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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 3, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_______________ TO ________________
COMMISSION FILE NO. 1-7819
ANALOG DEVICES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2348234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TECHNOLOGY WAY, NORWOOD, MA 02062-9106
(Address of principal executive offices) (Zip Code)
(781) 329-4700
(Registrant's telephone number, including area code)
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The number of shares outstanding of each of the issuer's classes of Common
Stock as of March 3, 2001 was 359,845,682 shares of Common Stock.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands except per share amounts)
THREE MONTHS ENDED
--------------------------------------
FEBRUARY 3, 2001 JANUARY 29, 2000
---------------- ----------------
Net sales $ 772,274 $ 490,277
Cost of sales 320,020 225,087
----------- -----------
Gross margin 452,254 265,190
Operating expenses:
Research and development 121,710 82,516
Purchased in-process research and development 9,500 --
Amortization of intangibles 10,306 496
Selling, marketing, general and administrative 85,553 64,524
----------- -----------
227,069 147,536
Operating income 225,185 117,654
Nonoperating (income) expenses:
Interest expense 16,869 1,681
Interest income (41,248) (11,906)
Other, net (28,116) 814
----------- -----------
(52,495) (9,411)
----------- -----------
Income before income taxes 277,680 127,065
Provision for income taxes 87,303 34,058
----------- -----------
Net income $ 190,377 $ 93,007
=========== ===========
Shares used to compute earnings per share - basic 357,070 349,352
======= =======
Shares used to compute earnings per share - diluted 383,392 374,458
======= =======
Earnings per share - basic $0.53 $0.26
===== =====
Earnings per share - diluted $0.50 $0.25
===== =====
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
Assets FEBRUARY 3, 2001 OCTOBER 28, 2000 JANUARY 29, 2000
---------------- ---------------- ----------------
Cash and cash equivalents $ 1,191,920 $ 1,736,421 $ 409,516
Short-term investments 1,158,381 498,844 485,706
Accounts receivable, net 421,219 463,912 298,246
Inventories:
Raw materials 22,593 17,505 13,176
Work in process 197,992 179,918 157,655
Finished goods 136,491 134,671 79,353
------------ ------------ ------------
357,076 332,094 250,184
Deferred tax assets 113,000 108,989 99,300
Prepaid expenses and other current assets 29,378 27,754 16,009
------------ ------------ ------------
Total current assets 3,270,974 3,168,014 1,558,961
------------ ------------ ------------
Property, plant and equipment, at cost:
Land and buildings 262,076 238,550 171,977
Machinery and equipment 1,363,641 1,260,572 1,116,344
Office equipment 91,091 86,930 76,355
Leasehold improvements 128,063 120,710 110,953
------------ ------------ ------------
1,844,871 1,706,762 1,475,629
Less accumulated depreciation and amortization 964,443 927,536 826,844
------------ ------------ ------------
Net property, plant and equipment 880,428 779,226 648,785
------------ ------------ ------------
Investments 213,202 217,755 199,070
Intangible assets, net 269,164 192,698 35,337
Other assets 55,453 53,644 47,180
------------ ------------ ------------
Total other assets 537,819 464,097 281,587
------------ ------------ ------------
$ 4,689,221 $ 4,411,337 $ 2,489,333
============ ============ ============
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
Liabilities and Stockholders' Equity FEBRUARY 3, 2001 OCTOBER 28, 2000 JANUARY 29, 2000
---------------- ---------------- ----------------
Short-term borrowings and current
portion of long-term debt $ 131 $ 5,752 $ 84,810
Obligations under capital leases 9,041 9,938 14,089
Accounts payable 171,349 213,196 125,027
Deferred income on shipments to distributors 146,155 140,369 113,523
Income taxes payable 156,831 86,625 106,319
Accrued liabilities 179,755 194,017 121,864
------------ ------------ ------------
Total current liabilities 663,262 649,897 565,632
------------ ------------ ------------
Long-term debt 1,200,648 1,200,261 --
Non-current obligations under capital leases 10,210 12,699 13,218
Deferred income taxes 52,420 51,205 62,600
Other non-current liabilities 223,021 193,625 101,538
