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| ADI > SEC Filings for ADI > Form 10-Q on 18-Aug-2009 | All Recent SEC Filings |
18-Aug-2009
Quarterly Report
Results of Operations
(all tabular amounts in thousands except per share amounts and percentages)
Overview
Three Months Ended Nine Months Ended
August 1, 2009 August 2, 2008 August 1, 2009 August 2, 2008
Revenue $ 491,991 $ 658,986 $ 1,443,308 $ 1,922,235
Gross margin % 54.1 % 61.0 % 55.2 % 61.1 %
Income from continuing operations, net of
tax $ 65,460 $ 129,195 $ 141,799 $ 380,935
Income from continuing operations, net of
tax as a % of revenue 13.3 % 19.6 % 9.8 % 19.8 %
Diluted EPS from continuing operations $ 0.22 $ 0.44 $ 0.49 $ 1.28
Diluted EPS $ 0.22 $ 0.47 $ 0.49 $ 2.15
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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 third quarter of fiscal 2009, our revenue decreased 25% from the third
quarter of fiscal 2008 and our diluted earnings per share from continuing
operations decreased by 50%. In the first nine months of fiscal 2009, our
revenue decreased 25% from the first nine months of fiscal 2008 and our diluted
earnings per share from continuing operations decreased by 62%. Cash flow from
operations in the first nine months of fiscal 2009 was $269.5 million, or 19% of
revenue. We received net proceeds of $370.4 million in the third quarter of
fiscal 2009 from the issuance of long-term debt and had $1,724.4 million of cash
and short-term investments as of August 1, 2009.
The global credit crisis and deteriorating economic conditions could continue to
result in cautious customer spending behavior. We cannot predict the severity,
duration or precise impact of the economic downturn on our future financial
results. Consequently, our reported results for the third 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
August 1, 2009 August 2, 2008
% of % of
Revenue Revenue Y/Y% Revenue Revenue
Industrial $ 252,135 51 % (29 )% $ 356,280 54 %
Communications 125,500 26 % (15 )% 147,894 22 %
Consumer 102,323 21 % (21 )% 129,784 20 %
Computer 12,033 2 % (52 )% 25,028 4 %
Total revenue $ 491,991 100 % (25 )% $ 658,986 100 %
Nine Months Ended Nine Months Ended
August 1, 2009 August 2, 2008
% of % of
Revenue Revenue Y/Y% Revenue Revenue
Industrial $ 753,271 52 % (28 )% $ 1,043,899 54 %
Communications 391,399 27 % (8 )% 427,143 22 %
Consumer 258,350 18 % (32 )% 380,291 20 %
Computer 40,288 3 % (43 )% 70,902 4 %
Total revenue $ 1,443,308 100 % (25 )% $ 1,922,235 100 %
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Industrial - The year-to-year decrease in both the three- and nine-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 and process controls 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 basestations and optical applications. The
year-to-year decrease in the nine-month period in communications end market
revenue was primarily the result of a decrease in sales of analog products used
in wireless handsets, optical and networking 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 nine-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 nine-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
August 1, 2009 August 2, 2008
% of % of
Revenue Revenue Y/Y% Revenue Revenue
Converters $ 239,100 49 % (21 %) $ 302,812 46 %
Amplifiers 119,897 24 % (30 %) 170,526 26 %
Other analog 65,211 13 % (19 %) 80,352 12 %
Subtotal analog signal processing 424,208 86 % (23 %) 553,690 84 %
Power management & reference 27,986 6 % (24 %) 36,674 6 %
Total analog products $ 452,194 92 % (23 %) $ 590,364 90 %
General purpose DSP 38,923 8 % (36 %) 60,521 9 %
Other DSP 874 0 % (89 %) 8,101 1 %
Total digital signal processing $ 39,797 8 % (42 %) $ 68,622 10 %
Total revenue $ 491,991 100 % (25 %) $ 658,986 100 %
Nine Months Ended Nine Months Ended
August 1, 2009 August 2, 2008
% of % of
Revenue Revenue Y/Y% Revenue Revenue*
Converters $ 694,856 48 % (21 %) $ 881,354 46 %
Amplifiers 373,646 26 % (25 %) 496,992 26 %
Other analog 170,304 12 % (30 %) 243,012 13 %
Subtotal analog signal processing 1,238,806 86 % (24 %) 1,621,358 84 %
Power management & reference 82,316 6 % (21 %) 104,789 5 %
Total analog products $ 1,321,122 92 % (23 %) $ 1,726,147 90 %
General purpose DSP 117,249 8 % (33 %) 173,921 9 %
Other DSP 4,937 0 % (78 %) 22,167 1 %
Total digital signal processing $ 122,186 8 % (38 %) $ 196,088 10 %
Total revenue $ 1,443,308 100 % (25 %) $ 1,922,235 100 %
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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 nine-month periods ended
August 1, 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
nine-month periods ended August 1, 2009 and August 2, 2008 was as follows:
Three Months Ended Nine Months Ended
Region August 1, 2009 August 2, 2008 August 1, 2009 August 2, 2008
United States $ 94,326 $ 131,168 $ 298,713 $ 393,921
Rest of North and South America 23,961 25,433 63,714 70,578
Europe 120,899 177,881 369,499 509,347
Japan 91,480 128,457 235,749 380,940
China 85,317 103,632 274,374 284,358
Rest of Asia 76,008 92,415 201,259 283,091
Total revenue $ 491,991 $ 658,986 $ 1,443,308 $ 1,922,235
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In the three- and nine-month periods ended August 1, 2009 the predominant
countries comprising "Rest of North and South America" are Canada and Mexico;
the predominant countries comprising "Europe" are Germany and Sweden; and the
predominant countries comprising "Rest of Asia" are Taiwan and Korea.
