e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 3, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 1-7819
Analog Devices, Inc.
(Exact name of registrant as specified in its charter)
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Massachusetts
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04-2348234 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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One Technology Way, Norwood, MA
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02062-9106 |
(Address of principal executive offices)
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(Zip Code) |
(781) 329-4700
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES
þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
þ |
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Accelerated filer
o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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
As of May 3, 2008 there were 290,120,570 shares of Common Stock, $0.16 2/3 par value per
share, outstanding.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands, except per share amounts)
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Three Months Ended |
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May 3, 2008 |
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May 5, 2007 |
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Product revenue |
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$ |
649,340 |
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$ |
597,483 |
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Cost of sales (1) |
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253,319 |
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236,255 |
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Gross margin |
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396,021 |
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361,228 |
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Operating expenses: |
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Research and development (1) |
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134,653 |
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126,696 |
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Selling, marketing, general and administrative (1) |
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104,183 |
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90,210 |
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Special charges |
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10,116 |
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238,836 |
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227,022 |
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Operating income |
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157,185 |
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134,206 |
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Nonoperating (income) expense: |
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Interest income |
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(10,669 |
) |
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(20,871 |
) |
Other, net |
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114 |
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(10,221 |
) |
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(10,555 |
) |
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(31,092 |
) |
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Income from continuing operations before income taxes |
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167,740 |
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165,298 |
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Provision for income taxes |
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37,848 |
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39,720 |
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Income from continuing operations, net of tax |
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129,892 |
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125,578 |
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Discontinued operations: |
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Income (loss) from discontinued operations, net of tax |
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3,194 |
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(222 |
) |
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Net income |
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$ |
133,086 |
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$ |
125,356 |
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Shares used to compute earnings per share basic |
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290,389 |
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329,988 |
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Shares used to compute earnings per share diluted |
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295,360 |
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338,840 |
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Basic earnings per share from continuing operations |
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$ |
0.45 |
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$ |
0.38 |
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Basic earnings per share |
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$ |
0.46 |
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$ |
0.38 |
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Diluted earnings per share from continuing operations |
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$ |
0.44 |
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$ |
0.37 |
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Diluted earnings per share |
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$ |
0.45 |
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$ |
0.37 |
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Dividends declared and paid per share |
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$ |
0.18 |
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$ |
0.18 |
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(1) Includes stock-based compensation expense as follows: |
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Cost of sales |
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$ |
1,906 |
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$ |
2,648 |
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Research and development |
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$ |
6,108 |
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$ |
7,222 |
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Selling, marketing, general and administrative |
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$ |
4,713 |
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$ |
6,384 |
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See accompanying notes.
2
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands, except per share amounts)
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Six Months Ended |
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May 3, 2008 |
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May 5, 2007 |
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Product revenue |
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$ |
1,263,249 |
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$ |
1,188,748 |
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Revenue from one-time IP license |
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35,000 |
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Total revenue |
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1,263,249 |
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1,223,748 |
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Cost of sales (1) |
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491,425 |
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462,856 |
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Gross margin |
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771,824 |
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760,892 |
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Operating expenses: |
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Research and development (1) |
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264,192 |
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249,773 |
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Selling, marketing, general and administrative (1) |
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204,534 |
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192,190 |
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Special charges |
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15,312 |
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468,726 |
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457,275 |
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Operating income |
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303,098 |
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303,617 |
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Nonoperating (income) expense: |
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Interest income |
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(23,195 |
) |
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(45,708 |
) |
Other, net |
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287 |
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(17,686 |
) |
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(22,908 |
) |
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(63,394 |
) |
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Income from continuing operations before income taxes and minority interest |
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326,006 |
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367,011 |
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Provision for income taxes |
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74,266 |
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85,199 |
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Minority interest |
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219 |
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Income from continuing operations, net of tax |
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251,740 |
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282,031 |
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Discontinued operations: |
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Income (loss) from discontinued operations, net of tax |
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5,082 |
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(3,448 |
) |
Gain on sale of discontinued operations, net of tax |
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246,983 |
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Income (loss) from discontinued operations, net of tax |
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252,065 |
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(3,448 |
) |
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Net income |
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$ |
503,805 |
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$ |
278,583 |
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Shares used to compute earnings per share basic |
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294,765 |
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334,343 |
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Shares used to compute earnings per share diluted |
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299,810 |
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344,024 |
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Basic earnings per share from continuing operations |
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$ |
0.85 |
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$ |
0.84 |
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Basic earnings per share |
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$ |
1.71 |
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$ |
0.83 |
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Diluted earnings per share from continuing operations |
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$ |
0.84 |
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$ |
0.82 |
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Diluted earnings per share |
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$ |
1.68 |
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$ |
0.81 |
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Dividends declared and paid per share |
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$ |
0.36 |
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$ |
0.34 |
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(1) Includes stock-based compensation expense as follows: |
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Cost of sales |
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$ |
3,859 |
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$ |
5,558 |
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Research and development |
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$ |
11,632 |
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$ |
14,960 |
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Selling, marketing, general and administrative |
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$ |
10,128 |
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$ |
14,372 |
|
See accompanying notes.
3
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
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May 3, 2008 |
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November 3, 2007 |
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Assets |
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Cash and cash equivalents |
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$ |
414,361 |
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$ |
424,972 |
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Short-term investments |
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770,818 |
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656,235 |
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Accounts receivable, net |
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332,288 |
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323,777 |
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Inventories (1): |
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Raw materials |
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13,344 |
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14,655 |
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Work in process |
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219,160 |
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224,211 |
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Finished goods |
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86,917 |
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85,507 |
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319,421 |
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324,373 |
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Deferred tax assets |
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86,065 |
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111,682 |
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Deferred compensation plan investments |
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1,185 |
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1,233 |
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Prepaid expenses and other current assets |
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53,109 |
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50,130 |
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Current assets of discontinued operations |
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11,122 |
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87,457 |
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Total current assets |
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1,988,369 |
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1,979,859 |
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Property, plant and equipment, at cost: |
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Land and buildings |
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377,554 |
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372,162 |
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Machinery and equipment |
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1,451,478 |
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1,412,913 |
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Office equipment |
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76,372 |
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76,684 |
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Leasehold improvements |
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65,348 |
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62,883 |
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1,970,752 |
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|
1,924,642 |
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Less accumulated depreciation and amortization |
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1,415,322 |
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1,368,567 |
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Net property, plant and equipment |
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|
555,430 |
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|
556,075 |
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Deferred compensation plan investments |
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34,794 |
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|
35,210 |
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Other investments |
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|
3,126 |
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|
1,692 |
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Goodwill |
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|
258,697 |
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|
279,469 |
|
Intangible assets, net |
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|
18,518 |
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|
24,153 |
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Deferred tax assets |
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|
54,571 |
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|
52,491 |
|
Other assets |
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40,645 |
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|
43,000 |
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Non-current assets of discontinued operations |
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62,037 |
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Total other assets |
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472,388 |
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|
436,015 |
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$ |
3,016,187 |
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$ |
2,971,949 |
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(1) |
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Includes $2,563 and $3,371 related to stock-based compensation at May 3, 2008 and November 3,
2007, respectively. |
See accompanying notes.
4
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands, except share amounts)
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May 3, 2008 |
|
|
November 3, 2007 |
|
Liabilities and Shareholders Equity |
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Accounts payable |
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$ |
100,508 |
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|
$ |
156,192 |
|
Deferred income on shipments to distributors, net |
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|
174,349 |
|
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|
151,423 |
|
Income taxes payable |
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|
69,681 |
|
|
|
65,690 |
|
Deferred compensation plan liability |
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|
1,185 |
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|
1,233 |
|
Accrued liabilities |
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|
171,633 |
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|
149,360 |
|
Current liabilities of discontinued operations |
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|
105,601 |
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|
24,153 |
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Total current liabilities |
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622,957 |
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|
548,051 |
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|
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|
|
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|
|
|
|
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|
Deferred income taxes |
|
|
12,995 |
|
|
|
10,146 |
|
Deferred compensation plan liability |
|
|
34,788 |
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|
|
35,320 |
|
Other non-current liabilities |
|
|
41,565 |
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|
|
40,291 |
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|
|
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|
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|
Total non-current liabilities |
|
|
89,348 |
|
|
|
85,757 |
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|
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Commitments and contingencies |
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Shareholders Equity |
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|
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|
Preferred stock, $1.00 par value, 471,934 shares authorized,
none outstanding |
|
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|
|
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|
Common stock, $0.16 2/3 par value, 1,200,000,000 shares
authorized, 290,120,570 shares issued and outstanding
(303,354,180 on November 3, 2007) |
|
|
48,354 |
|
|
|
50,560 |
|
Capital in excess of par value |
|
|
|
|
|
|
|
|
Retained earnings |
|
|
2,228,427 |
|
|
|
2,253,483 |
|
Accumulated other comprehensive income |
|
|
27,101 |
|
|
|
34,098 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
2,303,882 |
|
|
|
2,338,141 |
|
|
|
|
|
|
|
|
|
|
$ |
3,016,187 |
|
|
$ |
2,971,949 |
|
|
|
|
|
|
|
|
See accompanying notes.
5
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
503,805 |
|
|
$ |
278,583 |
|
Adjustments to reconcile net income
to net cash provided by operations: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
71,817 |
|
|
|
71,328 |
|
Amortization of intangibles |
|
|
5,038 |
|
|
|
6,869 |
|
Stock-based compensation expense |
|
|
23,322 |
|
|
|
37,681 |
|
Gain on sale of businesses |
|
|
(246,983 |
) |
|
|
|
|
Income tax payments related to gain on sale of businesses |
|
|
(67,283 |
) |
|
|
|
|
Deferred income taxes |
|
|
(2,847 |
) |
|
|
(5,318 |
) |
Excess tax benefit-stock options |
|
|
(9,884 |
) |
|
|
(21,494 |
) |
Gain on sale of an investment |
|
|
|
|
|
|
(7,919 |
) |
Minority interest |
|
|
|
|
|
|
(219 |
) |
Other non-cash activity |
|
|
154 |
|
|
|
278 |
|
Changes in operating assets and liabilities |
|
|
53,824 |
|
|
|
86,997 |
|
|
|
|
|
|
|
|
Total adjustments |
|
|
(172,842 |
) |
|
|
168,203 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
330,963 |
|
|
|
446,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of short-term available-for-sale investments |
|
|
(924,204 |
) |
|
|
(1,206,340 |
) |
Maturities of short-term available-for-sale investments |
|
|
810,916 |
|
|
|
1,560,264 |
|
Net proceeds from sales of businesses (See Note 12) |
|
|
399,591 |
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(70,650 |
) |
|
|
(77,387 |
) |
Payments for acquisitions |
|
|
|
|
|
|
(6,000 |
) |
Decrease (increase) in other assets |
|
|
3,387 |
|
|
|
(180 |
) |
Proceeds from sale of an investment |
|
|
|
|
|
|
8,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
219,040 |
|
|
|
278,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
(524,802 |
) |
|
|
(697,813 |
) |
Liability from common stock repurchases |
|
|
505 |
|
|
|
|
|
Net proceeds from employee stock plans |
|
|
62,120 |
|
|
|
78,259 |
|
Excess tax benefit-stock options |
|
|
9,884 |
|
|
|
21,494 |
|
Dividend payments to shareholders |
|
|
(106,347 |
) |
|
|
(114,299 |
) |
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(558,640 |
) |
|
|
(712,359 |
) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(1,974 |
) |
|
|
1,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(10,611 |
) |
|
|
14,643 |
|
Cash and cash equivalents at beginning of period |
|
|
424,972 |
|
|
|
343,947 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
414,361 |
|
|
$ |
358,590 |
|
|
|
|
|
|
|
|
See accompanying notes.
6
ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MAY 3, 2008
(all tabular amounts in thousands except per share amounts and percentages)
Note 1 Basis of Presentation
In the opinion of management, the information furnished in the accompanying condensed consolidated
financial statements reflects all normal recurring adjustments that are necessary to fairly state
the results for these interim periods and should be read in conjunction with the Companys Annual
Report on Form 10-K for the fiscal year ended November 3, 2007 and related notes. The results of
operations for the interim period shown in this report are not necessarily indicative of the
results that may be expected for the fiscal year ending November 1, 2008 or any future period.
The Company sold its baseband chipset business and related support operations (Baseband Chipset
Business) to MediaTek Inc. and sold its CPU voltage regulation and PC thermal monitoring business
to certain subsidiaries of ON Semiconductor Corporation during the first quarter of fiscal 2008.