------------ ------------ ------------
Total non-current liabilities 1,486,299 1,457,790 177,356
------------ ------------ ------------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $1.00 par value, 471,934 shares authorized,
none outstanding -- -- --
Common stock, $.16 2/3 par value, 600,000,000 shares
authorized, 360,269,511 shares issued
(357,969,010 in October 2000 and 179,361,743
in January 2000) 60,046 59,663 29,893
Capital in excess of par value 594,445 526,820 538,274
Retained earnings 1,908,320 1,717,943 1,203,818
Accumulated other comprehensive income 2,430 2,841 38,488
------------ ------------ ------------
2,565,241 2,307,267 1,810,473
Less 467,114 shares in treasury, at cost (45,186 in
October 2000 and 3,213,403 in January 2000) 25,581 3,617 64,128
------------ ------------ ------------
Total stockholders' equity 2,539,660 2,303,650 1,746,345
------------ ------------ ------------
$ 4,689,221 $ 4,411,337 $ 2,489,333
============ ============ ============
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands)
THREE MONTHS ENDED
-------------------------------------
FEBRUARY 3, 2001 JANUARY 29, 2000
---------------- ----------------
OPERATIONS
Cash flows from operations:
Net income $ 190,377 $ 93,007
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 49,284 35,872
Gain on sale of investment (28,084) --
Write-off of purchased research and development 9,500 --
Deferred income taxes (2,983) (10,011)
Other non-cash expense 728 440
Changes in operating assets and liabilities 34,495 45,199
----------- -----------
Total adjustments 62,940 71,500
----------- -----------
Net cash provided by operations 253,317 164,507
----------- -----------
INVESTMENTS
Cash flows from investments:
Purchase of short-term investments
available for sale (935,221) (207,486)
Maturities of short-term investments
available for sale 275,684 128,333
Payments for acquisitions, net of cash acquired (36,424) (1,176)
Proceeds from sale of investment 60,936 --
Change in long-term investments -- 348
Additions to property, plant and equipment, net (138,945) (40,677)
Decrease in other assets (3,028) (1,713)
----------- -----------
Net cash used for investments (776,998) (122,371)
----------- -----------
FINANCING ACTIVITIES
Cash flows from financing activities:
Proceeds from employee stock plans 6,123 9,981
Repurchase of common stock (21,831) --
Payments on capital lease obligations (3,532) (3,622)
Net (decrease) increase in variable rate borrowings (5,128) 2,488
----------- -----------
Net cash (used for) provided by financing activities (24,368) 8,847
----------- -----------
Effect of exchange rate changes on cash 3,548 2,642
----------- -----------
Net (decrease) increase in cash and cash equivalents (544,501) 53,625
Cash and cash equivalents at beginning of period 1,736,421 355,891
----------- -----------
Cash and cash equivalents at end of period $ 1,191,920 $ 409,516
=========== ===========
See accompanying notes.
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Analog Devices, Inc.
Notes to Condensed Consolidated Financial Statements
For the three months ended February 3, 2001
(all tabular amounts in thousands except per share amounts)
Note 1 - In the opinion of management, the information furnished in the
accompanying condensed consolidated financial statements reflects all normal
recurring adjustments that are necessary to fairly state the results for this
interim period and should be read in conjunction with the Company's Annual
Report to Stockholders on Form 10-K for the fiscal year ended October 28, 2000
(2000 Annual Report).
The Company has a 52-53 week fiscal year that ends on the Saturday closest to
the last day in October. Fiscal 2001 is a 53-week fiscal year, with the
additional week occurring in the first quarter ended February 3, 2001.
Note 2 - Certain amounts reported in the previous year have been reclassified to
conform to the fiscal 2001 presentation.
Note 3 - Comprehensive Income
Total comprehensive income, i.e., net income plus available-for-sale securities
valuation adjustments, net gain or loss on derivative instruments designated as
cash flow hedges and currency translation adjustments to stockholders' equity,
for the first quarters of fiscal 2001 and fiscal 2000 was $190 million and $119
million, respectively.
