01—Abstract
Summary
Summary of the 10-K filed November 30, 2007. Cited figures are marked; the original filing is the authoritative source.
Analog Devices (ADI) closed fiscal 2007 (53 weeks ended November 3, 2007) with continuing-operations revenue of $2.546 billiona, up about 8.7% from $2.343 billion in fiscal 2006, and gross margin of 59.7%, roughly flat with 59.9% a year earlier.
Operating income from continuing operations rose 8% to $566 millionb, but net income from continuing operations fell about 3% to $500.7 million, mainly because interest income dropped with lower invested cash and the effective tax rate rose to 24.0% from 18.5%. Diluted EPS from continuing operations was $1.51, versus $1.39 in fiscal 2006. Reported diluted EPS including discontinued operations was $1.50.
The filing shows a company that returned heavy capital to shareholders and reshaped its portfolio. ADI repurchased about 45.9 million shares for $1.647 billionc and paid $228 million in dividends, which cut cash and short-term investments to $1.081 billion from $2.13 billion a year earlier and reduced total assets to $2.97 billion from $3.99 billion. Growth came from consumer (up 23%, driven by video games and digital TV) and automotive-related industrial products, while computer products fell 17% as management deliberately de-emphasized desktop and laptop power management.
Management also announced two divestitures expected to close in the first quarter of fiscal 2008: the Baseband Chipset Business, sold to MediaTek for roughly $350 milliond and expected to yield an after-tax gain of $150-160 million, and the CPU voltage regulation and PC thermal monitoring business, sold to ON Semiconductor for about $185 million with an expected after-tax gain of $52-60 million. Together these are expected to generate $250-270 million of cash. Risks flagged in the filing include semiconductor cyclicality, heavy dependence on TSMC for wafer supply, and about 74% of product revenue from international customers.
Legal matters include a tentative SEC settlement over historical stock option grant practices (a $3 million civil penalty for the company), a U.S. Attorney subpoena on the same subject, a pending Investment Partnership Plan ERISA class action, and a patent suit against Linear Technology with trial set for October 2008. Management said it does not expect these matters to have a material adverse effect on financial position. Guidance for Q1 fiscal 2008 is product sales of $610-635 million and diluted EPS of $0.38-0.42 from continuing operations.
02—Key points
Key Highlights
- Fiscal 2007 total revenue from continuing operations rose 8.7% to $2.546 billion, with gross margin steady at 59.7% (vs. 59.9%).
- Operating income from continuing operations increased 8% to $566.2 million, but net income from continuing operations declined about 3% to $500.7 million as interest income fell and the tax rate rose to 24.0%.
- Consumer (+23%) and industrial (+7%, led by automotive) drove growth; computer end-market revenue fell 17% after a deliberate de-emphasis of PC power management products.
- ADI returned substantial capital in fiscal 2007: $1.647 billion in share repurchases and $228 million in dividends, with $665 million of authorization remaining; quarterly dividend raised to $0.18.
- Cash and short-term investments fell to $1.08 billion from $2.13 billion, and total assets fell to $2.97 billion from $3.99 billion, reflecting the buybacks.
- Pending divestitures of the Baseband Chipset Business (to MediaTek) and the CPU voltage regulation/PC thermal business (to ON Semiconductor) are expected to add $250-270 million in cash and after-tax gains of roughly $200-220 million combined in Q1 fiscal 2008.
- Q1 fiscal 2008 guidance calls for product sales of $610-635 million and diluted EPS of $0.38-0.42 from continuing operations; the SEC stock option settlement and Linear Technology patent litigation remain open items.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Analog Devices kept $0.20.
- Revenue$2.43B100.0%
- Cost of revenue−$921.4M37.9%
- Gross profit$1.51B62.1%
- Operating costs−$939.6M38.7%
- Operating income$568.7M23.4%
- Interest, other & tax−$71.8M3.0%
- Net income$496.9M20.5%
Where FY2007 revenue went
$2.43B- Cost of revenue: $956.4M, 39% of revenue
- R&D: $509.6M, 21% of revenue
- Net income: $496.9M, 20% of revenue
- SG&A: $389.5M, 16% of revenue
- Interest, other & tax: $71.8M, 3.0% of revenue
Kept 20% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed November 30, 2007Financial Statements
| Revenue | $2.43B |
| Cost of Revenue | $956.45M |
| Gross Profit | $1.51B |
| R&D Expenses | $509.55M |
| SG&A Expenses | $389.50M |
| Operating Expenses | $939.55M |
| Operating Income | $568.72M |
| Interest Expense | $0 |
| Net Income | $496.91M |
| EPS (Basic) | $1.54 |
| EPS (Diluted) | $1.50 |
| Shares Outstanding (Basic) | 323.25M |
| Shares Outstanding (Diluted) | 332.30M |
05—Questions
Frequently Asked Questions
How did ADI perform financially in fiscal 2007?
Revenue from continuing operations grew 8.7% to $2.546 billion and operating income grew 8% to $566 million. Net income from continuing operations was $500.7 million, about 3% lower than in fiscal 2006, because of lower interest income and a higher effective tax rate. Diluted EPS from continuing operations was $1.51, up from $1.39, helped by a lower share count after buybacks. Fiscal 2007 was a 53-week year, which added some revenue.
What are the main drivers of growth and weakness by end market?
Industrial revenue rose 7% to $1.18 billion (47% of product revenue), led by automotive, and consumer rose 23% to $544 million, driven by video game, digital TV and digital home applications. Communications grew 7%. Computer revenue fell 17% to $236 million because management chose to de-emphasize desktop and laptop power management products, and sales of power management and reference products declined 6%.
What did ADI do with its cash, and how much is left?
ADI generated $820 million in operating cash flow and spent $1.647 billion repurchasing about 45.9 million shares, $228 million on dividends and $142 million on capital expenditures. Cash and short-term investments ended at $1.08 billion, down $1.05 billion from the prior year. About $665 million remains under the repurchase authorization, and management plans to continue buying back shares in fiscal 2008, with about $151 million repurchased from year-end through November 26, 2007.
What are the pending divestitures, and what will they mean for investors?
ADI agreed to sell its Baseband Chipset Business to MediaTek for about $350 million in cash, with an expected after-tax gain of $150-160 million. It also agreed to sell its CPU voltage regulation and PC thermal monitoring business to ON Semiconductor for about $185 million, with an expected after-tax gain of $52-60 million. Both are expected to close in Q1 fiscal 2008 and will be reported as discontinued operations, so reported fiscal 2008 earnings will include those gains, while the continuing business will be smaller, with Q1 product sales guided to $610-635 million.
What are the principal legal and business risks disclosed?
The company disclosed a tentative settlement with the SEC over historical stock option grant practices, involving a $3 million civil penalty for ADI and a $1 million penalty for CEO Jerald Fishman, with no restatement required. A U.S. Attorney subpoena on the same subject and an ERISA class action over the Investment Partnership Plan are pending. A patent suit against Linear Technology is scheduled for trial in October 2008. Operationally, ADI relies heavily on TSMC for wafers, about 74% of product revenue comes from outside the U.S., and semiconductor cyclicality could affect results. Management does not expect the legal matters to have a material adverse effect on financial position.
06—Continue