Market Overview

Analog Devices Reports Fourth Quarter and Fiscal Year 2017 Results

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Analog
Devices, Inc.
(Nasdaq: ADI),
today announced financial results for its fourth quarter and fiscal year
2017, which ended October 28, 2017.

"The fourth quarter of 2017 drove a strong finish to the fiscal year,
with high-quality revenue growth and operational execution that expanded
gross and operating margins, and delivered stellar earnings per share
growth," said Vincent Roche, President and CEO.

"Looking ahead to the seasonally-slower first quarter of fiscal 2018, we
are planning for revenue to be in the range of $1.44 billion to $1.54
billion, which includes the benefit of a 14th week in the
quarter. At the mid-point of this guidance range, we expect revenue to
increase year-over-year, led by the highly diverse industrial market."

ADI also announced that the Board of Directors has declared a quarterly
cash dividend of $0.45 per outstanding share of common stock,
representing an annual dividend per share of $1.80. The dividend will be
paid on December 12, 2017 to all shareholders of record at the close of
business on December 1, 2017.

Supplemental schedules relating to our fourth quarter fiscal 2017
financial results are also available on our investor site at investor.analog.com.

Results for the Fourth Quarter of Fiscal Year
2017

  • Revenue totaled $1.54 billion, up 8% sequentially and up 54%
    year-over-year on a GAAP basis and up 6% sequentially on a non-GAAP
    basis
  • GAAP gross margin of 65.3% of revenue; Non-GAAP gross margin of 70.9%
    of revenue
  • GAAP operating margin of 29.1% of revenue; Non-GAAP operating margin
    of 42.6% of revenue
  • GAAP diluted EPS of $0.93; Non-GAAP diluted EPS of $1.45

Results for the Fiscal Year 2017

  • GAAP Revenue totaled $5.1 billion, up 49% year-over-year, and non-GAAP
    revenue totaled $5.2 billion, up 52% year-over-year
  • GAAP gross margin of 59.9% of revenue; Non-GAAP gross margin of 69.5%
    of revenue
  • GAAP operating margin of 20.7% of revenue; Non-GAAP operating margin
    of 39.5% of revenue
  • GAAP diluted EPS of $2.07; Non-GAAP diluted EPS of $4.72

Please refer to the schedules provided for a summary of revenue and
earnings, selected balance sheet information, and the cash flow
statement for the fourth quarter and full year of fiscal 2017, as well
as the immediately prior and year-ago quarters and year. Additional
information on revenue by end market is provided on Schedule D.

Outlook for the 14-week First Quarter of Fiscal
Year 2018

The following statements are based on
current expectations, and as indicated, are presented on a GAAP and
non-GAAP basis. These statements are forward-looking and actual results
may differ materially, as a result of, among other things, the important
factors discussed at the end of this release. These statements supersede
all prior statements regarding our business outlook set forth in prior
ADI news releases, and ADI disclaims any obligation to update these
forward-looking statements.

                         
        GAAP      

Non-GAAP
Adjustments

      Non-GAAP
Revenue       $1.44B to $1.54B       -       $1.44B to $1.54B
Gross Margin       67.5% to 68%       $44 million (1)       70.5% to 71.0%
Operating Expenses       $565 million to $575 million       $125 million (2)       $440 million to $450 million
Operating Margin       Approx. 28% to 31%       $169 million (1), (2)       Approx. 40% to 42%
Interest & Other Expense       Approx. $65 million       -       Approx. $65 million
Tax Rate       Approx. 13%       $16 million to $17 million (3)       Approx. 12%
Earnings per Share*       $0.79 to $0.95       $0.41 (4)       $1.20 to $1.36

* The sum of the individual per share amounts may not equal the total
due to rounding.

(1) Non-GAAP gross margin excludes $44 million of costs comprised of the
following:

  • $35 million of recurring amortization of purchased intangible assets
  • $8 million of recurring depreciation of step up value on purchased
    fixed assets
  • $1 million of recurring fair value adjustment associated with the
    replacement of share-based awards in ADI's acquisition of Linear
    Technology

(2) Non-GAAP operating expenses exclude $125 million of costs comprised
of the following:

  • $107 million of recurring amortization of purchased intangible assets
  • $8 million of recurring fair value adjustment associated with the
    replacement of share-based awards in ADI's acquisition of Linear
    Technology
  • $10 million of transaction and integration related costs associated
    with ADI's acquisition of Linear Technology

(3) Non-GAAP tax rate excludes the tax effects of the reconciling
adjustments noted in the two footnotes above.