Note 4 - Earnings Per Share
Basic earnings per share is computed based only on the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding during
the period, plus the dilutive effect of future issues of common stock relating
to stock option programs and other potentially dilutive securities. In
calculating diluted earnings per share, the dilutive effect of stock options is
computed using the average market price for the period. Shares related to
convertible debt financing are excluded because the effect would be
anti-dilutive. The following table sets forth the computation of basic and
diluted earnings per share:
THREE MONTHS ENDED
--------------------------------------
FEBRUARY 3, 2001 JANUARY 29, 2000
---------------- ----------------
Basic:
Net income $ 190,377 $ 93,007
========== ==========
Weighted shares outstanding 357,070 349,352
========== ==========
Earnings per share $0.53 $0.26
===== =====
Diluted:
Net income $ 190,377 $ 93,007
========== ==========
Weighted shares outstanding 357,070 349,352
Assumed exercise of common stock equivalents 26,322 25,106
---------- ----------
Weighted average common and common equivalent shares 383,392 374,458
========== ==========
Earnings per share $0.50 $0.25
===== =====
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Note 5 - Investments
On December 27, 2000, the Company sold its investment in WaferTech, LLC to
Taiwan Semiconductor Manufacturing Company. The Company received approximately
$61 million in cash and realized a pretax gain of approximately $28 million. The
realized gain is included in other nonoperating income.
Note 6 - Acquisitions
During the first quarter of fiscal 2001, the Company completed several
acquisitions. On October 31, 2000, the Company acquired Thomas Neuroth AG
(Neuroth) of Vienna, Austria for approximately $4 million in cash, with
additional contingent cash consideration of up to $4 million payable if certain
operational objectives are achieved. Neuroth is a developer of highly integrated
circuits for symmetric DSL broadband access. On November 10, 2000, the Company
acquired Signal Processing Associates Pty. Ltd., (SPA) of Victoria, Australia
for approximately $3 million in cash, with additional contingent cash
consideration of up to $1.5 million payable if certain operational objectives
are achieved. SPA is a leading developer and supplier of voice processing and
fax/data relay software for telecommunications applications. On December 18,
2000, the Company acquired Integrated Micro Instruments, Inc. (IMI) of Berkeley,
California for approximately $1 million in cash and 13,750 shares of common
stock (valued at approximately $746,000), with an additional 50,000 shares of
common stock issuable over the next five years upon the satisfaction of certain
conditions. IMI develops leading edge MEMS process designs. On January 4, 2001,
the Company acquired ChipLogic, Inc. (ChipLogic) of Santa Clara, California for
cash of approximately $4 million and approximately 1 million shares of common
stock (valued at approximately $60 million), with 489,375 shares of additional
common stock issuable if certain operational objectives are achieved. ChipLogic
is a developer of high-performance integrated circuits and software focused on
the convergence of voice, broadband access and network protocol processing. In
connection with the acquisition of ChipLogic, the Company recorded a charge of
$9.5 million for the write-off of in-process research and development. On
January 16, 2001, the Company acquired Staccato Systems, Inc. (Staccato) of
Mountain View, California for approximately $23 million in cash, with additional
contingent cash consideration of up to $7 million payable if certain operational
objectives are achieved. Staccato is a leader in the field of audio synthesis
technology. Any contingent consideration paid to Staccato will be accounted for
as additional goodwill. Of the $4 million of contingent consideration payable to
Neuroth, $3 million will be allocated to goodwill and $1 million will be
accounted for as acquisition-related expense. All other contingent consideration
will be accounted for as acquisition-related expense. These acquisitions were
accounted for as purchases, and the excess of the purchase price over the fair
value of the assets acquired was allocated to goodwill, which is being amortized
on the straight-line basis over five years.
Pro forma results of operations for Neuroth, SPA, IMI, ChipLogic and Staccato
have not been provided herein as they were not material to the Company on either
an individual or an aggregate basis. The results of operations of each
acquisition are included in the Company's consolidated statement of income from
the date of each acquisition.
Note 7 - Segment Information
The Company operates in two segments: the design, manufacture and marketing of a
broad range of integrated circuits, which comprises approximately 98% of the
Company's revenue, and the design, manufacture and marketing of a range of
assembled products, which accounts for the remaining 2% of the Company's
revenue. Effectively, the Company operates in one reportable segment.
Note 8 - New Accounting Standards
Revenue Recognition
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, (SAB 101), "Revenue Recognition in Financial Statements." SAB 101
summarizes the application of generally accepted accounting principles to
revenue recognition in financial statements. The Company will adopt SAB 101 in
the fourth quarter of fiscal 2001 and does not expect SAB 101 to have a material
effect on its financial position or results of operation.
