NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended October 31, 2020, November 2, 2019 and November 3, 2018
(all tabular amounts in thousands except per share amounts)
1.Description of Business
Analog Devices, Inc. (Analog Devices or the Company) is a leading global high-performance analog technology company dedicated to solving its customers' most complex engineering challenges. Since its inception in 1965, the Company has played a critical role at the intersection of the physical and digital world by providing the building blocks to sense, measure, interpret, connect and power. The Company designs, manufactures, tests and markets a broad portfolio of solutions, including integrated circuits (ICs), software and subsystems that leverage high-performance analog, mixed-signal and digital signal processing technologies. The Company's comprehensive product portfolio, deep domain expertise and advanced manufacturing capabilities extend across high-performance precision and high-speed mixed-signal, power management and processing technologies – including data converters, amplifiers, power management, radio frequency ICs, digital signal processors and other sensors. The Company's focus is largely on the business-to-business end markets of Industrial, Automotive and Communications and related applications, as well as Consumer applications, with the goal of driving sustainable and profitable growth over the long term.
2. Summary of Significant Accounting Policies
a.Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and all of its subsidiaries. Upon consolidation, all intercompany accounts and transactions are eliminated. Certain amounts reported in previous years have been reclassified to conform to the presentation for the fiscal year ended October 31, 2020 (fiscal 2020).
The Company’s fiscal year is the 52-week or 53-week period ending on the Saturday closest to the last day in October. Fiscal 2020 and fiscal 2019 were 52-week fiscal periods, while fiscal 2018 was a 53-week period. The additional week in fiscal 2018 was included in the first quarter ended February 3, 2018. Therefore, fiscal 2018 included an additional week of operations as compared to fiscal 2020 and fiscal 2019.
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 6, Acquisitions, of the Notes to Consolidated Financial Statements for additional information.
As further discussed in Note 2n, Revenue Recognition, of the Notes to Consolidated Financial Statements, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09), in the first quarter of fiscal 2019. See Note 2n, Revenue Recognition, of the Notes to Consolidated Financial Statements for the details of the Company’s revenue recognition policies. As shown in the table below, pursuant to the guidance in ASU 2014-09, the Company restated its historical financial results to be consistent with the standard. Accordingly, the amounts for fiscal 2020, fiscal 2019 and fiscal 2018 periods presented in this Form 10-K reflect the impact of ASU 2014-09.
In addition, the Company adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost in the first quarter of fiscal 2019. Under this ASU, the service cost component of net periodic benefit cost is recorded in Cost of sales, Research and development, and Selling, marketing, general and administrative expenses, while the remaining components are recorded to Other, net within the Company's Consolidated Statements of Income. As such, the prior year amounts have been reclassified to provide comparable presentation in line with the guidance in ASU 2017-07 based on amounts previously disclosed for the various components of net periodic benefit cost. See Note 11, Retirement Plans, of the Notes to Consolidated Financial Statements for more information on the adoption of ASU 2017-07.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tables below reconcile the impact of ASU 2014-09 and ASU 2017-07 on the Consolidated Statement of Income for the year ended November 3, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Income
|
As Reported
|
|
Impact of Adoption of ASU 2014-09
|
|
Impact of Adoption of ASU 2017-07
|
|
As Adjusted
|
Revenue
|
$
|
6,200,942
|
|
|
$
|
23,747
|
|
|
$
|
—
|
|
|
$
|
6,224,689
|
|
Cost of sales
|
1,967,640
|
|
|
6,950
|
|
|
(297)
|
|
|
1,974,293
|
|
Gross margin
|
4,233,302
|
|
|
16,797
|
|
|
297
|
|
|
4,250,396
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
1,165,410
|
|
|
—
|
|
|
(363)
|
|
|
1,165,047
|
|
Selling, marketing, general and administrative
|
695,937
|
|
|
—
|
|
|
(397)
|
|
|
695,540
|
|
Amortization of intangibles
|
428,902
|
|
|
—
|
|
|
—
|
|
|
428,902
|
|
Special charges
|
61,318
|
|
|
—
|
|
|
—
|
|
|
61,318
|
|
|
2,351,567
|
|
|
—
|
|
|
(760)
|
|
|
2,350,807
|
|
Operating income
|
1,881,735
|
|
|
16,797
|
|
|
1,057
|
|
|
1,899,589
|
|
Nonoperating expense (income):
|
|
|
|
|
|
|
|
Interest expense
|
253,589
|
|
|
—
|
|
|
—
|
|
|
253,589
|
|
Interest income
|
(9,383)
|
|
|
—
|
|
|
—
|
|
|
(9,383)
|
|
Other, net
|
(988)
|
|
|
—
|
|
|
1,057
|
|
|
69
|
|
|
243,218
|
|
|
—
|
|
|
1,057
|
|
|
244,275
|
|
Income before income taxes
|
1,638,517
|
|
|
16,797
|
|
|
—
|
|
|
1,655,314
|
|
Provision for income taxes
|
143,085
|
|
|
5,249
|
|
|
—
|
|
|
148,334
|
|
Net income
|
$
|
1,495,432
|
|
|
$
|
11,548
|
|
|
$
|
—
|
|
|
$
|
1,506,980
|
|
Shares used to compute earnings per common share – basic
|
370,430
|
|
|
—
|
|
|
—
|
|
|
370,430
|
|
Shares used to compute earnings per common share – diluted
|
374,938
|
|
|
—
|
|
|
—
|
|
|
374,938
|
|
Basic earnings per common share
|
$
|
4.02
|
|
|
$
|
0.03
|
|
|
$
|
—
|
|
|
$
|
4.05
|
|
Diluted earnings per common share
|
$
|
3.97
|
|
|
$
|
0.03
|
|
|
$
|
—
|
|
|
$
|
4.00
|
|
The impact on the Company's previously reported consolidated balance sheet line items is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2018
|
|
As Reported
|
|
Impact of Adoption of ASU 2014-09
|
|
As Adjusted
|
Deferred tax assets
|
$
|
21,078
|
|
|
$
|
(11,413)
|
|
|
$
|
9,665
|
|
Deferred income on shipments to distributors, net
|
$
|
487,417
|
|
|
$
|
(487,417)
|
|
|
$
|
—
|
|
Accrued liabilities
|
$
|
497,080
|
|
|
$
|
133,027
|
|
|
$
|
630,107
|
|
Deferred income taxes
|
$
|
927,065
|
|
|
$
|
63,344
|
|
|
$
|
990,409
|
|
Retained earnings
|
$
|
5,703,064
|
|
|
$
|
279,633
|
|
|
$
|
5,982,697
|
|
In addition, in the first quarter of fiscal 2019, the Company adopted ASU 2016-16, Income Taxes (Topic 740) (ASU 2016-16) using the modified retrospective method with a cumulative-effect adjustment directly to retained earnings. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The adoption of ASU 2016-16 resulted in the following cumulative-effect increase in the Company's deferred tax assets, deferred tax liabilities and retained earnings:
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 4, 2018
|
|
Beginning Balance November 3, 2018 as Adjusted
|
|
Impact of Adoption of ASU 2016-16
|
|
Balance November 4, 2018
|
Deferred tax assets
|
$
|
9,665
|
|
|
$
|
1,655,129
|
|
|
$
|
1,664,794
|
|
Deferred income taxes
|
$
|
990,409
|
|
|
$
|
1,324,103
|
|
|
$
|
2,314,512
|
|
Retained earnings
|
$
|
5,982,697
|
|
|
$
|
331,026
|
|
|
$
|
6,313,723
|
|
See Note 12, Income Taxes, of the Notes to Consolidated Financial Statements for more information on the adoption of ASU 2016-16.
b.Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with insignificant interest rate risk and maturities of ninety days or less at the time of acquisition. Cash and cash equivalents consist primarily of government and institutional money market funds, corporate obligations such as commercial paper and floating rate notes, bonds, demand deposit accounts and bank time deposits.
The Company classifies its investments in readily marketable debt and equity securities as “held-to-maturity,” “available-for-sale” or “trading” at the time of purchase. There were no transfers between investment classifications in any of the fiscal years presented. Held-to-maturity securities, which are carried at amortized cost, include only those securities the Company has the positive intent and ability to hold to maturity. Securities such as bank time deposits, which by their nature are typically held to maturity, are classified as such. The Company’s other readily marketable cash equivalents are classified as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses, net of related tax, reported in accumulated other comprehensive (loss) income (AOCI). Adjustments to the fair value of investments classified as available-for-sale are recorded as an increase or decrease in AOCI, unless the adjustment is considered an other-than-temporary impairment, in which case the adjustment is recorded as a charge in the Consolidated Statements of Income.
The Company’s deferred compensation plan investments are classified as trading. See Note 2j, Fair Value and Note 11, Retirement Plans, of the Notes to Consolidated Financial Statements for additional information on these investments.
The Company periodically evaluates its investments for impairment. There were no other-than-temporary impairments of investments in any of the fiscal years presented.
Realized gains or losses on investments are determined based on the specific identification basis and are recognized in nonoperating (income) expense. There were no material net realized gains or losses from the sales of available-for-sale investments during any of the fiscal periods presented.
