Analog Devices Announces Financial Results for the Second Quarter of Fiscal Year 2007

NORWOOD, Mass.—(BUSINESS WIRE)—May 22, 2007— Analog Devices, Inc. (NYSE: ADI), a global leader in high-performance semiconductors for signal processing applications, today announced financial results for the second quarter of fiscal 2007, which ended May 5, 2007.

Revenue for the second quarter of fiscal 2007 increased to $669 million, an increase of approximately 4% compared to the same period one year ago. Compared to the immediately prior quarter's product revenue of $657 million, revenue in the second quarter of fiscal year 2007 increased approximately 2%.

" ADI had a very good second quarter as the strong demand we began to see in January continued through the quarter," said Jerald G. Fishman, President and CEO. "Our results were particularly strong considering that the second quarter of fiscal 2007 had one less week than the immediately prior quarter. On a normalized 13-week basis, order rates from end customers and revenue both grew sequentially by 10%." (ADI follows a 52-week, or 364-day, fiscal calendar which results in a 14-week quarter approximately every seventh year, as occurred in the immediately prior quarter.)

Net income for the second quarter of fiscal 2007, under generally accepted accounting principles (GAAP), was $125 million, or 19% of revenue, compared to $146 million for the same period one year ago and $153 million for the immediately prior quarter.

The results for the second quarter of fiscal 2007 include the following items:

-- $17.4 million of non-cash stock-based compensation expenses related to employee stock options, or $0.037 on a diluted earnings per share (EPS) basis.

-- $10.1 million of expenses related to restructuring actions, or $0.019 on a diluted EPS basis. Approximately $6.7 million of this amount related to the final shutdown of the Company's wafer fabrication facility in California.

-- $2.9 million of expenses related to previously announced acquisitions, or $0.006 on a diluted EPS basis.

-- $19 million received in the settlement of litigation against Maxim Integrated Products regarding misappropriation of ADI's intellectual property rights, or $0.036 on a diluted EPS basis. Of this amount, $8.5 million was for the reimbursement of legal expenses included in general and administrative expenses and the remaining $10.5 million of the settlement was included in non-operating income. None of these amounts were included in revenue.

-- The provision for taxes includes the tax effect of these items.

Together these items represented the $0.03 difference between GAAP diluted EPS of $0.37 and non-GAAP diluted EPS of $0.40. The reconciliation of the non-GAAP financial measures presented in this release to their most directly comparable GAAP measures is provided in a table below.

Diluted earnings per share (EPS) for the second quarter of fiscal 2007, on a GAAP basis, was $0.37, compared to $0.39 for the same period one year ago and $0.44 for the immediately prior quarter. Non-GAAP diluted EPS for the second quarter of fiscal 2007 was $0.40, compared to $0.41 for the same period one year ago and $0.40 for the immediately prior quarter.

The Board of Directors declared a cash dividend for the second quarter of fiscal 2007 of $0.18 per outstanding share of common stock. The dividend will be paid on June 20, 2007 to all shareholders of record at the close of business on June 1, 2007.

Gross margin for the second quarter of fiscal 2007, on a GAAP basis, was $382 million or 57% of sales. In the second quarter of fiscal 2007, gross margin was reduced by $4.8 million, or 0.8% of sales, as a result of stock-based compensation expense and acquisition-related expense. Gross margin declined compared to the immediately prior quarter primarily as a result of higher sales of products used in consumer electronics and cellular handsets, which generally carry slightly lower gross margins than the Company average. Gross margin was also adversely impacted by the Company's decision to continue constraining utilization levels within internal manufacturing facilities to better balance production, demand, and inventory levels. As a result, inventory declined 1% in the second quarter of fiscal 2007 compared to the immediately prior quarter.

Operating profit for the second quarter of fiscal 2007, on a GAAP basis, totaled $132 million, or 19.7% of sales. In the second quarter of fiscal 2007, operating profit was reduced by $21.9 million, or 3.3% of sales, as a result of stock-based compensation expense, restructuring and acquisition-related expenses, partially offset by the reimbursement of legal expenses from the litigation settlement described above.

Net cash provided by operating activities in the second quarter of fiscal 2007 totaled $239 million, or 35.7% of revenue, compared to $205 million, or 31.9% of revenue, in the same period one year ago and compared to $208 million, or 30.1% of total revenue, in the immediately prior quarter.

-- Capital expenditures for the second quarter of fiscal year 2007 totaled $39.7 million.

-- Cash dividends paid during the second quarter of fiscal 2007 totaled $59.6 million.

-- Share repurchases during the second quarter of fiscal 2007 of approximately 10.3 million shares of ADI common stock (approximately 3% of total shares outstanding) totaled $365 million.

-- As of the end of the second quarter of fiscal 2007, the total shares repurchased under the program authorized by the Board of Directors totaled approximately $2.4 billion and represented approximately 19% of the shares outstanding as of the beginning of fiscal year 2004.

-- The share repurchase program had approximately $615 million remaining at the end of the second quarter of 2007.

Balance Sheet

-- Cash and short-term investments at the end of the second quarter of fiscal 2007 totaled approximately $1.8 billion.

-- Inventory at the end of the second quarter of fiscal 2007 decreased 1% compared to the immediately prior quarter. Days cost of sales in inventory was 121 days at the end of the second quarter of fiscal 2007.

-- Accounts receivable at the end of the second quarter of fiscal 2007 decreased 4% compared to accounts receivable at the end of the immediately prior quarter. Days sales in accounts receivable was 45 days in the second quarter of fiscal 2007.

The tables, "Revenue Trends By End Market" and "Revenue Trends By Product," provided below, summarize revenue by end market and by product for the second quarter, immediately prior quarter and year-ago quarter.

Outlook for the Third Quarter of Fiscal 2007

The following statements are based on current expectations. These statements are forward looking and actual results may differ materially. These statements supersede all prior statements regarding business outlook set forth in prior ADI news releases.

-- Revenue for the third quarter of fiscal 2007 is planned to be in the range of $655 to $685 million.

-- Gross margin for the third quarter of fiscal 2007 is planned to be approximately the same as the second quarter, primarily as a result of the plan to continue constraining manufacturing utilization levels within ADI factories. Manufacturing utilization is planned to begin increasing in the fourth quarter of fiscal 2007.

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