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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 April 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from_______________ to ________________
Commission File No. 1-7819
Analog Devices, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2348234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Technology Way, Norwood, MA 02062-9106
(Address of principal executive offices) (Zip Code)
(617) 329-4700
(Registrant's telephone number, including area code)
______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
The number of shares outstanding of each of the issuer's classes of Common
Stock as of May 27, 1994 was 49,608,246 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
------------------
April 30, 1994 May 1, 1993
-------------- -----------
Net sales $192,027 $162,912
Cost of sales 98,508 86,330
-------- --------
Gross margin 93,519 76,582
Operating expenses:
Research and development 26,360 23,094
Selling, marketing, general and
administrative 42,204 38,745
-------- --------
68,564 61,839
-------- --------
Operating income 24,955 14,743
Nonoperating expenses (income):
Interest expense 1,829 1,766
Other (103) (36)
-------- --------
1,726 1,730
-------- --------
Income before income taxes 23,229 13,013
Provision for income taxes 5,345 2,861
-------- --------
Net income $ 17,884 $ 10,152
======== ========
Shares used to compute earnings per share 51,381 50,498
======== ========
Earnings per share of common stock $0.35 $0.20
===== =====
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands except per share amounts)
Six Months Ended
----------------
April 30, 1994 May 1, 1993
-------------- -----------
Net sales $373,115 $314,215
Cost of sales 193,101 165,308
-------- --------
Gross margin 180,014 148,907
Operating expenses:
Research and development 50,616 44,846
Selling, marketing, general and
administrative 83,201 77,416
-------- --------
133,817 122,262
-------- --------
Operating income 46,197 26,645
Nonoperating expenses (income):
Interest expense 3,659 3,293
Other (131) 179
-------- --------
3,528 3,472
-------- --------
Income before income taxes 42,669 23,173
Provision for income taxes 9,525 4,893
-------- --------
Net income $ 33,144 $ 18,280
======== ========
Shares used to compute earnings per share 51,175 50,096
======== ========
Earnings per share of common stock $0.65 $0.36
===== =====
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands except share amounts)
Assets April 30, 1994 October 30, 1993 May 1, 1993
-------------- ---------------- -----------
Cash and cash equivalents $131,317 $ 80,668 $ 54,938
Accounts receivable, net 162,066 145,663 124,672
Inventories:
Finished goods 50,087 51,359 50,419
Work in process 73,638 80,418 75,758
Raw materials 14,276 18,645 25,028
-------- -------- --------
138,001 150,422 151,205
Prepaid income taxes 23,106 22,207 20,000
Prepaid expenses 5,612 4,240 4,698
-------- -------- --------
Total current assets 460,102 403,200 355,513
-------- -------- --------
Property, plant and equipment,
at cost:
Land and buildings 84,173 81,110 80,463
Machinery and equipment 461,365 451,248 423,914
Office equipment 40,892 33,170 30,752
Leasehold improvements 31,094 26,429 23,187
-------- -------- --------
617,524 591,957 558,316
Less accumulated depreciation
and amortization 370,882 343,527 316,148
-------- -------- --------
Net property, plant and
equipment 246,642 248,430 242,168
-------- -------- --------
Intangible assets, net 20,283 21,306 22,341
Deferred charges and other
assets 6,006 5,556 5,218
-------- -------- --------
Total other assets 26,289 26,862 27,559
-------- -------- --------
$733,033 $678,492 $625,240
======== ======== ========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands except share amounts)
Liabilities and Stockholders' Equity April 30, 1994 October 30, 1993 May 1, 1993
-------------- ---------------- -----------
Short-term borrowings and current
portion of long-term debt $ 23,108 $ 2,006 $ 3,256
Obligations under capital leases 348 335 324
Accounts payable 49,105 48,779 41,866
Deferred income on shipments to
domestic distributors 19,769 16,417 13,331
Income taxes payable 17,346 15,405 3,946
Accrued liabilities 60,683 49,893 45,678
-------- -------- --------
Total current liabilities 170,359 132,835 108,401
-------- -------- --------
Long-term debt 80,000 100,000 100,000
Noncurrent obligations under
capital leases 119 297 468
Deferred income taxes 8,201 8,540 14,000
Other noncurrent liabilities 5,342 4,802 4,182
-------- -------- --------
Total noncurrent liabilities 93,662 113,639 118,650
-------- -------- --------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $1.00 par value,
500,000 shares authorized,
none outstanding - - -
Common stock, $.16 2/3 par value,
150,000,000 shares authorized,
51,175,331 shares issued
(50,924,637 in October 1993,
50,599,899 in May 1993) 8,529 8,488 8,434
Capital in excess of par value 146,099 143,502 138,851
Retained earnings 320,842 287,698 261,521
Cumulative translation adjustment 5,781 5,473 5,645
-------- -------- --------
481,251 445,161 414,451
Less 1,577,703 shares in treasury,
