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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NO. 1-7819
ANALOG DEVICES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2348234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TECHNOLOGY WAY, NORWOOD, MA 02062-9106
(Address of principal executive offices) (Zip Code)
(617) 329-4700
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
COMMON STOCK $.16 2/3 PAR VALUE NEW YORK STOCK EXCHANGE
Title of Each Class Name of Each Exchange on Which Registered
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $3,960,793,548 based on the closing price of
the Common Stock on the New York Stock Exchange Composite Tape reporting system
on December 31, 1996.
Indicate the number of shares outstanding of each class of Common
Stock: 159,479,013 shares of $.16 2/3 par value Common Stock as of December 31,
1996.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION 10-K PART
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Portions of the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held March 11, 1997................ III
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PART I
ITEM 1. BUSINESS
Analog Devices, Inc. ("Analog" or the "Company") designs, manufactures and
markets a broad line of high-performance linear, mixed-signal and digital
integrated circuits ("ICs") that address a wide range of real-world signal
processing applications. The Company's two principal product groups are
general-purpose, standard-function linear and mixed-signal ICs ("SLICs") and
system-level ICs. The latter group includes general-purpose digital signal
processing ICs (DSPs) and application-specific devices that typically
incorporate analog and mixed-signal circuitry and a DSP core. Analog's third
product group consists of devices manufactured using assembled product
technology.
Nearly all of the Company's products are components, which are typically
incorporated by original equipment manufacturers (OEMs) in a wide range of
equipment and systems for use in communications, computer, industrial,
instrumentation, military/aerospace, automotive and high-performance consumer
electronics applications. The Company sells its products worldwide;
approximately 42% of fiscal 1996's revenues was derived from customers in North
America, while most of the balance was derived from customers in Western Europe
and the Far East.
INDUSTRY BACKGROUND
Real-world phenomena, such as temperature, pressure, sound, images, speed,
acceleration, position and rotation angle, are inherently analog in nature,
consisting of continuously varying information. This information can be detected
and measured using analog sensors, which represent real-world phenomena by
generating continuously varying voltages and currents. The signals from these
sensors are initially processed using analog methods, such as amplification,
filtering and shaping. They are then usually converted to digital form for input
to a microprocessor, which is used to manipulate, store or display the
information. In many cases the signals are further processed after conversion to
digital form using a technology called "digital signal processing," or DSP. In
addition, digital signals are frequently converted to analog form to provide
signals for analog display, sound, or control functions. These manipulations and
transformations are known collectively as "real-world signal processing."
Significant advances in semiconductor technology over the past 10 to 15 years
have led to substantial increases in the performance and functionality of ICs
used in signal processing applications. These advances include the ability to
create VLSI (Very Large Scale Integration) mixed-signal ICs that contain both
high-performance analog circuitry and large amounts of high-density digital
circuitry. The analog circuitry portion of the IC is used for manipulating
real-world signals while still in analog form and for converting analog signals
into digital form (or vice versa), and the digital portion is used for further
processing analog signals subsequent to their conversion to digital form. The
ICs resulting from these advances are used as components in equipment and
systems to achieve higher performance and more efficient signal processing.
COMPANY OVERVIEW
Analog believes it is one of the world's largest suppliers of SLIC products. The
Company's SLIC products are primarily high-performance, single-function devices.
The majority of the Company's SLIC revenues are attributable to data converters
(analog-to-digital and digital-to-analog) and amplifiers. SLICs are sold to a
very large customer base for a wide variety of applications, including
applications in the medical, engineering and scientific instruments market,
factory automation market and military/aerospace market.
Building upon its expertise in linear IC technology, the Company has developed
VLSI system-level mixed-signal ICs tailored to specific high-volume applications
in target markets. These products typically provide a high level of
functionality (i.e., many functions on one chip) to satisfy OEMs' requirements
for integrated solutions at a low cost per function. The Company also has
extended its expertise in analog signal processing and data conversion to
develop DSP ICs. The Company's system-level ICs address the emerging demand for
high levels of performance in many communications, computer and other
high-volume applications.
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PRINCIPAL PRODUCTS
The Company operates predominantly in one industry segment: the design,
manufacture and marketing of a broad line of high-performance linear,
mixed-signal and digital integrated circuits that address a wide range of
real-world signal processing applications. Analog's products can be divided into
three classifications: Standard Linear ICs (SLICs), system-level ICs (which
includes all products previously classified as SPLICs, DSP ICs, and hard disk
drive ICs) and assembled products.
A substantial portion of the Company's products are proprietary, while
equivalents to most of its other products are available from a limited number of
other suppliers. Many of the Company's products tend to be less price sensitive
than other types of ICs, such as DRAM (Dynamic Random Access Memory) ICs,
primarily because there are fewer suppliers and because OEMs, in many cases,
after qualifying one manufacturer's high-performance linear or mixed-signal IC
for a specific application, are reluctant to switch manufacturers due to the
risk of degradation in the performance of their product and/or the effort
required to qualify additional suppliers.
The following table sets forth the approximate percentage of revenue
attributable to each of the Company's three product groups for the past three
fiscal years:
PRODUCTS 1996 1995 1994
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SLICs 57% 64% 60%
System-level ICs (including DSPs) 38 28 29
Assembled Products 5 8 11
SLICS
SLIC products have been the foundation of the Company's business for more than
20 years, and Analog believes it is one of the world's largest SLIC suppliers.
The Company's SLICs are primarily high-performance, single-function devices. The
majority of the Company's SLIC revenues are attributable to data converters
(analog-to-digital and digital-to-analog) and amplifiers. Other SLIC products
offered by the Company include analog signal-processing devices (such as analog
multipliers), voltage references and comparators. Over the past few years the
Company has been expanding its SLIC product offerings into product areas where
it has traditionally had limited focus, principally interface circuits and power
management ICs. It is also expanding its SLIC product line to include a much
larger number of products designed to operate from single-supply 3 or 5 volt
power sources to better meet the needs of customers designing portable,
battery-operated equipment.
Analog's SLIC products tend to be general purpose in nature, which allows
customers to incorporate them in a wide variety of equipment and systems.
Analog's product portfolio includes several hundred SLICs, any one of which can
have as many as several hundred customers. SLICs typically have long product
life cycles. The Company's SLIC customers include both OEMs and customers who
build equipment for their own use. Historically, most SLICs have been purchased
by OEMs which serve the instrumentation, factory automation and
military/aerospace markets, but they are now also being used for applications in
commercial and consumer communications equipment, personal computers (PCs) and
peripheral equipment used with PCs and computers.
By using standard, high-performance, readily available, off-the-shelf components
in their designs, Analog's customers can reduce the time required to develop and
bring new products to market. Given the high cost of developing customized ICs,
SLICs usually provide the most cost-effective solutions for low to medium volume
applications. In addition, combinations of SLICs connected together on a printed
circuit board can provide functionality not currently achievable using a single
IC.
SYSTEM-LEVEL ICS
Analog's system-level ICs include general-purpose DSP ICs and multi-function
devices that feature high levels of functional integration on a single chip.
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The Company's general-purpose DSP ICs are designed to efficiently execute
specialized programs (algorithms) associated with processing digitized
real-time, real-world data. General-purpose DSP IC customers typically write
their own algorithms using software tools provided by the Company and software
tools obtained from third-party suppliers. All of these devices share a common
architecture and code compatibility, which allows system designers to address
cost, performance and time-to-market constraints. Analog supports these products
with specialized applications and easy-to-use, low-cost design tools, which
reduce product development cost and time to market.
Most of Analog's system-level ICs other than its general-purpose DSP ICs are
mixed-signal devices (some of which include a DSP core). The balance are
linear-only devices. These devices are nearly always designed to meet the
requirements of a specific application, and the design process often includes
significant input from one or more potential key customers. Market demand for
these types of devices is driven by the benefits that result from combining a
number of functions on a single circuit, as opposed to a combination of SLICs
and other ICs. These benefits include higher performance, lower cost per
function, smaller size, lower weight, fewer parts and decreased power
consumption. These products allow Analog's customers to design smaller, lighter,
higher performance, more power-efficient and lower cost end products. The
Company believes that these benefits are important to the Company's OEM
customers as they increase their focus on high-performance, small, lightweight
products, many of which are battery powered.
ASSEMBLED PRODUCTS
The Company's assembled products include multi-chip modules ("MCMs"), hybrids
and printed-board modules. A MCM is a device made up of several IC chips
assembled in an automated fashion in a multilayer package that provides high
interconnect density at low cost. A hybrid consists of several chips and
discrete components mounted and wired together on a substrate, which is then
enclosed in a package. A printed-board module consists of surface-mount
components assembled on a small printed board that is then encapsulated in a
small plastic case.
Revenues from this product group have been declining for several years,
primarily because hybrids have been replaced in many new designs with smaller,
lower-cost monolithic ICs that offer higher levels of performance and
integration at lower cost.
MARKETS AND APPLICATIONS
The Company's products are sold primarily to OEMs for incorporation into
equipment, instruments and systems sold to end users for a wide variety of
applications, including communications equipment; computers and computer
peripherals; engineering, medical and scientific instruments; factory automation
equipment; military/aerospace equipment; high-end consumer electronics products;
and automotive products. The Company's growth has been aided both by the
expansion of these markets and the increasing use of computer technology in the
equipment and systems sold in these markets.
