $297 million of capital spending. In the two years prior to fiscal 2002, major wafer fabrication expansions were completed in Wilmington, Massachusetts, Sunnyvale, California, and Limerick, Ireland. In fiscal 2001, we completed construction of an additional assembly and test facility in Cavite, Philippines and have transferred substantially all of our test operations to that location. In the second quarter of fiscal 2002, we announced that we would transition products from our three older four-inch wafer fabrication facilities to our three six-inch and one eight-inch wafer fabrication facilities. The transition of products from and closure of our four-inch wafer fabrication facilities is expected to be completed by mid-fiscal 2003. Capital spending in fiscal 2002 was $57 million, down substantially from the $297 million incurred in fiscal 2001 because of the slowdown in our served markets. We currently plan to make capital expenditures of approximately $80 million in fiscal 2003, and capital expenditures are expected to remain low, as we believe we currently have ample installed capacity to significantly increase internal production levels.

      Our products require a wide variety of components, most of which we purchase from third-party suppliers. We have multiple sources for the majority of the components and materials we purchase and incorporate into our products. However, in some cases, we purchase these components from sole-source suppliers, such as with components we purchase from external foundries. If these sole-source suppliers are unable or unwilling to manufacture and deliver sufficient quantities of components to us, on the time schedule and of the quality that we require, we may be forced to seek to engage additional or replacement suppliers, which could result in additional expenses and delays in product development or shipment of product to our customers. Although we have experienced shortages of components from time to time, these items have generally been available to us as needed.

Backlog

      Backlog at the end of fiscal 2002 was approximately $262 million, up from approximately $210 million at the end of fiscal 2001. We define backlog as of a particular date as firm orders with a customer requested delivery date within thirteen weeks. Backlog is impacted by the tendency of customers to rely on shorter lead

7

Table of Contents

Government Contracts

      We estimate that approximately 5% of our fiscal 2002 total worldwide revenue was attributable to sales to the U.S. government and government contractors and subcontractors. Our government contract business is predominantly in the form of negotiated, firm fixed-price subcontracts. All such contracts and subcontracts contain standard provisions relating to termination at the election of the United States government.

Competition

      We compete with a number of semiconductor companies in markets that are highly competitive. We believe we are one of the largest suppliers of high-performance mixed-signal and linear signal processing components. Competitors for our analog, mixed-signal and DSP products include Cirrus Logic Inc., Linear Technology Corporation, Maxim Integrated Products, Inc., National Semiconductor Corporation, Phillips Semiconductor, ST Microelectronics and Texas Instruments, Inc. Sales of our micromachined products are currently comprised of acceleration sensors, and our main competitors in that market are Bosch, Motorola and Denso, all of whom use a multichip solution. We use a single chip solution that we believe provides cost, reliability and functional advantages in the marketplace.

      We believe that competitive performance in the marketplace for real-world signal processing components depends upon several factors, including technical innovation, product quality and reliability, range of products, product price, customer service and technical support. We believe our technical innovation emphasizing product performance and reliability, supported by our commitment to strong customer service and technical support, enables us to compete in our chosen markets against both foreign and domestic semiconductor manufacturers.

      Many other companies offer products that compete with our products. Some also offer other electronic products, and some have greater financial, manufacturing, technical and marketing resources than we have. Additionally, some formerly-independent competitors have been purchased by larger companies. Our competitors also include emerging companies selling specialized products to markets we serve. There can be no assurances that we will be able to compete successfully in the future against existing or new competitors, or that our operating results will not be adversely affected by increased price competition.

Environment

      Our 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 our capital expenditures, earnings or competitive position.

      We are committed to protecting the environment and the health and safety of our employees, customers, and the public. We endeavor to adhere to the most stringent standards across all of our facilities, to encourage pollution prevention, and to strive towards continual improvement. We strive to exceed compliance with regulatory standards in order to achieve a standard of excellence in environmental, health and safety management practices, as an integral part of our total quality management system.

Employees

      As of November 2, 2002, we employed approximately 8,600 persons. Our future success depends in large part on the continued service of our key technical and senior management personnel, and on our 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 us. We believe that relations with our employees are good.

