ADI Analog Devices Inc

Analog Devices, Inc. (NASDAQ: ADI), a global leader in high-performance semiconductors for signal processing applications, today announced financial results for its second quarter of fiscal year 2012, which ended May 5, 2012.

“ADI produced solid results for the second quarter. Compared to the immediately prior quarter, revenue grew 4%, led by strong sales across a wide range of industrial applications, and also increased sales into communications infrastructure applications. Diluted EPS grew 15%, well ahead of revenue growth, as gross margin and operating income expanded by 200 and 320 basis points, respectively. Operating cash flow continued to be very strong at $226 million, or approximately 34% of sales,” said Jerald G. Fishman, President and CEO. “Order rates and backlog also grew compared to the prior quarter, which leads us to plan for continued sequential growth of revenue in the third quarter.”

ADI also announced that the Board of Directors has declared a cash dividend of $0.30 per outstanding share of common stock. The dividend will be paid on June 12, 2012 to all shareholders of record at the close of business on June 1, 2012.

Results for the Second Quarter of Fiscal 2012

• Revenue totaled $675 million
• Gross margin was 65.2% of revenue
• Operating margin was 31.5% of revenue
• Diluted EPS was $0.53
• Cash flow from operations was $226 million, or 33.5% of revenue

Please refer to the schedules provided for a summary of revenue and earnings, selected balance sheet information, and the cash flow statement for the second quarter of fiscal year 2012, as well as the immediately prior and year-ago quarters. Additional information on revenue by end market and revenue by product type is provided on Schedules D and E. A more complete table covering prior periods is available at investor.analog.com.

Outlook for the Third Quarter of Fiscal 2012

• Revenue estimated to increase sequentially by approximately 1% to 4%
• Gross margin estimated to increase sequentially by approximately 50 basis points
• Operating expenses estimated to be approximately $231 million
• Diluted EPS estimated at $0.54 to $0.58

Conference Call Scheduled for 5:00 pm ET

ADI will host a conference call to discuss the second quarter results and short-term outlook today, beginning at 5:00 pm ET. Investors may join via webcast, accessible at investor.analog.com, or by telephone (call 706-634-7193 ten minutes before the call begins and provide the password "ADI.")

A replay will be available almost immediately after the call. The replay may be accessed for up to one week by dialing 855-859-2056 (replay only) and providing the conference ID: 79449854, or by visiting investor.analog.com.

Non-GAAP Financial Information for Fiscal Year 2011 Second Quarter

This release includes non-GAAP financial measures that are not in accordance with, nor an alternative to, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.

Schedule F of this press release provides the reconciliation of the Company’s non-GAAP measures to its GAAP measures.

Manner in Which Management Uses the Non-GAAP Financial Measures

Management uses non-GAAP diluted earnings per share to evaluate the Company’s operating performance from continuing operations against past periods and to budget and allocate resources in future periods. These non-GAAP measures also assist management in understanding and evaluating the Company’s operating results and trends in the Company’s business.

Economic Substance Behind Management’s Decision to Use Non-GAAP Financial Measures

The items excluded from the non-GAAP measures were excluded because they are of a non-recurring or non-cash nature.

The following item is excluded from our non-GAAP diluted earnings per share:

Tax-Related Item. In the second quarter of fiscal year 2011, we recorded a one-time $10.8 million tax benefit for a settlement with the Internal Revenue Service related to certain tax matters for the fiscal 2004 through fiscal 2007 tax years. We excluded this tax-related item from our non-GAAP measures because it is not associated with the tax expense on our current operating results.

Why Management Believes the Non-GAAP Financial Measures Provide Useful Information to Investors

Management believes that the presentation of non-GAAP diluted EPS is useful to investors because it provides investors with the operating results that management uses to manage the Company.

Material Limitations Associated with Use of the Non-GAAP Financial Measures

Analog Devices believes that non-GAAP diluted EPS has material limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. In addition, our non-GAAP measures may not be comparable to the non-GAAP measures reported by other companies. The Company’s use of non-GAAP measures, and the underlying methodology when excluding certain items, is not necessarily an indication of the results of operations that may be expected in the future, or that the Company will not, in fact, record such items in future periods.

Management’s Compensation for Limitations of Non-GAAP Financial Measures

Management compensates for these material limitations in non-GAAP diluted EPS by also evaluating our GAAP results and the reconciliations of our non-GAAP measures to the most directly comparable GAAP measures. Investors should consider our non-GAAP financial measures in conjunction with the corresponding GAAP measures.

About Analog Devices

Innovation, performance, and excellence are the cultural pillars on which Analog Devices has built one of the longest standing, highest growth companies within the technology sector. Acknowledged industry-wide as the world leader in data conversion and signal conditioning technology, Analog Devices serves over 60,000 customers, representing virtually all types of electronic equipment. Analog Devices is headquartered in Norwood, Massachusetts, with design and manufacturing facilities throughout the world. Analog Devices' common stock is included in the S&P 500 Index.

