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0-08-18


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File No. 1-7819
Analog Devices, Inc.
(Exact name of registrant as specified in its charter) 

Massachusetts   04-2348234
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
One Technology Way, Norwood, MA   02062-9106
(Address of principal executive offices)   (Zip Code)
(781) 329-4700
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock $0.16 2/3 par value per share ADI Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  
As of August 1, 2020 there were 369,166,257 shares of common stock of the registrant, $0.16 2/3 par value per share, outstanding.




PART I - FINANCIAL INFORMATION
 

ITEM 1. Financial Statements


ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)

  Three Months Ended Nine Months Ended
  August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019
Revenue $ 1,456,136  $ 1,480,143  $ 4,076,761  $ 4,547,846 
Cost of sales 483,558  482,332  1,409,367  1,476,287 
Gross margin 972,578  997,811  2,667,394  3,071,559 
Operating expenses:
Research and development 260,794  280,102  770,280  853,330 
Selling, marketing, general and administrative 153,753  162,825  494,808  493,295 
Amortization of intangibles 107,077  107,231  321,448  321,816 
Special charges 31,830  927  44,286  30,871 
553,454  551,085  1,630,822  1,699,312 
Operating income 419,124  446,726  1,036,572  1,372,247 
Nonoperating expense (income):
Interest expense 45,914  59,871  144,712  178,300 
Interest income (504) (2,625) (3,778) (8,241)
Other, net 685  (78) 1,331  4,287 
46,095  57,168  142,265  174,346 
Income before income taxes 373,029  389,558  894,307  1,197,901 
Provision for income taxes 10,364  27,184  60,072  112,584 
Net income $ 362,665  $ 362,374  $ 834,235  $ 1,085,317 
Shares used to compute earnings per common share – basic 368,791  369,533  368,417  369,160 
Shares used to compute earnings per common share – diluted 372,003  373,077  371,857  372,967 
Basic earnings per common share $ 0.98  $ 0.98  $ 2.26  $ 2.93 
Diluted earnings per common share $ 0.97  $ 0.97  $ 2.24  $ 2.90 

See accompanying notes.
1




ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)

Three Months Ended Nine Months Ended
August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019
Net income $ 362,665  $ 362,374  $ 834,235  $ 1,085,317 
Foreign currency translation adjustments 7,257  (4,021) 197  (4,133)
Change in fair value of available-for-sale securities —  (5) —  10 
Change in fair value of derivative instruments designated as cash flow hedges (net of taxes of $1,437, $14,574, $26,503 and $24,757, respectively)
(1,605) (54,811) (83,016) (92,661)
Changes in pension plans including transition obligation, net actuarial loss and foreign currency translation adjustments (net of taxes of $168, $60, $485 and $186, respectively)
(1,579) 1,185  68  1,551 
Other comprehensive income (loss) 4,073  (57,652) (82,751) (95,233)
Comprehensive income $ 366,738  $ 304,722  $ 751,484  $ 990,084 


See accompanying notes.


2


ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)

August 1, 2020 November 2, 2019
ASSETS    
Current Assets
Cash and cash equivalents $ 1,090,264  $ 648,322 
Accounts receivable 681,728  635,136 
Inventories 612,646  609,886 
Prepaid expenses and other current assets 100,599  91,782 
Total current assets 2,485,237  1,985,126 
Property, Plant and Equipment, at Cost
Land and buildings 968,527  956,099 
Machinery and equipment 2,642,254  2,609,493 
Office equipment 84,887  85,490 
Leasehold improvements 157,196  160,175 
  3,852,864  3,811,257 
Less accumulated depreciation and amortization 2,718,628  2,591,268 
Net property, plant and equipment 1,134,236  1,219,989 
Other Assets
Other investments 82,953  77,324 
Goodwill 12,273,799  12,256,880 
Intangible assets, net 3,796,932  4,217,224 
Deferred tax assets 1,522,772  1,582,382 
Other assets 303,639  53,716 
Total other assets 17,980,095  18,187,526 
  $ 21,599,568  $ 21,392,641 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable $ 215,894  $ 225,270 
Income taxes payable 149,376  187,879 
Debt, current 449,324  299,667 
Accrued liabilities 873,182  795,816 
Total current liabilities 1,687,776  1,508,632 
Non-current liabilities
Long-term debt 5,143,653  5,192,252 
Deferred income taxes 1,961,009  2,088,212 
Income taxes payable 591,509  654,420 
Other non-current liabilities 438,061  239,937 
Total non-current liabilities 8,134,232  8,174,821 
Commitments and contingencies —  — 
Shareholders’ Equity
Preferred stock, $1.00 par value, 471,934 shares authorized, none outstanding
—  — 
Common stock, 0.16 2/3 par value, 1,200,000,000 shares authorized, 369,166,257 shares outstanding (368,302,369 on November 2, 2019)
61,529  61,385 
Capital in excess of par value 4,909,651  4,936,349 
Retained earnings 7,079,309  6,899,253 
Accumulated other comprehensive loss (272,929) (187,799)
Total shareholders’ equity 11,777,560  11,709,188 
  $ 21,599,568  $ 21,392,641 
See accompanying notes.
3


ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands)

Three Months Ended August 1, 2020
Capital in Accumulated
Other
  Common Stock Excess of Retained Comprehensive
Shares Amount Par Value Earnings Loss
BALANCE, MAY 2, 2020
368,425  $ 61,405  $ 4,861,013  $ 6,945,442  $ (277,002)
Net income 362,665 
Dividends declared and paid - $0.62 per share
(228,798)
Issuance of stock under stock plans and other 892  149  26,704 
Stock-based compensation expense 39,560 
Other comprehensive income 4,073 
Common stock repurchased (151) (25) (17,626)
BALANCE, AUGUST 1, 2020
369,166  $ 61,529  $ 4,909,651  $ 7,079,309  $ (272,929)
Nine Months Ended August 1, 2020
Capital in Accumulated
Other
  Common Stock Excess of Retained Comprehensive
Shares Amount Par Value Earnings Loss
BALANCE, NOVEMBER 2, 2019
368,302  $ 61,385  $ 4,936,349  $ 6,899,253  $ (187,799)
Effect of Accounting Standards Update 2018-02
2,379  (2,379)
Net income 834,235 
Dividends declared and paid - $1.78 per share
(656,558)
Issuance of stock as charitable contribution 336  56  39,944 
Issuance of stock under stock plans and other 2,730  455  57,295 
Stock-based compensation expense 112,961 
Other comprehensive loss (82,751)
Common stock repurchased (2,202) (367) (236,898)
BALANCE, AUGUST 1, 2020 369,166  $ 61,529  $ 4,909,651  $ 7,079,309  $ (272,929)

See accompanying notes.