For fiscal 1996, Analog's 20 largest customers accounted for approximately 28%
of the Company's net sales. The largest single customer represented less than 5%
of net sales. Sales of the Company's products are not highly seasonal.
Listed below are some of the characteristics of each of the Company's major
served markets:
COMMUNICATIONS -- includes data and fax modems, digital cellular telephones and
portable, wireless communications equipment and broadband wired applications.
The need for ever higher speed, coupled with more reliable, more
bandwidth-efficient communications is creating increasing demand for systems
that include both digital and analog signal processing capability. Demand for
signal processing ICs for this market is also being driven by the equipment
manufacturers' need for components that enable them to develop cost-effective
products that feature high performance, small size, low weight and minimal power
consumption.
COMPUTERS AND COMPUTER PERIPHERALS -- includes high-performance personal
computers, workstations and peripheral devices such as hard disk drives and
scanners. The Company currently supplies a variety of ICs used in this market
for functions such as graphic displays; interfaces between PCs and peripherals
such as modems and printers; power and battery management; and enhanced sound
input and output capability for business and entertainment applications.
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5
INSTRUMENTATION -- includes engineering, medical and scientific instruments.
These products are usually designed using the highest performance SLICs
available, where production volumes generally do not warrant custom or
application-specific ICs.
FACTORY AUTOMATION -- includes data acquisition systems, automatic process
control systems, robotics, environmental control systems and automatic test
equipment ("ATE"). These products generally require ICs that offer performance
greater than that available from commodity-level ICs, but generally do not have
production volumes that warrant custom or application-specific ICs. Combinations
of SLICs are therefore usually employed to achieve the necessary functionality,
except in ATE applications where the high level of electronic circuitry required
per tester has created opportunities for the design of system-level ICs for this
application.
MILITARY/AEROSPACE -- includes military, commercial avionics and space markets,
all of which require high-performance ICs that meet rigorous environmental and
reliability specifications. Nearly all of the Company's SLICs can be supplied in
versions that meet appropriate military standards. In addition, many products
can be supplied to meet the standards required for broadcast satellites and
other commercial space applications. Most of the Company's products sold into
this market are derived from standard commercial grade ICs, although the Company
sometimes develops products expressly for military/aerospace applications.
CONSUMER ELECTRONICS -- The emergence of high-performance consumer products,
such as compact disc players, digital VCRs, digital audio tape equipment and
digital camcorders, has led to the need for high-performance system-level ICs
with a high level of functionality. Although the Company's revenues from this
market have not been significant, the Company expects to supply ICs for
sophisticated products used by consumers for computing, communications and
entertainment applications, and believes that many of these applications will
involve digital signal processing.
AUTOMOTIVE -- Although the automotive market has historically been served with
low-cost, low-performance ICs, demand has emerged for higher performance devices
for a wide range of applications. In response, Analog is developing products
specifically for the automotive market. The Company is supplying a micromachined
IC used as a crash sensor in airbag systems, which serves as an alternative to
an electromechanical sensor. The Company anticipates that other micromachined
devices derived from this product may be suitable for other automotive
applications, such as anti-lock brakes and "smart" suspension systems.
RESEARCH AND DEVELOPMENT
The markets served by Analog are characterized by rapid technological changes
and advances. Accordingly, the Company makes substantial investments in the
design and development of new products and processes, and for significant
improvement of existing products and processes. Analog spent $177.8 million
during fiscal 1996 for the design, development and improvement of new and
existing products and processes, compared to $134.3 million during fiscal 1995
and $106.9 million during fiscal 1994.
In fiscal 1996, approximately half of the Company's R&D expenditures were
devoted to the design and development of system-level ICs, including DSP ICs,
and the development and improvement of processes used for these products. In
support of its research and development activities, the Company employs several
hundred engineers involved in product and process development at several design
centers and manufacturing sites located throughout the world.
As of November 2, 1996, the Company owned 387 U.S. patents and had 220 patent
applications on file with the United States patent office. The Company believes
that while its patents may provide some advantage, its competitive position is
largely determined by such factors as the knowledge, ability and experience of
the Company's personnel, new product development, market recognition and ongoing
marketing efforts, customer service and technical support.
SALES CHANNELS
Analog sells its products in both North America and internationally through a
direct sales force, third-party distributors and independent sales
representatives. Approximately 42% of fiscal 1996 revenue was derived from
customers in North America. As of December 1, 1996, the Company had 13 sales
offices in the United States, and its third-party distribution channel consisted
of eight national and regional third-party distributors and several independent
sales representatives with numerous locations throughout the U.S. and Canada.
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Approximately 31% of the Company's fiscal 1996 revenue was derived from sales to
customers in Europe; 14% to customers in Japan; and 13% to customers in other
international markets. As of December 1, 1996, the Company had direct sales
offices in Australia, Austria, Denmark, France, Germany, Hong Kong, India,
Israel, Italy, Japan, Korea, The Netherlands, Singapore, Sweden, Taiwan and the
United Kingdom. The Company also had sales representatives and/or distributors
in approximately 36 countries outside North America, including countries where
the Company also has direct sales offices.
Approximately 41% of Analog's fiscal 1996 revenue was derived from sales made
through distributors. The Company's distributors typically maintain an inventory
of Analog products. Some of these distributors also sell products competitive
with the Company's products, including those for which the Company is an
alternate source. Sales to certain distributors are made under agreements which
provide protection to the distributors for their inventory of Company products
against price reductions and products that are slow-moving or have been
discontinued by the Company. These agreements generally contain a provision for
the return of the products to the Company in the event the relationship with the
distributor is terminated.
Sales to North American distributors are not recognized until the products are
resold by distributors to their customers. Sales made to distributors outside
North America are recognized upon shipment to the distributor, but the Company
provides specific reserves for possible returns and allowances.
The Company's worldwide sales efforts are supported by an extensive promotional
program that includes editorial coverage and paid advertising in trade
publications; direct mail programs; promotional brochures; technical seminars;
and participation in trade shows. The Company publishes and distributes
full-length databooks, short-form catalogs, applications guides, technical
handbooks and detailed data sheets for individual products. The Company also
provides products and application information via CD ROMs and its worldwide web
site on the Internet. The Company also maintains a staff of application
engineers who aid customers in incorporating Analog's products into their
products during their product development cycles.
PRODUCTION AND RAW MATERIALS
Monolithic integrated circuit components are manufactured in a sequence of
production steps that include wafer fabrication, wafer testing, cutting the
wafer into individual "chips" (or dice), assembly of the dice into packages and
electrical testing of the devices in final packaged form. The raw materials used
to manufacture these devices include silicon wafers, processing chemicals
(including liquefied gases), precious metals, ceramic packages and plastic used
for plastic packaging.
In addition to using industry-standard bipolar and CMOS wafer fabrication
processes, Analog employs a wide variety of Company-developed proprietary
processes specifically tailored for use in fabricating high-performance linear
and mixed-signal SLICs and system-level ICs.
Analog's IC products are fabricated both at the Company's production facilities
and by third-party wafer fabricators. Assuming that the Company can continue to
maintain favorable relationships with its third-party wafer fabricators, it
intends to continue using such suppliers for meeting most of its needs for
wafers that can be fabricated using industry-standard digital processes. The
Company intends to rely primarily on its own facilities for fabricating wafers
that require linear and mixed-signal processes. The Company operates wafer
fabrication facilities in Wilmington, Massachusetts; Santa Clara, California;
and Limerick, Ireland for production of linear and mixed-signal devices. The
Company also operates assembly and test facilities located in the United States,
Ireland, the Philippines and Taiwan. The Company uses two principal foundries,
Taiwan Semiconductor Manufacturing Company ("TSMC") and Chartered Semiconductor
Manufacturing Pte., Ltd. ("CSM") for the production of digital and VLSI
mixed-signal devices. To provide access to advanced process technology at
competitive costs, the Company has entered into a joint venture agreement
(WaferTech, LLC) with TSMC, Altera, Integrated Silicon Solutions and several
individual investors to build an eight-inch wafer fabrication facility in Camas,
Washington. Analog is an 18% equity partner in the joint venture which is
expected to become operational late in 1998.
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Hybrid products are manufactured by mounting and connecting together several
integrated circuit chips in a single package. Some of the chips used in the
Company's hybrids are manufactured by the Company and some are purchased from
outside suppliers. The production process for modular components, subsystems and
systems consists primarily of assembly, packaging and testing. Some of the
Company's assembled products are assembled and tested within the Company's U.S.
manufacturing facilities, while others are assembled and tested at Company-owned
facilities outside the United States or by subcontractors, principally in the
Far East.
To respond to production capacity shortages which existed during 1995, the
Company significantly expanded its manufacturing capacity during 1996. Major
wafer fabrication expansions have been undertaken in Wilmington, Massachusetts;
Cambridge, Massachusetts; Sunnyvale, California and Limerick, Ireland.
In addition, the Company is completing construction of an additional
manufacturing facility in Cavite, Philippines which will significantly increase
assembly and test capacity. Most of these initiatives are either in production
or nearing completion and are expected to satisfy the anticipated customer
demand.
BACKLOG
Backlog at the end of fiscal year 1996 was approximately $290.7 million; it was
approximately $286.8 million at the end of the fiscal year 1995. The quantities
of the Company's products to be delivered and their delivery schedules are
frequently revised by customers to reflect changes in their needs. As is
customary in the semiconductor industry, the Company allows such orders to be
canceled or deliveries delayed by the customer without significant penalty.
