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| ADI > SEC Filings for ADI > Form 10-Q on 18-Feb-2009 | All Recent SEC Filings |
18-Feb-2009
Quarterly Report
Results of Operations
(all tabular amounts in thousands except per share amounts and percentages)
Overview
Three Months Ended
January 31, 2009 February 2, 2008
Revenue $ 476,569 $ 613,909
Gross margin % 56.4 % 61.2 %
Income from continuing operations, net of tax $ 24,585 $ 121,848
Income from continuing operations, net of tax as a % of revenue 5.2 % 19.8 %
Diluted EPS from continuing operations $ 0.08 $ 0.40
Diluted EPS $ 0.09 $ 1.22
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The year-to-year revenue changes by end market and product category are more fully outlined below under Revenue Trends by End Market and Revenue Trends by Product Type.
In the first quarter of fiscal 2009, our revenue decreased 22% from the first
quarter of fiscal 2008 and our diluted earnings per share from continuing
operations decreased by 80%. Cash flow from operations in the first quarter of
fiscal 2009 was $59.9 million, or 13% of revenue, and we had $1,283.1 million of
cash and short-term investments and no debt as of January 31, 2009.
The global credit crisis and deteriorating economic conditions continue to
result in more cautious customer spending behavior and generally lower demand
for our products. We cannot predict the severity, duration or precise impact of
the economic downturn on our future financial results. Consequently, our
reported results for the first quarter of fiscal 2009 may not be indicative of
our future results.
Revenue Trends by End Market
The following table summarizes revenue 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
January 31, 2009 February 2, 2008
% of % of
Revenue Revenue Y/Y% Revenue Revenue
Industrial $ 257,046 54 % (22 )% $ 331,061 54 %
Communications 127,388 27 % (3 )% 131,012 21 %
Consumer 75,940 16 % (40 )% 126,952 21 %
Computer 16,195 3 % (35 )% 24,884 4 %
Total revenue $ 476,569 100 % (22 )% $ 613,909 100 %
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Industrial - The year-to-year decrease in industrial end market revenue in the
first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008 was
primarily the result of a broad-based decline in demand in this end market,
which was most significant for products sold into the instrumentation and
automotive sectors of this end market.
Communications - The year-to-year slight decrease in communications end market
revenue in the first quarter of fiscal 2009 as compared to the first quarter of
fiscal 2008 was primarily the result of a decrease in sales of analog products
used in wireless handsets and networking applications, partially offset by an
increase in sales of products used in basestations.
Consumer -The year-to-year decrease in consumer end market revenue in the first
quarter of fiscal 2009 as compared to the first quarter of fiscal 2008 was
primarily the result of a decrease in demand for products used in digital
cameras, advanced televisions and video game applications, consistent with the
global slowdown in consumer spending.
Computer - The year-to-year decrease in computer end market revenue in the first
quarter of fiscal 2009 as compared to the first quarter of fiscal 2008 was
primarily the result of a general slowdown in the PC market.
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. 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,
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
January 31, 2009 February 2, 2008
% of % of
Revenue Revenue Y/Y% Revenue Revenue
Converters $ 225,823 47 % (20 %) $ 281,081 46 %
Amplifiers 130,172 27 % (16 %) 155,719 25 %
Other analog 51,005 11 % (37 %) 80,843 13 %
Subtotal analog signal processing 407,000 85 % (21 %) 517,643 84 %
Power management & reference 26,135 6 % (22 %) 33,415 6 %
Total analog products $ 433,135 91 % (21 %) $ 551,058 90 %
General purpose DSP 40,110 8 % (27 %) 55,118 9 %
Other DSP 3,324 1 % (57 %) 7,733 1 %
Total digital signal processing $ 43,434 9 % (31 %) $ 62,851 10 %
Total revenue $ 476,569 100 % (22 %) $ 613,909 100 %
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Our overall revenue decreased in the first quarter of fiscal 2009, as compared
to the first quarter of fiscal 2008, was due to declining demand in several
markets that we serve, particularly the consumer end market, as a result of an
overall decline in the worldwide economy.
Revenue Trends by Geographic Region
Revenue by geographic region, based upon customer location, for the three-month
periods ended January 31, 2009 and February 2, 2008 was as follows:
Three Months Ended
Region January 31, 2009 February 2, 2008
United States $ 107,247 $ 131,661
Rest of North and South America 19,383 21,103
Europe 127,745 156,706
Japan 72,733 124,236
China 89,712 81,295
Rest of Asia 59,749 98,908
Total revenue $ 476,569 $ 613,909
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In the first quarter of fiscal 2009 the predominant countries comprising "Rest
of North and South America" are Canada and Mexico. The predominant countries
comprising "Europe" are Germany, Sweden, France and Italy. The predominant
countries comprising "Rest of Asia" are Taiwan and Singapore.