The Company has reflected the financial results of these businesses as discontinued operations in
the consolidated statements of income for all periods presented. The assets and liabilities of
these businesses are reflected as assets and liabilities of discontinued operations in the
consolidated balance sheets as of May 3, 2008 and November 3, 2007. The historical results of
operations of these businesses have been segregated from the Companys consolidated financial
statements and are included in income (loss) from discontinued operations, net of tax, in the
consolidated statements of income.
The Company has a 52-53 week fiscal year that ends on the Saturday closest to the last day in
October. Fiscal 2008 is a 52-week fiscal year and fiscal 2007 was a 53-week fiscal year. The
additional week in fiscal 2007 was included in the first quarter ended February 3, 2007.
Therefore, the first six months of fiscal 2007 included an additional week of operations as
compared to the first six months of fiscal 2008.
Note 2 Revenue Recognition
Revenue from product sales to customers is generally 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.
In all
regions of the world, the Company defers revenue and the related
cost of sales on shipments to distributors until the distributors
resell the products to their customers. Sales to distributors are made under
agreements that allow distributors to receive price adjustment credits as discussed below and to
return qualifying products for credit, as determined by the Company, in order to reduce the amounts
of slow-moving, discontinued or obsolete product from their inventory. These agreements limit such
returns to a certain percentage of the value of the prior quarters shipments to that distributor.
In addition, distributors are allowed to return unsold products if the Company terminates the
relationship with the distributor.
Distributors are granted price-adjustment credits related to many of their sales to their
customers. Price adjustment credits are granted when the distributors standard cost (i.e., the
Companys sales price to the distributor) does not provide the distributor with an appropriate
margin on its sales to its customers. As distributors negotiate selling prices with their
customers, the final sales price agreed to with the customer will be influenced by many factors,
including the particular product being sold, the quantity ordered, the particular customer, the
geographic location of the distributor, and the competitive landscape. As a result, the
distributor may request and receive a price adjustment credit from the Company to allow the
distributor to earn an appropriate margin on the transaction.
Distributors are also granted price adjustment credits in the event of a price decrease subsequent
to the date the product was shipped and billed to the distributor. Generally, the Company will
provide a credit equal to the difference between the price paid by the distributor (less any prior
credits on such products) and the new price for the product multiplied by the quantity of such
product in the distributors inventory at the time of the price decrease.
Given the uncertainties associated with the levels of price adjustment credits to be granted to
distributors, the sales price to the distributor is not fixed or determinable until the distributor
resells the products to their customers. Therefore, the Company defers revenue recognition from
sales to distributors until the distributors have sold the products to their customers.
7
Title to the inventory transfers to the distributor at the time of shipment or delivery to the
distributor, and payment from the distributor is due in accordance with the Companys standard
payment terms. These payment terms are not contingent upon the distributors sale of the products
to their customers. Upon title transfer to distributors, inventory is reduced for the cost of
goods shipped, the margin (sales less cost of sales) is recorded as deferred income on shipments
to distributors, net and accounts receivable is recorded.
The deferred costs of sales to distributors have historically had very little risk of impairment
due to the margins the Company earns on sales of its products and the relatively long life-cycle of
the Companys products. Product returns from distributors that are ultimately scrapped have
historically been immaterial. In addition, price protection and price adjustment credits granted
to distributors historically have not exceeded the margins the Company earns on sales of its
products. The Company continuously monitors the level and nature of product returns and is in
continuous contact with the distributors to ensure reserves are established for all known material
issues.
As of May 3, 2008 and November 3, 2007, the Company had gross deferred revenue of $274.9 million
and $250.6 million, respectively, and gross deferred cost of sales of $100.6 million and $99.2
million, respectively. Deferred income on shipments to distributors increased by $22.9 million in
the first six months of fiscal 2008 as a result of the Companys shipments to its distributors in
the first half of fiscal 2008, exceeding the distributors first
half of fiscal 2008 sales to their
end customers.
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 were not material during any of the three- and six-month
periods ended May 3, 2008 and May 5, 2007.
Note 3 Stock-Based Compensation
On
October 30, 2005 (the first day of its 2006 fiscal year), the
Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004), Share-Based Payment (SFAS 123R) using
the modified prospective method as permitted under SFAS 123R. Under this transition method,
compensation cost recognized in future periods 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.
8
Grant-Date Fair Value
The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of
an award. Information pertaining to the Companys stock option awards and the related estimated
weighted-average assumptions to calculate the fair value of stock options granted during the three-
and six-month periods ended May 3, 2008 and May 5, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
Stock Options |
|
May 3, 2008 |
|
May 5, 2007 |
|
May 3, 2008 |
|
May 5, 2007 |
|
Options granted |
|
|
116 |
|
|
|
131 |
|
|
|
5,666 |
|
|
|
7,540 |
|
Weighted-average exercise price |
|
$ |
28.17 |
|
|
$ |
34.74 |
|
|
$ |
29.87 |
|
|
$ |
33.43 |
|
Weighted-average grant-date fair value |
|
$ |
7.21 |
|
|
$ |
9.55 |
|
|
$ |
7.90 |
|
|
$ |
9.46 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average expected volatility |
|
|
33.0 |
% |
|
|
28.9 |
% |
|
|
32.2 |
% |
|
|
30.4 |
% |
Weighted-average expected term (in years) |
|
|
5.1 |
|
|
|
5.1 |
|
|
|
5.1 |
|
|
|
5.1 |
|
Risk-free interest rate |
|
|
2.6 |
% |
|
|
4.6 |
% |
|
|
3.25 |
% |
|
|
4.6 |
% |
Expected dividend yield |
|
|
2.56 |
% |
|
|
2.08 |
% |
|
|
2.41 |
% |
|
|
2.15 |
% |
Expected volatility The Company is responsible for estimating volatility and has considered a
number of factors, including third-party estimates, when estimating volatility. The Company
currently believes that the exclusive use of implied volatility results in the best estimate of the
grant-date fair value of employee stock options because it 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 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 has continued 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 May 3, 2008. The rate of 4.3% represents the portion
that is expected to be forfeited each year over the vesting period. This analysis
9
will be re-evaluated quarterly and the forfeiture rate adjusted as necessary. Ultimately, the
actual expense recognized over the vesting period will only be for those shares that vest.
Stock-Based Compensation Activity
A summary of the activity under the Companys stock option plans as of May 3, 2008 and changes
during the three- and six-month periods then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted- |
|
Remaining |
|
Aggregate |
|
|
Options |
|
Average Exercise |
|
Contractual |
|
Intrinsic |
Activity during the Three Months Ended May 3, 2008 |
|
Outstanding |
|
Price Per Share |
|
Term in Years |
|
Value |
|
Options outstanding at February 2, 2008 |
|
|
80,467 |
|
|
$ |
35.83 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
116 |
|
|
$ |
28.17 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(1,961 |
) |
|
$ |
19.23 |
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
(313 |
) |
|
$ |
36.22 |
|
|
|
|
|
|
|
|
|
Options expired |
|
|
(4,191 |
) |
|
$ |
42.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at May 3, 2008 |
|
|
74,118 |
|
|
$ |
35.88 |
|
|
|
5.2 |
|
|
$ |
195,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at May 3, 2008 |
|
|
53,195 |
|
|
$ |
36.31 |
|
|
|
4.1 |
|
|
$ |
174,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested or expected to vest at May 3, 2008 (1) |
|
|
72,543 |
|
|
$ |
35.91 |
|
|
|
5.2 |
|
|
$ |
194,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- Average |
|
|
|
|
|
|
Exercise Price Per |
Activity during the Six Months Ended May 3, 2008 |
|
Options Outstanding |
|
Share |
|
Options outstanding at November 3, 2007 |
|
|
80,158 |
|
|
$ |
35.39 |
|
Options granted |
|
|
5,666 |
|
|
$ |
29.87 |
|
Options exercised |
|
|
(4,866 |
) |
|
$ |
14.08 |
|
Options forfeited |
|
|
(2,152 |
) |
|
$ |
36.49 |
|
Options expired |
|
|
(4,688 |
) |
|
$ |
42.55 |
|
|
|
|
|
|
|
|
|
|
Options outstanding at May 3, 2008 |
|
|
74,118 |
|
|
$ |
35.88 |
|
|
|
|
|
|
|
|
|
|
During the three and six months ended May 3, 2008, 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) was $20.9 million and $76.5 million, respectively, and the total amount of
cash received from exercise of these options was $37.7 million and $68.5 million, respectively.
The $62.1 million of net proceeds from employee stock plans in the Companys statement of cash flows
is net of the value of shares surrendered by employees to satisfy employee tax obligations upon
vesting of restricted stock or restricted stock units and in connection with the exercise of stock
options granted to the Companys employees under the Companys equity compensation plans. The
total grant-date fair value of stock options that vested during the three and six months ended May
3, 2008 was approximately $1.3 million and $75.7 million, respectively.
During the three and six months ended May 5, 2007, the total intrinsic value of options exercised
was $81.3 million and $116.4 million, respectively, and the total amount of cash received from
exercise of these options was $53.9 million and $78.4 million, respectively. The total grant-date
fair value of stock options that vested during the three and six months ended May 5, 2007 was
approximately $1.2 million and $38.5 million, respectively.
A summary of the Companys restricted stock and restricted stock unit award activity as of May 3,
2008 and changes during the three- and six-month periods then ended is presented below:
10
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Weighted- |
|
|
Shares and/ or
Units |
|
Average Grant
Date Fair Value |
Activity during the Three Months Ended May 3, 2008 |
|
Outstanding |
|
Per Share |
|
Non-vested shares outstanding at February 2, 2008 |
|
|
81 |
|
|
$ |
34.93 |
|
Awards and/or units granted |
|
|
12 |
|
|
$ |
27.93 |
|
Restrictions lapsed |
|
|
(12 |
) |
|
$ |
37.99 |
|
|
|
|
|
|
|
|
|
|
Non-vested shares outstanding at May 3, 2008 |
|
|
81 |
|
|
$ |
33.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Weighted- |
|
|
Shares and/ or
Units |
|
Average Grant
Date Fair Value |
Activity during the Six Months Ended May 3, 2008 |
|
Outstanding |
|
Per Share |
|
Non-vested shares outstanding at November 3, 2007 |
|
|
79 |
|
|
$ |
34.97 |
|
Awards and/or units granted |
|
|
18 |
|
|
$ |
29.56 |
|
Restrictions lapsed |
|
|
(15 |
) |
|
$ |
36.96 |
|
Awards and/or units forfeited |
|
|
(1 |
) |
|
$ |
31.09 |
|
|
|
|
|
|
|
|
|
|
Non-vested shares outstanding at May 3, 2008 |
|
|
81 |
|
|
$ |
33.47 |
|
|
|
|
|
|
|
|
|
|
As of May 3, 2008, there was $145.6 million (before tax consideration) of total unrecognized
compensation cost related to unvested share-based awards, including stock options, restricted stock
and restricted stock units. That cost is expected to be recognized over a weighted-average period
of 1.8 years.
