1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 29, 1995
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 August 31, 1995 was 76,206,201 shares of Common Stock.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands except per share amounts)
Three Months Ended
------------------
July 29, 1995 July 30, 1994
------------- -------------
Net sales $246,301 $197,058
Cost of sales 121,183 99,890
-------- --------
Gross margin 125,118 97,168
Operating expenses:
Research and development 35,035 27,205
Selling, marketing, general and
administrative 47,374 43,333
-------- --------
82,409 70,538
-------- --------
Operating income 42,709 26,630
Nonoperating expenses (income):
Interest expense 938 1,796
Interest income (1,721) (1,535)
Other 562 644
-------- --------
(221) 905
-------- --------
Income before income taxes 42,930 25,725
Provision for income taxes 11,149 6,046
-------- --------
Net income $ 31,781 $ 19,679
======== ========
Shares used to compute earnings per share 79,851 77,485
======== ========
Earnings per share of common stock $0.40 $0.25
===== =====
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands except per share amounts)
Nine Months Ended
-----------------
July 29, 1995 July 30, 1994
------------- -------------
Net sales $684,352 $570,173
Cost of sales 337,980 292,991
-------- --------
Gross margin 346,372 277,182
Operating expenses:
Research and development 98,551 77,821
Selling, marketing, general and
administrative 136,637 126,534
-------- --------
235,188 204,355
-------- --------
Operating income 111,184 72,827
Nonoperating expenses (income):
Interest expense 3,242 5,455
Interest income (5,903) (3,059)
Other 2,026 2,037
-------- --------
(635) 4,433
-------- --------
Income before income taxes 111,819 68,394
Provision for income taxes 27,683 15,571
-------- --------
Net income $ 84,136 $ 52,823
======== ========
Shares used to compute earnings per share 79,064 77,004
======== ========
Earnings per share of common stock $1.06 $0.68
===== =====
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands except share amounts)
Assets July 29, 1995 October 29, 1994 July 30, 1994
------------- ----------------- -------------
Cash and cash equivalents $ 62,268 $109,113 $121,336
Short-term investments 66,233 72,652 36,424
Accounts receivable, net 185,700 162,337 154,316
Inventories:
Finished goods 37,479 45,678 47,854
Work in process 74,383 69,771 70,346
Raw materials 23,928 15,277 15,870
-------- -------- --------
135,790 130,726 134,070
Prepaid income taxes 27,780 25,587 23,455
Prepaid expenses 8,373 5,042 6,071
-------- -------- --------
Total current assets 486,144 505,457 475,672
-------- -------- --------
Property, plant and equipment,
at cost:
Land and buildings 130,328 111,857 87,790
Machinery and equipment 585,823 477,339 461,177
Office equipment 39,613 36,613 37,039
Leasehold improvements 40,802 33,070 32,010
-------- -------- --------
796,566 658,879 618,016
Less accumulated depreciation
and amortization 412,985 377,064 370,105
-------- -------- --------
Net property, plant and
equipment 383,581 281,815 247,911
-------- -------- --------
Intangible assets, net 17,738 19,262 19,770
Deferred charges and other
assets 24,073 9,337 8,779
-------- -------- --------
Total other assets 41,811 28,599 28,549
-------- -------- --------
$911,536 $815,871 $752,132
======== ======== ========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands except share amounts)
Liabilities and Stockholders' Equity July 29, 1995 October 29, 1994 July 30, 1994
------------- ---------------- -------------
Short-term borrowings and current
portion of long-term debt $ 2,155 $ 22,917 $ 22,246
Obligations under capital leases 96 236 307
Accounts payable 67,682 74,506 52,176
Deferred income on shipments to
domestic distributors 25,787 18,881 19,598
Income taxes payable 39,857 29,425 19,207
Accrued liabilities 65,997 60,221 49,340
-------- -------- --------
Total current liabilities 201,574 206,186 162,874
-------- -------- --------
Long-term debt 80,000 80,000 80,000
Noncurrent obligations under
capital leases - 61 75
Deferred income taxes 4,000 3,225 8,000
Other noncurrent liabilities 6,315 4,484 4,647
-------- -------- --------
Total noncurrent liabilities 90,315 87,770 92,722
-------- -------- --------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $1.00 par value,
500,000 shares authorized,
none outstanding - - -
Common stock, $.16 2/3 par value,
300,000,000 shares authorized,
76,214,980 shares issued
(75,252,112 in October 1994,
51,287,792 in July 1994) 12,703 12,542 8,548
Capital in excess of par value 154,700 141,159 151,336
Retained earnings 446,330 362,194 340,521
Cumulative translation adjustment 5,999 6,020 5,763
-------- -------- --------
619,732 521,915 506,168
Less 2,777 shares in treasury,
at cost (none in October 1994
and 1,231,610 in July 1994) 85 - 9,632
-------- -------- --------
Total stockholders' equity 619,647 521,915 496,536
-------- -------- --------
$911,536 $815,871 $752,132
======== ======== ========
See accompanying notes.