The components of the Company’s cash and cash equivalents as of October 31, 2020 and November 2, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Cash
|
$
|
239,607
|
|
|
$
|
152,432
|
|
Available-for-sale
|
816,253
|
|
|
416,890
|
|
Held-to-maturity
|
—
|
|
|
79,000
|
|
Total cash and cash equivalents
|
$
|
1,055,860
|
|
|
$
|
648,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 2j, Fair Value, of the Notes to Consolidated Financial Statements for additional information on the Company’s cash equivalents.
c.Supplemental Cash Flow Statement Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Cash paid during the fiscal year for:
|
|
|
|
|
|
Income taxes
|
$
|
237,691
|
|
|
$
|
205,762
|
|
|
$
|
211,473
|
|
Interest
|
$
|
185,854
|
|
|
$
|
216,143
|
|
|
$
|
233,436
|
|
d.Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or market. The valuation of inventory requires the Company to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The Company employs a variety of methodologies to determine the net realizable value of its inventory. While a portion of the calculation to record
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
inventory at its net realizable value is based on the age of the inventory and lower of cost or market calculations, a key factor in estimating obsolete or excess inventory requires the Company to estimate the future demand for its products. If actual demand is less than the Company’s estimates, impairment charges, which are recorded to cost of sales, may need to be recorded in future periods. Inventory in excess of saleable amounts is not valued, and the remaining inventory is valued at the lower of cost or market.
Inventories at October 31, 2020 and November 2, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Raw materials
|
$
|
33,806
|
|
|
$
|
35,447
|
|
Work in process
|
443,690
|
|
|
400,409
|
|
Finished goods
|
130,764
|
|
|
174,030
|
|
Total inventories
|
$
|
608,260
|
|
|
$
|
609,886
|
|
|
|
|
|
e.Property, Plant and Equipment
Property, plant and equipment (PP&E) is recorded at cost, less allowances for depreciation. The straight-line method of depreciation is used for all classes of assets for financial statement purposes while both straight-line and accelerated methods are used for income tax purposes. Leasehold improvements are depreciated over the lesser of the term of the lease or the useful life of the asset. Repairs and maintenance charges are expensed as incurred. Depreciation is based on the following ranges of estimated useful lives:
|
|
|
|
|
|
Buildings
|
Up to 30 years
|
Machinery & equipment
|
3-10 years
|
Office equipment
|
3-10 years
|
Leasehold improvements
|
7-20 years
|
The Company reviews PP&E for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Recoverability of these assets is determined by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate over their remaining economic lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. If such assets are not impaired, but their useful lives have decreased, the remaining net book value is depreciated over the revised useful life. The Company has not recorded any material impairment charges related to its PP&E in fiscal 2020, fiscal 2019 or fiscal 2018.
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, the lower of its carrying value or fair value less costs to sell is reclassified from the relevant PP&E line items and into current assets on the balance sheet, where it remains until it is either sold or it no longer meets the held for sale criteria. If the assets held for sale were carried at fair value, it would be considered a Level 3 fair value measurement, and determined based on the use of appraisals and input from market participants.
As further discussed in Note 5, Special Charges, of the Notes to Consolidated Financial Statements, the Company is planning to transition testing operations currently handled in its Singapore facility to its facilities in Penang, Malaysia and the Philippines and also to its outsourced assembly and test partners. Accordingly, management has entered into an agreement to sell the facility and transfer the related land lease 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 October 31, 2020:
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
October 31, 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
|
|
|
|
f.Goodwill and Intangible Assets
Goodwill
The Company evaluates goodwill for impairment annually, as well as whenever events or changes in circumstances suggest that the carrying value of goodwill may not be recoverable, utilizing either the qualitative or quantitative method. The Company tests goodwill for impairment at the reporting unit level, which the Company has determined is consistent with its eight identified operating segments, on an annual basis on the first day of the fourth quarter (on or about August 2) or more frequently if indicators of impairment exist or the Company reorganizes its operating segments or reporting units.
The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its net book value. When using the qualitative method, the Company considers several factors, including the following:
–the amount by which the fair values of each reporting unit exceeded their carrying values as of the date of the most recent quantitative impairment analysis, which indicated there would need to be substantial negative developments in the markets in which these reporting units operate in order for there to be potential impairment;
–the carrying values of these reporting units as of the assessment date compared to the previously calculated fair values as of the date of the most recent quantitative impairment analysis;
–the Company's current forecasts as compared to the forecasts included in the most recent quantitative impairment analysis;
–public information from competitors and other industry information to determine if there were any significant adverse trends in the Company's competitors' businesses;
–changes in the value of major U.S. stock indices that could suggest declines in overall market stability that could impact the valuation of the Company's reporting units;
–changes in the Company's market capitalization and overall enterprise valuation to determine if there were any significant decreases that could be an indication that the valuation of its reporting units had significantly decreased; and
–whether there had been any significant increases to the weighted-average cost of capital rates for each reporting unit, which could materially lower the Company's prior valuation conclusions under a discounted cash flow approach.
If the Company elects not to use this option, or it determines that it is more likely than not that the fair value of a reporting unit is less than its net book value, then the Company performs the quantitative goodwill impairment test. The quantitative goodwill impairment test requires an entity to compare the fair value of a reporting unit with its carrying amount. If fair value is determined to be less than carrying value, an impairment loss is recognized for the amount of the carrying value that exceeds the amount of the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Additionally, the Company considers income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. Management determines the fair values of the reporting units using a weighting of the income and market approaches. Under the income approach, it uses a discounted cash flow methodology, which requires management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates and long-term discount rates, among others. For the market approach, it uses the guideline public company method. Under this method management utilizes information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that are applied to the operating performance of the reporting unit being tested, in order to obtain its respective fair value. In order to assess the reasonableness of the calculated values, the aggregate fair values of the reporting units are reconciled to the Company's total market capitalization, allowing for a reasonable control premium.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In fiscal 2019, management elected to use the qualitative method of assessing goodwill for seven of its eight reporting units and the quantitative method for one reporting unit. During the second quarter of fiscal 2020, the Company performed a quantitative assessment of one of its reporting units due to the macroeconomic climate at the time. In the latest annual impairment evaluation that occurred as of August 2, 2020, the Company used the quantitative method of assessing goodwill for all eight of its reporting units. In all periods presented, management concluded the reporting units' fair values exceeded their carrying amounts as of the assessment dates and no risk of impairment existed.
The Company’s next annual impairment assessment will be performed as of the first day of the fourth quarter of the fiscal year ending October 30, 2021 (fiscal 2021) unless indicators arise that would require the Company to reevaluate at an earlier date.
The following table presents the changes in goodwill during fiscal 2020 and fiscal 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Balance at beginning of year
|
$
|
12,256,880
|
|
|
$
|
12,252,604
|
|
|
|
|
|
Goodwill related to other acquisitions (1)
|
17,839
|
|
|
6,702
|
|
Foreign currency translation adjustment
|
3,706
|
|
|
(2,426)
|
|
Balance at end of year
|
$
|
12,278,425
|
|
|
$
|
12,256,880
|
|
_______________________________________
(1) Represents goodwill related to other acquisitions that were not material to the Company on either an individual or aggregate basis.
Intangible Assets
The Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable. If required, recoverability of these assets is determined by comparison of their carrying value to the estimated future undiscounted cash flows the assets are expected to generate over their remaining estimated useful lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying value of the assets exceeds their estimated fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.
In-process research and development (IPR&D) assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development (R&D) efforts. Upon completion of the projects, the IPR&D assets are reclassified to technology-based intangible assets and amortized over their estimated useful lives. During fiscal 2019, the company recorded $14.2 million of special charges related to the write-off of acquired intellectual property, classified as IPR&D, due to the Company's decision to discontinue certain product development strategies.
As of October 31, 2020 and November 2, 2019, the Company’s intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
November 2, 2019
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
Customer relationships
|
$
|
4,700,454
|
|
|
$
|
1,703,299
|
|
|
$
|
4,696,562
|
|
|
$
|
1,284,256
|
|
Technology-based
|
1,136,742
|
|
|
518,328
|
|
|
1,145,283
|
|
|
385,618
|
|
Trade-name
|
72,200
|
|
|
37,489
|
|
|
73,417
|
|
|
28,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1) (2)
|
$
|
5,909,396
|
|
|
$
|
2,259,116
|
|
|
$
|
5,915,262
|
|
|
$
|
1,698,038
|
|
_______________________________________
(1) Foreign intangible asset carrying amounts are affected by foreign currency translation.
(2) Intangible assets, along with the related accumulated amortization, are removed from the table above at the end of the fiscal year they become fully amortized.
Amortization expense related to intangible assets was $577.1 million, $570.6 million and $570.5 million in fiscal 2020, 2019 and 2018, respectively, and is recorded in Cost of sales and Amortization of intangibles on the Consolidated Statements of Income. The remaining amortization expense will be recognized over a weighted average life of approximately 3.2 years.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company expects annual amortization expense for intangible assets as follows:
|
|
|
|
|
|
Fiscal Year
|
Amortization Expense
|
2021
|
$
|
580,984
|
|
2022
|
$
|
573,950
|
|
2023
|
$
|
547,397
|
|
2024
|
$
|
485,496
|
|
2025
|
$
|
395,300
|
|
g.Grant Accounting
Certain of the Company’s foreign subsidiaries have received grants from governmental agencies. These grants include capital, employment and research and development grants. Capital grants for the acquisition of property, plant and equipment are netted against the related capital expenditures and amortized as a credit to depreciation expense over the estimated useful life of the related asset. Employment grants, which relate to employee hiring and training, and research and development grants are recognized in earnings in the period in which the related expenditures are incurred by the Company.
h.Translation of Foreign Currencies
The functional currency for certain of the Company’s foreign operations is the applicable local currency. Gains and losses resulting from translation of these foreign currencies into U.S. dollars are recorded in AOCI. Transaction gains and losses and re-measurement of foreign currency denominated assets and liabilities are included in income currently, including those at the Company’s principal foreign manufacturing operations where the functional currency is the U.S. dollar. Foreign currency transaction gains or losses are included in Other, net in the Consolidated Statements of Income.
i.Derivative Instruments and Hedging Agreements
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 derivatives are reported as a component of AOCI in shareholders’ equity and 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 October 31, 2020 and November 2, 2019 was $202.7 million and $191.1 million, respectively. The fair values of forward foreign currency derivative instruments designated as hedging instruments in the Company’s Consolidated Balance Sheets as of October 31, 2020 and November 2, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value At
|
|
Balance Sheet Location
|
|
October 31, 2020
|
|
November 2, 2019
|
Forward foreign currency exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
5,550
|
|
|
$
|
65
|
|
|
|
|
|
|
|
Additionally, the Company enters into forward foreign currency contracts that economically hedge the gains and losses generated by the re-measurement of certain recorded assets and liabilities in a non-functional currency. Changes in the fair value of these undesignated hedges are recognized in other (income) expense immediately as an offset to the changes in the fair value of the asset or liability being hedged. As of October 31, 2020 and November 2, 2019, the total notional amount of these undesignated hedges was $62.7 million and $55.3 million, respectively.
