e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended November 3, 2007
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For the transition period
from to
Commission File
No. 1-7819
Analog Devices, Inc.
(Exact name of registrant as
specified in its charter)
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Massachusetts
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04-2348234
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Technology Way, Norwood, MA
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02062-9106
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(Address of principal executive
offices)
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(Zip Code)
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(781) 329-4700
(Registrants
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Common Stock
$0.162/3
Par Value
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New York Stock
Exchange
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Title of Each Class
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Name of Each Exchange on Which
Registered
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Securities registered pursuant to Section 12(g) of the
Act:
None
Title
of Class
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. YES þ NO o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. YES o NO þ
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 þ NO o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large Accelerated
Filer þ Accelerated
Filer o Non-Accelerated
Filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). YES o NO þ
The aggregate market value of the voting and non-voting common
equity held by nonaffiliates of the registrant was approximately
$8,498,000,000 based on the last reported sale of the Common
Stock on the New York Stock Exchange Composite Tape reporting
system on May 4, 2007. Shares of voting and non-voting
stock held by executive officers, directors and holders of more
than 5% of the outstanding stock have been excluded from this
calculation because such persons or institutions may be deemed
affiliates. This determination of affiliate status in not a
conclusive determination for other purposes.
As of November 3, 2007 there were 303,354,180 shares
of Common Stock,
$0.162/3
par value per share, outstanding.
Documents
Incorporated by Reference
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Document Description
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Form 10-K
Part
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Portions of the Registrants Proxy Statement for the Annual
Meeting of Shareholders to be held March 11, 2008
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III
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TABLE OF CONTENTS
PART I
Company
Overview
We are a world leader in the design, manufacture and marketing
of high-performance analog, mixed-signal and digital signal
processing integrated circuits used in industrial,
communication, computer and consumer applications. Since our
inception in 1965, we have focused on solving the engineering
challenges associated with signal processing in electronic
equipment. Our products are embedded inside electronics that
people come into contact with every day. Real world signal
processing describes the process of converting real-world
phenomena such as temperature, motion, pressure, light and sound
into electrical signals to be used in a wide array of electronic
equipment including industrial process control, factory
automation systems, defense electronics, portable wireless
communications devices, cellular basestations, central office
networking equipment, computers, automobiles, medical imaging
equipment, digital cameras and digital televisions. Signal
processing technology is a critical element of high-speed
communications, digital entertainment, and other consumer,
computer and industrial applications. As new generations of
digital applications evolve, they generate new needs for
high-performance analog signal processing and digital signal
processing, or DSP, technology. We produce a wide range of
products that are designed to meet the signal processing
technology needs of a broad base of customers.
In September 2007, we entered into a definitive agreement to
sell our baseband chipset business and related support
operations, or Baseband Chipset Business, to MediaTek Inc.
Accordingly, these operations have been presented as a
discontinued operation within the consolidated financial
statements in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). The financial
statements and related footnote disclosures reflect the results
of this business in discontinued operations, net of applicable
income taxes for all reporting periods presented. Unless
otherwise noted, the discussions contained in the Annual Report
on
Form 10-K
relate only to results from continuing operations. The Company
expects to recognize a gain from the sale of the Baseband
Chipset Business upon completion of the sale in the first
quarter of fiscal 2008.
During our fiscal year ended November 3, 2007, or fiscal
2007, approximately 47% of our product revenue came from the
industrial market, which includes factory automation, medical
equipment, scientific instrumentation, automatic test equipment,
automotive electronics, security equipment, and aerospace and
defense systems.
Revenue from the communications market represented approximately
22% of our fiscal 2007 product revenue. Communications
applications include wireless handsets and wireless
basestations, as well as products used for high-speed access to
the Internet, including central office networking equipment.
The demand for our products used in high-performance consumer
electronics represented approximately 22% of our product revenue
for fiscal 2007. Applications in this market include digital
cameras and camcorders, flat-panel and plasma digital
televisions, video game applications and surround sound audio
systems.
We also serve the personal computer and network server markets
with products that monitor and manage power usage, and enable
high-quality audio. In fiscal 2007, the computer market
accounted for approximately 9% of our product revenue.
We sell our products worldwide through a direct sales force,
third-party distributors and independent sales representatives
and through our website. We have direct sales offices in 18
countries, including the United States.
We are headquartered near Boston, in Norwood, Massachusetts, and
have manufacturing facilities in Massachusetts, Ireland and the
Philippines. We were founded in 1965 and are incorporated in
Massachusetts. As of November 3, 2007, we employed
approximately 9,600 individuals worldwide. Our common stock is
listed on the New York Stock Exchange under the symbol ADI and
is included in the Standard & Poors 500 Index.
We maintain a website with the address www.analog.com. We are
not including the information contained on our website as a part
of, or incorporating it by reference into, this Annual Report on
Form 10-K.
We make available free of charge through our website our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
and amendments to these reports, as soon as reasonably
practicable after we electronically
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file such material with, or furnish such material to, the
Securities and Exchange Commission. We also make available on
our website our corporate governance guidelines, the charters
for our audit committee, compensation committee, and nominating
and corporate governance committee, our stock option granting
policies, our code of business conduct and ethics, and our
related person transaction policy, and such information is
available in print to any shareholder of Analog Devices who
requests it. In addition, we intend to disclose on our website
any amendments to, or waivers from, our code of business conduct
and ethics that are required to be publicly disclosed pursuant
to rules of the Securities and Exchange Commission and the New
York Stock Exchange.
Industry
Background
All electronic signals fall into one of two categories, analog
or digital. Analog, also known as linear, signals represent
real-world phenomena, such as temperature, pressure, sound,
speed and motion. This information can be detected and measured
using analog sensors by generating continuously-varying voltages
and currents. The signals from these sensors are initially
processed using analog methods, such as amplification, filtering
and shaping. They are then usually converted to digital form for
storage or further manipulation. The further manipulation of the
signals after conversion to digital form is called digital
signal processing. Digital signals represent the
ones and zeros of binary arithmetic and
are either on or off. Digital signals are frequently converted
back to analog form for functions such as video display, audio
output or control. These manipulations and transformations from
analog to digital and back to analog are known as
real-world signal processing.
Significant developments in semiconductor technology in recent
years have substantially increased the performance and
functionality of integrated circuits, or ICs, used in signal
processing applications. These developments include: the ongoing
transition to digital media for communications, music,
photography, and video, which has increased the need for
precise, high-speed signal conditioning interfaces between the
analog world and digital electronics; the ability to combine
analog and digital signal processing capability on a single
chip, thereby making possible more highly-integrated solutions;
and the widespread application of low-cost, high-performance
microprocessor-based systems, which enables customers to convert
analog information into digital information that can be managed
by these microprocessors. At the same time, the convergence of
computing, communications, and consumer electronics has resulted
in end products that incorporate state-of-the-art signal
processing capability onto fewer chips and with less power
consumption. Our products are designed to be used within
electronic equipment to achieve higher performance, including
greater speed, improved accuracy, more efficient signal
processing and minimized power consumption.
Principal
Products
We design, manufacture and market a broad line of
high-performance ICs that incorporate analog, mixed-signal and
digital signal processing technologies. Our ICs are designed to
address a wide range of real-world signal processing
applications. Across the entire range of our product portfolio
are both general-purpose products used by a broad range of
customers and applications as well as application-specific
products designed for specific clusters of customers in key
target markets. By using readily available, high-performance,
general-purpose products in their systems, our customers can
reduce the time they need to bring new products to market. Given
the high cost of developing more customized ICs, our standard
products often provide the most cost-effective solution for many
low to medium volume applications. However, in some
communications, computer and consumer products, we focus on
working with leading customers to design application-specific
solutions. We begin with our existing core technologies in data
conversion, amplification, power management, radio frequency and
DSP, and devise a solution to more closely meet the needs of a
specific customer or group of customers. Because we have already
developed the core technology for our general-purpose products,
we can create application-specific solutions quickly.
We produce and market several thousand products. Our ten
highest revenue products, in the aggregate, accounted for
approximately 10% of our revenue for fiscal 2007. The majority
of our products are proprietary, meaning equivalent products are
not available from competitors. A limited number of other
companies may provide products with similar functions.
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Analog
Products
Our analog IC technology has been the foundation of our business
for over four decades, and we believe we are one of the
worlds largest suppliers of analog ICs. Our analog signal
processing ICs are primarily high-performance devices, generally
defined as devices that support a minimum of 10-bits of accuracy
and a minimum of 50 megahertz of speed. The principal
advantages these products have versus competitors products
include higher accuracy, lower cost per function, smaller size,
lower power consumption and fewer components resulting in
improved reliability. The majority of our analog signal
processing IC product revenue is attributable to sales of data
converters and amplifiers. The data converter and amplifier
product categories represented approximately 66% of our fiscal
2007 product revenue. Over the past several years we have been
expanding our analog IC product offerings along the entire
signal chain and into product areas such as radio frequency
integrated circuits, or RF ICs, power management products, phase
locked loops and high-speed clock ICs.
The majority of our analog IC products are proprietary to us in
their design and our product portfolio addresses a wide range of
applications. Our product portfolio includes several thousand
analog ICs, any one of which can have as many as several hundred
customers. Our analog ICs typically have long product life
cycles. Our analog IC customers include both original equipment
manufacturers, or OEMs, and customers who build electronic
subsystems for integration into larger systems.
Our analog technology base also includes products using an
advanced IC technology known in the industry as surface
micromachining, which is used to produce semiconductor products
known as micro-electromechanical systems, or MEMS. This
technology enables extremely small mechanical sensing elements
to be built on the surface of a chip along with supporting
circuitry. In addition to incorporating an electro-mechanical
structure, these devices also have analog circuitry for
conditioning signals obtained from the sensing element. The
integration of signal conditioning and MEMS is a unique feature
of our products which we call
iMEMS®.
Our iMEMS product portfolio includes accelerometers used to
sense acceleration, and gyroscopes used to sense position. The
majority of our current revenue from MEMS products is derived
from accelerometers used by automotive manufacturers in airbag
applications and in video game applications. However, revenue
from consumer and industrial customers is increasing as we
develop products using this technology for applications in these
end markets.
DSP
Products
DSPs are processors that are optimized for high-speed numeric
calculations, which are essential for instantaneous, or
real-time, processing of digital data generated, in most cases,
from analog to digital signal conversion. DSP product revenue
represented 10% of our fiscal 2007 product revenue. Our DSP
products are designed to be fully programmable and to
efficiently execute specialized software programs, or
algorithms, associated with processing digitized real-time,
real-world data. Programmable DSPs provide the flexibility to
modify the devices function quickly and inexpensively
using software. We offer both general-purpose and
application-specific DSP products. General-purpose DSP IC
customers typically write their own algorithms using software
development tools that we provide and software development tools
they obtain from third-party suppliers. Our application-specific
DSP products typically include software for applications such as
audio processing, telecommunications or image processing. Our
DSPs are designed in families of products that share a common
architecture and therefore can execute the same software. We
support these products with easy-to-use, low-cost development
tools, which are designed to reduce our customers product
development costs and time-to-market.
Markets
and Applications
The following describes some of the characteristics of, and
customer products within, our major markets:
Industrial Our industrial market
includes the following areas:
Industrial Process Automation Our industrial
process automation market includes applications such as factory
automation systems, automatic process control systems, robotics,
environmental control systems and automatic test equipment.
These applications generally require ICs that offer performance
greater than that available from commodity-level ICs, but
generally do not have production volumes that warrant custom or
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application-specific ICs. Combinations of analog, mixed-signal
and DSP ICs are usually employed to achieve the necessary
functionality.
Instrumentation Our instrumentation market
includes engineering, medical and scientific instruments. These
applications are usually designed using the highest performance
analog and mixed-signal ICs available. Customer products include
oscilloscopes, logic analyzers, CT scanners, MRI equipment,
blood analyzers and microscopes.
Defense/Aerospace The defense, commercial
avionics and space markets all require high-performance ICs that
meet rigorous environmental and reliability specifications. Many
of our analog ICs can be supplied in versions that meet these
standards. In addition, many products can be supplied to meet
the standards required for broadcast satellites and other
commercial space applications. Most of our products sold in this
market are specifically tested versions of products derived from
our standard product offering. Customer products include
navigation systems, flight simulators, radar systems and
security devices.
Automotive Although the automotive market has
historically been served with low-cost, low-performance ICs,
demand has emerged for higher performance devices for a wide
range of safety and entertainment applications, as well as
powertrain electronics. In response, we have developed products
specifically for the automotive market. We supply a MEMS IC used
as a crash sensor in airbag systems, roll-over sensing, global
positioning satellite, or GPS, automotive navigation systems,
anti-lock brakes and smart suspension systems. In
addition, our analog and DSP ICs have application in engine
control, in-cabin electronics, audio and collision avoidance
systems.
Communications The development of
broadband, wireless and Internet infrastructures around the
world has created an important market for our communications
products. Communications technology involves the acquisition of
analog signals that are converted from analog to digital and
digital to analog form during the process of transmitting and
receiving data. The need for higher speed and reduced power
consumption, coupled with more reliable, bandwidth-efficient
communications, has been creating demand for our products. Our
products are used in the full spectrum of signal processing for
audio, data, image and video communication. In wireless and
broadband communication applications, our products are
incorporated into cellular handsets, cellular base station
equipment, pagers, PBX switches, routers and remote access
servers.
Consumer Increased market demand for
digital entertainment systems and the consumer demand for high
quality voice, music, movies and photographs has allowed us to
combine analog and digital design capability to provide
solutions that meet the rigorous cost requirements of the
consumer electronics market. The emergence of high-performance,
feature-rich consumer products, such as digital camcorders and
cameras, home theater systems, LCD and plasma digital
televisions, video projectors, video game applications and
high-definition DVD recorders/players, has created a market for
our high-performance ICs with a high level of specific
functionality.
Computer We currently supply ICs used
in computers for enhanced audio input and output capability for
business and entertainment applications. These products are sold
under the brand name,
SoundMAX®.
A variety of our analog products also have application in
network servers and laptop PCs, as well as computer peripherals
such as displays, printers and scanners.
Research
and Development
Our markets are characterized by rapid technological changes and
advances. Accordingly, we make substantial investments in the
design and development of new products and manufacturing
processes, and the improvement of existing products and
manufacturing processes. We spent approximately
$519 million during fiscal 2007 on the design, development
and improvement of new and existing products and manufacturing
processes, compared to approximately $469 million during
fiscal 2006 and approximately $438 million during fiscal
2005.
Our research and development strategy focuses on building
technical leadership in core technologies for signal sensing,
conditioning, conversion and processing. In addition, we have
been increasing our investment in analog products used for power
management. In support of our research and development
activities, we employ thousands of engineers involved in product
and manufacturing process development at over 40 design centers
and manufacturing sites located throughout the world.
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Patents
and Other Intellectual Property Rights
We seek to establish and maintain our proprietary rights in our
technology and products through the use of patents, copyrights,
trademarks and trade secret laws. We have a program to file
applications for and obtain patents, copyrights, and trademarks
in the United States and in selected foreign countries where we
believe filing for such protection is appropriate. We also seek
to maintain our trade secrets and confidential information by
nondisclosure policies and through the use of appropriate
confidentiality agreements. We have obtained a substantial
number of patents and trademarks in the United States and in
other countries. As of November 3, 2007, we held
approximately 1,388 U.S. patents and approximately 488
non-provisional pending U.S. patent applications. There can
be no assurance, however, that the rights obtained can be
successfully enforced against infringing products in every
jurisdiction. In connection with our announced divestiture
transactions expected to close in fiscal 2008, we will transfer
ownership of approximately 73 U.S. patents and 60
non-provisional pending U.S. patent applications. While our
patents, copyrights, trademarks and trade secrets provide some
advantage and protection, we believe our competitive position
and future success is largely determined by such factors as the
system and application knowledge, innovative skills,
technological expertise, and management ability and experience
of our personnel, the range and success of new products being
developed by us, our market brand recognition and ongoing
marketing efforts, customer service and technical support. It is
generally our policy to seek patent protection for significant
inventions that may be patented, though we may elect, in certain
cases, not to seek patent protection even for significant
inventions, if we determine other protection, such as
maintaining the invention as a trade secret, to be more
advantageous. We also have trademarks that are used in the
conduct of our business to distinguish genuine Analog Devices
products and we maintain cooperative advertising programs to
promote our brands and identify products containing genuine
Analog Devices components. In addition, we have registered
certain of our mask sets, which are akin to the blueprint for
building an IC, under the Semiconductor Chip Protection Act of
1984.
There can be no assurance that any patent will issue on pending
applications or that any patent issued will provide substantive
protection for the technology or product covered by it. There
also can be no assurance that others will not develop or patent
similar technology or reverse engineer our products or that our
confidentiality agreements with employees, consultants, wafer
foundries and other suppliers and vendors will be adequate to
protect our interests. Moreover, the laws of countries in which
we design, manufacture and market our products may afford little
or no effective protection of our proprietary technology.
The semiconductor industry is characterized by frequent claims
and litigation involving patent and other intellectual property
rights, including claims arising under our contractual
indemnification of our customers. We have received from time to
time, and may receive in the future, claims from third parties
asserting that our products or processes infringe their patents
or other intellectual property rights. In the event a third
party makes a valid intellectual property claim against us and a
license is not available to us on commercially reasonable terms,
or at all, we could be forced either to redesign or to stop
production of products incorporating that intellectual property,
and our operating results could be materially and adversely
affected. Litigation may be necessary to enforce our patents or
other of our intellectual property rights or to defend us
against claims of infringement, and this litigation could be
costly and divert the attention of our key personnel. See
Note 12 in the Notes to our Consolidated Financial
Statements contained in Item 8 of this Annual Report on
Form 10-K
for information concerning pending litigation that involves us.
An adverse outcome in these matters or other litigation could
have a material adverse effect on our consolidated financial
position or on our consolidated results of operations or cash
flows in the period in which the litigation is resolved.
Sales
Channels
We sell our products in North America and internationally
through a direct sales force, third-party distributors,
independent sales representatives and via our worldwide website
on the Internet.
Approximately 53% of our fiscal 2007 product revenue was derived
from sales made through distributors. Revenue is deferred on
sales made through distributors until the distributors resell
our products to the end customer, known as 100% sell
out or 100% sell through in the industry.
These distributors typically maintain an inventory of our
products. Some of them also sell products competitive with our
products, including those for which we are an alternate source.
Sales to certain distributors are made under agreements that
provide protection to the distributors
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for their inventory of our products including limited product
return privileges and protection against price reductions and
products that are slow-moving or that we have discontinued.
The categorization of sales into geographic regions is based
upon the location of the customer.
Approximately 26% of our fiscal 2007 product revenue was to
customers in the United States. As of November 3, 2007, we
had 11 direct sales offices in the United States.
Approximately 24% of our fiscal 2007 product revenue was to
customers in Europe. As of November 3, 2007, we had direct
sales offices in Austria, Belgium, Denmark, France, Germany,
Israel, Italy, the Netherlands, Sweden, and the United Kingdom.
Approximately 20% of our fiscal 2007 product revenue was to
customers in Japan.
Approximately 13% of our fiscal 2007 product revenue was to
customers in China and approximately 17% was to customers
elsewhere in Asia, principally Taiwan and Korea. As of
November 3, 2007, we had direct sales offices in the Asia
region in China, Hong Kong, India, Japan, Korea, Singapore, and
Taiwan.
We also have sales representatives
and/or
distributors in over 40 countries outside North America,
including countries where we also have direct sales offices. For
further detail regarding revenue and financial information about
geographic areas, see our Consolidated Financial Statements and
Note 4 in the related Notes contained in Item 8 of
this Annual Report on
Form 10-K.
Our worldwide technical direct field sales efforts are supported
by an extensive promotional program that includes editorial
coverage and paid advertising in trade publications, direct mail
programs, promotional brochures, technical seminars and
participation in trade shows. We publish and distribute
full-length databooks, product catalogs, applications guides,
technical handbooks and detailed data sheets for individual
products. We also provide this information and sell products via
our worldwide website on the Internet. We maintain a staff of
field application engineers who aid customers in incorporating
our products into their products.
We have tens of thousands of customers worldwide. Our largest
single customer, excluding distributors, represented
approximately 3% of our fiscal 2007 product revenue, and our 20
largest customers, excluding distributors, accounted for
approximately 27% of our fiscal 2007 product revenue.
Seasonality
Sales to customers during our first fiscal quarter are sometimes
lower than other quarters due to plant shutdowns at some of our
customers during the holiday season. In general, the seasonality
for any specific period of time has not had a material impact on
our results of operations. In addition, as explained in our risk
factors included elsewhere in this report, our revenue is more
likely to be influenced on a quarter to quarter basis by
cyclicality in the semiconductor industry.
Foreign
Operations
Through subsidiaries and affiliates, we conduct business in
numerous countries outside the United States. During fiscal
2007, approximately 74% of our product revenue was derived from
customers in international markets. Our international business
is subject to risks customarily encountered in foreign
operations, including fluctuations in foreign currency exchange
rates and controls, import and export controls, and other laws,
policies and regulations of foreign governments. 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 United States dollar against
other currencies.
We have manufacturing facilities outside the United States in
Ireland and the Philippines. In addition to being exposed to the
ongoing economic cycles in the semiconductor industry, we are
also subject to the economic and political risks inherent in
international operations and their impact on the United States
economy in general, including the risks associated with ongoing
uncertainties and political and economic instability in many
countries around the world as well as the economic disruption
from acts of terrorism, and the response to them by the United
States and its allies. Other business risks associated with
international operations include increased managerial
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complexities, air transportation disruptions, expropriation,
currency controls, currency exchange rate movement, additional
costs related to foreign taxes, tariffs and freight rate
increases, exposure to different business practices and legal
standards, particularly with respect to price protection and
intellectual property, trade and travel restrictions, pandemics,
import and export license requirements and restrictions,
difficulties in staffing and managing worldwide operations, and
accounts receivable collections.
Production
and Raw Materials
Monolithic integrated circuit components are manufactured in a
sequence of semiconductor production steps that include wafer
fabrication, wafer testing, cutting the wafer into individual
chips, or dice, assembly of the dice into packages
and electrical testing of the devices in final packaged form.
The raw materials used to manufacture these devices include
silicon wafers, processing chemicals (including liquefied
gases), precious metals and ceramic and plastic used for
packaging.
We develop and employ a wide variety of proprietary
manufacturing processes that are specifically tailored for use
in fabricating high-performance linear, mixed-signal and MEMS
ICs. We also use bipolar and complementary metal-oxide
semiconductor, or CMOS, wafer fabrication processes.
Our IC products are fabricated both at our production facilities
and by third-party wafer fabricators. Most of our analog
products are manufactured in our own wafer fabrication
facilities using proprietary processes. Our DSP products, and a
portion of our analog products, are manufactured at third-party
wafer-fabrication foundries using sub-micron digital CMOS
processes. We operate wafer fabrication facilities in Wilmington
and Cambridge, Massachusetts and Limerick, Ireland. We also
operate test facilities located in the Philippines and use
third-party subcontractors for the assembly and testing of our
products.
Capital spending including that related to our Baseband Chipset
Business, which is reflected as a discontinued operation, was
$141.8 million in fiscal 2007, compared with
$129.3 million in fiscal 2006. We currently plan to make
capital expenditures of approximately $160 million in
fiscal 2008.
Our products require a wide variety of components, raw materials
and external foundry services, most of which we purchase from
third-party suppliers. We have multiple sources for many of the
components and materials that we purchase and incorporate into
our products. However, a large portion of our external wafer
purchases and foundry services are from a limited number of
suppliers, primarily Taiwan Semiconductor Manufacturing Company
(TSMC). If TSMC or any of our other key suppliers are unable or
unwilling to manufacture and deliver sufficient quantities of
components to us, on the time schedule and of the quality that
we require, we may be forced to seek to engage additional or
replacement suppliers, which could result in significant
expenses and disruptions or delays in manufacturing, product
development and shipment of product to our customers. Although
we have experienced shortages of components, materials and
external foundry services from time to time, these items have
generally been available to us as needed.
Backlog
Backlog at the end of fiscal 2007 was approximately
$408 million, up from approximately $376 million at
the end of fiscal 2006. This backlog includes approximately
$14 million and $10 million at November 3, 2007
and October 28, 2006, respectively, from our CPU voltage
regulation and PC thermal monitoring business that will be
reclassified in the first quarter of fiscal 2008 to discontinued
operations. Additional information relating to this divestiture
is set forth below under the heading Acquisitions,
Divestitures and Investments. We define backlog as of a
particular date as firm orders with a customer or distributor
requested delivery date within thirteen weeks. Backlog is
impacted by the tendency of customers to rely on shorter lead
times available from suppliers, including us, in periods of
depressed demand. In periods of increased demand, there is a
tendency towards longer lead times that has the effect of
increasing backlog and, in some instances, we may not have
manufacturing capacity sufficient to fulfill all orders. As is
customary in the semiconductor industry, we allow most orders to
be cancelled or deliveries delayed by customers without
significant penalty. Accordingly, we believe that our backlog at
any time should not be used as an indication of our future
revenue.
7
In some of our markets where end-user demand may be particularly
volatile and difficult to predict, some customers place orders
that require us to manufacture product and have it available for
shipment, even though the customer is unwilling to make a
binding commitment to purchase all, or even any, of the product.
At any given time, this situation could affect a portion of our
backlog. As a result, we may incur inventory and manufacturing
costs in advance of anticipated sales and are subject to the
risk of cancellation of orders leading to a sharp reduction of
sales and backlog. Further, those orders may be for products
that meet the customers unique requirements so that those
cancelled orders would, in addition, result in an inventory of
unsaleable products, resulting in potential inventory
write-offs. As a result of lengthy manufacturing cycles, for
some of our products that are subject to these uncertainties,
the amount of unsaleable product could be substantial.
Government
Contracts
We estimate that approximately 3% of our fiscal 2007 product
revenue was attributable to sales to the U.S. government
and government contractors and subcontractors. Our government
contract business is predominantly in the form of negotiated,
firm fixed-price subcontracts. All such contracts and
subcontracts contain standard provisions relating to termination
at the election of the United States government.
Acquisitions,
Divestitures and Investments
An element of our business strategy involves expansion through
the acquisition of businesses, assets, products or technologies
that allow us to complement our existing product offerings,
expand our market coverage, increase our engineering workforce
or enhance our technological capabilities. From time to time, we
consider acquisitions and divestitures that may strengthen our
business.
In September 2007, we entered into a definitive agreement to
sell our Baseband Chipset Business to MediaTek Inc. We will also
license to MediaTek Inc. related technology and intellectual
property rights, subject to certain field of use restrictions.
We expect to close the transaction during the first quarter of
fiscal 2008.
In November 2007, we entered into a purchase and sale agreement
with certain subsidiaries of ON Semiconductor Corporation, or
ON, to sell our CPU voltage regulation and PC thermal monitoring
business. The business to be sold consists of core voltage
regulator products for the CPU in computing and gaming
applications and temperature sensors and fan-speed controllers
for managing the temperature of the CPU. As part of the
transition, we also agreed to enter into a one-year
manufacturing supply arrangement with ON. We expect to close
this transaction during the first quarter of fiscal 2008. This
business met the assets held for sale criteria on
November 8, 2007, and will therefore be accounted for as a
discontinued operation in the first quarter of fiscal 2008.
Additional information relating to our disposition and
acquisition activities during fiscal 2007 and fiscal 2006 is set
forth in Note 2u. and Note 6 of the Notes to
Consolidated Financial Statements included in Item 8 of
this Annual Report on
Form 10-K.
Competition
We compete with a number of semiconductor companies in markets
that are highly competitive. We believe we are one of the
largest suppliers of high-performance analog and mixed-signal
processing components. Competitors for our analog and DSP
products include Broadcom Corporation, Freescale Semiconductor
Inc., Infineon Technologies, Intersil Corporation, Linear
Technology Corporation, Maxim Integrated Products, Inc.,
National Semiconductor Corporation, NXP Semiconductors, ST
Microelectronics, Silicon Laboratories, Inc. and Texas
Instruments, Inc.
We believe that competitive performance in the marketplace for
real-world signal processing components depends upon several
factors, including technical innovation, product quality and
reliability, range of products, product price, customer service
and technical support. We believe our technical innovation
emphasizing product performance and reliability, supported by
our commitment to strong customer service and technical support,
enables us to compete in our chosen markets against both foreign
and domestic semiconductor manufacturers.
Many other companies offer products that compete with our
products, and some have greater financial, manufacturing,
technical and marketing resources than we have. Some of our
competitors may have better
8
established supply or development relationships with our current
and potential customers. Additionally, some formerly independent
competitors have been purchased by larger companies. Our
competitors also include emerging companies selling specialized
products into markets we serve. 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.
Environment
We are committed to protecting the environment and the health
and safety of our employees, customers and the public. We
endeavor to adhere to the most stringent standards across all of
our facilities, to encourage pollution prevention and to strive
towards continual improvement. We strive to achieve a standard
of excellence in environmental, health and safety management
practices as an integral part of our total quality management
system.
Our manufacturing facilities are subject to numerous
environmental laws and regulations, particularly with respect to
the storage, handling, use, discharge and disposal of certain
chemicals, gases and other substances used or produced in the
semiconductor manufacturing process. Compliance with these laws
and regulations has not had a material impact on our capital
expenditures, earnings, financial condition or competitive
position. There can be no assurance, however, that current or
future environmental laws and regulations will not impose costly
requirements upon us. Any failure by us to comply with
applicable environmental laws and regulations could result in
fines, suspension of production, alteration of fabrication
processes and legal liability.
Employees
As of November 3, 2007, we employed approximately 9,600
individuals worldwide. Our future success depends in large part
on the continued service of our key technical and senior
management personnel, and on our ability to continue to attract,
retain and motivate qualified employees, particularly those
highly-skilled design, process, test and applications engineers
involved in the design, support and manufacture of new and
existing products and processes. We believe that relations with
our employees are good; however, the competition for such
personnel is intense, and the loss of key personnel could have a
material adverse impact on our results of operations and
financial condition.
9
Set forth below and elsewhere in this report and in other
documents we file with the SEC are descriptions of the risks and
uncertainties that could cause our actual results to differ
materially from the results contemplated by the forward-looking
statements contained in this report.
Our
future revenue, gross margins, operating results and net income
are difficult to predict and may materially fluctuate.
Our future revenue, gross margins, operating results and net
income are difficult to predict and may be materially affected
by a number of factors, including:
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changes in customer demand for our products and for end products
that incorporate our products;
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the timing of new product announcements or introductions by us,
our customers or our competitors;
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competitive pricing pressures;
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fluctuations in manufacturing yields, adequate availability of
wafers and other raw materials, and manufacturing, assembly and
test capacity;
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the risk that our backlog could decline significantly;
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the timing, delay or cancellation of significant customer orders
and our ability to manage inventory;
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our ability to hire, retain and motivate adequate numbers of
engineers and other qualified employees to meet the demands of
our customers;
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changes in geographic, product or customer mix;
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potential significant litigation-related costs;
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the difficulties inherent in forecasting future operating
expense levels;
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the costs related to compliance with increasing worldwide
environmental regulations;
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changes in our effective tax rate;
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the effect of adverse changes in economic conditions in the
United States and international markets; and
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the effects of public health emergencies, natural disasters,
terrorist activities, international conflicts and other events
beyond our control.
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In addition, the semiconductor market has historically been
cyclical and subject to significant economic downturns. 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 revenue, gross margins and operating
results on a quarterly or annual basis. In addition, if our
revenue, gross margins, operating results and net income do not
meet the expectations of securities analysts or investors, the
market price of our common stock may decline.
Long-term
contracts are not typical for us and reductions, cancellations
or delays in orders for our products could adversely affect our
operating results.
In certain markets where end-user demand may be particularly
volatile and difficult to predict, some customers place orders
that require us to manufacture product and have it available for
shipment, even though the customer is unwilling to make a
binding commitment to purchase all, or even any, of the product.
At any given time, this situation could affect a portion of our
backlog. As a result, we may incur inventory and manufacturing
costs in advance of anticipated sales and are subject to the
risk of cancellations of orders leading to a sharp reduction of
sales and backlog. Further, those orders may be for products
that meet the customers unique requirements so that those
cancelled orders would, in addition, result in an inventory of
unsaleable products, resulting in potential inventory
10
write-offs. As a result of lengthy manufacturing cycles for
certain of the products that are subject to these uncertainties,
the amount of unsaleable product could be substantial.
Reductions, cancellations or delays in orders for our products
could adversely affect our operating results.
Our
future success depends upon our ability to continue to improve
our products, develop and market new products, and identify and
enter new markets.
Our success significantly depends on our continued ability to
improve our products and develop and market new products.
Product development and enhancement is often a complex,
time-consuming and costly process involving significant
investment in research and development. There can be no
assurance that we will be able to develop and introduce new and
improved products in a timely or efficient manner or that new
and improved products, if developed, will achieve market
acceptance. Our products generally must conform to various
evolving and sometimes competing industry standards, which may
adversely affect our ability to compete in certain markets or
require us to incur significant costs. In addition, our
customers generally impose very high quality and reliability
standards on our products, which often change and may be
difficult or costly to satisfy. Any inability to satisfy such
customer quality standards or comply with industry standards and
technical requirements may adversely affect demand for our
products and our results of operations. In addition, our growth
is dependent on our continued ability to identify and 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. Furthermore, a decline in demand in one or
several of our end-user markets could have a material adverse
effect on the demand for our products and our results of
operations. Also, some of our customers in these markets are
less established, which could subject us to increased credit
risk.
We may
not be able to compete successfully in markets within the
semiconductor industry in the future.
Many other companies offer products that compete with our
products. Some have greater financial, manufacturing, technical
and marketing resources than we have. Some of our competitors
may have better established supply or development relationships
with our current and potential customers. Additionally, some
formerly independent competitors have been purchased by larger
companies. Our competitors also include emerging companies
selling specialized products in markets we serve. Competition is
based on design and quality of products, product performance,
features and functionality, and price, with the relative
importance of these factors varying among products, markets and
customers. Existing or new competitors may develop products or
technologies that more effectively address the demands of our
customers and markets with enhanced features and functionality,
lower power requirements, greater levels of integration or lower
cost. Increased competition in certain markets has resulted in
and may continue to result in declining average selling prices,
reduced gross margins and loss of market share in such markets.
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 rely
on third-party subcontractors and manufacturers for some
industry-standard wafers and assembly and test services, 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 submicron processes. This reliance involves
several risks, including reduced control over availability,
capacity utilization, delivery schedules, manufacturing yields,
quality assurance and costs. Additionally, we utilize a limited
number of third-party wafer fabricators, primarily Taiwan
Semiconductor Manufacturing Company. These suppliers manufacture
components in accordance with our proprietary designs and
specifications. We have no written supply agreements with these
suppliers and purchase our custom components through individual
purchase orders. In addition, these suppliers often provide
manufacturing services to our competitors and therefore periods
of increased industry demand may result in capacity constraints.
If these suppliers are unable or unwilling to manufacture and
deliver sufficient quantities of components to us on the time
schedule and of the quality that we require, we may be forced to
seek to
11
engage additional or replacement suppliers, which could result
in additional expenses and delays in product development or
shipment of product to our customers.
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 and short-term periods when demand for our products
has increased or decreased rapidly. During these periods of
rapid increases in demand, our available capacity may not be
sufficient to satisfy the available demand. In addition, we may
not be able to expand our workforce and operations in a
sufficiently timely manner, procure adequate resources, or
locate suitable third-party suppliers, to respond effectively to
changes in demand for our existing products or to the demand for
new products requested by our customers, and our current or
future business could be materially and adversely affected.
Conversely, if we expand our operations and workforce too
rapidly or procure excessive resources in anticipation of
increased demand for our products, and such demand does not
materialize at the pace at which we expect, our operating
results may be adversely affected. These capacity expansions by
us and other semiconductor manufacturers could also lead to
overcapacity in our target markets which could lead to price
erosion that would adversely impact our operating results.
Our
revenue may not increase enough to offset the expense of
additional capacity.