Note 4 Comprehensive Income
Components of comprehensive income include net income and certain transactions that have generally
been reported in the consolidated statement of shareholders equity and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Income from continuing operations, net of tax |
|
$ |
129,892 |
|
|
$ |
125,578 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(3,579 |
) |
|
|
3,203 |
|
|
|
|
|
|
|
|
|
|
Change in unrealized holding (losses) gains (net of taxes of $175 and
$853, respectively) on securities classified as
short-term investments |
|
|
(1,149 |
) |
|
|
1,669 |
|
|
|
|
|
|
|
|
|
|
Change in unrealized holding gains (losses) (net of taxes of $1,003
and $33, respectively) on securities classified
as other investments |
|
|
1,863 |
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
Change in unrealized (losses) gains on derivative instruments
designated as cash flow hedges |
|
|
(1,526 |
) |
|
|
2,233 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment related to accumulated
other comprehensive income pension plans |
|
|
|
|
|
|
|
|
Net actuarial gain |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
|
(4,351 |
) |
|
|
7,044 |
|
|
|
|
|
|
|
|
Comprehensive income from continuing operations |
|
|
125,541 |
|
|
|
132,622 |
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax |
|
|
3,194 |
|
|
|
(222 |
) |
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
128,735 |
|
|
$ |
132,400 |
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Income from continuing operations, net of tax |
|
$ |
251,740 |
|
|
$ |
282,031 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(7,175 |
) |
|
|
5,053 |
|
|
|
|
|
|
|
|
|
|
Change in unrealized holding gains (net of taxes of $201 and
$1,970, respectively) on securities classified as
short-term investments |
|
|
1,094 |
|
|
|
3,649 |
|
|
|
|
|
|
|
|
|
|
Change in unrealized holding gains (losses) (net of taxes of $976
and $80, respectively) on securities classified
as other investments |
|
|
1,813 |
|
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
Change in unrealized (losses) gains on derivative instruments
designated as cash flow hedges |
|
|
(3,011 |
) |
|
|
3,888 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment related to accumulated
other comprehensive income pension plans |
|
|
|
|
|
|
|
|
Transition asset |
|
|
1 |
|
|
|
|
|
Net actuarial gain |
|
|
281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
|
(6,997 |
) |
|
|
12,442 |
|
|
|
|
|
|
|
|
Comprehensive income from continuing operations |
|
|
244,743 |
|
|
|
294,473 |
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax |
|
|
252,065 |
|
|
|
(3,448 |
) |
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
496,808 |
|
|
$ |
291,025 |
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income at May 3, 2008 and November 3, 2007
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
May 3, 2008 |
|
|
November 3, 2007 |
|
Foreign currency translation adjustment |
|
$ |
12,879 |
|
|
$ |
20,054 |
|
Unrealized gains (losses) on available-for-sale securities |
|
|
2,445 |
|
|
|
(462 |
) |
Unrealized gains on derivative instruments |
|
|
4,308 |
|
|
|
7,319 |
|
Accumulated other comprehensive income pension plans |
|
|
|
|
|
|
|
|
Prior service cost |
|
|
(13 |
) |
|
|
(13 |
) |
Transition asset |
|
|
29 |
|
|
|
28 |
|
Net actuarial gain |
|
|
7,453 |
|
|
|
7,172 |
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income |
|
$ |
27,101 |
|
|
$ |
34,098 |
|
|
|
|
|
|
|
|
12
Note 5 Earnings Per Share
Basic earnings per share is computed based only on the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed using the weighted average
number of common shares outstanding during the period, plus the dilutive effect of 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 periods, related to the Companys outstanding stock options
could be dilutive in the future.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Income from continuing operations, net of tax |
|
$ |
129,892 |
|
|
$ |
125,578 |
|
Income (loss) from discontinued operations, net of tax |
|
|
3,194 |
|
|
|
(222 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
133,086 |
|
|
$ |
125,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares: |
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
290,389 |
|
|
|
329,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share-basic: |
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
0.45 |
|
|
$ |
0.38 |
|
Income (loss) from discontinued operations, net of tax |
|
|
0.01 |
|
|
|
(0.00 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
0.46 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares: |
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
290,389 |
|
|
|
329,988 |
|
Assumed exercise of common stock equivalents |
|
|
4,971 |
|
|
|
8,852 |
|
|
|
|
|
|
|
|
Weighted-average common and common equivalent shares |
|
|
295,360 |
|
|
|
338,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share-diluted: |
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
0.44 |
|
|
$ |
0.37 |
|
Income (loss) from discontinued operations, net of tax |
|
|
0.01 |
|
|
|
(0.00 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
0.45 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive common stock equivalents related to outstanding
stock options |
|
|
57,805 |
|
|
|
52,089 |
|
13
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Income from continuing operations, net of tax |
|
$ |
251,740 |
|
|
$ |
282,031 |
|
Income (loss) from discontinued operations, net of tax |
|
|
252,065 |
|
|
|
(3,448 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
503,805 |
|
|
$ |
278,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares: |
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
294,765 |
|
|
|
334,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share-basic: |
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
0.85 |
|
|
$ |
0.84 |
|
Income (loss) from discontinued operations, net of tax |
|
|
0.86 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
1.71 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares: |
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
294,765 |
|
|
|
334,343 |
|
Assumed exercise of common stock equivalents |
|
|
5,045 |
|
|
|
9,681 |
|
|
|
|
|
|
|
|
Weighted-average common and common equivalent shares |
|
|
299,810 |
|
|
|
344,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share-diluted: |
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
0.84 |
|
|
$ |
0.82 |
|
Income (loss) from discontinued operations, net of tax |
|
|
0.84 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
1.68 |
|
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive common stock equivalents related to
outstanding stock options |
|
|
57,256 |
|
|
|
54,320 |
|
14
Note 6 Special Charges
A summary of the Companys special charges is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of Wafer |
|
|
Reorganization of Product |
|
|
Consolidation of a |
|
|
Reduction of |
|
|
|
|
|
|
Fabrication Facility in |
|
|
Development and Support |
|
|
Wafer Fabrication |
|
|
Overhead |
|
|
Total Special |
|
Income Statement |
|
Sunnyvale |
|
|
Programs |
|
|
Facility in Limerick |
|
|
Infrastructure 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 |
|
|
Reduction of |
|
|
|
|
|
|
Closure of Wafer |
|
|
Reorganization of |
|
|
Wafer Fabrication |
|
|
Overhead |
|
|
|
|
|
|
Fabrication Facility in |
|
|
Product Development |
|
|
Facility in |
|
|
Infrastructure |
|
|
Total Special |
|
Accrued Restructuring |
|
Sunnyvale |
|
|
and Support Programs |
|
|
Limerick |
|
|
Costs |
|
|
Charges |
|
|
Balance at November 3, 2007 |
|
$ |
4,002 |
|
|
$ |
3,769 |
|
|
$ |
13,748 |
|
|
$ |
11,146 |
|
|
$ |
32,665 |
|
|
Severance payments |
|
|
(127 |
) |
|
|
(611 |
) |
|
|
(179 |
) |
|
|
(3,053 |
) |
|
|
(3,970 |
) |
|
Facility closure costs |
|
|
(446 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
(455 |
) |
|
Other items |
|
|
|
|
|
|
(155 |
) |
|
|
|
|
|
|
(1,199 |
) |
|
|
(1,354 |
) |
|
Effect of foreign
currency translation
on accrual |
|
|
|
|
|
|
24 |
|
|
|
397 |
|
|
|
23 |
|
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2008 |
|
$ |
3,429 |
|
|
$ |
3,018 |
|
|
$ |
13,966 |
|
|
$ |
6,917 |
|
|
$ |
27,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance payments |
|
|
(45 |
) |
|
|
(1,059 |
) |
|
|
|
|
|
|
(1,910 |
) |
|
|
(3,014 |
) |
|
Facility closure costs |
|
|
(451 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(454 |
) |
|
Effect of foreign
currency translation
on accrual |
|
|
|
|
|
|
3 |
|
|
|
545 |
|
|
|
23 |
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 3, 2008 |
|
$ |
2,933 |
|
|
$ |
1,959 |
|
|
$ |
14,511 |
|
|
$ |
5,030 |
|
|
$ |
24,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
their employment was 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.
15
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 (SFAS 146), 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. The lease obligation costs are being paid out on a monthly basis
over the remaining lease term which expires in 2010. 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. 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 and amounts owed to
employees for severance are being paid out as income continuance. The Company does not expect to
incur any further charges related to this reorganization action.
16
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 solely use eight-inch technology at its wafer fabrication
facility in Limerick. Certain manufacturing processes and
products produced on the Limerick facilitys six-inch production line will transition to the
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 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 2009, at which time the
employment of the affected employees will be terminated.
As of May 3, 2008, 147 of the 150 employees included in this 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. The Company expects to incur additional
closure expenses related to this action of approximately $6 million during fiscal 2009. 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, during the
fourth quarter of fiscal 2007, the Company recorded a special charge of $12.3 million, of which
$10.7 million was 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 was 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 were substantially completed in the second quarter of fiscal 2008.
As of May 3, 2008, 20 of the 152 employees included in this 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.
Note 7 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 No. 131,
Disclosures about Segments of an Enterprise and Related Information.
17
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 the Companys 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, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
Revenue |
|
|
Revenue |
|
|
Y/Y% |
|
|
Revenue |
|
|
Revenue |
|
Industrial |
|
$ |
327,879 |
|
|
|
50 |
% |
|
|
10 |
% |
|
$ |
297,211 |
|
|
|
50 |
% |
Communications |
|
|
161,939 |
|
|
|
25 |
% |
|
|
20 |
% |
|
|
134,504 |
|
|
|
22 |
% |
Consumer |
|
|
129,086 |
|
|
|
20 |
% |
|
|
(2 |
%) |
|
|
131,185 |
|
|
|
22 |
% |
Computer |
|
|
30,436 |
|
|
|
5 |
% |
|
|
(12 |
%) |
|
|
34,583 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue |
|
$ |
649,340 |
|
|
|
100 |
% |
|
|
9 |
% |
|
$ |
597,483 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007** |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
Revenue |
|
|
Revenue |
|
|
Y/Y% |
|
|
Revenue |
|
|
Revenue |
|
Industrial |
|
$ |
630,081 |
|
|
|
50 |
% |
|
|
6 |
% |
|
$ |
596,483 |
|
|
|
50 |
% |
Communications |
|
|
308,665 |
|
|
|
24 |
% |
|
|
19 |
% |
|
|
258,839 |
|
|
|
22 |
% |
Consumer |
|
|
261,669 |
|
|
|
21 |
% |
|
|
1 |
% |
|
|
258,845 |
|
|
|
22 |
% |
Computer |
|
|
62,834 |
|
|
|
5 |
% |
|
|
(16 |
%) |
|
|
74,581 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue |
|
$ |
1,263,249 |
|
|
|
100 |
% |
|
|
6 |
% |
|
$ |
1,188,748 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from one-time IP license* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
1,263,249 |
|
|
|
|
|
|
|
|
|
|
$ |
1,223,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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. |
|
** |
|
Fiscal 2008 is a 52-week year and fiscal 2007 was a 53-week
year. The additional week in fiscal 2007 was included in the first
quarter ended February 3, 2007. Therefore, the first six months of fiscal 2007 included an additional week of operations as compared
to the first six months of fiscal 2008. |
18
Revenue Trends by Product Type
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
Revenue |
|
|
Revenue |
|
|
Y/Y% |
|
|
Revenue |
|
|
Revenue |
|
Converters |
|
$ |
297,686 |
|
|
|
46 |
% |
|
|
9 |
% |
|
$ |
274,236 |
|
|
|
46 |
% |
Amplifiers |
|
|
151,419 |
|
|
|
23 |
% |
|
|
10 |
% |
|
|
137,185 |
|
|
|
23 |
% |
Other analog |
|
|
100,920 |
|
|
|
16 |
% |
|
|
1 |
% |
|
|
99,543 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal analog signal processing |
|
|
550,025 |
|
|
|
85 |
% |
|
|
8 |
% |
|
|
510,964 |
|
|
|
86 |
% |
Power management & reference |
|
|
34,701 |
|
|
|
5 |
% |
|
|
16 |
% |
|
|
29,853 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total analog products |
|
$ |
584,726 |
|
|
|
90 |
% |
|
|
8 |
% |
|
$ |
540,817 |
|
|
|
91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General purpose DSP |
|
|
58,281 |
|
|
|
9 |
% |
|
|
18 |
% |
|
|
49,447 |
|
|
|
8 |
% |
Other DSP |
|
|
6,333 |
|
|
|
1 |
% |
|
|
(12 |
%) |
|
|
7,219 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total digital signal processing |
|
$ |
64,614 |
|
|
|
10 |
% |
|
|
14 |
% |
|
$ |
56,666 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue |
|
$ |
649,340 |
|
|
|
100 |
% |
|
|
9 |
% |
|
$ |
597,483 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007** |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
Revenue |
|
|
Revenue |
|
|
Y/Y% |
|
|
Revenue |
|
|
Revenue |
|
Converters |
|
$ |
578,767 |
|
|
|
46 |
% |
|
|
8 |
% |
|
$ |
537,502 |
|
|
|
45 |
% |
Amplifiers |
|
|
288,831 |
|
|
|
23 |
% |
|
|
5 |
% |
|
|
274,915 |
|
|
|
23 |
% |
Other analog |
|
|
200,070 |
|
|
|
16 |
% |
|
|
3 |
% |
|
|
194,982 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal analog signal processing |
|
|
1,067,668 |
|
|
|
85 |
% |
|
|
6 |
% |
|
|
1,007,399 |
|
|
|
85 |
% |
Power management & reference |
|
|
68,116 |
|
|
|
5 |
% |
|
|
11 |
% |
|
|
61,379 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total analog products |
|
$ |
1,135,784 |
|
|
|
90 |
% |
|
|
6 |
% |
|
$ |
1,068,778 |
|
|
|
90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General purpose DSP |
|
|
113,400 |
|
|
|
9 |
% |
|
|
8 |
% |
|
|
105,147 |
|
|
|
9 |
% |
Other DSP |
|
|
14,065 |
|
|
|
1 |
% |
|
|
(5 |
%) |
|
|
14,823 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total digital signal processing |
|
$ |
127,465 |
|
|
|
10 |
% |
|
|
6 |
% |
|
$ |
119,970 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue |
|
$ |
1,263,249 |
|
|
|
100 |
% |
|
|
6 |
% |
|
$ |
1,188,748 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from one-time IP license* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
1,263,249 |
|
|
|
|
|
|
|
|
|
|
$ |
1,223,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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. |
|
** |
|
Fiscal 2008 is a 52-week year and fiscal 2007 was a 53-week
year. The additional week in fiscal 2007 was included in the first
quarter ended February 3, 2007. Therefore, the first six months of fiscal 2007 included an additional week of operations as compared
to the first six months of fiscal 2008. |
19
Revenue Trends by Geographic Region
Product revenue by geographic region, based upon customer location, for the three- and six- month
periods ended May 3, 2008 and May 5, 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
Region |
|
May 3, 2008 |
|
|
May 5, 2007 |
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
United States |
|
$ |
131,008 |
|
|
$ |
132,374 |
|
|
$ |
262,753 |
|
|
$ |
281,980 |
|
Rest of North and
South America |
|
|
24,127 |
|
|
|
26,143 |
|
|
|
45,145 |
|
|
|
39,770 |
|
Europe |
|
|
174,759 |
|
|
|
144,602 |
|
|
|
331,466 |
|
|
|
289,794 |
|
Japan |
|
|
128,247 |
|
|
|
127,459 |
|
|
|
252,483 |
|
|
|
245,871 |
|
China |
|
|
99,431 |
|
|
|
76,312 |
|
|
|
180,726 |
|
|
|
146,099 |
|
Rest of Asia |
|
|
91,768 |
|
|
|
90,593 |
|
|
|
190,676 |
|
|
|
185,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue |
|
$ |
649,340 |
|
|
$ |
597,483 |
|
|
$ |
1,263,249 |
|
|
$ |
1,188.748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The predominant countries comprising Rest of North and South America are Canada and Mexico. The
predominant countries comprising European operations are Germany, France and the United Kingdom.