The Company estimates that $3.8 million, net of tax, of settlements of forward foreign currency derivative instruments included in OCI will be reclassified into earnings within the next 12 months.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
All of 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 Consolidated Balance Sheets on a net basis. As of October 31, 2020 and November 2, 2019, none of the netting arrangements involved collateral.
The following table presents the gross amounts of the Company's forward foreign currency exchange contracts and the net amounts recorded in the Company's Consolidated Balance Sheets as of October 31, 2020 and November 2, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
November 2, 2019
|
Gross amount of recognized assets
|
$
|
6,114
|
|
|
$
|
2,828
|
|
Gross amounts of recognized liabilities offset in the Consolidated Balance Sheets
|
(687)
|
|
|
(2,828)
|
|
Net assets presented in the Consolidated Balance Sheets
|
$
|
5,427
|
|
|
$
|
—
|
|
Interest Rate Exposure Management — The Company's current and future debt may be subject to interest rate risk. The Company utilizes interest rate derivatives to alter interest rate exposure in an attempt to reduce the effects of the changes in interest rates. During fiscal 2019, the Company entered into an interest rate swap agreement which locked in the interest rate for up to $1 billion in future debt issuances. The interest rate swap was designated and qualified as a cash flow hedge. The fair value of this hedge was $214.6 million and $138.8 million as of October 31, 2020 and November 2, 2019, respectively, and is included within accrued liabilities in the Company's 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 October 31, 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.
The Company records the fair value of its derivative financial instruments in its Consolidated Financial Statements in other current assets, other assets, accrued liabilities and other non-current liabilities, depending on their net position, regardless of the purpose or intent for holding the derivative contract. Changes in the fair value of the derivative financial instruments are either recognized periodically in earnings or in shareholders’ equity as a component of OCI. Changes in the fair value of cash flow hedges are recorded in OCI and reclassified into earnings in the same line item on the Consolidated Statements of Income as the impact of the hedged transaction when the underlying contract matures. Changes in the fair values of derivatives not qualifying for hedge accounting are reported in earnings as they occur.
For information on the unrealized holding gains (losses) on derivatives included in and reclassified out of AOCI into the Consolidated Statements of Income related to forward foreign currency exchange contracts, see Note 2o, Accumulated Other Comprehensive (Loss) Income, of the Notes to Consolidated Financial Statements.
j.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.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 October 31, 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 October 31, 2020 and November 2, 2019, the Company held $239.6 million and $231.4 million, respectively, of cash and held-to-maturity investments that were excluded from the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 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
|
$
|
816,253
|
|
|
$
|
—
|
|
|
|
|
$
|
816,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts (1)
|
—
|
|
|
5,427
|
|
|
|
|
5,427
|
|
Deferred compensation investments
|
52,956
|
|
|
—
|
|
|
|
|
52,956
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
$
|
869,209
|
|
|
$
|
5,427
|
|
|
|
|
$
|
874,636
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
—
|
|
|
214,586
|
|
|
|
|
214,586
|
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
214,586
|
|
|
|
|
$
|
214,586
|
|
(1) The Company has master netting arrangements by counterparty with respect to derivative contracts. See Note 2i, Derivative Instruments and Hedging Agreements, of the Notes to Consolidated Financial Statements for more information related to the Company's master netting arrangements.
ANALOG DEVICES, INC.
NOTES TO 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 interest rate derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivatives.
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 Company has classified the assets held for sale at carrying value. However, if it were to be carried at fair value, it would be considered a Level 3 fair value measurement and would be determined based on the use of appraisals and input from market participants. See Note 2e, Property, Plant and Equipment, of the Notes to Consolidated Financial Statements for further discussion related to held for sale assets.
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 Level 2 measurements 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. See Note 14, Debt, of the Notes to Consolidated Financial Statements for further discussion related to outstanding debt.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Notes, due March 2020
|
—
|
|
|
—
|
|
|
300,000
|
|
|
300,872
|
|
|
|
|
|
2021 Notes, due January 2021
|
—
|
|
|
—
|
|
|
450,000
|
|
|
454,634
|
|
|
|
|
|
2021 Notes, due December 2021
|
400,000
|
|
|
408,565
|
|
400,000
|
|
|
402,591
|
|
|
|
|
|
2023 Notes, due June 2023
|
500,000
|
|
|
526,855
|
|
|
500,000
|
|
|
511,190
|
|
|
|
|
|
2023 Notes, due December 2023
|
550,000
|
|
|
590,177
|
|
|
550,000
|
|
|
567,159
|
|
|
|
|
|
2025 Notes, due April 2025
|
400,000
|
|
|
434,919
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2025 Notes, due December 2025
|
850,000
|
|
|
969,033
|
|
|
850,000
|
|
|
914,567
|
|
|
|
|
|
2026 Notes, due December 2026
|
900,000
|
|
|
1,017,505
|
|
|
900,000
|
|
|
940,192
|
|
|
|
|
|
2036 Notes, due December 2036
|
250,000
|
|
|
298,153
|
|
|
250,000
|
|
|
270,891
|
|
|
|
|
|
2045 Notes, due December 2045
|
400,000
|
|
|
538,788
|
|
|
400,000
|
|
|
491,439
|
|
|
|
|
|
Total Debt
|
$
|
5,175,000
|
|
|
$
|
5,708,995
|
|
|
$
|
5,525,000
|
|
|
$
|
5,778,535
|
|
|
|
|
|
k.Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates relate to the useful lives of fixed assets and identified intangible assets; allowances for doubtful accounts and customer returns; the net realizable value of inventory; potential reserves relating to litigation matters; accrued liabilities, including estimates of variable consideration related to distributor sales; accrued taxes; uncertain tax positions; deferred tax valuation allowances; assumptions pertaining to stock-based compensation payments and defined benefit plans; and fair value of acquired assets and liabilities, including inventory, property, plant and equipment, goodwill, and acquired intangibles; and other reserves. Actual results could differ from those estimates and such differences may be material to the financial statements.
l.Concentrations of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments and trade accounts receivable.
The Company maintains cash and cash equivalents with high credit quality counterparties, continuously monitors the amount of credit exposure to any one issuer and diversifies its investments in order to minimize its credit risk.
The Company sells its products to distributors and original equipment manufacturers (OEMs) involved in a variety of industries including industrial, communications, automotive and consumer end markets. The Company has adopted credit policies and standards to accommodate growth in these markets. The Company performs continuing credit evaluations of its customers’ financial condition and although the Company generally does not require collateral, the Company may require letters of credit from customers in certain circumstances. The Company provides reserves for estimated amounts of accounts receivable that may not be collected.
The Company's largest customer, which is a distributor rather than an end customer, accounted for approximately 29%, 30%, and 28% of net revenues in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The Company's next largest customer, which is also a distributor, accounted for approximately 10% of net revenues in fiscal 2019. This next largest customer accounted for less than 10% of net revenues in fiscal 2020 and fiscal 2018. No other customer accounted for greater than 10% of revenue in any period presented.
m.Concentration of Other Risks
The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. The Company’s financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property in a rapidly evolving market and reliance on assembly and test subcontractors, third-party wafer fabricators and independent distributors. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns at various times. The Company is exposed to the risk of obsolescence of its inventory depending on the mix of future business. Additionally, a large portion of the
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company’s purchases of external wafer and foundry services are from a limited number of suppliers, such as Taiwan Semiconductor Manufacturing Company (TSMC) and others. If these suppliers or any of the Company’s other key suppliers are unable or unwilling to manufacture and deliver sufficient quantities of components, on the time schedule and of the quality that the Company requires, the Company may be forced to engage additional or replacement suppliers, which could result in significant expenses and disruptions or delays in manufacturing, product development and shipment of product to the Company’s customers. Although the Company has experienced shortages of components, materials and external foundry services from time to time, these items have generally been available to the Company as needed.
n.Revenue Recognition
Recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the providing entity expects to be entitled in exchange for those goods or services. As a result of the adoption of new revenue accounting rules in the first quarter of fiscal 2019, the Company revised its revenue recognition policy. The Company now recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Under this rule, the Company recognizes revenue when all of the following criteria are met: (1) the Company has entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been determined, (4) the transaction price has been allocated to the performance obligations in the contract, and (5) the performance obligations have been satisfied. The majority of the Company's shipping terms permit the Company to recognize revenue at point of shipment or delivery. Certain shipping terms require the goods to be through customs or be received by the customer before title passes. In those instances, the Company defers the revenue recognized until title has passed. Shipping costs are charged to selling, marketing, general and administrative expense as incurred. Sales taxes are excluded from revenue.