4


ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands)

Three Months Ended August 3, 2019
Capital in Accumulated
Other
Common Stock Excess of Retained Comprehensive
Shares Amount Par Value Earnings Loss
BALANCE, MAY 4, 2019 369,761  $ 61,628  $ 5,117,202  $ 6,659,449  $ (96,021)
Net income 362,374 
Dividends declared and paid - $0.54 per share
(200,068)
Issuance of stock under stock plans and other 667  111  19,117 
Stock-based compensation expense 36,098 
Other comprehensive loss (57,652)
Common stock repurchased (1,022) (170) (111,831)
BALANCE, AUGUST 3, 2019
369,406  $ 61,569  $ 5,060,586  $ 6,821,755  $ (153,673)
Nine Months Ended August 3, 2019
Capital in Accumulated
Other
Common Stock Excess of Retained Comprehensive
Shares Amount Par Value Earnings Loss
BALANCE, NOVEMBER 3, 2018 (1)
370,160  $ 61,694  $ 5,282,222  $ 5,982,697  $ (58,440)
Effect of Accounting Standards Update 2016-16 331,026 
Net income 1,085,317 
Dividends declared and paid - $1.56 per share
(577,285)
Issuance of stock under stock plans and other 3,807  635  105,500 
Stock-based compensation expense 112,720 
Other comprehensive loss (95,233)
Common stock repurchased (4,561) (760) (439,856)
BALANCE, AUGUST 3, 2019 369,406  $ 61,569  $ 5,060,586  $ 6,821,755  $ (153,673)
(1) Balances have been restated to reflect the full retrospective adoption of Accounting Standards Update ASU 2014-09, Revenue from Contracts with Customers, adopted by the Company in fiscal 2019.


See accompanying notes.
5



ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

  
Nine Months Ended
  August 1, 2020 August 3, 2019
Cash flows from operating activities:
Net income $ 834,235  $ 1,085,317 
Adjustments to reconcile net income to net cash provided by operations:
Depreciation 176,722  179,041 
Amortization of intangibles 431,985  427,046 
Stock-based compensation expense 112,961  112,720 
Non-cash portion of special charge —  4,367 
Deferred income taxes (42,802) (55,444)
Non-cash contribution to charitable foundation 40,000  — 
Other non-cash activity 5,675  26,701 
Changes in operating assets and liabilities (222,887) (184,552)
Total adjustments 501,654  509,879 
Net cash provided by operating activities 1,335,889  1,595,196 
Cash flows from investing activities:
Additions to property, plant and equipment (135,804) (224,297)
Payments for acquisitions, net of cash acquired (12,763) — 
Changes in other assets (1,214) (5,132)
Net cash used for investing activities (149,781) (229,429)
Cash flows from financing activities:
Proceeds from debt 395,646  1,250,000 
Early termination of debt —  (1,250,000)
Proceeds from revolver 350,000  75,000 
Payments on revolver (350,000) (75,000)
Debt repayments (300,000) (650,000)
Dividend payments to shareholders (656,558) (577,285)
Repurchase of common stock (237,265) (440,616)
Proceeds from employee stock plans 57,750  106,135 
Changes in other financing activities (4,015) (7,918)
Net cash used for financing activities (744,442) (1,569,684)
Effect of exchange rate changes on cash 276  (510)
Net increase (decrease) in cash and cash equivalents 441,942  (204,427)
Cash and cash equivalents at beginning of period 648,322  816,591 
Cash and cash equivalents at end of period $ 1,090,264  $ 612,164 

See accompanying notes.
6


ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED AUGUST 1, 2020
(all tabular amounts in thousands except per share amounts and percentages)

Note 1 – Basis of Presentation
In the opinion of management, the information furnished in the accompanying condensed consolidated financial statements reflects all normal recurring adjustments that are necessary to fairly state the results for these interim periods and should be read in conjunction with Analog Devices, Inc.’s (the Company) Annual Report on Form 10-K for the fiscal year ended November 2, 2019 (fiscal 2019) and related notes. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2020 (fiscal 2020) or any future period.
The Company has a 52-53 week fiscal year that ends on the Saturday closest to the last day in October. Certain amounts reported in previous periods have been reclassified to conform to the fiscal 2020 presentation.
Proposed acquisition of Maxim Integrated Products, Inc.
On July 12, 2020, the Company entered into a definitive agreement (the Merger Agreement) to acquire Maxim Integrated Products, Inc. (Maxim), an independent manufacturer of innovative analog and mixed-signal products and technologies. See Note 15, Acquisitions, for additional information.
Note 2 – Leases
In the first quarter of fiscal 2020, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) (ASU 2016-02) using the modified retrospective approach. Results for fiscal 2020 are presented under ASU 2016-02, while prior period consolidated financial statements have not been adjusted and continue to be presented under the accounting standard in effect at that time. See Note 14, New Accounting Pronouncements of these Notes to Condensed Consolidated Financial Statements for further detail on the adoption of this standard, including the initial adoption values.
The Company enters into operating leases which primarily relate to certain facilities. The Company determines whether an arrangement is or contains a lease based on the unique facts and circumstances present at the inception of an arrangement. Lease assets represent the Company's right to use underlying assets for the lease term, and lease liabilities represent the obligation to make lease payments over the lease term. At lease commencement, leases are evaluated for classification, and assets and liabilities are recognized based on the present value of lease payments over the lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received, such as construction allowances from landlords and/or rent abatements subsequent to taking possession of the leased property. The Company has agreements with lease and non-lease components, which are accounted for as a single lease component. Non-lease components may include real estate taxes, insurance, maintenance, parking and other operating costs. If these costs are variable costs they are not included in the measurement of the right-of-use assets and lease liabilities, but are expensed when the event determining the amount of variable consideration to be paid occurs. The Company’s leases have remaining lease terms of less than one year to approximately twenty-five years, some of which may include options to extend the initial term of the lease. These options are included in determining the initial lease term at lease commencement only if the Company is reasonably certain to exercise the option. Lease costs are recognized on a straight-line basis as lease expense over the lease term. For leases with terms of twelve months or less the Company recognizes the related lease payments as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable.
The following table presents supplemental balance sheet information related to the Company's operating leases:
August 1, 2020
Assets
Operating lease right-of-use assets in Other assets
$ 247,352 
Liabilities
Operating lease liabilities in Accrued liabilities
$ 37,386 
Operating lease liabilities in Other non-current liabilities
$ 282,143 