We, and the semiconductor industry generally, expand production
facilities and access to third-party foundries in response to
periods of increased demand which can cause operating expenses
to increase. Should customer demand fail to increase or should
we enter a period of reduced customer demand, our financial
position and results of operations could be adversely impacted
as a result of increased operating expenses, reduced margins,
underutilization of capacity or asset impairment charges.
Our
semiconductor products are complex and may contain undetected
defects which could result in significant costs, claims and
damage to our reputation, and adversely affect the market
acceptance of our products.
Semiconductor products are highly complex and may contain
undetected defects when they are first introduced or as new
versions are developed. We invest significant resources in the
testing of our products; however, if any of our products contain
defects, we may be required to incur additional development and
remediation costs, pursuant to warranty and indemnification
provisions in our customer contracts. These problems may divert
our technical and other resources from other product development
efforts and could result in claims against us by our customers
or others, including liability for costs associated with product
recalls. If any of our products contains defects, or has
reliability, quality or compatibility problems, our reputation
may be damaged, which could make it more difficult for us to
sell our products to existing and prospective customers and
could adversely affect our operating results.
We may be
unable to adequately protect our proprietary rights, which may
limit our ability to compete effectively.
Our success depends, in part, on our ability to protect our
intellectual property. We primarily rely on patent, mask work,
copyright, trademark and trade secret laws, as well as
nondisclosure agreements and other methods, to protect our
proprietary technologies and processes. Despite our efforts to
protect our proprietary technologies and processes, it is
possible that competitors or other unauthorized third parties
may obtain, copy, use or disclose our technologies and
processes. Moreover, the laws of foreign countries in which we
design, manufacture, market and sell our products may afford
little or no effective protection of our proprietary technology.
There can be no assurance that the claims allowed in our issued
patents will be sufficiently broad to protect our technology. In
addition, any of our existing or future patents may be
challenged, invalidated or circumvented. As such, any rights
granted under these patents may not provide us with meaningful
protection. We may not have foreign patents or pending
applications corresponding to our U.S. patents and
applications. Even if foreign patents are granted, effective
enforcement in foreign countries may not be available. If our
patents do not adequately protect our technology, our
competitors may be able to offer products similar to ours. Our
competitors may also be able to
12
develop similar technology independently or design around our
patents. Other companies or individuals have obtained patents
covering a variety of semiconductor designs and processes, and
we might be required to obtain licenses under some of these
patents or be precluded from making and selling the infringing
products, if such patents are found to be valid. There can be no
assurance that we would be able to obtain licenses, if required,
upon commercially reasonable terms, or at all.
We generally enter into confidentiality agreements with our
employees, consultants and strategic partners. We also try to
control access to and distribution of our technologies,
documentation and other proprietary information. Despite these
efforts, internal or external parties may attempt to copy,
disclose, obtain or use our products, services or technology
without our authorization. Also, former employees may seek
employment with our business partners, customers or competitors,
and there can be no assurance that the confidential nature of
our proprietary information will be maintained in the course of
such future employment.
We are
involved in frequent litigation, including regarding
intellectual property rights, which could be costly to bring or
defend 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, including claims arising under our contractual
obligations to indemnify our customers. We have received from
time to time, and may receive in the future, claims from third
parties asserting that our products or processes infringe their
patents or other intellectual property rights. In the event a
third party makes a valid intellectual property claim against us
and a license is not available to us on commercially reasonable
terms, or at all, we could be forced either to redesign or to
stop production of products incorporating that intellectual
property, and our operating results could be materially and
adversely affected. Litigation may be necessary to enforce our
patents or other of our intellectual property rights or to
defend us against claims of infringement, and this litigation
could be costly and divert the attention of our key personnel.
We could be subject to warranty or product liability claims that
could lead to significant costs and expenses as we defend such
claims or pay damage awards. While we maintain product liability
insurance, there can be no assurance that such insurance will be
available or adequate to protect against all such claims. We may
incur costs and expenses relating to a recall of one of our
customers products containing one of our products. See
Note 12 in the Notes to our Consolidated Financial
Statements contained in Item 8 of this Annual Report on
Form 10-K
for information concerning certain pending litigation that
involves us. An adverse outcome in these matters or other
litigation could have a material adverse effect on our
consolidated financial position or on our consolidated results
of operations or cash flows in the period in which the
litigation is resolved.
If we do
not retain our key personnel, our ability to execute our
business strategy will be limited.
Our success depends to a significant extent upon the continued
service of our executive officers and key management and
technical personnel, particularly our experienced engineers, and
on our ability to continue to attract, retain and motivate
qualified personnel. The competition for these employees is
intense. The loss of the services of one or more of our key
personnel could have a material adverse effect on our operating
results. In addition, there could be a material adverse effect
on our business should the turnover rates for engineers and
other key personnel increase significantly or if we are unable
to continue to attract qualified personnel. We do not maintain
any key person life insurance policy on any of our officers or
employees.
To remain
competitive, we may need to acquire other companies or purchase
or license technology from third parties in order to introduce
new products and services or enhance our existing products and
services.
An element of our business strategy involves expansion through
the acquisitions of businesses, assets, products or technologies
that allow us to complement our existing product offerings,
expand our market coverage, increase our engineering workforce
or enhance our technological capabilities. We may not be able to
find businesses that have the technology or resources we need
and, if we find such businesses, may not be able to purchase or
license the technology or resources on commercially favorable
terms or at all. Acquisitions and technology licenses are
difficult to identify and complete for a number of reasons,
including the cost of potential transactions, competition among
prospective buyers and licensees and the need for regulatory
approvals. In order to finance a potential transaction, we may
need to raise additional funds by selling our stock or borrowing
money. We may not be able to
13
find financing on favorable terms, and the sale of our stock may
result in the dilution of our existing shareholders or the
issuance of securities with rights that are superior to the
rights of our common stockholders. Acquisitions also involve a
number of risks, including:
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difficulty integrating acquired technologies, operations and
personnel with our existing businesses;
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diversion of management attention in connection with both
negotiating the acquisitions and integrating the assets;
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strain on managerial and operational resources as management
tries to oversee larger operations;
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the future funding requirements for acquired companies, which
may be significant;
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potential loss of key employees;
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exposure to unforeseen liabilities of acquired
companies; and
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increased risk of costly and time-consuming litigation.
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If we are unable to successfully address these risks, we may not
realize some or all of the expected benefits of the acquisition,
which may have an adverse effect on our business and results of
operations.
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, wafer fabrication foundries 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 of our products worldwide. Any prolonged
inability to utilize one of our manufacturing facilities, or
those of our subcontractors or third party wafer-fabrication
foundries, as a result of fire, natural disaster, unavailability
of electric power or otherwise, would have a material adverse
effect on our results of operations and financial condition.
We are
exposed to business, economic, political and other risks through
our significant worldwide operations.
During fiscal 2007, approximately 74% of our product revenue was
derived from customers in international markets. 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 United States dollar against
other currencies. Potential interest rate increases, as well as
high energy costs could have an adverse impact on industrial and
consumer spending patterns and could adversely impact demand for
our products. We have manufacturing facilities outside the
United States in Ireland and the Philippines. In addition to
being exposed to the ongoing economic cycles in the
semiconductor industry, we are also subject to the economic and
political risks inherent in international operations and their
impact on the United States economy in general, including the
risks associated with ongoing uncertainties and political and
economic instability in many countries around the world as well
as the economic disruption from acts of terrorism, and the
response to them by the United States and its allies. Other
business risks associated with international operations include
increased managerial complexities, air transportation
disruptions, expropriation, currency controls, currency exchange
rate movement, additional costs related to foreign taxes,
tariffs and freight rate increases, exposure to different
business practices and legal standards, particularly with
respect to price protection and intellectual property, trade and
travel restrictions, pandemics, import and export license
requirements and restrictions, difficulties in staffing and
managing worldwide operations, and accounts receivable
collections.
Our
future operating results are dependent on the performance of
independent distributors.
A significant portion of our sales are through independent
distributors that are not under our control. These independent
distributors generally represent product lines offered by
several companies and thus could reduce their sales efforts
applied to our products or terminate their representation of us.
We generally do not require letters of
14
credit from our distributors and are not protected against
accounts receivable default or bankruptcy by these distributors.
Our inability to collect open accounts receivable could
adversely affect our results of operations. Termination of a
significant distributor, whether at our initiative or the
distributors initiative, could disrupt our current
business. If we are unable to find suitable replacements in the
event of terminations by significant distributors our operating
results could be adversely affected.
We are
subject to increasingly strict environmental regulations, which
could increase our expenses and affect our operating
results.
Our industry is subject to environmental regulations that
control and restrict the use, transportation, emission,
discharge, storage and disposal of certain chemicals used in the
manufacturing process. Public attention on environmental
controls has increased, and changes in environmental regulations
might require us to invest in costly remediation equipment or
alter the way our products are made. In addition, we use
hazardous and other regulated materials that subject us to risks
of liability for damages caused by accidental releases,
regardless of fault. Any failure to control such materials
adequately or to comply with regulatory restrictions could
increase our expenses and adversely affect our operating results.
Our
manufacturing processes are highly complex and may be
interrupted.
We have manufacturing processes that utilize a substantial
amount of technology as the fabrication of integrated circuits
is a highly complex and precise process. Minute impurities,
contaminants in the manufacturing environment, difficulties in
the fabrication process, defects in the masks used in the wafer
manufacturing process, manufacturing equipment failures, wafer
breakage or other factors can cause a substantial percentage of
wafers to be rejected or numerous dice on each wafer to be
nonfunctional. While we have significant expertise in
semiconductor manufacturing, it is possible that some processes
could become unstable. This instability could result in
manufacturing delays and product shortages, which could have a
material adverse effect on our financial position or results of
operations.
Our stock
price may be volatile.
The market price of our common stock has been volatile in the
past and may be volatile in the future, as it may be
significantly affected by the following factors:
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actual or anticipated fluctuations in our revenue and operating
results;
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changes in financial estimates by securities analysts or our
failure to perform in line with such estimates or our published
guidance;
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changes in market valuations of other semiconductor companies;
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announcements by us or our competitors of significant new
products, technical innovations, acquisitions or dispositions,
litigation or capital commitments;
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departures of key personnel;
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actual or perceived noncompliance with corporate responsibility
or ethics standards by us or any of our employees, officers or
directors; and
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negative media publicity targeting us or our competitors.
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The stock market has historically experienced volatility,
especially within the semiconductor industry, that often has
been unrelated to the performance of particular companies. These
market fluctuations may cause our stock price to fall regardless
of our operating results.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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Not applicable.
15
Our corporate headquarters is located in Norwood, Massachusetts.
Manufacturing and other operations are conducted in several
locations worldwide. The following tables provide certain
information about our principal general offices and
manufacturing facilities:
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Principal Properties
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Owned:
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Use
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Floor Space
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Wilmington, MA
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Wafer fabrication, testing, engineering, marketing and
administrative offices
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586,200 sq. ft.
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Cavite, Philippines
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Wafer probe and testing, warehouse, engineering and
administrative offices
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465,900 sq. ft.
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Limerick, Ireland
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Wafer fabrication, wafer probe and testing, engineering and
administrative offices
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405,000 sq. ft.
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Westwood, MA
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Engineering, administrative offices and warehouse
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100,500 sq. ft.
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Greensboro, NC
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Product testing, engineering and administrative offices
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98,700 sq. ft.
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San Jose, CA
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Engineering, administrative offices
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76,000 sq. ft.
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Manila, Philippines
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Components assembly and testing, engineering and administrative
offices
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74,000 sq. ft.
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Principal
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Properties
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Lease
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Leased:
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Use
|
|
Floor Space
|
|
Expiration
|
|
Renewals
|
|
|
|
|
|
|
(fiscal year)
|
|
|
|
Norwood, MA
|
|
Corporate headquarters, engineering, components testing, sales
and marketing offices
|
|
|
130,000 sq. ft.
|
|
|
|
2022
|
|
|
2, five-yr.
periods
|
Cambridge, MA
|
|
Wafer fabrication, components testing and assembly engineering,
marketing and administrative offices
|
|
|
117,000 sq. ft.
|
|
|
|
2011
|
|
|
None
|
Greensboro, NC
|
|
Engineering and administrative offices
|
|
|
47,600 sq. ft.
|
|
|
|
2011
|
|
|
1, two-yr.
period
|
In addition to the principal leased properties listed in the
above table, we also lease sales offices and other premises at
26 locations in the United States and 37 locations overseas
under operating lease agreements. These leases expire at various
dates through the year 2022. We do not anticipate experiencing
significant difficulty in retaining occupancy of any of our
manufacturing, office or sales facilities through lease renewals
prior to expiration or through month-to-month occupancy, or in
replacing them with equivalent facilities. For information
concerning our obligations under all operating leases see
Note 11 in the Notes to our Consolidated Financial
Statements contained in Item 8 of this Annual Report on
Form 10-K.
16
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
Tentative
Settlement of the SECs Previously Announced Stock Option
Investigation
In our 2004
Form 10-K
filing, we disclosed that the Securities and Exchange
Commission, or SEC, had initiated an inquiry into our stock
option granting practices, focusing on options that were granted
shortly before the issuance of favorable financial results. On
November 15, 2005, we announced that we had reached a
tentative settlement with the SEC.
At all times since receiving notice of this inquiry, we have
cooperated with the SEC. In November 2005, we and our President
and CEO, Mr. Jerald G. Fishman, made an offer of settlement
to the Staff of the SEC. The settlement has been submitted to
the Commission for approval. There can be no assurance a final
settlement will be so approved.
The SECs inquiry focused on two separate issues. The
first issue concerned our disclosure regarding grants of options
to employees and directors prior to the release of favorable
financial results. Specifically, the issue related to options
granted to our employees (including officers) on
November 30, 1999 and to our employees (including
officers) and directors on November 10, 2000.
The second issue concerned the grant dates for options granted
to employees (including officers) in 1998 and
1999, and the grant date for options granted to employees
(including officers) and directors in 2001. Specifically,
the settlement would conclude that the appropriate grant date
for the September 4, 1998 options should have been
September 8th (which is one trading day later than the
date that was used to price the options); the appropriate grant
date for the November 30, 1999 options should have been
November 29th (which is one trading day earlier than
the date that was used); and the appropriate grant date for the
July 18, 2001 options should have been
July 26th (which is five trading days after the
original date).
In connection with the proposed settlement, we would consent to
a
cease-and-desist
order under Section 10(b) of the Securities Exchange Act
and
Rule 10b-5
thereunder, would pay a civil money penalty of $3 million,
and would reprice options granted to Mr. Fishman in certain
years. Options granted to all others would be excluded from the
repricing. Mr. Fishman would consent to a
cease-and-desist
order under Sections 17(a)(2) and (3) of the
Securities Act, would pay a civil money penalty of
$1 million, and would make a disgorgement payment with
respect to options granted in certain years. With the exception
of options granted in 1998, Mr. Fishman has not exercised
or sold any of the options identified in this matter. We and
Mr. Fishman would settle this matter without admitting or
denying the Commissions findings.
We have determined that no restatement of our historical
financial results would be necessary due to the proposed
settlement.
Other
Legal Proceedings
In May 2006, we received a document subpoena from the
U.S. Attorney for the Southern District of New York
requesting records from 2000 to the present relating to our
granting of stock options. We believe that the options at issue
in this matter are the same option grants which have been the
subject of investigation by the SEC. We have cooperated with the
office of the U.S. Attorney in connection with this
subpoena. We cannot predict the outcome of this matter, but
believe the disposition of the matter will not have a material
adverse effect on us or our financial position.
On May 25, 2006, we filed a lawsuit in United States
District Court for the District of Delaware against Linear
Technology Corp., or LTC, alleging infringement of three of our
patents by LTCs making, selling and using various
products. In our complaint, we are seeking damages in an
unspecified amount and injunctive relief. In addition, we also
sought a declaratory judgment that our products do not infringe
eight patents allegedly owned by LTC (the LTC
patents) and that the LTC patents are invalid. On
July 28, 2006, LTC filed an answer and counterclaims,
denying that its products infringe the asserted patents and
asking the court to declare such patents invalid. LTC also
claimed that we, by making, selling and using various power
management products, are infringing seven of the eight LTC
patents. LTC seeks damages in an unspecified amount and
injunctive relief. On August 21, 2006, we filed our answer
to LTCs counterclaims, denying all liability to LTC. The
case is currently in the discovery phase and trial is
17
scheduled to begin in October 2008. We intend to vigorously
pursue our claims against LTC, and to vigorously defend against
LTCs counterclaims. We are unable at this time to predict
the outcome of this litigation; however, we believe that the
final disposition of this matter will not have a material
adverse effect on us or our financial position.
On October 13, 2006, a purported class action complaint was
filed in the United States District Court for the District of
Massachusetts on behalf of participants in our Investment
Partnership Plan from October 5, 2000 to the present. The
complaint named as defendants us, certain officers and
directors, and our Investment Partnership Plan Administration
Committee. The complaint alleges purported violations of federal
law in connection with our option granting practices during the
years 1998, 1999, 2000, and 2001, including breaches of
fiduciary duties owed to participants and beneficiaries of our
Investment Partnership Plan under the Employee Retirement Income
Security Act. The complaint seeks unspecified monetary damages,
as well as equitable and injunctive relief. We intend to
vigorously defend against these allegations. On
November 22, 2006, we and the individual defendants filed
motions to dismiss the complaint. On January 8, 2007, the
Plaintiff filed memoranda in opposition. On January 22,
2007, we and the individual defendants filed further memoranda
in support of the motions to dismiss. Although we believe we
have meritorious defenses to the asserted claims, we are unable
at this time to predict the outcome of this proceeding. The
court has scheduled a hearing on our motion to dismiss on
January 30, 2008.
From time to time in the ordinary course of our business,
various claims, charges and litigation are asserted or commenced
against us arising from, or related to, contractual matters,
patents, trademarks, personal injury, environmental matters,
product liability, insurance coverage and personnel and
employment disputes. As to such claims and litigation, we can
give no assurance that we will prevail.
While we do not believe that any of the matters described above
will have a material adverse effect on our financial position,
an adverse outcome of any of these matters is possible and could
have a material adverse effect on our consolidated results of
operations or cash flows in the quarter or annual period in
which one or more of these matters are resolved.
18
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of our security holders
during the last quarter of the fiscal year ended
November 3, 2007.
EXECUTIVE
OFFICERS OF THE COMPANY
The following table sets forth (i) the name, age and
position of each of our executive officers and (ii) the
business experience of each person named in the table during at
least the past five years. There is no family relationship among
any of our executive officers.
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
Age
|
|
|
Position(s)
|
|
Business Experience
|
|
Ray Stata
|
|
|
73
|
|
|
Chairman of the Board
|
|
Chairman of the Board since 1973; Chief Executive Officer from
1973 to November 1996; President from 1971 to November 1991.
|
Jerald G. Fishman
|
|
|
61
|
|
|
President, Chief Executive Officer and Director
|
|
Chief Executive Officer since November 1996; President and
Director since November 1991; Executive Vice President from 1988
to November 1991; Group Vice President Components
from 1982 to 1988.
|
Samuel H. Fuller
|
|
|
61
|
|
|
Vice President, Research and Development
|
|
Vice President, Research and Development since March 1998; Vice
President of Research and Chief Scientist of Digital Equipment
Corp. from 1983 to 1998.
|
Robert R. Marshall
|
|
|
53
|
|
|
Vice President, Worldwide Manufacturing
|
|
Vice President, Worldwide Manufacturing since February 1994;
Vice President, Manufacturing, Limerick Site, Analog Devices,
B.V. Limerick, Ireland from November 1991 to
February 1994; Plant Manager, Analog Devices, B.V.
Limerick, Ireland from January 1991 to November 1991.
|
William Matson
|
|
|
48
|
|
|
Vice President, Human Resources
|
|
Vice President, Human Resources since November 2006; Chief Human
Resource Officer of Lenovo, an international computer
manufacturer, from January 2005 to June 2006; General Manager of
IBM Business Transformation Outsourcing from September 2003 to
April 2005; Vice President, Human Resources of IBM Asia Pacific
Region from December 1999 to September 2003.
|
19
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
Age
|
|
|
Position(s)
|
|
Business Experience
|
|
Robert McAdam
|
|
|
56
|
|
|
Vice President, Analog Semiconductor Components
|
|
Vice President and General Manager, Analog Semiconductor
Components since February 1994; Vice President and General
Manager, Analog Devices, B.V. Limerick, Ireland from
January 1991 to February 1994; Product Line Manager, Analog
Devices, B.V. Limerick, Ireland from October 1988 to
January 1991.
|
Brian P. McAloon
|
|
|
57
|
|
|
Vice President, DSP and Systems Products Group
|
|
Vice President, DSP and Systems Products Group since March 2001;
Vice President, Sales from May 1992 to March 2001; Vice
President, Sales and Marketing Europe and Southeast
Asia from 1990 to 1992; General Manager, Analog Devices,
B.V. Limerick, Ireland from 1987 to 1990.
|
Joseph E. McDonough
|
|
|
60
|
|
|
Vice President, Finance and Chief Financial Officer
|
|
Vice President, Finance and Chief Financial Officer since
November 1991; Vice President since 1988 and Treasurer from 1985
to March 1993; Director of Taxes from 1983 to 1985.
|
Vincent Roche
|
|
|
47
|
|
|
Vice President, Worldwide Sales
|
|
Vice President, Worldwide Sales since March 2001; Vice President
and General Manager, Silicon Valley Business Units and Computer
& Networking from 1999 to March 2001; Product Line Director
from 1995 to 1999; Product Marketing Manager from 1988 to 1995.
|
Margaret K. Seif
|
|
|
46
|
|
|
Vice President, General Counsel and Secretary
|
|
Vice President, General Counsel and Secretary since January
2006; Senior Vice President, General Counsel and Secretary of
RSA Security Inc. from January 2000 to November 2005; Vice
President, General Counsel and Secretary of RSA Security Inc.
from June 1998 to January 2000.
|
20
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is listed on the New York Stock Exchange under
the symbol ADI. The tables below set forth the high and low
sales prices per share of our common stock on the New York Stock
Exchange and the dividends declared for each quarterly period
within our two most recent fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
Period
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
34.53
|
|
|
$
|
31.00
|
|
|
$
|
40.40
|
|
|
$
|
34.18
|
|
Second Quarter
|
|
$
|
40.57
|
|
|
$
|
32.53
|
|
|
$
|
41.48
|
|
|
$
|
36.61
|
|
Third Quarter
|
|
$
|
41.10
|
|
|
$
|
35.11
|
|
|
$
|
37.96
|
|
|
$
|
29.89
|
|
Fourth Quarter
|
|
$
|
38.96
|
|
|
$
|
32.23
|
|
|
$
|
33.24
|
|
|
$
|
26.07
|
|
Dividends
Declared Per Outstanding Share of Common Stock
|
|
|
|
|
|
|
|
|
Period
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
First Quarter
|
|
$
|
0.16
|
|
|
$
|
0.12
|
|
Second Quarter
|
|
$
|
0.18
|
|
|
$
|
0.12
|
|
Third Quarter
|
|
$
|
0.18
|
|
|
$
|
0.16
|
|
Fourth Quarter
|
|
$
|
0.18
|
|
|
$
|
0.16
|
|
During the first quarter of fiscal 2008, on November 26,
2007, our Board of Directors declared a cash dividend of $0.18
per outstanding share of common stock. The dividend will be paid
on December 26, 2007 to all shareholders of record at the
close of business on December 7, 2007.
Information regarding the Companys equity compensation
plans and the securities authorized for issuance thereunder is
set forth in Item 12 below.
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
|
Value of Shares that
|
|
|
|
Total Number of
|
|
|
|
|
|
Purchased as Part of
|
|
|
May Yet Be Purchased
|
|
|
|
Shares
|
|
|
Average Price Paid
|
|
|
Publicly Announced
|
|
|
Under the Plans or
|
|
Period
|
|
Purchased(a)
|
|
|
Per Share(b)
|
|
|
Plans or Programs(c)
|
|
|
Programs
|
|
|
August 5, 2007 through September 1, 2007
|
|
|
3,310,766
|
|
|
$
|
37.11
|
|
|
|
3,310,766
|
|
|
$
|
860,059,332
|
|
September 2, 2007 through September 29, 2007
|
|
|
3,999,188
|
|
|
$
|
36.53
|
|
|
|
3,999,036
|
|
|
$
|
713,965,692
|
|
September 30, 2007 through November 3, 2007
|
|
|
1,333,772
|
|
|
$
|
36.54
|
|
|
|
1,333,666
|
|
|
$
|
665,229,821
|
|
Total
|
|
|
8,643,726
|
|
|
$
|
36.75
|
|
|
|
8,643,468
|
|
|
$
|
665,229,821
|
|
|
|
|
(a) |
|
Includes 258 shares withheld to satisfy employee tax
obligations upon vesting of restricted stock units granted to
our employees under our equity compensation plans. |
|
(b) |
|
The average price paid per share of stock repurchased under the
stock repurchase program includes the commissions paid to the
brokers. |
|
(c) |
|
Repurchased pursuant to the stock repurchase program publicly
announced on August 12, 2004. On December 6, 2006, our
Board of Directors authorized the repurchase by us of an
additional $1 billion of our common stock, increasing the
total amount of our common stock we are authorized to repurchase
from $2 billion to $3 billion. On June 6, 2007,
our Board of Directors authorized the repurchase by us of an |
21
|
|
|
|
|
additional $1 billion of our common stock, increasing the
total amount of our common stock we are authorized to repurchase
from $3 billion to $4 billion. Under the repurchase
program, we may repurchase outstanding shares of our common
stock from time to time in the open market and through privately
negotiated transactions. Unless terminated earlier by resolution
of our Board of Directors, the repurchase program will expire
when we have repurchased all shares authorized for repurchase
under the repurchase program. |
The number of holders of record of our common stock at
November 2, 2007 was 3,491. This number does not include
shareholders for whom shares are held in a nominee
or street name. On November 2, 2007, the last
reported sales price of our common stock on the New York Stock
Exchange was $32.90 per share.
Comparative
Stock Performance Graph
The following graph compares cumulative total shareholder return
on our common stock since November 1, 2002 with the
cumulative total return for the Standard & Poors
500 Index and the Standard & Poors
Semiconductors Index. This graph assumes the investment of $100
on November 1, 2002 in our common stock, the S&P 500
Index and the S&P Semiconductors Index and assumes all
dividends are reinvested. Measurement points are the last
trading day for each respective fiscal year.
22
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following table includes selected financial data for each of
our last five fiscal years and includes adjustments to reflect
the classification of our Baseband Chipset Business as
discontinued operations. See Note 2u. in the Notes to our
Consolidated Financial Statements contained in Item 8 of
this Annual Report on
Form 10-K
for information on discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(thousands except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Statement of Operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from continuing operations
|
|
$
|
2,546,117
|
|
|
$
|
2,342,919
|
|
|
$
|
2,134,800
|
|
|
$
|
2,218,854
|
|
|
$
|
1,786,408
|
|
Net income from continuing operations*
|
|
|
500,695
|
|
|
|
516,314
|
|
|
|
375,944
|
|
|
|
484,327
|
|
|
|
243,092
|
|
Net (loss) income from discontinued operations*
|
|
|
(3,788
|
)
|
|
|
33,168
|
|
|
|
38,843
|
|
|
|
86,411
|
|
|
|
55,189
|
|
Net income*
|
|
|
496,907
|
|
|
|
549,482
|
|
|
|
414,787
|
|
|
|
570,738
|
|
|
|
298,281
|
|
Net income per share from continuing operations*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1.55
|
|
|
|
1.44
|
|
|
|
1.01
|
|
|
|
1.29
|
|
|
|
0.67
|
|
Diluted
|
|
|
1.51
|
|
|
|
1.39
|
|
|
|
0.98
|
|
|
|
1.23
|
|
|
|
0.64
|
|
Net income per share*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1.54
|
|
|
|
1.53
|
|
|
|
1.12
|
|
|
|
1.52
|
|
|
|
0.82
|
|
Diluted
|
|
|
1.50
|
|
|
|
1.48
|
|
|
|
1.08
|
|
|
|
1.45
|
|
|
|
0.78
|
|
Dividends declared per common share
|
|
|
0.70
|
|
|
|
0.56
|
|
|
|
0.32
|
|
|
|
0.20
|
|
|
|
|
|
Balance Sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,971,949
|
|
|
$
|
3,986,851
|
|
|
$
|
4,583,211
|
|
|
$
|
4,723,271
|
|
|
$
|
4,097,877
|
|
|
|
|
* |
|
The Company includes the expense associated with stock options
in the statement of income effective in fiscal 2006 upon the
adoption of SFAS 123R. |
23
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (all tabular amounts in thousands except per share
amounts)
|
This Managements Discussion and Analysis of Financial
Condition and Results of Operations, including in particular the
section entitled Outlook contains forward-looking
statements regarding future events and our future results that
are subject to the safe harbors created under the Securities Act
of 1933 (the Securities Act) and the Securities
Exchange Act of 1934 (the Exchange Act). These
statements are based on current expectations, estimates,
forecasts, and projections about the industries in which we
operate and the beliefs and assumptions of our management. Words
such as expects, anticipates,
targets, goals, projects,
intends, plans, believes,
seeks, estimates, continues,
may, variations of such words and similar
expressions are intended to identify such forward-looking
statements. In addition, any statements that refer to
projections of our future financial performance, our anticipated
growth and trends in our businesses, and other characterizations
of future events or circumstances are forward-looking
statements. Readers are cautioned that these forward-looking
statements are only predictions and are subject to risks,
uncertainties, and assumptions that are difficult to predict,
including those identified in Part I, Item 1A. Risk
Factors and elsewhere in our Annual Report on
Form 10-K.
Therefore, actual results may differ materially and adversely
from those expressed in any forward-looking statements. We
undertake no obligation to revise or update any forward-looking
statements for any reason.
In September 2007, we entered into a definitive agreement to
sell our baseband chipset business and related support
operations, or Baseband Chipset Business, to MediaTek Inc. We
have reflected the financial results of this business as
discontinued operations in the consolidated statement of income
for all years presented. The assets and liabilities of this
business are reflected as assets and liabilities of discontinued
operations in the consolidated balance sheets as of
November 3, 2007 and October 28, 2006. Unless
otherwise noted, this Managements Discussion and Analysis
relates only to financial results from continuing operations.
Results
of Operations
Overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Total Revenue
|
|
$
|
2,546,117
|
|
|
$
|
2,342,919
|
|
|
$
|
2,134,800
|
|
Gross Margin %
|
|
|
59.7
|
%
|
|
|
59.9
|
%
|
|
|
60.0
|
%
|
Net income from Continuing Operations
|
|
$
|
500,695
|
|
|
$
|
516,314
|
|
|
$
|
375,944
|
|
Net income from Continuing Operations as a % of Total Revenue
|
|
|
19.7
|
%
|
|
|
22.0
|
%
|
|
|
17.6
|
%
|
Diluted EPS from Continuing Operations
|
|
$
|
1.51
|
|
|
$
|
1.39
|
|
|
$
|
0.98
|
|
Diluted EPS
|
|
$
|
1.50
|
|
|
$
|
1.48
|
|
|
$
|
1.08
|
|
The year-to-year revenue changes by end market and product
category is more fully outlined below under Revenue Trends by
End Market and Revenue Trends by Product.
Revenue
Trends by End Market
The categorization of revenue by end market is determined using
a variety of data points including the technical characteristics
of the product, the sold to customer information,
the ship to customer information and the end
customer product or application into which our product will be
incorporated. As data systems for capturing and tracking this
data evolve and improve, the categorization of products by end
market can vary over time. When this occurs, we reclassify
revenue by end market for prior periods. Such reclassifications
typically do not materially change the sizing of, or the
underlying trends of results within, each end market.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
Product
|
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Y/Y%
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Industrial
|
|
$
|
1,184,891
|
|
|
|
47
|
%
|
|
|
7
|
%
|
|
$
|
1,105,261
|
|
|
|
47
|
%
|
|
$
|
952,662
|
|
|
|
45
|
%
|
Communications
|
|
|
545,792
|
|
|
|
22
|
%
|
|
|
7
|
%
|
|
|
510,137
|
|
|
|
22
|
%
|
|
|
475,284
|
|
|
|
22
|
%
|
Consumer
|
|
|
544,415
|
|
|
|
22
|
%
|
|
|
23
|
%
|
|
|
441,871
|
|
|
|
19
|
%
|
|
|
380,160
|
|
|
|
18
|
%
|
Computer
|
|
|
236,019
|
|
|
|
9
|
%
|
|
|
(17
|
)%
|
|
|
285,650
|
|
|
|
12
|
%
|
|
|
326,694
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue
|
|
$
|
2,511,117
|
|
|
|
100
|
%
|
|
|
7
|
%
|
|
$
|
2,342,919
|
|
|
|
100
|
%
|
|
$
|
2,134,800
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from one-time IP license
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
2,546,117
|
|
|
|
|
|
|
|
|
|
|
$
|
2,342,919
|
|
|
|
|
|
|
$
|
2,134,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial The year-to-year increase from
fiscal 2006 to fiscal 2007 was primarily the result of revenue
growth in products sold into the automotive area and to a lesser
extent the instrumentation portion of the industrial end market.
These sales increases were partially offset by a decline in
sales to automatic test equipment customers. The year-to-year
increase from fiscal 2005 to fiscal 2006 was a result of a broad
based increase in demand for our products across a wide range of
customers in this end market.
Communications The year-to-year increase from
fiscal 2006 to fiscal 2007 was the result of an increase in
sales to customers in the wireless basestation and analog
wireless handset end markets. The increase in sales in these end
markets was partially offset by a decrease in sales to
networking customers. The year-to-year increase from fiscal 2005
to fiscal 2006 was the result of an increase in sales of our
products sold to customers in the wireless basestation end
market and to a lesser extent, an increase in sales of our
products sold into optical applications. These increases were
offset by a decrease in sales to networking customers as a
result of the sale of our DSP-based DSL ASIC and network
processor product line, which we sold in the second quarter of
fiscal 2006.
Consumer The year-to-year increase from
fiscal 2006 to fiscal 2007 was primarily the result of increased
sales of our products used in video game applications, advanced
television systems and digital home applications. The
year-to-year increase from fiscal 2005 to fiscal 2006 was
primarily the result of the success of our products in digital
home applications and advanced television systems and to a
lesser extent in a broad array of audio and video applications.
Computer The year-to-year decreases in each
of the last two fiscal years was the result of our decision to
deemphasize power management products used in desktop and laptop
computers.
Revenue from One-Time IP License During the
first quarter of fiscal 2007, we recorded revenue of
$35 million received in exchange for licensing of certain
intellectual property rights to a third party.
Revenue
Trends by Product
The following table summarizes revenue by product categories.