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Derivatives
Effective October 29, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133, (FAS 133), "Accounting for Derivative Instruments
and Hedging Activities," as amended by Statement of Financial Accounting
Standards No. 138, (FAS 138), "Accounting for Certain Instruments and Certain
Hedging Activities". FAS 133 requires that an entity recognize all derivatives
as either assets or liabilities and measure such instruments at fair market
value. Under certain circumstances, a portion of the derivative's gain or loss
is initially reported as a component of other comprehensive income (OCI) until
the hedged transaction affects earnings. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. The adoption of FAS 133 on October 29, 2000 did not have a material
impact on operations; however, it resulted in a $5 million loss recognized in
other comprehensive income. This loss will be reclassified into earnings during
fiscal 2001.
Foreign Exchange Exposure Management - The Company has significant international
sales and purchase transactions in foreign currencies and has a policy of
hedging forecasted and actual foreign currency risk with forward foreign
exchange contracts. The Company's forward foreign exchange contracts are
primarily denominated in Japanese yen and certain European currencies and are
for periods consistent with the terms of the underlying transactions, generally
one year or less. Derivative instruments are employed to eliminate or minimize
certain foreign currency exposures that can be confidently identified and
quantified. In accordance with FAS 133, hedges related to anticipated
transactions are designated and documented at the inception of the respective
hedge as cash flow hedges and evaluated for effectiveness monthly. As the terms
of the forward contract and the underlying transaction are matched at inception,
forward contract effectiveness is calculated by comparing the fair value of the
contract to the change in the forward value of the anticipated transaction, with
the effective portion of the gain or loss on the derivative instrument reported
as a component of OCI in stockholders' equity and reclassified into earnings in
the same period during which the hedged transaction affects earnings. Any
residual change in fair value of the instruments, or ineffectiveness, is
recognized immediately in Other expense. No ineffectiveness was recognized in
the first quarter of fiscal 2001.
Additionally, the Company enters into foreign currency forward contracts to
hedge the gains and losses generated by the remeasurement of certain recorded
assets and liabilities in a non-functional currency. Changes in the fair value
of these undesignated hedges are recognized in Other expense immediately as an
offset to the changes in the fair value of the asset or liability being hedged.
Interest Rate Risk Management - The Company enters into interest rate swap and
cap agreements to manage its exposure to interest rate movements by effectively
converting a portion of its debt and certain financing arrangements from fixed
to variable rates. Maturity dates of interest rate swap and cap agreements
generally match those of the underlying debt or financing arrangements. These
agreements, which have maturities of up to seven years, involve the exchange of
fixed rate payments for variable rate payments without the exchange of the
underlying principal amounts. Variable rates are based on six-month U.S. dollar
LIBOR and are reset on a semiannual basis. The differential between fixed and
variable rates to be paid or received is accrued as interest rates change in
accordance with the agreements and recognized over the life of the agreements as
an adjustment to interest expense. Given the insignificant value of the current
interest rate swap and cap agreements, the Company has not designated these
instruments as hedges. The change in fair value related to these instruments is
recognized immediately in Other expense.
Derivative financial instruments involve, to a varying degree, elements of
market and credit risk not recognized in the consolidated financial statements.
The market risk associated with these instruments resulting from currency
exchange rate or interest rate movements is expected to offset the market risk
of the underlying transactions, assets and liabilities being hedged. The
counterparties to the agreements relating to the Company's foreign exchange and
interest rate instruments consist of a number of major international financial
institutions with high credit ratings. The Company does not believe that there
is significant risk of nonperformance by these counterparties because the
Company continually monitors the credit ratings of such counterparties, and
limits the financial exposure and the amount of agreements entered into with any
one financial institution. While the contract or notional amounts of derivative
financial instruments provide one measure of the volume of these transactions,
they do not represent the amount of the Company's exposure to credit risk. The
amounts potentially subject to credit risk (arising from the possible inability
of counterparties to meet the terms of their contracts) are generally limited to
the amounts, if any, by which the counterparties' obligations under the
contracts exceed the obligations of the Company to the counterparties.