Revenue from contracts with the United States government, government prime contractors and certain commercial customers is recorded over time using either units delivered or costs incurred as the measurement basis for progress toward completion. These measures are used to measure results directly and is generally the best measure of progress toward completion in circumstances in which a reliable measure of output can be established. Estimated revenue in excess of amounts billed is reported as unbilled receivables. Contract accounting requires judgment in estimating costs and assumptions related to technical issues and delivery schedule. Contract costs include material, subcontract costs, labor and an allocation of indirect costs. The estimation of costs at completion of a contract is subject to numerous variables involving contract costs and estimates as to the length of time to complete the contract. Changes in contract performance, estimated gross margin, including the impact of final contract settlements, and estimated losses are recognized in the period in which the changes or losses are determined.
Performance Obligations: Substantially all of the Company’s contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit products. Such sales represent a single performance obligation because the sale is one type of good or includes multiple goods that are neither capable of being distinct nor separable from the other promises in the contract. This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates and with an original expected duration of one year or less. As allowed under ASU 2014-09, the Company has opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year. The Company generally offers a twelve-month warranty for its products. The Company’s warranty policy provides for replacement of defective products. Specific accruals are recorded for known product warranty issues. Product warranty expenses during fiscal 2020, fiscal 2019 and fiscal 2018 were not material.
Transaction Price: The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration primarily includes sales to direct customers and sales to distributors in which both the sale to the distributor and the sale to the end customer occur within the same reporting period. Variable consideration includes sales in which the amount of consideration that the Company will receive is unknown as of the end of a reporting period. Such consideration primarily includes credits issued to the distributor due to price protection and sales made to distributors under agreements that allow certain rights of return, referred to as stock rotation. Price protection represents price discounts granted to certain distributors to allow the distributor to earn an appropriate margin on sales negotiated with certain customers and in the event of a price decrease subsequent to the date the product was shipped and billed to the distributor. Stock rotation allows distributors limited levels of returns in order to reduce the amounts of slow-moving, discontinued or obsolete product from their inventory. A liability for distributor credits covering variable consideration is made based on the Company's estimate of historical experience rates as well as considering economic conditions and contractual terms. To date, actual distributor claims activity has been materially consistent with the provisions the Company has made based on its historical estimates. For fiscal 2020 and fiscal 2019, sales to distributors were approximately $3.2 billion and $3.4 billion, respectively, net of variable consideration for which the liability balances as of
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
October 31, 2020 and November 2, 2019 were $229.8 million and $227.0 million, respectively, and were recorded in Accrued liabilities on the Consolidated Balance Sheets.
Contract Balances: Accounts receivable represents the Company’s unconditional right to receive consideration from its customers. Payments are typically due within 30 to 45 days of invoicing and do not include a significant financing component. To date, there have been no material credit losses on accounts receivable. There were no material contract assets or contract liabilities recorded on the Consolidated Balance Sheets in any of the periods presented.
o.Accumulated Other Comprehensive (Loss) Income
Accumulated other comprehensive (loss) income (AOCI) includes certain transactions that have generally been reported in the Consolidated Statement of Shareholders’ Equity. The components of AOCI at October 31, 2020 and November 2, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) income before reclassifications
|
3,224
|
|
|
|
|
|
|
(68,905)
|
|
|
(7,681)
|
|
|
(73,362)
|
|
Amounts reclassified out of other comprehensive loss
|
—
|
|
|
|
|
|
|
(681)
|
|
|
2,617
|
|
|
1,936
|
|
Tax
|
—
|
|
|
|
|
|
|
17,310
|
|
|
(5,167)
|
|
|
12,143
|
|
Other comprehensive (loss) income
|
3,224
|
|
|
|
|
|
|
(52,276)
|
|
|
(10,231)
|
|
|
(59,283)
|
|
Effect of Accounting Standards Update 2018-02
|
—
|
|
|
|
|
|
|
(2,379)
|
|
|
—
|
|
|
(2,379)
|
|
October 31, 2020
|
$
|
(26,852)
|
|
|
|
|
|
|
$
|
(172,670)
|
|
|
$
|
(49,939)
|
|
|
$
|
(249,461)
|
|
The amounts reclassified out of AOCI into the Consolidated Statements of Income, with presentation location during each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income Component
|
|
2020
|
|
2019
|
|
|
|
Location
|
Unrealized holding gains (losses) on derivatives
|
|
|
|
|
|
|
|
|
Currency forwards
|
|
$
|
(2,522)
|
|
|
$
|
1,736
|
|
|
|
|
Cost of sales
|
|
|
(127)
|
|
|
2,956
|
|
|
|
|
Research and development
|
|
|
112
|
|
|
3,056
|
|
|
|
|
Selling, marketing, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
1,856
|
|
|
1,437
|
|
|
|
|
Interest expense
|
|
|
(681)
|
|
|
9,185
|
|
|
|
|
Total before tax
|
|
|
(158)
|
|
|
(1,518)
|
|
|
|
|
Tax
|
Effect of Accounting Standards Update 2018-02
|
|
(2,379)
|
|
|
—
|
|
|
|
|
Retained earnings
|
|
|
$
|
(3,218)
|
|
|
$
|
7,667
|
|
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Amortization of pension components included in the computation of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses
|
|
2,617
|
|
|
1,004
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
651
|
|
|
(248)
|
|
|
|
|
Tax
|
|
|
$
|
3,268
|
|
|
$
|
756
|
|
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Total amounts reclassified out of AOCI, net of tax
|
|
$
|
50
|
|
|
$
|
8,423
|
|
|
|
|
|
_______________________________________
(1)The amortization of pension components is included in the computation of net periodic benefit cost. See Note 11, Retirement Plans, of the Notes to Consolidated Financial Statements for further information.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
p.Income Taxes
The Company makes certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of income tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of the recognition of certain expenses for tax and financial statement purposes. The likelihood of the realization of deferred tax assets is assessed and a corresponding valuation allowance is recorded as necessary if management determines those deferred tax assets may not be realized due to the uncertainty of the timing and amount to be realized of certain state and international tax credit carryovers. In reaching this conclusion, the Company evaluates certain relevant criteria including the existence of deferred tax liabilities that can be used to realize deferred tax assets, the taxable income in prior carryback years in the impacted state and international jurisdictions that can be used to absorb net operating losses and taxable income in future years. Judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to these deferred tax assets, which may result in an increase or decrease to the income tax provision in future periods.
The Company accounts for uncertain tax positions by first determining if it is “more likely than not” that a tax position will be sustained by the appropriate taxing authorities prior to recording any benefit in the Consolidated Financial Statements. An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained. For those tax positions where it is more likely than not that a tax position will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Management classifies interest and penalties related to uncertain tax positions within the provision for income taxes line of the Consolidated Statements of Income. Management reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in known facts or circumstances, changes in tax law, effectively settled issues under audit, and new guidance on legislative interpretations. A change in these factors could result in the recognition of an increase or decrease to the Company's income tax provision which could materially impact its consolidated financial position and results of operations.
In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement and royalty arrangements among related entities. Although the Company believes its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in the historical income tax provisions and income tax liabilities. In the event management's assumptions are incorrect, the differences could have a material impact on its income tax provision and operating results in the period in which such determination is made. In addition to the factors described above, the current and expected effective tax rate is based on then-current tax law. Significant changes in enacted tax law could affect these estimates. See Note 12, Income Taxes, of the Notes to Consolidated Financial Statements for further information related to income taxes.
q.Earnings Per Share of Common Stock
Basic earnings per share is computed based only on the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other potentially dilutive securities using the treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock options and restricted stock units is computed using the average market price for the respective period. In addition, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of stock options that are in-the-money and restricted stock units. This results in the “assumed” buyback of additional shares, thereby reducing the dilutive impact of in-the-money stock options. Potential shares related to certain of the Company’s outstanding stock options and restricted stock units were excluded because they were anti-dilutive. Those potential shares, determined based on the weighted average exercise prices during the respective periods, could be dilutive in the future.
In connection with the acquisition of Linear Technology Corporate (Linear), the Company granted restricted stock awards to replace outstanding restricted stock awards of Linear employees. These restricted stock awards entitle recipients to voting and nonforfeitable dividend rights from the date of grant. These unvested stock-based compensation awards are considered participating securities and the two-class method is used for purposes of calculating earnings per share. 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, as shown in the table below. The difference between the income allocated to participating securities under the basic and diluted two-class methods is not material.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018 (1)
|
Net income
|
$
|
1,220,761
|
|
|
$
|
1,363,011
|
|
|
$
|
1,506,980
|
|
Less: income allocated to participating securities (2)
|
—
|
|
|
3,229
|
|
|
5,909
|
|
Net income allocated to common shareholders
|
$
|
1,220,761
|
|
|
$
|
1,359,782
|
|
|
$
|
1,501,071
|
|
|
|
|
|
|
|
Basic shares:
|
|
|
|
|
|
Weighted-average shares outstanding
|
368,633
|
|
|
369,133
|
|
|
370,430
|
|
Earnings per common share basic
|
$
|
3.31
|
|
|
$
|
3.68
|
|
|
$
|
4.05
|
|
|
|
|
|
|
|
Diluted shares:
|
|
|
|
|
|
Weighted-average shares outstanding
|
368,633
|
|
|
369,133
|
|
|
370,430
|
|
Assumed exercise of common stock equivalents
|
3,340
|
|
|
3,738
|
|
|
4,508
|
|
Weighted-average common and common equivalent shares
|
371,973
|
|
|
372,871
|
|
|
374,938
|
|
Earnings per common share diluted
|
$
|
3.28
|
|
|
$
|
3.65
|
|
|
$
|
4.00
|
|
Anti-dilutive shares related to:
|
|
|
|
|
|
Outstanding stock options
|
460
|
|
|
826
|
|
|
1,649
|
|
_______________________________________
(1)Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, of the Notes to Consolidated Financial Statements.