Accordingly, the Company believes that its backlog at any time should not be
used as a measure of future revenues.
GOVERNMENT CONTRACTS
The Company estimates that approximately 12% of its fiscal 1996 total worldwide
revenue was attributable to sales to the U.S. government and government
contractors and subcontractors. Analog's government contract-related business is
predominantly in the form of negotiated, firm fixed-priced subcontracts. All
such contracts and subcontracts contain standard provisions related to
termination at the election of the United States government.
COMPETITION
Analog competes with a large number of semiconductor companies in markets that
are highly competitive. The Company believes it is one of the largest suppliers
of high-performance linear and mixed-signal signal-processing components. These
types of products fall into both the SLIC and system-level IC product
categories. Competitors for the Company's linear and mixed-signal products
include Burr-Brown Corp., Cirrus Logic Inc., Exar Corp., Harris Corp., Linear
Technology Corp., Maxim Integrated Products, Inc., National Semiconductor Corp.,
Rockwell International Corp., Sierra Semiconductor Corp., Siliconix Inc.,
Texas Instruments, Inc. and others.
Sales of DSP ICs represent a growing percentage of the Company's total sales.
Analog's competitors in the DSP IC market include Lucent Technologies (formerly
part of AT&T), Integrated Device Technology, Inc., Motorola Semiconductor
Products and Texas Instruments, Inc.
Many other companies offer components that compete with Analog's products; some
also offer other electronic products, and some have financial resources
substantially larger than Analog's. Also, some formerly independent competitors
have been purchased by larger companies (which in some cases may be viewed as a
means by which the acquiring company gains in-house capability). However, to the
Company's knowledge, no manufacturer competes with Analog across all of the
product types offered by the Company in its signal-processing components product
line.
Analog believes that competitive performance in the marketplace for real-world
signal-processing components depends upon several factors, including product
price, technical innovation, product quality and reliability, range of products,
customer service and technical support. Analog believes its aggressive technical
innovation emphasizing product performance and reliability, supported by its
commitment to strong customer service and technical support, will allow the
Company to continue to compete successfully in its chosen markets against both
foreign and domestic semiconductor manufacturers.
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ENVIRONMENT
Analog's manufacturing facilities are subject to numerous environmental laws and
regulations, particularly with respect to industrial waste and emissions.
Compliance with these laws and regulations has not had a material impact on the
Company's capital expenditures, earnings or competitive position.
EMPLOYEES
As of November 2, 1996, the Company employed approximately 6,900 persons. The
Company's future success depends in large part on the continued service of its
key technical and senior management personnel, and on its ability to continue to
attract, retain and motivate qualified employees, particularly those highly
skilled design, process and test engineers involved in the manufacture of
existing products and the development of new products and processes. The
competition for such personnel is intense, and the loss of key employees could
have a material adverse effect on the Company. The Company believes that
relations with its employees are good.
INTERNATIONAL OPERATIONS
Analog has direct sales offices in 16 countries outside the United States. For
fiscal 1996, Analog's international sales accounted for approximately 58% of
total sales, the majority of which were made through its direct international
sales offices while the balance, approximately 37% of the total, were made
through distributors. In addition, the Company has manufacturing facilities in
Ireland, the Philippines and Taiwan. The Company also has arrangements with
subcontractors, principally in the Far East, for wafer fabrication and the
assembly and testing of certain products.
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ITEM 2. PROPERTIES
The Company's corporate headquarters is located in Norwood, Massachusetts.
Manufacturing and other operations are carried on in several locations
worldwide. The following tables provide certain information as to the Company's
principal general offices and manufacturing facilities:
PLANT LOCATION
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OWNED: USE FLOOR SPACE
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Wilmington, Wafer fabrication, components assembly and testing, engineering 245,200 sq. ft.
Massachusetts and administrative offices
Wilmington, Engineering, marketing and administrative offices 108,000 sq. ft.
Massachusetts
Wilmington, Components engineering, marketing and administrative offices 67,200 sq. ft.
Massachusetts
Westwood, Components and subsystems assembly and testing, engineering 100,400 sq. ft.
Massachusetts and administrative offices
Limerick, Wafer fabrication, components assembly and testing, engineering 286,200 sq. ft.
Ireland and administrative offices
Greensboro, Components and board assembly and testing, engineering and 100,000 sq. ft.
North Carolina administrative offices
Cavite, Philippines Components assembly and testing, engineering and administrative 125,000 sq. ft.
offices
Manila, Philippines Components assembly and testing, engineering and administrative 85,000 sq. ft.
offices
PRINCIPAL LEASE
--------- -----
PROPERTIES USE FLOOR SPACE EXPIRATION RENEWALS
---------- --- ----------- ---------- --------
LEASED (FISCAL YEAR)
------
Norwood, Corporate headquarters, engineering, components 135,000 sq. ft. 2007 3, five-yr.
Massachusetts testing, sales and marketing offices periods
Cambridge, Wafer fabrication, engineering and administrative 68,000 sq. ft. 2001 2, five-yr.
Massachusetts offices periods
Santa Clara, Wafer fabrication, components assembly and 72,800 sq. ft. 2002 3, five-yr.
California testing, engineering and administrative offices periods
Santa Clara, Administrative offices and engineering 43,500 sq. ft. 2002 3, five-yr.
California periods
Sunnyvale, Wafer fabrication 40,000 sq. ft. 2000 3, five-yr.
California periods
Taipei, Components testing, engineering and 47,700 sq. ft. 1997 3 to 5 yr.
Taiwan administrative offices option to extend
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ITEM 2. PROPERTIES -- (CONTINUED)
In addition to the principal leased properties listed in the previous table, the
Company also leases sales offices and other premises at 28 locations in the
United States and 28 locations overseas under operating lease agreements. These
leases expire at various dates through the year 2010. The Company anticipates no
difficulty in retaining occupancy of any of its manufacturing, office or sales
facilities through lease renewals prior to expiration or through month-to-month
occupancy, or in replacing them with equivalent facilities. See Note 7 - "Lease
Commitments" in the Notes to Consolidated Financial Statements for information
concerning the Company's obligations under all operating and capital leases.
ITEM 3. LEGAL PROCEEDINGS
The Company was a defendant in two lawsuits brought in Texas by Texas
Instruments, Inc. ("TI"), alleging patent infringement, including patent
infringement arising from certain plastic encapsulation processes, and seeking
an injunction and unspecified damages against the Company. The alleged
infringement of one of these patents was also the subject matter of a proceeding
brought by TI against the Company before the International Trade Commission
("ITC"). On January 10, 1994, the ITC brought an enforcement proceeding against
the Company alleging that the Company had violated the ITC's cease and desist
order of February 1992 (as modified in July 1993), which prohibited the
Company's importation of certain plastic encapsulated circuits, and seeking
substantial penalties against the Company for these alleged violations. In
addition, in June 1992, the Company commenced a lawsuit against TI in
Massachusetts alleging certain TI digital signal processors infringed one of the
Company's patents. Effective April 1, 1995, the Company and TI settled both
Texas lawsuits and the Massachusetts lawsuit principally by means of a
royalty-free cross license of certain of the Company's and TI's patents.
On April 25, 1995, the Company filed with the ITC a motion to terminate the ITC
enforcement proceeding on the grounds that further action by the ITC was
unnecessary in light of the Company's settlement with TI. On May 8, 1995, an
Administrative Law Judge issued a recommended determination to the ITC to grant
the Company's motion to terminate the ITC proceeding. The investigative office
of the ITC opposed the motion, claiming that, notwithstanding the Company's
settlement with TI, the Company's alleged violation of the ITC's cease and
desist order warranted the imposition of substantial penalties. On September 11,
1996, the ITC adopted the determination of the Administrative Law Judge to
terminate the enforcement proceeding and referred to the Department of Justice
certain allegations that the Company made false representations in reports filed
with the ITC. The Company advised the Department of Justice that it has
consistently and vigorously denied such allegations during the entire course of
the proceedings before the ITC and the Department of Justice informed the
Company that its statement would be considered in connection with any action it
may take on the matter. The Company is aware of no further activity by the
Department of Justice, and is unable to determine whether further activity will
occur regarding the foregoing matter.
In addition, from time to time as a normal incidence of the nature of the
Company's business, various claims, charges and litigation are asserted or
commenced against the Company arising from or related to contractual matters,
patents, trademarks, personal injury, environmental matters and product
liability. Such litigation includes patent infringement actions brought against
the Company by Sextant Avionique, S.A. in France and the United States and
Commissariat A. L'energie Atomique C.E.A. in France, claiming that the Company's
accelerometer infringes certain patents. While there can be no assurance that
the Company will prevail in any of these matters, the Company does not believe
that these matters will have a material adverse effect on the Company's
consolidated financial position or consolidated results of operations. However,
an unfavorable outcome could have an adverse effect on the Company's
consolidated results of operations in the quarter in which these matters are
resolved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of the fiscal year ended November 2, 1996.
9
11
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth (i) the name and age of each present executive
officer of the Company; (ii) the position(s) presently held by each person
named; and (iii) the principal occupations held by each person named for at
least the past five years.