The predominant country comprising Rest of Asia is Korea.
Note 8 Goodwill and Intangible Assets
Goodwill
The Company evaluates goodwill for impairment annually 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 periods 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 goodwill at an earlier date. The following table
presents the changes in goodwill during the first six months of fiscal 2008 and the fiscal year
ended November 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Fiscal Year |
|
|
|
Ended |
|
|
Ended |
|
|
|
May 3, 2008 |
|
|
November 3, |
|
|
|
|
|
|
2007 |
|
Balance at beginning of period |
|
$ |
279,469 |
|
|
$ |
256,209 |
|
Acquisition of TTPCom assets(1) |
|
|
|
|
|
|
4,273 |
|
Acquisition of Integrant Technologies(2) |
|
|
|
|
|
|
13,282 |
|
Goodwill allocated to sale of businesses (3) |
|
|
(12,649 |
) |
|
|
|
|
Foreign currency translation adjustment |
|
|
(8,123 |
) |
|
|
5,705 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
258,697 |
|
|
$ |
279,469 |
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(3) |
|
The Company allocated $12.6 million of goodwill in connection with the sale of its Baseband Chipset
Business to MediaTek Inc. and the sale of its CPU voltage regulation and PC thermal monitoring
business to ON Semiconductor Corporation. |
20
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. In
connection with the sale of its Baseband Chipset Business to MediaTek Inc., the Company wrote off
$7.9 million of intangible assets against the gain realized by the Company on the sale. These
assets had been classified as current assets of discontinued operations in prior periods.
Intangible assets, which will continue to be amortized, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 3, 2008 |
|
|
November 3, 2007 |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Technology-based |
|
$ |
42,005 |
|
|
$ |
26,096 |
|
|
$ |
43,626 |
|
|
$ |
23,303 |
|
Tradename |
|
|
1,622 |
|
|
|
1,535 |
|
|
|
1,687 |
|
|
|
1,403 |
|
Customer Relationships |
|
|
5,746 |
|
|
|
3,291 |
|
|
|
5,798 |
|
|
|
2,470 |
|
Other |
|
|
6,563 |
|
|
|
6,496 |
|
|
|
6,582 |
|
|
|
6,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
55,936 |
|
|
$ |
37,418 |
|
|
$ |
57,693 |
|
|
$ |
33,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
intangible assets acquired during fiscal 2006 are being 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. The remaining amortization expense will be recognized over a
weighted-average period of approximately 1.5 years. Amortization expense was $2.6 million and $2.2
million for the three-month periods ended May 3, 2008 and May 5, 2007, respectively, and $5.0
million and $4.7 million for the six-month periods ended May 3, 2008 and May 5, 2007, respectively.
The Company expects amortization expense for these intangible assets to be:
|
|
|
|
|
Fiscal |
|
Amortization |
Year |
|
Expense |
Remainder of 2008 |
|
$ |
4,234 |
|
2009 |
|
$ |
7,140 |
|
2010 |
|
$ |
4,639 |
|
2011 |
|
$ |
2,332 |
|
2012 |
|
$ |
173 |
|
21
Note 9
Pension Plans
The Company 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 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.
Net periodic pension cost of non-U.S. plans is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Service cost |
|
$ |
2,469 |
|
|
$ |
2,759 |
|
Interest cost |
|
|
2,637 |
|
|
|
2,212 |
|
Expected return on plan assets |
|
|
(3,173 |
) |
|
|
(2,384 |
) |
Amortization of prior service cost |
|
|
2 |
|
|
|
2 |
|
Amortization of initial net asset |
|
|
(11 |
) |
|
|
(9 |
) |
Amortization of net loss |
|
|
48 |
|
|
|
203 |
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
1,972 |
|
|
$ |
2,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Service cost |
|
$ |
4,858 |
|
|
$ |
5,468 |
|
Interest cost |
|
|
5,179 |
|
|
|
4,453 |
|
Expected return on plan assets |
|
|
(6,229 |
) |
|
|
(4,811 |
) |
Amortization of prior service cost |
|
|
4 |
|
|
|
4 |
|
Amortization of initial net asset |
|
|
(22 |
) |
|
|
(17 |
) |
Amortization of net loss |
|
|
99 |
|
|
|
399 |
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
3,889 |
|
|
$ |
5,496 |
|
|
|
|
|
|
|
|
Pension contributions of $2.3 million and $4.5 million were made by the Company during the three
and six months ended May 3, 2008. The Company presently anticipates contributing an additional
$4.1 million to fund its defined benefit pension plans in fiscal year 2008 for a total of $8.6
million.
Note
10 Commitments and Contingencies
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 was submitted to the Commission for
approval, and the Company expects the resolution of this matter
in the near future.
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 Staff of the SEC has
indicated that, in the settlement, the Commission will not charge the Company or Mr. Fishman with any violation of law
with respect to this issue.
22
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 will 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 settlement, the Company will consent to a cease-and-desist order
under Section 10(b) of the Securities Exchange Act and
Rule 10b-5 thereunder, pay a civil
money penalty of $3 million, and reprice options granted to Mr. Fishman in certain years.
Options granted to all others will not be affected. Mr. Fishman
will consent to a
cease-and-desist order under Sections 17(a)(2) and (3) of
the Securities Act, pay a civil
money penalty of $1 million, and make a disgorgement payment with respect to options granted
in 1998. 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 will settle this
matter without admitting or denying the Commissions findings.
The
Company has determined that no restatement of its historical
financial results will be
necessary due to the 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 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. The court heard the Companys motion to dismiss on January
30, 2008, but has not yet issued a ruling. 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.
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, 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.
Note
11 Common Stock Repurchase
The Companys common stock repurchase program has been in place since August 2004. In the
aggregate, the Board of Directors has authorized the Company to repurchase $4 billion of the
Companys common stock under the program. Under the 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
23
repurchased approximately 5.8 million shares for approximately $165.4
million during the second quarter of fiscal 2008. As of May 3, 2008, the Company had repurchased a
total of approximately 113.0 million shares of its common stock for approximately $3.9 billion
under this program and an additional $140.4 million remains under the current authorized program.
The repurchased shares are held as authorized but unissued shares of common stock. The Company
also from time to time repurchases shares in settlement of employee tax withholding obligations due
upon the vesting of restricted stock or restricted stock units, or the exercise of stock options.
Note
12 Discontinued Operations
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 which 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. During the first quarter
of fiscal 2008, the Company completed the sale of this business for net cash proceeds of $138
million, which was net of other cash payments of approximately $1.4 million. The Company made the
final additional cash payments of approximately $2.2 million in the second quarter of fiscal 2008.
The Company recorded a pre-tax gain in the first quarter of fiscal 2008 of $78 million, or $43
million net of tax, which is recorded as a gain on sale of discontinued operations. Additionally,
the Company entered into a one-year manufacturing supply agreement with a subsidiary of ON
Semiconductor Corporation for an additional $37 million. The Company has allocated the proceeds
from this arrangement based on the fair value of the two elements of this transaction: 1) the sale
of a business and 2) the obligation to manufacture product for a one-year period. As a result, $85
million was recorded as a liability related to the manufacturing supply agreement, of which
approximately $55 million was outstanding as of May 3, 2008. The liability is included in current
liabilities of discontinued operations on the Companys condensed consolidated balance sheet. The
Company will record the revenue associated with this manufacturing supply agreement in discontinued
operations over the next eight months. As a result, the Company has classified inventory for these
arrangements as current assets of discontinued operations. The Company may receive additional
proceeds of up to $7.5 million, currently held in escrow, upon the resolution of certain contingent
items, which would be recorded as additional gain from the sale of discontinued operations.
In September 2007, the Company entered into a definitive agreement to sell its Baseband Chipset
Business to MediaTek Inc. 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. On January 11, 2008, the Company completed
the sale of its Baseband Chipset Business for net cash proceeds of $269 million. The cash proceeds
received were net of a refundable withholding tax of $62 million and other cash payments of
approximately $9 million. The Company made additional cash payments of $4.8 million during the
second quarter of fiscal 2008 and expects to make additional cash payments of approximately $5.6
million over the next three months, primarily related to retention payments to employees that
transferred to MediaTek Inc. The Company recorded a pre-tax gain in the first quarter of fiscal
2008 of $278 million, or $204 million net of tax, which is recorded as a gain on sale of
discontinued operations. The Company may receive additional proceeds of up to $10 million,
currently held in escrow, upon the resolution of certain contingent items, which would be recorded
as additional gain from the sale of discontinued operations.
During the
second quarter of fiscal 2008, the Company made a $67.3 million
income tax payment related to
the gain on the sale of these businesses. This tax payment is reflected in the statement of cash
flows as a decrease in net cash provided by operating activities. Under SFAS No. 95, Statement of
Cash Flows, all income tax payments are included in determining net cash flow from operating
activities but the cash received from the sale of the businesses must be reported as an investing
cash flow.
The Company will receive additional amounts under various transition service agreements entered
into in connection with these dispositions over the next three quarters. The transition service
agreements include manufacturing, engineering support and certain human resource services and
information technology systems support. The Company has evaluated the nature of the transition
services and has concluded the services will be primarily completed within the one-year assessment
period and the Company does not have the ability to exert significant influence over the disposed
businesses operating and financial policies. Accordingly, the Company has concluded that it does
not have a significant continuing involvement with the disposed businesses and has presented the
disposition of these businesses as discontinued operations pursuant to SFAS 144.
The following amounts related to the CPU voltage regulation and PC thermal monitoring and Baseband
Chipset businesses have been segregated from continuing operations and reported as discontinued
operations and also include the revenue and costs of services provided under the manufacturing
supply agreement.