The categorization of our products into broad categories is
based on the characteristics of the individual products, the
specification of the products and in some cases the specific
uses that certain products have within applications. The
categorization of products into categories is therefore subject
to judgment in some cases and can vary over time. In instances
where products move between
25
product categories we reclassify the amounts in the product
categories for all prior periods. Such reclassifications
typically do not materially change the sizing of, or the
underlying trends of results within, each product category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
Product
|
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Y/Y%
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Converters
|
|
$
|
1,106,615
|
|
|
|
44
|
%
|
|
|
8
|
%
|
|
$
|
1,023,499
|
|
|
|
44
|
%
|
|
$
|
927,711
|
|
|
|
43
|
%
|
Amplifiers
|
|
|
557,515
|
|
|
|
22
|
%
|
|
|
5
|
%
|
|
|
532,046
|
|
|
|
23
|
%
|
|
|
445,732
|
|
|
|
21
|
%
|
Power management & reference
|
|
|
205,497
|
|
|
|
8
|
%
|
|
|
(6
|
)%
|
|
|
219,651
|
|
|
|
9
|
%
|
|
|
214,169
|
|
|
|
10
|
%
|
Other analog
|
|
|
393,724
|
|
|
|
16
|
%
|
|
|
27
|
%
|
|
|
310,075
|
|
|
|
13
|
%
|
|
|
255,385
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total analog products
|
|
$
|
2,263,351
|
|
|
|
90
|
%
|
|
|
9
|
%
|
|
$
|
2,085,271
|
|
|
|
89
|
%
|
|
$
|
1,842,997
|
|
|
|
86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General purpose DSP
|
|
|
214,000
|
|
|
|
9
|
%
|
|
|
4
|
%
|
|
|
205,483
|
|
|
|
9
|
%
|
|
|
186,660
|
|
|
|
9
|
%
|
Other DSP
|
|
|
33,766
|
|
|
|
1
|
%
|
|
|
(35
|
)%
|
|
|
52,165
|
|
|
|
2
|
%
|
|
|
105,143
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total DSP products
|
|
$
|
247,766
|
|
|
|
10
|
%
|
|
|
(4
|
%)
|
|
$
|
257,648
|
|
|
|
11
|
%
|
|
$
|
291,803
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue
|
|
$
|
2,511,117
|
|
|
|
100
|
%
|
|
|
7
|
%
|
|
$
|
2,342,919
|
|
|
|
100
|
%
|
|
$
|
2,134,800
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from one-time IP license
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
2,546,117
|
|
|
|
|
|
|
|
|
|
|
$
|
2,342,919
|
|
|
|
|
|
|
$
|
2,134,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant changes in our revenue trends by product type
from fiscal 2007 to fiscal 2006, and from fiscal 2006 to fiscal
2005, were the year-to-year increases in our other analog
product category, primarily as a result of increased sales of
products used in video game applications and continued growth in
converters and amplifiers. Sales of products in the power
management and reference product category were lower in fiscal
2007 as compared to fiscal 2006 as a result of our decision to
deemphasize power management products used in desktop and laptop
computers. The year-to-year declines from fiscal 2006 to fiscal
2007, and from fiscal 2005 to fiscal 2006, in the DSP product
category were primarily attributable to the loss of revenue from
our DSP-based DSL ASIC and network processor product line that
we sold in the second quarter of fiscal 2006. These decreases
were partially offset by an increase in revenues from our
general purpose DSP products.
Revenue
Trends by Geographic Region
The percentage of product sales from continuing operations by
geographic region, based upon point of sale, for the last three
years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Region
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
United States
|
|
|
26
|
%
|
|
|
27
|
%
|
|
|
27
|
%
|
Europe
|
|
|
24
|
%
|
|
|
24
|
%
|
|
|
25
|
%
|
Japan
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
20
|
%
|
China
|
|
|
13
|
%
|
|
|
11
|
%
|
|
|
9
|
%
|
Rest of Asia*
|
|
|
17
|
%
|
|
|
18
|
%
|
|
|
19
|
%
|
|
|
|
* |
|
The predominant countries comprising Rest of Asia
are Taiwan and Korea. |
There was no major shift in the distribution of revenue by
geographic region in fiscal 2007 as compared to fiscal 2006.
26
Gross
Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Gross Margin
|
|
$
|
1,519,217
|
|
|
$
|
1,403,166
|
|
|
$
|
1,281,315
|
|
Gross Margin %
|
|
|
59.7
|
%
|
|
|
59.9
|
%
|
|
|
60.0
|
%
|
Gross margin in fiscal 2007 decreased by 20 basis points
from the gross margin recorded in fiscal 2006. This decrease was
primarily the result of higher sales of products used in
consumer electronics, which currently earn relatively lower
gross margins than our average gross margin. This decrease was
partially offset by the $35 million in revenue recorded in
the first quarter of fiscal 2007 in exchange for licensing of
certain intellectual property rights to a third party with no
associated cost of sales. Fiscal year 2006 cost of sales also
included approximately $20.3 million of
restructuring-related expenses, of which $18.3 million was
accelerated depreciation.
Gross margin in fiscal 2006 decreased by 10 basis points
from the gross margin recorded in fiscal 2005. This decrease was
the result of recognizing $29.3 million of stock-based
compensation expense, restructuring-related and
acquisition-related expenses in cost of sales in fiscal 2006.
The restructuring expense primarily related to accelerated
depreciation of $18.3 million. These increases in expenses
were partially offset by an increase in utilization of our wafer
fabrication facilities and increased sales of higher margin
products during fiscal 2006 as compared to fiscal 2005.
Stock-based
Compensation Expense
During the first quarter of fiscal 2006, on October 30,
2005, we adopted the Financial Accounting Standards Boards
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment, or SFAS 123R,
using the modified prospective application method. Compensation
cost is calculated on the date of grant using the fair value of
the options as calculated using the Black-Scholes option pricing
model. The Black-Scholes option pricing model requires us to
make several assumptions. One of the key assumptions is expected
volatility. For options granted prior to fiscal 2005, we used
historical volatility to estimate the grant-date fair value of
stock options. We changed our method of estimating expected
volatility for all stock options granted after fiscal 2004 from
exclusively relying on historical volatility to exclusively
relying on implied volatility. This change was the result of a
thorough review we undertook, which included consultations with
several third-party advisors. We currently believe that the
exclusive use of implied volatility results in a more accurate
estimate of the grant-date fair value of employee stock options
because it more appropriately reflects the markets current
expectations of future volatility. Historical volatility during
the period commensurate with the expected term of our stock
options over the past several years included a period of time
during which our stock price experienced unprecedented increases
and subsequent declines. We believe that this past stock price
volatility is unlikely to be indicative of future stock price
behavior.
Prior to the adoption of SFAS 123R, we accounted for
share-based payments to employees under APB Opinion No. 25,
Accounting for Stock Issued to Employees, using the
intrinsic value method and, as such, generally recognized no
compensation cost for employee stock options. The adoption of
SFAS 123R under the modified prospective application method
allowed us to recognize compensation cost beginning with the
effective date (a) based on the requirement of
SFAS 123R for all share-based payments granted after the
effective date and (b) based on the requirements of
SFAS 123 for all awards granted to employees prior to the
effective date of SFAS 123R that were unvested on the
effective date. Under the modified prospective application
method, prior periods are not restated for the effect of
SFAS 123R. We used the graded attribution method to
recognize expense for all options granted prior to the adoption
of SFAS 123R. Upon adoption of SFAS 123R on
October 30, 2005, we switched to the straight-line
attribution method to recognize expense for all grants made
after October 29, 2005. The expense associated with the
unvested portion of the pre-adoption grants continues to be
expensed using the graded attribution method.
Prior to the adoption of SFAS 123R on October 18,
2005, we accelerated the vesting of all unvested stock options
awarded to employees after December 31, 2000 that had
exercise prices of $40.00 per share or greater. The vesting of
options issued to our corporate officers and directors was not
accelerated. Unvested options to purchase approximately
18 million shares became exercisable as a result of the
vesting acceleration. Because the exercise
27
price of all the modified options was greater than the market
price of our underlying common stock on the date of the
modification, no stock-based compensation expense was recorded
in the statement of income in accordance with APB Opinion
No. 25. The primary purpose for modifying the terms of
these out-of-the-money stock options to accelerate their vesting
was to eliminate the need to recognize the remaining
unrecognized non-cash compensation expense in our statement of
income associated with these stock options as measured under
SFAS 123, Accounting for Stock-Based Compensation,
because the approximately $188 million ($134 million
net of tax) of future expense associated with these options
would have been disproportionately high compared to the economic
value of the options at the date of modification.
Our income from continuing operations before income taxes and
net income from continuing operations for fiscal 2007, are
$67.0 million and $47.3 million lower, respectively,
than if we had continued to account for share-based compensation
under APB Opinion 25. Basic and diluted earnings per share for
fiscal 2007 were $0.15 and $0.14 lower, respectively, than if we
had continued to account for share-based compensation under APB
Opinion 25. We expect that stock-based compensation related to
our adoption of SFAS 123R will reduce diluted EPS by
approximately $0.03 in the first quarter of fiscal 2008.
Our income from continuing operations before income taxes and
net income from continuing operations for fiscal 2006, were
$69.8 million and $49.7 million lower, respectively,
than if we had continued to account for share-based compensation
under APB Opinion 25. Basic and diluted earnings per share for
fiscal 2006 were $0.14 and $0.13 lower, respectively, than if we
had continued to account for share-based compensation under APB
Opinion 25.
As of November 3, 2007, the total compensation cost related
to unvested awards not yet recognized in the statement of income
was approximately $144.5 million (before tax
consideration), which will be recognized over a weighted average
period of 1.7 years.
See Note 3 to our Consolidated Financial Statements
contained in Item 8 of this Annual Report on
Form 10-K
for further information regarding our adoption of SFAS 123R.
Research
and Development (R&D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
R&D Expenses
|
|
$
|
519,315
|
|
|
$
|
469,396
|
|
|
$
|
438,183
|
|
R&D Expenses as a % of Product Revenue
|
|
|
20.7
|
%
|
|
|
20.0
|
%
|
|
|
20.5
|
%
|
R&D expenses for fiscal 2007 increased by
$49.9 million, or 11%, from the amount recorded in fiscal
2006. The increase in R&D expense was primarily the result
of an increase in employee salary and benefit expense in fiscal
2007, primarily as a result of an increase in our employee
population and to a lesser extent the impact of the extra week
of operations in fiscal 2007. These increases were partially
offset by lower employee bonus expense during fiscal 2007 as
compared to fiscal 2006.
R&D expenses for fiscal 2006 increased by
$31.2 million, or 7%, from the amount recorded in fiscal
2005. The increase in R&D expense in fiscal 2006 was
primarily the result of recognizing $29.6 million of
stock-based compensation expense due to the adoption of
SFAS 123R and an increase in employee bonus expense. These
increases were partially offset by the savings realized from the
restructuring actions we initiated in the fourth quarter of
fiscal 2005 and the sale of our DSP-based DSL ASIC and network
processor product line in the second quarter of fiscal 2006.
R&D expense as a percentage of net sales will fluctuate
from year-to-year depending on the amount of net sales and the
success of new product development efforts, which we view as
critical to our future growth. At any point in time we have
hundreds of R&D projects underway, and we believe that none
of these projects is material on an individual basis. We expect
to continue the development of innovative technologies and
processes for new products, and we believe that a continued
commitment to R&D 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.
28
Selling,
Marketing, General and Administrative (SMG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
SMG&A Expenses
|
|
$
|
393,221
|
|
|
$
|
387,874
|
|
|
$
|
333,091
|
|
SMG&A Expenses as a % of Product Revenue
|
|
|
15.7
|
%
|
|
|
16.6
|
%
|
|
|
15.6
|
%
|
SMG&A expenses for fiscal 2007 increased by
$5.3 million, or 1%, from the levels recorded in fiscal
2006. The increase in SMG&A expenses was primarily the
result of higher employee salary and benefit expense and an
extra week of operations in the first quarter of fiscal 2007.
These increases were partially offset by lower employee bonus
expense and $8.5 million related to the reimbursement of
legal expenses we received as a result of the settlement of
litigation in the second quarter of fiscal 2007.
SMG&A expenses for fiscal 2006 increased by
$54.8 million, or 16%, from the levels recorded in fiscal
2005. The increase in SMG&A expenses was primarily the
result of recording $32.6 million of stock-based
compensation expense related to the adoption of SFAS 123R
and higher employee salary, benefit and bonus expenses. These
increases were partially offset by savings realized from the
restructuring actions we initiated in the fourth quarter of
fiscal 2005 and the sale of our DSP-based DSL ASIC and network
processor product line in the second quarter of fiscal 2006.
Purchased
In-process Research and Development
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2006
|
|
|
TTPCom Limited
|
|
$
|
5,500
|
|
Integrant
|
|
|
11,124
|
|
AudioAsics
|
|
|
5,087
|
|
|
|
|
|
|
Total Purchased in-Process R&D
|
|
$
|
21,711
|
|
|
|
|
|
|
We incurred charges totaling $21.7 million for the
write-off of in-process technology that had not yet reached
technological feasibility associated with our acquisitions in
the third and fourth quarters of fiscal 2006. There were no
charges for the write-off of in-process research and development
in fiscal 2007 or 2005. See Acquisitions below for
additional information regarding these acquisitions.
Special
Charges
Closure
of Wafer Fabrication Facility in Sunnyvale
During the fourth quarter of fiscal 2005, we recorded a special
charge of $20.3 million as a result of a decision to close
our California wafer fabrication operations and transfer
virtually all of the production of products manufactured there
to our facility in Wilmington, Massachusetts. The charge was for
severance and fringe benefit costs that were recorded pursuant
to SFAS 88, Employers Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, or SFAS 88, under our ongoing
benefit plan for 339 manufacturing employees and 28 general and
administrative employees. The severance benefit was calculated
based on length of past service, and employees had to continue
to be employed until they were involuntarily terminated in order
to receive the severance benefit. We completed the final cleanup
and closure activities associated with this action during the
second quarter of fiscal 2007.
In addition to the charge recorded in the fourth quarter of
fiscal 2005, we recorded additional expense during fiscal 2006,
which consisted of $18.3 million of non-cash cost of sales
expenses for additional depreciation due to shortened useful
lives of certain manufacturing equipment and $2.0 million
for stay-on bonuses. We reversed approximately $2.0 million
of our severance accrual during fiscal 2006 because some
employees voluntarily left the company, other employees found
alternative employment within the company, and there was an over
accrual related to fringe benefits because severance payments,
normally paid as income continuance, were paid in lump sum
payments, which reduced the benefit costs associated with these
payments. We have terminated the employment of all of the
remaining employees included in this action.
29
We ceased production at the wafer fabrication facility on
November 9, 2006. During the first quarter of fiscal 2007,
we recorded additional expense, in accordance with
SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities, which consisted of $3.2 million
for clean-up
and closure costs that were charged to expense as incurred and
$0.4 million for lease obligation costs for a warehouse
facility we ceased using during the first quarter of fiscal
2007. During the second quarter of fiscal 2007, we recorded a
special charge, in accordance with SFAS 146, which included
$5.0 million of expense for future lease obligation costs
for the wafer fabrication facility that we ceased using during
the second quarter of fiscal 2007. Also included in this special
charge was $1.7 million for
clean-up and
closure costs that were charged to expense as incurred. The
clean-up
activity was completed during the second quarter of fiscal 2007,
and we do not expect to incur any additional charges related to
this action.
The closure of this facility has resulted in annual cost savings
of approximately $50 million per year beginning in fiscal
2007. These annual savings include: approximately
$49 million in cost of sales, of which approximately
$7 million relates to non-cash depreciation savings, and
approximately $1 million in SMG&A expenses. At current
demand levels, if this facility were still in operation, the
capacity of the facility would be largely underutilized
resulting in significant adverse manufacturing variances
associated with the underutilization of our wafer fabrication
facilities.
Reorganization
of Product Development and Support Programs
During the fourth quarter of fiscal 2005, we recorded a special
charge of $11.2 million as a result of our decision to
reorganize our product development and support programs with the
goal of providing greater focus on our analog and digital signal
processing product programs. The charge was for severance and
fringe benefit costs that were recorded pursuant to SFAS 88
under our ongoing benefit plan or statutory requirements at
foreign locations for 60 manufacturing employees and 154
engineering and selling, marketing, general and administrative
employees.
During fiscal 2006, we recorded an additional special charge of
$3.8 million related to this reorganization action.
Approximately $1.5 million of this charge was for lease
obligation costs for a facility we ceased using during the first
quarter of fiscal 2006 and the write-off of property, plant and
equipment and other items at this facility. The remaining
$2.3 million related to the severance and fringe benefit
costs that were recorded in the fourth quarter of fiscal 2006
pursuant to SFAS 88 under our ongoing benefit plan or
statutory requirements at foreign locations for 46 engineering
and selling, marketing, general and administrative employees.
During the first quarter of fiscal 2007, we recorded an
additional special charge of $1.6 million related to this
reorganization action. Approximately $0.6 million of this
charge was for contract termination costs. The remaining
$1.0 million relates to severance and fringe benefit costs
recorded pursuant to SFAS 88 under our ongoing benefit plan
for six engineering employees.
During the second quarter of fiscal 2007, we recorded an
additional special charge of $3.4 million related to this
reorganization action. Approximately $3.2 million relates
to the severance and fringe benefit costs recorded pursuant to
SFAS 88 under our ongoing benefit plan or minimum statutory
requirements at foreign locations for 20 engineering and
selling, marketing, general and administrative employees. The
remaining $0.2 million of this charge was for lease
obligation costs for a facility we ceased using during the
second quarter of fiscal 2007.
During the fourth quarter of fiscal 2007, we reversed
approximately $0.9 million of our severance accrual because
some employees voluntarily left the company and other employees
found alternative employment within the company, and were
therefore no longer entitled to severance payments.
The employment of all employees included in this action has been
terminated. We do not expect to incur any further charges
related to this reorganization action. These organizational
changes, which were fully implemented in the fourth quarter of
fiscal 2007, are expected to result in savings of approximately
$30 million per year. These savings are expected to be
realized as follows: approximately $17 million in R&D
expenses, approximately $10 million in SMG&A expenses
and approximately $3 million in cost of sales. A portion of
these savings associated with these charges is reflected in our
fiscal 2007 results.
30
Fourth
Quarter of Fiscal 2007 Special Charges
Consolidation
of a Wafer Fabrication Facility in Limerick
During the fourth quarter of fiscal 2007, we recorded a special
charge of $13.7 million as a result of our decision to
focus the wafer fabrication capacity at our Limerick facility on
eight-inch technology. Certain manufacturing processes and
products produced on our six-inch production line will
transition to our existing eight-inch production line in
Limerick while others will transition to external foundries. The
charge is for severance and fringe benefit costs recorded
pursuant to SFAS 88 under our ongoing benefit plan for 150
manufacturing employees. Production is expected to cease in the
six-inch wafer fabrication facility during the first half of
2009, and the affected employees will be terminated. These
employees must continue to be employed until their employment is
involuntarily terminated in order to receive the severance
benefit. We expect to incur additional expenses related to this
action during fiscal year 2009 of approximately $6 million
related to cleanup and closure costs. In accordance with
SFAS 146, these costs will be expensed as incurred. The
closure of this facility is estimated to result in annual cost
savings of approximately $25 million per year, expected to
start during the second quarter of fiscal 2009. These annual
savings will be in cost of sales, of which approximately
$1 million relates to non-cash depreciation savings.
Reduction
of Overhead Infrastructure Costs
During the fourth quarter of fiscal 2007, we decided to either
deemphasize or exit certain businesses or products and focus
investments in products and end markets where we have better
opportunities for profitable growth. In September 2007, we
entered into a definitive agreement to sell our Baseband Chipset
Business. As a result of these decisions, we decided to reduce
the support infrastructure in manufacturing, engineering and
SMG&A to more appropriately reflect our required overhead
structure. Consequently, we recorded a special charge of
$12.3 million, of which $10.7 million is for severance
and fringe benefit costs recorded pursuant to SFAS 88 under
our ongoing benefit plan or statutory requirements at foreign
locations for 25 manufacturing employees and 127 engineering and
selling, marketing, general and administrative employees. The
remaining $1.6 million is for contract termination costs
related to a license agreement associated with products we will
no longer develop and for which there is no future alternative
use. As of November 3, 2007, 77 of the 152 employees
included in this cost reduction action were still employed by
us. These employees must continue to be employed until their
employment is involuntarily terminated in order to receive the
severance benefit. These cost reduction actions are expected to
result in savings of approximately $15 million per year
once substantially completed in the second quarter of fiscal
2008. These savings are expected to be realized as follows:
approximately $7 million in R&D expenses,
approximately $6 million in SMG&A expenses and
approximately $2 million in cost of sales.
Operating
Income from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating income from Continuing Operations
|
|
$
|
566,186
|
|
|
$
|
522,395
|
|
|
$
|
478,561
|
|
Operating income from Continuing Operations as a % of Total
Revenue
|
|
|
22.2
|
%
|
|
|
22.3
|
%
|
|
|
22.4
|
%
|
Operating income increased by $43.8 million, or 8%, in
fiscal 2007 as compared to fiscal 2006. This increase was the
result of a $203.2 million increase in revenue, which was
offset by a 0.2% reduction in gross margin percentage and a
$72.3 million increase in operating expenses as more fully
described above under the headings Research and Development
and Selling, Marketing, General and Administrative,
Special Charges and Purchased In-process Research and
Development.
The $43.8 million, or 9%, increase in operating income in
fiscal 2006 as compared to fiscal 2005 was primarily the result
of a 10% increase in revenue. This increase was partially offset
by $69.8 million of stock-based operating expenses
associated with the adoption of SFAS 123R and the
$21.7 million write-off of purchased in-process research
and development as a result of our fiscal 2006 acquisitions. In
addition, the special charges in fiscal 2006 were lower by
$29.7 million than the special charges recorded in fiscal
2005.
31
Nonoperating
(Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Interest expense
|
|
$
|
|
|
|
$
|
52
|
|
|
$
|
27
|
|
Interest income
|
|
|
(77,007
|
)
|
|
|
(100,169
|
)
|
|
|
(71,688
|
)
|
Other, net
|
|
|
(15,727
|
)
|
|
|
(10,472
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating income
|
|
$
|
(92,734
|
)
|
|
$
|
(110,589
|
)
|
|
$
|
(71,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $17.9 million decrease in nonoperating income in fiscal
2007 as compared to fiscal 2006 was a result of lower invested
cash balances that were partially offset by the higher interest
rates in fiscal 2007 as compared to fiscal 2006. This decrease
in interest income was partially offset by a $7.9 million
gain from the sale of an investment and a $10.5 million
settlement we received in fiscal 2007. In fiscal 2006, we also
recognized a $13.0 million gain on the sale of our
DSP-based DSL ASIC and network processor product line.
Nonoperating income increased by $38.9 million in fiscal
2006 as compared to fiscal 2005. This increase was primarily the
result of higher interest income, which was primarily
attributable to higher interest rates in fiscal 2006 as compared
to fiscal 2005. Nonoperating income for fiscal 2006 also
included a $13.0 million gain on the sale of our DSP-based
DSL ASIC and network processor product line during the second
quarter of fiscal 2006.
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Provision for Income Taxes
|
|
$
|
158,444
|
|
|
$
|
117,418
|
|
|
$
|
174,320
|
|
Effective Income Tax Rate
|
|
|
24.0
|
%
|
|
|
18.5
|
%
|
|
|
31.7
|
%
|
Our effective tax rate reflects the applicable tax rate in
effect in the various tax jurisdictions around the world where
our income is earned. Our effective tax rate for fiscal 2007 was
higher by 550 basis points compared to our effective tax
rate for fiscal 2006. This increase was primarily attributable
to the recording of tax benefits of $35.2 million
associated with the completion of an Internal Revenue Service,
or IRS, examination during fiscal 2006, including the reversal
of penalty accruals and the filing of refund claims in other
jurisdictions associated with the completion of the IRS audit.
The increase was also attributable to the following fiscal 2007
transactions, which were taxed at the higher U.S. tax rate:
the one-time receipt of $35 million associated with the
licensing of intellectual property to a third party, the gain on
the sale of an investment of $7.9 million and the
$19 million received from the settlement of litigation. In
addition, we recorded an additional $4.4 million of taxes
and penalties in fiscal 2007 for proposed adjustments related to
the IRS examination of fiscal 2005 and fiscal 2004 and a
$5.6 million tax adjustment related to the finalization of
the accounting associated with a fiscal 2006 acquisition. These
items were partially offset by a tax benefit of
$4.7 million from the reinstatement of the
U.S. federal research and development tax credit in fiscal
2007 and a $9.9 million cumulative adjustment recorded in
fiscal 2007 related to the application of this credit to a
portion of our fiscal 2006 results.
The tax rate was lower in fiscal 2006 as compared to fiscal 2005
primarily due to the recording of tax benefits of
$35.2 million associated with the completion of an IRS
examination during fiscal 2006, including the reversal of
penalty accruals and the filing of refund claims in other
jurisdictions associated with the completion of the IRS audit.
In addition, the effective tax rate was higher in fiscal 2005 as
a result of our repatriation of foreign earnings and the
write-off of deferred tax assets associated with balances
accumulated in our deferred compensation plan as more fully
described below.
On October 22, 2004, the American Jobs Creation Act of
2004, or the AJCA, was signed into law. The AJCA created a
temporary incentive for U.S. multinational corporations to
repatriate accumulated foreign income by providing an 85%
dividends received deduction for certain dividends from
controlled foreign corporations. During fiscal 2005, we
repatriated $1,055 million of accumulated foreign earnings,
taking the benefit of current tax law allowing for earnings
repatriated prior to October 29, 2005 to be taxed at a
reduced effective tax rate. In connection with the repatriation
of earnings, we recorded additional income tax expense of
$49 million in fiscal 2005.
32
We had originally established a deferred tax asset on our
consolidated balance sheet with the expectation that the
officers subject to the 162(m) limitation of the Internal
Revenue Code would not withdraw their balances from the Analog
Devices, Inc. Deferred Compensation Plan, or the deferred
compensation plan, while they were still subject to the 162(m)
limitation, and we would receive a tax deduction at the time of
withdrawal, generally upon their retirement. Due to changes in
tax law during 2005 that were enacted as part of the AJCA, the
laws associated with distributions from deferred compensation
plans changed. In fiscal 2005 three executive officers who were
subject to the 162(m) limitation withdrew, or indicated their
intention to withdraw a portion of their balances from the
deferred compensation plan. As a result, we incurred additional
income tax expense in fiscal 2005 of $7.2 million due to
the write-off of deferred tax assets associated with balances
accumulated in the deferred compensation plan.
Net
Income from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income from Continuing Operations
|
|
$
|
500,695
|
|
|
$
|
516,314
|
|
|
$
|
375,944
|
|
Net income from Continuing Operations as a % of Total Revenue
|
|
|
19.7
|
%
|
|
|
22.0
|
%
|
|
|
17.6
|
%
|
Diluted EPS from Continuing Operations
|
|
$
|
1.51
|
|
|
$
|
1.39
|
|
|
$
|
0.98
|
|
Net income from continuing operations was lower in fiscal 2007
than in fiscal 2006 by approximately $15.6 million
primarily as a result of the $17.9 million decrease in
nonoperating income and the impact of a higher effective income
tax rate in fiscal 2007, partially offset by the
$43.8 million increase in operating income from continuing
operations.
Net income from continuing operations increased by
$140.4 million in fiscal 2006 as compared to fiscal 2005,
primarily as the result of the 10% increase in revenue, the
increase in nonoperating income and lower tax expense. This
increase in net income was partially offset by a year-to-year
increase in operating expenses of $78.0 million, primarily
as a result of $62.2 million of stock-based operating
expenses related to the adoption of SFAS 123R and
$22.2 million of operating expenses related to our
acquisitions during fiscal 2006. These operating expense
increases were partially offset by a $29.7 million decrease
in special charges in fiscal 2006 as compared to fiscal 2005.
The impact of inflation and foreign currency exchange rate
movement on our business during the past three fiscal years has
not been significant.
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net (loss) income from discontinued operations
|
|
$
|
(3,788
|
)
|
|
$
|
33,168
|
|
|
$
|
38,843
|
|
Diluted (loss) earnings per share from discontinued operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
We entered into a definitive agreement in the fourth quarter of
fiscal 2007 to sell our Baseband Chipset Business to MediaTek
Inc. Accordingly, these operations have been presented as a
discontinued operation within the consolidated financial
statements in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). We expect to
record a gain from the sale of this business upon the completion
of the sale in the first quarter of fiscal 2008. We estimate
this gain after taxes will be in the range of $150 million
to $160 million.
Acquisitions
In the third quarter of fiscal 2006, we completed a transaction
with TTPCom Limited (TTPCom), whereby TTPCom transferred to us
intellectual property, engineering resources, and related assets
associated with the support and customization of TTPComs
GSM/GPRS/EDGE modem software for use on our existing and future
generations of
SoftFone®
baseband processors. We also acquired development rights for
AJAR, TTPComs advanced applications platform. As a result
of this transaction, we became the single point of contact for
both hardware and software support for our new and existing
wireless handset customers, thus improving our abilities to
33
service the needs of individual customers. We paid TTPCom
$11.9 million in initial cash payments. The purchase price
was allocated to the tangible and intangible assets acquired
based on their estimated fair values at the date of acquisition.
The estimated fair values of the assets exceeded the initial
payments by $7.8 million, resulting in negative goodwill.
Pursuant to Statement of Financial Accounting Standards (SFAS)
No 141, Business Combinations, we recorded a liability
for the contingent consideration that will be accounted for as
additional purchase price, up to the amount of the negative
goodwill. As contingent payments became due, the payments were
applied against the contingent liability. As of October 28,
2006, we had paid $6 million of contingent payments and the
remaining contingent liability was $1.8 million. The
purchase price included $5.5 million of in-process
technology that had not yet reached technological feasibility,
had no alternative future use and was charged to operations
during the third quarter of fiscal 2006. The in-process
technology related to software code developed for use in our
semiconductor chipsets manufactured for devices that use both
the 2G and 2.5G cellular wireless technology standards. The fair
value of the in-process technology was determined with the
assistance of a third party using the income approach. At the
time of the acquisition, the in-process technology was
approximately 56% complete. As of November 3, 2007, the
in-process research and development projects were complete.
During fiscal 2007, we paid an additional $6.1 million of
contingent consideration, which resulted in reducing the
$1.8 million liability and recording additional goodwill of
$4.3 million. As of November 3, 2007, all
technological milestones have been met and no additional
payments will be made. The acquisition also included
$13.2 million of intangible assets that were being
amortized over their estimated useful lives of five years using
an accelerated amortization method that reflects the estimated
pattern of economic use. As a result of the definitive agreement
to sell our Baseband Chipset Business to MediaTek Inc.,
$7.9 million and $11.4 million of net intangible
assets were reclassified to assets of discontinued operations at
November 3, 2007 and October 28, 2006, respectively,
as the TTPCom assets will be transferred to Media Tek Inc. as
part of the transaction. See Note 2u. to our Consolidated
Financial Statements contained in Item 8 of this Annual
Report on
Form 10-K
for further information regarding assets of discontinued
operations.
In the fourth quarter of fiscal 2006, we acquired substantially
all the outstanding stock of privately-held Integrant
Technologies, Inc. (Integrant) of Seoul, Korea. The acquisition
enabled us to enter the mobile TV market and strengthened our
presence in the Asian region. We paid $127.2 million in
initial cash payments at closing and may be obligated to make
additional cash payments of up to an aggregate of
$33 million upon the satisfaction of certain conditions.
The initial cash payments included $4.2 million held in
escrow for the purchase of the remaining non-founder outstanding
shares. These shares were purchased during fiscal 2007 and were
recorded as additional goodwill. The purchase price was
allocated to the tangible and intangible assets acquired based
on their estimated fair values at the date of acquisition. We
completed the final purchase accounting for this transaction
during the first quarter of fiscal 2007, which resulted in an
additional $5.6 million of goodwill. The $33 million
of potential cash payments is comprised of $25 million for
the achievement of revenue-based milestones that may be payable
during the period from July 2006 through December 2007 and
$8 million related to the purchase of shares from the
founder of Integrant during the period from July 2007 through
July 2009. The additional cash payments will be recorded as
additional purchase price. During fiscal 2007, we paid
$3.5 million to repurchase founder shares. No revenue-based
milestones have been met as of November 3, 2007. The
purchase price included $11.1 million of in-process
technology that had not yet reached technological feasibility,
had no alternative future use and was charged to operations
during the fourth quarter of fiscal 2006. The in-process
technology related to technologies currently in development for
Dual DAB, T-DMB, DVB-H, RFID and WiBro applications.
The fair value of the in-process technology was determined with
the assistance of a third party using the income approach. At
the time of the acquisition, the in-process technology was
approximately 74% complete. As of November 3, 2007, the
in-process research and development projects were complete. The
acquisition also included $21.6 million of intangible
assets that are being amortized over their estimated useful
lives of two to five years using an accelerated amortization
method that reflects the estimated pattern of economic use.
In the fourth quarter of fiscal 2006, we acquired all the
outstanding stock of privately-held AudioAsics A/S (AudioAsics)
of Roskilde, Denmark. The acquisition of AudioAsics allows us to
continue developing our low-power audio solutions, while
expanding our presence in the Nordic and Eastern European
regions. We paid $19.3 million in initial cash payments at
closing and may be obligated to make additional cash payments of
up to an aggregate of $8 million upon the satisfaction of
certain conditions. The purchase price was allocated to the
tangible and intangible assets acquired based on their estimated
fair values at the date of acquisition. The $8 million of
potential cash payments is comprised of $4.8 million for
the achievement of revenue-based milestones that may be
34
payable during the period from October 2006 through January 2009
and $3.2 million based on the achievement of technological
milestones during the period from October 2006 through January
2009. In order to be entitled to receive $2.4 million of
the revenue-based contingent consideration, certain key
employees must continue to be employed by us. As such, that
portion of the revenue-based contingent consideration will be
recorded as compensation expense when, and if, it is earned. The
technological milestones require post-acquisition services to be
rendered in order to be achieved and, as such, will be recorded
as compensation expense when earned. The purchase price included
$5.1 million of in-process technology that had not yet
reached technological feasibility, had no alternative future use
and was charged to operations during the fourth quarter of
fiscal 2006. The in-process technology related to technologies
currently in development for analog and digital microphone
pre-amplifiers.
The fair value of the in-process technology was determined with
the assistance of a third party using the income approach. At
the time of the acquisition, the in-process technology was
approximately 69% complete. As of November 3, 2007, the
in-process research and development projects were complete. The
acquisition also included $8.3 million of intangible assets
that are being amortized over their estimated useful lives of
five years using an accelerated amortization method that
reflects the estimated pattern of economic use. As of
November 3, 2007, no contingent consideration has been paid.
Pro forma results of operations for TTPCom, Integrant and
AudioAsics have not been provided herein as they were not
material to us on either an individual or an aggregate basis.
The results of operations of each acquisition are included in
our consolidated statement of income from the date of such
acquisition.
Related
Party Transaction
One of our directors, who has served on our Board of Directors
since 1988, became a director of Taiwan Semiconductor
Manufacturing Company, or TSMC, in fiscal 2002 and continues to
serve as a director of TSMC. Management believes the terms and
prices for the purchases of products from TSMC are not affected
by the presence of one of our directors on the Board of
Directors of TSMC. We purchased approximately $302 million,
$281 million and $224 million of products from TSMC in
fiscal years 2007, 2006 and 2005, respectively. Approximately
$47 million and $17 million were payable to TSMC as of
November 3, 2007 and October 28, 2006, respectively.
We anticipate that we will make significant purchases from TSMC
in fiscal year 2008.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net Cash Provided by Operations
|
|
$
|
820,365
|
|
|
$
|
621,102
|
|
|
$
|
672,704
|
|
Net Cash Provided by Operations as a % of Total Revenue
|
|
|
32.2
|
%
|
|
|
26.5
|
%
|
|
|
31.5
|
%
|
At November 3, 2007, cash, cash equivalents and short-term
investments totaled $1,081.2 million, a decrease of
$1,047.1 million from the end of the fourth quarter of
fiscal 2006. The primary sources of funds for fiscal 2007 were
net cash generated from operating activities of
$820.4 million and proceeds of $109.1 million from our
employee stock plans. The principal uses of funds during fiscal
2007 were the repurchase of approximately 45.9 million
shares of our common stock for an aggregate of
$1,647.2 million, dividend payments of $228.3 million
and capital expenditures of $141.8 million.
In the fourth quarter of fiscal 2007, we entered into a
definitive agreement to sell our Baseband Chipset Business to
MediaTek Inc. The cash flows from this discontinued operation
have been combined with the operating, investing and financing
cash flows from continuing operations (i.e. no separate
classification of cash flows from discontinued operations) for
all periods presented. We believe the absence of the cash flows
from this discontinued operation will not have a material impact
on our future liquidity and financial position. Additionally, as
a result of this agreement, we reclassified certain assets and
liabilities related to this business to assets or liabilities of
discontinued operations. See Note 2u. to our Consolidated
Financial Statements contained in Item 8 of this Annual
Report on
Form 10-K
for further information regarding this discontinued operation.