7

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Details of the Company's operating leases are as follows:
Three Months Ended Nine Months Ended
August 1, 2020 August 1, 2020
Lease expense $ 11,728  $ 33,864 
Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows from operating leases $ 12,159  $ 35,094 
Lease assets obtained in exchange for new lease liabilities $ 11,158  $ 36,888 
Weighted average remaining lease term 9.4 years 9.4 years
Weighted average discount rate 3.2  % 3.2  %
The following table presents the maturities of the Company's operating lease liabilities as of August 1, 2020:
Fiscal year Operating Leases
Remainder of 2020 $ 11,778 
2021 46,347 
2022 40,463 
2023 37,053 
2024 36,429 
2025 34,148 
Thereafter 166,800 
Total future minimum operating lease payments 373,018 
Less: imputed interest (53,489)
Present value of operating lease liabilities $ 319,529 
As of August 1, 2020, the Company has an additional lease for office space, which has not yet commenced, of approximately $9.1 million. This lease will commence in fiscal 2020, with a lease term of 10 years.

Note 3 – Stock-Based Compensation and Shareholders' Equity
A summary of the Company’s stock option activity as of August 1, 2020 and changes during the nine-month period then ended is presented below:
Options
Outstanding
(in thousands)
Weighted-
Average Exercise
Price Per Share
Weighted-
Average
Remaining
Contractual
Term in Years
Aggregate
Intrinsic
Value
Options outstanding at November 2, 2019 5,183  $65.97 
Options granted 359  $94.41 
Options exercised (1,032) $55.96 
Options forfeited (97) $84.27 
Options outstanding at August 1, 2020 4,413  $70.18  5.73 $197,106 
Options exercisable at August 1, 2020 2,845  $60.81  4.66 $153,749 
Options vested or expected to vest at August 1, 2020 (1) 4,309  $69.67  5.67 $194,685 
(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. The number of options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.
During the nine-month periods ended August 1, 2020 and August 3, 2019, the total intrinsic value of options exercised (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the options) was $61.7 million and $120.7 million, respectively.
8

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of the Company’s restricted stock unit/award activity as of August 1, 2020 and changes during the nine-month period then ended is presented below: 
Restricted
Stock Units/Awards
Outstanding
(in thousands)
Weighted-
Average Grant-
Date Fair Value
Per Share
Restricted stock units/awards outstanding at November 2, 2019 4,396  $87.18 
Units/Awards granted 1,390  $92.00 
Restrictions lapsed (1,691) $86.51 
Forfeited (196) $88.86 
Restricted stock units/awards outstanding at August 1, 2020 3,899  $89.65 
As of August 1, 2020, there was $316.0 million of total unrecognized compensation cost related to unvested stock-based awards comprised of stock options and restricted stock units/awards. That cost is expected to be recognized over a weighted-average period of 1.4 years. The total grant-date fair values of awards that vested during the nine-month periods ended August 1, 2020 and August 3, 2019 were approximately $157.9 million and $131.0 million, respectively.

Total stock-based compensation expense recognized was as follows:
Three Months Ended Nine Months Ended
August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019
Cost of sales $ 4,508  $ 5,247  $ 13,428  $ 15,720 
Research and development 19,158  18,802  55,163  57,294 
Selling, marketing, general and administrative 14,951  12,049  43,427  39,706 
Special charges 943  —  943  — 
Total stock-based compensation expense $ 39,560  $ 36,098  $ 112,961  $ 112,720 

As of August 1, 2020 and November 2, 2019, the Company capitalized $5.9 million and $6.8 million, respectively, of stock-based compensation in Inventories on the Condensed Consolidated Balance Sheets.
Common Stock Repurchases
As of August 1, 2020, the Company had repurchased a total of approximately 156.1 million shares of its common stock for approximately $6.3 billion under the Company's share repurchase program. As of August 1, 2020, an additional $1.9 billion remains available for repurchase of shares under the current authorized program. The Company also repurchases shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options. Given the planned acquisition of Maxim (see Note 15, Acquisitions), the Company has continued its temporary suspension of the common stock repurchase program, which was previously suspended in March 2020 as a result of the global macroeconomic environment. Future repurchases of common stock will be dependent upon the Company's financial position, results of operations, outlook, liquidity, and other factors deemed relevant by the Company.
Analog Devices Foundation
During the first quarter of fiscal 2020, the Company contributed 335,654 shares of its common stock to the Analog Devices Foundation. As of the date of the charitable contribution the shares had a fair value of approximately $40.0 million. This expense was recorded in Selling, marketing, general and administrative expense in the Condensed Consolidated Statement of Income.
9

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4 – Accumulated Other Comprehensive (Loss) Income
The following table provides the changes in accumulated other comprehensive (loss) income (AOCI) by component and the related tax effects during the first nine months of fiscal 2020.
Foreign currency translation adjustment
Unrealized holding gains (losses) on derivatives
Pension plans
Total
November 2, 2019 $ (30,076) $ (118,015) $ (39,708) $ (187,799)
Other comprehensive loss before reclassifications 197  (111,684) (1,401) (112,888)
Amounts reclassified out of other comprehensive income (loss) —  2,165  1,954  4,119 
Tax effects —  26,503  (485) 26,018 
Other comprehensive (loss) income 197  (83,016) 68  (82,751)
Effect of Accounting Standards Update 2018-02
—  (2,379) —  (2,379)
August 1, 2020 $ (29,879) $ (203,410) $ (39,640) $ (272,929)
The amounts reclassified out of AOCI into the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Shareholders' Equity with presentation location during each period were as follows:

Three Months Ended Nine Months Ended
Comprehensive Income Component August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019 Location
Unrealized holding losses (gains) on derivatives
Currency forwards $ (842) $ 185  $ (762) $ 1,382  Cost of sales
(226) 652  640  2,270  Research and development
(189) 617  895  2,488  Selling, marketing, general and administrative
Interest rate derivatives 464  464  1,392  974  Interest expense
(793) 1,918  2,165  7,114  Total before tax
79  (384) (488) (1,187) Tax
Effect of Accounting Standards Update 2018-02
—  —  (2,379) —  Retained earnings
$ (714) $ 1,534  $ (702) $ 5,927  Net of tax
Amortization of pension components included in the computation of net periodic pension cost
     Actuarial losses 672  243  1,954  754 
(168) (60) (485) (186) Tax
$ 504  $ 183  $ 1,469  $ 568  Net of tax
Total amounts reclassified out of AOCI, net of tax $ (210) $ 1,717  $ 767  $ 6,495 

The Company estimates $7.2 million, net of tax, of gains on forward foreign currency derivative instruments included in AOCI will be reclassified into earnings within the next twelve months.
Realized gains or losses on investments are determined based on the specific identification basis and are recognized in nonoperating expense (income). There were no material net realized gains or losses from the sales of available-for-sale investments during any of the fiscal periods presented.
10

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5 – Earnings Per Share
The Company utilized the two-class method for calculating earnings per share because certain restricted stock awards granted were participating securities containing non-forfeitable rights to receive dividend equivalents. Under the two-class method, a portion of net income is allocated to these participating securities and therefore is excluded from the calculation of earnings per share allocated to common stock. The following table sets forth the computation of basic and diluted earnings per share:
  Three Months Ended Nine Months Ended
  August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019
Net Income $ 362,665  $ 362,374  $ 834,235  $ 1,085,317 
Less: income allocated to participating securities* —  812  —  2,750 
Net income allocated to common stockholders $ 362,665  $ 361,562  $ 834,235  $ 1,082,567 
Basic shares:
Weighted-average shares outstanding 368,791  369,533  368,417  369,160 
Earnings per common share basic: $ 0.98  $ 0.98  $ 2.26  $ 2.93 
Diluted shares:
Weighted-average shares outstanding 368,791  369,533  368,417  369,160 
Assumed exercise of common stock equivalents 3,212  3,544  3,440  3,807 
Weighted-average common and common equivalent shares 372,003  373,077  371,857  372,967 
Earnings per common share diluted: $ 0.97  $ 0.97  $ 2.24  $ 2.90 
Anti-dilutive shares related to:
Outstanding stock-based awards 384  446  487  963 
*The amounts in the three-month and nine-month periods ended August 1, 2020 are not material.

Note 6 – Special Charges
The following table is a quarterly roll-forward from November 2, 2019 to August 1, 2020 of the employee separation and exit cost accruals established related to existing restructuring actions:
Accrued Restructuring Closure of Manufacturing Facilities Repositioning Action Other Actions
Balance at November 2, 2019 $ 50,401  $ 58,895  $ 5,523 
First quarter fiscal 2020 special charges, net 1,982  9,154  — 
Severance and other payments (908) (29,597) (471)
Effect of foreign currency on accrual (30) (21) — 
Balance at February 1, 2020 $ 51,445  $ 38,431  $ 5,052 
Second quarter fiscal 2020 special charges, net 1,320  —  — 
Severance and other payments (2,564) (15,025) (327)
Effect of foreign currency on accrual (17) (127) — 
Balance at May 2, 2020 $ 50,184  $ 23,279  $ 4,725 
Third quarter fiscal 2020 special charges, net (1,402) 33,232  — 
Severance and other payments (1,360) (12,824) (198)
Effect of foreign currency on accrual 17  172  — 
Balance at August 1, 2020 $ 47,439  $ 43,859  $ 4,527 
Accrued liabilities $ 47,439  $ 43,859  $ 4,527 

11

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Repositioning Action
The Company recorded special charges of $130.5 million on a cumulative basis through August 1, 2020, as a result of organizational initiatives to better align the global workforce with the Company's long-term strategic plan. Approximately $116.3 million of the total charges was for severance and fringe benefit costs in accordance with either the Company's ongoing benefit plan or statutory requirements for the impacted manufacturing, engineering and selling, marketing, general and administrative (SMG&A) employees. The remaining $14.2 million of the charges were recorded in fiscal 2019 and related to the write-off of acquired intellectual property due to the Company's decision to discontinue certain product development strategies.
Closure of Manufacturing Facilities
The Company recorded special charges of $53.9 million on a cumulative basis through August 1, 2020 as a result of its decision to consolidate certain wafer and test facility operations acquired as part of the acquisition of Linear Technology Corporation (Linear). The Company plans to close its Hillview wafer fabrication facility located in Milpitas, California and its Singapore test facility in the fiscal year ending October 30, 2021. The Company intends to transfer Hillview wafer fabrication production to its other internal facilities and to external foundries. In addition, the Company is planning to transition testing operations currently handled in its Singapore facility to its facilities in Penang, Malaysia and the Philippines, in addition to its outsourced assembly and test partners. The special charges include severance and fringe benefit costs, in accordance with the Company's ongoing benefit plan or statutory requirements at foreign locations, one-time termination benefits for the impacted manufacturing, engineering and SMG&A employees and other exit costs. These one-time termination benefits are being recognized over the future service period required for employees to earn these benefits. 
Note 7 – Property, Plant and Equipment
Property, plant and equipment (PP&E) is identified as held for sale when it meets the held for sale criteria of Accounting Standards Codification Topic 360, Property, Plant, and Equipment (ASC 360). Depreciation is not recorded for assets that are classified as held for sale. When an asset meets the held for sale criteria, its carrying value is reclassified from the relevant PP&E line items and into current assets on the balance sheet, where it remains until either it is sold or it no longer meets the held for sale criteria. The fair value of assets held for sale is considered to be a Level 3 fair value measurement, and is determined based on the use of appraisals and input from market participants.
As discussed in Note 6, Special Charges, the Company is planning to transition testing operations currently handled in its Singapore facility to its facilities in Penang, Malaysia and the Philippines, in addition to its outsourced assembly and test partners. Accordingly, management has entered into an agreement to sell the facility in Singapore in May 2021 and has determined that this facility and certain equipment therein have met the held for sale criteria as specified in ASC 360. No write-down to fair value was required upon this designation, as the fair value of the asset group, less costs to sell, was greater than its carrying value. As shown below, this carrying value was reclassified from PP&E to Prepaid expenses and other current assets as of August 1, 2020.
August 1, 2020
Land and buildings $ 36,451 
Machinery and equipment 1,468 
Office equipment 197 
Leasehold improvements 5,744 
43,860 
Less accumulated depreciation and amortization (21,706)
Net property, plant and equipment reclassified to Prepaid expenses and other current assets $ 22,154 