24
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Total revenue |
|
$ |
21,130 |
|
|
$ |
71,649 |
|
Cost of sales |
|
|
19,555 |
|
|
|
51,236 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
181 |
|
|
|
19,993 |
|
Selling, marketing, general and administrative |
|
|
258 |
|
|
|
2,835 |
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
1,136 |
|
|
|
(2,415 |
) |
|
|
|
|
|
|
|
Benefit from income taxes |
|
|
(2,058 |
) |
|
|
(2,193 |
) |
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax |
|
$ |
3,194 |
|
|
$ |
(222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Total revenue |
|
$ |
68,493 |
|
|
$ |
136,998 |
|
Cost of sales |
|
|
52,538 |
|
|
|
99,232 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
12,505 |
|
|
|
40,807 |
|
Selling, marketing, general and administrative |
|
|
2,001 |
|
|
|
5,536 |
|
Gain on sale of discontinued operations |
|
|
(356,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
357,465 |
|
|
|
(8,577 |
) |
|
|
|
|
|
|
|
Provision for (benefit from) income taxes |
|
|
105,400 |
|
|
|
(5,129 |
) |
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax |
|
$ |
252,065 |
|
|
$ |
(3,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 3, 2008 |
|
|
November 3, 2007 |
|
Accounts receivable, net |
|
$ |
|
|
|
$ |
34,575 |
|
Inventory |
|
|
11,122 |
|
|
|
37,602 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
7,360 |
|
Intangibles, net |
|
|
|
|
|
|
7,920 |
|
|
|
|
|
|
|
|
Total assets reclassified to current assets of discontinued operations |
|
$ |
11,122 |
|
|
$ |
87,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refundable foreign withholding tax |
|
$ |
62,037 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets reclassified to non-current assets of discontinued operations |
|
$ |
62,037 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,727 |
|
|
$ |
14,011 |
|
Income taxes payable |
|
|
41,041 |
|
|
|
|
|
Deferred income on shipments to distributors |
|
|
|
|
|
|
966 |
|
Liabilities associated with a manufacturing supply agreement |
|
|
55,324 |
|
|
|
|
|
Accrued liabilities |
|
|
6,509 |
|
|
|
9,176 |
|
|
|
|
|
|
|
|
Total liabilities reclassified to current liabilities of discontinued
operations |
|
$ |
105,601 |
|
|
$ |
24,153 |
|
|
|
|
|
|
|
|
25
Note
13 Income Taxes
The Company has provided for potential liabilities due in the various jurisdictions in which the
Company operates. 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.
On November 4, 2007 (the first day of its 2008 fiscal year), the Company adopted FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement No. 109 (FIN 48). FIN 48 differs from the prior standards in that it requires companies
to determine whether it is more likely than not that a tax position will be sustained by the
appropriate taxing authorities before any benefit can be recorded in the financial statements. An
uncertain income tax position will not be recognized if it has less than a 50% likelihood of being
sustained. There were no changes to the Companys liabilities for uncertain tax positions as a
result of the adoption of FIN 48. As of May 3, 2008, the Company had $11.2 million of liabilities
related to tax contingencies. In accordance with FIN 48, these liabilities are classified as
non-current, and included in other non-current liabilities, because the Company believes that the
ultimate payment or settlement of these liabilities will not occur within the next twelve months.
Prior to the adoption of FIN 48, these amounts were included in current income tax payable. The
$11.2 million liability for uncertain tax positions as of May 3, 2008 included $5.5 million for
interest and penalties. If these tax positions were settled in the Companys favor, these
liabilities would be reversed and lower the Companys effective tax rate in the period recorded.
The Company includes interest and penalties related to unrecognized tax benefits within the
provision for taxes in the condensed consolidated statements of income, and as a result, no change
in classification was made upon adopting FIN 48. The condensed consolidated statement of income
for the three- and six-month periods ended May 3, 2008 includes $0.2 million and $0.4 million,
respectively, of interest and penalties related to these uncertain tax positions. Due to the
complexity associated with its tax uncertainties, the Company cannot make a reasonably reliable
estimate as to the period in which it expects to settle the liabilities associated with these
uncertain tax positions.
During the fourth quarter of fiscal 2007, the IRS completed its field examination of fiscal years
2004 and 2005. On January 2, 2008, the IRS issued its report for fiscal 2004 and 2005, which
included proposed adjustments related to these two fiscal years. The Company has provided 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 is appealing 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. These latter two matters could impact taxes payable for fiscal 2004 and 2005 as
well as for subsequent years.
During fiscal 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 participated in
CAP for fiscal 2006 and 2007. 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 but has not issued its final
report. 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 it
plans to audit the pricing of intercompany sales (transfer pricing), and this audit is in its
initial phase. The Company has not provided for any additional taxes in respect of 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 income tax payable are reasonable, no assurance can
be given that the Company will prevail in the matters raised related to fiscal years 2004, 2005,
2006 and 2007 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
26
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.
Note
14 New Accounting Standards
Derivative Instruments and Hedging Activities
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 changes the disclosure
requirements for derivative instruments and hedging activities. SFAS 161 requires entities to
provide enhanced disclosures about how and why an entity uses derivative instruments; how
derivative instruments and related hedged items are accounted for under SFAS 133 and its related
interpretations; and how derivative instruments and related hedged items affect an entitys
financial position, financial performance and cash flows. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
The Company is currently evaluating the impact, if any, that SFAS 161 may have on the Companys
financial condition and results of operations. The adoption of SFAS 161 will change the Companys
disclosures for derivative instruments and hedging activities beginning in the second quarter of
fiscal year 2009.
Business Combinations
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)).
SFAS 141(R) requires an acquiring entity in a business combination to recognize the assets
acquired, liabilities assumed and any noncontrolling interest in the acquiree at their fair value
on the acquisition date. It further requires that acquisition-related costs and restructuring costs
be recognized separately from the acquisition. SFAS 141(R) is effective for fiscal years beginning
after December 15, 2008. The Company is currently evaluating the impact, if any, that SFAS 141 (R)
may have on the Companys financial condition and results of operations. The adoption of
SFAS 141(R) will change the Companys accounting treatment for business combinations on a
prospective basis beginning in the first quarter of fiscal year 2010.
Noncontrolling Interests
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements (SFAS 160). SFAS 160 clarifies that a noncontrolling or minority interest in a
subsidiary is considered an ownership interest and, accordingly, requires all entities to report
such interests in subsidiaries as equity in the consolidated financial statements. SFAS 160 is
effective for fiscal years beginning after December 15, 2008 which is the Companys fiscal year
2010. The Company is currently evaluating the impact, if any, that SFAS 160 may have on the
Companys financial condition and results of operations.
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
provides enhanced guidance for using fair value to measure assets and liabilities. The standard
also provides 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. The Company is currently evaluating the impact, if any,
that SFAS 157 may have on the Companys financial condition and results of operations.
Accounting for Financial Assets and Financial Liabilities
In February 2007, the FASB, issued SFAS No. 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 for
fiscal years beginning after November 15, 2007, which is the Companys fiscal year 2009. The
Company is currently evaluating the impact, if any, that SFAS 159 may have on the Companys
financial condition and results of operations.
27
Note
15 Subsequent Events
A
significant portion of the Companys cash and short term
investments balance is currently held outside the United
States in various foreign subsidiaries. As the Company intends to reinvest certain of its foreign
earnings indefinitely, this cash is not available to meet certain of the Companys cash
requirements in the United States, including for cash dividends and common stock repurchases. The
Company entered into a five-year $165 million unsecured revolving credit facility with certain
institutional lenders on May 12, 2008 in order to supplement its
occasional cash requirements in the United States. To date, the Company has not borrowed under this credit
facility but the Company may borrow in the future and use the proceeds to support commercial paper
issuance, for stock repurchases, dividend payments, acquisitions, capital expenditures, working
capital and other lawful corporate purposes. Any advances under this credit agreement will accrue
interest at rates that are equal to LIBOR plus a margin that is based on the Companys leverage
ratio. The terms of this facility also include financial covenants that require the Company to
maintain a minimum interest coverage ratio and not exceed a maximum leverage ratio. The terms of
the facility also impose restrictions on the Companys ability to undertake certain transactions,
to create certain liens on assets and to incur certain subsidiary indebtedness.
On May 19, 2008, the Companys Board of Directors declared a cash dividend of $0.20 per outstanding
share of common stock. The dividend will be paid on June 18, 2008 to all shareholders of record at
the close of business on May 30, 2008.
28
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This information should be read in conjunction with the unaudited condensed consolidated financial
statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q and the
audited consolidated financial statements and related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form
10-K for the fiscal year ended November 3, 2007.
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 II, Item 1A. Risk Factors and elsewhere in our Quarterly Report on Form 10-Q.
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.
We sold our baseband chipset business and related support operations, or Baseband Chipset Business,
to MediaTek Inc. and sold our CPU voltage regulation and PC thermal monitoring business to certain
subsidiaries of ON Semiconductor Corporation during the first quarter of fiscal 2008. We have
reflected the financial results of these businesses as discontinued operations in the consolidated
statements of income for all periods presented. The assets and liabilities related to these
businesses are reflected as assets and liabilities of discontinued operations in the consolidated
balance sheets as of May 3, 2008 and November 3, 2007. The historical results of operations of
these businesses have been segregated from our consolidated financial statements and are included
in income (loss) from discontinued operations, net of tax in the consolidated statements of income.
Unless otherwise noted, this Managements Discussion and Analysis relates only to financial
results from continuing operations.
Results of Operations
(all tabular amounts in thousands except per share amounts and percentages)
Overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
May 3, 2008 |
|
May 5, 2007 |
|
May 3, 2008 |
|
May 5, 2007 |
Total revenue |
|
$ |
649,340 |
|
|
$ |
597,483 |
|
|
$ |
1,263,249 |
|
|
$ |
1,223,748 |
|
Gross margin % |
|
|
61.0 |
% |
|
|
60.5 |
% |
|
|
61.1 |
% |
|
|
62.2 |
% |
Income from continuing operations, net
of tax |
|
$ |
129,892 |
|
|
$ |
125,578 |
|
|
$ |
251,740 |
|
|
$ |
282,031 |
|
Income from continuing operations, net
of tax as a % of total revenue |
|
|
20.0 |
% |
|
|
21.0 |
% |
|
|
19.9 |
% |
|
|
23.0 |
% |
Diluted EPS from continuing operations |
|
$ |
0.44 |
|
|
$ |
0.37 |
|
|
$ |
0.84 |
|
|
$ |
0.82 |
|
Diluted EPS |
|
$ |
0.45 |
|
|
$ |
0.37 |
|
|
$ |
1.68 |
|
|
$ |
0.81 |
|
Fiscal 2008 is a 52-week year and fiscal 2007 was a 53-week year. The additional week in fiscal
2007 was included in the first quarter ended February 3, 2007. Therefore, the first six months of
fiscal 2007 included an additional week of operations as compared to the first six months of fiscal
2008.
29
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
Revenue |
|
|
Revenue |
|
|
Y/Y% |
|
|
Revenue |
|
|
Revenue |
|
Industrial |
|
$ |
327,879 |
|
|
|
50 |
% |
|
|
10 |
% |
|
$ |
297,211 |
|
|
|
50 |
% |
Communications |
|
|
161,939 |
|
|
|
25 |
% |
|
|
20 |
% |
|
|
134,504 |
|
|
|
22 |
% |
Consumer |
|
|
129,086 |
|
|
|
20 |
% |
|
|
(2 |
%) |
|
|
131,185 |
|
|
|
22 |
% |
Computer |
|
|
30,436 |
|
|
|
5 |
% |
|
|
(12 |
%) |
|
|
34,583 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue |
|
$ |
649,340 |
|
|
|
100 |
% |
|
|
9 |
% |
|
$ |
597,483 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007** |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
Revenue |
|
|
Revenue |
|
|
Y/Y% |
|
|
Revenue |
|
|
Revenue |
|
Industrial |
|
$ |
630,081 |
|
|
|
50 |
% |
|
|
6 |
% |
|
$ |
596,483 |
|
|
|
50 |
% |
Communications |
|
|
308,665 |
|
|
|
24 |
% |
|
|
19 |
% |
|
|
258,839 |
|
|
|
22 |
% |
Consumer |
|
|
261,669 |
|
|
|
21 |
% |
|
|
1 |
% |
|
|
258,845 |
|
|
|
22 |
% |
Computer |
|
|
62,834 |
|
|
|
5 |
% |
|
|
(16 |
%) |
|
|
74,581 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue |
|
$ |
1,263,249 |
|
|
|
100 |
% |
|
|
6 |
% |
|
$ |
1,188,748 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from
one-time IP license* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
1,263,249 |
|
|
|
|
|
|
|
|
|
|
$ |
1,223,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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. |
|
** |
|
Fiscal 2008 is a 52-week year and fiscal 2007 was a 53-week
year. The additional week in fiscal 2007 was included in the first
quarter ended February 3, 2007. Therefore, the first six months of fiscal 2007 included an additional week of operations as compared
to the first six months of fiscal 2008. |
Industrial
The year-to-year increases in both the three- and six-month periods were primarily the
result of revenue growth in products sold into the instrumentation sector of this end market and,
to a lesser extent, the automotive sector of the industrial end market. These increases were
partially offset by a decline in revenue from the automatic test equipment portion of this end
market.