(2)For the year ended October 31, 2020, the amount is not material.
r.Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards ultimately expected to vest and is recognized as an expense on a straight-line basis over the vesting period, which is generally four years for stock options and restricted stock units, or in annual installments of 25% on each of the first, second, third and fourth anniversaries of the date of grant. Restricted stock units with service and performance or market conditions generally vest over a three-year performance period. For grants issued prior to fiscal 2018, the vesting period was generally five years for stock options, or in annual installments of 20% on each of the first, second, third, fourth and fifth anniversaries of the date of grant and in one installment on the third anniversary of the date of grant for restricted stock units/awards. The maximum contractual term of all stock options is ten years.
Determining the amount of stock-based compensation expense to be recorded requires the Company to develop estimates used in calculating the grant-date fair value of awards. These estimates may be based on different valuation models depending upon the type of award and may include assumptions, such as expected volatility, expected term, risk-free interest rate, expected dividend yield, forfeiture rate and others. The Company uses the Black-Scholes valuation model to calculate the grant-date fair value of stock option awards. The grant-date fair value of restricted stock units with a service condition and restricted stock units with both service and performance conditions are calculated using the value of the Company's common stock on the date of grant, reduced by the present value of dividends expected to be paid on the Company's common stock prior to vesting. For restricted stock units with both service and performance conditions, this grant-date fair value is also impacted by the number of units that are expected to vest during the performance period and is adjusted through the related stock-based compensation expense at each reporting period based on the probability of achievement of that performance condition. If the Company determines that an award is unlikely to vest, any previously recorded stock-based compensation expense is reversed in the period of that determination. The grant date fair value of restricted stock units with both service and market conditions is calculated using the Monte Carlo simulation model to estimate the probability of satisfying the performance condition stipulated in the award grant, including the possibility that the market condition may not be satisfied.
See Note 3, Stock-Based Compensation and Shareholders' Equity, of the Notes to Consolidated Financial Statements for additional information relating to stock-based compensation.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
s.New Accounting Pronouncements
Standards Implemented During Current Fiscal Year
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 historical 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 exist 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 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 Consolidated Balance Sheets. There was no material impact to the Consolidated Statements of Income or Consolidated Statements of Cash Flows. Please refer to Note 9, Leases, of the Notes to Consolidated Financial Statements for information regarding the Company's lease portfolio as of October 31, 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 12, Income Taxes, of the Notes to Consolidated Financial Statements 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 an 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; and
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
•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 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 May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief (ASU 2019-05). 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 2016-13 and ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. ASU 2016-13 and ASU 2019-05 are effective for the Company in the first quarter of fiscal 2021. The Company does not expect this update to have a material impact on its financial position and results of operations.
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. ASU 2019-12 is effective for the Company in the first quarter of fiscal 2021. The Company does not expect this update to have a material impact on its financial position and results of operations.
3. Stock-Based Compensation and Shareholders’ Equity
Equity Compensation Plans
The Company grants, or has granted, stock options and other stock and stock-based awards under the Company's 2020 Equity Incentive Plan (2020 Plan), which was approved by shareholders in March 2020. The 2020 Plan provides for the grant of up to 21.2 million shares of the Company’s common stock, which includes shares under the Company’s previous equity compensation plans, including the Amended and Restated 2006 Stock Incentive Plan, the Linear Technology Corporation Amended and Restated 2005 Equity Incentive Plan and the Amended and Restated 2010 Equity Incentive Plan. The 2020 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. Employees, officers, directors, consultants and advisors of the Company and its subsidiaries are eligible to be granted awards under the 2020 Plan. No award may be made under the 2020 Plan after March 11, 2030, but awards previously granted may extend beyond that date. The Company does not intend to grant further equity awards under any previous equity compensation plans. As of October 31, 2020, a total of 19.6 million common shares were available for future grant under the 2020 Plan.
Modification of Awards
The Company has, from time to time, modified the terms of its equity awards to employees and directors. The modifications made to the Company’s equity awards in fiscal 2020, fiscal 2019 and fiscal 2018 did not result in significant incremental compensation costs, either individually or in the aggregate.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Grant-Date Fair Value of Stock Options
Information pertaining to the Company’s stock option awards and the related estimated weighted-average assumptions to calculate the fair value of stock options using the Black-Scholes valuation model granted in fiscal 2020, fiscal 2019 and fiscal 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Options granted (in thousands)
|
359
|
|
|
454
|
|
|
603
|
|
Weighted-average exercise price
|
$94.41
|
|
|
$107.11
|
|
|
$90.98
|
|
Weighted-average grant-date fair value
|
$18.81
|
|
|
$23.29
|
|
|
$20.82
|
|
Assumptions:
|
|
|
|
|
|
Weighted-average expected volatility
|
29.5
|
%
|
|
26.4
|
%
|
|
27.7
|
%
|
Weighted-average expected term (in years)
|
5.0
|
|
5.0
|
|
5.0
|
Weighted-average risk-free interest rate
|
0.7
|
%
|
|
2.4
|
%
|
|
2.6
|
%
|
Weighted-average expected dividend yield
|
2.6
|
%
|
|
2.0
|
%
|
|
2.1
|
%
|
Expected volatility — The Company is responsible for estimating volatility and has considered a number of factors, including third-party estimates. The Company currently believes that the exclusive use of implied volatility results in the best estimate of the grant-date fair value of employee stock options because it reflects the market’s current expectations of future volatility. In evaluating the appropriateness of exclusively relying on implied volatility, the Company concluded that: (1) options in the Company’s common stock are actively traded with sufficient volume on several exchanges; (2) the market prices of both the traded options and the underlying shares are measured at a similar point in time to each other and on a date close to the grant date of the employee share options; (3) the traded options have exercise prices that are both near-the-money and close to the exercise price of the employee share options; and (4) the remaining maturities of the traded options used to estimate volatility are at least one year.
Expected term — The Company uses historical employee exercise and option expiration data to estimate the expected term assumption for the Black-Scholes grant-date valuation. The Company believes that this historical data is currently the best estimate of the expected term of a new option, and that generally its employees exhibit similar exercise behavior.
Risk-free interest rate — The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term assumption is used as the risk-free interest rate.
Expected dividend yield — Expected dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors for the current quarter and dividing that result by the closing stock price on the date of grant. Until such time as the Company’s Board of Directors declares a cash dividend for an amount that is different from the current quarter’s cash dividend, the current dividend will be used in deriving this assumption. Cash dividends are not paid on options, restricted stock or restricted stock units. In connection with the acquisition of Linear in fiscal 2017, the Company granted restricted stock awards to replace outstanding restricted stock awards of Linear employees. These restricted stock awards entitle recipients to voting and nonforfeitable dividend rights from the date of grant.
Stock-Based Compensation Expense
The amount of stock-based compensation expense recognized during a period is based on the value of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock-based award. Based on an analysis of its historical forfeitures, the Company has applied an annual forfeiture rate of 5.0% to all unvested stock-based awards as of October 31, 2020. This analysis will be re-evaluated annually and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those awards that vest.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Total stock-based compensation expense recognized is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Cost of sales
|
|
$
|
17,684
|
|
|
$
|
20,628
|
|
|
$
|
18,733
|
|
Research and development
|
|
73,366
|
|
|
75,305
|
|
|
81,444
|
|
Selling, marketing, general and administrative
|
|
56,838
|
|
|
51,829
|
|
|
50,988
|
|
Special charges
|
|
1,630
|
|
|
2,538
|
|
|
—
|
|
Total stock-based compensation expense
|
|
$
|
149,518
|
|
|
$
|
150,300
|
|
|
$
|
151,165
|
|
As of October 31, 2020 and November 2, 2019, the Company capitalized $5.8 million and $6.8 million, respectively, of stock-based compensation in inventory.
Stock-Based Compensation Activity
A summary of the activity under the Company’s stock option plans as of October 31, 2020 and changes during the fiscal year 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
|
(1,221)
|
|
|
$56.02
|
|
|
|
|
|
Options forfeited
|
(129)
|
|
|
$82.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at October 31, 2020
|
4,192
|
|
|
$70.73
|
|
|
5.8
|
|
$200,398
|
|
Options exercisable at October 31, 2020
|
2,677
|
|
|
$61.23
|
|
|
4.7
|
|
$153,408
|
|
Options vested or expected to vest at October 31, 2020 (1)
|
4,109
|
|
|
$70.29
|
|
|
5.7
|
|
$198,237
|
|
_______________________________________
(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.
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) during fiscal 2020, fiscal 2019 and fiscal 2018 was $76.3 million, $132.3 million and $123.8 million, respectively.
A summary of the Company’s restricted stock unit award activity as of October 31, 2020 and changes during the fiscal year 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
|
1,413
|
|
|
$97.44
|
|
Restrictions lapsed
|
(1,876)
|
|
|
$85.41
|
|
Forfeited
|
(296)
|
|
|
$89.45
|
|
Restricted stock units/awards outstanding at October 31, 2020
|
3,637
|
|
|
$91.54
|
|
As of October 31, 2020, there was $280.9 million of total unrecognized compensation cost related to unvested stock-based awards comprised of stock options and restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.3 years. The total grant-date fair value of awards that vested during fiscal 2020, fiscal 2019 and fiscal 2018 was approximately $174.1 million, $150.6 million and $136.1 million, respectively.