Note 8 – Segment Information
The Company designs, develops, manufactures and markets a broad range of integrated circuits. The Company operates and tracks its results in one reportable segment based on the aggregation of eight operating segments, which reflects the consolidation of one operating segment into the existing operating segments in the three-months ended August 1, 2020 as a result of a continued refinement of the Company's organizational structure. Due to the current macroeconomic environment, in the second quarter of fiscal 2020, the Company elected to perform a quantitative goodwill impairment analysis for one of its reporting units. As a result of this analysis, management concluded that the reporting unit’s fair value exceeded its carrying amount as of the May 2, 2020 assessment date and no risk of impairment existed.
12

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue Trends by End Market
The following table summarizes revenue by end market. The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the “ship to” customer information and the end customer product or application into which the Company’s product will be incorporated. As data systems for capturing and tracking this data and the Company's methodology evolve and improve, the categorization of products by end market can vary over time. When this occurs, the Company reclassifies revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market.
Three Months Ended
  August 1, 2020 August 3, 2019
  Revenue % of Revenue* Y/Y% Revenue % of Revenue*
Industrial $ 774,353  53  % % $ 753,118  51  %
Communications 363,613  25  % 14  % 319,250  22  %
Automotive 162,480  11  % (29) % 228,235  15  %
Consumer 155,690  11  % (13) % 179,540  12  %
Total revenue $ 1,456,136  100  % (2) % $ 1,480,143  100  %
Nine Months Ended
  August 1, 2020 August 3, 2019
  Revenue % of Revenue* Y/Y% Revenue % of Revenue*
Industrial $ 2,174,183  53  % (4) % $ 2,262,597  50  %
Communications 880,921  22  % (14) % 1,030,283  23  %
Automotive 551,395  14  % (22) % 708,711  16  %
Consumer 470,262  12  % (14) % 546,255  12  %
Total revenue $ 4,076,761  100  % (10) % $ 4,547,846  100  %
* The sum of the individual percentages may not equal the total due to rounding.
Revenue by Sales Channel
The following table summarizes revenue by channel. The Company sells its products globally through a direct sales force, third party distributors, independent sales representatives and via its website. Distributors are customers that buy products with the intention of reselling them. Direct customers are non-distributor customers and consist primarily of original equipment manufacturers (OEMs). Other customers include the U.S. government, government prime contractors and certain commercial customers for which revenue is recorded over time.
Three Months Ended
August 1, 2020 August 3, 2019
Channel Revenue % of Revenue* Revenue % of Revenue*
   Distributors $ 819,472  56  % $ 863,055  58  %
   Direct customers 614,770  42  % 600,609  41  %
   Other 21,894  % 16,479  %
Total revenue $ 1,456,136  100  % $ 1,480,143  100  %
Nine Months Ended
August 1, 2020 August 3, 2019
Channel Revenue % of Revenue* Revenue % of Revenue*
   Distributors $ 2,317,421  57  % $ 2,563,807  56  %
   Direct customers 1,692,152  42  % 1,930,935  42  %
   Other 67,188  % 53,104  %
Total revenue $ 4,076,761  100  % $ 4,547,846  100  %
* The sum of the individual percentages may not equal the total due to rounding.
13

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 9 – Fair Value
The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
The tables below, set forth by level, presents the Company’s financial assets and liabilities, excluding accrued interest components that were accounted for at fair value on a recurring basis as of August 1, 2020 and November 2, 2019. The tables exclude cash on hand and assets and liabilities that are measured at historical cost or any basis other than fair value. As of August 1, 2020 and November 2, 2019, the Company held $144.8 million and $231.4 million, respectively, of cash and held-to-maturity investments that were excluded from the tables below.
  August 1, 2020
 
Fair Value measurement at
Reporting Date using:
 
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Total
Assets
Cash equivalents:
Available-for-sale:
Government and institutional money market funds $ 945,471  $ —  $ 945,471 
Other assets:
Deferred compensation investments 52,956  —  52,956 
Forward foreign currency exchange contracts (1) —  8,400  8,400 
Total assets measured at fair value $ 998,427  $ 8,400  $ 1,006,827 
Liabilities
Interest rate derivatives $ —  $ 258,071  $ 258,071 
Total liabilities measured at fair value $ —  $ 258,071  $ 258,071 
(1) The Company has master netting arrangements by counterparty with respect to derivative contracts. See Note 10, Derivatives, in these Notes to Condensed Consolidated Financial Statements for more information related to the Company's master netting arrangements.
14

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
  November 2, 2019
 
Fair Value measurement at
Reporting Date using:
 
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Total
Assets
Cash equivalents:
Available-for-sale:
Government and institutional money market funds $ 416,890  $ —  $ 416,890 
Other assets:
Deferred compensation investments 48,302  —  48,302 
Total assets measured at fair value $ 465,192  $ —  $ 465,192 
Liabilities
Interest rate derivatives $ —  $ 138,798  $ 138,798 
Total liabilities measured at fair value $ —  $ 138,798  $ 138,798 
 