This release may be deemed to contain forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, our statements regarding expected revenue, earnings per share, operating expenses, gross margin, and other financial results, expected market trends, and expected customer demand and order rates for our products, that are based on our current expectations, beliefs, assumptions, estimates, forecasts, and projections about our business and the industry and markets in which Analog Devices operates. The statements contained in this release are not guarantees of future performance, are inherently uncertain, involve certain risks, uncertainties, and assumptions that are difficult to predict, and do not give effect to the potential impact of any mergers, acquisitions, divestitures, or business combinations that may be announced or closed after the date hereof. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements, and such statements should not be relied upon as representing Analog Devices’ expectations or beliefs as of any date subsequent to the date of this press release. We do not undertake any obligation to update forward-looking statements made by us. Important factors that may affect future operating results include: sovereign debt issues globally, any faltering in global economic conditions or the stability of credit and financial markets, erosion of consumer confidence and declines in customer spending, unavailability of raw materials, services, supplies or manufacturing capacity, changes in geographic, product or customer mix, adverse results in litigation matters, and other risk factors described in our most recent filings with the Securities and Exchange Commission. Our results of operations for the periods presented in this release are not necessarily indicative of our operating results for any future periods. Any projections in this release are based on limited information currently available to Analog Devices, which is subject to change. Although any such projections and the factors influencing them will likely change, we will not necessarily update the information, as we will only provide guidance at certain points during the year. Such information speaks only as of the original issuance date of this release.

Analog Devices and the Analog Devices logo are registered trademarks or trademarks of Analog Devices, Inc. All other trademarks mentioned in this document are the property of their respective owners.

  Analog Devices, Second Quarter, Fiscal 2012  

Schedule A

Revenue and Earnings Summary (GAAP) (In thousands, except per-share amounts)               Three Months Ended 2Q 12   1Q 12   2Q 11    

May 5,2012

 

Feb. 4,2012

 

April 30,2011

Revenue $ 675,094 $ 648,058 $ 790,780 Year-to-year change -15% -11% 18% Quarter-to-quarter change 4% -10% 9% Cost of sales (1)     234,639     238,668     256,566 Gross margin 440,455 409,390 534,214 Gross margin percentage 65.2% 63.2% 67.6% Year-to-year change (basis points) -240 -300 260

Quarter-to-quarter change (basis points)

    200     -110     140 Operating expenses: R&D (1) 127,537 124,378 130,460 Selling, marketing and G&A (1) 99,992 99,045 105,268 Special charges     -     2,595     - Total operating expenses 227,529 226,018 235,728 Total operating expenses percentage 33.7% 34.9% 29.8% Year-to-year change (basis points) 390 430 -320 Quarter-to-quarter change (basis points)     -120     350     -80 Operating income 212,926 183,372 298,486 Operating income percentage 31.5% 28.3% 37.7% Year-to-year change (basis points) -620 -730 570 Quarter-to-quarter change (basis points)     320     -460     210 Other expense     1,472     3,286     1,730 Income before income tax 211,454 180,086 296,756 Provision for income taxes 48,555 40,704 54,930 Tax rate percentage     23.0%     22.6%     18.5% Net income     162,899     139,382     241,826   Shares used for EPS - basic 298,130 297,788 299,923 Shares used for EPS - diluted 305,921 305,531 309,619   Earnings per share - basic $ 0.55 $ 0.47 $ 0.81 Earnings per share - diluted $ 0.53 $ 0.46 $ 0.78   Dividends paid per share   $ 0.30   $ 0.25   $ 0.22   (1) Includes stock-based compensation expense as follows: Cost of sales $ 1,671 $ 1,807 $ 1,900 R&D $ 5,162 $ 5,885 $ 5,794 Selling, marketing and G&A $ 5,267 $ 5,640 $ 5,199     Analog Devices, Second Quarter, Fiscal 2012  

Schedule B

Selected Balance Sheet Information (GAAP) (In thousands)     2Q 12   1Q 12   2Q 11    

May 5,2012

 

Feb. 4,2012

 

April 30,2011

Cash & short-term investments $ 3,752,625 $ 3,667,398 $ 3,431,365 Accounts receivable, net 330,282 301,999 414,579 Inventories (1) 303,742 297,160 293,780 Other current assets     135,880     128,611     153,014 Total current assets 4,522,529 4,395,168 4,292,738 PP&E, net 478,959 475,689 473,662 Investments 30,209 30,954 29,475 Goodwill and intangible assets 309,092 286,339 261,283 Other     71,701     89,684     103,241 Total assets   $ 5,412,490   $ 5,277,834   $ 5,160,399   Deferred income on shipments to distributors, net $ 244,150 $ 227,261 $ 269,530 Other current liabilities 314,424 270,794 318,628 Long-term debt, non-current 847,983 855,662 892,432 Non-current liabilities 80,793 81,682 97,811 Shareholders' equity     3,925,140     3,842,435     3,581,998 Total liabilities & equity   $ 5,412,490   $ 5,277,834   $ 5,160,399  

(1) Includes $2,318, $2,428 and $2,432 related to stock-based compensation in 2Q12, 1Q12 and 2Q11, respectively.

