8-KFinancial EventsOther Events

ANALOG DEVICES INC 8-K Report, Exit or Disposal Costs (Oct 20, 2005)

Filed October 20, 2005For Securities:ADI

Summary

Analog Devices, Inc. (ADI) announced significant strategic restructuring and financial actions on October 18, 2005. The company's Board of Directors approved a plan to consolidate wafer fabrication operations, leading to the closure of its California facility by the end of fiscal year 2006. This move is expected to result in annual savings of approximately $45 million and will incur charges of roughly $50 million over the next twelve months, including employee-related costs and accelerated depreciation. Furthermore, ADI is implementing organizational changes to sharpen its focus on analog and DSP products, projecting annual savings of $16 million with associated charges of approximately $13 million. In a notable move to manage stock-based compensation expense under the upcoming FAS 123(R) standard, the company accelerated the vesting of certain out-of-the-money stock options held by employees. Finally, ADI authorized the repatriation of $1,055 million in accumulated foreign earnings, anticipating an estimated tax expense of $49 million in Q4 FY2005.

Key Highlights

  • 1Consolidation of wafer fabrication operations, including closure of California facility, expected to yield $45 million in annual savings.
  • 2Total charges of approximately $50 million anticipated for wafer fabrication consolidation over the next twelve months.
  • 3Organizational restructuring to focus on analog and DSP products, projected to save $16 million annually.
  • 4Charges of approximately $13 million related to organizational restructuring, primarily severance costs.
  • 5Acceleration of vesting for approximately 18 million "out-of-the-money" stock options to reduce future non-cash compensation expense under FAS 123(R).
  • 6Authorization to repatriate $1,055 million of accumulated foreign earnings.
  • 7Estimated additional tax expense of $49 million in Q4 FY2005 due to earnings repatriation.

Frequently Asked Questions

The closure is part of a plan to consolidate wafer fabrication operations, allowing Analog Devices to transfer production to its facilities in Massachusetts and Ireland, which utilize the company's most advanced process technologies.

The consolidation is expected to result in annual savings of approximately $45 million. However, the company anticipates incurring charges of about $50 million over the next twelve months, including employee-related costs and accelerated depreciation.

The acceleration of certain "out-of-the-money" stock options was primarily to reduce a substantial amount of non-cash compensation expense that would have been recognized in future periods under the upcoming FAS 123(R) accounting standard. This expense was deemed disproportionately high given the low economic value of these specific options.

Analog Devices authorized the repatriation of $1,055 million in accumulated foreign earnings. This action is expected to result in an estimated additional tax expense of $49 million, to be recorded in the fourth quarter of fiscal year 2005.