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash equivalents — These investments are adjusted to fair value based on quoted market prices or are determined using a yield curve model based on current market rates.
Deferred compensation plan investments — The fair value of these mutual fund, money market fund and equity investments are based on quoted market prices.
Interest rate derivatives The fair value of the interest rate derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivative.
Forward foreign currency exchange contracts — The estimated fair value of forward foreign currency exchange contracts, which includes derivatives that are accounted for as cash flow hedges and those that are not designated as cash flow hedges, is based on the estimated amount the Company would receive if it sold these agreements at the reporting date taking into consideration current interest rates as well as the creditworthiness of the counterparty for assets and the Company’s creditworthiness for liabilities. The fair value of these instruments is based upon valuation models using current market information such as strike price, spot rate, maturity date and volatility.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
Held for sale assets — The fair value of assets held for sale is considered to be a Level 3 fair value measurement, and is determined based on the use of appraisals and input from market participants.
Debt — The table below presents the estimated fair value of certain financial instruments not recorded at fair value on a recurring basis. The carrying amounts of the term loan approximates fair value. The term loan is classified as a Level 2 measurement according to the fair value hierarchy. The fair values of the senior unsecured notes are obtained from broker prices and are classified as Level 1 measurements according to the fair value hierarchy.
15

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
August 1, 2020 November 2, 2019
Principal Amount Outstanding Fair Value Principal Amount Outstanding Fair Value
3-Year term loan, due March 2022
$ 925,000  $ 925,000  $ 925,000  $ 925,000 
2.85% Senior unsecured notes, due March 2020
—  —  300,000  300,872 
2.95% Senior unsecured notes, due January 2021
450,000  455,085  450,000  454,634 
2.50% Senior unsecured notes, due December 2021
400,000  410,100  400,000  402,591 
2.875% Senior unsecured notes, due June 2023
500,000  528,773  500,000  511,190 
3.125% Senior unsecured notes, due December 2023
550,000  594,446  550,000  567,159 
2.95% Senior unsecured notes, due April 2025
400,000  439,468  —  — 
3.90% Senior unsecured notes, due December 2025
850,000  980,777  850,000  914,567 
3.50% Senior unsecured notes, due December 2026
900,000  1,026,081  900,000  940,192 
4.50% Senior unsecured notes, due December 2036
250,000  310,681  250,000  270,891 
5.30% Senior unsecured notes, due December 2045
400,000  576,504  400,000  491,439 
Total debt $ 5,625,000  $ 6,246,915  $ 5,525,000  $ 5,778,535 

Note 10 – Derivatives
Foreign Exchange Exposure Management — The Company enters into forward foreign currency exchange contracts to offset certain operational and balance sheet exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company’s operations, assets and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Euro; other significant exposures include the British Pound, Philippine Peso and the Japanese Yen. Derivative instruments are employed to eliminate or minimize certain foreign currency exposures that can be confidently identified and quantified. These foreign currency exchange contracts are entered into to support transactions made in the normal course of business, and accordingly, are not speculative in nature. The contracts are for periods consistent with the terms of the underlying transactions, generally one year or less. Hedges related to anticipated transactions are matched with the underlying exposures at inception and designated and documented as cash flow hedges. They are qualitatively evaluated for effectiveness on a quarterly basis. The gain or loss on the derivative is recorded as a component of AOCI in shareholders’ equity and is reclassified into earnings in the same line item on the Consolidated Statements of Income as the impact of the hedged transaction in the same period during which the hedged transaction affects earnings.
The total notional amounts of forward foreign currency derivative instruments designated as hedging instruments of cash flow hedges denominated in Euros, British Pounds, Philippine Pesos and Japanese Yen as of August 1, 2020 and November 2, 2019 were $202.8 million and $191.1 million, respectively. The fair values of forward foreign currency derivative instruments designated as hedging instruments in the Company’s Condensed Consolidated Balance Sheets as of August 1, 2020 and November 2, 2019 were as follows:
Fair Value At
Balance Sheet Location August 1, 2020 November 2, 2019
Forward foreign currency exchange contracts Prepaid expenses and other current assets $ 9,811  $ 65 
As of August 1, 2020 and November 2, 2019, the total notional amounts of undesignated hedges related to forward foreign currency exchange contracts were $32.3 million and $55.3 million, respectively. The fair values of these hedging instruments in the Company’s Condensed Consolidated Balance Sheets were immaterial as of August 1, 2020 and November 2, 2019.
All the Company’s derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's Condensed Consolidated Balance Sheets on a net basis. As of August 1, 2020 and November 2, 2019, none of the netting arrangements involved collateral.
16

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents the gross amounts of the Company's forward foreign currency exchange contract derivative assets and liabilities and the net amounts recorded in the Company's Condensed Consolidated Balance Sheets:
  August 1, 2020 November 2, 2019
Gross amount of recognized assets $ 10,059  $ 2,828 
Gross amounts of recognized liabilities offset in the Condensed Consolidated Balance Sheets (1,659) (2,828)
Net assets presented in the Condensed Consolidated Balance Sheets $ 8,400  $ — 
As of August 1, 2020 and November 2, 2019, the fair value of the interest rate swap agreement designated as a cash flow hedge was $258.1 million and $138.8 million, respectively, and is included within Accrued liabilities in the Company's Condensed Consolidated Balance Sheets.
The market risk associated with the Company’s derivative instruments results from currency exchange rate or interest rate movements that are expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. The counterparties to the agreements relating to the Company’s derivative instruments consist of a number of major international financial institutions with high credit ratings. Based on the credit ratings of the Company’s counterparties as of August 1, 2020 and November 2, 2019, nonperformance is not perceived to be a material risk. Furthermore, none of the Company’s derivatives are subject to collateral or other security arrangements and none contain provisions that are dependent on the Company’s credit ratings from any credit rating agency. While the contract or notional amounts of derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of the Company’s exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the obligations of the Company to the counterparties. As a result of the above considerations, the Company does not consider the risk of counterparty default to be significant.
For information on the unrealized holding gains (losses) on derivatives included in and reclassified out of AOCI into the Condensed Consolidated Statements of Income related to forward foreign currency exchange contracts, see Note 4, Accumulated Other Comprehensive (Loss) Income, in these Notes to Condensed Consolidated Financial Statements for further information.
Note 11 – Debt
Term Loan Agreement
On June 28, 2019, the Company entered into a term loan credit agreement (Term Loan Agreement) with the Company as the borrower and JPMorgan Chase Bank, N.A. as administrative agent and the other banks identified therein as lenders, for an unsecured term loan facility in the principal amount of $1.25 billion, maturing on March 10, 2022. Loans under the term loan facility bear interest, at the Company’s option, at either a rate equal to (a) the Adjusted LIBO Rate (as defined in the Term Loan Agreement) plus a margin based on the Company’s debt rating or (b) the Base Rate (defined as the highest of (i) the prime rate, (ii) the NYFRB Rate (as defined in the Term Loan Agreement) plus .50%, and (iii) one month Adjusted LIBO Rate plus 1.00%) plus a margin based on the Company’s debt rating.
The Term Loan Agreement contains customary representations and warranties, affirmative and negative covenants and events of default applicable to the Company and its subsidiaries. The events of default include, among others, nonpayment of principal, interest, fees or other amounts, failure to perform certain covenants, cross-defaults to certain other indebtedness, insolvency or bankruptcy, customary ERISA defaults or the occurrence of a change of control. The negative covenants include limitations on liens, indebtedness of non-guarantor subsidiaries and mergers and other fundamental changes, among others. The Term Loan Agreement also requires the Company to maintain a consolidated leverage ratio of total consolidated funded debt to consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization) for a trailing twelve-month period of not greater than 3.5 to 1.0, assuming the Company does not undertake any significant acquisitions, mergers, and other fundamental changes. Should such a change occur, the Company may be authorized to increase the covenant back to 4.0 to 1.0.  As of August 1, 2020, the Company was compliant with these covenants.
17