at cost (1,727,396 in October 1993
and 2,159,486 in May 1993) 12,239 13,143 16,262
-------- -------- --------
Total stockholders' equity 469,012 432,018 398,189
-------- -------- --------
$733,033 $678,492 $625,240
======== ======== ========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands) Six Months Ended
----------------
April 30, 1994 May 1, 1993
-------------- -----------
OPERATIONS
Cash flows from operations:
Net income $ 33,144 $ 18,280
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 30,550 29,110
Deferred income taxes (385) 1,323
Other noncash expenses 1,257 1,274
Changes in operating assets and liabilities 10,498 (15,564)
-------- --------
Total adjustments 41,920 16,143
-------- --------
Net cash provided by operations 75,064 34,423
-------- --------
INVESTMENTS
Cash flows from investments:
Additions to property, plant and equipment,
net (26,723) (31,458)
-------- --------
Net cash used for investments (26,723) (31,458)
-------- --------
FINANCING ACTIVITIES
Cash flows from financing activities:
Proceeds from employee stock plans 1,900 3,088
Net increase (decrease) in variable
rate borrowings 906 (29,007)
Payments on capital lease obligations (165) (153)
Proceeds from issuance of long-term debt - 80,000
Payments on fixed rate borrowings - (20,096)
-------- --------
Net cash provided by financing activities 2,641 33,832
-------- --------
Effect of exchange rate changes on cash (333) 411
-------- --------
Net increase in cash and cash equivalents 50,649 37,208
Cash and cash equivalents at beginning of period 80,668 17,730
-------- --------
Cash and cash equivalents at end of period $131,317 $ 54,938
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Income taxes $ 5,704 $ 1,907
======== ========
Interest $ 3,573 $ 2,935
======== ========
See accompanying notes.
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Analog Devices, Inc.
Notes to Condensed Consolidated Financial Statements
April 30, 1994
Note 1 - In the opinion of management, the information furnished in the
accompanying financial statements reflects all adjustments, consisting only of
normal recurring adjustments, which are necessary to a fair statement of the
results for this interim period and should be read in conjunction with the most
recent Annual Report to Stockholders.
Note 2 - Commitments and Contingencies
The Company is involved in claims as a defendant in various lawsuits including
patent infringement and anti-trust matters as previously disclosed in the
Company's Annual Report on Form 10-K for the fiscal year ended October 30,
1993.
The lawsuit brought by Crystal Semiconductor Corporation ("Crystal") against
the Company on November 12, 1992 in the United States District Court for the
Western District of Texas (Austin Division) for patent infringement (as
previously reported in the Company's Annual Report on Form 10-K for the fiscal
year ended October 30, 1993) has been dismissed pursuant to a Memorandum of
Understanding executed by Crystal and the Company. The Memorandum of
Understanding provides for a cross-license arrangement between the Company and
Crystal and the payment of license fees for technology to be used pursuant to
this arrangement. The Memorandum of Understanding also provides for the
execution of a definitive cross-licensing agreement and, in the event the
parties cannot agree to the terms of such definitive agreement, resolution of
such terms by binding arbitration. The Company does not believe that
compliance with the terms of such cross-licensing agreement will have a
material adverse effect on the Company's financial position or overall trends
in the results of operations.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Second Quarter of Fiscal 1994 Compared to the Second Quarter of Fiscal 1993
Net sales of $192.0 million for the second quarter of fiscal 1994 grew $29.1
million or 18% from net sales of $162.9 million for the second quarter of 1993.
Second quarter sales growth was led by both a significant increase in
system-level IC sales volumes coupled with a solid increase in sales of
standard linear ICs. Together, sales in these two product groups grew 21%
overall compared to the same period last year and accounted for approximately
90% of total worldwide sales in the second quarter of 1994. On a geographic
basis, the largest sales gains were experienced in the Pacific Rim and in Japan
with sales in Japan aided in part by the translation of local currency sales to
a weaker U.S. dollar. Sales to North American customers also increased
year-over-year driven in large part by sales through distributors. Sales to
Western Europe were essentially flat to the year ago period due to weaker
economic conditions.
Gross margin increased to 48.7% of sales from 47.0% in the second quarter of
1993. This increase resulted principally from continued improvement in gross
margin for system-level IC products as variable manufacturing costs declined
and fixed costs were spread over a larger revenue base. Gross margin on all
integrated circuit products, which include both standard linear ICs as well as
system-level ICs, exceeded 50% of sales.