(4) Non-GAAP earnings per share includes $0.41, which represents the net
impact of the non-GAAP adjustments noted above on a per share basis
consisting of:

  • acquisition-related expenses including amortization of purchased
    intangible assets, depreciation of step up value on purchased fixed
    assets, and the fair value adjustment associated with the replacement
    of share-based awards in ADI's acquisition of Linear Technology ($0.43)
  • acquisition-related transaction costs ($0.03)
  • the effect on income tax of the prior items (-$0.05)

Conference Call Scheduled for Today, Tuesday, November 21, 2017 at
10:00 am ET

ADI will host a conference call to discuss fourth
quarter and fiscal 2017 results and short-term outlook today, beginning
at 10:00 am 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 two hours after the completion of the call.
The replay may be accessed for up to two weeks by dialing 855-859-2056
(replay only) and providing the conference ID: 83006584, or by visiting investor.analog.com.

Non-GAAP Financial Information
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.

Schedules E and F of this press release provides the reconciliation
of the Company's historical non-GAAP measures to their most comparable
GAAP measures.

Management uses non-GAAP measures internally 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 evaluating the Company's core
business and trends across different reporting periods on a consistent
basis. Management also uses these non-GAAP measures as the primary
performance measurement when communicating with analysts and investors
regarding the Company's earnings results and outlook and believes that
the presentation of these non-GAAP measures is useful to investors
because it provides investors with the operating results that management
uses to manage the Company and enables investors and analysts to
evaluate the Company's core business. Management also believes that the
non-GAAP liquidity measure free cash flow is useful both internally and
to investors because it provides information about the amount of cash
generated after capital expenditures that is then available to repay
debt obligations, make investments and fund acquisitions, and for
certain other activities.

The following items are included in our Non-GAAP revenue, non-GAAP
gross margin, non-GAAP operating income, non-GAAP operating margin, and
non-GAAP diluted earnings per share:

Acquisition-Related Deferred Revenue: Deferred revenue related to
shipments of Linear Technology products by distributors to end customers
that were received by the distributors prior to the Company's
acquisition of Linear Technology. Business combination accounting
principles require the write down of deferred revenue in conjunction
with the acquisition. We included these revenues in our non-GAAP
measures because they relate to a specific transaction and are
reflective of our ongoing financial performance.

The following items are excluded from our non-GAAP gross margin,
non-GAAP operating expenses, non-GAAP operating income, non-GAAP
operating margin, and non-GAAP diluted earnings per share:

Acquisition-Related Expenses: Expenses incurred as a result of
current and prior period acquisitions and primarily include expenses
associated with the fair value adjustments to inventory, property, plant
and equipment and amortization of acquisition related intangibles, which
include acquired intangibles such as purchased technology and customer
relationships. Expenses also include severance payments, equity award
accelerations and the fair value adjustment associated with the
replacement of share-based awards related to the Linear Technology
acquisition. We excluded these costs from our non-GAAP measures because
they relate to specific transactions and are not reflective of our
ongoing financial performance.

The following items are excluded from our non-GAAP operating
expenses, non-GAAP operating income, non-GAAP operating margin, and
non-GAAP diluted earnings per share:

Acquisition-Related Transaction Costs: Costs directly related to
the Linear Technology acquisition, including legal, accounting and other
professional fees, as well as integration-related costs. We excluded
these costs from our non-GAAP measures because they relate to a specific
transaction and are not reflective of our ongoing financial performance.

Restructuring-Related Expenses: These expenses are incurred in
connection with facility closures, consolidation of manufacturing
facilities, severance, and other cost reduction efforts. We excluded
these expenses from our non-GAAP measures because apart from ongoing
expense savings as a result of such items, these expenses and the
related tax effects have no direct correlation to the operation of our
business in the future.

The following items are excluded from our non-GAAP other expense and
non-GAAP diluted earnings per share:

Loss on Extinguishment of Debt: In the first quarter of fiscal
2016, the Company redeemed its outstanding 3.0% senior unsecured notes
due April 15, 2016. The Company recognized a net loss on debt
extinguishment of approximately $3.3 million, which was comprised of a
make-whole premium and the write off of unamortized debt issuance and
discount costs. We excluded these costs from our non-GAAP measures
because they are not reflective of our ongoing financial performance.

Amortization of Deferred Financing Costs: In the third quarter of
fiscal 2016, in connection with the Linear Technology acquisition, the
Company obtained bridge financing commitments and incurred financing
fees which will be amortized into interest expense over the term of the
bridge financing commitments. In the first quarter of fiscal 2017, the
Company replaced a portion of the bridge financing commitments with
proceeds from the issuance of $2.1 billion of senior unsecured notes. As
a result, the Company accelerated $7.2 million of the unamortized bridge
financing commitment fees into interest expense. In the fourth quarter
of 2016, the Company replaced a portion of the bridge financing
commitments with a 3-year and 5-year unsecured term loan facility. As a
result, the Company accelerated $13.7 million of the unamortized bridge
financing commitment fees into interest expense. We excluded these costs
from our non-GAAP measures because they are not reflective of our
ongoing financial performance.

The following items are excluded from our non-GAAP diluted earnings
per share:

Tax-Related Items: Tax adjustments associated with the non-GAAP
items discussed above. In the fourth quarter of 2017, the Company
recorded a $10 million tax ex

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