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| ADI > SEC Filings for ADI > Form 10-Q on 19-Aug-2008 | All Recent SEC Filings |
19-Aug-2008
Quarterly Report
Results of Operations
(all tabular amounts in thousands except per share amounts and percentages)
Overview
Three Months Ended Nine Months Ended
August 2, 2008 August 4, 2007 August 2, 2008 August 4, 2007
Total revenue $ 658,986 $ 617,431 $ 1,922,235 $ 1,841,179
Gross margin % 61.0 % 60.5 % 61.1 % 61.6 %
Income from continuing operations, net
of tax $ 129,195 $ 125,406 $ 380,935 $ 407,437
Income from continuing operations, net
of tax as a % of total revenue 19.6 % 20.3 % 19.8 % 22.1 %
Diluted EPS from continuing operations $ 0.44 $ 0.38 $ 1.28 $ 1.20
Diluted EPS $ 0.47 $ 0.37 $ 2.15 $ 1.18
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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 nine months of fiscal 2007 included an additional week of operations as compared to the first nine months of fiscal 2008.
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
August 2, 2008 August 4, 2007
% of % of
Total Total
Product Product
Revenue Revenue Y/Y% Revenue Revenue
Industrial $ 326,984 50 % 10 % $ 298,049 48 %
Communications 163,762 25 % 11 % 148,011 24 %
Consumer 134,677 20 % (1 %) 136,145 22 %
Computer 33,563 5 % (5 %) 35,226 6 %
Total Product Revenue $ 658,986 100 % 7 % $ 617,431 100 %
Nine Months Ended Nine Months Ended
August 2, 2008 August 4, 2007*
% of % of
Total Total
Product Product
Revenue Revenue Y/Y% Revenue Revenue
Industrial $ 957,693 50 % 7 % $ 894,004 49 %
Communications 474,682 25 % 16 % 407,927 23 %
Consumer 394,177 20 % (0 %) 394,727 22 %
Computer 95,683 5 % (13 %) 109,521 6 %
Total Product Revenue $ 1,922,235 100 % 6 % $ 1,806,179 100 %
Revenue from one-time IP license - 35,000
Total Revenue $ 1,922,235 $ 1,841,179
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* 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 nine months of fiscal 2007 included an additional week of operations as compared to the first nine months of fiscal 2008.
Industrial - The year-to-year increases in both the three- and nine-month
periods were primarily the result of revenue growth in products sold into the
automotive sector of this end market and, to a lesser extent, the
instrumentation and defense sectors of this 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 increase in the three-month period was
primarily the result of revenue growth in sales of analog products used in
wireless handsets and optical applications, partially offset by a decline in
sales of products used in basestations. The year-to-year increase in the
nine-month period was primarily the result of revenue growth in sales of analog
products used in wireless handsets, basestations and optical applications.
Consumer - There were no significant changes in revenue in the consumer end
market during the three- and nine-month periods of fiscal 2008 as compared to
the same periods of fiscal 2007.
Computer - The year-to-year decreases in both the three- and nine-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
August 2, 2008 August 4, 2007
% of % of
Total Total
Product Product
Revenue Revenue Y/Y% Revenue Revenue
Converters $ 302,763 46 % 8 % $ 281,001 46 %
Amplifiers 150,923 23 % 5 % 144,103 23 %
Other analog 100,004 15 % (0 %) 100,279 16 %
Subtotal analog signal processing 553,690 84 % 5 % 525,383 85 %
Power management & reference 36,674 6 % 20 % 30,439 5 %
Total analog products $ 590,364 90 % 6 % $ 555,822 90 %
General purpose DSP 60,521 9 % 14 % 52,992 9 %
Other DSP 8,101 1 % (6 %) 8,617 1 %
Total digital signal processing $ 68,622 10 % 11 % $ 61,609 10 %
Total Product Revenue $ 658,986 100 % 7 % $ 617,431 100 %
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Nine Months Ended Nine Months Ended
August 2, 2008 August 4, 2007**
% of % of
Total Total
Product Product
Revenue Revenue Y/Y% Revenue Revenue
Converters $ 881,530 46 % 8 % $ 818,502 45 %
Amplifiers 439,755 23 % 5 % 419,018 23 %
Other analog 300,073 16 % 2 % 295,261 17 %
Subtotal analog signal processing 1,621,358 85 % 6 % 1,532,781 85 %
Power management & reference 104,789 5 % 14 % 91,818 5 %
Total analog products $ 1,726,147 90 % 6 % $ 1,624,599 90 %
General purpose DSP 173,921 9 % 10 % 158,305 9 %
Other DSP 22,167 1 % (5 %) 23,275 1 %
Total digital signal processing $ 196,088 10 % 8 % $ 181,580 10 %
Total Product Revenue $ 1,922,235 100 % 6 % $ 1,806,179 100 %
Revenue from one-time IP license* - 35,000
Total Revenue $ 1,922,235 $ 1,841,179
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* 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
nine months
of fiscal
2007
included an
additional
week of
operations
as compared
to the first
nine months
of fiscal
2008.