R&D expenses for the second quarter of 1994 grew $3.3 million over the same
quarter last year but as a percentage of sales declined to 13.7% compared to
14.2% in the second quarter of 1993. R&D spending is expected to increase
slightly during the balance of fiscal 1994 as the Company continues to invest
in computer and communications products. Selling, marketing, general and
administrative (SMG&A) expense growth was held to 8.9% compared to the second
quarter of 1993 as the Company continued to constrain spending growth to a rate
significantly below sales growth. As a result, the SMG&A-to-sales ratio
decreased to 22.0% from 23.8% in the second quarter of 1993. The 8.9% or $3.5
million increase in SMG&A expenses primarily reflected increased strategic
advertising and marketing expenses and increased incentive expense associated
with the Company's improved performance. In total, operating expenses were
reduced to 35.7% of sales, down from 38.0% one year ago, in line with the
Company's focus on growing revenues more rapidly than expenses. A key factor
in controlling operating expenses has been holding worldwide employment
virtually flat at approximately 5,400 employees, despite continuing sales
growth.
As a result of the improvement in gross margin coupled with a slower rate of
expense growth versus sales, operating profit strengthened from 9.0% of sales
in 1993's second quarter to 13.0% in the second quarter of 1994.
Interest expense was essentially unchanged at $1.8 million for both the second
quarter of 1993 and 1994. Interest expense net of interest income was reduced
to $898,000 from $1.5 million one year ago due to increased interest income
earned on a significantly higher level of invested cash.
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The effective income tax rate increased slightly from 22% for the year ago
quarter to 23% for the second quarter of 1994 due to a shift in the mix of
worldwide profits.
The growth in sales and performance gains in gross margin and operating
expenses as a percent of sales led to the generation of net income of $17.9
million or $0.35 per share, up 76% from $10.2 million or $0.20 per share
compared to the year-earlier period.
Second Quarter of Fiscal 1994 Compared to the First Quarter of Fiscal 1994
Net sales rose from $181.1 million for the first quarter of 1994 to $192.0
million for the second quarter of 1994, an increase of $10.9 million or 6%.
The sales increase resulted primarily from increased revenues of standard
linear ICs. Sales demand was greatest in Europe, which recovered from a weak
first quarter, and in North America. Sales in Japan also improved from first
quarter levels with a weaker average dollar exchange rate contributing to some
of this increase.
Gross margin improved from the previous quarter's 47.8% of sales to 48.7% in
the second quarter due primarily to higher gross margins in system-level IC
products as well as a greater mix of higher-margin standard linear IC products.
R&D expenses for the second quarter rose $2.1 million to 13.7% of sales from
13.4% of sales for the first quarter. The quarter-to- quarter increase in R&D
spending reflected increased funding of initiatives in communications and
computer products and an expansion in scope of development work in
micromachined accelerometers. SMG&A expenses increased by $1.2 million or 2.9%
from the first quarter but as a percentage of sales decreased to 22.0% versus
22.6% in the prior quarter.
The improved gross margin and further reduction in operating expenses as a
percent of sales generated a sequential gain in operating income of 17% with
operating income reaching 13.0% of sales compared to 11.7% in the previous
quarter.
Interest expense at $1.8 million was flat to the first quarter while interest
expense net of interest income decreased to $898,000 compared to $1.2 million
in the prior quarter due to a higher level of invested cash. The effective tax
rate increased to 23.0% compared to a 21.5% effective rate in the first quarter
reflecting a shift in the mix of worldwide profits to higher tax rate
jurisdictions.
The Company recorded net income of $17.9 million or $0.35 per share compared to
$15.3 million or $0.30 per share for the first quarter of 1994.
First Six Months of 1994 Compared to the First Six Months of 1993
Net sales of $373.1 million increased $58.9 million or approximately 19% from
the same period of 1993. The sales increase was due both to growth in sales of
system-level ICs and standard linear IC products. Sales of system-level IC
products were strongest in the Pacific Rim while the largest sales gains for
standard products were made through North American distributors. Sales to
customers in Japan also increased over the year ago period in part aided by
currency. Sales to Europe were flat compared to the first six months of 1993
due to weakened economic conditions, in particular during the first quarter of
1994.
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Gross margin improved to 48.2% of sales for the first half of 1994 compared to
47.4% for the first half of 1993 as gross margins for standard products
remained at a high level and progress continued to be made in improving gross
margins for system-level ICs.
Total operating expenses as a percentage of sales were reduced three percentage
points to 35.9% consistent with the Company's continuing commitment to
maintaining tight control over all costs in order to gain good operating
leverage on increased revenues.