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Accumulated Derivative Gains or Losses
The following table summarizes activity in other comprehensive income related to
derivatives classified as cash flow hedges held by the Company during the period
of October 29, 2000 (the date of adoption of FAS 133) through February 3, 2001:
Cumulative effect of adopting FAS 133 as of
October 29, 2000 $ 5,200
Less: Reclassifications into earnings from other
comprehensive income 2,800
--------
2,400
Changes in fair value of derivatives - (gain) loss (2,500)
--------
Accumulated (gain) loss included in other comprehensive income $ (100)
========
Note 9 - Stock Split
On February 15, 2000, the Company's Board of Directors approved a 2-for-1 split
of the Company's common stock, effected as a 100% stock dividend on March 15,
2000 by the distribution of one share of common stock for every share held on
the record date of February 28, 2000. All historical per share amounts in this
report have been restated to reflect the split.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This information should be read in conjunction with the unaudited condensed
consolidated financial statements and related notes included in Item 1 of this
Quarterly Report and the audited consolidated financial statements and related
notes and Management Analysis for the fiscal year ended October 28, 2000,
contained in the our 2000 Annual Report.
The following discussion and analysis may contain forward-looking statements.
Such statements are subject to certain risks and uncertainties, including those
discussed below or in our 2000 Annual Report, which could cause actual results
to differ materially from our expectations. Readers are cautioned not to place
undue reliance on any forward-looking statements, as they reflect management's
current analysis. We undertake no obligation to release the results of any
revision to these forward-looking statements that may be made to reflect events
or circumstances after the date of this report or to reflect the occurrence of
unanticipated events.
Results of Operations
Net sales for the first quarter of fiscal 2001 increased by $282
million, or 58%, to $772 million from $490 million for the first quarter of
fiscal 2000. Analog IC product sales grew by 61% and DSP IC product sales grew
by 48% over the same quarter last year. Sales to OEM customers increased 65%
over the first quarter of fiscal 2000. Sales into the distribution channel
increased 46% over the same quarter last year. Sales increased in all
end-markets with the communications market representing the largest growth area.
These year-over-year sales increases were attributable to growth in the markets
we serve along with increased demand for our newest products.
Sales increased in all geographic regions with the largest increase
occurring in North America. International sales for the first quarter of fiscal
2001 and fiscal 2000 represented 56% of sales.
Our net sales for the first quarter of fiscal 2001 declined 4% from the
fourth quarter of fiscal 2000 as a result of rapidly decreasing demand in the
latter half of the first quarter of fiscal 2001. The decrease in demand was
primarily the result of significant order cancellations and adjustments from
computer and telecommunications customers and contract manufacturers in North
America and Southeast Asia in response to an inventory build-up in both the OEM
and distributor channels. We anticipate further revenue reductions in the second
quarter of fiscal 2001 as this downward trend in demand has continued and has
been exacerbated by a significant drop in consumer confidence in response to a
pessimistic economic picture in the U.S. and Southeast Asia.
The gross margin for the first quarter of fiscal 2001 was 58.6%, an
improvement of 450 basis points from the 54.1% gross margin realized in the
first quarter of fiscal 2000. The improvement in gross margin was primarily due
to the favorable effect of fixed costs allocated across a higher sales base and
improved manufacturing efficiencies at our wafer fabrication, assembly and test
facilities.
Research and development (R&D) expenses were $122 million for the three
months ended February 3, 2001 compared to $83 million for the corresponding
period of fiscal 2000. As a percentage of sales, R&D spending decreased during
the first quarter of fiscal 2001 to 15.8%, down from 16.8% in the first quarter
of fiscal 2000. In absolute dollar terms, R&D spending increased by $39 million
in the first quarter of fiscal 2001 as compared to the first quarter of fiscal
2000 as a result of our continued investment in opportunities in our served
markets. Additional expenses associated with increased engineering headcount,
combined with the effect of increased bonus accruals in the first quarter of
fiscal 2001, were the main reasons for the year-over-year increase. We expect to
continue the development of innovative technologies and processes for new
products targeted for broadband and wireless communications applications,
imaging, audio and high-performance power and thermal management products for
computer and consumer product applications. We believe that a continued
commitment to research and development is essential in order to maintain product
leadership with our existing products and to provide innovative new product
offerings, and therefore we expect to continue to make significant R&D
investments in the future.
During the first quarter of fiscal 2001, we recorded a charge of $9.5
million for the write-off of in-process R&D in connection with the acquisition
of ChipLogic, Inc., of Santa Clara, California. The total cost of the
acquisition was approximately $60 million in common stock and $4 million in
cash, with additional contingent consideration of 489,375 shares of common stock
payable if ChipLogic achieves certain operational objectives. The contingent
consideration is expected to be accounted for as acquisition-related expense.