EXECUTIVE OFFICER AGE POSITION BUSINESS EXPERIENCE
----------------- --- -------- -------------------
Ray Stata..................62 Chairman of the Board Chairman of the Board since 1973; Chief
Executive Officer from 1973 to November
1996; President from 1971 to November
1991.
Jerald G. Fishman..........51 President, Chief Executive Chief Executive Officer since November
Officer and Director 1996; President and Director since
November 1991; Executive Vice President
from 1988 to November 1991; Group Vice
President Components from 1982 to 1988.
Ross Brown.................52 Vice President, Human Resources Vice President, Human Resources since May
1993; U.S. Personnel Manager for Digital
Equipment Corp. from 1990 to 1993; Senior
Group Personnel Manager at Digital from 1986
to 1990.
David D. French............40 Vice President and General Vice President and General Manager, Computer
Manager, Computer Products Products Division since May 1994; Vice
Division President and General Manager of Systems IC
Products Division from November 1991 to May
1994; Division General Manager from February
1988 to November 1991.
Russell K. Johnsen.........42 Vice President and General Vice President and General Manager,
Manager, Communications Division Communications Division since May 1994; Vice
President and General Manager Analog Devices
Semiconductor Division from November 1993 to
May 1994; General Manager of the Wide Area
Networks Division of National Semiconductor
Corp. from 1992 to 1993.
Robert R. Marshall.........42 Vice President, Worldwide Vice President, Worldwide Manufacturing since
Manufacturing February 1994; Vice President, Manufacturing,
Limerick Site, Analog Devices, B.V. -
Limerick, Ireland from November 1991 to
February 1994; Plant Manager, Analog Devices,
B.V. - Limerick, Ireland from January 1991 to
November 1991.
10
12
EXECUTIVE OFFICER AGE POSITION BUSINESS EXPERIENCE
----------------- --- -------- -------------------
William A. Martin..........37 Treasurer Treasurer since March 1993; Assistant
. Treasurer from October 1991 to March 1993;
Manager of Treasury Finance from March 1987
to October 1991; Manager of International
Treasury from October 1985 to March 1987.
Robert McAdam..............46 Vice President and General Vice President and General Manager, Standard
Manager, Standard Linear Linear Products Division since February 1994;
Products Division Vice President and General Manager, Analog
Devices, B.V. - Limerick, Ireland from
January 1991 to February 1994; Product Line
Manager, Analog Devices, B.V. - Limerick,
Ireland from October 1988 to January 1991.
Brian P. McAloon...........46 Vice President, Sales Vice President, Sales since May 1992; Vice
President, Sales and Marketing - Europe and
Southeast Asia from 1990 to 1992; General
Manager, Analog Devices, B.V. - Limerick,
Ireland from 1987 to 1990.
Joseph E. McDonough........49 Vice President, Finance and Vice President, Finance and Chief Financial
Chief Financial Officer Officer since November 1991; Vice President
since 1988 and Treasurer from 1985 to March
1993; Director of Taxes from 1983 to 1985.
H. Goodloe Suttler.........45 Vice President, Marketing, Vice President, Marketing Quality and
Quality and Planning Planning since October 1993; Vice President
and General Manager, Analog Devices
Semiconductor Division from November 1991 to
October 1993; General Manager of Analog
Devices Semiconductor Division from August
1988 to November 1991.
Franklin Weigold...........57 Vice President and General Vice President and General Manager,
Manager, Transportation and Transportation and Industrial Products
Industrial Products Division Division since March 1992; President and
Chief Operating Officer of Unitrode from June
1990 to March 1992.
There is no family relationship among the named officers.
11
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under the
symbol ADI. The table below sets forth the high and low prices of the Common
Stock during the two most recent fiscal years.
1996 1995
----------------------- ------------------------
PERIOD HIGH LOW HIGH LOW
------ ---- --- ---- ---
First Quarter $ 19.38 $ 13.13 $ 12.25 $ 10.25
Second Quarter $ 22.63 $ 16.13 $ 14.13 $ 10.00
Third Quarter $ 22.38 $ 12.75 $ 19.00 $ 12.88
Fourth Quarter $ 22.25 $ 14.63 $ 19.75 $ 14.88
On December 3, 1996, the Company's Board of Directors authorized a
four-for-three stock split effected in the form of a 33 1/3% stock dividend
distributed on January 6, 1997 to stockholders of record December 16, 1996. All
stock prices in the table above have been restated to reflect the split.
The Company's $60,000,000 credit agreement restricts the aggregate of all cash
dividend payments declared or made subsequent to November 2, 1996 to an amount
not exceeding $150,000,000 plus 50% of the consolidated net income of the
Company for the period from November 3, 1996 through the end of the Company's
then most recent fiscal quarter. At November 2, 1996 this amount was equal to
$150,000,000. Although prior credit agreements may not have restricted the
payment of dividends, the Company has never paid any cash dividends on its
Common Stock.
The approximate number of holders of record of the Company's Common Stock at
December 31, 1996 was 4,956. This number does not include shareholders for whom
shares are held in a "nominee" or "street" name.
ITEM 6. SELECTED FINANCIAL DATA
(thousands except per share amounts) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
Statement of Operations data:
Net sales.................. $ 1,193,786 $ 941,546 $773,474 $666,319 $567,315
Net income................. 171,901 119,270 74,496 44,457 14,935
Net income per
share (1)................ 1.03 .75 .48 .29 .10
Balance Sheet data:
Total assets............... $ 1,515,685 $ 1,001,648 $815,871 $678,492 $561,867
Long-term debt and non-
current obligations under
capital leases........... 353,666 80,000 80,061 100,297 70,632
- ----------------------------------------------------------------------------------------------------------------------
(1) All references to per share amounts have been restated to reflect the
four-for-three stock split effected in the form of a 33 1/3% stock dividend
distributed on January 6, 1997 to stockholders of record December 16, 1996.
12
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
The Company reported net sales of $1,194 million in fiscal 1996, up $252 million
or 27% from net sales of $942 million in fiscal 1995. Fiscal year 1996 sales
growth was attributable to significant increases in sales volumes of both the
Company's standard linear IC and system-level IC products as worldwide demand
for precision integrated circuit products continued to increase in the first
half of fiscal 1996. During the third and fourth quarters a broad-based
inventory correction by end users, customers and distributors in response to the
shorter lead times available for many products from the Company and other
suppliers caused sales levels to be flat with the second quarter.
Demand for the Company's ICs was strong both in its core industrial and
instrumentation markets and in high-growth applications in the communications,
computer and portable wireless equipment markets. Total IC sales, representing
both standard linear and system-level ICs, constituted approximately 95% of
total sales in fiscal 1996, continuing the long-term trend of IC sales being a
major portion of the Company's revenues.
Sales of the Company's standard linear IC products, which continues to make up
the largest and most profitable part of the Company's business, increased 12% in
fiscal 1996 to $678 million. Standard linear IC sales, however, declined as a
percentage of total sales, accounting for 57% of total sales in fiscal 1996
compared to 64% in fiscal 1995, reflecting the significant revenue growth
experienced in the system-level IC business. The growth in sales of standard
linear ICs continues to be driven by the greater use of standard linear IC
products in new high-volume applications in wireless and broadband
communications, computer and consumer markets including digital cellular
handsets and base stations, video applications and imaging applications. In
fiscal 1996, the distributor channel continued to be a significant growth
channel for the Company's standard linear IC product line.
Sales of system-level ICs increased in fiscal 1996 to $453 million, as the
Company achieved substantial gains in its general-purpose digital signal
processing products and mixed-signal ICs for application-specific
system-on-a-chip solutions. The largest end user market growth for the Company's
system-level IC products was experienced in wireless communications
applications, including digital mobile phones and base stations. As a percentage
of total sales, system-level IC products, increased to 38% of total sales
compared to 28% in fiscal 1995.
Sales of the Company's assembled products decreased approximately $12 million
or 17% from fiscal 1995 to fiscal 1996 and as a percentage of total sales
decreased from 8% to 5% over this same period. The Company believes this sales
decrease reflects the decline in the market opportunities for this product line.
In fiscal 1996, sales to North American customers followed the trend of the
prior year and increased $90 million or 22% over fiscal 1995 to $503 million.
Sales to customers outside North America, primarily Europe and Southeast Asia,
increased $162 million or 31% to $691 million. Sales to European customers
increased $100 million or 38% to $364 million, with much of this growth
resulting from the Company's increased penetration of applications in the
communications market, particularly in handsets and base stations used in the
GSM (Global System for Mobile Communications) digital cellular telephone system
now widely deployed in Western Europe. Sales in Japan increased slightly by 1%
to $167 million largely as a result of a reduction in sales of standard linear
IC products for factory automation and other industrial market applications and
the weaker Japanese industrial economy. A strengthening average U.S. dollar
exchange rate also contributed to the lack of growth in Japanese sales. Sales to
customers in Southeast Asia increased 60% or $60 million to $160 million
compared to fiscal 1995 due to increased demand for products in the hard disk
drive, communications and computer products segments. As a percentage of total
sales, North American and international sales accounted for 42% and 58%,
respectively, compared to 44% and 56% in fiscal 1995.
In fiscal 1995 the distributor channel was a major contributor to sales growth
in North America as well as in Europe and Japan, especially for standard linear
IC and DSP products. Worldwide sales through distribution increased
approximately 23% from fiscal 1995 to fiscal 1996 and represented 41% of the
Company's total sales. Worldwide OEM sales increased by approximately 30% and
represented 59% of the Company's sales.