Our sales increases in the three- and nine-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 primarily 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 nine-month periods ended August 2, 2008 and August 4, 2007 was as
follows:
Three Months Ended Nine Months Ended
Region August 2, 2008 August 4, 2007 August 2, 2008 August 4, 2007
United States $ 131,168 $ 132,076 $ 393,921 $ 414,056
Rest of North and South America 25,433 20,523 70,578 60,293
Europe 177,881 148,284 509,347 438,078
Japan 128,457 127,040 380,940 372,911
China 103,632 90,010 284,358 236,109
Rest of Asia 92,415 99,498 283,091 284,732
Total Product Revenue $ 658,986 $ 617,431 $ 1,922,235 $ 1,806,179
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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.
Gross Margin
Three Months Ended Nine Months Ended
August 2, 2008 August 4, 2007 August 2, 2008 August 4, 2007
Gross margin $ 401,794 $ 373,492 $ 1,173,618 $ 1,134,384
Gross margin % 61.0 % 60.5 % 61.1 % 61.6 %
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Gross margin percentage was higher by 50 basis points in the third quarter of
fiscal 2008 as compared to the third quarter of fiscal 2007 primarily 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 50 basis points in the nine months ended
August 2, 2008 as compared to the same period of fiscal 2007. Gross margin
percentage in the nine months ended August 4, 2007 was higher primarily 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 Board's 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 August 2, 2008, the total compensation
cost related to unvested awards not yet recognized in the statement of income
was approximately $131.1 million (before tax consideration), which will be
recognized over a weighted average period of 1.7 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 Nine Months Ended
August 2, 2008 August 4, 2007 August 2, 2008 August 4, 2007
R&D expenses $ 135,837 $ 128,093 $ 400,029 $ 377,866
R&D expenses as a % of product revenue 20.6 % 20.7 % 20.8 % 20.9 %
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Research and development, or R&D, expenses increased $7.7 million, or 6%, in the
third quarter of fiscal 2008 as compared to the third 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.
R&D expenses increased $22.2 million, or 6%, in the first nine 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 and lower employee stock option
expense.
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.
Selling, Marketing, General and Administrative
Three Months Ended Nine Months Ended
August 2, 2008 August 4, 2007 August 2, 2008 August 4, 2007
SMG&A expenses $ 104,767 $ 99,906 $ 309,301 $ 292,096
SMG&A expenses as a % of product revenue 15.9 % 16.2 % 16.1 % 16.2 %
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Selling, marketing, general and administrative, or SMG&A, expenses increased
$4.9 million, or 5%, in the third quarter of fiscal 2008 as compared to the
third quarter of fiscal 2007. This increase was primarily the result of higher
employee salary, benefit and bonus expenses, which were partially offset by
lower legal expenses and lower employee stock option expense.
SMG&A expenses increased $17.2 million, or 6%, in the first nine months of
fiscal 2008 as compared to the first nine months 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 one less
week of operations in the first quarter of fiscal 2008 than in the first quarter
of fiscal 2007.
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.
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
. . .
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