The anticipated closure of the sale of our Baseband Chipset
Business to MediaTek Inc. and the anticipated closure of the
sale of our CPU voltage regulation and PC thermal monitoring
business to ON Semiconductor
35
Corporation are expected to generate approximately
$250 million to $270 million of cash in fiscal 2008
after the payment of all applicable taxes.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
Accounts Receivable
|
|
$
|
336,381
|
|
|
$
|
305,761
|
|
Days Sales Outstanding*
|
|
|
47
|
|
|
|
46
|
|
Inventory
|
|
$
|
347,519
|
|
|
$
|
362,945
|
|
Days Cost of Sales in Inventory*
|
|
|
118
|
|
|
|
133
|
|
|
|
|
* |
|
We use the annualized fourth quarter revenue in our calculation
of days sales outstanding and we use the annualized fourth
quarter cost of sales in our calculation of days cost of sales
in inventory. |
Accounts receivable at the end of fiscal 2007 increased by
$30.6 million, or 10%, from the amount at the end of fiscal
2006. This increase was the result of higher sales in the last
month of fiscal 2007 as compared to the last month of fiscal
2006.
Inventories at the end of fiscal 2007 decreased by
$15.4 million, or 4%, from the amount at the end of fiscal
2006 and days cost of sales in inventory at the end of fiscal
2007 decreased by 15 days from the amount at the end of
fiscal 2006. The decrease in inventory is a result of our
continued effort to balance production, demand and inventory
levels as well as the sale of inventory (valued at approximately
$19 million at October 28, 2006) which had been
built during fiscal 2006 in anticipation of the closure of the
Sunnyvale, California wafer fabrication facility.
Current liabilities increased to $548.1 million at
November 3, 2007, an increase of $57.2 million, or
11.6%, from $490.9 million at the end of fiscal 2006.
Net additions to property, plant and equipment including that
related to our Baseband Chipset Business, which is reflected as
a discontinued operation, were $141.8 million in fiscal
2007, $129.3 million in fiscal 2006 and $85.5 million
in fiscal 2005. Fiscal 2008 capital expenditures are expected to
total approximately $160 million.
During fiscal 2007, our Board of Directors declared cash
dividends totaling $0.70 per outstanding share of common stock
resulting in dividend payments of $228.3 million in fiscal
2007. The payment of future dividends, if any, will be based on
several factors including our financial performance, outlook and
liquidity. After the end of the fiscal year, on
November 26, 2007, our Board of Directors declared a cash
dividend of $0.18 per outstanding share of our common stock. The
dividend is payable on December 26, 2007 to shareholders of
record on December 7, 2007 and is expected to total
approximately $54 million.
On May 11, 2005, our Board of Directors authorized an
increase in the aggregate dollar amount of common stock that may
be repurchased under our share repurchase program previously
adopted by our Board of Directors on August 11, 2004 from
$500 million to $1 billion. On March 14, 2006,
our Board of Directors authorized the repurchase by us of an
additional $1 billion of our common stock, increasing the
total amount of our common stock we can repurchase from
$1 billion to $2 billion of our common stock. On
December 6, 2006, our Board of Directors authorized the
repurchase by us of an additional $1 billion of our common
stock, increasing the total amount of our common stock we are
authorized to repurchase from $2 billion to
$3 billion. On June 6, 2007, our Board of Directors
authorized the repurchase by us of an additional $1 billion
of our common stock, increasing the total amount of our common
stock we are authorized to repurchase from $3 billion to
$4 billion. Under the repurchase program, we may repurchase
outstanding shares of our common stock from time to time in the
open market and through privately negotiated transactions.
Unless terminated earlier by resolution of our Board of
Directors, the repurchase program will expire when we have
repurchased all shares authorized for repurchase under the
repurchase program. During fiscal 2007, we repurchased
approximately $1,647.2 million of our common stock under
this plan. As of November 3, 2007, we had
$665.2 million of authorized repurchases remaining under
our repurchase program. We plan to continue to repurchase shares
during fiscal 2008. The timing and number of shares repurchased
can not be reasonably estimated at this time; however, from the
end of fiscal year 2007 through November 26, 2007, we
repurchased approximately 4.6 million shares for
approximately $151 million.
36
The table below summarizes our contractual obligations as of
November 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
(thousands)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leasesa
|
|
$
|
91,478
|
|
|
$
|
30,774
|
|
|
$
|
39,173
|
|
|
$
|
9,272
|
|
|
$
|
12,259
|
|
Deferred compensation
planb
|
|
|
36,553
|
|
|
|
1,233
|
|
|
|
1,233
|
|
|
|
|
|
|
|
34,087
|
|
Pension
fundingc
|
|
|
7,993
|
|
|
|
7,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
136,024
|
|
|
$
|
40,000
|
|
|
$
|
40,406
|
|
|
$
|
9,272
|
|
|
$
|
46,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Certain of our operating lease obligations include escalation
clauses. These escalating payment requirements are reflected in
the table. |
|
(b) |
|
These payments relate to obligations under our deferred
compensation plan. The deferred compensation plan allows certain
members of management and other highly-compensated employees and
non-employee directors to defer receipt of all or any portion of
their compensation. Prior to January 1, 2005, participants
could also defer gains on stock options and restricted stock
granted before July 23, 1997. The amount in the More
than 5 Years column of the table represents the
remaining total balance under the deferred compensation plan to
be paid to participants who have not terminated employment.
Since we cannot reasonably estimate the timing of withdrawals
for participants who have not yet terminated employment we have
included the future obligation to these participants in the
More than 5 Years column of the table. All
other columns represent installment payments to be made to those
employees who have retired or are on long-term disability. |
|
(c) |
|
Our funding policy for our foreign defined benefit plans is
consistent with the local requirements of each country. The
payment obligations in the table are estimates of our expected
contributions to these plans for fiscal year 2008. The actual
future payments may differ from the amounts presented in the
table and reasonable estimates of payments beyond one year are
not practical because of potential future changes in variables
such as plan asset performance, interest rates and the rate of
increase in compensation levels. |
Purchase orders for the purchase of raw materials and other
goods and services are not included in the table above. We are
not able to determine the total amount of these purchase orders
that represent contractual obligations, as purchase orders may
represent authorizations to purchase rather than binding
agreements. In addition, our purchase orders generally allow for
cancellation without significant penalties. We do not have
significant agreements for the purchase of raw materials or
other goods specifying minimum quantities or set prices that
exceed our expected short-term requirements.
The expected timing of payments and the amounts of the
obligations discussed above are estimated based on current
information.
At November 3, 2007, our principal source of liquidity was
$1,081.2 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 anticipated available long-term financing, will be
sufficient to fund operations, capital expenditures and research
and development efforts for at least the next twelve months and
thereafter for the foreseeable future.
Off-balance
Sheet Financing
As of November 3, 2007, we had no off-balance sheet
financing arrangements.
Outlook
The following statements are based on current expectations.
These statements are forward-looking, and actual results may
differ materially. Unless specifically mentioned, these
statements do not give effect to the potential impact of any
mergers, acquisitions, divestitures, or business combinations
that may be announced or closed after the date of filing this
report. These statements supersede all prior statements
regarding business outlook made by the Company. Upon entering
into the definitive agreement to sell our CPU Voltage regulator
and PC thermal monitoring
37
business on November 8, 2007, the assets of this business
met the held-for-sale criteria, and will therefore be
reclassified as discontinued operations during the first quarter
of fiscal 2008. This business generated approximately
$25 million of sales in the fourth quarter of fiscal 2007.
Therefore, once we reclassify the $25 million of revenue to
discontinued operations, our fourth quarter revenue will be
$623 million. On this basis, we expect product sales from
continuing operations in the first quarter of fiscal 2008 to be
approximately $610 million to $635 million. Gross
margin percentage is planned to be up slightly in the first
quarter of fiscal 2008 as compared to the fourth quarter of
fiscal 2007. Diluted EPS is planned to be approximately $0.38 to
$0.42 for the first quarter of fiscal 2008.
As previously announced, we also expect to close on the sales of
two businesses in the first quarter of fiscal 2008. The
estimated gains on these sales are not reflected in the
estimates above. We expect to realize a gain, net of tax, of
between approximately $150 million and $160 million
related to the sale of our Baseband Chipset Business to MediaTek
Inc. We also expect to recognize a gain, net of taxes of between
approximately $52 million and $60 million related to
the sale of our CPU voltage regulation and PC thermal monitoring
business. The gains on both of these sales will be included in
income from discontinued operations.
New
Accounting Pronouncements
Accounting
for Financial Assets and Financial Liabilities
In February 2007, the Financial Accounting Standards Board
(FASB), issued Statement of Financial Accounting Standard (SFAS)
159, The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159 permits entities
to choose to measure many financial instruments and certain
other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related
assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS 159 is effective
as of the beginning of an entitys first fiscal year that
begins after November 15, 2007, which is our fiscal year
2009 that begins on November 2, 2008. We are currently
evaluating the impact, if any, that SFAS 159 may have on
our financial condition and results of operations.
Fair
Value Measurements
In September 2006, the FASB issued SFAS 157, Fair Value
Measurements (SFAS 157). SFAS 157 provides
enhanced guidance for using fair value to measure assets and
liabilities. The standard also responds to investors
requests for expanded information about the extent to which
companies measure assets and liabilities at fair value, the
information used to measure fair value and the effect of fair
value measurements on earnings. SFAS 157 applies whenever
other standards require or permit assets or liabilities to be
measured at fair value. This standard does not expand the use of
fair value in any new circumstances. SFAS 157 is effective
for fiscal years beginning after November 15, 2007, which
is our fiscal year 2009 that begins on November 2, 2008. We
are currently evaluating the impact that SFAS 157 may have
on our financial condition and results of operations.
Accounting
for Prior Year Misstatements
In September 2006, the United States Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin (SAB)
No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements (SAB 108). This SAB provides
guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. SAB 108 establishes an
approach that requires quantification of financial statement
errors based on the effects on each of the companys
balance sheet and statement of operations and the related
financial statement disclosures. SAB 108 permits existing
public companies to record the cumulative effect of initially
applying this approach in the first year ending after
November 15, 2006 by recording the necessary correcting
adjustments to the carrying values of assets and liabilities as
of the beginning of that year with the offsetting adjustment
recorded to the opening balance of retained earnings.
Additionally, the use of the cumulative effect transition method
requires detailed disclosure of the nature and amount of each
individual error being corrected through the cumulative
adjustment and how and when it arose. The adoption of
SAB 108 in the first quarter of fiscal 2007 did not have
any impact on our financial condition or results of operations.
38
Accounting
for Defined Benefit Pension and Other Postretirement
Plans
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An Amendment of FASB
Statements No. 87, 88, 106, and 132R (SFAS 158).
SFAS 158 requires companies to recognize the funded status
of pension and other postretirement benefit plans on sponsoring
employers balance sheets and to recognize changes in the
funded status in the year the changes occur. It also requires
the measurement date of plan assets and obligations to occur at
the end of the employers fiscal year. SFAS 158 was
effective for us at the end of fiscal 2007, except for the
change in measurement date, which is effective for us in fiscal
2009. The adoption of SFAS 158 in the fourth quarter of
fiscal 2007 did not have a material impact on our financial
condition or results of operations.
Accounting
for Uncertainty in Income Taxes
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109 (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in
accordance with SFAS 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition.
FIN 48 is effective for fiscal years beginning after
December 15, 2006. We are currently evaluating the impact,
if any, that FIN 48 may have on our financial condition or
results of operations.
Critical
Accounting Policies and Estimates
Managements discussion and analysis of the financial
condition and results of operations is based upon the
consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting
principles. The preparation of these financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and liabilities. We
base our estimates and judgments on historical experience,
knowledge of current conditions and beliefs of what could occur
in the future based on available information. We consider the
following accounting policies to be both those most important to
the portrayal of our financial condition and those that require
the most subjective judgment. If actual results differ
significantly from managements estimates and projections,
there could be a material effect on our financial statements. We
also have other policies that we consider key accounting
policies, such as our policy for revenue recognition, including
the deferral of revenue on sales to distributors until the
products are sold to the end user; however, the application of
these policies does not require us to make significant estimates
or judgments that are difficult or subjective.
Inventory
Valuation
Inventories are valued at the lower of cost
(first-in,
first-out method) or market. Because of the cyclical nature of
the semiconductor industry, changes in inventory levels,
obsolescence of technology, and product life cycles, we write
down inventories to net realizable value. We employ a variety of
methodologies to determine the net realizable value of
inventory. While a portion of the calculation is determined via
reference to the age of inventory and lower of cost or market
calculations, an element is subject to significant judgments
made by us about future demand for our inventory. If actual
demand for our products is less than our estimates, additional
adjustments to existing inventories may need to be recorded in
future periods.
Allowance
for Doubtful Accounts
We maintain allowances for doubtful accounts, when appropriate,
for estimated losses resulting from the inability of our
customers to make required payments. If the financial condition
of our customers were to deteriorate, our actual losses may
exceed our estimates, and additional allowances would be
required.
39
Long-Lived
Assets
We review property, plant, and equipment and identified
intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of assets may not
be recoverable. Recoverability of these assets is measured by
comparison of their carrying value to future undiscounted cash
flows the assets are expected to generate over their remaining
economic lives. If such assets are considered to be impaired,
the impairment to be recognized in earnings equals the amount by
which the carrying value of the assets exceeds their fair market
value determined by either a quoted market price, if any, or a
value determined by utilizing a discounted cash flow technique.
Although we have recognized no material impairment adjustments
related to our property, plant, and equipment and identified
intangible assets during the past three fiscal years, except
those made in conjunction with restructuring actions,
deterioration in our business in the future could lead to such
impairment adjustments in future periods. Evaluation of
impairment of long-lived assets requires estimates of future
operating results that are used in the preparation of the
expected future undiscounted cash flows. Actual future operating
results and the remaining economic lives of our long-lived
assets could differ from the estimates used in assessing the
recoverability of these assets. These differences could result
in impairment charges, which could have a material adverse
impact on our results of operations. In addition, in certain
instances, assets may not be impaired but their estimated useful
lives may have decreased. In these situations, we amortize the
remaining net book values over the revised useful lives.
Goodwill
In accordance with SFAS 142, Goodwill and Other
Intangible Assets, goodwill is subject to annual impairment
tests, or earlier if indicators of potential impairment exist
and suggest that the carrying value of goodwill may not be
recoverable from estimated discounted future cash flows. Because
we have one reporting segment under SFAS 142, we utilize
the entity-wide approach to assess goodwill for impairment and
compare our market value to our net book value to determine if
an impairment exists. These impairment tests may result in
impairment losses that could have a material adverse impact on
our results of operations.
Accounting
for Income Taxes
We account for income taxes in accordance with SFAS 109,
Accounting for Income Taxes, which requires that deferred
tax assets and liabilities be recognized using enacted tax rates
for the effect of temporary differences between the book and tax
bases of recorded assets and liabilities. SFAS 109 also
requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all
of the deferred tax asset will not be realized. We evaluate the
realizability of our deferred tax assets quarterly. At
November 3, 2007, we had gross deferred tax assets of
$210.9 million primarily resulting from temporary
differences between the book and tax bases of assets and
liabilities. We have conducted an assessment of the likelihood
of realization of those deferred tax assets and concluded that a
$46.8 million valuation allowance is needed to reserve the
amount of the deferred tax assets that may not be realized due
to the expiration of certain state credit carryovers. In
reaching our conclusion, we evaluated certain relevant criteria
including the existence of deferred tax liabilities that can be
used to absorb deferred tax assets, the taxable income in prior
carryback years in the impacted state jurisdictions that can be
used to absorb net operating losses and taxable income in future
years. Our judgments regarding future profitability may change
due to future market conditions, changes in U.S. or
international tax laws and other factors. These changes, if any,
may require material adjustments to these deferred tax assets,
resulting in a reduction in net income or an increase in net
loss in the period when such determinations are made.
In the ordinary course of global business, there are many
transactions and calculations where the ultimate tax outcome is
uncertain. Some of these uncertainties arise as a consequence of
cost reimbursement and royalty arrangements among related
entities. Although we believe our estimates are reasonable, no
assurance can be given that the final tax outcome of these
matters will not be different than that which is reflected in
our historical income tax provisions and accruals. Such
differences could have a material impact on our income tax
provision and operating results in the period in which such
determination is made.
40
Stock-Based
Compensation
The adoption of SFAS 123R in the first quarter of fiscal
2006 required that stock-based compensation expense associated
with stock options and related awards be recognized in the
statement of income, rather than being disclosed in a pro forma
footnote to the consolidated financial statements. Determining
the amount of stock-based compensation to be recorded requires
us to develop estimates to be used in calculating the grant-date
fair value of stock options. We calculate the grant-date fair
values using the Black-Scholes valuation model. The use of
valuation models requires us to make estimates of the following
assumptions:
Expected volatility We are responsible for
estimating volatility and have considered a number of factors,
including third-party estimates, when estimating volatility. For
options granted prior to fiscal 2005, we used historical
volatility to estimate the grant-date fair value of stock
options. We changed our method of estimating expected volatility
for all stock options granted for fiscal 2005 and thereafter
from exclusively relying on historical volatility to exclusively
relying on implied volatility. This change was the result of a
thorough review we undertook, which included consultations with
several third-party advisors. Historical volatility during the
period commensurate with the expected term of our stock options
over the past several years included a period of time when our
stock price experienced unprecedented increases and subsequent
declines. We believe that this past stock price volatility is
unlikely to be indicative of future stock price behavior, and as
such, we currently believe that the exclusive use of implied
volatility results in a more accurate estimate of the grant-date
fair value of employee stock options because it more
appropriately reflects the markets current expectations of
future volatility. In evaluating the appropriateness of
exclusively relying on implied volatility we concluded that:
(1) options in the Companys common stock are actively
traded with sufficient volume on several exchanges; (2) the
market prices of both the traded options and the underlying
shares are measured at a similar point in time to each other and
on a date close to the grant date of the employee share options;
(3) the traded options have exercise prices that are both
near-the-money and close to the exercise price of the employee
share options; and (4) the maturities of the traded options
used to estimate volatility are at least one year.
Expected term We use historical employee
exercise and option expiration data to estimate the expected
term assumption for the Black-Scholes grant-date valuation. We
believe that this historical data is currently the best estimate
of the expected term of a new option, and that generally, all of
our employees exhibit similar exercise behavior. In general, the
longer the expected term used in the Black-Scholes valuation
model, the higher the grant-date fair value of the option.
Risk-free interest rate The yield on
zero-coupon U.S. Treasury securities for a period that is
commensurate with the expected term assumption is used as the
risk-free interest rate.
Expected dividend yield Expected dividend
yield is calculated by annualizing the cash dividend declared by
our Board of Directors for the current quarter and dividing that
result by the closing stock price on the date of grant of the
option. Until such time as our Board of Directors declares a
cash dividend for an amount that is different from the current
quarters cash dividend, the current dividend will be used
in deriving this assumption. Cash dividends are not paid on
options, restricted stock or restricted stock units.
The amount of stock-based compensation expense recognized during
a period is based on the value of the portion of the awards that
are ultimately expected to vest. SFAS 123R requires
forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ
from those estimates. The term forfeitures is
distinct from cancellations or
expirations and represents only the unvested portion
of the surrendered option. Based on an analysis of our
historical forfeitures, we have applied an annual forfeiture
rate of 4.3% to all unvested stock-based awards as of
November 3, 2007. The rate of 4.3% represents the portion
that is expected to be forfeited each year over the vesting
period. This analysis is re-evaluated quarterly and the
forfeiture rate is adjusted as necessary. Ultimately, the actual
expense recognized over the vesting period will only be for
those awards that vest.
Contingencies
From time to time, we receive notices that our products or
manufacturing processes may be infringing the patent or
intellectual property rights of others. We periodically assess
each matter to determine if a contingent
41
liability should be recorded in accordance with SFAS 5,
Accounting for Contingencies. In making this
determination, we may, depending on the nature of the matter,
consult with internal and external legal counsel and technical
experts. Based on the information we obtain, combined with our
judgment regarding all the facts and circumstances of each
matter, we determine whether it is probable that a contingent
loss may be incurred and whether the amount of such loss can be
reasonably estimated. If a loss is probable and reasonably
estimable, we record a contingent loss in accordance with
SFAS 5. In determining the amount of a contingent loss, we
consider advice received from experts in the specific matter,
current status of legal proceedings, settlement negotiations
that may be ongoing, prior case history and other factors. If
the judgments and estimates made by us are incorrect, we may
need to record additional contingent losses that could
materially adversely impact our results of operations. See
Note 12 in the Notes to our Consolidated Financial
Statements contained in Item 8 of this Annual Report on
Form 10-K
for additional information regarding our commitments and
contingencies.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest
Rate Exposure
Based on our marketable securities and short term investments
outstanding as of November 3, 2007 and October 28,
2006, our annual interest income would change by approximately
$9 million and $16 million, respectively, for each
100 basis point increase or decrease in interest rates. The
fair values of our investment portfolio at November 3, 2007
and October 28, 2006 would change by approximately
$2 million and $6 million, respectively, for each
100 basis point increase or decrease in rates.
Foreign
Currency Exposure
As more fully described in Note 2i. in the Notes to
our Consolidated Financial Statements contained in Item 8
of this Annual Report on
Form 10-K,
we regularly hedge our
non-U.S. dollar-based
exposures by entering into forward exchange contracts. The terms
of these contracts are for periods matching the duration of the
underlying exposure and generally range from one month to twelve
months. The fair values of these instruments were approximately
$7 million at November 3, 2007 and were insignificant
at October 28, 2006. Currently, our largest foreign
currency exposure is the Euro, primarily because our European
operations have the highest proportion of our local currency
denominated expenses. Relative to foreign currency exposures
existing at November 3, 2007 and October 28, 2006, a
10% unfavorable movement in foreign currency exchange rates
would not expose us to significant losses in earnings or cash
flows because we hedge substantially all of our year-end
exposures against fluctuations in foreign currency exchange
rates. For contracts outstanding at November 3, 2007, a 10%
unfavorable movement in foreign currency exchange rates from the
rates as of our 2007 fiscal year end would increase the fair
value of our foreign currency financial instruments by
approximately $24 million and a 10% favorable movement in
foreign currency exchange rates would decrease their fair value
by approximately $9 million. As at October 28, 2006, a
10% movement in foreign currency exchange rates from the rates
as of our 2006 fiscal year end would not expose us to
significant gains or losses in the contracts fair values.
The calculation assumes that each exchange rate would change in
the same direction relative to the U.S. dollar. In addition
to the direct effects of changes in exchange rates, such changes
typically affect the volume of sales or the foreign currency
sales price as competitors products become more or less
attractive. Our sensitivity analysis of the effects of changes
in foreign currency exchange rates does not factor in a
potential change in sales levels or local currency selling
prices.
42
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
ANALOG
DEVICES, INC.
CONSOLIDATED
STATEMENTS OF INCOME
Years ended November 3, 2007, October 28, 2006 and
October 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
(thousands, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
2,511,117
|
|
|
$
|
2,342,919
|
|
|
$
|
2,134,800
|
|
Revenue from one-time IP license
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
2,546,117
|
|
|
|
2,342,919
|
|
|
|
2,134,800
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales(1)
|
|
|
1,026,900
|
|
|
|
939,753
|
|
|
|
853,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,519,217
|
|
|
|
1,403,166
|
|
|
|
1,281,315
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
519,315
|
|
|
|
469,396
|
|
|
|
438,183
|
|
Selling, marketing, general and administrative(1)
|
|
|
393,221
|
|
|
|
387,874
|
|
|
|
333,091
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
21,711
|
|
|
|
|
|
Special charges
|
|
|
40,495
|
|
|
|
1,790
|
|
|
|
31,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
953,031
|
|
|
|
880,771
|
|
|
|
802,754
|
|
Operating income from continuing operations
|
|
|
566,186
|
|
|
|
522,395
|
|
|
|
478,561
|
|
Nonoperating (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
52
|
|
|
|
27
|
|
Interest income
|
|
|
(77,007
|
)
|
|
|
(100,169
|
)
|
|
|
(71,688
|
)
|
Other, net
|
|
|
(15,727
|
)
|
|
|
(10,472
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,734
|
)
|
|
|
(110,589
|
)
|
|
|
(71,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and
minority interest
|
|
|
658,920
|
|
|
|
632,984
|
|
|
|
550,264
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable currently
|
|
|
161,294
|
|
|
|
145,872
|
|
|
|
159,716
|
|
Deferred
|
|
|
(2,850
|
)
|
|
|
(28,454
|
)
|
|
|
14,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,444
|
|
|
|
117,418
|
|
|
|
174,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
219
|
|
|
|
748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
500,695
|
|
|
|
516,314
|
|
|
|
375,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations
|
|
|
(3,788
|
)
|
|
|
33,168
|
|
|
|
38,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
496,907
|
|
|
$
|
549,482
|
|
|
$
|
414,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute earnings per share Basic
|
|
|
323,255
|
|
|
|
358,762
|
|
|
|
371,791
|
|
Shares used to compute earnings per share Diluted
|
|
|
332,301
|
|
|
|
370,964
|
|
|
|
383,474
|
|
Earnings per share Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.55
|
|
|
$
|
1.44
|
|
|
$
|
1.01
|
|
Net income
|
|
$
|
1.54
|
|
|
$
|
1.53
|
|
|
$
|
1.12
|
|
Earnings per share Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.51
|
|
|
$
|
1.39
|
|
|
$
|
0.98
|
|
Net income
|
|
$
|
1.50
|
|
|
$
|
1.48
|
|
|
$
|
1.08
|
|
Dividends declared per share
|
|
$
|
0.70
|
|
|
$
|
0.56
|
|
|
$
|
0.32
|
|
(1) Includes stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
10,591
|
|
|
$
|
7,630
|
|
|
$
|
|
|
Research and development
|
|
|
29,893
|
|
|
|
31,119
|
|
|
|
4,870
|
|
Selling, marketing, general and administrative
|
|
|
27,544
|
|
|
|
32,604
|
|
|
|
|
|
See accompanying Notes.
43
ANALOG
DEVICES, INC.
CONSOLIDATED
BALANCE SHEETS
November 3, 2007 and October 28, 2006
|
|
|
|
|
|
|
|
|
(thousands, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
424,972
|
|
|
$
|
343,947
|
|
Short-term investments
|
|
|
656,235
|
|
|
|
1,784,387
|
|
Accounts receivable less allowances of $3,611 ($2,533 in 2006)
|
|
|
336,381
|
|
|
|
305,761
|
|
Inventories(1)
|
|
|
347,519
|
|
|
|
362,945
|
|
Deferred tax assets
|
|
|
111,682
|
|
|
|
91,045
|
|
Deferred compensation plan investments
|
|
|
1,233
|
|
|
|
1,109
|
|
Prepaid expenses and other current assets
|
|
|
50,130
|
|
|
|
82,770
|
|
Current assets of discontinued operations
|
|
|
50,843
|
|
|
|
39,338
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,978,995
|
|
|
|
3,011,302
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, at Cost
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
|
372,162
|
|
|
|
353,912
|
|
Machinery and equipment
|
|
|
1,414,316
|
|
|
|
1,347,986
|
|
Office equipment
|
|
|
76,802
|
|
|
|
77,001
|
|
Leasehold improvements
|
|
|
62,883
|
|
|
|
107,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,926,163
|
|
|
|
1,886,423
|
|
Less accumulated depreciation and amortization
|
|
|
1,369,224
|
|
|
|
1,331,482
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
556,939
|
|
|
|
554,941
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Deferred compensation plan investments
|
|
|
35,210
|
|
|
|
30,579
|
|
Other investments
|
|
|
1,692
|
|
|
|
850
|
|
Goodwill
|
|
|
279,469
|
|
|
|
256,209
|
|
Intangible assets, net
|
|
|
24,153
|
|
|
|
31,441
|
|
Deferred tax assets
|
|
|
52,491
|
|
|
|
54,734
|
|
Other assets
|
|
|
43,000
|
|
|
|
27,744
|
|
Non-current assets of discontinued operations
|
|
|
|
|
|
|
19,051
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
436,015
|
|
|
|
420,608
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,971,949
|
|
|
$
|
3,986,851
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
159,086
|
|
|
$
|
122,926
|
|
Deferred income on shipments to distributors
|
|
|
151,730
|
|
|
|
146,723
|
|
Income taxes payable
|
|
|
65,690
|
|
|
|
60,956
|
|
Deferred compensation plan liability
|
|
|
1,233
|
|
|
|
1,109
|
|
Accrued liabilities
|
|
|
150,543
|
|
|
|
145,913
|
|
Current liabilities of discontinued operations
|
|
|
19,769
|
|
|
|
13,316
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
548,051
|
|
|
|
490,943
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
10,146
|
|
|
|
3,414
|
|
Deferred compensation plan liability
|
|
|
35,320
|
|
|
|
30,633
|
|
Other noncurrent liabilities
|
|
|
40,291
|
|
|
|
25,851
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
85,757
|
|
|
|
59,898
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par value, 471,934 shares
authorized, none outstanding
|
|
|
|
|
|
|
|
|
Common stock,
$0.162/3
par value, 1,200,000,000 shares authorized,
303,354,180 shares
issued and outstanding (342,000,004 on October 28, 2006)
|
|
|
50,560
|
|
|
|
57,001
|
|
Capital in excess of par value
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
2,253,483
|
|
|
|
3,378,999
|
|
Accumulated other comprehensive income (loss)
|
|
|
34,098
|
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
2,338,141
|
|
|
|
3,435,793
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,971,949
|
|
|
$
|
3,986,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $3,371 and $3,703 related to stock-based compensation
at November 3, 2007 and October 28, 2006, respectively. |
See accompanying Notes.
44
ANALOG
DEVICES, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
Years ended November 3, 2007, October 28, 2006 and
October 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
|
|
|
Other
|
|
|
|
Common Stock
|
|
|
Excess of
|
|
|
Retained
|
|
|
Comprehensive
|
|
(thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Income(Loss )
|
|
|
BALANCE, OCTOBER 30, 2004
|
|
|
375,840
|
|
|
$
|
62,641
|
|
|
$
|
759,551
|
|
|
$
|
2,973,631
|
|
|
$
|
3,749
|
|
Activity in Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414,787
|
|
|
|
|
|
Dividends declared and paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118,998
|
)
|
|
|
|
|
Issuance of stock under stock plans and other, net of repurchases
|
|
|
5,606
|
|
|
|
934
|
|
|
|
89,701
|
|
|
|
|
|
|
|
|
|
Tax benefit-stock options
|
|
|
|
|
|
|
|
|
|
|
50,374
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with acquisitions
|
|
|
10
|
|
|
|
1
|
|
|
|
541
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based compensation related to
acquisitions
|
|
|
|
|
|
|
|
|
|
|
3,095
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,013
|
)
|
Common stock repurchased
|
|
|
(14,624
|
)
|
|
|
(2,437
|
)
|
|
|
(523,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, OCTOBER 29, 2005
|
|
|
366,832
|
|
|
|
61,139
|
|
|
|
380,206
|
|
|
|
3,269,420
|
|
|
|
(19,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
549,482
|
|
|
|
|
|
Dividends declared and paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(201,451
|
)
|
|
|
|
|
Issuance of stock under stock plans and other, net of repurchases
|
|
|
5,824
|
|
|
|
971
|
|
|
|
94,408
|
|
|
|
|
|
|
|
|
|
Tax benefit-stock options
|
|
|
|
|
|
|
|
|
|
|
228,258
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
77,573
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with acquisitions
|
|
|
10
|
|
|
|
2
|
|
|
|
541
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based compensation related to
acquisitions
|
|
|
|
|
|
|
|
|
|
|
433
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,057
|
|
Common stock repurchased
|
|
|
(30,666
|
)
|
|
|
(5,111
|
)
|
|
|
(781,419
|
)
|
|
|
(238,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, OCTOBER 28, 2006
|
|
|
342,000
|
|
|
|
57,001
|
|
|
|
|
|
|
|
3,378,999
|
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496,907
|
|
|
|
|
|
Dividends declared and paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(228,281
|
)
|
|
|
|
|
Issuance of stock under stock plans and other, net of repurchases
|
|
|
7,291
|
|
|
|
1,215
|
|
|
|
|
|
|
|
107,934
|
|
|
|
|
|
Tax benefit-stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,131
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,349
|
|
|
|
|
|
Adoption of FAS 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,361
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,944
|
|
Common stock repurchased
|
|
|
(45,937
|
)
|
|
|
(7,656
|
)
|
|
|
|
|
|
|
(1,639,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, NOVEMBER 3, 2007
|
|
|
303,354
|
|
|
$
|
50,560
|
|
|
$
|
|
|
|
$
|
2,253,483
|
|
|
$
|
34,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes.
45
ANALOG
DEVICES, INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
Years ended November 3, 2007, October 28, 2006 and
October 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
(thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income from continuing operations
|
|
$
|
500,695
|
|
|
$
|
516,314
|
|
|
$
|
375,944
|
|
Foreign currency translation adjustment
|
|
|
10,640
|
|
|
|
5,838
|
|
|
|
(1,595
|
)
|
Minimum pension liability adjustment (net of taxes of $640 in
2007, $753 in 2006 and $1,324 in 2005)
|
|
|
1,495
|
|
|
|
1,398
|
|
|
|
(2,461
|
)
|
Net unrealized gains (losses) on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains (losses) (net of taxes of $2,746 in
2007, $4,034 in 2006 and $6,239 in 2005) on securities
classified as short-term investments
|
|
|
5,094
|
|
|
|
7,492
|
|
|
|
(11,586
|
)
|
Net unrealized holding (losses) gains (net of taxes of $100 in
2007, $235 in 2006 and $500 in 2005) on securities
classified as other investments
|
|
|
(185
|
)
|
|
|
(436
|
)
|
|
|
(930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on securities
|
|
|
4,909
|
|
|
|
7,056
|
|
|
|
(12,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of derivatives
|
|
|
6,128
|
|
|
|
4,876
|
|
|
|
(4,718
|
)
|
Realized loss (gain) reclassification
|
|
|
772
|
|
|
|
(111
|
)
|
|
|
(1,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in derivative instruments designated as cash flow
hedges
|
|
|
6,900
|
|
|
|
4,765
|
|
|
|
(6,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
23,944
|
|
|
|
19,057
|
|
|
|
(23,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income from continuing operations
|
|
$
|
524,639
|
|
|
$
|
535,371
|
|
|
$
|
352,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations
|
|
|
(3,788
|
)
|
|
|
33,168
|
|
|
|
38,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
520,851
|
|
|
$
|
568,539
|
|
|
$
|
391,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of adopting the recognition principles of
SFAS 158 on November 3, 2007, the Company recorded a
$10.4 million adjustment, net of tax of $1.4 million,
to accumulated other comprehensive income. In accordance with
the requirements of SFAS 158, this adjustment has been
excluded from the above presentation of comprehensive income for
fiscal year 2007.
See accompanying Notes.