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Senior Notes
On April 8, 2020, in an underwritten public offering, the Company issued its first green bond consisting of $400.0 million aggregate principal amount of 2.95% senior unsecured notes due April 1, 2025 (the 2025 Notes). Interest on the 2025 Notes is payable on April 1 and October 1 of each year, beginning on October 1, 2020. The Company intends to use the net proceeds of $395.6 million from the green bond offering to finance or refinance, in whole or in part, one or more new or existing eligible projects involving renewable energy, energy efficiency, green buildings, sustainable water and wastewater management, pollution prevention and control, clean transportation or eco-efficient and/or circular economy adapted products, production technologies and processes. Debt discount and underwriting fees will be amortized over the life of the debt. At any time prior to March 1, 2025, the Company may, at its option, redeem some or all of the 2025 Notes at a redemption price equal to the greater of 100% of the principal amount of the 2025 Notes being redeemed and the make-whole premium, plus accrued and unpaid interest on the 2025 Notes being redeemed, if any, to but excluding the date of redemption. The 2025 Notes are unsecured and rank equally in right of payment with all of the Company's other existing and future unsecured senior indebtedness. The 2025 Notes were issued pursuant to an indenture, as supplemented by a supplemental indenture, and the indenture and supplemental indenture contain certain covenants, events of default and other customary provisions. As of August 1, 2020, the Company was in compliance with these covenants.
On March 12, 2020, the Company repaid $300.0 million of principal on its 2.85% senior unsecured notes that were contractually due in March 2020. This obligation has been paid in full and is no longer outstanding.
Revolving Credit Agreement
On June 28, 2019, the Company entered into a second amended and restated revolving credit agreement (Revolving Credit Agreement) with the Company as borrower and Bank of America, N.A. as administrative agent and the other banks identified therein as lenders, which further amended and restated its amended and restated revolving credit agreement dated as of September 23, 2016. The Revolving Credit Agreement provides for a five year unsecured revolving credit facility in an aggregate principal amount of up to $1.25 billion, expiring on June 28, 2024. In March 2020, the Company borrowed $350.0 million under this revolving credit facility and utilized the proceeds for the repayment of existing indebtedness and working capital requirements. The Company repaid the $350.0 million plus interest of $0.6 million in April 2020.
The Revolving Credit Agreement contains the customary representations and warranties, and affirmative and negative covenants and events of default applicable to the Company and its subsidiaries. As of August 1, 2020, the Company was in compliance with these covenants.
Note 12 – Inventories
Inventories at August 1, 2020 and November 2, 2019 were as follows:
August 1, 2020 November 2, 2019
Raw materials $ 33,234  $ 35,447 
Work in process 446,136  400,409 
Finished goods 133,276  174,030 
Total inventories $ 612,646  $ 609,886 

Note 13 – Income Taxes
The Company’s effective tax rates for the three- and nine-month periods ended August 1, 2020 and August 3, 2019 were below the U.S. statutory tax rate of 21.0%, due to lower statutory tax rates applicable to the Company's operations in the foreign jurisdictions in which it earns income.
The tax rates for the three- and nine-month periods ended August 1, 2020 were also impacted by discrete income tax benefits of $33.7 million recorded in the third quarter of fiscal 2020, comprised primarily of $25.9 million of income tax benefits resulting from the resolution of the Internal Revenue Service (IRS) audit of Linear’s pre-acquisition federal income tax returns for Linear's fiscal years 2015 through 2017 and other income tax benefits recorded upon filing of the Company's federal income tax return for fiscal 2019.
The Company has numerous audits ongoing throughout the world including: an IRS income tax audit for the fiscal year ended November 3, 2018 (fiscal 2018); various U.S. state and local tax audits; and international audits, including the transfer pricing audit in Ireland discussed below.
18

