I've noticed one thing is that sometimes when playing cd's the overload light is on for few seconds on the processor and that because the internal adc is overloaded, so I'm answering my own question "yes the processor is using adc and dac before sending it to the amp".
But is it still process signals if it is hooked up to the 5.1 input ? When I connect to 5.1 input, I need less volume to listen to music as compared to regular analog input and seems to me soundstage is little bit better.
I need to play with both and decide. I just want to find out if anyone have noticed this or know the difference between the processing of signals.