In the first quarter of fiscal 2008 the predominant countries comprising "Rest
of North and South America" are Canada and Mexico. The predominant countries
comprising "Europe" are Germany, France and the United Kingdom. The predominant
countries comprising "Rest of Asia" are Taiwan and Korea.
Sales declined in all geographic regions, except China, in the first quarter of
fiscal 2009, as compared to the first quarter of fiscal 2008, with sales in
Japan experiencing the largest decline. This decline in sales in Japan was
principally attributable to an overall decline in the consumer end market as a
result of the general drop in consumer spending attributable to the global
financial market crisis. The increase in sales in China in the first quarter of
fiscal 2009, as compared to the first quarter of fiscal 2008, reflects the
increased infrastructure development activity of our customers in China.
Gross Margin
Three Months Ended
January 31, 2009 February 2, 2008
Gross margin $ 269,002 $ 375,803
Gross margin % 56.4 % 61.2 %
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Gross margin percentage was lower by 480 basis points in the first quarter of
fiscal 2009 as compared to the first quarter of fiscal 2008 primarily as a
result of a decrease in sales of $137.3 million and reduced operating levels in
our manufacturing facilities. This decrease was partially offset by a better mix
of products as revenues from higher-margin industrial and communications end
markets declined less than our revenues from the consumer and computer end
markets.
Stock-Based Compensation Expense
As of January 31, 2009, the total compensation cost related to unvested awards
not yet recognized in our statement of income was approximately $142.1 million
(before tax consideration), which we will recognize over a weighted average
period of 1.9 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 Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS
123R).
Research and Development
Three Months Ended
January 31, 2009 February 2, 2008
R&D expenses $ 119,828 $ 129,539
R&D expenses as a % of revenue 25.1 % 21.1 %
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Research and development, or R&D, expenses decreased $9.7 million, or 7%, in the
first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008.
This decrease was primarily the result of a decrease in bonus expense paid to
employees, which is a variable expense linked to our overall profitability, and
to a lesser extent as a result of our actions to reduce certain discretionary
expenses.
R&D expenses as a percentage of revenue will fluctuate from year-to-year
depending on the amount of 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, and therefore, we expect to continue to make significant R&D
investments in the future.
Selling, Marketing, General and Administrative
Three Months Ended
January 31, 2009 February 2, 2008
SMG&A expenses $ 87,846 $ 100,351
SMG&A expenses as a % of revenue 18.4 % 16.3 %
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Selling, marketing, general and administrative, or SMG&A, expenses decreased $12.5 million, or 12%, in the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008. This decrease was primarily the result of lower bonus expenses, which are variable expenses linked to our overall profitability, commission expenses, which are variable expenses linked to our sales, and to a lesser extent as a result of our actions to reduce certain discretionary expenses.
Special Charges
The following is a summary of the restructuring actions we have taken over the
last several years.
Closure of Wafer Fabrication Facility in Sunnyvale
We ceased production at our California wafer fabrication facility in
November 2006. We are paying the lease obligation costs on a monthly basis over
the remaining lease term, which expires in 2010. We completed the clean-up
activity during the second quarter of fiscal 2007, and we do not expect to incur
any additional charges related to this action.
Reorganization of Product Development and Support Programs
We recorded special charges in fiscal years 2005, 2006 and 2007 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. We terminated the employment of all employees associated with
these programs and are paying amounts owed to employees for severance as income
continuance. We do not expect to incur any further charges related to this
reorganization action.
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 only use eight-inch technology at
our wafer fabrication facility in Limerick. Certain manufacturing processes and
products produced on the Limerick facility's six-inch production line are
transitioning to our existing eight-inch production line in Limerick while
others are transitioning to external foundries. The charge was for severance and
fringe benefit costs 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 150
manufacturing employees associated with this action. As of January 31, 2009, we
still employed 14 of the 150 employees included in this action. We expect
production to cease in the six-inch wafer fabrication facility during the second
quarter of 2009, at which time we will terminate the employment of the remaining
affected employees. These employees must continue to be employed by us until
their employment is involuntarily terminated in order to receive the severance
benefit. During the fourth quarter of 2008, we recorded an additional charge of
$1.5 million related to this action, of which $1.2 million was an adjustment to
our original estimate of the severance costs and $0.3 million was for clean-up
and closure costs that were expensed as incurred. During the first quarter of
fiscal 2009, we recorded an additional charge of $0.6 million for clean-up and
closure costs that we expensed as incurred. We expect to incur additional
clean-up and closure costs related to this action over the next two quarters
totaling approximately $0.9 million. In accordance with SFAS 146 Accounting for
Costs Associated with Exit or Disposal Activities, or SFAS 146, we will expense
these costs as incurred. We estimate that the closure of this facility will
result in annual cost savings of approximately $25 million per year, which we
expect to realize starting in the first quarter of fiscal 2010. We expect these
annual savings will be in cost of sales, of which approximately $1 million
relates to non-cash depreciation savings.