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ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands) Nine Months Ended
-----------------
July 29, 1995 July 30, 1994
------------- -------------
OPERATIONS
Cash flows from operations:
Net income $ 84,136 $ 52,823
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 47,047 46,068
Deferred income taxes 700 (595)
Other noncash expenses 529 2,052
Changes in operating assets and liabilities (12,154) 14,606
-------- --------
Total adjustments 36,122 62,131
-------- --------
Net cash provided by operations 120,258 114,954
-------- --------
INVESTMENTS
Cash flows from investments:
Additions to property, plant and equipment, net (145,838) (42,783)
Maturities of short-term investments 111,659 -
Purchase of short-term investments (105,240) (36,424)
Increase in other assets (14,308) (2,920)
-------- --------
Net cash used for investments (153,727) (82,127)
-------- --------
FINANCING ACTIVITIES
Cash flows from financing activities:
Payments on fixed rate borrowings (20,000) -
Proceeds from employee stock plans 9,095 8,987
Net (decrease) in variable rate borrowings (970) (66)
Payments on capital lease obligations (201) (250)
-------- --------
Net cash provided by (used for) financing activities (12,076) 8,671
-------- --------
Effect of exchange rate changes on cash (1,300) (830)
-------- --------
Net increase (decrease) in cash and cash equivalents (46,845) 40,668
Cash and cash equivalents at beginning of period 109,113 80,668
-------- --------
Cash and cash equivalents at end of period $ 62,268 $121,336
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Income taxes $ 17,196 $ 10,127
======== ========
Interest $ 3,614 $ 3,973
======== ========
See accompanying notes.
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Analog Devices, Inc.
Notes to Condensed Consolidated Financial Statements
July 29, 1995
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 - Certain amounts reported in the previous year have been reclassified
to conform to the 1995 presentation.
Note 3 - Commitments and Contingencies
As previously reported in the Company's Annual Report on Form 10-K for the
fiscal year ended October 29, 1994 and as set forth in Item 1, "Legal
Proceedings" in the Company's Forms 10-Q for the fiscal quarters ended January
28, 1995 and April 29, 1995, the Company has been engaged in patent
infringement litigation with Texas Instruments, Inc. ("TI") and a related
enforcement proceeding brought by the International Trade Commission ("ITC"),
and antitrust litigation with Maxim Integrated Products, Inc. ("Maxim").
The Company was a defendant in two lawsuits brought in Texas by 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 is also
the subject matter of a proceeding brought by TI against the Company before
the 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), 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 24, 1995, the Company
filed with the ITC a motion to terminate the ITC enforcement proceeding on the
grounds that further action by the ITC is 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, and that motion is pending before the ITC.
The Company is a defendant in a lawsuit brought by Maxim seeking an injunction
against, and claiming damages for, alleged antitrust violations and unfair
competition in connection with distribution arrangements between the Company
and certain distributors. Maxim alleged that certain distributors ceased doing
business with Maxim as a result of the distribution arrangements between the
distributors and the Company, resulting in improper restrictions to Maxim's
access to channels by which it distributes its products. Maxim asserted actual
and consequential damages in the amount of $14.1 million and claimed
restitution and punitive damages in an unspecified amount. Under applicable
law, Maxim would receive three times the amount of any actual damages suffered
as a result of any antitrust violation. On September 7, 1994, Maxim's claim was
dismissed for lack of evidence. Maxim has appealed this ruling and briefing of
the appeal was concluded in March 1995. No hearing on this appeal has yet been
scheduled.