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company’s Ireland tax returns prior to the fiscal year ended November 2, 2013 are no longer subject to examination. During the fourth quarter of fiscal 2018, the Company’s Irish tax resident subsidiary received an assessment for the fiscal year ended November 2, 2013 (fiscal 2013) of approximately €43.0 million, or $50.9 million (as of August 1, 2020), from the Irish Revenue Commissioners (Irish Revenue). This assessment excludes any penalties and interest. The assessment claims that the Company’s Irish entity failed to conform to 2010 OECD Transfer Pricing Guidelines. The Company strongly disagrees with the assessment and maintains that its transfer pricing is appropriate. Therefore, the Company has not recorded any additional tax liability related to fiscal 2013 or any other periods. The Company intends to vigorously defend its originally filed tax return position and is currently preparing for an appeal with the Irish Tax Appeals Commission, which is the normal process for the resolution of differences between Irish Revenue and taxpayers. If Irish Revenue were ultimately to prevail with respect to its assessment for fiscal 2013, such assessment and any potential impact related to years subsequent to fiscal 2013 could have a material unfavorable impact on the Company's income tax expense and net earnings in future periods. During fiscal 2019, Irish Revenue commenced transfer pricing audits of the fiscal years ended November 1, 2014; October 31, 2015 (fiscal 2015); October 29, 2016 (fiscal 2016); and October 28, 2017 (fiscal 2017); however, the Company received confirmation from Irish Revenue that the audit relating to the period ended November 1, 2014 was complete and that no further tax assessment arose in respect of that period. The audits related to fiscal 2015, fiscal 2016 and fiscal 2017 are on-going.
In February 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). ASU 2018-02 allows stranded tax effects resulting from changes to tax legislation to be reclassified from AOCI to retained earnings. The Company adopted this ASU during the first quarter of fiscal 2020 and therefore applied the ASU in the period of adoption using the specific identification approach. As a result, the Company reclassified approximately $2.4 million from AOCI into retained earnings.
Note 14 – New Accounting Pronouncements
Standards Implemented
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires a lessee to recognize most leases on the balance sheet but recognize expenses on the income statement in a manner similar to current practice. The update states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying assets for the lease term. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 (ASU 2018-01). ASU 2018-01 permits an entity to elect an optional transition practical expedient to not evaluate land easements that existed or expired before the entity’s adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (Topic 842) (ASU 2018-11), which provides for an additional transition method that allows companies to apply the new lease standard at the adoption date, eliminating the requirement to apply the standard to the earliest period presented in the financial statements.
ASU 2016-02, ASU 2018-01 and ASU 2018-11 are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted the standard in the first quarter of fiscal 2020 under the modified retrospective approach. As allowed by the new standard, the Company elected the package of transition practical expedients but elected to not apply the hindsight practical expedient to its leases at transition. As a result, the Company was not required to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the classification of any expired or existing leases and (iii) the treatment of initial direct costs for any existing leases. The Company also elected not to separate lease and non-lease components for its leases. Instead, for all applicable classes of underlying assets, the Company accounts for each separate lease component and the non-lease components associated with that lease component, as a single lease component. Additionally, the Company has elected the short-term lease exception for all classes of assets, does not apply the recognition requirements for leases of twelve months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable. These elections are applied consistently for all leases.
Upon adoption on November 3, 2019, the Company recorded operating lease liabilities of $301.4 million and operating lease assets for its leases of $233.2 million. The operating lease assets are net of liabilities of $68.2 million for deferred rent and unamortized landlord construction allowances that were previously recorded in Accrued liabilities and Other non-current liabilities in the Condensed Consolidated Balance Sheets. Operating lease right-of-use assets are presented within Other assets and corresponding liabilities are presented within Accrued liabilities and Other non-current liabilities in the Condensed Consolidated Balance Sheets. There was no material impact to the Condensed Consolidated Statements of Income or
19

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Consolidated Statements of Cash Flows. Please refer to Note 2, Leases for information regarding the Company's lease portfolio as of August 1, 2020.
Comprehensive Income
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). ASU 2018-02 allows stranded tax effects resulting from changes to tax legislation to be reclassified from AOCI to retained earnings. The Company adopted this ASU during the first quarter of fiscal 2020 and therefore applied the ASU in the period of adoption using the specific identification approach. As a result, the Company reclassified approximately $2.4 million from AOCI into retained earnings. The Company does not expect to record any additional reclassification adjustments in subsequent periods barring further regulatory changes. Please refer to Note 13, Income Taxes for additional information regarding the Company's accounting policy for releasing stranded income tax effects from AOCI.
Other
The following standards were adopted during the first quarter of fiscal 2020 and did not have a material impact on the Company's financial position and results of operations:
ASU 2017-11, Earnings Per Share (Topic 860), Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception;
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities; and
ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.
Standards to Be Implemented
Retirement Benefits
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14), which modifies the disclosure requirements for defined benefit pension plans and other post-retirement plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, with early adoption permitted. ASU 2018-14 is effective for the Company in the first quarter of the fiscal year ending October 30, 2021 (fiscal 2021). The adoption of ASU 2018-14 will modify the Company's disclosures for defined benefit plans and other post-retirement plans but is not expected to impact its financial position or results of operations.
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. In 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief (ASU 2019-05) and ASU 2019-11, Codification Improvements to Topic 326 (ASU 2019-11). ASU 2019-05 allows an entity to irrevocably elect the fair value option for certain financial instruments. Once elected, an entity would recognize the difference between the carrying amount and the fair value of the financial instrument as part of the cumulative effect adjustments associated with the adoption of ASU 2016-13. ASU 2019-11 allows entities to exclude the accrued interest component of amortized cost from various disclosures required by ASC 326. These ASUs are effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years; and therefore, are effective for the Company in the first quarter of fiscal 2021. The Company is currently evaluating the impact, if any, adoption will have on its financial position and results of operations.
20

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income taxes
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the adoption date and impact, if any, adoption will have on its financial position and results of operations.
Note 15 – Acquisitions
Proposed acquisition of Maxim Integrated Products, Inc.
On July 12, 2020, the Company entered into a definitive agreement (the Merger Agreement) to acquire Maxim, an independent manufacturer of innovative analog and mixed-signal products and technologies. Under the terms of the Merger Agreement, Maxim stockholders will receive, for each outstanding share of Maxim common stock, 0.630 of a share of the Company’s common stock at the closing. The estimated merger consideration is approximately $20.0 billion based on the closing price of the Company's common stock on August 14, 2020. The value of the merger consideration will fluctuate based upon changes in the price of the Company's common stock and the number of shares of Maxim common stock, restricted stock awards and restricted stock unit awards outstanding on the closing date.
The transaction is subject to customary closing conditions, including antitrust regulatory clearances, approval by Maxim stockholders, and approval by the Company's shareholders of the issuance of shares of the Company's common stock. The Merger Agreement includes termination rights for both the Company and Maxim. Maxim and the Company have each agreed to pay a termination fee of $725.0 million in cash to the other party if the Merger Agreement is terminated in certain circumstances involving an acquisition proposal, a change of recommendation or a breach of the other party’s non-solicitation obligations under the Merger Agreement. In addition, the Company may be required to pay Maxim a regulatory termination fee of $830.0 million in cash if the Merger Agreement is terminated in certain circums