In the three- and nine-month periods ended August 2, 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 third quarter of fiscal 2009, as
compared to the third quarter of fiscal 2008, with sales in Europe experiencing
the largest decline. This decline in sales in Europe was partially attributable
to a decline in the automotive end market.
Sales declined in all geographic regions in the first nine months of fiscal
2009, as compared to the first nine months of fiscal 2008, with sales in Japan
experiencing the largest decline. This decline in sales in Japan was principally
attributable to the general decline in consumer spending attributable to the
global economic 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
China's recent infrastructure build-out of the country's next generation of
communication technology.
Gross Margin
Three Months Ended Nine Months Ended
August 1, 2009 August 2, 2008 August 1, 2009 August 2, 2008
Gross margin $ 266,229 $ 401,794 $ 796,783 $ 1,173,618
Gross margin % 54.1 % 61.0 % 55.2 % 61.1 %
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Gross margin percentage was lower by 690 basis points in the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008 primarily as a result of a decrease in sales of $167.0 million and reduced operating levels in our manufacturing facilities that created adverse utilization variances. Gross margin percentage was lower by 590 basis points in the nine months ended August 1, 2009 as compared to the nine months ended August 2, 2008, primarily as a result of a decrease in sales of $478.9 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 industrial and communications end markets, which earn relatively higher gross margins than our average margin, declined less than our revenues from the consumer and computer end markets.
Stock-Based Compensation Expense
As of August 1, 2009, the total compensation cost related to unvested awards not
yet recognized in our statement of income was approximately $116.9 million
(before tax consideration), which we will recognize 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 Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS
123R).
Research and Development
Three Months Ended Nine Months Ended
August 1, 2009 August 2, 2008 August 1, 2009 August 2, 2008
R&D expenses $ 107,578 $ 135,837 $ 336,854 $ 400,029
R&D expenses as a % of revenue 21.9 % 20.6 % 23.3 % 20.8 %
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Research and development, or R&D, expenses decreased $28.3 million, or 21%, in
the third quarter of fiscal 2009 as compared to the third quarter of fiscal
2008, and decreased $63.2 million, or 16%, in the nine months ended August 1,
2009 as compared to the nine months ended August 2, 2008. These decreases were
primarily the result of the actions we took to constrain or permanently reduce
operating expenses as well as 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 Nine Months Ended
August 1, 2009 August 2, 2008 August 1, 2009 August 2, 2008
SMG&A expenses $ 79,706 $ 104,767 $ 249,828 $ 309,301
SMG&A expenses as a % of revenue 16.2 % 15.9 % 17.3 % 16.1 %
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Selling, marketing, general and administrative, or SMG&A, expenses decreased
$25.1 million, or 24%, in the third quarter of fiscal 2009 as compared to the
third quarter of fiscal 2008, and decreased $59.5 million, or 19%, in the nine
months ended August 1, 2009 as compared to the same period of fiscal 2008. These
decreases were primarily the result of our actions taken to constrain or
permanently reduce operating expenses. In addition, we had lower bonus expense,
which is a variable expense linked to our overall profitability, and lower
commission expenses, which are variable expenses linked to our sales.
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 August 1, 2009, we
still employed 4 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 fourth quarter 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 annual savings of approximately $15 million. 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
. . .
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