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Amortization of intangibles was $10 million in the first quarter of
fiscal 2001 as compared with $0.5 million recorded in the first quarter of
fiscal 2000. The year-over-year increase was primarily due to the amortization
of goodwill related to the purchase of BCO Technologies plc, Ltd. in the fourth
quarter of fiscal 2000.
Selling, marketing, general and administrative (SMG&A) expenses for the
first quarter of fiscal 2001 were $86 million, an increase of $21 million from
the $65 million reported for the first quarter of fiscal 2000. As a percentage
of sales, SMG&A decreased to 11.1% for the first quarter of fiscal 2001 from
13.2% for the first quarter of fiscal 2000 as a result of increased sales and
continued control over spending.
The combination of higher sales, higher gross margins and a reduction
in operating expense ratios provided strong operating leverage that improved the
operating margin to 29.2% of sales, compared to 24.0% in the first quarter of
fiscal 2000.
Interest expense was $17 million for the first quarter of fiscal 2001
and $2 million for the first quarter of fiscal 2000. The increase in interest
expense was due to the issuance in the fourth quarter of fiscal 2000 of $1.2
billion of 4.75% convertible subordinated notes.
Interest income was $41 million for the first quarter of fiscal 2001
and $12 million for the first quarter of fiscal 2000. The increase in interest
income was attributable to the interest earned on higher cash balances resulting
from increased cash flow from operations as well as the unused portion of the
funds from our 4.75% convertible subordinated notes.
During the first quarter of fiscal 2001, we sold our investment in
WaferTech, LLC to Taiwan Semiconductor Manufacturing Company for $61 million in
cash. As a result of this transaction, we recorded a pretax gain of
approximately $28 million, which is included in other nonoperating income.
Our effective income tax rate increased to 31% for the first quarter of
fiscal 2001 from 27% for the first quarter of fiscal 2000 primarily due to a
shift in the mix of worldwide profits as well as a taxable capital gain from the
sale of our WaferTech investment in the first quarter of fiscal 2001.
Liquidity and Capital Resources
At February 3, 2001, we had $2,350 million of cash, cash equivalents
and short-term investments, an increase of $115 million from the fourth quarter
of 2000 and $1,455 million from the first quarter of fiscal 2000. The sequential
increase in cash, cash equivalents and short-term investments was primarily due
to operating cash inflows of $253 million, partially offset by increased capital
expenditures. The year-over-year increase in cash, cash equivalents and
short-term investments was primarily due to $1,172 million of proceeds from the
issuance of our 4.75% convertible subordinated notes in the fourth quarter of
fiscal 2000.
Accounts receivable totaled $421 million at the end of the first
quarter of fiscal 2001, a decrease of $43 million from the fourth quarter of
fiscal 2000 primarily due to a 4% sequential decline in sales. Accounts
receivable increased $123 million from the first quarter of fiscal 2000 due to
higher sales levels. Days sales outstanding improved from 56 days at January 29,
2000 to 49 days at February 3, 2001.
Inventories of $357 million at February 3, 2001 increased by $25
million from the fourth quarter of fiscal 2000 and $107 million from the first
quarter of fiscal 2000. Days cost of sales in inventory remained flat
year-over-year despite increased inventory levels in response to a 58% increase
in sales and higher demand for our products. The sequential increase in
inventory levels was due to a general economic slowdown during the first quarter
of fiscal 2001 that is constraining demand for technology products.
Net additions to property, plant and equipment of $139 million for the
first quarter of fiscal 2001 were funded with a combination of cash on hand and
cash generated from operations. Capital spending in the first quarter of fiscal
2001 increased over the $41 million spent in the first quarter of fiscal 2000,
primarily attributable to the expansion of manufacturing capability to meet
sales growth during fiscal 2000. We currently plan to make capital expenditures
of approximately $400 million in fiscal 2001.
