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Analog Devices Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 21, 2012 05:23PM
Analog Devices Inc. (ADI) filed Quarterly Report for the period ended 2012-08-04.
Highlight of Business Operations:During the first nine months of fiscal 2012, our revenue decreased 12%, compared to the first nine months of fiscal 2011. Our diluted earnings per share from continuing operations decreased to $1.54 in the first nine months of fiscal 2012 compared to $2.19 in the first nine months of fiscal 2011. Cash flow from operations in the first nine months of fiscal 2012 was $578.5 million, or 29% of revenue. During the first nine months of fiscal 2012, we received $110.7 million in net proceeds from employee stock option exercises, repurchased a total of approximately 3.7 million shares of our common stock for an aggregate of $139.7 million, distributed $253.3 million to our shareholders in dividend payments, paid $22.9 million in principal payments related to our $145.0 million term loan facility, paid $94.7 million for property, plant and equipment additions and paid $24.2 million, net of cash acquired, for the acquisition of Multigig. In addition, we paid $1,115.0 million for the net purchase of available-for-sale short term investments. These factors contributed to the net decrease in cash and cash equivalents of $943.0 million in the first nine months of fiscal 2012.
The year-over-year decrease in operating income from continuing operations in the nine months ended August 4, 2012 was primarily the result of a decrease in revenue of $271.0 million, a 230 basis point decrease in gross margin percentage and $8.4 million in special charges recorded in the first nine months of fiscal 2012 as more fully described above under the heading Special Charges—Reduction of Operating Costs. These reductions in operating income from continuing operations were partially offset by a decrease in SMG&A expenses as more fully described above under the heading Selling, Marketing, General and Administrative.
Inventory as of August 4, 2012 increased as compared to the end of the fourth quarter of fiscal 2011 as a result of an increase in manufacturing production to support anticipated higher sales demand. Days cost of sales in inventory increased primarily due to lower manufacturing costs which resulted in cost of sales decreasing 8% from the fourth quarter of fiscal 2011 to the third quarter of fiscal 2012 while inventory levels increased by 6% for the same period.
As of August 4, 2012 and October 29, 2011, we had gross deferred revenue of $312.0 million and $309.6 million, respectively, and gross deferred cost of sales of $65.3 million and $76.4 million, respectively. Deferred income on shipments to distributors increased in the first nine months of fiscal 2012 as a result of our shipments to our distributors exceeding the distributors sales to their customers during the same time period and a mix shift in favor of higher margin products in the channel. Sales to distributors are made under agreements that allow distributors to receive price-adjustment credits and to return qualifying products for credit, as determined by us, in order to reduce the amounts of slow-moving, discontinued or obsolete product from their inventory. Given the uncertainties associated with the levels of price-adjustment credits to be granted to distributors, the sales price to the distributors is not fixed or determinable until the distributors resell the products to their customers. Therefore, we defer revenue recognition from sales to distributors until the distributors have sold the products
On June 30, 2009, we issued $375.0 million million aggregate principal amount of 5.0% senior unsecured notes due July 1, 2014 (the 5.0% Notes) with semi-annual fixed interest payments due on January 1 and July 1 of each year, commencing January 1, 2010. We swapped the fixed interest portion of these notes for a variable interest rate based on the three-month LIBOR plus 2.05%. The variable interest payments based on the variable annual rate are payable quarterly. The LIBOR based rate is set quarterly three months prior to the date of the interest payment. In the second quarter of fiscal 2012, we terminated the interest rate swap agreement. We received $19.8 million in cash proceeds from the swap termination, which included $1.3 million in accrued interest. The proceeds, net of interest received, are disclosed in cash flows from financing activities in the consolidated statements of cash flows. As a result of the termination, the carrying value of the 5.0% Notes was adjusted for the change in fair value of the interest component of the debt up to the date of the termination of the swap in an amount equal to the fair value of the swap, and will be amortized to earnings as a reduction of interest expense over the remaining life of the debt. This amortization is reflected in the consolidated statements of cash flows within operating activities.