Although the Company believes it should prevail in these matters, the Company is
unable to determine their ultimate outcome or estimate the ultimate amount of
liability, if any, at this time. An adverse resolution of these matters could
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 matters are resolved.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Third Quarter of Fiscal 1995 Compared to the Third Quarter of Fiscal 1994
Net sales of $246.3 million for the third quarter of fiscal 1995 grew $49.2
million or 25.0% from net sales of $197.1 million for the third quarter of
fiscal 1994. Third quarter sales growth was principally attributable to
significant increases in sales volumes of both standard linear IC and
system-level IC products as worldwide demand for precision integrated circuits
exceeded the industry's expectations and capacity. Sales of the Company's
standard linear IC products, the largest and most profitable part of the
Company's business, was up more than 35% from last year's third quarter. With
the exception of hard disk drive products, revenues from system-level IC
products, including both general-purpose digital signal processing and mixed
signal ICs, grew approximately 46% year over year. Revenues from disk drive
manufacturers declined $13.1 million compared to the third quarter of fiscal
1994 as the market continues to move rapidly to digital PRML channels.
Assembled product sales decreased approximately 9% from the third quarter of
fiscal 1994.
Demand for the Company's standard linear IC and system-level IC products was
broad based across all served application markets and geographies with the
strongest end user market growth in computers, wireless communications, high
speed digital communications, automatic test equipment and other
industrial-market applications. The distributor channel continued to have a
very positive effect on sales growth, particularly for standard linear IC
products, as worldwide sales through distribution increased approximately 67%
from the same period last year to comprise approximately 44% of total sales in
the third quarter of fiscal 1995. Distribution has become the fastest growing
channel for the Company's standard linear IC products.
Geographically, the largest year-over-year sales gains were registered in North
American distribution, Europe and Japan with a weaker average dollar exchange
rate contributing to a portion of the international sales increase.
Assuming continued increases in demand, further increases in sales will be
constrained in the near term by the Company's manufacturing capacity. See
"Liquidity and Capital Resources" below for a discussion of the Company's
efforts to address its capacity issues.
Gross margin increased to 50.8% of sales from 49.3% in the third quarter of
fiscal 1994, driven by a shift in the mix of products sold towards
higher-margin standard linear IC products. Gross margin on all IC products,
which include both standard linear and system-level ICs, was approximately 55%
of sales compared to 51% for the year ago quarter.
R&D expenses for the third quarter of fiscal 1995 increased 28.8% over the same
quarter last year to 14.2% of sales as the Company continued to fund the most
promising initiatives in new product and process development. Selling,
marketing, general and administrative expense (SMG&A) growth was held to 9.3%
over the amount in the third quarter of fiscal 1994 despite a weaker dollar, 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 19.2%
from 22.0% in the third quarter of fiscal 1994.
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Operating profit rose 60.4% to 17.3% of sales compared to 13.5% of sales in
fiscal 1994's third quarter reflecting the combination of accelerated demand
for the Company's products, improved gross margin and continuing commitment to
growing expenses more slowly than sales.
Nonoperating expenses decreased $1.1 million in total, aided in large part by a
decrease in interest expense and an increase in interest income. The decrease
in interest expense related primarily to the maturity of a $20 million term
loan in the first quarter of fiscal 1995 while the increased interest income
reflected an increase in investment rates.
The effective income tax rate increased from 23.5% for the year ago quarter to
26.0% for the third quarter of fiscal 1995 due to a shift in the mix of
worldwide income to higher tax rate jurisdictions.
The growth in sales and improved operating performance yielded a 61.5% increase
in net income which rose from $19.7 million or $0.25 per share for the
year-earlier period to $31.8 million or $0.40 per share for the third quarter
of fiscal 1995.
Third Quarter of Fiscal 1995 Compared to the Second Quarter of Fiscal 1995
Net sales rose from $230.0 million for the second quarter of fiscal 1995 to
$246.3 million for the third quarter of fiscal 1995, an increase of $16.3
million or 7.1% as the strong order rate experienced during the second quarter
continued into the third quarter. The sales increase resulted largely from
increased sales volumes of standard linear IC products, which grew 12% from the
prior quarter, as the use of high performance standard linear IC components in
faster growing segments of the industrial, computer, communications and
consumer markets has become more pervasive. This trend together with the
Company's broader participation in the distributor channel and a strong demand
environment have accelerated the growth of the Company's standard linear IC
products. Sales were strong throughout all geographic regions including North
America, both in the Company's distributor and OEM businesses, Europe and
Japan.