46
ANALOG
DEVICES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years ended November 3, 2007, October 28, 2006 and
October 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
(thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
496,907
|
|
|
$
|
549,482
|
|
|
$
|
414,787
|
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
142,173
|
|
|
|
166,851
|
|
|
|
153,181
|
|
Amortization of intangibles
|
|
|
12,610
|
|
|
|
5,312
|
|
|
|
2,383
|
|
Stock-based compensation expense
|
|
|
72,652
|
|
|
|
75,429
|
|
|
|
4,870
|
|
Gain on sale of investments
|
|
|
(7,919
|
)
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
(219
|
)
|
|
|
(748
|
)
|
|
|
|
|
Non-cash portion of special charges
|
|
|
438
|
|
|
|
459
|
|
|
|
|
|
Gain on sale of product line
|
|
|
|
|
|
|
(13,027
|
)
|
|
|
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
21,711
|
|
|
|
|
|
Other non-cash expense
|
|
|
853
|
|
|
|
784
|
|
|
|
1,822
|
|
Excess tax benefit stock options
|
|
|
(40,871
|
)
|
|
|
(181,178
|
)
|
|
|
|
|
Tax benefit stock options
|
|
|
|
|
|
|
|
|
|
|
50,374
|
|
Deferred income taxes
|
|
|
(2,850
|
)
|
|
|
(28,454
|
)
|
|
|
14,604
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(27,011
|
)
|
|
|
(6,705
|
)
|
|
|
5,298
|
|
Decrease (increase) in inventories
|
|
|
16,549
|
|
|
|
(52,043
|
)
|
|
|
22,797
|
|
Decrease (increase) in prepaid expenses and other current assets
|
|
|
34,890
|
|
|
|
(17,327
|
)
|
|
|
(7,320
|
)
|
(Increase) decrease in investments trading
|
|
|
(4,755
|
)
|
|
|
245,629
|
|
|
|
41,234
|
|
Increase (decrease) in accounts payable, deferred income and
accrued liabilities
|
|
|
53,693
|
|
|
|
5,682
|
|
|
|
(5,937
|
)
|
Increase (decrease) in deferred compensation plan liability
|
|
|
4,811
|
|
|
|
(247,291
|
)
|
|
|
(43,271
|
)
|
Increase in income taxes payable
|
|
|
53,119
|
|
|
|
96,336
|
|
|
|
15,003
|
|
Increase in other liabilities
|
|
|
15,295
|
|
|
|
200
|
|
|
|
2,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
323,458
|
|
|
|
71,620
|
|
|
|
257,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
|
820,365
|
|
|
|
621,102
|
|
|
|
672,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment, net
|
|
|
(141,810
|
)
|
|
|
(129,297
|
)
|
|
|
(85,457
|
)
|
Purchases of short-term available-for-sale investments
|
|
|
(1,807,476
|
)
|
|
|
(2,483,123
|
)
|
|
|
(3,457,017
|
)
|
Maturities of short-term available-for-sale investments
|
|
|
2,943,468
|
|
|
|
2,788,717
|
|
|
|
3,526,871
|
|
Proceeds from sale of investment
|
|
|
8,003
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
1,735
|
|
|
|
|
|
Proceeds from sale of product line
|
|
|
|
|
|
|
23,070
|
|
|
|
|
|
Payments for acquisitions
|
|
|
(9,160
|
)
|
|
|
(157,017
|
)
|
|
|
|
|
(Increase) decrease in other assets
|
|
|
(8,438
|
)
|
|
|
723
|
|
|
|
5,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
984,587
|
|
|
|
44,808
|
|
|
|
(9,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments to shareholders
|
|
|
(228,281
|
)
|
|
|
(201,451
|
)
|
|
|
(118,998
|
)
|
Repurchase of common stock
|
|
|
(1,647,212
|
)
|
|
|
(1,024,982
|
)
|
|
|
(525,493
|
)
|
Proceeds from employee stock plans
|
|
|
109,149
|
|
|
|
94,392
|
|
|
|
89,402
|
|
Excess tax benefit stock options
|
|
|
40,871
|
|
|
|
181,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(1,725,473
|
)
|
|
|
(950,863
|
)
|
|
|
(555,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
1,546
|
|
|
|
1,309
|
|
|
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
81,025
|
|
|
|
(283,644
|
)
|
|
|
108,651
|
|
Cash and cash equivalents at beginning of year
|
|
|
343,947
|
|
|
|
627,591
|
|
|
|
518,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
424,972
|
|
|
$
|
343,947
|
|
|
$
|
627,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes.
47
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Years ended November 3, 2007, October 28, 2006 and
October 29, 2005
(all tabular amounts in thousands except per share
amounts)
|
|
1.
|
Description
of Business
|
Analog Devices, Inc. (Analog Devices or the
Company) is a world leader in the design,
manufacture and marketing of high-performance analog,
mixed-signal and digital signal processing integrated circuits
used in industrial, communication, computer and consumer
applications. Since the Companys inception in 1965, it has
focused on solving the engineering challenges associated with
signal processing in electronic equipment. The Companys
products are embedded inside electronics that people come into
contact with every day. Real world signal processing describes
the process of converting real-world phenomena such as
temperature, motion, pressure, light and sound into electrical
signals to be used in a wide array of electronic equipment
including industrial process control, factory automation
systems, defense electronics, portable wireless communications
devices, cellular basestations, central office networking
equipment, computers, automobiles, medical imaging equipment,
digital cameras and digital televisions. Signal processing
technology is a critical element of high-speed communications,
digital entertainment, and other consumer, computer and
industrial applications. As new generations of digital
applications evolve, they generate new needs for
high-performance analog signal processing and digital signal
processing, or DSP, technology. The Company produces a wide
range of products that are designed to meet the signal
processing technology needs of a broad base of customers.
|
|
2.
|
Summary
of Significant Accounting Policies
|
|
|
a.
|
Principles
of Consolidation
|
The consolidated financial statements include the accounts of
the Company and all of its wholly-owned subsidiaries. Upon
consolidation, all intercompany accounts and transactions are
eliminated. Amounts pertaining to the non-controlling ownership
interest held by third parties in the operating results and
financial position of the Companys majority-owned
subsidiaries are reported as minority interest. The
Companys fiscal year is the 52-week or 53-week period
ending on the Saturday closest to the last day in October.
Fiscal year 2007 was a 53-week period. Fiscal years 2006 and
2005 were 52-week periods.
In September 2007, the Company entered into a definitive
agreement to sell its baseband chipset business and related
support operations, or Baseband Chipset Business, to MediaTek
Inc. Accordingly, the Companys consolidated financial
statements and related footnote disclosures have been restated
for all reporting periods presented to reflect the results of
these operations as discontinued operations, and unless
otherwise noted, discussions in these notes pertain to the
Companys continuing operations. See Note 2u. for
additional information on the Companys discontinued
operations.
|
|
b.
|
Cash,
Cash Equivalents and Short-term Investments
|
Cash and cash equivalents are highly liquid investments with
insignificant interest rate risk and maturities of three months
or less at the time of acquisition. Cash, cash equivalents and
short-term investments consist primarily of corporate
obligations such as commercial paper and corporate bonds, and
Treasury and government agency notes and bonds. They also
include bank time deposits and institutional money market funds.
The Company classifies its investments in readily marketable
debt and equity securities as held-to-maturity,
available-for-sale or trading at the
time of purchase. There were no transfers between investment
classifications in any of the fiscal years presented.
Held-to-maturity securities, which are carried at amortized
cost, include only those securities the Company has the positive
intent and ability to hold to maturity. Securities, such as bank
time deposits, which by their nature are typically held to
maturity, are classified as such. The Companys other
readily marketable cash equivalents and short-term investments
are classified as available-for-sale. Available-for-sale
securities are carried at fair value with unrealized gains and
losses, net of related tax, if any, reported in accumulated
other comprehensive income (loss), which is a separate component
of shareholders equity. The Companys
48
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deferred compensation plan investments are classified as
trading. See Note 7 for additional information on the
Companys deferred compensation plan investments. Realized
gains and losses, as well as interest, and dividends on all
securities, are included in earnings.
The Companys short-term investments are adjusted to fair
value at the end of each quarter. These adjustments to fair
value are recorded as an increase or decrease in accumulated
other comprehensive income (loss). No realized gains or losses
were recorded during any of the fiscal years presented.
The Company periodically evaluates these investments for
impairment in accordance with EITF Issue
No. 03-01,
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. When a decline in fair
value is deemed to be other-than-temporary, the Company records
an impairment adjustment in the statement of income. There were
no other-than-temporary impairments of short-term investments in
any of the fiscal years presented.
Unrealized gains and losses on available-for-sale short-term
investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Unrealized gains
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
532
|
|
Unrealized losses
|
|
|
(79
|
)
|
|
|
(7,908
|
)
|
|
|
(19,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses
|
|
$
|
(73
|
)
|
|
$
|
(7,908
|
)
|
|
$
|
(19,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses in all fiscal years presented relate
solely to U.S. Government Treasury and agency bonds.
There were no unrealized gains and losses on held-to-maturity
investments in any of the fiscal years presented.
There were no cash equivalents or short-term investments
classified as trading at November 3, 2007 and
October 28, 2006. All of the Companys short-term
investments were classified as available-for-sale. Short-term
investments with maturities in excess of one year are classified
as short term as they are available-for-sale securities and are
available to be used in current operations. The components of
the Companys cash, cash equivalents and short-term
investments as of November 3, 2007 and October 28,
2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
30,034
|
|
|
$
|
42,944
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Institutional money market funds
|
|
|
152,013
|
|
|
|
42,803
|
|
Corporate obligations
|
|
|
89,250
|
|
|
|
104,925
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
Euro time deposits
|
|
|
153,675
|
|
|
|
153,275
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
424,972
|
|
|
$
|
343,947
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Securities with one year or less to maturity:
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
527,278
|
|
|
$
|
856,196
|
|
U.S. Government Treasury, agency and municipal notes
|
|
|
128,957
|
|
|
|
801,821
|
|
|
|
|
|
|
|
|
|
|
Total maturities less than 1 year
|
|
|
656,235
|
|
|
|
1,658,017
|
|
|
|
|
|
|
|
|
|
|
Securities with greater than one year to maturity:
|
|
|
|
|
|
|
|
|
U.S. Government Treasury, agency and municipal bonds
|
|
|
|
|
|
|
126,370
|
|
|
|
|
|
|
|
|
|
|
Total maturities greater than 1 year
|
|
|
|
|
|
|
126,370
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
656,235
|
|
|
$
|
1,784,387
|
|
|
|
|
|
|
|
|
|
|
49
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
c.
|
Supplemental
Cash Flow Statement Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash paid during the fiscal year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
102,349
|
|
|
$
|
61,099
|
|
|
$
|
93,185
|
|
Interest
|
|
$
|
|
|
|
$
|
32
|
|
|
$
|
27
|
|
The Companys primary non-cash financing activities in
fiscal 2006 and 2005 resulted from the amortization of unearned
stock compensation expense associated with the Companys
2001 acquisitions for which 1,462,066 shares of common
stock were issued (valued at approximately $81.8 million)
and unvested stock options with an intrinsic value of
approximately $11.9 million were assumed. As a result, the
Company recognized stock-based compensation expense over the
vesting period of $0.5 million in fiscal 2006 and
$3.6 million in fiscal 2005.
Inventories are valued at the lower of cost
(first-in,
first-out method) or market. The valuation of inventory requires
the Company to estimate obsolete or excess inventory as well as
inventory that is not of saleable quality. The Company employs a
variety of methodologies to determine the net realizable value
of its inventory. While a portion of the calculation to record
inventory at its net realizable value is based on the age of the
inventory and lower of cost or market calculations, a key factor
in estimating obsolete or excess inventory requires the company
to estimate the future demand for its products. If actual demand
is less than the Companys estimates, impairment charges,
which are recorded to cost of sales, may need to be recorded in
future periods. Inventory in excess of saleable amounts is not
valued, and the remaining inventory is valued at the lower of
cost or market.
Inventories at November 3, 2007 and October 28, 2006
were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
15,127
|
|
|
$
|
16,430
|
|
Work in process
|
|
|
241,728
|
|
|
|
255,233
|
|
Finished goods
|
|
|
90,664
|
|
|
|
91,282
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
347,519
|
|
|
$
|
362,945
|
|
|
|
|
|
|
|
|
|
|
|
|
e.
|
Property,
Plant and Equipment
|
Property, plant and equipment is recorded at cost less
allowances for depreciation. The straight-line method of
depreciation is used for all classes of assets for financial
statement purposes; both straight-line and accelerated methods
are used for income tax purposes. Leasehold improvements are
amortized based upon the lesser of the term of the lease or the
useful life of the asset. Depreciation and amortization are
based on the following useful lives:
|
|
|
Buildings & building equipment
|
|
Up to 25 years
|
Machinery & equipment
|
|
3-8 years
|
Office equipment
|
|
3-8 years
|
Depreciation expense from continuing operations of property,
plant and equipment was $139 million, $165 million and
$151 million in fiscal 2007, 2006 and 2005, respectively.
The Company reviews property, plant, and equipment for
impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable.
Recoverability of these assets is measured by comparison of
their carrying amount to the future undiscounted cash flows the
assets are expected to generate over their remaining economic
lives. If such assets are considered to be impaired, the
impairment to be recognized in earnings equals the amount by
which the carrying value of the assets exceeds their fair market
value
50
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
determined by either a quoted market price, if any, or a value
determined by utilizing a discounted cash flow technique. If
such assets are not impaired, but their useful lives have
decreased, the remaining net book value is amortized over the
revised useful life.
|
|
f.
|
Goodwill
and Intangible Assets
|
Goodwill
The Company annually evaluates goodwill for impairment as well
as whenever events or changes in circumstances suggest that the
carrying value of goodwill may not be recoverable. Because the
Company has one reporting segment under SFAS 142, the
Company utilizes the entity-wide approach for assessing goodwill
for impairment and compares its market value to its net book
value to determine if an impairment exists. No impairment of
goodwill resulted from the Companys most recent evaluation
of goodwill for impairment, which occurred in the fourth quarter
of fiscal 2007. No impairment of goodwill resulted in any of the
fiscal years presented. The Companys next annual
impairment assessment will be made in the fourth quarter of
fiscal 2008 unless indicators arise that would require the
Company to reevaluate at an earlier date. The following table
presents the changes in goodwill during fiscal 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance at beginning of year
|
|
$
|
256,209
|
|
|
$
|
163,373
|
|
Acquisition of TTPCom(1)
|
|
|
4,273
|
|
|
|
812
|
|
Acquisition of Integrant Technologies(2)
|
|
|
13,282
|
|
|
|
80,641
|
|
Acquisition of AudioAsics
|
|
|
|
|
|
|
7,250
|
|
Foreign currency translation adjustment
|
|
|
5,705
|
|
|
|
4,133
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
279,469
|
|
|
$
|
256,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company paid its final milestone related to this acquisition
in the second quarter of fiscal 2007. |
|
(2) |
|
The Company completed the final purchase accounting for this
transaction during the first quarter of fiscal 2007, which
resulted in an additional $5.6 million of goodwill. The
Company also purchased additional outstanding minority shares
related to this acquisition during fiscal 2007, which resulted
in an additional $7.7 million of goodwill. |
Intangible
Assets
The Company reviews identified intangible assets for impairment
whenever events or changes in circumstances indicate that the
carrying value of assets may not be recoverable. Recoverability
of these assets is measured by comparison of their carrying
value to future undiscounted cash flows the assets are expected
to generate over their remaining economic lives. If such assets
are considered to be impaired, the impairment to be recognized
in earnings equals the amount by which the carrying value of the
assets exceeds their fair market value determined by either a
quoted market price, if any, or a value determined by utilizing
a discounted cash flow technique.
During fiscal 2006, the Company purchased certain assets from
TTPCom Limited (TTPCom), substantially all of the shares of
Integrant Technologies, Inc. and all of the shares of AudioAsics
A/S (AudioAsics). See Note 6 for additional information on
the Companys fiscal 2006 acquisitions. As a result of
these acquisitions, the Company
51
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recorded $43.1 million of intangible assets at the current
exchange rate on the date of acquisition. The acquired
intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
TTPCom
|
|
|
Integrant
|
|
|
AudioAsics
|
|
|
Period
|
|
|
Technology-based
|
|
$
|
11,600
|
|
|
$
|
18,027
|
|
|
$
|
5,700
|
|
|
|
5 years
|
|
Tradename
|
|
|
|
|
|
|
458
|
|
|
|
|
|
|
|
2 years
|
|
Customer relationships
|
|
|
1,600
|
|
|
|
2,562
|
|
|
|
2,600
|
|
|
|
2 or 5 years*
|
|
Other
|
|
|
|
|
|
|
549
|
|
|
|
|
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,200
|
|
|
$
|
21,596
|
|
|
$
|
8,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Acquired Integrant customer relationship intangible assets are
amortized over two years and acquired TTPCom and AudioAsics
customer relationship intangible assets are amortized over five
years. |
In connection with the sale of the Baseband Chipset Business to
MediaTek Inc., net intangible assets of $7.9 million and
$11.4 million acquired from TTPCom Limited were
reclassified to assets of discontinued operations in fiscal 2007
and fiscal 2006, respectively. See Note 2u. for additional
information on assets of discontinued operations.
Intangible assets, which will continue to be amortized,
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007
|
|
|
October 28, 2006
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Technology-based
|
|
$
|
43,626
|
|
|
$
|
23,303
|
|
|
$
|
41,577
|
|
|
$
|
16,104
|
|
Tradename
|
|
|
1,687
|
|
|
|
1,403
|
|
|
|
1,635
|
|
|
|
995
|
|
Customer relationships
|
|
|
5,798
|
|
|
|
2,470
|
|
|
|
5,320
|
|
|
|
484
|
|
Other
|
|
|
6,582
|
|
|
|
6,364
|
|
|
|
6,617
|
|
|
|
6,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,693
|
|
|
$
|
33,540
|
|
|
$
|
55,149
|
|
|
$
|
23,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets acquired prior to the third quarter of fiscal
2006 continue to be amortized on a straight-line basis over
their estimated useful lives, which range from five to ten
years. The remaining amortization expense will be recognized
over a weighted-average period of approximately 1.6 years.
The $43.1 million of intangible assets acquired during
fiscal 2006 will be amortized over their estimated useful lives
of two to five years using an accelerated method of amortization
that is expected to reflect the estimated pattern of economic
use.
Amortization expense from continuing operations, related to
intangibles was $9.2 million, $3.5 million and
$2.4 million in fiscal 2007, 2006 and 2005, respectively.
The Company expects annual amortization expense for these
intangible assets to be:
|
|
|
|
|
Fiscal Years
|
|
Amortization Expense
|
|
|
2008
|
|
$
|
9,556
|
|
2009
|
|
$
|
7,377
|
|
2010
|
|
$
|
4,694
|
|
2011
|
|
$
|
2,334
|
|
2012
|
|
$
|
192
|
|
52
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Certain of the Companys foreign subsidiaries have received
various grants from governmental agencies. These grants include
capital, employment and research and development grants. Capital
grants for the acquisition of property and equipment are netted
against the related capital expenditures and amortized as a
credit to depreciation expense over the useful life of the
related asset. Employment grants, which relate to employee
hiring and training, and research and development grants are
recognized in earnings in the period in which the related
expenditures are incurred by the Company.
|
|
h.
|
Translation
of Foreign Currencies
|
The functional currency for the Companys foreign sales and
research and development operations is the applicable local
currency. Gains and losses resulting from translation of these
foreign currencies into U.S. dollars are recorded in
accumulated other comprehensive income (loss). Transaction gains
and losses and remeasurement of foreign currency denominated
assets and liabilities are included in income currently,
including those at the Companys principal foreign
manufacturing operations where the functional currency is the
U.S. dollar. Foreign currency transaction gains or losses
included in other expenses, net, were not material in fiscal
2007, 2006 or 2005.
|
|
i.
|
Derivative
Instruments and Hedging Agreements
|
The Company enters into forward foreign exchange contracts to
offset certain operational and balance sheet exposures from the
impact of changes in foreign currency exchange rates. Such
exposures result from the portion of the Companys
operations, assets and liabilities that are denominated in
currencies other than the U.S. dollar, primarily Euro;
other exposures include Philippine Peso, British Pounds Sterling
and Japanese Yen. These foreign exchange contracts are entered
into to support product sales, purchases and financing
transactions made in the normal course of business, and
accordingly, are not speculative in nature. In accordance with
Statement of Financial Accounting Standards No. 133
(SFAS 133), Accounting for Derivative Instruments and
Hedging Activities, hedges related to anticipated
transactions are designated and documented at the inception of
the respective hedges as cash flow hedges and are evaluated for
effectiveness monthly.
The Company records all derivative financial instruments in the
consolidated financial statements in other current assets or
accrued liabilities, depending on their net position, at fair
value regardless of the purpose or intent for holding the
instrument. Changes in the fair value of the derivative
financial instruments are either recognized periodically in
earnings or in shareholders equity as a component of
accumulated other comprehensive income (OCI) or loss depending
on whether the derivative financial instrument qualifies for
hedge accounting as defined by SFAS 133. Changes in fair
values of derivatives not qualifying for hedge accounting are
reported in earnings as they occur.
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 Companys forward foreign exchange
contracts are denominated primarily in Euro and other currencies
including Philippine Peso, British Pounds Sterling and Japanese
Yen. The contracts 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 SFAS 133,
hedges related to anticipated transactions are designated and
documented at the inception of the respective hedges as cash
flow hedges and are evaluated for effectiveness monthly. As the
terms of the contract and the underlying transaction are matched
at inception, forward contract effectiveness is calculated by
comparing the change in 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 shareholders
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
53
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ineffectiveness, is recognized immediately in other
income/expense. Ineffectiveness was immaterial in fiscal 2007,
2006 and 2005.
Additionally, the Company enters into forward foreign currency
contracts that economically 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 income/expense
immediately as an offset to the changes in the fair value of the
asset or liability being hedged.
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
Companys 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 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 Companys 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.
Accumulated
Derivative Gains or Losses
The following table summarizes activity in accumulated other
comprehensive income (loss) related to derivatives classified as
cash flow hedges held by the Company during the period from
October 30, 2005 through November 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance at beginning of year
|
|
$
|
419
|
|
|
$
|
(4,346
|
)
|
Changes in fair value of derivatives gain (loss)
|
|
|
6,128
|
|
|
|
4,876
|
|
Reclassifications into earnings from other comprehensive income
|
|
|
772
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
7,319
|
|
|
$
|
419
|
|
|
|
|
|
|
|
|
|
|
All of the accumulated gain will be reclassified into earnings
over the next twelve months.
54
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
j.
|
Fair
Values of Financial Instruments
|
The following estimated fair value amounts have been determined
by the Company using available market information and
appropriate valuation methodologies. The estimates presented
herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007
|
|
|
October 28, 2006
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
424,972
|
|
|
$
|
424,972
|
|
|
$
|
343,947
|
|
|
$
|
343,947
|
|
Short-term investments
|
|
|
656,235
|
|
|
|
656,235
|
|
|
|
1,784,387
|
|
|
|
1,784,387
|
|
Deferred compensation investments
|
|
|
36,443
|
|
|
|
36,443
|
|
|
|
31,688
|
|
|
|
31,688
|
|
Other investments
|
|
|
1,692
|
|
|
|
1,692
|
|
|
|
850
|
|
|
|
850
|
|
Foreign Currency Instruments & Interest Rate
Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap and cap agreements
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
77
|
|
Forward foreign currency exchange contracts
|
|
|
6,924
|
|
|
|
6,924
|
|
|
|
272
|
|
|
|
272
|
|
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial
instruments:
Cash, cash equivalents and short-term
investments These investments, except for
those classified as held-to-maturity, which are carried at
amortized cost, are adjusted to fair value based on quoted
market prices or are determined using a yield curve model based
on current market rates.
Deferred compensation plan investments and other
investments The fair value of these
investments is based on quoted market prices, with the exception
of private-company equity investments that are carried at cost,
adjusted for impairment charges.
Interest rate swap and cap agreements
The fair value of interest rate swap and cap agreements is
obtained from dealer quotes. These values represent the
estimated amount the Company would receive or pay to terminate
the agreements taking into consideration current interest rates.
Forward foreign currency exchange
contracts The estimated fair value of
forward foreign currency exchange contracts, which includes
derivatives that are accounted for as cash flow hedges and those
that are not designated as cash flow hedges, is based on the
estimated amount at which they could be settled based on forward
market exchange rates.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting period. Such estimates relate to the useful
lives of fixed assets and identified intangible assets,
allowances for doubtful accounts and customer returns, the net
realizable value of inventory, potential reserves relating to
litigation matters, accrued liabilities, accrued taxes, deferred
tax valuation allowances, assumptions pertaining to share-based
payments and other reserves. Actual results could differ from
those estimates, and such differences may be material to the
financial statements.
55
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
l.
|
Concentrations
of Risk
|
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of investments
and trade accounts receivable.
The Company maintains cash, cash equivalents and short-term
investments and long-term investments with high credit quality
financial institutions and monitors the amount of credit
exposure to any one financial institution and issuer.
The Company sells its products to distributors and original
equipment manufacturers involved in a variety of industries
including industrial process automation, instrumentation,
defense/aerospace, automotive, communications, computers and
computer peripherals and consumer electronics. The Company has
adopted credit policies and standards to accommodate growth in
these markets. The Company performs continuing credit
evaluations of its customers financial condition and
although the Company generally does not require collateral,
letters of credit may be required from its customers in certain
circumstances. Reserves are provided for estimated amounts of
accounts receivable that may not be collected.
|
|
m.
|
Concentration
of Other Risks
|
The semiconductor industry is characterized by rapid
technological change, competitive pricing pressures and cyclical
market patterns. The Companys financial results are
affected by a wide variety of factors, including general
economic conditions worldwide, economic conditions specific to
the semiconductor industry, the timely implementation of new
manufacturing technologies, the ability to safeguard patents and
intellectual property in a rapidly evolving market and reliance
on assembly and test subcontractors, third-party wafer
fabricators and independent distributors. In addition, the
semiconductor market has historically been cyclical and subject
to significant economic downturns at various times. The Company
is exposed to the risk of obsolescence of its inventory
depending on the mix of future business. Additionally, a large
portion of the Companys external wafer purchase and
foundry services are from a limited number of suppliers,
primarily Taiwan Semiconductor Manufacturing Company (TSMC). If
TSMC or any of the Companys other key suppliers are unable
or unwilling to manufacture and deliver sufficient quantities of
components, on the time schedule and of the quality that the
Company requires, the Company may be forced to seek to engage
additional or replacement suppliers, which could result in
significant expenses and disruptions or delays in manufacturing,
product development and shipment of product to the
Companys customers. Although the Company has experienced
shortages of components, materials and external foundry services
from time to time, these items have generally been available to
the Company as needed.
Revenue and the related cost of sales on shipments to
distributors are deferred until the distributors resell the
products to end-users. Deferred amounts are presented net and
included as Deferred income on shipments to
distributors in the Companys consolidated balance
sheets. Revenue from product sales to end-users is recognized
when title passes, which for shipments to certain foreign
countries is subsequent to product shipment. Title for these
shipments ordinarily passes within a week of shipment. A reserve
for sales returns and allowances for customers is recorded based
on historical experience or specific identification of an event
necessitating a reserve. During the first quarter of fiscal
2007, the Company recorded revenue of $35 million received
in exchange for licensing of certain intellectual property
rights to a third party.
Shipping costs are charged to cost of sales as incurred.
The Company generally offers a
12-month
warranty for its products. The Companys warranty policy
provides for replacement of the defective product. Specific
accruals are recorded for known product warranty issues. Product
warranty expenses during fiscal 2007, 2006 and 2005 were not
material.
56
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
o.
|
Accumulated
Other Comprehensive Income (Loss)
|
Other comprehensive income (loss) includes certain transactions
that have generally been reported in the consolidated statement
of shareholders equity. The components of accumulated
other comprehensive income (loss) at November 3, 2007 and
October 28, 2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Accumulated other comprehensive income pension plans:
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
(13
|
)
|
|
$
|
|
|
Transition asset
|
|
|
28
|
|
|
|
|
|
Net actuarial gain
|
|
|
7,172
|
|
|
|
|
|
Minimum pension liability adjustments
|
|
|
|
|
|
|
(4,669
|
)
|
Unrealized losses on available-for-sale securities
|
|
|
(462
|
)
|
|
|
(5,371
|
)
|
Foreign currency translation
|
|
|
20,054
|
|
|
|
9,414
|
|
Unrealized gains on derivative instruments
|
|
|
7,319
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
34,098
|
|
|
$
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
Advertising costs are expensed as incurred. Advertising expense
from continuing operations was $10.2 million in fiscal
2007, $10.9 million in fiscal 2006 and $10.5 million
in fiscal 2005.
Deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted income tax
rates and laws that are expected to be in effect when the
temporary differences are expected to reverse. Additionally,
deferred tax assets and liabilities are separated into current
and noncurrent amounts based on the classification of the
related assets and liabilities for financial reporting purposes.
|
|
r.
|
Earnings
Per Share of Common Stock
|
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 potential future issuances of common
stock relating to stock option programs and other potentially
dilutive securities using the treasury stock method. In
calculating diluted earnings per share, the dilutive effect of
stock options is computed using the average market price for the
respective period. In addition, under SFAS 123R, the
assumed proceeds under the treasury stock method include the
average unrecognized compensation expense of stock options that
are in-the-money. This results in the assumed
buyback of additional shares, thereby reducing the dilutive
impact of stock options. Potential shares related to certain of
the Companys outstanding stock options were excluded
because they were anti-dilutive. Those potential shares,
determined based on the weighted average exercise prices during
the respective years, related to the Companys outstanding
stock options could be dilutive in the future.
57
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income from continuing operations
|
|
$
|
500,695
|
|
|
$
|
516,314
|
|
|
$
|
375,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations
|
|
$
|
(3,788
|
)
|
|
$
|
33,168
|
|
|
$
|
38,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
496,907
|
|
|
$
|
549,482
|
|
|
$
|
414,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
323,255
|
|
|
|
358,762
|
|
|
|
371,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share-basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.55
|
|
|
$
|
1.44
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(1)
|
|
$
|
1.54
|
|
|
$
|
1.53
|
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
323,255
|
|
|
|
358,762
|
|
|
|
371,791
|
|
Assumed exercise of common stock equivalents
|
|
|
9,046
|
|
|
|
12,202
|
|
|
|
11,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common and common equivalent shares
|
|
|
332,301
|
|
|
|
370,964
|
|
|
|
383,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share-diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.51
|
|
|
$
|
1.39
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(1)
|
|
$
|
1.50
|
|
|
$
|
1.48
|
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average anti-dilutive shares related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding stock options
|
|
|
49,915
|
|
|
|
52,054
|
|
|
|
46,452
|
|
|
|
|
(1) |
|
The sum of the individual per share amounts may not equal due to
rounding. |
|
|
s.
|
Stock-Based
Compensation
|
On December 16, 2004, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 123 (revised 2004), Share-Based Payment
(SFAS 123R). SFAS 123R supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees,
and amends SFAS No. 95, Statement of Cash
Flows. Generally, the approach in SFAS 123R is similar
to the approach described in SFAS 123 Accounting for
Stock-Based Compensation. However, SFAS 123R requires
all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement
over their vesting period based on their fair values at the date
of grant. Pro forma disclosure is no longer an alternative.
On October 30, 2005 (the first day of its 2006 fiscal
year), the Company adopted SFAS 123R using the modified
prospective method as permitted under SFAS 123R. Under this
transition method, compensation cost recognized in fiscal 2006
and fiscal 2007 includes: (a) compensation cost for all
share-based payments granted prior to but not yet vested as of
October 29, 2005, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123,
and (b) compensation cost for all share-based payments
granted subsequent to October 29, 2005, based on the
grant-date fair value estimated in accordance with the
provisions of SFAS 123R. In accordance with the modified
prospective method of adoption, the Companys results of
operations and financial position for prior periods have not
been restated.
See Note 3 for additional information relating to
stock-based compensation.
58
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
t.
|
New
Accounting Standards
|
Accounting
for Financial Assets and Financial Liabilities
In February 2007, the Financial Accounting Standards Board
(FASB), issued Statement of Financial Accounting Standard (SFAS)
159, The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159 permits entities
to choose to measure many financial instruments and certain
other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related
assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS 159 is effective
as of the beginning of an entitys first fiscal year that
begins after November 15, 2007, which is the Companys
fiscal year 2009 that begins on November 2, 2008. The
Company is currently evaluating the impact, if any that
SFAS 159 may have on the Companys financial condition
and results of operations.
Fair
Value Measurements
In September 2006, the FASB issued SFAS 157, Fair
Value Measurements. SFAS 157 provides enhanced
guidance for using fair value to measure assets and liabilities.
The standard also responds to investors requests for
expanded information about the extent to which companies measure
assets and liabilities at fair value, the information used to
measure fair value and the effect of fair value measurements on
earnings. SFAS 157 applies whenever other standards require
or permit assets or liabilities to be measured at fair value.
This standard does not expand the use of fair value in any new
circumstances. SFAS 157 is effective for fiscal years
beginning after November 15, 2007, which is the
Companys fiscal year 2009 that begins on November 2,
2008. The Company is currently evaluating the impact, if any
that SFAS 157 will have on the Companys financial
condition and results of operations.
Accounting
for Prior Year Misstatements
In September 2006, the United States Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin (SAB)
No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements (SAB 108). This SAB provides
guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. SAB 108 establishes an
approach that requires quantification of financial statement
errors based on the effects of each of the companys
balance sheet and statement of operations financial statements
and the related financial statement disclosures. The SAB permits
existing public companies to record the cumulative effect of
initially applying this approach in the first year ending after
November 15, 2006 by recording the necessary correcting
adjustments to the carrying values of assets and liabilities as
of the beginning of that year with the offsetting adjustment
recorded to the opening balance of retained earnings.
Additionally, the use of the cumulative effect transition method
requires detailed disclosure of the nature and amount of each
individual error being corrected through the cumulative
adjustment and how and when it arose. The adoption of
SAB 108 did not have any impact on the Companys
financial conditions or results of operations.
Accounting
for Uncertainty in Income Taxes
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109 (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in
accordance with SFAS 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition.
FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the
impact, if any, that FIN 48 may have on the Companys
financial condition or results of operations.
59
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
u.
|
Discontinued
Operations
|
In September 2007, the Company entered into a definitive
agreement to sell its Baseband Chipset Business to MediaTek Inc.
The Company expects to complete the sale in the first quarter of
2008 for approximately $350 million in cash. The decision
to sell the Baseband Chipset Business was due to the
Companys decision to focus its resources in areas where
its signal processing expertise can provide unique capabilities
and earn superior returns. In accordance with the provisions of
SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144), the Company determined
that the Baseband Chipset Business became a long-lived asset
held for sale in the fourth quarter of 2007. SFAS 144
provides that a long-lived asset classified as held for sale
should be measured at the lower of its carrying amount or fair
value less cost to sell. Since the carrying value of the
Baseband Chipset Business at November 3, 2007 was less than
the estimated fair value less cost to sell, no adjustment to the
carrying value of this long-lived asset was necessary during the
year ended November 3, 2007. In accordance with the
provisions of SFAS 144, the Company ceased the amortization
of the Baseband Chipset Business intangible assets and the
depreciation of the Baseband Chipset Business property and
equipment in the fourth quarter of fiscal 2007.
Also, in accordance with the provisions of SFAS 144, the
Company determined that the Baseband Chipset Business became a
discontinued operation in the fourth quarter of fiscal 2007.
Accordingly, the assets and liabilities and operating results of
the Baseband Chipset Business have been segregated from the
consolidated balance sheets and continuing operations in the
consolidated statements of income for all periods presented.
Because the Baseband Chipset Business cash flows were not
material for any period presented, they have not been segregated
on the consolidated statements of cash flows.
The following table summarizes the results from discontinued
operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Total Revenue
|
|
$
|
193,710
|
|
|
$
|
230,257
|
|
|
$
|
254,008
|
|
Cost of sales
|
|
|
127,510
|
|
|
|
127,283
|
|
|
|
152,483
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
71,215
|
|
|
|
67,351
|
|
|
|
58,914
|
|
Selling, marketing, general and administrative
|
|
|
6,923
|
|
|
|
6,212
|
|
|
|
5,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(11,938
|
)
|
|
|
29,411
|
|
|
|
37,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes
|
|
|
(8,150
|
)
|
|
|
(3,757
|
)
|
|
|
(1,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations
|
|
$
|
(3,788
|
)
|
|
$
|
33,168
|
|
|
$
|
38,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007
|
|
|
October 28, 2006
|
|
|
Accounts receivable, net
|
|
$
|
21,971
|
|
|
$
|
23,632
|
|
Inventory
|
|
|
14,456
|
|
|
|
15,706
|
|
Property, plant and equipment, net
|
|
|
6,496
|
|
|
|
|
|
Intangibles, net
|
|
|
7,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets reclassified to current assets of discontinued
operations
|
|
$
|
50,843
|
|
|
$
|
39,338
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
|
|
|
$
|
7,684
|
|
Intangibles, net
|
|
|
|
|
|
|
11,367
|
|
|
|
|
|
|
|
|
|
|
Total assets reclassified to non-current assets of discontinued
operations
|
|
$
|
|
|
|
$
|
19,051
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
11,117
|
|
|
$
|
1,640
|
|
Deferred Income on shipments to distributors
|
|
|
659
|
|
|
|
2,820
|
|
Accrued Liabilities
|
|
|
7,993
|
|
|
|
8,856
|
|
|
|
|
|
|
|
|
|
|
Total liabilities reclassified to current liabilities of
discontinued operations
|
|
$
|
19,769
|
|
|
$
|
13,316
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Stock-Based
Compensation and Shareholders Equity
|
Equity
Compensation Plans
The Company grants, or has granted, stock options and other
stock and stock-based awards under the following equity
compensation plans:
2006 Stock Incentive Plan (2006 Plan) The
2006 Plan was approved by the Companys Board of Directors
on January 23, 2006 and was approved by shareholders on
March 14, 2006 and subsequently amended in March 2006. The
2006 Plan provides for the grant of up to 15 million shares
of the Companys common stock, plus such number of
additional shares that were subject to outstanding options under
the Companys 1998 Stock Option Plan and the 2001
Broad-Based Stock Option Plan as of January 23, 2006 that
are not issued because the applicable option award subsequently
terminates or expires without being exercised. The 2006 Plan
provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of
1986, as amended, or non-statutory stock options, stock
appreciation rights, restricted stock, restricted stock units
and other stock-based awards. Employees, officers, directors,
consultants and advisors of the Company and its subsidiaries are
eligible to be granted awards under the 2006 Plan. No award may
be made under the 2006 Plan after March 13, 2016, but
awards previously granted may extend beyond that date. The
Company will not grant further options under the 1998 Plan or
the 2001 Plan.