8

Table of Contents

ITEM 2.     PROPERTIES

      Our corporate headquarters is located in Norwood, Massachusetts. Manufacturing and other operations are conducted in several locations worldwide. The following tables provide certain information about our principal general offices and manufacturing facilities:

9

Table of Contents

      In addition to the principal leased properties listed in the previous table, we also lease sales offices and other premises at 28 locations in the United States and 48 locations overseas under operating lease agreements. These leases expire at various dates through the year 2020. We do not anticipate experiencing significant difficulty in retaining occupancy of any of our manufacturing, office or sales facilities through lease renewals prior to expiration or through month-to-month occupancy, or in replacing them with equivalent facilities. For information concerning our obligations under all operating leases see Note 10 in the Notes to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

ITEM 3.     LEGAL PROCEEDINGS

      We are a defendant in a federal lawsuit brought in the United States District Court for the Northern District of California by Linear Technology Corporation, or LTC. On June 26, 1997, LTC filed suit against us, Impala Linear Corporation, Toyoda Automatic Loom Works, Ltd., Maxim Integrated Products, Inc. and Unitrode Corporation alleging patent infringement and seeking injunctive relief and unspecified damages. The case was originally scheduled for trial on liability issues beginning on September 7, 1999. The original district judge recused himself and the case was reassigned three times before the court granted several motions for summary judgment of non-infringement in favor of the defendants in September 2001. The court also denied LTC’s motion for summary judgment of infringement and willful infringement against us. On October 4, 2001, the court indicated that it would stay the matter and certify similar issues as to us to allow all parties to take appeals to the United States Court of Appeals for the Federal Circuit, or Federal Circuit. LTC, Maxim and Unitrode filed cross appeals with the Federal Circuit. On November 1, 2001, LTC and we jointly petitioned the Federal Circuit to permit them to address the issues certified for appeal. On February 15, 2002, the Federal Circuit dismissed all of the appeals due to improper certification and denied the petition of LTC and us for permission to appeal. On June 4, 2002, LTC and we filed a stipulation of dismissal and proposed order dismissing all of LTC’s claims against us without prejudice. The judge issued an order on June 6, 2002, dismissing the case against us without prejudice. While the renewed appeals of the other defendants include a challenge to the propriety of the dismissal of us being without prejudice, this matter is formally concluded as to us.

      On June 17, 2002, we received a letter from Plasma Physics Corporation, or Plasma Physics, attaching a courtesy copy of a complaint they had filed against us in the Eastern District of New York alleging infringement by certain of our products of two patents held by Plasma Physics. In the letter, Plasma Physics indicated that they would like to license the patents to us. The letter further stated that Plasma Physics would forego service of the complaint for a period of 120 days, provided that we would agree to undertake negotiations over terms for licensing the above-referenced patents. We met with Plasma Physics, and those negotiations are ongoing. On October 17, 2002, Plasma Physics served the complaint. We have answered the complaint denying the allegations, and the litigation is in its early stages.

      On October 7, 2002, Townshend Intellectual Property, L.L.C., or Townshend, commenced an action in the United States District Court for the Northern District of California against us, alleging that we infringed eight patents alleged to be owned by Townshend. Townshend’s complaint alleges that our standalone embedded modems and single chip internet modems infringe those patents. The complaint seeks injunctive relief and unspecified damages. By letter dated October 16, 2002, we sought indemnification from Lucent Technologies, Inc. Lucent has denied that it has any indemnification obligations to us. We filed an answer to the complaint with the court, on or about December 12, 2002, denying infringement and liability. We continue to evaluate issues with regard to defenses and counterclaims, as well as indemnification issues with respect to Lucent.

      From time to time as a normal incidence of the nature of our business, various claims, charges and litigation are asserted or commenced against us arising from, or related to, contractual matters, patents, trademarks, personal injury, environmental matters, product liability, insurance coverage and personnel and employment disputes. As to such claims and litigation, including those items discussed above, we can give no assurance that we will prevail. However, we do not believe that these matters will have a material adverse effect on our consolidated financial position, although an adverse outcome of any of these matters could have a

10

Table of Contents

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of our security holders during the last quarter of the fiscal year ended November 2, 2002.