The increased mix of standard linear IC sales had a beneficial impact on gross
margin which improved slightly from 50.6% in the second quarter to 50.8% in the
third quarter. R&D expenses for the third quarter rose $1.8 million from the
second quarter but as a percentage of sales decreased from 14.5% for the second
quarter of fiscal 1995 to 14.2% for the third quarter of fiscal 1995. SMG&A
expenses declined as a percentage of sales to 19.2% from 19.8% for the second
quarter of fiscal 1995. Higher sales, improved gross margin and further
reduction in total operating expenses as a percentage of sales generated a
sequential gain in operating income of 13.8% with operating income reaching
17.3% of sales compared to 16.3% in the preceding quarter.
Interest income was reduced from $2.0 million for the second quarter to $1.7
million for the third quarter of fiscal 1995 due to a lower average amount of
cash and cash equivalents. The effective tax rate increased to 26.0% compared
to 24.0% for the prior quarter, reflecting a change in the mix of worldwide
income. The improved operating performance led to a sequential improvement in
net income of 10.7% to $31.8 million or $0.40 per share compared to $28.7
million or $0.36 per share for last quarter.
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First Nine Months of Fiscal 1995 Compared to the First Nine Months of Fiscal
1994
Net sales of $684.4 million increased $114.2 million or approximately 20% from
the same period of fiscal 1994. Worldwide market demand in the semiconductor
industry increased throughout fiscal 1995 with the Company benefiting from this
demand both in its standard linear IC and system-level IC product areas. The
sales increase was primarily volume-based and was widespread across all product
lines, markets and geographies. Sales of standard linear ICs increased
approximately 28% while sales of system-level IC products, excluding hard disk
drive products, increased approximately 41%. Sales of hard disk drive products
decreased $27.3 million year over year. Total IC sales, representing both
standard linear and system-level ICs constituted approximately 91% of total
sales for the first nine months of fiscal 1995, continuing the long-term trend
of IC sales becoming a larger portion of the Company's revenues.
Sales of assembled products declined approximately 10% compared to the same
period last year.
The highest growth for both the Company's standard linear IC and system-level
IC products was in applications targeted for fast growing sectors of the
communications and computer markets. Sales growth for the Company's core
standard linear products was also very strong for the first nine months of
fiscal 1995 in the Company's traditional industrial and instrumentation markets
for such products as high-performance op amps and converters and pin
electronics for automatic test equipment.
Sales to North American and international customers increased 16% and 23%,
respectively, over the same period last year with the translation of local
currency sales to a weaker average U.S. dollar accounting for some of this
improvement. The distributor channel was a major contributor to sales growth in
North America as well as in Europe and Japan, especially for standard linear
products, as worldwide sales through distribution increased 53% compared to the
year ago period. For the first nine months of fiscal 1995, approximately 42% of
the Company's sales were derived from sales through distributors.
Gross margin increased two points from 48.6% for the first nine months of
fiscal 1994 to 50.6% of sales for the first nine months of fiscal 1995. This
increase resulted primarily from significantly stronger sales of higher-margin
standard linear IC products.
R&D expenses increased $20.7 million or 26.6% over the prior year reflecting
continued investment in high growth initiatives in the computer,
communications, consumer and automotive markets. As a percentage of sales, R&D
increased from 13.6% last year to 14.4% for the first nine months of fiscal
1995. SMG&A expense growth was held to 8.0% over these periods, leading to a
reduction in SMG&A as a percentage of sales from 22.2% for the first nine
months of fiscal 1994 to 20.0% for the first nine months of fiscal 1995
consistent with the Company's focus on maintaining tight control on operating
expenses in order to provide additional operating profit leverage as revenues
grow.
Operating profit reached $111.2 million or 16.2% of sales for the first nine
months of fiscal 1995, an increase of 52.7% from $72.8 million or 12.8% of
sales for the first nine months of fiscal 1994. This performance gain reflected
growth in sales, improvement in gross margin and a slower rate of SMG&A expense
growth versus sales.