2001 Broad-Based Stock Option Plan (2001
Plan) The 2001 Plan was adopted by the
Companys Board of Directors in December 2001 and
subsequently amended in December 2002. The 2001 Plan provides
for the issuance of options to purchase up to 50 million
shares of common stock to employees, consultants or advisors of
the Company and its subsidiaries, other than executive officers
and directors. As a result of the approval of the 2006 Plan, no
further grants were made under the 2001 Plan.
The 1998 Stock Option Plan (1998 Plan) The
1998 Plan was approved by shareholders in fiscal 1998 and
subsequently amended in December 2001 and December 2002. The
1998 Plan provides for the issuance of nonstatutory and
incentive stock options to purchase up to 30 million shares
of common stock. In March 2000, the Companys shareholders
approved an amendment to the 1998 Plan to increase the shares
reserved for issuance under the 1998 Plan by an additional
34 million shares. As a result of the approval of the 2006
Plan, no further grants were made under the 1998 Plan.
61
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
While the Company may grant to employees options that become
exercisable at different times or within different periods, the
Company has generally granted to employees options that vest
over five years and become exercisable in annual installments of
331/3%
on each of the third, fourth, and fifth anniversaries of the
date of grant; in annual installments of 25% on each of the
second, third, fourth and fifth anniversaries of the date of
grant; or 20% on each of the first, second, third, fourth and
fifth anniversaries of the date of grant. The maximum
contractual term of all options is ten years.
Employee Stock Purchase Plans The Company
also has employee stock purchase plans (ESPPs) that allow
eligible employees to purchase, through payroll deductions,
shares of the Companys common stock at 85% of the fair
market value at specified dates. Employees may withdraw from an
offering before the purchase date and obtain a refund of the
amounts withheld through payroll deductions plus accrued
interest. The final offering period began June 1, 2005 and
ended on June 1, 2006; therefore, June 1, 2005 was
considered the grant date for the purposes of recognizing the
stock-based compensation expense for that offering period.
During fiscal 2006, the Companys Board of Directors
decided that the final offering period, which ended June 1,
2006, would be the last offering period under the ESPPs. Under
APB Opinion No. 25, the Company was not required to
recognize stock-based compensation expense for the cost of stock
options or shares issued under the Companys ESPPs. Upon
adoption of SFAS 123R, the Company began recording
stock-based compensation expense related to the ESPPs.
Grant-Date
Fair Value
The Company uses the Black-Scholes option pricing model to
calculate the grant-date fair value of an award. The fair values
of options granted were calculated using the following estimated
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Options granted (in thousands)
|
|
|
7,691
|
|
|
|
8,752
|
|
|
|
12,904
|
|
Weighted-average exercise prices stock options
|
|
$
|
33.52
|
|
|
$
|
38.65
|
|
|
$
|
37.60
|
|
Weighted-average grant date fair-value stock options
|
|
$
|
9.50
|
|
|
$
|
11.60
|
|
|
$
|
10.85
|
|
Weighted-average grant date fair-value ESPP
|
|
|
NA
|
|
|
|
NA
|
|
|
$
|
9.52
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average expected volatility
|
|
|
30.45
|
%
|
|
|
28.7
|
%
|
|
|
27.4
|
%
|
Weighted-average expected term (in years)
|
|
|
5.1
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
4.61
|
%
|
|
|
4.4
|
%
|
|
|
3.6
|
%
|
Expected dividend yield
|
|
|
2.2
|
%
|
|
|
1.3
|
%
|
|
|
0.68
|
%
|
Expected volatility The Company is responsible for
estimating volatility and has considered a number of factors,
including third-party estimates, when estimating volatility. For
options granted prior to fiscal 2005, the Company used
historical volatility to estimate the grant-date fair value of
stock options. The Company changed its method of estimating
expected volatility for all stock options granted after fiscal
2004 from exclusively relying on historical volatility to
exclusively relying on implied volatility. This change was the
result of a thorough review the Company undertook, which
included consultations with several third-party advisors.
Historical volatility during the period commensurate with the
expected term of the Companys stock options over the past
several years included a period of time when the Companys
stock price experienced unprecedented increases and subsequent
declines. The Company believes that this past stock price
volatility is unlikely to be indicative of future stock price
behavior, and as such, the Company currently believes that the
exclusive use of implied volatility results in a more accurate
estimate of the grant-date fair value of employee stock options
because it more appropriately reflects the markets current
expectations of future volatility. In evaluating the
appropriateness of exclusively relying on implied volatility the
Company concluded that: (1) options in the Companys
common stock are actively traded with sufficient volume on
several exchanges; (2) the market prices of both the traded
options and the underlying shares are measured at a similar
point in time to each other and on a date close to the grant
date of the employee share options; (3) the traded options
62
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
have exercise prices that are both near-the-money and close to
the exercise price of the employee share options; and
(4) the maturities of the traded options used to estimate
volatility are at least one year.
Expected term The Company uses historical employee
exercise and option expiration data to estimate the expected
term assumption for the Black-Scholes grant-date valuation. The
Company believes that this historical data is currently the best
estimate of the expected term of a new option, and that
generally its employees exhibit similar exercise behavior.
Risk-free interest rate The yield on zero-coupon
U.S. Treasury securities for a period that is commensurate
with the expected term assumption is used as the risk-free
interest rate.
Expected dividend yield Expected dividend yield is
calculated by annualizing the cash dividend declared by the
Companys Board of Directors for the current quarter and
dividing that result by the closing stock price on the date of
grant. Until such time as the Companys Board of Directors
declares a cash dividend for an amount that is different from
the current quarters cash dividend, the current dividend
will be used in deriving this assumption. Cash dividends are not
paid on options, restricted stock or restricted stock units.
Stock-based
Compensation Expense
The Company used the graded attribution method to recognize
expense for all stock-based awards prior to the adoption of
SFAS 123R. Upon adoption of SFAS 123R on
October 30, 2005, the Company changed to the straight-line
attribution method to recognize expense for stock-based awards
granted after October 29, 2005. The change to the
straight-line attribution method was made so that the expense
associated with each stock-based award is recognized ratably
over the vesting period. The expense associated with the
unvested portion of the pre-adoption grants will continue to be
expensed using the graded attribution method.
The amount of stock-based compensation recognized during a
period is based on the value of the portion of the awards that
are ultimately expected to vest. SFAS 123R requires
forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ
from those estimates. The term forfeitures is
distinct from cancellations or
expirations and represents only the unvested portion
of the surrendered stock-based award. Based on an analysis of
its historical forfeitures, the Company has applied an annual
forfeiture rate of 4.3% to all unvested stock-based awards as of
November 3, 2007. The rate of 4.3% represents the portion
that is expected to be forfeited each year over the vesting
period. This analysis will be re-evaluated quarterly and the
forfeiture rate will be adjusted as necessary. Ultimately, the
actual expense recognized over the vesting period will only be
for those shares that vest.
The Companys stock option agreements historically provided
for retirement-related continued vesting for a portion, or all,
of certain stock options based on the optionees age and
years of service (the retirement provision) in that regardless
of whether the employee continues to provide services, the
optionee receives the benefit of the stock option.
SFAS 123R clarifies the timing for recognizing stock-based
compensation expense for awards subject to continued vesting
upon meeting this retirement provision. This compensation
expense must be recognized over the period from the date of
grant to the date retirement eligibility is met if it is shorter
than the requisite service period. Upon adoption of
SFAS 123R in the first quarter of fiscal 2006, the Company
changed its policy regarding the timing of option expense
recognition for optionees meeting the criteria of the retirement
provision to recognize compensation cost over the period through
the date that the optionee is no longer required to provide
service to earn the award. Prior to the adoption of
SFAS 123R, the Companys policy was to recognize these
compensation costs over the vesting term. Had the Company
applied these non-substantive vesting provisions required by
SFAS 123R to awards granted prior to the adoption of
SFAS 123R, the impact on the pro forma net earnings
presented below would have been immaterial. Effective during the
third fiscal quarter of fiscal 2006, new grants will not include
a provision that provides for retirement-related continued
vesting.
The adoption of SFAS 123R had the following impact on
fiscal 2007 results: operating profit from continuing operations
before tax was lower by $67.0 million, net income from
continuing operations was lower by
63
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$47.3 million, cash flow from operations was lower by
$40.9 million, cash flow from financing activities was
higher by $40.9 million and basic and diluted EPS were
lower by $0.15 and $0.14, respectively.
The adoption of SFAS 123R on October 30, 2005 had the
following impact on fiscal 2006 results: operating profit from
continuing operations before tax was lower by
$69.8 million, net income from continuing operations was
lower by $49.7 million, cash flow from operations was lower
by $181.2 million, cash flow from financing activities was
higher by $181.2 million and basic and diluted EPS were
lower by $0.14 and $0.13, respectively.
The following table details the effect on net income and
earnings per share had stock-based compensation expense been
recorded for fiscal 2005 based on the fair-value method under
SFAS 123:
|
|
|
|
|
|
|
2005
|
|
|
Net income, as reported
|
|
$
|
414,787
|
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects
|
|
|
3,796
|
|
Deduct: Total stock-based compensation expense determined under
the fair value based method for all awards, net of related tax
Effects
|
|
|
(305,350
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
113,233
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
Basic as reported
|
|
$
|
1.12
|
|
|
|
|
|
|
Basic pro forma
|
|
$
|
0.30
|
|
|
|
|
|
|
Diluted as reported
|
|
$
|
1.08
|
|
|
|
|
|
|
Diluted pro forma
|
|
$
|
0.29
|
|
|
|
|
|
|
Prior to the adoption of SFAS 123R on October 18,
2005, the Company accelerated the vesting of all unvested stock
options awarded to employees after December 31, 2000 that
had exercise prices of $40.00 per share or greater. The vesting
of options issued to its corporate officers and directors was
not accelerated. Unvested options to purchase approximately
18 million shares became exercisable as a result of the
vesting acceleration. Because the exercise price of all the
modified options was greater than the market price of the
Companys underlying common stock on the date of the
modification, no stock-based compensation expense was recorded
in the statement of income, in accordance with APB Opinion
No. 25. The primary purpose for modifying the terms of
these out-of-the-money stock options to accelerate their vesting
was to eliminate the need to recognize the remaining
unrecognized non-cash compensation expense in the statement of
income associated with these options as measured under
SFAS 123, because the approximately $188 million
($134 million net of tax) of future expense associated with
these options would have been disproportionately high compared
to the economic value of the options at the date of modification.
64
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock-Based
Compensation Activity
A summary of the activity under the Companys stock option
plans as of November 3, 2007 and changes during the fiscal
year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Outstanding
|
|
|
Per Share
|
|
|
Term in Years
|
|
|
Intrinsic Value
|
|
|
Options outstanding at October 28, 2006
|
|
|
84,461
|
|
|
$
|
34.09
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
7,691
|
|
|
$
|
33.52
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(7,252
|
)
|
|
$
|
15.06
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(1,896
|
)
|
|
$
|
35.34
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(2,846
|
)
|
|
$
|
43.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at November 3, 2007
|
|
|
80,158
|
|
|
$
|
35.39
|
|
|
|
5.2
|
|
|
$
|
261,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at November 3, 2007
|
|
|
56,189
|
|
|
$
|
34.79
|
|
|
|
4.0
|
|
|
$
|
258,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested or expected to vest at November 3,
2007(1)
|
|
|
78,649
|
|
|
$
|
35.36
|
|
|
|
5.1
|
|
|
$
|
261,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In addition to the vested options, the Company expects a portion
of the unvested options to vest at some point in the future.
Options expected to vest is calculated by applying an estimated
forfeiture rate to the unvested options. |
The total intrinsic value of options exercised (i.e. the
difference between the market price at exercise and the price
paid by the employee to exercise the options) during fiscal 2007
was $152.6 million and the total amount of cash received by
the Company from exercise of these options was
$109.1 million. The total grant-date fair value of stock
options that vested during fiscal 2007 was approximately
$72.8 million.
The total intrinsic value of options exercised (i.e. the
difference between the market price at exercise and the price
paid by the employee to exercise the options) during fiscal 2006
was $113.6 million and the total amount of cash received by
the Company from exercise of these options was
$82.4 million. The total grant-date fair value of stock
options that vested during fiscal 2006 was approximately
$145.5 million.
A summary of the Companys restricted stock and restricted
stock unit award activity as of November 3, 2007 and
changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
Weighted-
|
|
|
|
Shares or
|
|
|
Average Grant
|
|
|
|
Units
|
|
|
Date Fair Value
|
|
|
|
Outstanding
|
|
|
Per Share
|
|
|
Restricted shares and units outstanding at October 28,
2006
|
|
|
55
|
|
|
$
|
35.35
|
|
Awards granted
|
|
|
39
|
|
|
$
|
34.89
|
|
Restrictions lapsed
|
|
|
(15
|
)
|
|
$
|
36.12
|
|
Awards forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares and units outstanding at November 3,
2007
|
|
|
79
|
|
|
$
|
34.97
|
|
|
|
|
|
|
|
|
|
|
As of November 3, 2007, there was $144.5 million of
total unrecognized compensation cost related to unvested
share-based awards comprised of stock options and restricted
shares. That cost is expected to be recognized over a
weighted-average period of 1.7 years.
65
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Information with respect to activity under the Companys
stock option plans is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Awards Outstanding
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
Available
|
|
|
|
|
|
Fair-Value Per
|
|
|
|
|
|
Weighted-Average
|
|
Stock Award Activity
|
|
for Grant
|
|
|
Number
|
|
|
Share
|
|
|
Number
|
|
|
Price Per Share
|
|
|
Balance, October 30, 2004
|
|
|
33,849
|
|
|
|
|
|
|
$
|
|
|
|
|
80,276
|
|
|
$
|
31.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(12,904
|
)
|
|
|
|
|
|
|
|
|
|
|
12,904
|
|
|
|
37.60
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,179
|
)
|
|
|
14.88
|
|
Options cancelled
|
|
|
2,512
|
|
|
|
|
|
|
|
|
|
|
|
(2,512
|
)
|
|
|
38.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 29, 2005
|
|
|
23,457
|
|
|
|
|
|
|
$
|
|
|
|
|
85,489
|
|
|
$
|
32.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares authorized for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Stock Incentive Plan
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares cancelled upon termination of stock plans
|
|
|
(15,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted awards granted(1)
|
|
|
(165
|
)
|
|
|
55
|
|
|
|
35.35
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(8,752
|
)
|
|
|
|
|
|
|
|
|
|
|
8,752
|
|
|
|
38.65
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,382
|
)
|
|
|
15.32
|
|
Options cancelled
|
|
|
4,398
|
|
|
|
|
|
|
|
|
|
|
|
(4,398
|
)
|
|
|
40.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 28, 2006
|
|
|
17,970
|
|
|
|
55
|
|
|
$
|
35.35
|
|
|
|
84,461
|
|
|
$
|
34.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares cancelled upon termination of stock plans
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted awards granted(1)
|
|
|
(118
|
)
|
|
|
39
|
|
|
|
34.89
|
|
|
|
|
|
|
|
|
|
Restrictions lapsed
|
|
|
|
|
|
|
(15
|
)
|
|
|
36.12
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(7,691
|
)
|
|
|
|
|
|
|
|
|
|
|
7,691
|
|
|
|
33.52
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,252
|
)
|
|
|
15.06
|
|
Options cancelled
|
|
|
4,742
|
|
|
|
|
|
|
|
|
|
|
|
(4,742
|
)
|
|
|
40.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 3, 2007
|
|
|
14,898
|
|
|
|
79
|
|
|
$
|
34.97
|
|
|
|
80,158
|
|
|
$
|
35.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The 2006 Plan provides that for purposes of determining the
number of shares available for issuance under the 2006 Plan, any
restricted stock award, restricted stock unit or other
stock-based award with a per share or per unit price lower than
the fair market value of our common stock on the date of grant
(a Full-Value Award) will be counted as three shares
for each share subject to the Full-Value Award. |
As of November 3, 2007, a total of 95,135,367 common shares
were reserved for issuance under the Companys stock option
plans.
Common
Stock Repurchase Program
In August 2004, the Companys Board of Directors approved
the repurchase of up to $500 million of the Companys
common stock. On May 11, 2005, the Companys Board of
Directors amended the stock repurchase program by increasing the
total amount of the Companys common stock the Company is
authorized to repurchase from $500 million to
$1 billion of common stock. On March 14, 2006, the
Board of Directors authorized the repurchase by the Company of
an additional $1 billion of the Companys common
stock, increasing the total amount of the Companys common
stock the Company can repurchase from $1 billion to
$2 billion of the Companys
66
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
common stock. On December 6, 2006, the Board of Directors
authorized the repurchase by the Company of an additional
$1 billion of common stock, increasing the total amount of
common stock the Company is authorized to repurchase from
$2 billion to $3 billion. On June 6, 2007, the
Board of Directors authorized the repurchase of an additional
$1 billion of common stock, increasing the total amount of
common stock the Company is authorized to repurchase from
$3 billion to $4 billion. Under the repurchase
program, the Company may repurchase outstanding shares of its
common stock from time to time in the open market and through
privately negotiated transactions. Unless terminated earlier by
resolution of the Companys Board of Directors, the
repurchase program will expire when the Company has repurchased
all shares authorized under the program. The Company repurchased
a total of 45.9 million shares for approximately
$1,647.2 million during fiscal 2007. As of November 3,
2007, the Company had repurchased approximately
95.1 million shares of its common stock for approximately
$3,334.8 million under this program and an additional
$665.2 million remains under the current authorized
program. The repurchased shares are held as authorized but
unissued shares of common stock. The Company plans to continue
to repurchase shares during fiscal 2008. The timing and number
of shares repurchased can not be reasonably estimated at this
time; however, from the end of fiscal year 2007 through
November 26, 2007, the Company repurchased approximately
4.6 million shares for approximately $151 million.
Preferred
Stock
The Company has 471,934 authorized shares of $1.00 par
value preferred stock, none of which is issued or outstanding.
The Board of Directors is authorized to fix designations,
relative rights, preferences and limitations on the preferred
stock at the time of issuance.
Common
Stock Purchase Rights
In March 1998, the Board of Directors adopted a Stockholder
Rights Plan (the Stockholder Rights Plan) that replaced a plan
adopted by the Board in 1988. Pursuant to the Stockholder Rights
Plan, after giving effect to the Companys two-for-one
stock split effected on March 15, 2000, each share of the
Companys common stock had an associated one-half of a
right. Under certain circumstances, each whole right would have
entitled the registered holder to purchase from the Company one
one-thousandth of a share of Series A Junior Participating
Preferred Stock at a purchase price of $180 in cash, subject to
adjustment.
On January 23, 2006, the Company, by vote of its Board of
Directors, terminated its Stockholder Rights Plan. All rights
outstanding under the Stockholder Rights Plan were redeemed at a
redemption price of $0.0005 per right (as adjusted to reflect
the two-for-one split of the Companys common stock on
March 15, 2000) (as adjusted, the
Redemption Price) and paid on March 15,
2006 to the holders of record of the Companys common stock
on February 24, 2006. All rights to exercise rights issued
under the Stockholder Rights Plan terminated on January 23,
2006 and the only right thereafter of the holders of rights
issued under the Stockholder Rights Plan was to receive the
Redemption Price.
|
|
4.
|
Industry
and Geographic Segment Information
|
The Company operates and tracks its results in one reportable
segment. The Company designs, develops, manufactures and markets
a broad range of integrated circuits. The Chief Executive
Officer has been identified as the Chief Operating Decision
Maker as defined by SFAS 131, Disclosures about Segments
of an Enterprise and Related Information.
Revenue
Trends by End Market
The categorization of revenue by end market is determined using
a variety of data points including the technical characteristics
of the product, the sold to customer information,
the ship to customer information and the end
customer product or application into which our product will be
incorporated. As data systems for capturing and tracking this
data evolve and improve, the categorization of products by end
market can vary over time. When
67
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
this occurs, the Company reclassifies revenue by end market for
prior periods. Such reclassifications typically do not
materially change the sizing of, or the underlying trends of
results within, each end market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
Product
|
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Y/Y%
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Industrial
|
|
$
|
1,184,891
|
|
|
|
47
|
%
|
|
|
7
|
%
|
|
$
|
1,105,261
|
|
|
|
47
|
%
|
|
$
|
952,662
|
|
|
|
45
|
%
|
Communications
|
|
|
545,792
|
|
|
|
22
|
%
|
|
|
7
|
%
|
|
|
510,137
|
|
|
|
22
|
%
|
|
|
475,284
|
|
|
|
22
|
%
|
Consumer
|
|
|
544,415
|
|
|
|
22
|
%
|
|
|
23
|
%
|
|
|
441,871
|
|
|
|
19
|
%
|
|
|
380,160
|
|
|
|
18
|
%
|
Computer
|
|
|
236,019
|
|
|
|
9
|
%
|
|
|
(17
|
)%
|
|
|
285,650
|
|
|
|
12
|
%
|
|
|
326,694
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue
|
|
$
|
2,511,117
|
|
|
|
100
|
%
|
|
|
7
|
%
|
|
$
|
2,342,919
|
|
|
|
100
|
%
|
|
$
|
2,134,800
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from one-time IP license
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
2,546,117
|
|
|
|
|
|
|
|
|
|
|
$
|
2,342,919
|
|
|
|
|
|
|
$
|
2,134,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Trends by Product
The following table summarizes revenue by product categories.
The categorization of the Companys products into broad
categories is based on the characteristics of the individual
products, the specification of the products and in some cases
the specific uses that certain products have within
applications. The categorization of products into categories is
therefore subject to judgment in some cases and can vary over
time. In instances where products move between product
categories the Company reclassifies the amounts in the product
categories for all prior periods. Such reclassifications
typically do not materially change the sizing of, or the
underlying trends of results within, each product category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
Product
|
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Y/Y%
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Converters
|
|
$
|
1,106,615
|
|
|
|
44
|
%
|
|
|
8
|
%
|
|
$
|
1,023,499
|
|
|
|
44
|
%
|
|
$
|
927,711
|
|
|
|
43
|
%
|
Amplifiers
|
|
|
557,515
|
|
|
|
22
|
%
|
|
|
5
|
%
|
|
|
532,046
|
|
|
|
23
|
%
|
|
|
445,732
|
|
|
|
21
|
%
|
Power management & reference
|
|
|
205,497
|
|
|
|
8
|
%
|
|
|
(6
|
)%
|
|
|
219,651
|
|
|
|
9
|
%
|
|
|
214,169
|
|
|
|
10
|
%
|
Other analog
|
|
|
393,724
|
|
|
|
16
|
%
|
|
|
27
|
%
|
|
|
310,075
|
|
|
|
13
|
%
|
|
|
255,385
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total analog products
|
|
$
|
2,263,351
|
|
|
|
90
|
%
|
|
|
9
|
%
|
|
$
|
2,085,271
|
|
|
|
89
|
%
|
|
$
|
1,842,997
|
|
|
|
86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General purpose DSP
|
|
|
214,000
|
|
|
|
9
|
%
|
|
|
4
|
%
|
|
|
205,483
|
|
|
|
9
|
%
|
|
|
186,660
|
|
|
|
9
|
%
|
Other DSP
|
|
|
33,766
|
|
|
|
1
|
%
|
|
|
(35
|
)%
|
|
|
52,165
|
|
|
|
2
|
%
|
|
|
105,143
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total DSP products
|
|
$
|
247,766
|
|
|
|
10
|
%
|
|
|
(4
|
)%
|
|
$
|
257,648
|
|
|
|
11
|
%
|
|
$
|
291,803
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue
|
|
$
|
2,511,117
|
|
|
|
100
|
%
|
|
|
7
|
%
|
|
$
|
2,342,919
|
|
|
|
100
|
%
|
|
$
|
2,134,800
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from one-time IP license
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
2,546,117
|
|
|
|
|
|
|
|
|
|
|
$
|
2,342,919
|
|
|
|
|
|
|
$
|
2,134,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Geographic
Information
The Company operates in the following major geographic areas.
Product revenue data is based upon customer location and
property, plant and equipment data is based upon physical
location. The predominant countries comprising European
operations are Ireland, United Kingdom, France and Germany. The
predominant countries comprising Rest of Asia are Taiwan and
Korea.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Product Revenue from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
643,087
|
|
|
$
|
643,066
|
|
|
$
|
579,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
599,288
|
|
|
|
554,046
|
|
|
|
532,456
|
|
Japan
|
|
|
511,488
|
|
|
|
468,967
|
|
|
|
423,220
|
|
China
|
|
|
328,073
|
|
|
|
266,425
|
|
|
|
199,796
|
|
Rest of Asia
|
|
|
429,181
|
|
|
|
410,415
|
|
|
|
400,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal all foreign countries
|
|
|
1,868,030
|
|
|
|
1,699,853
|
|
|
|
1,555,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenue
|
|
$
|
2,511,117
|
|
|
$
|
2,342,919
|
|
|
$
|
2,134,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
226,270
|
|
|
$
|
231,519
|
|
|
$
|
265,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ireland
|
|
|
183,075
|
|
|
|
190,050
|
|
|
|
209,205
|
|
Philippines
|
|
|
133,388
|
|
|
|
123,786
|
|
|
|
112,245
|
|
All other countries
|
|
|
14,206
|
|
|
|
9,586
|
|
|
|
6,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal all foreign countries
|
|
|
330,669
|
|
|
|
323,422
|
|
|
|
327,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
$
|
556,939
|
|
|
$
|
554,941
|
|
|
$
|
593,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the Companys special charges is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
|
|
|
of a Wafer
|
|
|
Reduction of
|
|
|
|
|
|
|
Closure of Wafer
|
|
|
of Product
|
|
|
Fabrication
|
|
|
Overhead
|
|
|
|
|
|
|
Fabrication Facility
|
|
|
Development and
|
|
|
Facility in
|
|
|
Infrastructure
|
|
|
Total Special
|
|
Income Statement
|
|
in Sunnyvale
|
|
|
Support Programs
|
|
|
Limerick(1)
|
|
|
Costs
|
|
|
Charges
|
|
|
Fiscal 2005 Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce reductions
|
|
$
|
20,315
|
|
|
$
|
11,165
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal 2005 Charges
|
|
$
|
20,315
|
|
|
$
|
11,165
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2006 Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility closure costs
|
|
|
|
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
554
|
|
Abandonment of equipment
|
|
|
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
459
|
|
Other items
|
|
|
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
462
|
|
Change in estimate
|
|
|
(2,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,029
|
)
|
Workforce reductions
|
|
|
|
|
|
|
2,344
|
|
|
|
|
|
|
|
|
|
|
|
2,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal 2006 Charges
|
|
$
|
(2,029
|
)
|
|
$
|
3,819
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility closure costs
|
|
|
10,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,288
|
|
Workforce reductions
|
|
|
|
|
|
|
4,165
|
|
|
|
13,748
|
|
|
|
10,711
|
|
|
|
28,624
|
|
Other items
|
|
|
|
|
|
|
859
|
|
|
|
|
|
|
|
1,637
|
|
|
|
2,496
|
|
Change in estimate
|
|
|
|
|
|
|
(913
|
)
|
|
|
|
|
|
|
|
|
|
|
(913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal 2007 Charges
|
|
$
|
10,288
|
|
|
$
|
4,111
|
|
|
$
|
13,748
|
|
|
$
|
12,348
|
|
|
$
|
40,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of a Wafer
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
|
|
|
Fabrication
|
|
|
Reduction of
|
|
|
|
|
|
|
Closure of Wafer
|
|
|
of Product
|
|
|
Facility in
|
|
|
Overhead
|
|
|
|
|
|
|
Fabrication Facility
|
|
|
Development and
|
|
|
Limerick
|
|
|
Infrastructure
|
|
|
Total Special
|
|
Accrued Restructuring
|
|
in Sunnyvale
|
|
|
Support Programs
|
|
|
(1)
|
|
|
Costs
|
|
|
Charges
|
|
|
Balance at October 29, 2005
|
|
$
|
20,315
|
|
|
$
|
10,708
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,023
|
|
Fiscal 2006 special charges
|
|
|
(2,029
|
)
|
|
|
3,819
|
|
|
|
|
|
|
|
|
|
|
|
1,790
|
|
Severance payments
|
|
|
(12,383
|
)
|
|
|
(8,175
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,558
|
)
|
Non-cash impairment charge
|
|
|
|
|
|
|
(459
|
)
|
|
|
|
|
|
|
|
|
|
|
(459
|
)
|
Facility closure costs
|
|
|
|
|
|
|
(455
|
)
|
|
|
|
|
|
|
|
|
|
|
(455
|
)
|
Other items
|
|
|
|
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 28, 2006
|
|
$
|
5,903
|
|
|
$
|
4,976
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 special charges
|
|
|
10,288
|
|
|
|
4,111
|
|
|
|
13,748
|
|
|
|
12,348
|
|
|
|
40,495
|
|
Severance payments
|
|
|
(5,573
|
)
|
|
|
(4,717
|
)
|
|
|
|
|
|
|
(767
|
)
|
|
|
(11,057
|
)
|
Facility closure costs
|
|
|
(6,616
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,639
|
)
|
Non-cash impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(438
|
)
|
|
|
(438
|
)
|
Other items
|
|
|
|
|
|
|
(596
|
)
|
|
|
|
|
|
|
|
|
|
|
(596
|
)
|
Effect of foreign currency translation on accrual
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
3
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 3, 2007
|
|
$
|
4,002
|
|
|
$
|
3,769
|
|
|
$
|
13,748
|
|
|
$
|
11,146
|
|
|
$
|
32,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Production is expected to cease in the six-inch wafer
fabrication facility during the first half of fiscal year 2009.
Therefore, the severance benefits for this action are recorded
as other non-current liabilities in the consolidated balance
sheet. |
70
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Closure
of Wafer Fabrication Facility in Sunnyvale
During the fourth quarter of fiscal 2005, the Company recorded a
special charge of $20.3 million as a result of a decision
to close its California wafer fabrication operations and
transfer virtually all of the production of products
manufactured there to the Companys facility in Wilmington,
Massachusetts. The charge was for severance and fringe benefit
costs that were recorded pursuant to SFAS 88,
Employers Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination
Benefits, or SFAS 88, under the Companys ongoing
benefit plan for 339 manufacturing employees and 28 general and
administrative employees. The severance benefit was calculated
based on length of past service, and employees had to continue
to be employed until they were involuntarily terminated in order
to receive the severance benefit. The Company completed the
final cleanup and closure activities associated with this action
during the second quarter of fiscal 2007.
In addition to the charge recorded in the fourth quarter of
fiscal 2005, the Company recorded additional expense during
fiscal 2006, which consisted of $18.3 million of non-cash
cost of sales expenses for additional depreciation due to
shortened useful lives of certain manufacturing equipment and
$2.0 million for stay-on bonuses. The Company reversed
approximately $2.0 million of its severance accrual during
fiscal 2006 because some employees voluntarily left the Company,
other employees found alternative employment within the Company,
and there was an over accrual related to fringe benefits because
severance payments, normally paid as income continuance, were
paid in lump sum payments, which reduced the benefit costs
associated with these payments. The employment of all of the
remaining employees included in this action has been terminated
by the Company.
The Company ceased production at the wafer fabrication facility
on November 9, 2006. During the first quarter of fiscal
2007, the Company recorded additional expense, in accordance
with SFAS 146, Accounting for Costs Associated with Exit
or Disposal Activities, which consisted of $3.2 million
for clean-up
and closure costs that were charged to expense as incurred and
$0.4 million for lease obligation costs for a warehouse
facility the Company ceased using during the first quarter of
fiscal 2007. During the second quarter of fiscal 2007, the
Company recorded a special charge, in accordance with
SFAS 146, which included $5.0 million of expense for
future lease obligation costs for the wafer fabrication facility
that the Company ceased using during the second quarter of
fiscal 2007. Also included in the special charge was
$1.7 million for
clean-up and
closure costs that were charged to expense as incurred. The
clean-up
activity was completed during the second quarter of fiscal 2007,
and the Company does not expect to incur any additional charges
related to this action.
Reorganization
of Product Development and Support Programs
During the fourth quarter of fiscal 2005, the Company recorded a
special charge of $11.2 million as a result of its decision
to reorganize its product development and support programs with
the goal of providing greater focus on its analog and digital
signal processing product programs. The charge was for severance
and fringe benefit costs that were recorded pursuant to
SFAS 88 under the Companys ongoing benefit plan or
statutory requirements at foreign locations for 60 manufacturing
employees and 154 engineering and selling, marketing, general
and administrative employees.
During fiscal 2006, the Company recorded an additional special
charge of $3.8 million related to this reorganization
action. Approximately $1.5 million of this charge was for
lease obligation costs for a facility the Company ceased using
during the first quarter of fiscal 2006 and the write-off of
property, plant and equipment and other items at this facility.
The remaining $2.3 million related to severance and fringe
benefit costs that were recorded in the fourth quarter of fiscal
2006 pursuant to SFAS 88 under the Companys ongoing
benefit plan or statutory requirements at foreign locations for
46 engineering and selling, marketing, general and
administrative employees.
During the first quarter of fiscal 2007, the Company recorded an
additional special charge of $1.6 million related to this
reorganization action. Approximately $0.6 million of this
charge was for contract termination costs.
71
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The remaining $1.0 million relates to severance and fringe
benefit costs recorded pursuant to SFAS 88 under the
Companys ongoing benefit plan for six engineering
employees.
During the second quarter of fiscal 2007, the Company recorded
an additional special charge of $3.4 million related to
this reorganization action. Approximately $3.2 million
relates to the severance and fringe benefit costs recorded
pursuant to SFAS 88 under the Companys ongoing
benefit plan or minimum statutory requirements at foreign
locations for 20 engineering and selling, marketing, general and
administrative employees. The remaining $0.2 million of
this charge was for lease obligation costs for a facility the
Company ceased using during the second quarter of fiscal 2007.
During the fourth quarter of fiscal 2007, the Company reversed
approximately $0.9 million of the Companys severance
accrual because some employees voluntarily left the Company and
other employees found alternative employment within the Company,
and were therefore no longer entitled to severance payments.
The employment of all employees included in this action has been
terminated. The Company does not expect to incur any further
charges related to this reorganization action.
Fourth
Quarter of Fiscal 2007 Special Charges
Consolidation
of a Wafer Fabrication Facility in Limerick
During the fourth quarter of fiscal 2007, the Company recorded a
special charge of $13.7 million as a result of the
Companys decision to focus the wafer fabrication capacity
at its Limerick facility on eight-inch technology. Certain
manufacturing processes and products produced on the six-inch
production line will transition to the existing
eight-inch
production line in Limerick while others will transition to
external foundries. The charge was for severance and fringe
benefit costs recorded pursuant to SFAS 88 under the
Companys ongoing benefit plan for 150 manufacturing
employees. Production is expected to cease in the six-inch wafer
fabrication facility during the first half of fiscal year 2009,
and the affected employees will be terminated. These employees
must continue to be employed until their employment is
involuntarily terminated in order to receive the severance
benefit. The Company expects to incur additional expenses
related to this action during fiscal year 2009 of approximately
$6 million related to clean-up and closure costs. In
accordance with SFAS 146, these costs will be expensed as
incurred.