Communications
The year-to-year increases in both the three-and six-month periods were primarily
the result of revenue growth in sales of products used in wireless infrastructure applications and
products used in mobile devices.
Consumer
The year-to-year decrease in the three-month period was primarily the result of
decreased sales of our products used in video game applications and digital home applications,
which was partially offset by an increase in sales of our products used in digital cameras. The
year-to-year increase in the six-month period was primarily the result of an increase in
30
sales of
our products used in digital cameras and advanced televisions, which was partially offset by a
decrease in sales of our products used in video game applications and digital home applications.
Computer
The year-to-year decreases in both the three- and six-month periods were primarily the
result of broad-based declines in sales of our products into this end market.
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 Type
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.
This categorization of products is therefore subject to judgment in some cases and can vary over
time. In instances where products move between 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
Revenue |
|
|
Revenue |
|
|
Y/Y% |
|
|
Revenue |
|
|
Revenue |
|
Converters |
|
$ |
297,686 |
|
|
|
46 |
% |
|
|
9 |
% |
|
$ |
274,236 |
|
|
|
46 |
% |
Amplifiers |
|
|
151,419 |
|
|
|
23 |
% |
|
|
10 |
% |
|
|
137,185 |
|
|
|
23 |
% |
Other analog |
|
|
100,920 |
|
|
|
16 |
% |
|
|
1 |
% |
|
|
99,543 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal analog signal processing |
|
|
550,025 |
|
|
|
85 |
% |
|
|
8 |
% |
|
|
510,964 |
|
|
|
86 |
% |
Power management & reference |
|
|
34,701 |
|
|
|
5 |
% |
|
|
16 |
% |
|
|
29,853 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total analog products |
|
$ |
584,726 |
|
|
|
90 |
% |
|
|
8 |
% |
|
$ |
540,817 |
|
|
|
91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General purpose DSP |
|
|
58,281 |
|
|
|
9 |
% |
|
|
18 |
% |
|
|
49,447 |
|
|
|
8 |
% |
Other DSP |
|
|
6,333 |
|
|
|
1 |
% |
|
|
(12 |
%) |
|
|
7,219 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total digital signal processing |
|
$ |
64,614 |
|
|
|
10 |
% |
|
|
14 |
% |
|
$ |
56,666 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue |
|
$ |
649,340 |
|
|
|
100 |
% |
|
|
9 |
% |
|
$ |
597,483 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007** |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
Revenue |
|
|
Revenue |
|
|
Y/Y% |
|
|
Revenue |
|
|
Revenue |
|
Converters |
|
$ |
578,767 |
|
|
|
46 |
% |
|
|
8 |
% |
|
$ |
537,502 |
|
|
|
45 |
% |
Amplifiers |
|
|
288,831 |
|
|
|
23 |
% |
|
|
5 |
% |
|
|
274,915 |
|
|
|
23 |
% |
Other analog |
|
|
200,070 |
|
|
|
16 |
% |
|
|
3 |
% |
|
|
194,982 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal analog signal processing |
|
|
1,067,668 |
|
|
|
85 |
% |
|
|
6 |
% |
|
|
1,007,399 |
|
|
|
85 |
% |
Power management & reference |
|
|
68,116 |
|
|
|
5 |
% |
|
|
11 |
% |
|
|
61,379 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total analog products |
|
$ |
1,135,784 |
|
|
|
90 |
% |
|
|
6 |
% |
|
$ |
1,068,778 |
|
|
|
90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General purpose DSP |
|
|
113,400 |
|
|
|
9 |
% |
|
|
8 |
% |
|
|
105,147 |
|
|
|
9 |
% |
Other DSP |
|
|
14,065 |
|
|
|
1 |
% |
|
|
(5 |
%) |
|
|
14,823 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total digital signal processing |
|
$ |
127,465 |
|
|
|
10 |
% |
|
|
6 |
% |
|
$ |
119,970 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue |
|
$ |
1,263,249 |
|
|
|
100 |
% |
|
|
6 |
% |
|
$ |
1,188,748 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from one-time IP
license* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
1,263,249 |
|
|
|
|
|
|
|
|
|
|
$ |
1,223,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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. |
|
** |
|
Fiscal 2008 is a 52-week year and fiscal 2007 was a 53-week
year. The additional week in fiscal 2007 was included in the first
quarter ended February 3, 2007. Therefore, the first six months of fiscal 2007 included an additional week of operations as compared
to the first six months of fiscal 2008. |
Our sales
increases in the three- and six-month periods in fiscal 2008 as compared to the same
periods in fiscal 2007 were the result of a broad-based increase in sales across many of our product
categories. The increase in sales of converters and amplifiers was partially attributable to an
increase in demand for our products used in the industrial and communications end markets.
Revenue Trends by Geographic Region
Product revenue by geographic region, based upon customer location, for the three- and six-month
periods ended May 3, 2008 and May 5, 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
Region |
|
May 3, 2008 |
|
|
May 5, 2007 |
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
United States |
|
$ |
131,008 |
|
|
$ |
132,374 |
|
|
$ |
262,753 |
|
|
$ |
281,980 |
|
Rest of North and
South America |
|
|
24,127 |
|
|
|
26,143 |
|
|
|
45,145 |
|
|
|
39,770 |
|
Europe |
|
|
174,759 |
|
|
|
144,602 |
|
|
|
331,466 |
|
|
|
289,794 |
|
Japan |
|
|
128,247 |
|
|
|
127,459 |
|
|
|
252,483 |
|
|
|
245,871 |
|
China |
|
|
99,431 |
|
|
|
76,312 |
|
|
|
180,726 |
|
|
|
146,099 |
|
Rest of Asia |
|
|
91,768 |
|
|
|
90,593 |
|
|
|
190,676 |
|
|
|
185,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Revenue |
|
$ |
649,340 |
|
|
$ |
597,483 |
|
|
$ |
1,263,249 |
|
|
$ |
1,188.748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The predominant countries comprising Rest of North and South America are Canada and Mexico. The
predominant countries comprising European operations are Germany, France and the United Kingdom.
The predominant country comprising Rest of Asia is Korea.
32
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
May 3, 2008 |
|
May 5, 2007 |
|
May 3, 2008 |
|
May 5, 2007 |
Gross margin |
|
$ |
396,021 |
|
|
$ |
361,228 |
|
|
$ |
771,824 |
|
|
$ |
760,892 |
|
Gross margin % |
|
|
61.0 |
% |
|
|
60.5 |
% |
|
|
61.1 |
% |
|
|
62.2 |
% |
Gross margin percentage was higher by 50 basis points in the second quarter of fiscal 2008 as
compared to the second quarter of fiscal 2007 as a result of an increase in sales of products used
in the industrial and communications end markets, which earn relatively higher gross margins than
our average margin.
Gross margin percentage was lower by 110 basis points in the six months ended May 3, 2008 as
compared to the same period of fiscal 2007. Gross margin percentage in the six months ended May 5,
2007 was higher as a result of the recording of $35 million we received in exchange for the
licensing of certain intellectual property rights to a third party with no associated cost of
sales.
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. As of May 3, 2008, the total compensation cost related to
unvested awards not yet recognized in the statement of income was approximately $145.6 million
(before tax consideration), which will be recognized over a weighted average period of 1.8 years.
See Note 3 in the Notes to our Condensed Consolidated Financial Statements contained in Item 1 of
this Quarterly Report on Form 10-Q for further information regarding our adoption of SFAS 123R.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
May 3, 2008 |
|
May 5, 2007 |
|
May 3, 2008 |
|
May 5, 2007 |
R&D expenses |
|
$ |
134,653 |
|
|
$ |
126,696 |
|
|
$ |
264,192 |
|
|
$ |
249,773 |
|
R&D expenses as a %
of product revenue |
|
|
20.7 |
% |
|
|
21.2 |
% |
|
|
20.9 |
% |
|
|
21.0 |
% |
Research and development, or R&D, expenses increased $8.0 million, or 6%, in the second quarter of
fiscal 2008 as compared to the second quarter of fiscal 2007. This increase was primarily the
result of higher employee salary, benefit and bonus expenses, which were partially offset by lower
employee stock option expense and the savings associated with our restructuring actions.
R&D expenses increased $14.4 million, or 6%, in the first six months of fiscal 2008 as compared to
the same period of fiscal 2007. This increase was primarily the result of higher employee salary,
benefit and bonus expenses, which was partially offset by one less week of operations in the first
quarter of fiscal 2008 than in the first quarter of fiscal 2007, lower employee stock option
expense and the savings associated with our restructuring actions.
R&D expenses as a percentage of product revenue will fluctuate from quarter to quarter depending on
the amount of product revenue 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. Therefore, we are planning to continue
to make significant R&D investments in the future.
33
Selling, Marketing, General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
May 3, 2008 |
|
May 5, 2007 |
|
May 3, 2008 |
|
May 5, 2007 |
SMG&A expenses |
|
$ |
104,183 |
|
|
$ |
90,210 |
|
|
$ |
204,534 |
|
|
$ |
192,190 |
|
SMG&A expenses as a % of product revenue |
|
|
16.0 |
% |
|
|
15.1 |
% |
|
|
16.2 |
% |
|
|
16.2 |
% |
Selling, marketing, general and administrative, or SMG&A, expenses increased $14.0 million, or 15%,
in the second quarter of fiscal 2008 as compared to the second quarter of fiscal 2007. This
increase was primarily the result of a litigation settlement of $8.5 million that we received in
the second quarter of fiscal 2007 for the reimbursement of legal expenses. In addition, employee
salary, benefit and bonus expenses were higher in the second quarter of fiscal 2008 as compared to
the second quarter of fiscal 2007 and were partially offset by lower employee stock option
expense.
SMG&A expenses increased $12.3 million, or 6%, in the first six months of fiscal 2008 as compared
to the first six months of fiscal 2007. This increase was primarily the result of a litigation
settlement of $8.5 million that we received in the second quarter of fiscal 2007 for the
reimbursement of legal expenses. In addition, employee salary, benefit and bonus expenses were
higher in the first six months of fiscal 2008 as compared to the first six months of fiscal 2007
and were partially offset by lower employee stock option expense and one less week of operations in
the first quarter of fiscal 2008.
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 their employment was
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. 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 (SFAS 146), 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. The lease obligation costs are being paid out on a
monthly basis over the remaining lease term which expires in 2010. 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.
34
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 related 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 and amounts owed to
employees for severance are being paid out as income continuance. 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, have resulted in savings of approximately
$30 million per year. These annual savings include: approximately $17 million in R&D expenses,
approximately $10 million in SMG&A expenses and approximately $3 million in cost of sales. As this
action was completed during fiscal 2007, a portion of these savings are reflected in our results
for fiscal 2007 and for the first six months of fiscal 2008.
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 solely use eight-inch technology at our wafer fabrication facility in Limerick.
Certain manufacturing processes and products produced on the Limerick facilitys 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, at which time the employment of 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 additional closure costs. In accordance with SFAS 146, these costs will be
expensed as incurred. As of May 3, 2008, 147 of the 150 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. 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.
35
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, we decided to reduce the
support infrastructure in manufacturing, engineering and SMG&A to more appropriately reflect our
required overhead structure. Consequently, during the fourth quarter of fiscal 2007, we recorded a
special charge of $12.3 million, of which $10.7 million was 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 was 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 May 3, 2008, 20 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, which were substantially completed in the second quarter of fiscal 2008, are
expected to result in savings of approximately $15 million per year. 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. A portion of these savings is reflected in
our results for the first six months of fiscal 2008.
Operating Income from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
May 3, 2008 |
|
May 5, 2007 |
|
May 3, 2008 |
|
May 5, 2007 |
Operating income from continuing
operations |
|
$ |
157,185 |
|
|
$ |
134,206 |
|
|
$ |
303,098 |
|
|
$ |
303,617 |
|
Operating income from continuing
operations as a % of total revenue |
|
|
24.2 |
% |
|
|
22.5 |
% |
|
|
24.0 |
% |
|
|
24.8 |
% |
The $23.0 million increase in operating income from continuing operations in the second quarter of
fiscal 2008 as compared to the second quarter of fiscal 2007 was primarily the result of an
increase in revenue of $51.9 million and a 50 basis point increase in gross margin percentage.