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Nonoperating expenses decreased $5.1 million year-to-year due in large part to
increased interest income on a higher average level of cash investments and a
higher weighted average investment rate. A reduction in interest expense from
$5.5 million to $3.2 million related primarily to the maturity of a $20 million
term loan early in the first quarter of fiscal 1995 also contributed to the
decrease in nonoperating expenses. The effective income tax rate increased to
24.8% from 22.8% for the year ago period due to a change in the mix of
worldwide profits.
Net income grew 59.3% to $84.1 million or $1.06 per share compared to $52.8
million or $0.68 per share for the first nine months of fiscal 1994. As a
percentage of sales, net income improved to 12.3% from 9.3% for the
year-earlier period.
Liquidity and Capital Resources
At July 29, 1995, cash and cash equivalents and short-term investments totaled
$128.5 million, compared to $181.8 million and $157.8 million at the end of the
fourth and third quarters of fiscal 1994, respectively. The $53.3 million
decrease in cash, cash equivalents and short-term investments from the end of
the fourth quarter of fiscal 1994 resulted from cash used to fund a portion of
capital expenditures, the maturity of the Company's $20.0 million term loan in
the first quarter of fiscal 1995, and an investment made in an external wafer
foundry in the second quarter of fiscal 1995 as discussed below. Cash, cash
equivalents and short-term investments, in the aggregate, decreased $29.3
million compared to the third quarter of fiscal 1994 as the continued
generation of cash flow from operations was more than offset by a significant
increase in additions to property, plant and equipment associated with capacity
expansion.
For the first nine months of fiscal 1995, the Company generated cash flow from
operations of $120.3 million or 17.6% of sales compared to $115.0 million or
20.2% of sales for the same period of fiscal 1994. The change in operating
cash flow compared to the first nine months of fiscal 1994 principally
reflected higher net income offset in large part by an increase in working
capital requirements including increases in accounts receivable and
inventories. Cash flow from operations generated for the third quarter of
fiscal 1995 was $31.6 million or 12.8% of sales versus $38.6 million or 16.8%
of sales for the prior quarter and $39.6 million or 20.1% of sales for the
third quarter of fiscal 1994. The decrease in operating cash flows compared to
both of these quarters was mainly attributable to higher net working capital
requirements in the third quarter of fiscal 1995, as increased net income was
more than offset by growth in accounts receivable.
Accounts receivable of $185.7 million increased $7.4 million or 4.2%, $23.4
million or 14.4% and $31.4 million or 20.3% from the end of the second quarter
of 1995, the fourth quarter of 1994 and the third quarter of 1994,
respectively. The increase in accounts receivable in the third quarter of
fiscal 1995 compared to the fourth and third quarters of fiscal 1994 reflected
the higher sales levels combined with the translation of local currency
denominated receivables to a weaker U.S. dollar, particularly in Japan. The
increase in accounts receivable from the second quarter to the third quarter of
fiscal 1995 was attributable to the rise in sales. As a percentage of
annualized quarterly sales, however, accounts receivable was reduced to 18.8%
from 19.4%, 20.0% and 19.6% for the previous quarter and the fourth and third
quarters of 1994, respectively.
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Inventories rose $5.1 million during the first nine months of 1995 as a result
of heightened customer demand and the need to improve response times for
incoming orders. Inventories at the end of the third quarter of fiscal 1995
were relatively flat to the second quarter of fiscal 1995 as well as to the
year ago quarter. As a percentage of annualized quarterly sales, inventories
decreased to 13.8% from 14.6% for the prior quarter, 16.1% for the fourth
quarter of 1994 and 17.0% for the year-earlier quarter.
As previously discussed above and in the Company's "Management Discussion and
Analysis of Financial Condition and Results of Operations" contained in its
Form 10-Q for the fiscal quarter ended April 29, 1995, the Company's revenue
and order growth has been capacity constrained. The Company has several
capacity expansion programs under way that should provide the Company
substantially greater capacity during fiscal 1996.