Common Stock Repurchases
The Company’s share repurchase program has been in place since August 2004. In the aggregate, the Board of Directors has authorized the Company to repurchase $8.2 billion of the Company’s common stock under the program, which includes the $2.0 billion authorization approved by the Board of Directors on August 21, 2018. The Company may repurchase outstanding shares of its common stock from time to time in the open market and through privately negotiated transactions. Unless
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
terminated earlier by resolution of the Company’s Board of Directors, the repurchase program will expire when the Company has repurchased all shares authorized under the program. As of October 31, 2020, the Company had repurchased a total of approximately 156.1 million shares of its common stock for approximately $6.3 billion under this program. An additional $1.9 billion remains available for repurchase of shares under the current authorized program. The repurchased shares are held as authorized but unissued shares of common stock.
In March 2020, the Company temporarily suspended the share repurchase program as a result of the global macroeconomic environment. That suspension continued through the fourth quarter of fiscal 2020 given the planned acquisition of Maxim (see Note 6, Acquisitions, of the Notes to Consolidated Financial Statements). The Company reinstated the common stock repurchase program effective November 2020 (fiscal 2021). 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.
The Company also, from time to time, repurchases shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options. The withholding amount is based on the employee's minimum statutory withholding requirement. Any future common stock repurchases will be dependent upon several factors, including the Company's financial performance, outlook, liquidity and the amount of cash the Company has available in the United States.
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 Consolidated Statement of Income.
Preferred Stock
The Company has 471,934 authorized shares of $1.00 par value preferred stock, none of which is issued or outstanding. The Board of Directors is authorized to fix designations, relative rights, preferences and limitations on the preferred stock at the time of issuance.
4. Industry, Segment and Geographic Information
The Company operates and tracks its results in one reportable segment based on the aggregation of eight operating segments. The Company designs, develops, manufactures and markets a broad range of integrated circuits (ICs). The Chief Executive Officer has been identified as the Company's Chief Operating Decision Maker. The Company has determined that all of the Company's operating segments share the following similar economic characteristics, and therefore meet the criteria established for operating segments to be aggregated into one reportable segment, namely:
•The primary source of revenue for each operating segment is the sale of ICs.
•The ICs sold by each of the Company's operating segments are manufactured using similar semiconductor manufacturing processes and raw materials in either the Company’s own production facilities or by third-party wafer fabricators using proprietary processes.
•The Company sells its products to tens of thousands of customers worldwide. Many of these customers use products spanning all operating segments in a wide range of applications.
•The ICs marketed by each of the Company's operating segments are sold globally through a direct sales force, third-party distributors, independent sales representatives and via our website to the same types of customers.
All of the Company's operating segments share a similar long-term financial model as they have similar economic characteristics. The causes for variation in operating and financial performance are the same among the Company's operating segments and include factors such as (i) life cycle and price and cost fluctuations, (ii) number of competitors, (iii) product differentiation and (iv) size of market opportunity. Additionally, each operating segment is subject to the overall cyclical nature of the semiconductor industry. Lastly, the number and composition of employees and the amounts and types of tools and materials required for production of products are proportionally similar for each operating segment.
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 evolves and improves, the categorization of
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
2018 (1)
|
|
Revenue
|
|
% of
Total
Revenue (2)
|
|
|
|
Revenue
|
|
% of
Total
Revenue (2)
|
|
Revenue
|
|
% of
Total
Revenue (2)
|
Industrial
|
$
|
2,987,542
|
|
|
53
|
%
|
|
|
|
$
|
3,011,411
|
|
|
50
|
%
|
|
$
|
3,143,566
|
|
|
51
|
%
|
Communications
|
1,195,946
|
|
|
21
|
%
|
|
|
|
1,294,960
|
|
|
22
|
%
|
|
1,155,826
|
|
|
19
|
%
|
Automotive
|
779,276
|
|
|
14
|
%
|
|
|
|
930,613
|
|
|
16
|
%
|
|
1,006,886
|
|
|
16
|
%
|
Consumer
|
640,292
|
|
|
11
|
%
|
|
|
|
754,081
|
|
|
13
|
%
|
|
918,411
|
|
|
15
|
%
|
Total revenue
|
$
|
5,603,056
|
|
|
100
|
%
|
|
|
|
$
|
5,991,065
|
|
|
100
|
%
|
|
$
|
6,224,689
|
|
|
100
|
%
|
_______________________________________
(1)Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, of the Notes to Consolidated Financial Statements.
(2)The sum of the individual percentages may not equal the total due to rounding.
Revenue by Sales Channel
The following tables summarize revenue by sales 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
2018 (1)
|
|
Revenue
|
|
% of
Total
Revenue (2)
|
|
|
Revenue
|
|
% of
Total
Revenue (2)
|
|
Revenue
|
|
% of
Total
Revenue (2)
|
Distributors
|
$
|
3,216,302
|
|
|
57
|
%
|
|
|
$
|
3,409,161
|
|
|
57
|
%
|
|
$
|
3,424,145
|
|
|
55
|
%
|
Direct customers
|
2,300,493
|
|
|
41
|
%
|
|
|
2,506,065
|
|
|
42
|
%
|
|
2,721,885
|
|
|
44
|
%
|
Other
|
86,261
|
|
|
2
|
%
|
|
|
75,839
|
|
|
1
|
%
|
|
78,659
|
|
|
1
|
%
|
Total revenue
|
$
|
5,603,056
|
|
|
100
|
%
|
|
|
$
|
5,991,065
|
|
|
100
|
%
|
|
$
|
6,224,689
|
|
|
100
|
%
|
_______________________________________
(1)Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, of the Notes to Consolidated Financial Statements.
(2)The sum of the individual percentages may not equal the total due to rounding.
Geographic Information
Geographic revenue information for fiscal 2020, fiscal 2019 and fiscal 2018 reflects the geographic location of the distributors or OEMs who purchased the Company's products. This may differ from the geographic location of the end customers. In all periods presented, the predominant countries comprising “Rest of North and South America” are Canada and Mexico; the predominant countries comprising “Europe” are Germany, Sweden, and the Netherlands; and the predominant countries comprising “Rest of Asia” are Taiwan, Malaysia, South Korea and Singapore.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018 (1)
|
Revenue
|
|
|
|
|
|
United States
|
$
|
1,887,443
|
|
|
$
|
2,020,886
|
|
|
$
|
2,277,084
|
|
Rest of North and South America
|
41,250
|
|
|
55,059
|
|
|
46,276
|
|
Europe
|
1,245,695
|
|
|
1,374,673
|
|
|
1,405,686
|
|
Japan
|
521,720
|
|
|
657,632
|
|
|
714,846
|
|
China
|
1,348,011
|
|
|
1,316,275
|
|
|
1,215,949
|
|
Rest of Asia
|
558,937
|
|
|
566,540
|
|
|
564,848
|
|
Subtotal all foreign countries
|
3,715,613
|
|
|
3,970,179
|
|
|
3,947,605
|
|
Total revenue
|
$
|
5,603,056
|
|
|
$
|
5,991,065
|
|
|
$
|
6,224,689
|
|
Property, plant and equipment
|
|
|
|
|
|
United States
|
$
|
579,755
|
|
|
$
|
592,591
|
|
|
$
|
505,646
|
|
Ireland
|
169,968
|
|
|
184,791
|
|
|
202,611
|
|
Philippines
|
256,470
|
|
|
247,823
|
|
|
260,355
|
|
Singapore (2)
|
18,518
|
|
|
88,385
|
|
|
80,383
|
|
Malaysia
|
53,616
|
|
|
56,292
|
|
|
57,514
|
|
All other countries
|
42,234
|
|
|
50,107
|
|
|
47,819
|
|
Subtotal all foreign countries
|
540,806
|
|
|
627,398
|
|
|
648,682
|
|
Total property, plant and equipment
|
$
|
1,120,561
|
|
|
$
|
1,219,989
|
|
|
$
|
1,154,328
|
|
_______________________________________
(1)Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, of the Notes to Consolidated Financial Statements.
(2)As further discussed in Note 5, Special Charges, of the Notes to Consolidated Financial Statements the Company is planning to transition testing operations currently handled in its Singapore facility to its facilities in Penang, Malaysia and the Philippines and also to its outsourced assembly and test partners. As discussed in Note 2e, Property, Plant and Equipment, of the Notes to Consolidated Financial Statements, management has entered into an agreement to sell the facility and transfer the related land lease in Singapore in May 2021 and has classified $22.2 million as assets held for sale as of October 31, 2020.