Reduction of Overhead Infrastructure Costs
During the fourth quarter of fiscal 2007, we recorded a special charge as a
result of our decision 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. We
terminated the employment of all employees associated with these programs and we
are paying amounts owed to employees for severance as income continuance. We do
not expect to incur any further charges related to this action. These cost
reduction actions, which were substantially completed in the second quarter of
fiscal 2008, resulted in savings of approximately $15 million per year. We
realized these savings as follows: approximately $7 million in R&D expenses,
approximately $6 million in SMG&A expenses and approximately $2 million in cost
of sales.
Reduction of Operating Costs
During the fourth quarter of fiscal 2008, in order to further reduce our
operating cost structure we recorded a special charge of $1.6 million for
severance and fringe benefit costs recorded pursuant to SFAS 88 under our
ongoing benefit plan or statutory requirements at foreign locations for 19
engineering and SMG&A employees. We have terminated the employment of all of the
employees included in this charge and we are paying amounts owed to employees
for severance as income continuance.
During the first quarter of fiscal 2009, we recorded an additional charge of
$19.1 million related to this cost reduction action. Approximately $2.1 million
of this charge was for lease obligation costs for facilities that we ceased
using during the first quarter of fiscal 2009; approximately $0.8 million was
for the write-off of property, plant and equipment; and approximately
$0.6 million was for contract termination, clean-up and closure costs that we
expensed as incurred. The remaining $15.6 million of this charge related to the
severance and fringe benefit costs recorded pursuant to SFAS 88 under our
ongoing benefit plan or statutory requirements at foreign locations for 221
manufacturing employees and 149 engineering and selling, marketing, general and
administrative employees. As of January 31, 2009, we still employed 19 of the
370 employees included in this cost reduction action. These employees must
continue to be employed by us until their employment is involuntarily terminated
in order to receive the severance benefit.
We believe this cost reduction action, which was substantially completed during
the first quarter of fiscal 2009, will result in annual savings of approximately
$21.2 million once fully implemented. These savings will be realized as follows:
approximately $18.8 million in SMG&A expenses and approximately $2.4 million in
cost of sales. A portion of these savings is reflected in our results for the
first quarter of fiscal 2009 and the savings will be fully reflected in our
results during the second quarter of fiscal 2009.
Closure of a Wafer Fabrication Facility in Cambridge
During the first quarter of fiscal 2009, we recorded a special charge of
$22.1 million as a result of our decision to consolidate our Cambridge,
Massachusetts fabrication facility into our existing Wilmington, Massachusetts
facility. In connection with the anticipated closure of this facility, we
evaluated the recoverability of the facilities' manufacturing assets and
concluded that there was an impairment of approximately $12.9 million based on
the revised period of intended use. The remaining $9.2 million was for severance
and fringe benefit costs recorded pursuant to SFAS 88 under our ongoing benefit
plan for 175 manufacturing employees and 9 selling, marketing, general and
administrative employees associated with this action. As of January 31, 2009, we
still employed all of the employees included in this action. We expect
production to cease in the Cambridge fabrication facility during the fourth
quarter of fiscal 2009, at which time the employment of the affected employees
will be terminated. These employees must continue to be employed by us until
their employment is involuntarily terminated in order to receive the severance
benefit. We estimate that the closure of this facility will result in annual
cost savings of approximately $41 million per year, expected to be realized
starting in the third quarter of fiscal 2010. We expect these savings to be
realized as follows: approximately $40.2 million in cost of sales, of which
approximately $4.0 million relates to non-cash depreciation savings, and
approximately $0.8 million in SMG&A expenses.
Operating Income from Continuing Operations
Three Months Ended
January 31, 2009 February 2, 2008
Operating income from continuing operations $ 19,591 $ 145,913
Operating income from continuing operations as a % of revenue 4.1 % 23.8 %
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The $126.3 million decrease in operating income from continuing operations in the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008 was primarily the result of a decrease in revenue of $137.3 million, a 480 basis point decrease in gross margin percentage, and a special charge of $41.7 million in the first quarter of fiscal 2009. This decrease in operating income from continuing operations was partially offset by a decrease in R&D and SMG&A expenses as more fully described above under the headings Research and Development and Selling, Marketing, General and Administrative.
Nonoperating (Income) Expense
Three Months Ended
January 31, 2009 February 2, 2008
Interest income $ (7,796 ) $ (12,526 )
Other (income), expense net (571 ) 173
Total nonoperating income $ (8,367 ) $ (12,353 )
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Nonoperating income was lower by $4.0 million in the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008 primarily due to lower interest income earned on investments as a result of lower interest rates in the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008.
Provision for Income Taxes
Three Months Ended
January 31, 2009 February 2, 2008
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