Cash flow from operations together with cash on hand for both the third quarter
and first nine months of fiscal 1995 were used largely to fund net additions to
property, plant and equipment of $43.4 million and $145.8 million,
respectively. Capital expenditures were significantly higher than the
comparable periods of 1994 with the majority of these expenditures related to
capacity expansion including the new 6-inch, 0.6-micron wafer module at the
Company's wafer fabrication facility in Limerick, Ireland, primarily for
advanced mixed-signal products, and the ongoing conversion of the Company's
Wilmington, Massachusetts fab to provide new six-inch capability, primarily for
high-speed linear products. The module in Limerick, which has been supported in
part by grants from the Irish government, is currently expected to be on line
in early 1996 while the module in Wilmington is currently expected to be on
line during the second half of 1996. In addition, during the third quarter of
fiscal 1995, the Company completed the purchase of assets of an existing
six-inch wafer fab from Performance Semiconductor Corporation in Sunnyvale,
California. This facility is now undergoing rehabilitation and conversion to
advanced linear technology.
In addition to the ongoing capital expansions in Ireland, Massachusetts and
California, the Company has also shifted production of disk drive IC products
from its facility in Ireland to external foundries in order to free up internal
capacity. These actions in total, which principally support the production of
higher margin linear IC products, are expected to provide upside capacity in
fiscal 1996 that could accommodate the higher growth the Company is currently
experiencing in its core linear products, if such growth continues. Other
programs aimed at providing additional internal capacity include an expansion
of the Company's assembly and test facilities in the Philippines and a building
expansion program at the Company's facility in North Carolina to provide
capability to produce newer hybrids and multi-chip modules for communications
and other high growth applications.
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The Company's programs to address capacity shortages related to its external
wafer supply, particularly for system-level and digital signal processing ICs
for products in the computer and communications sectors, include its expanded
relationship with Taiwan Semiconductor Manufacturing Company (TSMC), the
Company's primary wafer foundry, to provide higher capacity over the 1996-1999
time frame. Under the agreement with TSMC, the Company will make option fees
aggregating $22.4 million to secure this additional capacity which are payable
over the period through 1999. Also, to secure access to additional external
wafer capacity, the Company invested $14 million in the second quarter of
fiscal 1995 in an external foundry, Chartered Semiconductor in Singapore. The
Company anticipates investing an additional $6 million in Chartered
Semiconductor in fiscal 1996. This supply agreement is scheduled to begin
providing access to eight-inch, 0.5-micron wafer capacity in 1996. The TSMC
option fees and Chartered Semiconductor investment described above will be
amortized over the related wafer output periods.
Despite these measures, which together are expected to provide increased
capacity in 1996, the Company currently expects that demand, based on recent
growth levels, will continue to exceed available supply for the balance of 1995
and into early 1996. The Company believes its current capacity is sufficient to
grow revenues by approximately 20-25% for the fourth quarter of fiscal 1995,
compared to the same period last year, assuming demand continues strong during
this period.
The Company currently anticipates that capital spending, including expenditures
related to the new wafer modules in Limerick and in Wilmington and the
Company's other internal capacity expansion programs, will be approximately
$190 million in fiscal 1995 and approximately the same level in fiscal 1996. As
a result of internal expansion, depreciation expense is expected to be
incrementally higher in fiscal 1996 as these planned additions begin to ramp
up.
At July 29, 1995, substantially all of the Company's lines of credit were
unused, including its four-year, $60 million credit facility.
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 finance its
capital expenditure plan and to meet its current and future business
requirements.
Litigation
As set forth in Note 3 to the Condensed Consolidated Financial Statements
contained in this Form 10-Q for the fiscal quarter ended July 29, 1995, the
Company is engaged in an enforcement proceeding brought by the International
Trade Commission related to patent infringement litigation with Texas
Instruments, Inc., and antitrust litigation with Maxim Integrated Products,
Inc.
Although the Company believes it should prevail in these matters, the Company
is unable to determine their ultimate outcome or estimate the ultimate amount
of liability, if any, at this time. An adverse resolution of these matters
could 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 matters are resolved.
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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
July 29, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Analog Devices, Inc.
--------------------
(Registrant)
Date: September 12, 1995 By: /s/ Ray Stata
----------------------------------
Ray Stata
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: September 12, 1995 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) Option Agreement dated as of May 16, 1995 between Analog Devices, B.V.
and Taiwan Semiconductor Manufacturing Company, Ltd.
*10 (b) Wafer Production Agreement dated as of May 16, 1995 between Taiwan
Semiconductor Manufacturing Company, Ltd. and Analog Devices, B.V.
27 Financial Data Schedule
* Confidential treatment has been requested as to certain portions of these
exhibits.
16