Analog Devices Inc. Reports Operating Results (10-K)

Analog Devices Inc. (NASDAQ:ADI) filed Annual Report for the period ended 2012-11-03.

Analog Devices Inc has a market cap of $12.18 billion; its shares were traded at around $40.4 with a P/E ratio of 19 and P/S ratio of 4.1. The dividend yield of Analog Devices Inc stocks is 3%. Analog Devices Inc had an annual average earning growth of 13.6% over the past 10 years. GuruFocus rated Analog Devices Inc the business predictability rank of 4-star.

Highlight of Business Operations:

During fiscal 2012, our revenue decreased 10% compared to fiscal 2011. Our diluted earnings per share from continuing operations decreased to $2.13 in fiscal 2012 from $2.79 in fiscal 2011. Cash flow from operations in fiscal 2012 was $814.5 million, or 30.2% of revenue. During fiscal 2012, we received $191.2 million in net proceeds from employee stock option exercises, repurchased a total of approximately 4.2 million shares of our common stock for an aggregate of $160.5 million, distributed $344.7 million to our shareholders in dividend payments, paid $56.5 million in principal payments related to our $145.0 million term loan facility, paid $132.2 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 $1,183.5 million for the net purchase of short term available-for-sale investments. These factors contributed to the net decrease in cash and cash equivalents of $876.3 million in fiscal 2012.

In fiscal 2012, we acquired privately-held Multigig, Inc. (Multigig) of San Jose, California. The acquisition of Multigig is expected to enhance our clocking capabilities in stand-alone and embedded applications and strengthen our high speed signal processing solutions. The acquisition-date fair value of the consideration transferred totaled $26.8 million, which consisted of $24.2 million in initial cash payments at closing and an additional $2.6 million subject to an indemnification holdback that is payable within 15 months of the transaction date, which is included in accrued liabilities in the consolidated balance sheet as of November 3, 2012. Our assessment of fair value of the tangible and intangible assets acquired and liabilities assumed was based on their estimated fair values at the date of acquisition, resulting in the recognition of $15.6 million of in-process research and development (IPR&D), $1.1 million of developed technology, $7.0 million of goodwill and $3.1 million of net deferred tax assets. During the third quarter of fiscal 2012, we reduced the indemnification holdback amount by $0.1 million as a result of indemnification claims. During the fourth quarter of fiscal 2012, we finalized our purchase accounting for Multigig which resulted in adjustments of $0.4 million to deferred taxes and goodwill. In addition, we will be obligated to pay royalties to the Multigig employees on revenue recognized from the sale of certain Multigig products through the earlier of 5 years or the aggregate maximum payment of $1.0 million. Royalty payments to Multigig employees require post-acquisition services to be rendered and, as such, we will record these amounts as compensation expense in the related periods. As of November 3, 2012, no royalty payments have been made. We recognized $0.5 million of acquisition-related costs that were expensed in the second quarter of fiscal 2012, which were included in operating expenses in the consolidated statement of income.

Inventory as of November 3, 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 2% from the fourth quarter of fiscal 2011 to the fourth quarter of fiscal 2012. In addition, inventory levels increased by 6% for the same period.

As of November 3, 2012 and October 29, 2011, we had gross deferred revenue of $299.0 million and $309.6 million, respectively, and gross deferred cost of sales of $60.5 million and $76.4 million, respectively. Deferred income on shipments to distributors increased in fiscal 2012 primarily as a result of 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 to their customers. The amount of price-adjustments is dependent on future overall market conditions, and therefore the levels of these adjustments could fluctuate significantly from period to period. To the extent that we experience a significant increase in the amount of credits we issue to our distributors, there could be a material impact on the ultimate revenue and gross margin recognized relating to these transactions.

On June 30, 2009, we issued $375.0 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 were payable quarterly. The LIBOR based rate was 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.

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