11

Table of Contents

EXECUTIVE OFFICERS OF THE COMPANY

      The following table sets forth (i) the name, age and position of each of our executive officers as of January 15, 2003, and (ii) the business experience of each person named in the table during at least the past five years. There is no family relationship among any of the named executive officers.

12

Table of Contents

13

Table of Contents

PART II

      Our common stock is listed on the New York Stock Exchange under the symbol ADI. The table below sets forth the high and low sales prices per share of our common stock on the New York Stock Exchange for each quarterly period within our two most recent fiscal years.

      We have never paid any cash dividends on our common stock and currently have no intention to do so.

      The approximate number of holders of record of our common stock at December 31, 2002 was 5,281. This number does not include stockholders for whom shares are held in a “nominee” or “street” name. On December 31, 2002, the last reported sales price of our common stock as reported on the New York Stock Exchange was $23.87 per share.

      On December 15, 2001, we issued and delivered an aggregate of 10,000 shares of our common stock to four individuals in partial fulfillment of the payment by us of consideration to the four former stockholders of Integrated Micro Instruments, Inc., which we acquired on December 15, 2000. We issued and delivered these shares in reliance upon an exemption from registration under Section 4(2) of the Securities Act of 1933.

      On February 5, 2002, we issued and delivered an aggregate of 27,136 shares of our common stock to three individuals in partial fulfillment of the payment by us of consideration to the three former stockholders of White Mountain DSP, Inc., which we acquired on February 5, 1999. We issued and delivered these shares in reliance upon an exemption from registration under Section 4(2) of the Securities Act of 1933.

      On December 15, 2002, we issued and delivered an aggregate of 10,000 shares of our common stock to four individuals in partial fulfillment of the payment by us of consideration to the four former stockholders of Integrated Micro Instruments, Inc., which we acquired on December 15, 2000. We issued and delivered these shares in reliance upon an exemption from registration under Section 4(2) of the Securities Act of 1933.

14

Table of Contents

Results of Operations

     Fiscal Year 2002 Overview

      Fiscal 2002 was a challenging year for us. We recorded quarterly revenues of $806 million in the fourth quarter of fiscal 2000, which represented the peak of the current cycle. Our revenues then declined significantly to $393 million in the first quarter of fiscal 2002. We then experienced a gradual sequential recovery for the last three quarters of fiscal 2002, with our fiscal 2002 fourth quarter revenue reaching $456 million. Our gross margins remained strong at 53% for fiscal 2002. Operating expenses declined by almost 9% as a result of cost containment measures throughout our company. Our cash flow continued to be strong, with cash increasing by over $100 million during fiscal 2002 to $2,900 million after purchasing approximately $100 million of our common stock.

     Sales

      Net sales were $1,708 million in fiscal 2002, a decrease of 25% from net sales of $2,277 million in fiscal 2001. Approximately 80% of our net sales in both fiscal 2002 and fiscal 2001 were from analog products, which decreased 26% from fiscal 2001 to fiscal 2002 and decreased 4% from fiscal 2000 to fiscal 2001. DSP product sales represented the remaining 20% of our net sales in both fiscal 2002 and fiscal 2001 and decreased 22% in fiscal 2002 after declining 33% in fiscal 2001. The decreases in net sales in fiscal 2002 and fiscal 2001 were attributable to declining demand in several markets that we serve, particularly the communications market, as well as an overall decline in the general economy. Sales of new products, which we define as sales of products introduced in the prior six quarters, were 21% of net sales in fiscal 2002 as compared to 19% in fiscal 2001. The year-over-year increase in new products as a percentage of sales was primarily due to the introduction of record numbers of new analog IC products throughout the economic downturn experienced over the past two years.

      Net sales were $2,277 million in fiscal 2001, a decrease of 12% from net sales of $2,578 million in fiscal 2000. This decrease in net sales was attributable to declining demand in the markets we serve, particularly the communications