Reduction
of Overhead Infrastructure Costs
During the fourth quarter of fiscal 2007, the Company decided to
either deemphasize or exit certain businesses or products and
focus investments in products and end markets where the Company
has better opportunities for profitable growth. In September
2007, the Company entered into a definitive agreement to sell
its Baseband Chipset Business. As a result of these decisions
the Company decided to reduce the support infrastructure in
manufacturing, engineering and SMG&A to more appropriately
reflect the required overhead structure of the Company.
Consequently, the Company recorded a special charge of
$12.3 million, of which $10.7 million is for severance
and fringe benefit costs recorded pursuant to SFAS 88 under
the Companys ongoing benefit plan or statutory
requirements at foreign locations for 25 manufacturing employees
and 127 engineering and selling, marketing, general and
administrative employees. The remaining $1.6 million is for
contract termination costs related to a license agreement
associated with products the Company will no longer develop and
for which there is no future alternative use. These actions are
expected be substantially completed in the second quarter of
fiscal 2008.
As of November 3, 2007, 77 of the 152 employees
included in this reorganization action were still employed by
the Company. These employees must continue to be employed until
their employment is involuntarily terminated in order to receive
the severance benefit.
72
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the third quarter of fiscal 2006, the Company completed a
transaction with TTPCom Limited (TTPCom), whereby TTPCom
transferred to the Company intellectual property, engineering
resources, and related assets associated with the support and
customization of TTPComs GSM/GPRS/EDGE modem software for
use on the Companys existing and future generations of
SoftFone®
baseband processors. The Company also acquired development
rights for AJAR, TTPComs advanced applications platform.
As a result of this transaction, the Company became the single
point of contact for both hardware and software support for its
new and existing wireless handset customers, thus improving the
Companys abilities to service the needs of individual
customers. The Company paid TTPCom $11.9 million in initial
cash payments. The purchase price was allocated to the tangible
and intangible assets acquired based on their estimated fair
values at the date of acquisition. The estimated fair values of
the assets exceeded the initial payments by $7.8 million,
resulting in negative goodwill. Pursuant to Statement of
Financial Accounting Standards (SFAS) No. 141, Business
Combinations, the Company recorded a liability for the
contingent consideration that will be accounted for as
additional purchase price, up to the amount of the negative
goodwill. As contingent payments became due, the payments were
applied against the contingent liability. As of October 28,
2006, the Company had paid $6 million of contingent
payments and the remaining contingent liability was
$1.8 million. The purchase price included $5.5 million
of in-process technology that had not yet reached technological
feasibility, had no alternative future use and was charged to
operations during the third quarter of fiscal 2006. The
in-process technology related to software code developed for use
in the Companys semiconductor chipsets manufactured for
devices that use both the 2G and 2.5G cellular wireless
technology standards. The fair value of the in-process
technology was determined with the assistance of a third party
using the income approach. At the time of the acquisition, the
in-process technology was approximately 56% complete. As of
November 3, 2007, the in-process research and development
projects were complete. During fiscal 2007, we paid an
additional $6.1 million of contingent consideration, which
resulted in reducing the $1.8 million liability and
recording additional goodwill of $4.3 million. As of
November 3, 2007, all technological milestones have been
met and no additional payments will be made. The acquisition
also included $13.2 million of intangible assets (see
Note 2f.) that were being amortized over their estimated
useful lives of five years using an accelerated amortization
method that reflects the estimated pattern of economic use. As a
result of the Companys definitive agreement to sell its
Baseband Chipset Business to MediaTek Inc., $7.9 million
and $11.4 million of net intangible assets were
reclassified to assets of discontinued operations at
November 3, 2007 and October 28, 2006, respectively,
as the TTPCom assets will be transferred to MediaTek Inc. as
part of the transaction. See Note 2u. for additional
information on assets of discontinued operations.
In the fourth quarter of fiscal 2006, the Company acquired
substantially all the outstanding stock of privately-held
Integrant Technologies, Inc. (Integrant) of Seoul, Korea. The
acquisition enabled the Company to enter the mobile TV market
and strengthened its presence in the Asian region. The Company
paid $127.2 million in initial cash payments at closing and
may be obligated to make additional cash payments of up to an
aggregate of $33 million upon the satisfaction of certain
conditions. The initial cash payments included $4.2 million
held in escrow for the purchase of the remaining non-founder
outstanding shares. These shares were purchased during fiscal
2007 and were recorded as additional goodwill. The purchase
price was allocated to the tangible and intangible assets
acquired based on their estimated fair values at the date of
acquisition. The Company completed the final purchase accounting
for this transaction during the first quarter of fiscal 2007,
which resulted in an additional $5.6 million of goodwill.
The $33 million of potential cash payments is comprised of
$25 million for the achievement of revenue-based milestones
that may be payable during the period from July 2006 through
December 2007 and $8 million related to the purchase of
shares from the founder of Integrant during the period from July
2007 through July 2009. The additional cash payments will be
recorded as additional purchase price. During fiscal 2007, the
Company paid $3.5 million to repurchase founder shares. No
revenue-based milestones have been met as of November 3,
2007. The purchase price included $11.1 million of
in-process technology that had not yet reached technological
feasibility, had no alternative future use and was charged to
operations during the fourth quarter of fiscal 2006. The
in-process technology related to technologies currently in
development for Dual DAB, T-DMB,
73
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
DVB-H, RFID and WiBro applications. The fair value of
the in-process technology was determined with the assistance of
a third party using the income forecast approach. At the time of
the acquisition, the in-process technology was approximately 74%
complete. As of November 3, 2007, the in-process research
and development projects were complete. The acquisition also
included $21.6 million of intangible assets (see
Note 2f.) that are being amortized over their estimated
useful lives of two to five years using an accelerated
amortization method that reflects the estimated pattern of
economic use.
In the fourth quarter of fiscal 2006, the Company acquired all
the outstanding stock of privately-held AudioAsics A/S
(AudioAsics) of Roskilde, Denmark. The acquisition of AudioAsics
allows the Company to continue developing low-power audio
solutions, while expanding its presence in the Nordic and
Eastern European regions. The Company paid $19.3 million in
initial cash payments at closing and may be obligated to make
additional cash payments of up to an aggregate of
$8 million upon the satisfaction of certain conditions. The
purchase price was allocated to the tangible and intangible
assets acquired based on their estimated fair values at the date
of acquisition. The $8 million of potential cash payments
is comprised of $4.8 million for the achievement of
revenue-based milestones that may be payable during the period
from October 2006 through January 2009 and $3.2 million
based on the achievement of technological milestones during the
period from October 2006 through January 2009. In order to be
entitled to receive $2.4 million of the revenue-based
contingent consideration, certain key employees must continue to
be employed by the Company. As such, that portion of the
revenue-based contingent consideration will be recorded as
compensation expense when, and if, it is earned. The
technological milestones require post-acquisition services to be
rendered in order to be achieved and, as such, will be recorded
as compensation expense when earned. The purchase price included
$5.1 million of in-process technology that had not yet
reached technological feasibility, had no alternative future use
and was charged to operations during the fourth quarter of
fiscal 2006. The in-process technology related to technologies
currently in development for analog and digital microphone
pre-amplifiers.
The fair value of the in-process technology was determined with
the assistance of a third party using the income approach. At
the time of the acquisition, the in-process technology was
approximately 69% complete. As of November 3, 2007, the
in-process research and development projects were complete. The
acquisition also included $8.3 million of intangible assets
(see Note 2f.) that are being amortized over their
estimated useful lives of five years using an accelerated
amortization method that reflects the estimated pattern of
economic use. As of November 3, 2007, no contingent
consideration has been paid.
Pro forma results of operations for TTPCom, Integrant and
AudioAsics 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 Companys consolidated statement of income
from the date of such acquisition.
|
|
7.
|
Deferred
Compensation Plan Investments
|
Deferred compensation plan investments are classified as trading
and the components of the investments as of November 3,
2007 and October 28, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Corporate obligations
|
|
$
|
21,670
|
|
|
$
|
18,883
|
|
Money market funds
|
|
|
3,858
|
|
|
|
3,039
|
|
Mutual funds
|
|
|
10,915
|
|
|
|
9,766
|
|
|
|
|
|
|
|
|
|
|
Total deferred compensation plan investments short
and long term
|
|
$
|
36,443
|
|
|
$
|
31,688
|
|
|
|
|
|
|
|
|
|
|
The fair values of these investments are based on published
market quotes on November 3, 2007 and October 28,
2006, respectively. Adjustments to fair value of, and income
pertaining to, deferred compensation plan investments are
recorded in operating expenses. Gross realized and unrealized
gains and losses from trading securities were not material in
fiscal 2007, 2006 or 2005.
74
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments are offset by a corresponding liability to the plan
participants (see Note 10). These investments are
specifically designated as available to the Company solely for
the purpose of paying benefits under the Companys deferred
compensation plan. However, in the event the Company became
insolvent, the investments would be available to all unsecured
general creditors.
During fiscal 2006, the Company distributed $254.1 million
from its amended and restated deferred compensation plan, or the
Deferred Compensation Plan, as a result of participant
terminations or at the direction of the participants. This
amount represented compensation
and/or stock
option gains previously deferred by those participants pursuant
to the terms of the Deferred Compensation Plan and earnings on
those deferred amounts. As a result of certain provisions of the
American Jobs Creation Act, participants had the opportunity
until December 31, 2005 to elect to withdraw amounts
previously deferred.
Other investments consist of equity securities and other
long-term investments. Investments are stated at fair value,
which is based on market quotes, or on a cost-basis, dependent
on the nature of the investment, as appropriate. Adjustments to
the fair value of investments classified as available-for-sale
are recorded as an increase or decrease in accumulated other
comprehensive income (loss), unless the adjustment is considered
an other-than-temporary impairment, in which case the adjustment
is recorded as a charge in the statement of income.
Realized gains of $7.9 million were recorded in fiscal 2007
related to the sale of a cost-basis investment. There were no
realized gains or losses recorded in fiscal 2006 or 2005.
Long-term marketable investments are classified as
available-for-sale. Unrealized losses of $0.3 million
($0.2 million net of tax) were recorded in fiscal 2007,
unrealized losses of $0.7 million ($0.4 million net of
tax) were recorded in fiscal 2006 and unrealized losses of
$1.4 million ($0.9 million net of tax) were recorded
in fiscal 2005.
Accrued liabilities at November 3, 2007 and
October 28, 2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Accrued compensation and benefits
|
|
$
|
77,019
|
|
|
$
|
80,160
|
|
Special charges
|
|
|
18,917
|
|
|
|
10,879
|
|
Other
|
|
|
54,607
|
|
|
|
54,874
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
150,543
|
|
|
$
|
145,913
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Deferred
Compensation Plan Liability and Other Noncurrent
Liabilities
|
The deferred compensation plan liability relates to obligations
due under the Analog Devices, Inc. Deferred Compensation Plan
(the Deferred Compensation Plan). The Deferred
Compensation Plan allows certain members of management and other
highly-compensated employees and non-employee directors to defer
receipt of all or any portion of their compensation. Prior to
January 1, 2005, participants could also defer gains on
stock options and restricted stock granted before July 23,
1997. The balance represents Deferred Compensation Plan
participant accumulated deferrals, and earnings thereon, since
the inception of the Deferred Compensation Plan, net of
withdrawals. The total expense to the Company of the Deferred
Compensation Plan was $0.3 million in fiscal 2007,
$1.0 million in fiscal 2006 and $9.9 million in fiscal
2005. The Companys liability under the Deferred
Compensation Plan is an unsecured general obligation of the
Company. Other noncurrent liabilities primarily relate to
pension liabilities.
During fiscal 2006, the Company distributed $254.1 million
from the Deferred Compensation Plan as a result of participant
terminations or at the direction of the participants. This
amount represented compensation
and/or
75
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stock option gains previously deferred by those participants
pursuant to the terms of the Deferred Compensation Plan and
earnings on those deferred amounts. As a result of certain
provisions of the American Jobs Creation Act, participants had
the opportunity until December 31, 2005 to elect to
withdraw amounts previously deferred.
The Company leases certain of its facilities, equipment and
software under various operating leases that expire at various
dates through 2022. The lease agreements frequently include
renewal and escalation clauses and require the Company to pay
taxes, insurance and maintenance costs. Total rental expense
under operating leases was approximately $43 million in
fiscal 2007, $45 million in fiscal 2006 and
$44 million in fiscal 2005.
The following is a schedule of future minimum rental payments
required under long-term operating leases at November 3,
2007:
|
|
|
|
|
|
|
Operating
|
|
Fiscal Years
|
|
Leases
|
|
|
2008
|
|
$
|
30,774
|
|
2009
|
|
$
|
25,906
|
|
2010
|
|
$
|
13,267
|
|
2011
|
|
$
|
5,430
|
|
2012
|
|
$
|
3,842
|
|
Later Years
|
|
$
|
12,259
|
|
|
|
|
|
|
Total
|
|
$
|
91,478
|
|
|
|
|
|
|
|
|
12.
|
Commitments
and Contingencies
|
Tentative
Settlement of the SECs Previously Announced Stock Option
Investigation
In the Companys 2004
Form 10-K
filing, the Company disclosed that the Securities and Exchange
Commission (SEC) had initiated an inquiry into its stock option
granting practices, focusing on options that were granted
shortly before the issuance of favorable financial results. On
November 15, 2005, the Company announced that it had
reached a tentative settlement with the SEC.
At all times since receiving notice of this inquiry, the Company
has cooperated with the SEC. In November 2005, the Company and
its President and CEO, Mr. Jerald G. Fishman, made an offer
of settlement to the Staff of the SEC. The settlement has been
submitted to the Commission for approval. There can be no
assurance a final settlement will be so approved.
The SECs inquiry focused on two separate issues. The
first issue concerned the Companys disclosure regarding
grants of options to employees and directors prior to the
release of favorable financial results. Specifically, the issue
related to options granted to employees (including
officers) of the Company on November 30, 1999 and to
employees (including officers) and directors of
the Company on November 10, 2000.
The second issue concerned the grant dates for options granted
to employees (including officers) in 1998 and
1999, and the grant date for options granted to employees
(including officers) and directors in 2001. Specifically,
the settlement would conclude that the appropriate grant date
for the September 4, 1998 options should have been
September 8th (which is one trading day later than the
date that was used to price the options); the appropriate grant
date for the November 30, 1999 options should have been
November 29th (which is one trading day earlier than
the date that was used); and the appropriate grant date for the
July 18, 2001 options should have been
July 26th (which is five trading days after the
original date).
76
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with the proposed settlement, the Company would
consent to a
cease-and-desist
order under Section 10(b) of the Securities Exchange Act
and
Rule 10b-5
thereunder, would pay a civil money penalty of $3 million,
and would reprice options granted to Mr. Fishman in certain
years. Options granted to all others would be excluded from the
repricing. Mr. Fishman would consent to a
cease-and-desist
order under Sections 17(a)(2) and (3) of the
Securities Act, would pay a civil money penalty of
$1 million, and would make a disgorgement payment with
respect to options granted in certain years. With the exception
of options granted in 1998, Mr. Fishman has not exercised
or sold any of the options identified in this matter. The
Company and Mr. Fishman would settle this matter without
admitting or denying the Commissions findings.
The Company has determined that no restatement of its historical
financial results would be necessary due to the proposed
settlement.
Other
Legal Proceedings
In May 2006, the Company received a document subpoena from the
U.S. Attorney for the Southern District of New York
requesting records from 2000 to the present relating to the
Companys granting of stock options. The Company believes
that the options at issue in this matter are the same option
grants which have been the subject of investigation by the SEC.
The Company has cooperated with the office of the
U.S. Attorney in connection with this subpoena. The Company
cannot predict the outcome of this matter, but believes the
disposition of the matter will not have a material adverse
effect on the Company or its financial position.
On May 25, 2006, the Company filed a lawsuit in United
States District Court for the District of Delaware against
Linear Technology Corp., or LTC, alleging infringement of three
Company patents by LTCs making, selling and using various
products. In the Companys complaint, it is seeking damages
in an unspecified amount and injunctive relief. In addition, the
Company also sought a declaratory judgment that its products do
not infringe eight patents allegedly owned by LTC (the LTC
patents) and that the LTC patents are invalid. On
July 28, 2006, LTC filed an answer and counterclaims,
denying that its products infringe the asserted Company patents
and asking the court to declare such patents invalid. LTC also
claimed that the Company, by making, selling and using various
power management products, is infringing seven of the eight LTC
patents. LTC seeks damages in an unspecified amount and
injunctive relief. On August 21, 2006, the Company filed
its answer to LTCs counterclaims, denying all liability to
LTC. The case is currently in the discovery phase and trial is
scheduled to begin in October 2008. The Company intends to
vigorously pursue its claims against LTC, and to vigorously
defend against LTCs counterclaims. The Company is unable
at this time to predict the outcome of this litigation; however,
the Company believes that the final disposition of this matter
will not have a material adverse effect on the Company or its
financial position.
On October 13, 2006, a purported class action complaint was
filed in the United States District Court for the District of
Massachusetts on behalf of participants in the Companys
Investment Partnership Plan from October 5, 2000 to the
present. The complaint named as defendants the Company, certain
officers and directors, and the Companys Investment
Partnership Plan Administration Committee. The complaint alleges
purported violations of federal law in connection with the
Companys option granting practices during the years 1998,
1999, 2000, and 2001, including breaches of fiduciary duties
owed to participants and beneficiaries of the Companys
Investment Partnership Plan under the Employee Retirement Income
Security Act. The complaint seeks unspecified monetary damages,
as well as equitable and injunctive relief. The Company intends
to vigorously defend against these allegations. On
November 22, 2006, the Company and the individual
defendants filed motions to dismiss the complaint. On
January 8, 2007, the Plaintiff filed memoranda in
opposition. On January 22, 2007, the Company and the
individual defendants filed further memoranda in support of the
motions to dismiss. Although the Company believes it has
meritorious defenses to the asserted claims, it is unable at
this time to predict the outcome of this proceeding. The court
has scheduled a hearing on the Companys motion to dismiss
on January 30, 2008.
From time to time in the ordinary course of the Companys
business, various claims, charges and litigation are asserted or
commenced against the Company arising from, or related to,
contractual matters, patents, trademarks,
77
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
personal injury, environmental matters, product liability,
insurance coverage and personnel and employment disputes. As to
such claims and litigation the Company can give no assurance
that it will prevail.
While the Company does not believe that any of the matters
described above will have a material adverse effect on the
Companys financial position, an adverse outcome of any of
these matters is possible and could have a material adverse
effect on the Companys consolidated results of operations
or cash flows in the quarter or annual period in which one or
more of these matters are resolved.
|
|
13.
|
Maxim
Litigation Settlement
|
The Company executed a legal settlement with Maxim Integrated
Products, Inc. (Maxim) during the second quarter of fiscal 2007,
which resulted in the Company receiving $19 million. The
Company recorded $8.5 million as a credit to legal expense
in selling, marketing, general and administrative expense
because this amount represents the fair value of external legal
costs incurred by the Company in this matter. The remaining
$10.5 million has been recorded in other income because the
amount was not related to the reimbursement of external legal
costs and management deems it to be an isolated event. This
amount is earned in full because the Company has no future
obligation to Maxim with respect to this payment.
The Company and its subsidiaries have various savings and
retirement plans covering substantially all employees. The
Company maintains a defined contribution plan for the benefit of
its eligible United States employees. This plan provides for
Company contributions of up to 5% of each participants
total eligible compensation. In addition, the Company
contributes an amount equal to each participants pre-tax
contribution, if any, up to a maximum of 3% of each
participants total eligible compensation. The total
expense related to the defined contribution plan for
U.S. employees was $21.0 million in fiscal 2007,
$22.1 million in fiscal 2006 and $21.6 million in
fiscal 2005. The Company also has various defined benefit
pension and other retirement plans for certain
non-U.S. employees
that are consistent with local statutory requirements and
practices. The total expense related to the various defined
benefit pension and other retirement plans for certain
non-U.S. employees
was $17.3 million in fiscal 2007, $15.7 million in
fiscal 2006 and $12.1 million in fiscal 2005.
Effective for fiscal year 2007, the Company adopted the
provisions of SFAS 158, Employers Accounting for
Defined Benefit Pension and other Postretirement
Plans an amendment of FASB Statement No. 87,
88, 106 and 132(R) (SFAS 158) in the fourth
quarter of fiscal 2007. SFAS 158 requires that the funded
status of defined-benefit post retirement plans be recognized on
the companys consolidated balance sheets, and changes in
the funded status be reflected in comprehensive income.
SFAS 158 also requires the measurement date of the
plans funded status to be the same as the companys
fiscal year end, which will be effective for the Company in
fiscal 2009.
Non-U.S.
Plan Disclosures
The Companys funding policy for its foreign defined
benefit pension plans is consistent with the local requirements
of each country. The plans assets consist primarily of
U.S. and
non-U.S. equity
securities, bonds, property and cash. The benefit obligations
and related assets under these plans have been measured at
September 30, 2007 and September 30, 2006.
78
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net annual periodic pension cost of
non-U.S. plans
is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
10,890
|
|
|
$
|
10,572
|
|
|
$
|
8,231
|
|
Interest cost
|
|
|
8,862
|
|
|
|
7,214
|
|
|
|
6,521
|
|
Expected return on plan assets
|
|
|
(9,584
|
)
|
|
|
(7,097
|
)
|
|
|
(7,307
|
)
|
Amortization of prior service cost
|
|
|
8
|
|
|
|
116
|
|
|
|
185
|
|
Amortization of transitional asset
|
|
|
(39
|
)
|
|
|
(27
|
)
|
|
|
69
|
|
Recognized actuarial loss
|
|
|
804
|
|
|
|
1,548
|
|
|
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
10,941
|
|
|
$
|
12,326
|
|
|
$
|
8,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment impact
|
|
$
|
|
|
|
$
|
81
|
|
|
$
|
|
|
Settlement impact
|
|
$
|
85
|
|
|
$
|
|
|
|
$
|
|
|
Special termination benefits
|
|
$
|
207
|
|
|
$
|
1,394
|
|
|
$
|
|
|
The special termination presented relate to certain early
retirement benefits provided in certain jurisdictions.
79
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Obligation and asset data of the Companys
non-U.S. plans
at each fiscal year end is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
177,975
|
|
|
$
|
163,230
|
|
Service cost
|
|
|
10,890
|
|
|
|
10,572
|
|
Interest cost
|
|
|
8,862
|
|
|
|
7,214
|
|
Curtailment
|
|
|
(1,297
|
)
|
|
|
|
|
Settlement
|
|
|
(6,894
|
)
|
|
|
|
|
Special termination benefits
|
|
|
207
|
|
|
|
1,394
|
|
Participant contributions
|
|
|
2,811
|
|
|
|
2,310
|
|
Premiums Paid
|
|
|
(201
|
)
|
|
|
(188
|
)
|
Actuarial loss
|
|
|
(28,348
|
)
|
|
|
(10,807
|
)
|
Benefits paid
|
|
|
(4,037
|
)
|
|
|
(3,370
|
)
|
Exchange rate adjustment
|
|
|
20,803
|
|
|
|
7,620
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
180,771
|
|
|
$
|
177,975
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
135,944
|
|
|
$
|
108,091
|
|
Actual return on plan assets
|
|
|
11,326
|
|
|
|
12,100
|
|
Employer contributions
|
|
|
10,793
|
|
|
|
11,228
|
|
Participant contributions
|
|
|
2,811
|
|
|
|
2,310
|
|
Settlements
|
|
|
(6,894
|
)
|
|
|
|
|
Premiums Paid
|
|
|
(201
|
)
|
|
|
(188
|
)
|
Benefits paid
|
|
|
(4,037
|
)
|
|
|
(3,370
|
)
|
Exchange rate adjustment
|
|
|
18,063
|
|
|
|
5,773
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
167,805
|
|
|
$
|
135,944
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Funded Status
|
|
|
|
|
|
|
|
|
Unfunded status
|
|
$
|
(12,966
|
)
|
|
$
|
(42,031
|
)
|
Contribution between September 30 and fiscal year end
|
|
|
581
|
|
|
|
2,404
|
|
Unrecognized transition obligation
|
|
|
N/A
|
|
|
|
(19
|
)
|
Unrecognized actuarial loss
|
|
|
N/A
|
|
|
|
25,131
|
|
Unrecognized prior service cost
|
|
|
N/A
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(12,385
|
)
|
|
$
|
(14,490
|
)
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Balance Sheet
|
|
|
|
|
|
|
|
|
For years prior to adoption of the funded status
provisions of SFAS 158
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
|
N/A
|
|
|
$
|
|
|
Accrued benefit liability
|
|
|
N/A
|
|
|
|
(21,698
|
)
|
Intangible asset
|
|
|
N/A
|
|
|
|
25
|
|
Accumulated other comprehensive income
|
|
|
N/A
|
|
|
|
7,183
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
|
N/A
|
|
|
$
|
(14,490
|
)
|
|
|
|
|
|
|
|
|
|
For years after the adoption of the funded status
provisions of SFAS 158
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
10,114
|
|
|
|
N/A
|
|
Current liabilities
|
|
|
(757
|
)
|
|
|
N/A
|
|
Noncurrent liabilities
|
|
|
(21,742
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(12,385
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
80
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Reconciliation of Amounts Recognized in the Statement of
Financial Position
|
|
|
|
|
|
|
|
|
Initial net obligation
|
|
$
|
(19
|
)
|
|
|
N/A
|
|
Prior service cost
|
|
|
(19
|
)
|
|
|
N/A
|
|
Net gain
|
|
|
6,824
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
6,786
|
|
|
|
N/A
|
|
Accumulated contributions in excess of net periodic benefit cost
|
|
|
(19,171
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(12,385
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Estimated amounts that will be amortized from accumulated
other comprehensive income over the next fiscal year
|
|
|
|
|
|
|
|
|
Initial net asset
|
|
$
|
42
|
|
|
|
|
|
Prior service cost
|
|
|
(8
|
)
|
|
|
|
|
Net loss
|
|
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income attributable to change in additional
minimum liability recognition prior to adoption of SFAS 158
|
|
$
|
(2,135
|
)
|
|
$
|
(2,151
|
)
|
Increase in accumulated other comprehensive income (before tax)
to reflect the adoption of SFAS 158
|
|
$
|
(11,834
|
)
|
|
|
|
|
The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for
non-U.S. pension
plans with accumulated benefit obligation in excess of plan
assets were $46.4 million, $40.1 million, and
$24.3 million respectively, at September 30, 2007 and
$49.6 million, $41.9 million, and $24.2 million
respectively, at September 30, 2006.
The range of assumptions used for the
non-U.S. defined
benefit plans reflects the different economic environments
within the various countries. The projected benefit obligation
was determined using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Discount rate
|
|
|
5.64
|
%
|
|
|
4.79
|
%
|
Rate of increase in compensation levels
|
|
|
3.83
|
%
|
|
|
3.70
|
%
|
Expected long-term return on plan assets
|
|
|
7.14
|
%
|
|
|
6.71
|
%
|
The expected long-term rate of return on assets is a weighted
average of the long-term rates of return selected for the
various countries where the Company has funded pension plans.
The expected long-term rate of return on assets assumption is
selected based on the facts and circumstances that exist as of
the measurement date, and the specific portfolio mix of plan
assets. Management, in conjunction with its actuaries, reviewed
anticipated future long-term performance of individual asset
categories and considered the asset allocation strategy adopted
by the Company and or the trustees of the plans. While the
review considered recent fund performance and historical
returns, the assumption is primarily a long-term, prospective
rate.
81
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Expected fiscal 2008 Company contributions and estimated future
benefit payments are as follows:
|
|
|
|
|
Expected Company Contributions
|
|
|
|
|
2008
|
|
$
|
7,993
|
|
Expected Benefit Payments
|
|
|
|
|
2008
|
|
$
|
3,209
|
|
2009
|
|
$
|
3,224
|
|
2010
|
|
$
|
2,421
|
|
2011
|
|
$
|
4,750
|
|
2012
|
|
$
|
4,671
|
|
2013-2017
|
|
$
|
31,004
|
|
The Companys year-end pension plan weighted average asset
allocations by category were:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
Strategic Target
|
|
|
Equities
|
|
|
68.69
|
%
|
|
|
69.00
|
%
|
Bonds
|
|
|
26.46
|
%
|
|
|
27.00
|
%
|
Cash
|
|
|
0.62
|
%
|
|
|
0.00
|
%
|
Property
|
|
|
4.23
|
%
|
|
|
4.00
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
The fundamental goal underlying the pension plans
investment policy is to achieve a total rate of return that
exceeds inflation over the long-term by using a certain mix of
assets depending on the profile of the specific plan. Investment
practices must comply with applicable laws and regulations.
The Companys investment strategy is based on an
expectation that equity securities will outperform debt
securities over the long term. Accordingly, in order to maximize
the return on assets, a majority of assets are invested in
equities. Investments within each asset class are diversified to
reduce the impact of losses in single investments. The use of
derivative instruments is permitted where appropriate and
necessary to achieve overall investment policy objectives and
asset class targets.
The Company establishes strategic asset allocation percentage
targets and appropriate benchmarks for each significant asset
class to obtain a prudent balance between return and risk. The
interaction between plan assets and benefit obligations is
periodically studied by the Company and its actuaries to assist
in the establishment of strategic asset allocation targets.
82
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of income tax computed at the
U.S. federal statutory rates to income tax expense is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
U.S. federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Income tax provision reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax at statutory rate:
|
|
$
|
230,622
|
|
|
$
|
221,544
|
|
|
$
|
192,592
|
|
Irish income subject to lower tax rate
|
|
|
(65,715
|
)
|
|
|
(70,515
|
)
|
|
|
(65,157
|
)
|
Repatriation of foreign earnings
|
|
|
|
|
|
|
|
|
|
|
48,688
|
|
Domestic and international tax examination charges (benefits)
including penalties
|
|
|
4,363
|
|
|
|
(35,158
|
)
|
|
|
|
|
Deferred compensation plan
|
|
|
|
|
|
|
|
|
|
|
7,150
|
|
State income taxes, net of federal benefit
|
|
|
1,744
|
|
|
|
937
|
|
|
|
437
|
|
Research and development tax credits
|
|
|
(14,846
|
)
|
|
|
(934
|
)
|
|
|
(10,439
|
)
|
Amortization of goodwill/intangibles
|
|
|
261
|
|
|
|
207
|
|
|
|
988
|
|
Net foreign tax in excess of U.S. federal statutory tax rate
|
|
|
1,729
|
|
|
|
(45
|
)
|
|
|
|
|
Other, net
|
|
|
286
|
|
|
|
1,382
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
158,444
|
|
|
$
|
117,418
|
|
|
$
|
174,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For financial reporting purposes, income before income taxes
includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Pretax income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
288,110
|
|
|
$
|
229,026
|
|
|
$
|
116,840
|
|
Foreign
|
|
|
370,810
|
|
|
|
403,958
|
|
|
|
433,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes and discontinued operations
|
|
$
|
658,920
|
|
|
$
|
632,984
|
|
|
$
|
550,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
98,826
|
|
|
$
|
108,115
|
|
|
$
|
93,336
|
|
Foreign
|
|
|
60,033
|
|
|
|
36,462
|
|
|
|
63,753
|
|
State
|
|
|
2,435
|
|
|
|
1,295
|
|
|
|
2,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
161,294
|
|
|
$
|
145,872
|
|
|
$
|
159,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred (prepaid):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(2,336
|
)
|
|
$
|
(22,619
|
)
|
|
$
|
14,480
|
|
Foreign
|
|
|
(514
|
)
|
|
|
(5,835
|
)
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
$
|
(2,850
|
)
|
|
$
|
(28,454
|
)
|
|
$
|
14,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 22, 2004, the U.S. enacted the American
Jobs Creation Act of 2004 (AJCA). The AJCA created a
temporary incentive for U.S. multinational corporations to
repatriate accumulated foreign income by providing an 85%
dividends received deduction for certain dividends from
controlled foreign corporations. The Company
83
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
decided to repatriate $1,055 million in extraordinary
dividends, as defined by the AJCA, during the fourth quarter of
fiscal 2005 and accordingly recorded a tax liability of
$48.7 million at October 29, 2005.
The Company continues to intend to reinvest certain of its
foreign earnings indefinitely. Accordingly, no US income taxes
have been provided for approximately $1,193 million of
unremitted earnings of international subsidiaries. As of
November 3, 2007, the amount of unrecognized deferred tax
liability on these earnings was $323 million.
The significant components of the Companys deferred tax
assets and liabilities for the fiscal years ended
November 3, 2007 and October 28, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory reserves
|
|
$
|
31,227
|
|
|
$
|
30,302
|
|
Deferred income on shipments to distributors
|
|
|
22,247
|
|
|
|
20,696
|
|
Reserves for compensation and benefits
|
|
|
26,434
|
|
|
|
23,833
|
|
Tax credit carryovers
|
|
|
46,775
|
|
|
|
42,583
|
|
SFAS 115 mark-to-market adjustment
|
|
|
368
|
|
|
|
4,164
|
|
Stock-based compensation
|
|
|
78,203
|
|
|
|
40,704
|
|
Depreciation
|
|
|
|
|
|
|
14,322
|
|
Undistributed earnings of foreign subsidiaries
|
|
|
|
|
|
|
6,896
|
|
Other
|
|
|
5,694
|
|
|
|
4,862
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
210,948
|
|
|
|
188,362
|
|
Valuation allowance
|
|
|
(46,775
|
)
|
|
|
(42,583
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
164,173
|
|
|
|
145,779
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,377
|
|
|
|
|
|
Acquisition Accounting
|
|
|
(7,010
|
)
|
|
|
(2,331
|
)
|
Undistributed earnings of foreign subsidiaries
|
|
|
(4,999
|
)
|
|
|
|
|
Other
|
|
|
(514
|
)
|
|
|
(1,083
|
)
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
(10,146
|
)
|
|
|
(3,414
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
154,027
|
|
|
$
|
142,365
|
|
|
|
|
|
|
|
|
|
|
The valuation allowances of $46.8 million and
$42.6 million at November 3, 2007 and October 28,
2006, respectively, are a full valuation allowance for the
Companys state credit carryovers that will begin to expire
in 2008.
The Company has provided for potential liabilities due in
various jurisdictions. Judgment is required in determining the
worldwide income tax expense provision. In the ordinary course
of global business, there are many transactions and calculations
where the ultimate tax outcome is uncertain. Some of these
uncertainties arise as a consequence of cost reimbursement
arrangements among related entities. Although the Company
believes its estimates are reasonable, no assurance can be given
that the final tax outcome of these matters will not be
different than that which is reflected in the historical income
tax provisions and accruals. Such differences could have a
material impact on the Companys income tax provision and
operating results in the period in which such determination is
made.
84
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During fiscal year 2006, the United States Internal Revenue
Service (the IRS) completed its examination of fiscal years
2001, 2002 and 2003 and issued their report. The Company agreed
to accept this report and filed its 2005 and 2006 tax return and
an amended return for 2004 conforming to the methodologies
agreed to during the
2001-2003
examination. The completion of this examination, including the
reversal of accruals for taxes and penalties and the filing of
refund claims in other jurisdictions associated with the
completion of the IRS examination, resulted in an income tax
benefit of $35.2 million in fiscal year 2006.
During the fourth quarter of fiscal year 2007, the IRS completed
its field examination of fiscal years 2004 and 2005. Although
the IRS has not issued its final report for fiscal 2004 and
2005, they have issued proposed adjustments related to these two
fiscal years. The Company has provided $4.4 million for
taxes and penalties related to certain of these proposed
adjustments. There are four items, with a potential total tax
liability of $46 million, that the Company concluded, based
on discussions with its tax advisors, are not likely to result
in additional tax liability. Therefore, the Company has not
recorded any tax liability for these items and plans to appeal
these proposed adjustments through the normal processes for the
resolution of differences between the IRS and taxpayers. Two of
the unresolved matters are one-time issues and pertain to
Section 965 of the Internal Revenue Code related to the
beneficial tax treatment of dividends from foreign owned
companies under The American Jobs Creation Act. The other
matters pertain to the computation of research and development
tax credits and the profits earned from manufacturing activities
carried on outside the United States. As well as impacting taxes
payable for fiscal 2004 and 2005, these latter two matters could
impact taxes payable in subsequent years.