This increase in operating income from continuing operations was partially offset by an increase in
operating expenses as more fully described above under the headings Research and Development and
Selling, Marketing, General and Administrative.
The $0.5 million decrease in operating income from continuing operations in the first six months of
fiscal 2008 as compared to the same period of fiscal 2007 was primarily because the first six
months of fiscal 2007 included $35 million in non-product revenue that we received in exchange for
the licensing of certain intellectual property rights to a third party with no associated cost of
sales, and an $11.5 million increase in operating expenses as more fully described above under the
headings Research and Development and Selling, Marketing, General and Administrative. These
decreases in operating income from continuing operations were partially offset by the impact of a
$74.5 million increase in product revenue in the first six months of fiscal 2008 as compared to the
same period of fiscal 2007.
Nonoperating (Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Interest income |
|
$ |
(10,669 |
) |
|
$ |
(20,871 |
) |
|
$ |
(23,195 |
) |
|
$ |
(45,708 |
) |
Other expense (income), net |
|
|
114 |
|
|
|
(10,221 |
) |
|
|
287 |
|
|
|
(17,686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating income |
|
$ |
(10,555 |
) |
|
$ |
(31,092 |
) |
|
$ |
(22,908 |
) |
|
$ |
(63,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating income was lower by $20.5 million in the second quarter of fiscal 2008 as compared to
the second quarter of fiscal 2007 primarily due to the $10.5 million we received in the second
quarter of 2007 as part of a litigation settlement. Additionally, lower interest rates and, to a
lesser extent, lower invested cash balances in the second quarter of fiscal 2008 as compared to the
second quarter of fiscal 2007 contributed to the decrease.
36
Nonoperating income was lower by $40.5 million in the first six months of fiscal 2008 as compared
to the same period of fiscal 2007 primarily as a result of lower invested cash balances and, to a
lesser extent, lower interest rates in the first six months of fiscal 2008 as compared to the first
six months of fiscal 2007. The first six months of fiscal 2007 also included $10.5 million we
received as part of a litigation settlement and a $7.9 million gain from the sale of an investment.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
May 3, 2008 |
|
May 5, 2007 |
|
May 3, 2008 |
|
May 5, 2007 |
Provision for income taxes |
|
$ |
37,848 |
|
|
$ |
39,720 |
|
|
$ |
74,266 |
|
|
$ |
85,199 |
|
Effective income tax rate |
|
|
22.6 |
% |
|
|
24.0 |
% |
|
|
22.8 |
% |
|
|
23.2 |
% |
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 the second quarter of
fiscal 2008 was lower by 140 basis points compared to our effective tax rate for the second quarter
of fiscal 2007. The decrease was primarily the result of the inclusion in the second quarter of
fiscal 2007 of $19 million we received from a settlement of litigation, which was taxed at the
higher U.S. tax rate.
Our effective tax rate for the first six months of fiscal 2008 was lower by 40 basis points
compared to our effective tax rate for the first six months of fiscal 2007. This decrease was
primarily the result of a tax expense recorded in the first quarter of fiscal 2007 upon the
finalization of the accounting for a 2006 acquisition and the following transactions in the first
six months of fiscal 2007, 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, $19 million we
received from a settlement of litigation and the $7.9 million gain on the sale of an investment.
These items, which had the effect of increasing the 2007 tax rate, were partially offset by a
$9.9 million cumulative adjustment related to the application of the U.S. federal research and
development tax credit to a portion of our fiscal 2006 results. Additionally, this credit that was
available during fiscal 2007 expired during the first quarter of fiscal 2008.
Income from Continuing Operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
May 3, 2008 |
|
May 5, 2007 |
|
May 3, 2008 |
|
May 5, 2007 |
Income from continuing
operations, net of tax |
|
$ |
129,892 |
|
|
$ |
125,578 |
|
|
$ |
251,740 |
|
|
$ |
282,031 |
|
Income from continuing
operations, net of tax
as a % of total
revenue |
|
|
20.0 |
% |
|
|
21.0 |
% |
|
|
19.9 |
% |
|
|
23.0 |
% |
Diluted EPS from continuing
operations |
|
$ |
0.44 |
|
|
$ |
0.37 |
|
|
$ |
0.84 |
|
|
$ |
0.82 |
|
Income from continuing operations, net of tax, in the second quarter of fiscal 2008 was higher than
in the second quarter of fiscal 2007 by approximately $4.3 million primarily as a result of the
$23.0 million increase in operating income and a lower provision for income taxes in the second
quarter of fiscal 2008 from continuing operations that was partially offset by the $20.5 million
decrease in nonoperating income.
Income from continuing operations, net of tax, in the first six months of fiscal 2008 was lower
than in the first six months of fiscal 2007 by approximately $30.3 million primarily as a result of
a $40.5 million decrease in nonoperating income that was partially offset by a lower provision for
income taxes in the first six months of fiscal 2008.
37
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
|
May 3, 2008 |
|
|
May 5, 2007 |
|
Income (loss) from discontinued operations, net of tax |
|
$ |
3,194 |
|
|
$ |
(222 |
) |
|
$ |
5,082 |
|
|
$ |
(3,448 |
) |
Gain on sale of discontinued operations, net of tax |
|
|
|
|
|
|
|
|
|
|
246,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax |
|
$ |
3,194 |
|
|
$ |
(222 |
) |
|
$ |
252,065 |
|
|
$ |
(3,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS from discontinued operations |
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.84 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
We sold our Baseband Chipset Business to MediaTek Inc. and our CPU voltage regulation and PC
thermal monitoring business to certain subsidiaries of ON Semiconductor Corporation during the
first quarter of fiscal 2008. Accordingly, the results of the operations of these businesses have
been presented as discontinued operations within the consolidated financial statements in
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144).
Outlook
Orders
remained strong in the second quarter, and increased in comparison to
the immediately prior quarter. Our operating plan for the third quarter of fiscal 2008 is for revenue to be in the range of $650
to $665 million, or equal to or up 3% from the second quarter of fiscal 2008, gross margin to be
approximately 61%, and operating expenses to increase slightly from the second quarter of fiscal
2008. However, our plan does not factor in potential effects of ongoing financial market
uncertainty which could translate into a more cautious stance from our customers. If our operating plan
is achieved, diluted EPS from continuing operations is expected to be approximately $0.43 to $0.45
and diluted EPS from discontinued operations is expected to be approximately $0.02 to $0.03.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
May 3, 2008 |
|
May 5, 2007 |
Net cash provided by operations |
|
$ |
330,963 |
|
|
$ |
446,786 |
|
Net cash provided by operations as a %
of total revenue |
|
|
26.2 |
% |
|
|
36.5 |
% |
At May 3, 2008, cash, cash equivalents and short-term investments totaled $1,185.2 million, an
increase of $104.0 million from the fourth quarter of fiscal 2007. The primary sources of funds
for the first six months of fiscal 2008 were net proceeds from the sale of two businesses of $399.6
million, net cash generated from operating activities of $331.0 million (which includes a tax
payment of $67.3 million related to the gain on the sale of two businesses that we sold during the
first quarter of fiscal 2008) and proceeds of $62.1 million from our various employee stock plans.
The principal uses of funds for the first six months of fiscal 2008 were the repurchase of
approximately 17.9 million shares of our common stock for an aggregate of $524.8 million, dividend
payments of $106.3 million and capital expenditures of $70.7 million. The $67.3 million tax
payment related to the sale of the two businesses is reflected in the statement of cash flows as a
decrease in net cash provided by operating activities. Under SFAS No. 95, Statement of Cash
Flows, all income tax payments are included in determining net cash flow from operating activities
but the cash received from the sale of the businesses must be reported as an investing cash flow.
|
|
|
|
|
|
|
|
|
|
|
May 3, 2008 |
|
November 3, 2007 |
Accounts receivable |
|
$ |
332,288 |
|
|
$ |
323,777 |
|
Days sales outstanding |
|
|
47 |
|
|
|
47 |
|
Inventory |
|
$ |
319,421 |
|
|
$ |
324,373 |
|
Days cost of sales in inventory |
|
|
115 |
|
|
|
119 |
|
Accounts receivable at May 3, 2008 increased $8.5 million, or 3%, from the end of the fourth
quarter of fiscal 2007. The increase in receivables was primarily related to higher shipments in
the last month of the second quarter of fiscal 2008 as
38
compared to the last month of the fourth quarter of fiscal 2007. Inventory at May 3, 2008
decreased by $5.0 million, or 2%, from the end of fiscal 2007.
Net additions to property, plant and equipment were $70.7 million in the first six months of fiscal
2008 and were funded with a combination of cash on hand and cash generated from operations. Capital
expenditures are expected to be approximately $164 million in fiscal 2008.
On May 19, 2008, our Board of Directors declared a cash dividend of $0.20 per outstanding share of
our common stock. The dividend is payable on June 18, 2008 to shareholders of record on May 30,
2008 and is expected to be approximately $58.0 million in the aggregate. The payment of future
dividends, if any, will be based on several factors including our financial performance, outlook
and liquidity. Quarterly dividends are expected to continue at $0.20 per share, although they
remain subject to declaration or change by our Board of Directors.
At May 3, 2008, our principal source of liquidity was $1,185.2 million of cash and cash equivalents
and short-term investments. As of May 3, 2008, approximately $156.7 million of our cash and cash
equivalents and short-term investments were held in the United States. The balance of our cash and
cash equivalents and short-term investments was held outside the United States in various foreign
subsidiaries. As we intend to reinvest certain of our foreign earnings indefinitely, this cash is
not available to meet certain of our cash requirements in the United States, including for cash
dividends and common stock repurchases.
We entered into a five-year $165 million unsecured revolving credit facility in May 2008 in order
to supplement our occasional cash requirements in the United States. To date, we have not
borrowed under this credit facility but we may borrow in the future and use the proceeds to support
commercial paper issuance, for stock repurchases, dividend payments, acquisitions, capital
expenditures, working capital and other lawful corporate purposes.
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, research and development efforts, dividend payments (if any) and
purchases of stock (if any) under our stock repurchase program for at least the next twelve months
and thereafter for the foreseeable future.
Contractual Obligations
There have not been any material changes to the amounts presented in the table summarizing our
contractual obligations that was included in our Annual Report on Form 10-K for the year ended
November 3, 2007.
As of May 3, 2008, the total liabilities associated with uncertain tax positions under FIN 48 was
$11.2 million, which are included in Other non-current liabilities, as a result of our adoption
of FIN 48. Due to the complexity associated with our tax uncertainties, we cannot make a
reasonably reliable estimate of the period in which we expect to settle the non-current liabilities
associated with these uncertain tax positions. Therefore, we are not updating the amounts included
in the contractual obligations table.
New Accounting Pronouncements
Derivative Instruments and Hedging Activities
In March 2008, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 161,
Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and
hedging activities. SFAS 161 requires entities to provide enhanced disclosures about how and why
an entity uses derivative instruments; how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations; and how derivative instruments and
related hedged items affect an entitys financial position, financial performance and cash flows.
This statement is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. We are currently evaluating the impact, if any, that SFAS 161
may have on our financial condition and results of operations. The adoption of SFAS 161 will
change our disclosures for derivative instruments and hedging activities beginning in the second
quarter of fiscal year 2009.
39
Business Combinations
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)).
SFAS 141(R) requires an acquiring entity in a business combination to recognize the assets
acquired, liabilities assumed and any noncontrolling interest in the acquiree at their fair value
on the acquisition date. It further requires that acquisition-related costs and restructuring costs
be recognized separately from the acquisition. SFAS 141(R) is effective for fiscal years beginning
after December 15, 2008. We are currently evaluating the impact, if any, that SFAS 141(R) may
have on our financial condition and results of operations. The adoption of SFAS 141(R) will change
our accounting treatment for business combinations on a prospective basis beginning in the first
quarter of fiscal year 2010.
Noncontrolling Interests
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements (SFAS 160). SFAS 160 clarifies that a noncontrolling or minority interest in a
subsidiary is considered an ownership interest and, accordingly, requires all entities to report
such interests in subsidiaries as equity in the consolidated financial statements. SFAS 160 is
effective for fiscal years beginning after December 15, 2008, which is our fiscal year 2010. We
are currently evaluating the impact, if any, that SFAS 160 may have on our financial condition and
results of operations.
