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| ADI > SEC Filings for ADI > Form 10-Q on 19-May-2009 | All Recent SEC Filings |
19-May-2009
Quarterly Report
Results of Operations
(all tabular amounts in thousands except per share amounts and percentages)
Overview
Three Months Ended Six Months Ended
May 2, 2009 May 3, 2008 May 2, 2009 May 3, 2008
Revenue $ 474,748 $ 649,340 $ 951,317 $ 1,263,249
Gross margin % 55.1 % 61.0 % 55.8 % 61.1 %
Income from continuing operations, net of
tax $ 51,754 $ 129,892 $ 76,339 $ 251,740
Income from continuing operations, net of
tax as a % of revenue 10.9 % 20.0 % 8.0 % 19.9 %
Diluted EPS from continuing operations $ 0.18 $ 0.44 $ 0.26 $ 0.84
Diluted EPS $ 0.18 $ 0.45 $ 0.26 $ 1.68
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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 second quarter of fiscal 2009, our revenue decreased 27% from the second
quarter of fiscal 2008 and our diluted earnings per share from continuing
operations decreased by 59%. In the first six months of fiscal 2009, our revenue
decreased 25% from the first six months of fiscal 2008 and our diluted earnings
per share from continuing operations decreased by 69%. Cash flow from operations
in the first six months of fiscal 2009 was $135.9 million, or 14% of revenue,
and we had $1,285.5 million of cash and short-term investments and no debt as of
May 2, 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 second 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
May 2, 2009 May 3, 2008
Revenue % of Revenue * Y/Y% Revenue % of Revenue*
Industrial $ 245,329 52 % (31 )% $ 355,908 55 %
Communications 137,270 29 % (7 )% 146,953 23 %
Consumer 78,928 17 % (36 )% 122,956 19 %
Computer 13,221 3 % (44 )% 23,523 4 %
Total revenue $ 474,748 100 % (27 )% $ 649,340 100 %
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* The sum of the individual percentages may not equal the total due to rounding.
Six Months Ended Six Months Ended
May 2, 2009 May 3, 2008
Revenue % of Revenue* Y/Y% Revenue % of Revenue *
Industrial $ 502,999 53 % (27 )% $ 688,632 55 %
Communications 264,790 28 % (5 )% 277,317 22 %
Consumer 154,454 16 % (38 )% 249,765 20 %
Computer 29,074 3 % (39 )% 47,535 4 %
Total revenue $ 951,317 100 % (25 )% $ 1,263,249 100 %
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* The sum of the individual percentages may not equal the total due to rounding.
Industrial - The year-to-year decrease in both the three- and six-month periods
in industrial end market revenue 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, automotive, process controls and automatic test
equipment sectors of this end market.
Communications - The year-to-year decrease in the three-month period in
communications end market revenue was primarily the result of a decrease in
sales of analog products used in wireless handsets, networking and optical
applications. The year-to-year decrease in the six-month period in
communications end market revenue was primarily the result of a decrease in
sales of analog products used in wireless handsets, networking and optical
applications, which was partially offset by an increase in sales of products
used in basestations.
Consumer - The year-to-year decrease in both the three- and six-month periods in
consumer end market revenue was primarily the result of a decrease in demand for
products used in home entertainment, video game applications, and digital
cameras, consistent with the global slowdown in consumer spending.
Computer - The year-to-year decrease in both the three- and six-month periods in
computer end market revenue 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
May 2, 2009 May 3, 2008
Revenue % of Revenue* Y/Y% Revenue % of Revenue*
Converters $ 229,665 48 % (23 %) $ 297,646 46 %
Amplifiers 123,666 26 % (27 %) 170,561 26 %
Other analog 54,279 11 % (34 %) 81,818 13 %
Subtotal analog signal processing 407,610 86 % (26 %) 550,025 85 %
Power management & reference 28,189 6 % (19 %) 34,701 5 %
Total analog products $ 435,799 92 % (25 %) $ 584,726 90 %
General purpose DSP 38,210 8 % (34 %) 58,281 9 %
Other DSP 739 0 % (88 %) 6,333 1 %
Total digital signal processing $ 38,949 8 % (40 %) $ 64,614 10 %
Total revenue $ 474,748 100 % (27 %) $ 649,340 100 %
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* The sum of the individual percentages may not equal the total due to rounding.
Six Months Ended Six Months Ended
May 2, 2009 May 3, 2008
Revenue % of Revenue* Y/Y% Revenue % of Revenue*
Converters $ 455,685 48 % (21 %) $ 578,541 46 %
Amplifiers 253,641 27 % (22 %) 326,466 26 %
Other analog 105,284 11 % (35 %) 162,661 13 %
Subtotal analog signal processing 814,610 86 % (24 %) 1,067,668 85 %
Power management & reference 54,323 6 % (20 %) 68,116 5 %
Total analog products $ 868,933 91 % (23 %) $ 1,135,784 90 %
General purpose DSP 78,321 8 % (31 %) 113,400 9 %
Other DSP 4,063 0 % (71 %) 14,065 1 %
Total digital signal processing $ 82,384 9 % (35 %) $ 127,465 10 %
Total revenue $ 951,317 100 % (25 %) $ 1,263,249 100 %
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* The sum of the individual percentages may not equal the total due to rounding.