During fiscal year 2006, the IRS invited the Company to
participate in the Compliance Assurance Process (CAP), which is
a voluntary pilot program the IRS is conducting for a limited
number of large business taxpayers. The objective of CAP is to
reduce taxpayer burden associated with IRS audits while assuring
the IRS of the accuracy of tax returns prior to filing. The
Company has agreed to participate in CAP. Under the program, the
IRS is expected to contemporaneously work with the Company to
achieve federal tax compliance and resolve issues prior to the
filing of a tax return. CAP is designed to eliminate or
substantially reduce the need for post-filing examinations of
future tax returns. For fiscal 2006, the IRS has completed the
CAP. The IRS and the Company have agreed on the treatment of a
number of issues that have been included in an Issue Resolutions
Agreement related to the 2006 tax return. However, no agreement
was reached on the tax treatment of a number of issues,
including the same R&D credit and foreign manufacturing
issues mentioned above related to fiscal 2004 and 2005. The IRS
has also indicated they plan to audit the pricing of inter
company sales (transfer pricing), which is just beginning. The
Company has not provided for any additional taxes in respect to
the examination of the fiscal 2006 return. The CAP is still
underway for fiscal 2007. The Company has not prepared its tax
return for fiscal 2007, and the IRS has not issued a report for
fiscal 2007.
Although the Company believes its estimates of tax payable are
reasonable, no assurance can be given that the Company will
prevail in the matters raised related to the fiscal years 2004,
2005, and 2006 and that the outcome of one or all of these
matters will not be different than that which is reflected in
the historical income tax provisions and accruals. The Company
believes such differences would not have a material impact on
the Companys financial condition but could have a material
impact on the Companys income tax provision, operating
results and operating cash flows in the period in which such
matters are resolved.
|
|
16.
|
Related
Party Transactions
|
One of the Companys directors, who has served on the
Companys Board of Directors since 1988, became a director
of Taiwan Semiconductor Manufacturing Company, or TSMC, in
fiscal 2002 and continues to serve as a director of TSMC.
Management believes the terms and prices for the purchases of
products from TSMC are not affected by the presence of one of
the Companys directors on the Board of Directors of TSMC.
The Company purchased approximately $302 million,
$281 million and $224 million of product from TSMC in
fiscal years 2007, 2006 and 2005, respectively, and
approximately $47 million and $17 million was payable
to TSMC as of
85
ANALOG
DEVICES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
November 3, 2007 and October 28, 2006, respectively.
Management anticipates that it will make significant purchases
from TSMC in fiscal 2008.
|
|
17.
|
Gain on
Sale of Product Line
|
During fiscal 2006, the Company completed the sale to Ikanos
Communications, Inc. of its DSP-based digital subscriber line
(DSL) application-specific integrated circuit (ASIC) and network
processor product line. The Company received approximately
$23.1 million in cash for the product line and after
providing for the write-off of inventory, fixed assets and other
costs incurred to complete the transaction, recorded a net gain
of $13.0 million in nonoperating income during fiscal 2006.
On November 8, 2007, the Company entered into a purchase
and sale agreement with certain subsidiaries of ON Semiconductor
Corporation to sell the Companys CPU voltage regulation
and PC thermal monitoring business for total consideration of
approximately $185 million. The business to be sold
consists of core voltage regulator products for the central
processing unit in computing and gaming applications and
temperature sensors and fan-speed controllers for managing the
temperature of the central processing unit. The parties will
also enter into a one-year manufacturing supply arrangement. The
Company expects to close this transaction in the first quarter
of fiscal 2008. This business met the assets held for sale
criteria on November 8, 2007, and will therefore be
reclassified to discontinued operations during the first quarter
of fiscal 2008.
The following table presents the items that will be reclassified
into assets and liabilities of discontinued operations during
the first quarter of fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007
|
|
|
October 28, 2006
|
|
|
Accounts receivable, net
|
|
$
|
12,604
|
|
|
$
|
10,718
|
|
Inventory
|
|
|
23,146
|
|
|
|
24,811
|
|
Property, plant and equipment, net
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets reclassified to current assets of discontinued
operations
|
|
$
|
36,614
|
|
|
$
|
35,529
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
|
|
|
$
|
257
|
|
|
|
|
|
|
|
|
|
|
Total assets reclassified to non-current assets of discontinued
operations
|
|
|
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
2,894
|
|
|
$
|
1,857
|
|
Deferred Income on shipments to distributors
|
|
|
307
|
|
|
|
763
|
|
Accrued Liabilities
|
|
|
1,183
|
|
|
|
937
|
|
|
|
|
|
|
|
|
|
|
Total liabilities reclassified to current liabilities of
discontinued operations
|
|
$
|
4,384
|
|
|
$
|
3,557
|
|
|
|
|
|
|
|
|
|
|
On November 26, 2007, the Board of Directors of the Company
declared a cash dividend of $0.18 per outstanding share of
common stock. The dividend will be paid on December 26,
2007 to all shareholders of record at the close of business on
December 7, 2007.
86
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Analog Devices, Inc.
We have audited the accompanying consolidated balance sheets of
Analog Devices, Inc. as of November 3, 2007 and
October 28, 2006, and the related consolidated statements
of income, shareholders equity, comprehensive income, and
cash flows for each of the three years in the period ended
November 3, 2007. Our audits also included the financial
statement schedule listed in the Index at Item 15(c). These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Analog Devices, Inc. at November 3,
2007 and October 28, 2006, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended November 3, 2007, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 14 to the financial statements,
effective November 3, 2007, the Company adopted Statement
of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB Statements
No. 87, 88, 106, and 132(R). Additionally, as discussed
in Note 2s to the financial statements, effective
October 30, 2005, the Company adopted Statement of
Financial Accounting Standards No. 123(R), Share-Based
Payment.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Analog Devices, Inc.s internal control
over financial reporting as of November 3, 2007, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated November 26, 2007
expressed an unqualified opinion thereon.
Boston, Massachusetts
November 26, 2007
87
ANALOG
DEVICES, INC.
SUPPLEMENTARY FINANCIAL INFORMATION
(Unaudited)
Quarterly financial information for fiscal 2007 and fiscal 2006
(thousands, except per share amounts and as noted) includes
adjustments to reflect the classification of our Baseband
Chipset Business as discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4Q07
|
|
|
3Q07
|
|
|
2Q07
|
|
|
1Q07
|
|
|
4Q06
|
|
|
3Q06
|
|
|
2Q06
|
|
|
1Q06
|
|
|
Product Revenue
|
|
|
648,478
|
|
|
|
637,011
|
|
|
|
614,701
|
|
|
|
610,927
|
|
|
|
609,724
|
|
|
|
598,915
|
|
|
|
577,654
|
|
|
|
556,626
|
|
Revenue from the one-time IP license
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
648,478
|
|
|
|
637,011
|
|
|
|
614,701
|
|
|
|
645,927
|
|
|
|
609,724
|
|
|
|
598,915
|
|
|
|
577,654
|
|
|
|
556,626
|
|
Cost of sales
|
|
|
269,610
|
|
|
|
261,689
|
|
|
|
251,899
|
|
|
|
243,702
|
|
|
|
249,427
|
|
|
|
236,163
|
|
|
|
226,834
|
|
|
|
227,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
378,868
|
|
|
|
375,322
|
|
|
|
362,802
|
|
|
|
402,225
|
|
|
|
360,297
|
|
|
|
362,752
|
|
|
|
350,820
|
|
|
|
329,297
|
|
% of Total Revenue
|
|
|
58.4
|
%
|
|
|
58.9
|
%
|
|
|
59.0
|
%
|
|
|
62.3
|
%
|
|
|
59.1
|
%
|
|
|
60.6
|
%
|
|
|
60.7
|
%
|
|
|
59.2
|
%
|
Research and development
|
|
|
134,124
|
|
|
|
130,340
|
|
|
|
128,950
|
|
|
|
125,901
|
|
|
|
121,001
|
|
|
|
118,169
|
|
|
|
115,320
|
|
|
|
114,906
|
|
Selling, marketing, general and administrative
|
|
|
98,186
|
|
|
|
100,810
|
|
|
|
91,258
|
|
|
|
102,967
|
|
|
|
99,111
|
|
|
|
98,044
|
|
|
|
95,881
|
|
|
|
94,838
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,211
|
|
|
|
5,500
|
|
|
|
|
|
|
|
|
|
Special charges
|
|
|
25,183
|
|
|
|
|
|
|
|
10,116
|
|
|
|
5,196
|
|
|
|
777
|
|
|
|
|
|
|
|
|
|
|
|
1,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
257,493
|
|
|
|
231,150
|
|
|
|
230,324
|
|
|
|
234,064
|
|
|
|
237,100
|
|
|
|
221,713
|
|
|
|
211,201
|
|
|
|
210,757
|
|
Operating income from continuing operations
|
|
|
121,375
|
|
|
|
144,172
|
|
|
|
132,478
|
|
|
|
168,161
|
|
|
|
123,197
|
|
|
|
141,039
|
|
|
|
139,619
|
|
|
|
118,540
|
|
% of Total Revenue
|
|
|
19
|
%
|
|
|
23
|
%
|
|
|
22
|
%
|
|
|
26
|
%
|
|
|
20
|
%
|
|
|
24
|
%
|
|
|
24
|
%
|
|
|
21
|
%
|
Nonoperating (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
4
|
|
|
|
21
|
|
|
|
10
|
|
Interest income
|
|
|
(13,578
|
)
|
|
|
(17,721
|
)
|
|
|
(20,871
|
)
|
|
|
(24,837
|
)
|
|
|
(24,301
|
)
|
|
|
(26,716
|
)
|
|
|
(25,895
|
)
|
|
|
(23,257
|
)
|
Other, net
|
|
|
687
|
|
|
|
1,272
|
|
|
|
(10,221
|
)
|
|
|
(7,465
|
)
|
|
|
(211
|
)
|
|
|
435
|
|
|
|
(13,352
|
)
|
|
|
2,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating (income) expense
|
|
|
(12,891
|
)
|
|
|
(16,449
|
)
|
|
|
(31,092
|
)
|
|
|
(32,302
|
)
|
|
|
(24,495
|
)
|
|
|
(26,277
|
)
|
|
|
(39,226
|
)
|
|
|
(20,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and
minority interest
|
|
|
134,266
|
|
|
|
160,621
|
|
|
|
163,570
|
|
|
|
200,463
|
|
|
|
147,692
|
|
|
|
167,316
|
|
|
|
178,845
|
|
|
|
139,131
|
|
% of Total Revenue
|
|
|
21
|
%
|
|
|
25
|
%
|
|
|
27
|
%
|
|
|
31
|
%
|
|
|
24
|
%
|
|
|
28
|
%
|
|
|
31
|
%
|
|
|
25
|
%
|
Provision for income taxes
|
|
|
37,862
|
|
|
|
36,202
|
|
|
|
39,265
|
|
|
|
45,115
|
|
|
|
8,423
|
|
|
|
31,549
|
|
|
|
45,128
|
|
|
|
32,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(219
|
)
|
|
|
748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income from continuing operations
|
|
|
96,404
|
|
|
|
124,419
|
|
|
|
124,305
|
|
|
|
155,567
|
|
|
|
140,017
|
|
|
|
135,767
|
|
|
|
133,717
|
|
|
|
106,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations,
|
|
|
1,485
|
|
|
|
(3,984
|
)
|
|
|
1,051
|
|
|
|
(2,340
|
)
|
|
|
(1,598
|
)
|
|
|
8,918
|
|
|
|
12,104
|
|
|
|
13,744
|
|
Net Income
|
|
|
97,889
|
|
|
|
120,435
|
|
|
|
125,356
|
|
|
|
153,227
|
|
|
|
138,419
|
|
|
|
144,685
|
|
|
|
145,821
|
|
|
|
120,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenue
|
|
|
15
|
%
|
|
|
19
|
%
|
|
|
20
|
%
|
|
|
24
|
%
|
|
|
23
|
%
|
|
|
24
|
%
|
|
|
25
|
%
|
|
|
22
|
%
|
Earnings Per share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
0.32
|
|
|
|
0.39
|
|
|
|
0.38
|
|
|
|
0.46
|
|
|
|
0.40
|
|
|
|
0.38
|
|
|
|
0.37
|
|
|
|
0.29
|
|
Net income
|
|
|
0.32
|
|
|
|
0.38
|
|
|
|
0.38
|
|
|
|
0.45
|
|
|
|
0.40
|
|
|
|
0.40
|
|
|
|
0.40
|
|
|
|
0.33
|
|
Earnings Per share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
0.31
|
|
|
|
0.38
|
|
|
|
0.37
|
|
|
|
0.45
|
|
|
|
0.39
|
|
|
|
0.37
|
|
|
|
0.35
|
|
|
|
0.28
|
|
Net income
|
|
|
0.31
|
|
|
|
0.37
|
|
|
|
0.37
|
|
|
|
0.44
|
|
|
|
0.39
|
|
|
|
0.39
|
|
|
|
0.39
|
|
|
|
0.32
|
|
Shares used to compute earnings per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
305,867
|
|
|
|
318,465
|
|
|
|
329,988
|
|
|
|
338,698
|
|
|
|
346,803
|
|
|
|
357,887
|
|
|
|
364,225
|
|
|
|
366,135
|
|
Diluted
|
|
|
313,825
|
|
|
|
327,331
|
|
|
|
338,840
|
|
|
|
349,208
|
|
|
|
357,164
|
|
|
|
369,542
|
|
|
|
376,811
|
|
|
|
380,337
|
|
Dividends declared per share
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
(a) Evaluation of Disclosure Controls and
Procedures. Our management, with the
participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of Analogs disclosure
controls and procedures as of November 3, 2007. The term
disclosure controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to
be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the
companys management, including its principal executive and
principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes
that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment
in evaluating the cost-benefit relationship of possible controls
and procedures. Based on the evaluation of our disclosure
controls and procedures as of November 3, 2007 our Chief
Executive Officer and Chief Financial Officer concluded that, as
of such date, our disclosure controls and procedures were
effective at the reasonable assurance level.
(b) Managements Report on Internal Control Over
Financial Reporting.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rule 13a-15(f)
or 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers and effected by the companys board of directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the company;
|
|
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and
|
|
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of November 3, 2007. In
making this assessment, the companys management used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control-Integrated
Framework.
Based on this assessment, our management concluded that, as of
November 3, 2007, our internal control over financial
reporting is effective based on those criteria.
Our independent auditors have issued an audit report on our
assessment of our internal control over financial reporting.
This report appears below.
89
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Analog Devices, Inc.
We have audited Analog Devices, Inc.s internal control
over financial reporting as of November 3, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Analog Devices,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
managements report on internal control over financial
reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Analog Devices, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of November 3, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Analog Devices, Inc. as of
November 3, 2007 and October 28, 2006, and the related
consolidated statements of income, shareholders equity,
comprehensive income, and cash flows for each of the three years
in the period ended November 3, 2007 of Analog Devices,
Inc. and our report dated November 26, 2007 expressed an
unqualified opinion thereon.
Boston, Massachusetts
November 26, 2007
90
(c) Changes in Internal Controls. No
change in our internal control over financial reporting (as
defined in
Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act) occurred during
the fiscal quarter ended November 3, 2007 that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not applicable.
91
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information required by this item relating to our directors and
nominees is contained in our 2008 proxy statement under the
caption Proposal 1 Election of
Directors and is incorporated herein by reference.
Information required by this item relating to our executive
officers is contained under the caption EXECUTIVE OFFICERS
OF THE COMPANY in Part I of this Annual Report on
Form 10-K
and is incorporated herein by reference. Information required by
this item relating to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is contained in our 2008 proxy
statement under the caption Section 16(a) Beneficial
Ownership Reporting Compliance and is incorporated herein
by reference.
We have adopted a written code of business conduct and ethics
that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller,
or persons performing similar functions and have posted it in
the Corporate Governance section of our website which is located
at www.analog.com. We intend to satisfy any disclosure
requirement under Item 5.05 of
Form 8-K
regarding any amendments to, or waivers from, our code of
business conduct and ethics by posting such information on our
website which is located at www.analog.com.
During the fourth quarter of fiscal 2007, we made no material
change to the procedures by which shareholders may recommend
nominees to our Board of Directors, as described in our 2007
proxy statement.
Information required by this item relating to the audit
committee of our Board of Directors is contained in our 2008
proxy statement under the caption Corporate
Governance Board of Directors Meetings and
Committees Audit Committee and is incorporated
herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Information required by this item is contained in our 2008 proxy
statement under the captions Corporate
Governance Directors Compensation and
Information About Executive Compensation and is
incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information required by this item relating to security ownership
of certain beneficial owners and management is contained in our
2008 proxy statement under the caption Security Ownership
of Certain Beneficial Owners and Management and is
incorporated herein by reference. Information required by this
item relating to securities authorized for issuance under equity
compensation plans is contained in our 2008 proxy statement
under the caption Information About Executive
Compensation Securities Authorized for Issuance
Under Equity Compensation Plans and is incorporated herein
by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information required by this item relating to transactions with
related persons is contained in our 2008 proxy statement under
the caption Corporate Governance Certain
Relationships and Related Transactions and is incorporated
herein by reference. Information required by this item relating
to director independence is contained in our 2008 proxy
statement under the caption Corporate
Governance Determination of Independence and
is incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information required by this item is contained in our 2008 proxy
statement under the caption Corporate
Governance Independent Registered Public Accounting
Firm Fees and Other Matters and is incorporated herein by
reference.
92
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) The following are filed as part of this Annual
Report on
Form 10-K:
The following consolidated financial statements are included in
Item 8 of this Annual Report on
Form 10-K:
|
|
|
|
|
Consolidated Statements of Income for the years ended
November 3, 2007, October 28, 2006 and
October 29, 2005
|
|
|
|
Consolidated Balance Sheets as of November 3, 2007 and
October 28, 2006
|
|
|
|
Consolidated Statements of Shareholders Equity for the
years ended November 3, 2007, October 28, 2006 and
October 29, 2005
|
|
|
|
Consolidated Statements of Comprehensive Income for the years
ended November 3, 2007, October 28, 2006 and
October 29, 2005
|
|
|
|
Consolidated Statements of Cash Flows for the years ended
November 3, 2007, October 28, 2006 and
October 29, 2005
|
The exhibits listed in the Exhibit Index immediately
preceding the exhibits are filed with or incorporated by
reference in this Annual Report on
Form 10-K.
|
|
(c)
|
Financial
Statement Schedules
|
The following consolidated financial statement schedule is
included in Item 15(c) of this Annual Report on
Form 10-K:
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted since the required
information is not present, or not present in amounts sufficient
to require submission of the schedule, or because the
information required is included in the consolidated financial
statements or the Notes thereto.
93
ANALOG
DEVICES, INC.
ANNUAL REPORT ON
FORM 10-K
YEAR ENDED NOVEMBER 3, 2007
ITEM 15(c)
FINANCIAL STATEMENT SCHEDULE
94
ANALOG
DEVICES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years
ended November 3, 2007, October 28, 2006 and
October 29, 2005
(Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Charged to
|
|
|
|
|
|
End of
|
|
Description
|
|
Period
|
|
|
Income Statement
|
|
|
Deductions
|
|
|
Period
|
|
|
Accounts Receivable Reserves and Allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 29, 2005
|
|
$
|
4,645
|
|
|
$
|
2,216
|
|
|
$
|
3,979
|
|
|
$
|
2,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 28, 2006
|
|
$
|
2,882
|
|
|
$
|
3,087
|
|
|
$
|
3,436
|
|
|
$
|
2,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended November 3, 2007
|
|
$
|
2,533
|
|
|
$
|
4,753
|
|
|
$
|
3,675
|
|
|
$
|
3,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
By:
|
/s/ JERALD
G. FISHMAN
|
Jerald G. Fishman
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: November 30, 2007
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
/s/ Ray
Stata
Ray
Stata
|
|
Chairman of the Board
|
|
November 30, 2007
|
|
|
|
|
|
/s/ Jerald
G. Fishman
Jerald
G. Fishman
|
|
President,
Chief Executive Officer
and Director (Principal Executive Officer)
|
|
November 30, 2007
|
|
|
|
|
|
/s/ Joseph
E. Mcdonough
Joseph
E. Mcdonough
|
|
Vice President-Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
November 30, 2007
|
|
|
|
|
|
/s/ James
A. Champy
James
A. Champy
|
|
Director
|
|
November 30, 2007
|
|
|
|
|
|
/s/ John
L. Doyle
John
L. Doyle
|
|
Director
|
|
November 30, 2007
|
|
|
|
|
|
/s/ John
C. Hodgson
John
C. Hodgson
|
|
Director
|
|
November 30, 2007
|
|
|
|
|
|
/s/ Christine
King
Christine
King
|
|
Director
|
|
November 30, 2007
|
|
|
|
|
|
/s/ F.
Grant Saviers
F.
Grant Saviers
|
|
Director
|
|
November 30, 2007
|
|
|
|
|
|
/s/ Paul
J. Severino
Paul
J. Severino
|
|
Director
|
|
November 30, 2007
|
|
|
|
|
|
/s/ Kenton
J. Sicchitano
Kenton
J. Sicchitano
|
|
Director
|
|
November 30, 2007
|
|
|
|
|
|
/s/ Lester
C. Thurow
Lester
C. Thurow
|
|
Director
|
|
November 30, 2007
|
96
Exhibit Index
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Purchase and Sale Agreement, dated as of September 9, 2007,
among Analog Devices, Inc., various subsidiaries, and MediaTek
Inc.
|
|
2
|
.2
|
|
Form of License Agreement to be entered into among Analog
Devices, Inc., Analog Devices B.V. and MediaTek Inc.
|
|
3
|
.1
|
|
Restated Articles of Organization of Analog Devices, Inc., as
amended, filed as an exhibit to the Companys Quarterly
Report on Form 10-Q (File No. 1-7819) for the quarterly period
ended May 1, 2004 as filed with the Commission on May 18, 2004
and incorporated herein by reference.
|
|
3
|
.2
|
|
Amended and Restated By-Laws of Analog Devices, Inc., filed as
an exhibit to the Companys Current Report on Form 8-K
(File No. 1-7819), as filed with the Commission on December 13,
2004 and incorporated herein by reference.
|
|
*10
|
.1
|
|
Analog Devices, Inc. Amended and Restated Deferred Compensation
Plan, filed as an exhibit to the Companys Quarterly Report
on Form 10-Q (File No. 1-7819) for the quarterly period ended
January 28, 2006 as filed with the Commission on February 15,
2006 and incorporated herein by reference.
|
|
*10
|
.2
|
|
Amendment No. 1 to Analog Devices, Inc. Amended and Restated
Deferred Compensation Plan.
|
|
*10
|
.3
|
|
Trust Agreement for Deferred Compensation Plan dated as of
October 1, 2003 between Analog Devices, Inc. and Fidelity
Management Trust Company filed as an exhibit to the
Companys Annual Report on Form 10-K for the fiscal year
ended November 1, 2003 (File No. 1-7819) as filed with the
Commission on December 23, 2003 and incorporated herein by
reference.
|
|
*10
|
.4
|
|
First Amendment to Trust Agreement for Deferred Compensation
Plan between Analog Devices, Inc. and Fidelity Management Trust
Company dated as of January 1, 2005, filed as an exhibit to the
Companys Annual Report on Form 10-K for the fiscal year
ended October 28, 2006 (File No. 1-7819) as filed with the
Commission on November 20, 2006 and incorporated herein by
reference.
|
|
*10
|
.5
|
|
Restated 1988 Stock Option Plan of Analog Devices, Inc., filed
as an exhibit to the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended May 3, 1997 (File No. 1-7819)
as filed with the Commission on June 17, 1997 and incorporated
herein by reference.
|
|
*10
|
.6
|
|
1994 Director Option Plan of Analog Devices, Inc., as
amended, filed as an exhibit to the Companys Form 10-K for
the fiscal year ended November 2, 2002 (File No. 1-7819) as
filed with the Commission on January 29, 2003 and incorporated
herein by reference.
|
|
*10
|
.7
|
|
1998 Stock Option Plan of Analog Devices Inc., as amended, filed
as an exhibit to the Companys Form 10-K for the fiscal
year ended November 2, 2002 (File No. 1-7819) as filed with the
Commission on January 29, 2003 and incorporated herein by
reference.
|
|
10
|
.8
|
|
Analog Devices, Inc. 2001 Broad-Based Stock Option Plan, as
amended, filed as an exhibit to the Companys Form 10-K for
the fiscal year ended November 2, 2002 (File No. 1-7819) as
filed with the Commission on January 29, 2003 and incorporated
herein by reference.
|
|
*10
|
.9
|
|
2006 Stock Incentive Plan of Analog Devices, Inc., filed as
Appendix A of the Companys Definitive Proxy Statement on
Schedule 14A filed with the Commission on February 8, 2006
(File No. 1-7819) and incorporated herein by reference.
|
|
*10
|
.10
|
|
Amendment No. 1 to 2006 Stock Incentive Plan of Analog Devices,
Inc., filed as an exhibit to the Companys Annual Report on
Form 10-K for the fiscal year ended October 28, 2006 (File No.
1-7819) as filed with the Commission on November 20, 2006 and
incorporated herein by reference.
|
|
*10
|
.11
|
|
Form of Confirming Memorandum for Grants of Non-Qualified Stock
Options to Employees for usage under the Registrants 2006
Stock Incentive Plan, filed as an exhibit to the Companys
Current Report on Form 8-K (File No. 1-7819), as filed with the
Commission on December 22, 2006 and incorporated herein by
reference.
|
|
*10
|
.12
|
|
Form of Confirming Memorandum for Grants of Non-Qualified Stock
Options to Directors for usage under the Registrants 2006
Stock Incentive Plan, filed as an exhibit to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 4, 2007 (File No. 1-7819) as filed with the Commission on
August 21, 2007 and incorporated herein by reference.
|
|
*10
|
.13
|
|
Form of Restricted Stock Agreement for usage under the
Registrants 2006 Stock Incentive Plan, filed as an exhibit
to the Companys Current Report on Form 8-K (File No.
1-7819), as filed with the Commission on September 25, 2006 and
incorporated herein by reference.
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
*10
|
.14
|
|
Form of Restricted Stock Unit Confirming Memorandum for usage
under the Registrants 2006 Stock Incentive Plan, filed as
an exhibit to the Companys Current Report on Form 8-K
(File No. 1-7819), as filed with the Commission on September 25,
2006 and incorporated herein by reference.
|
|
*10
|
.15
|
|
Analog Devices BV (Ireland) Employee Stock Option Program, as
amended, filed as an exhibit to the Companys Form 10-K for
the fiscal year ended November 2, 2002 (File No. 1-7819) as
filed with the Commission on January 29, 2003 and incorporated
herein by reference.
|
|
10
|
.16
|
|
BCO Technologies plc Unapproved Share Option Scheme, filed as an
exhibit to the Companys Registration Statement on Form S-8
(File No. 333-50092) as filed with the Commission on November
16, 2000 and incorporated herein by reference.
|
|
10
|
.17
|
|
BCO Technologies plc Approved Share Option Scheme, filed as an
exhibit to the Companys Registration Statement on Form S-8
(File No. 333-50092) as filed with the Commission on November
16, 2000 and incorporated herein by reference.
|
|
10
|
.18
|
|
ChipLogic, Inc. Amended and Restated 1998 Stock Plan, filed as
an exhibit to the Companys Registration Statement on Form
S-8 (File No. 333-53314) as filed with the Commission on
January 5, 2001 and incorporated herein by reference.
|
|
10
|
.19
|
|
Staccato Systems, Inc. 1998 Stock Plan, filed as an exhibit to
the Companys Registration Statement on Form S-8 (File No.
333-53828) as filed with the Commission on January 17, 2001 and
incorporated herein by reference.
|
|
10
|
.20
|
|
Various individual stock restriction and similar agreements
between the registrant and employees thereof relating to
ChipLogic, Inc., filed as an exhibit to the Companys
Registration Statement on Form S-8 (File No. 333-57444) as filed
with the Commission on March 22, 2001, as amended by Amendment
No. 1 filed as an exhibit to the Companys Post-Effective
Amendment to Registration Statement on Form S-8 (File No.
333-57444) as filed with the Commission on March 23, 2001 and
incorporated herein by reference.
|
|
*10
|
.21
|
|
Employment Agreement dated November 14, 2005 between Jerald G.
Fishman and Analog Devices, Inc., filed as an exhibit to the
Companys Current Report on Form 8-K (File No. 1-7819) as
filed with the Commission on November 15, 2005 and incorporated
herein by reference.
|
|
*10
|
.22
|
|
Amendment dated as of October 22, 2007 to the Employment
Agreement dated as of November 14, 2005 between Jerald G.
Fishman and Analog Devices, Inc., filed as an exhibit to the
Companys Current Report on Form 8-K (File No. 1-7819) as
filed with the Commission on October 26, 2007 and incorporated
herein by reference.
|
|
*10
|
.23
|
|
Executive Retention Agreement dated October 22, 2007 between
Jerald G. Fishman and Analog Devices, Inc., filed as an exhibit
to the Companys Current Report on Form 8-K (File No.
1-7819) as filed with the Commission on October 26, 2007 and
incorporated herein by reference.
|
|
*10
|
.24
|
|
Letter Agreement between Analog Devices Inc. and Jerald G.
Fishman dated June 21, 2000 relating to acceleration of stock
options upon the occurrence of certain events, filed as an
exhibit to the Companys Annual Report on Form 10-K for the
fiscal year ended October 28, 2000 (File No. 1-7819) as filed
with the Commission on January 26, 2001 and incorporated herein
by reference.
|
|
*10
|
.25
|
|
Description of Executive Performance Bonus Plan for fiscal year
2007, incorporated herein by reference to Item 5.02(e) in the
Companys Current Report on Form 8-K (File No. 1-7819)
filed December 22, 2006.
|
|
*10
|
.26
|
|
Form of Employee Retention Agreement, as amended, filed as an
exhibit to the Companys Annual Report on Form 10-K for the
fiscal year ended November 1, 1997 (File No. 1-7819) as filed
with the Commission on January 28, 1998 and incorporated herein
by reference.
|
|
*10
|
.27
|
|
Amendment dated as of October 22, 2007 to the Employee Retention
Agreement dated as of January 16, 1989 between Jerald G. Fishman
and Analog Devices, Inc., filed as an exhibit to the
Companys Current Report on Form 8-K (File No. 1-7819) as
filed with the Commission on October 26, 2007 and incorporated
herein by reference.
|
|
*10
|
.28
|
|
Employee Change in Control Severance Policy of Analog Devices,
Inc., as amended, filed as an exhibit to the Companys
Annual Report on Form 10-K for the fiscal year ended October 30,
1999 (File No. 1-7819) as filed with the Commission on January
28, 2000 and incorporated herein by reference.
|
|
*10
|
.29
|
|
Senior Management Change in Control Severance Policy of Analog
Devices, Inc., as amended, filed as an exhibit to the
Companys Annual Report on Form 10-K for the fiscal year
ended October 30, 1999 (File No. 1-7819) as filed with the
Commission on January 28, 2000 and incorporated herein by
reference.
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.30
|
|
Amended and Restated Lease Agreement dated May 1, 1992 between
Analog Devices, Inc. and the trustees of Everett Street Trust
relating to the premises at 3 Technology Way, Norwood,
Massachusetts, filed as an exhibit to the Companys Annual
Report on Form 10-K for the fiscal year ended November 1, 1997
(File No. 1-7819) as filed with the Commission on January 28,
1998 and incorporated herein by reference.
|
|
10
|
.31
|
|
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, filed as an exhibit
to the Companys Annual Report on Form 10-K for the fiscal
year ended October 30, 1999 (File No. 1-7819) as filed with the
Commission on January 28, 2000 and incorporated herein by
reference.
|
|
10
|
.32
|
|
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,
filed as an exhibit to the Companys Annual Report on Form
10-K for the fiscal year ended October 30, 1999 (File No.
1-7819) as filed with the Commission on January 28, 2000 and
incorporated herein by reference.
|
|
10
|
.33
|
|
Reimbursement Agreement dated May 18, 1992 between Analog
Devices, Inc. and the trustees of Everett Street Trust, filed as
an exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended November 1, 1997 (File No. 1-7819) as
filed with the Commission on January 28, 1998 and incorporated
herein by reference.
|
|
10
|
.34
|
|
Lease Agreement dated February 8, 1996 between Analog Devices,
Inc. and Massachusetts Institute of Technology, relating to
premises located at 21 Osborn Street, Cambridge, Massachusetts,
filed as an exhibit to the Companys Annual Report on Form
10-K for the fiscal year ended November 3, 2001 (File No.
1-7819) as filed with the Commission on January 28, 2002 and
incorporated herein by reference.
|
|
10
|
.35
|
|
First Amendment dated December 13, 1996 to Lease Agreement dated
February 8, 1996 between Analog Devices, Inc. and Massachusetts
Institute of Technology, relating to premises located at
21 Osborn Street, Cambridge, Massachusetts, filed as an
exhibit to the Companys Annual Report on Form 10-K for the
fiscal year ended October 28, 2006 (File No. 1-7819) as filed
with the Commission on November 20, 2006 and incorporated herein
by reference.
|
|
10
|
.36
|
|
Second Amendment dated December 20, 1996 to Lease Agreement
dated February 8, 1996 between Analog Devices, Inc. and
Massachusetts Institute of Technology, relating to premises
located at 21 Osborn Street, Cambridge, Massachusetts,
filed as an exhibit to the Companys Annual Report on Form
10-K for the fiscal year ended October 28, 2006 (File No.
1-7819) as filed with the Commission on November 20, 2006 and
incorporated herein by reference.
|
|
10
|
.37
|
|
Third Amendment dated May 27, 1997 to Lease Agreement dated
February 8, 1996 between Analog Devices, Inc. and Massachusetts
Institute of Technology, relating to premises located at 21
Osborn Street, Cambridge, Massachusetts, filed as an exhibit to
the Companys Annual Report on Form 10-K for the fiscal
year ended October 28, 2006 (File No. 1-7819) as filed with the
Commission on November 20, 2006 and incorporated herein by
reference.
|
|
10
|
.38
|
|
Lease Agreement dated November 14, 1997, as amended, between
Analog Devices, Inc. and Liberty Property Limited Partnership,
relating to premises located at 7736 McCloud Road, Greensboro,
North Carolina, filed as an exhibit to the Companys Annual
Report on Form 10-K for the fiscal year ended October 28, 2006
(File No. 1-7819) as filed with the Commission on November 20,
2006 and incorporated herein by reference.
|
|
10
|
.39
|
|
Fifth Amendment dated September 14, 2007 to Lease Agreement
dated November 14, 1997, as amended, between Analog Devices,
Inc. and Crown-Greensboro I, LLC (as successor to Liberty
Property Limited Partnership), relating to premises located at
7736 McCloud Road, Greensboro, North Carolina.
|
|
14
|
|
|
Analog Devices, Inc. Code of Business Conduct and Ethics, filed
as an exhibit to the Companys Form 10-K for the fiscal
year ended November 1, 2003 (File No. 1-7819) as filed with the
Commission on January 29, 2003 and incorporated herein by
reference.
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
21
|
|
|
Subsidiaries of the Company.
|
|
23
|
|
|
Consent of Ernst & Young LLP, Independent Registered Public
Accounting Firm.
|
|
31
|
.1
|
|
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the
Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
|
|
31
|
.2
|
|
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the
Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
|
|
32
|
.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350 (Chief
Executive Officer)
|
|
32
|
.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350 (Chief
Financial Officer)
|
|
|
|
|
|
Filed herewith. |
|
* |
|
Management contracts and compensatory plan or arrangements
required to be filed as an Exhibit pursuant to Item 15(b)
of
Form 10-K. |