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
provides enhanced guidance for using fair value to measure assets and liabilities. The standard
also provides 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. We are currently evaluating the impact, if any, that SFAS 157 may
have on our financial condition and results of operations.
Accounting for Financial Assets and Financial Liabilities
In February 2007, the FASB, issued SFAS No. 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 for
fiscal years beginning after November 15, 2007, which is our fiscal year 2009. We are currently
evaluating the impact, if any, that SFAS 159 may have on our financial condition and results of
operations.
Critical Accounting Policies and Estimates
There were no material changes to the information provided under the heading Critical Accounting
Policies and Estimates included in our Annual Report on Form 10-K for the year ended November 3,
2007 except for the adoption of FIN 48 described below.
Accounting for Income Taxes
We must make certain estimates and judgments in determining income tax expense for financial
statement purposes. These estimates and judgments occur in the calculation of tax credits,
benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise
from differences in the timing of the recognition of revenue and expense for tax and financial
statement purposes, as well as the interest and penalties relating to these uncertain tax
positions. We assessed the likelihood of the realization of deferred tax assets and concluded
that a 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
40
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, which in turn, may result in an increase or decrease
to our tax provision in a subsequent period.
On November 4, 2007 (the first day of our 2008 fiscal year), we adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN 48).
FIN 48 differs from the prior standards in that it requires companies to determine that it is
more likely than not that a tax position will be sustained by the appropriate taxing authorities
before any benefit can be recorded in the financial statements. An uncertain income tax position
will not be recognized if it has less than a 50% likelihood of being sustained. For those tax
positions where it is more likely than not that a tax benefit will be sustained, we have recorded
the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon
ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For those income tax positions where it is not more likely than not that a tax benefit will be
sustained, no tax benefit has been recognized in the financial statements. We reevaluate these
uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but
not limited to, changes in known facts or circumstances, changes in tax law, effectively settled
issues under audit, and new audit activity. Such a change in recognition or measurement would
result in the recognition of a tax benefit or an additional charge to the tax 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 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.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the information provided under Item 7A. Qualitative and
Quantitative Disclosures about Market Risk set forth in our Annual Report on Form 10-K for the
year ended November 3, 2007.
ITEM 4. 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 May 3, 2008. The term disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (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 May 3, 2008, 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) Changes in Internal Control over Financial Reporting. No change in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred
during the quarter ended May 3, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
Settlement of the SECs Previously Announced Stock Option Investigation
41
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 was submitted to the Commission for
approval, and we expect the resolution of this matter in the
near future.
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 Staff of the SEC has indicated that, in the settlement, the
Commission will not
charge us or Mr. Fishman with any violation of law with respect to this issue.
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 will 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 settlement, we will consent to a cease-and-desist order under
Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, pay a civil money
penalty of $3 million, and reprice options granted to Mr. Fishman in certain years. Options
granted to all others will not be affected. Mr. Fishman will consent to a
cease-and-desist order under Sections 17(a)(2) and (3) of the Securities Act, pay a civil
money penalty of $1 million, and make a disgorgement payment with respect to options granted
in 1998. 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 will settle this matter
without admitting or denying the Commissions findings.
We have
determined that no restatement of our historical financial results
will be necessary due
to the 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 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 us as defendants, 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. The court heard our motion to dismiss on January
30, 2008, but has not yet issued a ruling. Although we believe we have meritorious defenses to the
asserted claims, we are unable at this time to predict the outcome of this proceeding.
ITEM 1A. Risk Factors
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. The description below includes any material changes to and supersedes the description of
the risk factors affecting our business previously disclosed in Part I, Item 1A. Risk Factors of
our Annual Report on Form
42
10-K for the fiscal year ended November 3, 2007 and Part II, Item 1A.
Risk Factors of our Quarterly Report on Form
10-Q for the quarter ended February 2, 2008.
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:
|
|
|
changes in customer demand for our products and for end products that incorporate our products; |
|
|
|
|
the timing of new product announcements or introductions by us, our customers or our competitors; |
|
|
|
|
competitive pricing pressures; |
|
|
|
|
fluctuations in manufacturing yields, adequate availability of wafers and other raw materials, and
manufacturing, assembly and test capacity; |
|
|
|
|
the risk that our backlog could decline significantly; |
|
|
|
|
the timing, delay or cancellation of significant customer orders and our ability to manage inventory; |
|
|
|
|
our ability to hire, retain and motivate adequate numbers of engineers and other qualified employees
to meet the demands of our customers; |
|
|
|
|
changes in geographic, product or customer mix; |
|
|
|
|
our ability to utilize our manufacturing facilities at efficient levels; |
|
|
|
|
potential significant litigation-related costs; |
|
|
|
|
the difficulties inherent in forecasting future operating expense levels, including with respect to
costs associated with labor, utilities, transportation and raw materials; |
|
|
|
|
the costs related to compliance with increasing worldwide environmental regulations; |
|
|
|
|
changes in our effective tax rate; |
|
|
|
|
the effect of adverse economic conditions in the United States and international markets; and |
|
|
|
|
the effects of public health emergencies, natural disasters, security risks, terrorist activities,
international conflicts and other events beyond our control. |
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. In other instances, we manufacture product based on forecasts of
customer demands. 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, orders or
43
forecasts may be for products that meet the
customers unique requirements so that those cancelled or unrealized 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 certain of the products that are subject to these
uncertainties, the amount of unsaleable product could be substantial. Incorrect forecasts, or
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 innovate, 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 innovative new products. Product development, innovation and enhancement is often a complex,
time-consuming and costly process involving significant investment in research and development,
with no assurance of return on investment. 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. Also, some of our customers in these markets are less established, which
could subject us to increased credit risk. 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.
We may not be able to compete successfully in markets within the semiconductor industry in the
future.
We face intense technological and pricing competition in the semiconductor industry, and we expect
such competition to increase 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 engage additional or replacement suppliers,
which could result in additional expenses and delays in product development or shipment of product
to our customers.
44
We may not be able to satisfy sufficiently the demand for our products, and increased production
may lead to overcapacity and lower prices.
The cyclical nature of the semiconductor industry has resulted in periods when demand for our
products has increased or decreased rapidly. During 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, or
declines, our operating results may be adversely affected as a result of increased operating
expenses, reduced margins, underutilization of capacity or asset impairment charges. 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 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, which may adversely impact our operating
results. There can be no assurance that we are adequately insured to protect against all such
claims. 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 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.
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
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.
45
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 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 our customers products due to an alleged failure of components we supply. See Note
10 in the Notes to our Condensed Consolidated Financial Statements contained in Item 1 of this
Quarterly Report on Form 10-Q 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 continued success depends to a significant extent upon the recruitment, retention and effective
succession of our executive officers and key management and technical personnel, particularly our
experienced engineers. 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, purchase or license technology from
third parties, or enter into other strategic transactions in order to introduce new products or
enhance our existing products.
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, we 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 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. Our current credit facility imposes
restrictions on our ability to undertake certain transactions, to create certain liens on our
assets and to incur certain subsidiary indebtedness, and requires us to maintain compliance with
specified financial ratios. If we breach any of the covenants under our credit facility and do not
obtain a waiver from the lenders, then, subject to applicable cure periods, our outstanding
indebtedness thereunder could be declared immediately due and payable.
46
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. |
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, utilities 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 utilities or otherwise, would have a material adverse effect on
our results of operations and financial condition.
We are exposed to business, economic, political, legal and other risks through our significant
worldwide operations.
During the first six months of fiscal 2008, approximately 80% 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. While a majority of our cash is generated outside the United States, we
require a substantial amount of cash in the United Sates for operating requirements, stock
repurchases, cash dividends and acquisitions. If we are unable to address our U.S. cash
requirements through operations, by efficient and timely repatriations of overseas cash, through
borrowings under our current credit facility or from other sources of cash obtained at an
acceptable cost, our business strategies and results of operations could be adversely affected.
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, political and legal 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, intellectual property and environmental compliance, trade and travel
restrictions, pandemics, import and export license requirements and restrictions, difficulties in
staffing and managing worldwide operations, and accounts receivable collections.
47
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 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 increasingly strict 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 require us to invest in potentially 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 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. |
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.
48
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
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|
Approximate Dollar |
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|
|
|
Total Number of |
|
Value of Shares that |
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Shares Purchased |
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May Yet Be |
|
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Total Number of |
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as Part of Publicly |
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Purchased Under |
|
|
Shares Purchased |
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Average Price |
|
Announced Plans |
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the Plans or |
Period |
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(a) |
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Paid Per Share (b) |
|
or Programs (c) |
|
Programs |
February 3, 2008 through
March 1, 2008 |
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4,523,425 |
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$ |
28.11 |
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4,523,425 |
|
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$ |
178,685,982 |
|
March 2, 2008 through
March 29, 2008 |
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235,424 |
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|
$ |
28.39 |
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231,346 |
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$ |
172,116,414 |
|
March 30, 2008 through
May 3, 2008 |
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1,036,274 |
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|
$ |
30.58 |
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1,036,274 |
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$ |
140,427,720 |
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Total |
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5,795,123 |
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$ |
28.57 |
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5,791,045 |
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$ |
140,427,720 |
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(a) |
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Includes 4,078 shares paid to the Company by employees to satisfy employee tax
obligations upon vesting of restricted stock granted to our employees under our equity
compensation plans. |
|
(b) |
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The average price paid per share of stock repurchased under the stock repurchase
program includes the commissions paid to the brokers. |
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(c) |
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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 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. |
49
ITEM 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Shareholders held on March 11, 2008, the following matters were acted upon
by our shareholders:
1. |
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The election of three Class III Directors for the ensuing three years; |
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2. |
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The ratification of the selection of Ernst & Young LLP as our independent registered public
accounting firm for the fiscal year ending November 1, 2008; and |
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3. |
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The approval of amendments to our articles of organization and bylaws to require a majority
vote for uncontested elections of directors. |
The results of the voting on each of the matters presented to shareholders at the Annual Meeting
are set forth below:
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VOTES |
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VOTES |
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VOTES |
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BROKER |
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FOR |
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WITHHELD |
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AGAINST |
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ABSTENTIONS |
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NON-VOTES |
1. Election of three
Class III Directors: |
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John L. Doyle |
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252,704,000 |
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8,534,368 |
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N.A. |
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|
|
N.A. |
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|
|
N.A. |
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|
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|
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|
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|
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|
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Paul J. Severino |
|
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186,047,340 |
|
|
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75,191,028 |
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N.A. |
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|
|
N.A. |
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|
|
N.A. |
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Ray Stata |
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254,405,693 |
|
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6,832,675 |
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N.A. |
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|
|
N.A. |
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|
|
N.A. |
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2. Ratification of
Ernst & Young LLP |
|
|
252,685,174 |
|
|
|
N.A. |
|
|
|
6,027,107 |
|
|
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2,526,087 |
|
|
|
N.A. |
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|
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3. Approval of Majority
Voting in Uncontested
Director Elections |
|
|
249,039,788 |
|
|
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N.A. |
|
|
|
9,043,856 |
|
|
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3,154,724 |
|
|
|
N.A. |
|
The other directors of the Company, whose terms of office as directors continued after the Annual
Meeting, are James A. Champy, Kenton J. Sicchitano, Yves-Andre Istel, Jerald G. Fishman, John C.
Hodgson and F. Grant Saviers. On May 19, 2008, Neil Novich was elected to the Board of Directors as
a Class I Director.
ITEM 6. Exhibits
The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of
this Quarterly Report on Form 10-Q and such Exhibit Index is incorporated herein by reference.
50
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ANALOG DEVICES, INC.
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Date: May 20, 2008 |
By: |
/s/ Jerald G. Fishman
|
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Jerald G. Fishman |
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President and
Chief Executive Officer
(Principal Executive Officer) |
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Date: May 20, 2008 |
By: |
/s/ Joseph E. McDonough
|
|
|
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Joseph E. McDonough |
|
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Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer) |
|
51
Exhibit Index
|
|
|
Exhibit |
|
|
No. |
|
Description |
3.1
|
|
Restated Articles of Organization of Analog Devices, Inc., as amended. |
|
|
|
3.2
|
|
Amended and Restated By-Laws of Analog Devices, Inc. |
|
|
|
14
|
|
Analog Devices, Inc. Code of Business Conduct and Ethics. |
|
|
|
31.1
|
|
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities
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 Securities
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). |
52