Given the increased sales and improved operating performance, operating income
of $46.2 million or 12.4% of sales for the first six months of 1994 was
significantly higher than the $26.6 million or 8.5% of sales for the first six
months of 1993.
Net interest expense decreased to $2.1 million for the first half of 1994
compared to $2.8 million for the comparable period of 1993 due to increased
interest income on higher invested cash balances. The effective tax rate
increased to 22.3% from the year ago period due to a change in the mix of
worldwide income.
Liquidity and Capital Resources
As of April 30, 1994, cash and cash equivalents were $131.3 million, an
increase of $50.6 million and $76.4 million from the end of the fourth and
second quarters of 1993, respectively. Cash and cash equivalents also increased
$37.0 million over the first quarter of 1994. The increase in cash and cash
equivalents compared to all of these periods was due principally to a
substantial improvement in cash provided from operations.
For the first half of 1994, the Company generated cash flow from operations of
$75.1 million or 20.1% of sales compared to $34.4 million or 11.0% of sales for
the comparable period of 1993. Cash flow from operations generated for the
second quarter of 1994 was $53.7 million or 28.0% of sales versus $21.3 million
or 11.8% of sales for the prior quarter and $26.3 million or 16.2% of sales for
the second quarter of 1993. The increase in operating cash flows compared to
the year-earlier periods primarily reflected higher net income combined with a
reduction in inventories and an increase in accrued liabilities. The increase
in cash flow from operations compared to the first quarter of 1994 was mainly
attributable to a large increase in accrued liabilities.
Accounts receivable of $162.1 million increased $16.4 million or 11.3% from the
end of fiscal 1993 and $37.4 million or 30% from the end of the second quarter
of 1993. The primary factors contributing to the six month and year-over-year
increases were higher sales levels, a greater mix of sales outside the U.S.
where payment terms are longer and a significant increase in receivables from
the Company's domestic distributors due to the Company's decision in the fourth
quarter of 1993 to eliminate prompt payment discounts previously offered to
domestic distributors which altered the distributor payment cycle. Accounts
receivable also rose $11.0 million or 7.3% from the first quarter of 1994 due
to the increase in sales, an increase in receivables from the Company's
domestic distributors and the translation of yen-denominated receivables to a
weaker U.S. dollar.
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The increase in accrued liabilities over the fourth and second quarters of 1993
was principally attributable to an increased level of employee compensation,
incentive and benefit accruals at the end of the second quarter of 1994. The
increase in accrued liabilities from the end of the prior quarter reflected
both increased incentive accruals and increased salary accruals due to timing
of payment relative to the end of the second quarter.
Cash flow from operations for both the second quarter and first six months of
1994 was used largely to fund capital expenditures of $16.7 million and $26.7
million, respectively. Additions to property, plant and equipment for fiscal
1994 are currently estimated to be $90 million and are expected to be financed
with existing cash and cash equivalents combined with internally generated cash
from operations. During the second quarter, the Company announced plans to
expand its existing Limerick, Ireland facilities to include 6-inch submicron
wafer fabrication capability intended primarily to meet the Company's
requirements for advanced BiCMOS technology not available through external
foundries. The expanded facility is also intended to provide backup capability
for the fabrication of a portion of the Company's CMOS wafers that are
currently being outsourced. The current capital expense budget for this
expansion through the end of fiscal 1996 is less than $100 million. The
Company's preliminary capital spending budget for fiscal 1995 calls for
approximately $125 million, including capital expenditures associated with the
Limerick facility wafer fabrication expansion. Fiscal 1995 capital
expenditures are currently expected to be financed with cash and cash
equivalents on hand together with internally generated cash flow from
operations.
The Company believes that its strong financial condition, existing sources of
liquidity, available capital resources and cash expected to be generated from
operations leave it well positioned to obtain the funds required to meet its
current and future business requirements.
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PART II - OTHER INFORMATION
ANALOG DEVICES, INC.
Item 6. Exhibits and reports on Form 8-K
(a) See Exhibit Index
(b) There were no reports on Form 8-K filed for the three months ended
April 30, 1994.
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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: June 10, 1994 By: /s/ Ray Stata
----------------------------
Ray Stata
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: June 10, 1994 By: /s/ Joseph E. McDonough
----------------------------
Joseph E. McDonough
Vice President-Finance and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
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EXHIBIT INDEX
Analog Devices, Inc.
Item
10 (a) Guaranty dated as of May 1, 1994 between Analog Devices, Inc. and
Metropolitan Life Insurance Company relating to the premises at
3 Technology Way, Norwood, Massachusetts.
10 (b) Letter Agreement dated as of May 18, 1994 between Analog Devices, Inc.
and Metropolitan Life Insurance Company relating to the premises at
3 Technology Way, Norwood, Massachusetts.
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