13
15
During fiscal 1996 the Company continued the multi-faceted manufacturing
capacity expansion program started in 1995 to substantially increase the number
of fabricated wafers available to it in fiscal 1996 and beyond. See "Liquidity
and Capital Resources" below for a discussion of the Company's actions to
address its capacity issues.
Gross margin was 50.3% of sales in fiscal 1996 compared to 50.7% of sales in
fiscal 1995. The reduction in gross margin was principally due to a lower
proportion of standard linear IC products in the mix of products sold, which
generally have higher gross margins than the Company's system-level IC products.
The reduction in gross margin in fiscal 1996 was also attributable to the
increase in capacity combined with the leveling off of sales in the latter half
of the year.
Research and development expenses increased approximately 32% in fiscal 1996 to
$178 million or 14.9% of sales. This increase was mainly due to the continued
development of innovative SLIC products and processes and higher spending in the
development of new products and technologies targeted for the communications,
computer and automotive markets, including initiatives in general-purpose
digital signal processing such as the Company's SHARC product family,
system-level ICs for computer audio and wireless communications applications, RF
signal processing, surface micromachining technology, accelerometer products.
The increase in R&D expenditures in fiscal 1996 was also attributable to
increased staffing of design engineering personnel and the start up of new
design centers. The Company believes that technical leadership in the
semiconductor industry is critical to its future success and is committed to
maintaining a high level of research and development effort.
Selling, marketing, general and administrative (SMG&A) expense growth in fiscal
1996 was held to 5.9%, as SMG&A increased from $185 million in fiscal 1995 to
$196 million in fiscal 1996. SMG&A expenses continued to decline as a percentage
of sales to 16.4% in fiscal 1996 compared to 19.6% in fiscal 1995 and 22.0% in
fiscal 1994, consistent with the Company's goal of constraining SMG&A spending
growth to a rate significantly below sales growth. The increase in SMG&A
expenses in absolute dollars was primarily related to higher incentive expenses
associated with improved revenue and profitability levels, and greater product
advertising and related promotional costs and commissions in support of the
Company's product lines and customer base.
Operating income grew 44% to 19% of sales compared to 17% of sales in fiscal
1995. This performance gain reflected the combination of accelerated demand for
the Company's products and continuing commitment to growing expenses more slowly
than sales.
Nonoperating income of $1.7 million in fiscal 1995 improved to $3.6 million in
fiscal 1996. Interest expense in fiscal 1996 increased from fiscal 1995 as a
result of the issuance of $230,000,000 of 3-1/2% Convertible Subordinated Notes
in December 1995 but this increase was more than offset by increased investment
income as a result of the positive spread between the coupon rate and the
investment rates achieved on available cash balances through fiscal 1996.
The effective income tax rate increased to 25.5% in fiscal 1996 from 25.2% in
fiscal 1995 due to earnings growth in higher tax rate jurisdictions including
the U.S. The Company maintained a valuation allowance for deferred tax assets of
$7.4 million at November 2, 1996 based on management's assessment that
realization of such deferred tax assets was not assured for book and tax capital
losses. The valuation allowance balance was $10.0 million at October 28, 1995.
The net change in the valuation allowance for the fiscal year ended November 2,
1996 was a decrease of $2.6 million as a result of the utilization of book basis
foreign tax credits and the use of capital tax loss carryforwards.
The growth in sales, improved operating performance and lower nonoperating
expenses yielded a 44.1% increase in net income to $171.9 million or 14.4% of
sales compared to $119.3 million or 12.7% of sales. Earnings per share in fiscal
1996 grew 37% to $1.03 from $0.75 in fiscal 1995.
The Company has not yet adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" which will require adoption in
fiscal 1997. The Company does not believe the adoption of these statements will
have a material impact on its consolidated financial statements.
The impact of inflation on the Company's business during the past three years
has not been significant.
14
16
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales of $942 million for fiscal 1995 increased 22% from net sales of $773
million for fiscal 1994. The sales increase was due to higher sales volumes of
standard linear IC and system-level IC products which comprise approximately 92%
of total sales for fiscal 1995.
Standard linear IC sales rose $137 million or 30% to $605 million in fiscal
1995. This increase was primarily due to the combination of increased
penetration of the Company's data converter and amplifier products in
high-performance instrumentation and factory automation applications and greater
use of standard linear IC products in new high-volume applications in the
communications, computer and consumer markets including digital cellular
handsets and base stations, video and imaging applications.
Sales of system-level IC products grew $70 million or 46% to $262 million in
fiscal 1995. This growth was attributable largely to increased demand for
applications in personal computers and wireless communications products
including digital mobile phones and base stations, and the Company's broader
participation in these growing markets.
Sales of assembled products declined approximately 3% from fiscal 1994 to fiscal
1995 and as a percentage of total sales decreased from 11% to 8% over the same
period.
Sales to North American customers increased 20% over fiscal 1994 levels to $412
million with much of this increase coming from the distributor channel as sales
through North American distributors increased 40% from the prior year. Sales to
international customers grew 23% led by sales increases of approximately 24% and
34% in Japan and Europe, respectively. Sales growth in Japan was mainly
attributable to increased demand for standard linear IC products, and the weaker
U.S. dollar exchange rate also contributed to some of the sales improvement in
Japan. The sales increase in Europe represented continued strength in sales of
products in the communications markets, particularly in handsets and base
stations used in GSM digital cellular telephone systems. Southeast Asia sales of
$100 million for fiscal 1995 were flat compared to the prior year due to
significant decline in hard disk drive sales. As a percentage of total net
sales, North American and international sales remained at 44% and 56%,
respectively, which were comparable to fiscal 1994.
Gross margin improved to 50.7% of sales for fiscal 1995 compared to 49.0% for
fiscal 1994. This increase was principally due to a higher proportion of
standard linear IC products in the mix of products sold which typically generate
higher gross margins than the Company's system-level IC products. The fiscal
1995 improvement in gross margin was also attributable to greater capacity
utilization, resulting in the absorption of fixed manufacturing costs over
increased production levels.
R&D expenses for fiscal 1995 increased 26% from fiscal 1994 as the Company
continued to invest in new product development. As a percentage of sales, R&D
expenses were 14.3% in fiscal 1995 compared to 13.8% in fiscal 1994.
Selling, marketing, general and administrative (SMG&A) expense growth was held
to 8.6% compared to fiscal 1994, increasing at a lower rate than sales. As a
result, SMG&A as a percentage of sales decreased to 19.6% for fiscal 1995 from
22% for fiscal 1994. The increase in SMG&A expenses related mostly to increased
incentive expenses associated with improved revenue and profitability levels and
greater product advertising and related promotional costs in support of the
Company's product lines and customers.
In total, operating expenses were reduced to 33.9% of sales, down from 35.8% in
fiscal 1994, consistent with the Company's emphasis on maintaining tight control
over all costs in order to gain better operating leverage on increases in
revenues.
Operating income reached 16.8% of sales for fiscal 1995, an increase of 3.6
percentage points from 13.2% of sales for fiscal 1994. This performance gain
reflected the higher sales level, improvement in gross margin as a percentage of
sales and slower rate of expense growth versus sales.
Nonoperating expenses decreased $6.6 million in fiscal 1995, benefiting from a
reduction in interest expense of $2.9 million and an increase in interest income
of $2.9 million for the year. The maturity of a term loan of $20 million in
early fiscal 1995 and on average higher cash balances invested at a higher
weighted average investment rate were the main causes of the change over fiscal
1994.
15
17
The effective income tax rate increased to approximately 25% in fiscal 1995 from
approximately 23% in fiscal 1994 due to a shift in the mix of worldwide income.
The Company maintained a deferred tax asset valuation allowance of $10 million
at both October 28, 1995 and October 29, 1994 based on management's assessment
that realization of such deferred tax assets was not assured for book and tax
capital losses and book basis foreign tax credits.
The growth in sales, improved operating performance and lower nonoperating
expenses resulted in a 60% increase in net income to $119.3 million or 12.7% of
sales in fiscal 1995 compared to $74.5 million or 9.6% of sales in fiscal 1994.
Earnings per share in fiscal 1995 grew 56% to $0.75 from $0.48 in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
At November 2, 1996, the Company had $300 million of cash, cash equivalents and
short-term investments compared to $151 million at October 28, 1995. The
Company's operating activities generated net cash of $144 million, or 12% of
sales, and $210 million, or 22.3% of sales, in fiscal 1996 and fiscal 1995,
respectively. Investing activities used $305 million in fiscal 1996 and $239
million in fiscal 1995 while financing activities generated $301 million in
fiscal 1996 and used $11 million in fiscal 1995. Working capital increased to
$550 million at the end of fiscal 1996 from $272 million at the end of fiscal
1995. This increase was primarily due to higher cash and cash equivalents and
short-term investments and higher receivable and inventory associated with the
expanded scale of operations.