5. Special Charges
The Company monitors global macroeconomic conditions on an ongoing basis and continues to assess opportunities for improved operational effectiveness and efficiency, as well as a better alignment of expenses with revenues. As a result of these assessments, the Company has undertaken various actions resulting in special charges over the past several years. The following table displays a roll-forward from October 28, 2017 to October 31, 2020 of the employee separation and exit cost accruals established related to these actions along with related commentary.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Special Charges
|
Closure of Manufacturing Facilities
|
|
|
|
|
|
Repositioning Action
|
|
Other Actions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 28, 2017
|
$
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
37,348
|
|
Fiscal 2018 special charges, net
|
44,452
|
|
|
|
|
|
|
—
|
|
|
16,866
|
|
Severance and other payments
|
—
|
|
|
|
|
|
|
—
|
|
|
(39,099)
|
|
Effect of foreign currency on accrual
|
(1,478)
|
|
|
|
|
|
|
—
|
|
|
37
|
|
Balance at November 3, 2018
|
$
|
42,974
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
15,152
|
|
Fiscal 2019 special charges, net
|
7,556
|
|
|
|
|
|
|
88,103
|
|
|
—
|
|
Severance and other payments
|
—
|
|
|
|
|
|
|
(12,487)
|
|
|
(9,634)
|
|
Non-cash impairment charge
|
—
|
|
|
|
|
|
|
(14,167)
|
|
|
—
|
|
Non-cash accelerated stock based compensation charges
|
—
|
|
|
|
|
|
|
(2,538)
|
|
|
—
|
|
Effect of foreign currency on accrual
|
(129)
|
|
|
|
|
|
|
(16)
|
|
|
5
|
|
Balance at November 2, 2019
|
$
|
50,401
|
|
|
|
|
|
|
$
|
58,895
|
|
|
$
|
5,523
|
|
Fiscal 2020 special charges, net
|
2,918
|
|
|
|
|
|
|
49,419
|
|
|
—
|
|
Severance and other payments
|
(8,113)
|
|
|
|
|
|
|
(85,957)
|
|
|
(2,034)
|
|
Non-cash impairment charge
|
—
|
|
|
|
|
|
|
—
|
|
|
—
|
|
Non-cash accelerated stock based compensation charges
|
—
|
|
|
|
|
|
|
(1,630)
|
|
|
—
|
|
Effect of foreign currency on accrual
|
(30)
|
|
|
|
|
|
|
47
|
|
—
|
|
Balance at October 31, 2020
|
$
|
45,176
|
|
|
|
|
|
|
$
|
20,774
|
|
|
$
|
3,489
|
|
Accrued liabilities
|
$
|
45,176
|
|
|
|
|
|
|
$
|
20,774
|
|
|
$
|
3,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of Manufacturing Facilities
The Company recorded special charges of $54.9 million on a cumulative basis through October 31, 2020 as a result of its decision to consolidate certain wafer and test facility operations acquired as part of the acquisition of Linear. The Company plans to close its Hillview wafer fabrication facility located in Milpitas, California and its Singapore test facility in fiscal 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, and also 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 and one-time termination benefits for the impacted manufacturing, engineering and selling, marketing, general and administrative (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.
Repositioning Actions
The Company recorded special charges of $137.5 million on a cumulative basis through October 31, 2020 as a result of organizational initiatives to better align its global workforce with its long-term strategic plan. Approximately $123.3 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 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.
Other Actions
During fiscal 2018, the Company recorded special charges of approximately $16.9 million for severance and fringe benefit costs in accordance with the Company's ongoing benefit plan or statutory requirements at foreign locations as part of an action to reduce certain operating costs.
6. Acquisitions
Linear Technology Corporation
On March 10, 2017 (Acquisition Date), the Company completed its acquisition of all of the voting interests of Linear, an independent manufacturer of high performance analog integrated circuits. Under the terms of the agreement pursuant to which the Company acquired Linear, Linear stockholders received, for each outstanding share of Linear common stock, $46.00 in
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
cash and 0.2321 of a share of the Company's common stock at the closing. The results of operations of Linear from the Acquisition Date are included in the Company’s Consolidated Financial Statements for fiscal 2017. The Company completed the acquisition accounting for Linear in fiscal 2018.
Proposed Acquisition of Maxim Integrated Products, Inc.
On July 12, 2020, the Company entered into 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 $23.0 billion based on the closing price of the Company's common stock on November 20, 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 receipt of certain non-U.S. regulatory approvals. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has expired. The Merger Agreement includes termination rights for both the Company and Maxim. 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 circumstances involving the failure to obtain the required regulatory approvals. On October 8, 2020, the required shareholder approvals relating to the Merger Agreement were obtained from both the Company’s shareholders and Maxim’s stockholders.
In fiscal 2020, the Company incurred $20.1 million of transaction-related costs related to the anticipated acquisition of Maxim recorded within Selling, marketing, general and administrative expenses in the Company's Consolidated Statements of Income.
Other Acquisitions
The Company has not provided pro forma results of operations for any acquisitions completed in fiscal 2020, fiscal 2019 or fiscal 2018 herein as they were not material to the Company on either an individual or an aggregate basis. The Company included the results of operations of each acquisition in its Consolidated Statements of Income from the closing date of each acquisition.
7. Other Investments
Other investments consist of interests in venture capital funds and other long-term investments. Investments are accounted for using the equity method of accounting or cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. For equity method investments, realized gains and losses are reflected in nonoperating (income) expense based upon the Company's ownership share of the investee's financial results.
The Company recognized other-than-temporary impairments of $0.5 million and $6.6 million in fiscal 2020 and fiscal 2019, respectively. These charges were recorded in the Consolidated Statements of Income in Other, net, within Non-operating (income) expense.
8. Accrued Liabilities
Accrued liabilities at October 31, 2020 and November 2, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Distributor price adjustments and other revenue reserves
|
$
|
257,343
|
|
|
$
|
227,020
|
|
Accrued compensation and benefits
|
203,675
|
|
|
168,471
|
|
Interest rate swap
|
214,586
|
|
|
138,798
|
|
Accrued interest
|
56,083
|
|
|
61,255
|
|
Accrued special charges
|
69,439
|
|
|
64,418
|
|
Other
|
154,507
|
|
|
135,854
|
|
Total accrued liabilities
|
$
|
955,633
|
|
|
$
|
795,816
|
|
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. 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 2s, New Accounting Pronouncements, of the Notes to 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 on a straight-line basis 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:
|
|
|
|
|
|
|
October 31, 2020
|
Assets
|
|
Operating lease right-of-use assets in Other assets
|
$
|
256,625
|
|
Liabilities
|
|
Operating lease liabilities in Accrued liabilities
|
$
|
39,923
|
|
Operating lease liabilities in Other non-current liabilities
|
$
|
288,492
|
|
Details of the Company's operating leases are as follows:
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
Lease expense
|
|
|
$
|
45,892
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
|
|
Operating cash flows from operating leases
|
|
|
$
|
47,243
|
|
Lease assets obtained in exchange for new lease liabilities
|
|
|
$
|
54,392
|
|
Weighted average remaining lease term
|
|
|
9.2 years
|
Weighted average discount rate
|
|
|
3.1%
|
The following table presents the maturities of the Company's operating lease liabilities as of October 31, 2020:
|
|
|
|
|
|
Fiscal year
|
Operating Leases
|
2021
|
$
|
49,526
|
|
2022
|
43,834
|
|
2023
|
39,204
|
|
2024
|
38,335
|
|
2025
|
36,235
|
|
Thereafter
|
173,709
|
|
Total future minimum operating lease payments
|
380,843
|
|
Less: imputed interest
|
(52,428)
|
|
Present value of operating lease liabilities
|
$
|
328,415
|
|
10. Commitments and Contingencies
From time to time, in the ordinary course of the Company’s business, various claims, charges and litigation are asserted or commenced against the Company arising from, or related to, among other things, contractual matters, acquisitions, patents, trademarks, personal injury, environmental matters, product liability, insurance coverage, employment or employment benefits. As to such claims and litigation, the Company can give no assurance that it will prevail. The Company does not believe that any current legal matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
11. Retirement Plans
The Company and its subsidiaries have various savings and retirement plans covering substantially all employees.
Defined Contribution Plans
The Company maintains a defined contribution plan for the benefit of its eligible U.S. employees. This plan provides for Company contributions of up to 5% of each participant’s total eligible compensation. In addition, the Company contributes an amount equal to each participant’s pre-tax contribution, if any, up to a maximum of 3% of each participant’s total eligible compensation. The total expense related to the defined contribution plans for U.S. employees was $48.7 million in fiscal 2020, $47.7 million in fiscal 2019 and $41.4 million in fiscal 2018.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Non-Qualified Deferred Compensation Plan
The Deferred Compensation Plan (DCP) allows certain members of management and other highly-compensated employees and non-employee directors to defer receipt of all or any portion of their compensation. The DCP was established to provide participants with the opportunity to defer receiving all or a portion of their compensation, which includes salary, bonus, commissions and director fees. Under the DCP, the Company provides all participants (other than non-employee directors) with Company contributions equal to 8% of eligible deferred contributions. The DCP is a non-qualified plan that is maintained in a rabbi trust. The fair value of the investments held in the rabbi trust are included within other investments, with the current portion of the investment included in prepaid expenses and other current assets in the Consolidated Balance Sheets. See Note 2j, Fair Value, of the Notes to Consolidated Financial Statements for further information on these investments. The deferred compensation obligation represents DCP participant accumulated deferrals and earnings thereon since the inception of the DCP net of withdrawals. The deferred compensation obligation is included within other non-current liabilities, with the current portion of the obligation in accrued liabilities in the Consolidated Balance Sheets. The Company’s liability under the DCP is an unsecured general obligation of the Company.
Defined Benefit Pension Plans
The Company also has various defined benefit pension and other retirement plans for certain non-U.S. employees that are consistent with local statutory requirements and practices. The total expense related to the various defined benefit pension, contribution and other retirement plans for certain non-U.S. employees was $37.6 million in fiscal 2020, $35.8 million in fiscal 2019 and $36.3 million in fiscal 2018.
The Company’s funding policy for its foreign defined benefit pension plans is consistent with the local requirements of each country. The plans’ assets consist primarily of U.S. and non-U.S. equity securities, bonds, property and cash. The Company has elected to measure defined benefit plan assets and obligations as of October 31, which is the month-end that is closest to its fiscal year-ends, which were October 31, 2020 for fiscal 2020 and November 2, 2019 for fiscal 2019.