 

  Analog Devices, Second Quarter, Fiscal 2012  

Schedule C

Cash Flow Statement (GAAP) (In thousands)               Three Months Ended 2Q 12   1Q 12   2Q 11

May 5,2012

 

Feb. 4,2012

 

April 30,2011

Cash flows from operating activities: Net Income $ 162,899 $ 139,382 $ 241,826 Adjustments to reconcile net income to net cash provided by operations: Depreciation 26,871 28,243 29,466 Amortization of intangibles 18 - 340 Stock-based compensation expense 12,100 13,332 12,893 Gain on sale of investments (1,231 ) - - Excess tax benefit - stock options (2,602 ) (1,896 ) (32,407 ) Other non-cash activity (981 ) 591 537 Deferred income taxes (7,762 ) 3,623 (9,334 ) Changes in operating assets and liabilities     36,657       31,545       (46,683 ) Total adjustments     63,070       75,438       (45,188 ) Net cash provided by operating activities     225,969       214,820       196,638   Percent of total revenue     33.5 %     33.1 %     24.9 %   Cash flows from investing activities: Additions to property, plant and equipment (30,137 ) (25,289 ) (34,141 ) Proceeds related to sale of investments 1,506 - - Payments for acquisitions, net of cash acquired (24,158 ) - - Purchases of short-term available-for-sale investments (2,235,601 ) (2,192,874 ) (994,618 ) Maturities of short-term available-for-sale investments 1,635,795 1,659,792 828,800 Sales of short-term available-for-sale investments 109,734 151,841 19,966 (Increase) decrease in other assets     (1,650 )     327       (4,044 ) Net cash used for investing activities     (544,511 )     (406,203 )     (184,037 )   Cash flows from financing activities: Proceeds from long-term debt - - 370,507 Term loan repayments (3,625 ) (15,625 ) (3,625 ) Early termination of swap agreements 18,520 - - Dividend payments to shareholders (89,402 ) (74,416 ) (65,999 ) Repurchase of common stock (44,017 ) (78,380 ) (67,552 ) Net proceeds from employee stock plans 38,752 48,647 46,112 Contingent consideration payment - (1,991 ) - (Decrease) increase in other financing activities (7,155 ) 5,166 (1,801 ) Excess tax benefit - stock options     2,602       1,896       32,407   Net cash (used for) provided by financing activities     (84,325 )     (114,703 )     310,049   Effect of exchange rate changes on cash     491       (1,572 )     1,790     Net (decrease) increase in cash and cash equivalents (402,376 ) (307,658 ) 324,440 Cash and cash equivalents at beginning of period     1,097,442       1,405,100       1,570,321   Cash and cash equivalents at end of period   $ 695,066     $ 1,097,442     $ 1,894,761    

Analog Devices, Second Quarter, Fiscal 2012

Schedule DRevenue 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

May 5,2012

   

Feb. 4,2012

 

April 30,2011

Revenue   %   Q/Q %   Y/Y % Revenue Revenue Industrial $ 323,441   48%   12%   -16% $ 288,673 $ 386,697 Automotive 118,009 17% -2% 10% 120,497 107,171 Consumer 107,994 16% -8% -20% 116,885 135,256 Communications   125,650   19% 3% -22%   122,003   161,656 Total Revenue $ 675,094   100% 4% -15% $ 648,058 $ 790,780  

Analog Devices, Second Quarter, Fiscal 2012

Schedule ERevenue Trends by Product Type

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

May 5,2012

   

Feb. 4,2012

 

April 30,2011

Revenue   %   Q/Q %   Y/Y % Revenue Revenue Converters $ 300,040   44%   5%   -14% $ 285,133 $ 350,187 Amplifiers / Radio Frequency 177,813 26% 8% -17% 164,456 213,140 Other analog   90,790   13% -6% -18%   96,238   111,037 Subtotal Analog Signal Processing   568,643   84% 4% -16%   545,827   674,364 Power management & reference   46,060   7% 3% -18%   44,865   56,125 Total Analog Products $ 614,703   91% 4% -16% $ 590,692 $ 730,489 Digital Signal Processing   60,391   9% 5% 0%   57,366   60,291 Total Revenue $ 675,094   100% 4% -15% $ 648,058 $ 790,780     Analog Devices, Second Quarter, Fiscal 2012  

Schedule F

Reconciliation from Non-GAAP to GAAP Data (In thousands, except per-share amounts)       See "Non-GAAP Financial Information" in this press release for a description of the items excluded from our non-GAAP measures.           Three Months Ended 2Q 12 1Q 12 2Q 11

May 5,2012

Feb. 4,2012

April 30,2011

  GAAP Diluted EPS $ 0.53 $ 0.46 $ 0.78 IRS Tax Settlement $ - $ - $ (0.035 ) Non-GAAP Diluted EPS (1) $ 0.53 $ 0.46 $ 0.75     (1) The sum of the individual per share amounts may not equal the total due to rounding.