The Company's primary source of funds in fiscal year 1995 was net cash generated
by operations, but in fiscal year 1996 the primary source of funding was from
financing, the major item being the issuance of long-term convertible debt which
generated net proceeds of $224 million. There was a $67 million reduction in
operating cash flows from $210 million in fiscal 1995 to $144 million fiscal
1996. Net income was higher in fiscal 1996 by $53 million but this increase was
offset by increases in receivables and inventory which were only partially
offset by increases in depreciation and various liability accounts. The non-cash
effect of depreciation and amortization expense was $84 million and $64 million
in fiscal 1996 and fiscal 1995, respectively. As a result of internal capacity
expansion, depreciation expense is expected to be higher in fiscal 1997 as these
additions continue to ramp up.
Accounts receivable of $242 million at the end of fiscal 1996 increased $61
million or 33% from $181 million at the end of fiscal 1995. This increase was
caused by an increase in revenue and non-linearity of shipments at the year end.
As a percentage of annualized fourth quarter sales, accounts receivable was
19.8% at the end of fiscal 1996 compared to 17.6% at the end of fiscal 1995 and
20.0% at the end of fiscal 1994.
Inventories rose $75 million or 52% over the prior year to $219 million at the
end of fiscal 1996. This increase was primarily due to an increase in standard
linear inventory levels needed to service increasing sales volumes and to offset
unusually low inventory levels at the end of fiscal 1995 caused by the capacity
shortages at that time and to improve customer response times. Additional
manufacturing capacity during fiscal 1996 also caused inventory levels to
increase. Accordingly, year-end inventories as a percentage of annualized fourth
quarter sales increased from 14% in fiscal 1995 to 18% in fiscal 1996.
Accounts payable and accrued liabilities remained essentially flat at
approximately $174 million at the end of both fiscal 1996 and 1995, as increases
caused by increased expense activity related to the higher revenue level were
offset by reductions in capital expenditures in the fourth quarter of fiscal
1996 when compared to the year-earlier period.
The Company's principal investment activities during fiscal 1996 were in support
of its manufacturing capacity expansion programs and included capital
expenditures of $234 million and an investment of $42 million (which was an
installment on an 18% share in a wafer fabrication facility on a joint venture
basis with Taiwan Semiconductor Manufacturing Company ("TSMC"))and a further
investment of approximately $7 million in Chartered Semiconductor Manufacturing,
Pte. Ltd. in Singapore.
Capital expenditures in fiscal 1996, of $234 million, were $21 million higher
than in fiscal 1995 with a significant portion of these expenditures related to
the construction of additional manufacturing capacity including further
development of the six-inch wafer fabrication plant at the Company's Limerick
manufacturing facility.
16
18
Also during fiscal 1996, the Company continued to upgrade its existing
Wilmington, Massachusetts wafer fabrication facility from four-inch to six-inch
wafer production. This additional capacity became available in the latter half
of fiscal 1996, and is used primarily for high-speed linear products. In
addition, the Company continued development of the six-inch wafer fabrication
module located in Sunnyvale, California. This six-inch facility is being
upgraded and modernized and a CBCMOS process is currently being developed.
Production was scheduled to start in late 1996 but because of the slowdown in
demand, production is temporarily delayed. The Company also signed an agreement
to lease a wafer fabrication facility in Cambridge, Massachusetts and is
upgrading this facility which will be used for the production of the
accelerometer and other micromachined products. The Company also expanded
assembly and test facilities in the Philippines during fiscal 1996 by adding a
new site which is expected to commence production in early 1997.
In June 1996, the Company entered into a joint venture agreement with TSMC, two
other companies and several individual investors for the construction and
operation of a semiconductor fabrication facility in Camas, Washington. The
Company acquired an 18% equity ownership in the joint venture, known as
WaferTech, in return for a $140.4 million investment. The investment is to be
made in three installments of which the first and second were made on June 25,
1996 and December 2, 1996 both in the amount of $42.1 million. The remaining
installment of $56.2 million is due on November 3, 1997.
In fiscal 1995, the Company made an equity investment of $14 million in
Chartered Semiconductor Manufacturing Pte., Ltd. ("CSM") in Singapore and in
fiscal 1996 the Company made an additional investment of approximately $7
million, in exchange for less than 5% ownership interest.
In fiscal 1995, the Company entered into a supply agreement with its primary
wafer foundry, TSMC. Under this agreement, the Company agreed to make a series
of advance payments to TSMC aggregating $22.4 million, payable over a three-year
period, in order to secure access to a minimum level of wafer capacity over the
period from 1996 to 1999. However, during fiscal 1996 the arrangement was
modified whereby the Company would maintain a constant deposit of $6.4 million
with TSMC.
In January 1996, the Company entered into an additional agreement with CSM,
whereby the Company will provide a total deposit of approximately $20.0 million
to be paid in several installments in 1996 and 1997. In fiscal 1996 $8.0 million
was provided to CSM under this arrangement and is classified in the balance
sheet line item, "Deferred Charges and Other Assets." Under the terms of this
agreement, the deposit will guarantee access to certain quantities of sub-micron
wafers through fiscal 2000. If the Company does not purchase the minimum
quantities under the agreement, the deposit will be forfeited for the value of
the wafer shortfall up to the total amount of $20.0 million. At the end of the
agreement term, the Company's deposit will be returned, net of any forfeitures.
The Company currently plans to make capital expenditures of approximately $175
million in fiscal 1997, primarily in connection with the continued expansion of
its manufacturing capacity.
Financing activities in fiscal 1996 generated cash of $224 million from the
issuance of long-term convertible debt, $62 million from equipment financing and
$26 million from the issuance of common stock under the employee stock purchase
and stock option plans. Cash used in the Company's financing activities in
fiscal 1996 was for the repayment of $4 million of variable rate borrowings and
$7 million for the repayment of capital lease obligations.
At November 2, 1996, the Company's principal sources of liquidity included $300
million of cash, cash equivalents and short-term investments. Short-term
investments at the end of fiscal 1996 consisted of commercial paper,
certificates of deposit and Euro time deposits with maturities greater than
three months and less than six months at the time of acquisition. The Company
also has various lines of credit both in the U.S. and overseas, including a $60
million credit facility in the U.S. which expires in 2000, all of which were
substantially unused at the end of fiscal 1996. At the end of fiscal 1996,
the Company's debt-to-equity ratio was 42%.
17
19
On December 18, 1995, the Company completed a public offering of $230,000,000 of
five-year 3-1/2% Convertible Subordinated Notes due December 1, 2000 with
semi-annual interest payments on June 1 and December 1 of each year, commencing
June 1, 1996. The Notes are convertible, at the option of the holder, into the
Company's common stock at any time unless previously redeemed by the Company, at
a conversion price of $20.938 per share, subject to adjustment in certain
events. The net proceeds of the offering were approximately $224 million after
payment of the underwriting discount and expenses of the offering which will be
amortized over the term of the Notes.
The Company believes that its existing sources of liquidity and cash expected to
be generated from future operations, together with current and anticipated
available long-term financing, will be sufficient to fund operations, capital
expenditures and research and development efforts for the foreseeable future.
LITIGATION
As set forth in Item 3 - "Business-Legal Proceedings," the Company is no longer
engaged in an enforcement proceeding brought by the International Trade
Commission ("ITC") related to previously settled patent infringement litigation
with Texas Instruments, Inc. However, the ITC has referred certain related
matters to the Department of Justice. The Company is unable to determine what,
if any, action may be taken by the Department of Justice, but the Company plans
to vigorously defend itself in the event that any enforcement action is taken by
the Department of Justice on any of the matters referred to it by the ITC.
FACTORS WHICH MAY AFFECT FUTURE RESULTS
The Company's future operating results are difficult to predict and may be
affected by a number of factors including the timing of new product
announcements or introductions by the Company and its competitors, competitive
pricing pressures, fluctuations in manufacturing yields, adequate availability
of wafers and manufacturing capacity, changes in product mix and economic
conditions in the United States and international markets. In addition, the
semiconductor market has historically been cyclical and subject to significant
economic downturns at various times. During the past six months demand for the
Company's product has leveled off, and the Company has used this opportunity to
replenish inventory which had been depleted in the prior year. These higher
inventory levels expose the Company to the risk of obsolescence depending on the
mix of future business. As a result of these and other factors, there can be no
assurance that the Company will not experience material fluctuations in future
operating results on a quarterly or annual basis.
The Company's success depends in part on its continued ability to develop and
market new products. There can be no assurance that the Company will be able to
develop and introduce new products in a timely manner or that such products, if
developed, will achieve market acceptance. In addition, the Company's growth is
dependent on its continued ability to penetrate new markets such as the
communications, computer and automotive segments of the electronics market,
where the Company has limited experience and competition is intense. There can
be no assurance that the markets being served by the Company will grow in the
future; that the Company's existing and new products will meet the requirements
of such markets; that the Company's products will achieve customer acceptance in
such markets; that competitors will not force prices to an unacceptably low
level or take market share from the Company; or that the Company can achieve or
maintain profits in these markets. Also, some of the customers in these markets
are less well established which could subject the Company to increased credit
risk.
The semiconductor industry is intensely competitive. Certain of the Company's
competitors have greater technical, marketing, manufacturing and financial
resources than the Company. The Company's competitors also include emerging
companies attempting to sell products to specialized markets such as those
served by the Company. Competitors of the Company have, in some cases, developed
and marketed products having similar design and functionality as the Company's
products. There can be no assurance that the Company will be able to compete
successfully in the future against existing or new competitors or that the
Company's operating results will not be adversely affected by increased price
competition.