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During the first quarter of fiscal 2001, we completed several
acquisitions. On October 31, 2000, we acquired Thomas Neuroth AG (Neuroth) of
Vienna, Austria for approximately $4 million in cash, with additional contingent
cash consideration of up to $4 million payable if certain operational objectives
are achieved. Neuroth is a developer of highly integrated circuits for symmetric
DSL broadband access. On November 10, 2000, we acquired Signal Processing
Associates Pty. Ltd., (SPA) of Victoria, Australia for approximately $3 million
in cash, with additional contingent cash consideration of up to $1.5 million
payable if certain operational objectives are achieved. SPA is a leading
developer and supplier of voice processing and fax/data relay software for
telecommunications applications. On December 18, 2000, we acquired Integrated
Micro Instruments, Inc. (IMI) of Berkeley, California for approximately $1
million in cash and 13,750 shares of our common stock, with an additional 50,000
shares of common stock issuable over the next five years upon the satisfaction
of certain conditions. IMI develops leading edge MEMS process designs. On
January 4, 2001, we acquired ChipLogic, Inc. (ChipLogic) of Santa Clara,
California for approximately 1 million shares of our common stock, with 489,375
shares of additional common stock issuable if certain operational objectives are
achieved. ChipLogic is a developer of high-performance integrated circuits and
software focused on the convergence of voice, broadband access and network
protocol processing. On January 16, 2001, we acquired Staccato Systems, Inc.
(Staccato) of Mountain View, California for approximately $23 million in cash,
with additional contingent cash consideration of up to $7 million payable if
certain operational objectives are achieved. Staccato is a leader in the field
of audio synthesis technology.
At February 3, 2001, our principal sources of liquidity were $2,350
million of cash, cash equivalents and short-term investments.
We believe that our 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.
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Factors Which May Affect Future Results
We may experience material fluctuations in future operating results.
Our 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 us and our competitors, competitive pricing pressures,
fluctuations in manufacturing yields, adequate availability of wafers and
manufacturing capacity, the effects of adverse changes in overall economic
conditions, the risk that our backlog could decline significantly, our ability
to continue hiring engineers and other qualified employees needed to meet the
expected demands of our largest customers and 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. Our business is subject to
rapid technological changes and there can be no assurance, depending on the mix
of future business, that products stocked in inventory will not be rendered
obsolete before we ship them. As a result of these and other factors, there can
be no assurance that we will not experience material fluctuations in future
operating results on a quarterly or annual basis.
Our future success depends upon our ability to develop and market new products
and enter new markets.
Our success depends in part on our continued ability to develop and market new
products. There can be no assurance that we will be able to develop and
introduce new products in a timely manner or that new products, if developed,
will achieve market acceptance. In addition, our growth is dependent on our
continued ability to penetrate new markets where we have limited experience and
competition is intense. There can be no assurance that the markets we serve will
grow in the future; that our existing and new products will meet the
requirements of these markets; that our products will achieve customer
acceptance in these markets; that competitors will not force prices to an
unacceptably low level or take market share from us; or that we can achieve or
maintain profits in these markets. Also, some of our customers in these markets
are less well established, which could subject us to increased credit risk.
We may not be able to compete successfully in the semiconductor industry in the
future.
The semiconductor industry is intensely competitive. Some of our competitors
have greater technical, marketing, manufacturing and financial resources than we
do. Our competitors also include emerging companies attempting to sell products
to specialized markets such as those that we serve. Our competitors have, in
some cases, developed and marketed products having similar design and
functionality as our products. There can be no assurance that we will be able to
compete successfully in the future against existing or new competitors or that
our operating results will not be adversely affected by increased price
competition.
We may not be able to satisfy increasing demand for our products, and increased
production may lead to overcapacity and lower prices.
The cyclical nature of the semiconductor industry has resulted in sustained or
short-term periods when demand for our products has increased or decreased
rapidly. We and the semiconductor industry have experienced a period of rapid
increases in demand during the past two fiscal years. We have increased our
manufacturing capacity over the past three years through both expansion of our
production facilities and increased access to third-party foundries. However, we
cannot be sure that we will not encounter unanticipated production problems at
either our own facilities or at third-party foundries, or that the increased
capacity will be sufficient to satisfy demand for our products. We believe that
other semiconductor manufacturers have expanded their production capacity over
the past several years. This expansion by us and our competitors could lead to
overcapacity in our target markets, which could lead to price erosion that would
adversely affect our operating results.
We rely on third-party subcontractors and manufacturers for some
industry-standard wafers and therefore cannot control their availability or
conditions of supply.