The year-to-year decrease in revenue in the three- and six-month periods ended
May 2, 2009, was due to declining demand in several markets that we serve,
particularly the industrial and consumer end markets, 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- and
six-month periods ended May 2, 2009 and May 3, 2008 was as follows:
Three Months Ended Six Months Ended
Region May 2, 2009 May 3, 2008 May 2, 2009 May 3, 2008
United States $ 97,055 $ 131,008 $ 204,387 $ 262,753
Rest of North and South America 20,456 24,127 39,753 45,145
Europe 120,855 174,759 248,600 331,466
Japan 71,535 128,247 144,269 252,483
China 99,345 99,431 189,057 180,726
Rest of Asia 65,502 91,768 125,251 190,676
Total revenue $ 474,748 $ 649,340 $ 951,317 $ 1,263,249
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In the three- and six-month periods ended May 2, 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;
and the predominant countries comprising "Rest of Asia" are Taiwan and Korea.
In the three- and six-month periods ended May 3, 2008 the predominant countries
comprising "Rest of North and South America" are Canada and Mexico; the
predominant countries comprising "Europe" are Germany, France, the United
Kingdom and Italy; and the predominant countries comprising "Rest of Asia" are
Taiwan and Korea.
Sales declined in all geographic regions in the second quarter of fiscal 2009,
as compared to the second 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 decline in China was smaller than the decline in the other regions
primarily due to the strong demand for our products used in the recent
infrastructure build-out relating to the next generation of communication
technology in that region.
Sales declined in all geographic regions, except China, in the first six months
of fiscal 2009, as compared to the first six months of fiscal 2008. The increase
in sales in China was primarily due to strong demand for our products used in
the recent infrastructure build-out relating to the next generation of
communication technology in that region.
Gross Margin
Three Months Ended Six Months Ended
May 2, 2009 May 3, 2008 May 2, 2009 May 3, 2008
Gross margin $ 261,552 $ 396,021 $ 530,554 $ 771,824
Gross margin % 55.1 % 61.0 % 55.8 % 61.1 %
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Gross margin percentage was lower by 590 basis points in the second quarter of fiscal 2009 as compared to the second quarter of fiscal 2008 primarily as a result of a decrease in sales of $174.6 million and reduced operating levels in our manufacturing facilities that created adverse utilization variances. 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.
Gross margin percentage was lower by 530 basis points in the six months ended
May 2, 2009 as compared to the six months ended May 3, 2008, primarily as a
result of a decrease in sales of $311.9 million and reduced operating levels in
our manufacturing facilities that created adverse utilization variances. 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 May 2, 2009, the total compensation cost related to unvested awards not
yet recognized in our statement of income was approximately $130.2 million
(before tax consideration), which we will recognize 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 Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS
123R).
Research and Development
Three Months Ended Six Months Ended
May 2, 2009 May 3, 2008 May 2, 2009 May 3, 2008
R&D expenses $ 109,448 $ 134,653 $ 229,276 $ 264,192
R&D expenses as a % of revenue 23.1 % 20.7 % 24.1 % 20.9 %
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Research and development, or R&D, expenses decreased $25.2 million, or 19%, in
the second quarter of fiscal 2009 as compared to the second quarter of fiscal
2008, and decreased $34.9 million, or 13%, in the six months ended May 2, 2009
as compared to the six months ended May 3, 2008. These decreases were primarily
the result of the actions we took to constrain or permanently reduce operating
expenses as well as a result of a decrease in bonus expense, which is a variable
expense linked to our overall profitability.
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 Six Months Ended
May 2, 2009 May 3, 2008 May 2, 2009 May 3, 2008
SMG&A expenses $ 82,276 $ 104,183 $ 170,122 $ 204,534
SMG&A expenses as a % of revenue 17.3 % 16.0 % 17.9 % 16.2 %
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Selling, marketing, general and administrative, or SMG&A, expenses decreased $21.9 million, or 21%, in the second quarter of fiscal 2009 as compared to the second quarter of fiscal 2008, and decreased $34.4 million, or 17%, in the six months ended May 2, 2009 as compared to the same period of fiscal 2008. These decreases were primarily the result of lower bonus expense, which is a variable expense linked to our overall profitability, lower commission expenses, which are variable expenses linked to our sales, and as a result of our actions taken to constrain or permanently reduce operating 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 have
transitioned to our existing eight-inch production line in Limerick while others
have transitioned 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 May 2, 2009, we still
employed 9 of the 150 employees included in this action. Most of the production
in the six-inch wafer fabrication facility has ceased and the remaining
production is expected to cease during the second half of fiscal 2009, at which
time the employment of the remaining 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. 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
we 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. During the second 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 do not expect to incur any further charges related to
this action. 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
. . .
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