During fiscal 1996, the Company increased substantially its manufacturing
capacity through both expansion of its production facilities and increased
access to third-party foundries; there can be no assurance that the Company will
not encounter unanticipated production problems at either its own facilities or
at third-party foundries; or that the increased capacity will be sufficient to
satisfy demand for its products. The Company relies, and plans to continue to
rely, on assembly and test subcontractors and on third-party wafer fabricators
to supply most of its wafers that can be manufactured using industry-standard
digital processes, and such reliance involves several risks, including reduced
control over delivery schedules,
18
20
manufacturing yields and costs. In addition, the Company's capacity additions
will result in a significant increase in operating expenses, and if revenue
levels do not increase to offset these additional expense levels, the Company's
future operating results could be adversely affected, including the potential
adverse impact in operating results for "take or pay" covenants in certain of
its supply agreements. With its greater capacity relative to demand, the Company
has increased its levels of inventory. The Company's business is subject to
rapid technological changes and there can be no assurance that products stocked
in inventory will not be rendered obsolete before they are utilized by the
Company. The Company also believes that other semiconductor manufacturers are
also expanding or planning to expand their production capacity over the next
several years, and there can be no assurance that the expansion by the Company
and its competitors will not lead to overcapacity in the Company's target
markets, which could lead to price erosion that would adversely affect the
Company's operating results.
For fiscal 1996, 58% of the Company's revenues were derived from customers in
international markets. The Company has manufacturing facilities in Ireland, the
Philippines and Taiwan. The Company is therefore subject to the economic and
political risks inherent in international operations, including expropriation,
air transportation disruptions, currency controls and changes in currency
exchange rates, tax and tariff rates and freight rates. Although the Company
engages in certain hedging transactions to reduce its exposure to currency
exchange rate fluctuations, there can be no assurance that the Company's
competitive position will not be adversely affected by changes in the exchange
rate of the U.S. dollar against other currencies.
The semiconductor industry is characterized by frequent claims and litigation
involving patent and other intellectual property rights. The Company has from
time to time received, and may in the future receive, claims from third parties
asserting that the Company's products or processes infringe their patents or
other intellectual property rights. In the event a third party makes a valid
intellectual property claim and a license is not available on commercially
reasonable terms, the Company's operating results could be materially and
adversely affected. Litigation may be necessary to enforce patents or other
intellectual property rights of the Company or to defend the Company against
claims of infringement, and such litigation can be costly and divert the
attention of key personnel. See Item 3 "Legal Proceedings" for information
concerning pending litigation involving the Company. An adverse outcome in such
litigation, may, in certain cases, have a material adverse effect on the
Company's consolidated financial position or on its consolidated results of
operations or cash flows in the period in which the litigation is resolved.
Because of these and other factors, past financial performance should not be
considered an indicator of future performance. Investors should not use
historical trends to anticipate future results and should be aware that the
trading price of the Company's common stock may be subject to wide fluctuations
in response to quarter-to-quarter variations in operating results, general
conditions in the semiconductor industry, changes in earnings estimates and
recommendations by analysts or other events.
19
21
ANALOG DEVICES, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED NOVEMBER 2, 1996
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
20
22
ANALOG DEVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION INCLUDED IN ITEM 8:
Report of Ernst & Young LLP, Independent Auditors................................................ 22
Consolidated Statements of Income for the years ended November 2, 1996, October 28, 1995
and October 29, 1994 ......................................................................... 23
Consolidated Balance Sheets as of November 2, 1996, October 28, 1995 and October 29, 1994 ....... 24
Consolidated Statements of Stockholders' Equity for the years ended November 2, 1996,
October 28, 1995 and October 29, 1994 ........................................................ 25
Consolidated Statements of Cash Flows for the years ended November 2, 1996, October 28, 1995
and October 29, 1994 ......................................................................... 26
Notes to Consolidated Financial Statements....................................................... 27
Supplementary Financial Information
(Quarterly Financial Information/1996 and 1995 - Unaudited)................................... 43
21
23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Analog Devices, Inc.
We have audited the accompanying consolidated balance sheets of Analog Devices,
Inc. as of November 2, 1996, October 28, 1995 and October 29, 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended November 2, 1996. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Analog
Devices, Inc. at November 2, 1996, October 28, 1995 and October 29, 1994, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended November 2, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
December 3, 1996
22
24
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended November 2, 1996, October 28, 1995 and October 29, 1994
(thousands except per share amounts) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
REVENUE Net sales................................................ $ 1,193,786 $ 941,546 $ 773,474
COSTS AND Cost of sales............................................ 593,033 464,571 394,448
EXPENSES
Gross margin............................................. 600,753 476,975 379,026
Operating expenses:
Research and development............................... 177,772 134,265 106,869
Selling, marketing, general
and administrative................................... 195,842 184,943 170,341
----------- ----------- ----------
373,614 319,208 277,210
----------- ----------- ----------
Operating income......................................... 227,139 157,767 101,816
Nonoperating (income) expenses:
Interest expense....................................... 11,289 4,201 7,149
Interest income........................................ (16,535) (8,103) (5,165)
Other.................................................. 1,645 2,234 2,921
----------- ----------- ----------
(3,601) (1,668) 4,905
----------- ----------- ----------
EARNINGS Income before income taxes............................... 230,740 159,435 96,911
Provision for income taxes:
Payable currently...................................... 52,115 52,414 30,720
Deferred (prepaid)..................................... 6,724 (12,249) (8,305)
----------- ----------- ----------
58,839 40,165 22,415
----------- ----------- ----------
Net income .............................................. $ 171,901 $ 119,270 $ 74,496
=========== ========== ==========
Shares used to compute earnings per share................ 171,289 158,715 154,539
=========== ========== ==========
Earnings per share of common stock....................... $ 1.03 $ .75 $ .48
=========== ========== ==========
See accompanying notes.
23
25
ANALOG DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
November 2, 1996, October 28, 1995 and October 29, 1994
(thousands except share amounts)
ASSETS 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
CURRENT Cash and cash equivalents............................... $ 210,109 $ 69,303 $ 109,113
ASSETS Short-term investments.................................. 89,810 81,810 72,652
Accounts receivable less allowances of $7,374
($4,439 in 1995 and $6,403 in 1994)................... 241,847 181,327 162,337
Inventories............................................. 218,877 143,962 130,726
Deferred tax assets..................................... 44,879 39,650 25,587
Prepaid expenses and other current assets............... 14,728 9,966 5,042
---------- ---------- ----------
Total current assets.................................... 820,250 526,018 505,457
---------- ---------- ----------
PROPERTY, Land and buildings...................................... 140,776 139,718 111,857
PLANT AND Machinery and equipment................................. 800,086 633,124 477,339
EQUIPMENT, Office equipment........................................ 46,307 41,260 36,613
AT COST Leasehold improvements.................................. 80,099 42,165 33,070
---------- ---------- ----------
1,067,268 856,267 658,879
Less accumulated depreciation and amortization.......... 483,946 424,305 377,064
---------- ---------- ----------
Net property, plant and equipment....................... 583,322 431,962 281,815
---------- ---------- ----------
OTHER Investments............................................. 68,382 13,980 -
ASSETS Intangible assets, net.................................. 16,846 17,230 19,262
Deferred charges and other assets....................... 26,885 12,458 9,337
---------- ---------- ----------
Total other assets...................................... 112,113 43,668 28,599
---------- ---------- ----------
$1,515,685 $ 1,001,648 $ 815,871
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
CURRENT Short-term borrowings and current portion of
LIABILITIES long-term debt........................................ $ 178 $ 2,299 $ 22,917
Obligations under capital leases........................ 10,960 60 236
Accounts payable........................................ 90,177 100,217 74,506
Deferred income on shipments to domestic distributors... 38,400 27,588 18,881
Income taxes payable.................................... 46,459 50,086 29,425
Accrued liabilities..................................... 84,062 74,138 60,221
---------- ---------- ----------
Total current liabilities............................... 270,236 254,388 206,186
---------- ---------- ----------
NONCURRENT Long-term debt.......................................... 310,000 80,000 80,000
LIABILITIES Noncurrent obligations under capital leases............. 43,666 - 61
Deferred income taxes................................... 16,992 5,039 3,225
Other noncurrent liabilities............................ 11,956 6,255 4,484
---------- ---------- ----------
Total noncurrent liabilities............................ 382,614 91,294 87,770
---------- ---------- ----------
Commitments and Contingencies
STOCKHOLDERS' Preferred stock, $1.00 par value, 500,000 shares
EQUITY authorized, none outstanding.......................... - - -
Common stock, $.16 2/3 par value, 450,000,000
shares authorized, 158,745,219 shares issued
(114,583,932 in 1995 and 75,252,112 in 1994).......... 26,458 19,098 12,542
Capital in excess of par value, net of deferred compen-
sation of $4,679 ($3,181 in 1995 and $4,757 in 1994) 176,357 149,775 141,159
Retained earnings....................................... 653,365 481,464 362,194
Cumulative translation adjustment....................... 6,655 5,870 6,020
---------- ---------- ----------
862,835 656,207 521,915
Less shares in treasury, at cost, none in 1996
(51,876 in 1995 and none in 1994)..................... - 241 -
---------- ---------- ----------
Total stockholders' equity.............................. 862,835 655,966 521,915
---------- ---------- ----------
$1,515,685 $1,001,648 $ 815,871
========== ========== ==========
See accompanying notes.