We rely, and plan to continue to rely, on assembly and test subcontractors and
on third-party wafer fabricators to supply most of our wafers that can be
manufactured using industry-standard digital processes. This reliance involves
several risks, including reduced control over delivery schedules, manufacturing
yields and costs.
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Our revenues may not increase enough to offset the expense of additional
capacity.
Our capacity additions resulted in a significant increase in operating expenses.
If revenue levels do not increase enough to offset these additional expense
levels, our future operating results could be adversely affected. In addition,
asset values could be impaired if the additional capacity is underutilized for
an extended period of time.
We rely on manufacturing capacity located in geologically unstable areas, which
could affect the availability of supplies and services.
We and many companies in the semiconductor industry rely on internal
manufacturing capacity located in California and Taiwan as well as wafer
fabrication foundries in Taiwan and other sub-contractors in geologically
unstable locations around the world. This reliance involves risks associated
with the impact of earthquakes on us and the semiconductor industry, including
temporary loss of capacity, availability and cost of key raw materials and
equipment, and availability of key services including transport.
We are exposed to economic and political risks through our significant
international operations.
During the first quarter of fiscal 2001, 56% of our revenues were derived from
customers in international markets. We have manufacturing facilities outside the
United States in Ireland, the United Kingdom, the Philippines and Taiwan. In
addition to being exposed to the ongoing economic cycles in the semiconductor
industry, we are also subject to the economic and political risks inherent in
international operations, including the risks associated with the ongoing
uncertainties in many developing economies around the world. These risks include
air transportation disruptions, expropriation, currency controls and changes in
currency exchange rates, tax and tariff rates and freight rates. Although we
engage in hedging transactions to reduce our exposure to currency exchange rate
fluctuations, there can be no assurance that our competitive position will not
be adversely affected by changes in the exchange rate of the U.S. dollar against
other currencies.
We are involved in frequent litigation regarding intellectual property rights,
which could be costly to undertake and could require us to redesign products or
pay significant royalties.
The semiconductor industry is characterized by frequent claims and litigation
involving patent and other intellectual property rights. We have from time to
time received, and may in the future receive, claims from third parties
asserting that our products or processes infringe their patents or other
intellectual property rights. In the event a third party makes a valid
intellectual property claim and a license is not available on commercially
reasonable terms, we could be forced either to redesign or to stop production of
products incorporating that intellectual property, and our operating results
could be materially and adversely affected. Litigation may be necessary to
enforce patents or other of our intellectual property rights or to defend us
against claims of infringement, and this litigation can be costly and divert the
attention of key personnel. See Note 11 of the Notes to our Consolidated
Financial Statements for the fiscal year ended October 28, 2000 for information
concerning pending litigation involving us. An adverse outcome in this
litigation could have a material adverse effect on our consolidated financial
position or on our consolidated results of operations or cash flows in the
period in which the litigation is resolved.
Leverage and debt service obligations may adversely affect our cash flow.
We have a substantial amount of outstanding indebtedness. There is the
possibility that we may be unable to generate cash sufficient to pay the
principal of, interest on and other amounts due in respect of this indebtedness
when due. Our substantial leverage could have significant negative consequences.
This substantial leverage could increase our vulnerability to general adverse
economic and industry conditions. It may require the dedication of a substantial
portion of our expected cash flow from operations to service the indebtedness,
thereby reducing the amount of our expected cash flow available for other
purposes, including capital expenditures. It may also limit our flexibility in
planning for, or reacting to, changes in our business and the industry in which
we operate.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated herein by reference to the
"Management Analysis" set forth on pages 18 through 25 of the 2000 Annual Report
to Shareholders.
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
None
(b) Report on Form 8-K
Form 8-K, dated December 7, 2000, as amended by Form 8-K/A dated
December 13, 2000, reporting under Item 7 selected consolidated financial data
for the five-year period ended October 30, 1999 and description of capital
stock.
Items 1, 2, 3, 4 and 5 of PART II are not applicable and have been
omitted.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANALOG DEVICES, INC.
--------------------
(Registrant)
Date: March 19, 2001 By: /s/ Jerald G. Fishman
----------------------------------
Jerald G. Fishman
President and
Chief Executive Officer
(Principal Executive Officer)
Date: March 19, 2001 By: /s/ Joseph E. McDonough
----------------------------------
Joseph E. McDonough
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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