24
26
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended November 2, 1996, CAPITAL IN CUMULATIVE
October 28, 1995 and October 29, 1994 COMMON STOCK EXCESS OF RETAINED TRANSLATION TREASURY STOCK
------------ --------------
(thousands) SHARES AMOUNT PAR VALUE EARNINGS ADJUSTMENT SHARES AMOUNT
====================================================================================================================================
Balance, October 30,
1993 50,925 $ 8,488 $143,502 $287,698 $5,473 (1,727) $ (13,143)
- ------------------------------------------------------------------------------------------------------------------------------------
ACTIVITY Net income - 1994 74,496
IN FISCAL Issuance of stock under
1994 stock plans and other,
net of repurchases 470 78 7,276 501 3,483
Compensation recognized
under Restricted Stock Plan 1,851
Tax benefit on exercise of non-
qualified stock options and
disqualifying dispositions
under stock plans 2,166
Three-for-two stock split 23,857 3,976 (13,636) 1,226 9,660
Currency translation
adjustment 547
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, October 29,
1994 75,252 12,542 141,159 362,194 6,020 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
ACTIVITY Net income - 1995 119,270
IN FISCAL Issuance of stock under
1995 stock plans and other,
net of repurchases 1,137 190 10,462 (35) (241)
Compensation recognized
under Restricted Stock Plan 1,672
Tax benefit on exercise of non-
qualified stock options and
disqualifying dispositions
under stock plans 2,848
Three-for-two stock split 38,195 6,366 (6,366) (17) --
Currency translation
adjustment (150)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, October 28,
1995 114,584 19,098 149,775 481,464 5,870 (52) (241)
- ------------------------------------------------------------------------------------------------------------------------------------
ACTIVITY Net income - 1996 171,901
IN FISCAL Issuance of stock under
1996 stock plans and other,
net of repurchases 2,228 371 15,474 52 241
Exercise of warrants 2,250 375 11,721
Compensation recognized
under Restricted Stock Plan 1,949
Tax benefit on exercise of non-
qualified stock options and
disqualifying dispositions
under stock plans 4,052
Four-for-three stock split* 39,683 6,614 (6,614)
Currency translation
adjustment 785
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at November 2,
1996 158,745 $ 26,458 $176,357 $653,365 $6,655 -- $ --
====================================================================================================================================
See accompanying notes.
* See Note 2(p)
25
27
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 2, 1996, October 28, 1995 and October 29, 1994
(thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS Cash flows from operations:
Net income ............................................. $ 171,901 $ 119,270 $ 74,496
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization....................... 83,809 64,098 61,284
Deferred income taxes............................... 6,565 (12,360) (6,024)
Other noncash expenses (income)..................... (638) 151 2,195
(Increase) in accounts receivable................... (66,860) (18,263) (7,661)
(Increase) decrease in inventories.................. (76,748) (14,402) 20,756
(Increase) in prepaid expenses and other
current assets................................... (4,782) (4,959) (598)
Increase in accounts payable,
deferred income and accrued liabilities.......... 23,844 51,332 28,939
Increase in income taxes payable.................... 425 23,784 14,063
Increase (decrease) in other liabilities............ 6,201 1,599 (839)
--------- --------- ----------
Total adjustments....................................... (28,184) 90,980 112,115
--------- --------- ----------
Net cash provided by operations............................ 143,717 210,250 186,611
--------- --------- ----------
INVESTMENTS Cash flows from investments:
Purchase of short-term investments available for sale... (262,648) (166,225) (72,652)
Maturities of short-term investments available for sale. 254,648 162,067 -
Additions to property, plant and equipment, net......... (234,099) (212,671) (90,856)
Long-term investments................................... (54,402) - -
(Increase) in other assets.............................. (8,971) (16,878) (3,269)
Purchase of short-term investments held to maturity..... - (7,200) -
Maturities of short-term investments held to maturity... - 2,200 -
--------- --------- ----------
Net cash used for investments.............................. (305,472) (238,707) (166,777)
--------- --------- ----------
FINANCING Cash flows from financing activities:
ACTIVITIES Proceeds from issuance of long-term debt................ 224,385 - -
Proceeds from equipment financing....................... 61,793 - -
Proceeds from employee stock plans...................... 14,028 10,126 9,821
Proceeds from warrants exercised........................ 12,096 - -
Net increase (decrease) in variable rate borrowings..... (3,580) (787) 485
Payments on capital lease obligations................... (7,227) (237) (335)
Payments on long-term debt.............................. - (20,000) -
--------- --------- ----------
Net cash (used for) provided by financing activities....... 301,495 (10,898) 9,971
--------- --------- ----------
Effect of exchange rate changes on cash.................... 1,066 (455) (1,360)
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents....... 140,806 (39,810) 28,445
Cash and cash equivalents at beginning of year............. 69,303 109,113 80,668
--------- --------- ----------
Cash and cash equivalents at end of year................... $ 210,109 $ 69,303 $ 109,113
========= ========= ==========
SUPPLE- Cash paid during the year for:
MENTAL Income taxes............................................ $ 52,541 $ 30,511 $ 12,965
========= ========= ==========
INFORMATION Interest................................................ $ 10,171 $ 6,685 $ 6,923
========= ========= ==========
See accompanying notes.
26
28
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 2, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
(ALL TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
Analog Devices, Inc. ("Analog" or the "Company") designs, manufactures and
markets a broad line of high-performance linear, mixed-signal and digital
integrated circuits ("ICs") that address a wide range of real-world signal
processing applications. The Company's two principal product groups are
general-purpose, standard-function linear and mixed-signal ICs ("SLICs") and
system-level ICs. The latter group includes general-purpose digital signal
processing ICs (DSPs) and application-specific devices that typically
incorporate analog and mixed-signal circuitry and a DSP core. Analog's third
product group consists of devices manufactured using assembled product
technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all of its wholly owned subsidiaries. Upon consolidation, all significant
intercompany accounts and transactions are eliminated. The Company's fiscal year
ends on the Saturday closest to the last day in October. Fiscal year 1996 was a
53 week year, while 1995 and 1994 were each 52 week years.
Certain amounts reported in previous years have been reclassified to conform to
the 1996 presentation.
b. CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents are highly liquid investments with insignificant
interest rate risk and maturities of three months or less at the time of
acquisition. Investments with maturities between three and twelve months at time
of acquisition are considered short-term investments. Short-term investments
consist of debt securities such as commercial paper, time deposits, certificates
of deposit and bankers acceptances. Long-term investments consist of equity
securities and bank money market funds as well as time deposits which the
Company intends to renew at each maturity date.
Effective October 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115), which creates certain classification categories
for such investments, based on the nature of the securities and the intent and
investment goals of the Company. FAS 115 requires investments in debt and equity
securities to be classified as "held-to-maturity," "available-for-sale," or
"trading" at the time of purchase and for such designation to be reevaluated as
of each balance sheet date. Held-to-maturity securities, which are carried at
amortized cost, include only those securities the Company has the positive
intent and ability to hold to maturity. Available-for-sale securities are
carried at fair value with unrealized gains and losses, net of related tax, if
any, reported as a separate component of stockholders' equity. Realized gains
and losses, declines in value judged to be other than temporary, as well as
interest, dividends and capital gains distributions on all securities are
included in earnings. At November 2, 1996, the Company did not own any
securities classified as trading.
27
29
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
While it is the intent of management to hold securities to maturity, unforeseen
events, while not generally expected, could cause the Company to liquidate
certain securities prior to maturity. Accordingly, those securities which could
readily be sold back to the seller are classified as available-for-sale.
Securities, such as bank time deposits, which by their nature are typically
held-to-maturity are classified as such. The following is a summary of
available-for-sale and held-to-maturity securities at November 2, 1996 and
October 28, 1995:
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------------------------------ ----------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
1996 COST GAINS LOSSES FAIR VALUE COST
===================================================================================================
Cash equivalents:
Commercial paper $ 83,713 $ -- $- $ 83,713 $ --
Euro time deposits -- -- - -- 94,656
Certificates of deposit 8,000 -- - 8,000 --
Short-term investments:
Commercial paper 89,810 -- - 89,810 --
Long-term investments:
Equity securities 4,186 386 2 4,570 --
Euro time deposits -- -- - -- 836
Bank money market fund 19 -- - 19 --
- ---------------------------------------------------------------------------------------------------
Total $185,728 $386 $2 $186,112 $95,492
===================================================================================================
1995
===================================================================================================
Cash equivalents:
Commercial paper $ 27,727 $ -- $- $ 27,727 $ --
Euro time deposits -- -- - -- 31,300
Short-term investments:
Commercial paper 73,874 -- - 73,874 --
Bankers' acceptances 2,936 -- - 2,936 --
Euro time deposits -- -- - -- 5,000
- ---------------------------------------------------------------------------------------------------
Total $104,537 $ -- $- $104,537 $36,300
===================================================================================================
Cash equivalents and short-term investments classified as available-for-sale and
held-to-maturity at November 2, 1996 and October 28, 1995 have contractual
maturities of six months or less at time of acquisition. Because of the short
term to maturity, and hence relative price insensitivity to changes in market
interest rates, amortized cost approximates fair value for all of these
securities. As suc