Components of Net Periodic Benefit Cost
Net annual periodic benefit cost of non-U.S. plans for fiscal 2020, fiscal 2019 and fiscal 2018 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Service cost
|
$
|
8,587
|
|
|
$
|
5,578
|
|
|
$
|
6,891
|
|
Interest cost
|
3,917
|
|
|
4,079
|
|
|
3,984
|
|
Expected return on plan assets
|
(5,296)
|
|
|
(5,279)
|
|
|
(4,559)
|
|
Amortization of prior service cost
|
—
|
|
|
3
|
|
|
1
|
|
Amortization of transition obligation
|
—
|
|
|
—
|
|
|
10
|
|
Recognized actuarial loss
|
2,583
|
|
|
1,000
|
|
|
1,621
|
|
Subtotal
|
$
|
9,791
|
|
|
$
|
5,381
|
|
|
$
|
7,948
|
|
Curtailment impact
|
(203)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
9,588
|
|
|
$
|
5,381
|
|
|
$
|
7,948
|
|
The service cost component of net periodic benefit cost above is recorded in Cost of sales, Research and development, Selling, marketing, general and administrative expenses within the Consolidated Statements of Income, while the remaining components are recorded to Other, net.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Benefit Obligations and Plan Assets
Obligation and asset data of the Company’s non-U.S. plans at October 31, 2020 and November 2, 2019 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Change in Benefit Obligation
|
|
|
|
Benefit obligation at beginning of year
|
$
|
169,648
|
|
|
$
|
123,538
|
|
Service cost
|
8,587
|
|
|
5,578
|
|
Interest cost
|
3,917
|
|
|
4,079
|
|
|
|
|
|
|
|
|
|
Curtailment
|
(705)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
2,916
|
|
|
38,210
|
|
Benefits paid
|
(2,661)
|
|
|
(3,053)
|
|
Exchange rate adjustment
|
5,033
|
|
|
1,296
|
|
Benefit obligation at end of year
|
$
|
186,735
|
|
|
$
|
169,648
|
|
Change in Plan Assets
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
99,939
|
|
|
$
|
84,655
|
|
Actual return on plan assets
|
1,366
|
|
|
12,389
|
|
Employer contributions
|
6,943
|
|
|
4,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
(2,661)
|
|
|
(3,053)
|
|
Exchange rate adjustment
|
1,918
|
|
|
1,771
|
|
Fair value of plan assets at end of year
|
$
|
107,505
|
|
|
$
|
99,939
|
|
Reconciliation of Funded Status
|
|
|
|
Funded status
|
$
|
(79,230)
|
|
|
$
|
(69,709)
|
|
Amounts Recognized in the Balance Sheet
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
(973)
|
|
|
$
|
(846)
|
|
Non-current liabilities
|
(78,257)
|
|
|
(68,863)
|
|
Net amount recognized
|
$
|
(79,230)
|
|
|
$
|
(69,709)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Reconciliation of Amounts Recognized in the Statement of Financial Position
|
|
|
|
|
|
|
|
Prior service credit
|
(44)
|
|
|
(44)
|
|
Net loss
|
(55,942)
|
|
|
(50,878)
|
|
Accumulated other comprehensive loss
|
(55,986)
|
|
|
(50,922)
|
|
Accumulated contributions less than net periodic benefit cost
|
(23,244)
|
|
|
(18,787)
|
|
Net amount recognized
|
$
|
(79,230)
|
|
|
$
|
(69,709)
|
|
Changes Recognized in Other Comprehensive Income (Loss)
|
|
|
|
Changes in plan assets and benefit obligations recognized in other comprehensive income (loss)
|
|
|
|
|
|
|
|
Net loss arising during the year
|
$
|
6,342
|
|
|
$
|
31,100
|
|
Effect of exchange rates on amounts included in AOCI
|
1,305
|
|
|
(18)
|
|
Amounts recognized as a component of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
Amortization or settlement recognition of net loss
|
(2,583)
|
|
|
(1,004)
|
|
Total recognized in other comprehensive loss
|
$
|
5,064
|
|
|
$
|
30,078
|
|
Total recognized in net periodic cost and other comprehensive loss
|
$
|
14,652
|
|
|
$
|
35,459
|
|
Estimated amounts that will be amortized from AOCI over the next fiscal year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
$
|
(2,845)
|
|
|
$
|
(2,583)
|
|
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The accumulated benefit obligation for non-U.S. pension plans was $155.5 million and $138.1 million at October 31, 2020 and November 2, 2019, respectively.
Information relating to the Company’s non-U.S. plans with projected benefit obligations in excess of plan assets and accumulated benefit obligations in excess of plan assets at October 31, 2020 and November 2, 2019 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Plans with projected benefit obligations in excess of plan assets:
|
|
|
|
Projected benefit obligation
|
$
|
186,735
|
|
|
$
|
169,648
|
|
Fair value of plan assets
|
$
|
107,505
|
|
|
$
|
99,939
|
|
Plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
Projected benefit obligation
|
$
|
141,982
|
|
|
$
|
61,019
|
|
Accumulated benefit obligation
|
$
|
132,517
|
|
|
$
|
54,318
|
|
Fair value of plan assets
|
$
|
69,250
|
|
|
$
|
1,305
|
|
Assumptions
The range of assumptions used for the non-U.S. defined benefit plans reflects the different economic environments within the various countries as well as the differences in the attributes of the participants.
The projected benefit obligation was determined using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Discount rate
|
2.15
|
%
|
|
2.45
|
%
|
Rate of increase in compensation levels
|
3.19
|
%
|
|
3.38
|
%
|
Net annual periodic benefit cost was determined using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Discount rate
|
2.45
|
%
|
|
3.53
|
%
|
Expected long-term return on plan assets
|
5.22
|
%
|
|
6.16
|
%
|
Rate of increase in compensation levels
|
3.38
|
%
|
|
3.26
|
%
|
The expected long-term rate of return on assets is a weighted-average of the long-term rates of return selected for the various countries where the Company has funded pension plans. The expected long-term rate of return on assets assumption is selected based on the facts and circumstances that exist as of the measurement date and the specific portfolio mix of plan assets. Management, in conjunction with its actuaries, reviewed anticipated future long-term performance of individual asset categories and considered the asset allocation strategy adopted by the Company and/or the trustees of the plans. While the review considered recent fund performance and historical returns, the assumption is primarily a long-term prospective rate.
The Company’s investment strategy is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, in order to maximize the return on assets, a majority of assets in fiscal 2020 were invested in equities. Investments within each asset class are diversified to reduce the impact of losses in single investments. The use of derivative instruments is permitted where appropriate and necessary to achieve overall investment policy objectives and asset class targets. During fiscal 2020, one of the Company's plans began to implement a revised investment strategy that utilizes a greater range of asset classes to reduce risk associated with changes in long-term interest rates and inflation expectations. The investment portfolio will make use of two key types of investments: a) a range of instruments that provide a broad match to changes in liability values and provides protection against changes in interest rates and inflation; and b) a diversified portfolio of return-seeking assets including equities, real assets, secure income assets and credit securities.
The Company establishes strategic asset allocation percentage targets and appropriate benchmarks for each significant asset class to obtain a prudent balance between return and risk. The interaction between plan assets and benefit obligations is periodically studied by the Company and its actuaries to assist in the establishment of strategic asset allocation targets.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair value of plan assets
The following table presents plan assets measured at fair value on a recurring basis by investment categories as of October 31, 2020 and November 2, 2019 using the same three-level hierarchy described in Note 2j, Fair Value, of the Notes to Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
|
|
|
|
November 2, 2019
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using:
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using:
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
|
Total
|
Unit trust funds(1)
|
$
|
—
|
|
|
$
|
5,510
|
|
|
|
|
$
|
5,510
|
|
|
$
|
—
|
|
|
$
|
4,736
|
|
|
|
|
$
|
4,736
|
|
Equities(1)
|
7,134
|
|
|
12,733
|
|
|
|
|
19,867
|
|
|
6,114
|
|
|
39,189
|
|
|
|
|
45,303
|
|
Fixed income securities(2)
|
—
|
|
|
24,636
|
|
|
|
|
24,636
|
|
|
—
|
|
|
48,274
|
|
|
|
|
48,274
|
|
Property (3)
|
—
|
|
|
8,034
|
|
|
|
|
8,034
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Investment Funds (4)
|
—
|
|
|
21,960
|
|
|
|
|
21,960
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Cash and cash equivalents
|
27,498
|
|
|
—
|
|
|
|
|
27,498
|
|
|
1,626
|
|
|
—
|
|
|
|
|
1,626
|
|
Total assets measured at fair value
|
$
|
34,632
|
|
|
$
|
72,873
|
|
|
|
|
$
|
107,505
|
|
|
$
|
7,740
|
|
|
$
|
92,199
|
|
|
|
|
$
|
99,939
|
|
_______________________________________
(1)The majority of the assets in these categories are invested in a mix of equities, including those from North America, Europe and Asia. The funds are valued using the net asset value method in which an average of the market prices for underlying investments is used to value the fund. Due to the nature of the underlying assets of these funds, changes in market conditions and the economic environment may significantly impact the net asset value of these investments and, consequently, the fair value of the investments. These investments are redeemable at net asset value to the extent provided in the documentation governing the investments. However, these redemption rights may be restricted in accordance with governing documents. Publicly traded securities are valued at the last trade or closing price reported in the active market in which the individual securities are traded.
(2)Consists of funds primarily concentrated in non-U.S. debt instruments. The funds are valued using the net asset value method in which an average of the market prices for underlying investments is used to value the fund.
(3)Consists of funds that primarily invest in global real estate and infrastructure funds. The funds are valued using the net asset value method in which an average of the market prices for underlying investments is used to value the fund.
(4)Consists of liability driven investment funds that may hold a range of low-risk hedging instruments including but not limited to government bonds, interest rate and inflation swaps, physical inflation-linked and nominal gilts, synthetic gilts, cash and money market instruments. The investment funds are valued at the closing price reported if traded on an active market or at yields currently available on comparable securities of issuers with similar credit ratings.
Estimated future cash flows
Expected fiscal 2021 Company contributions and estimated future benefit payments are as follows:
|
|
|
|
|
|
Expected Company Contributions
|
|
2021
|
$
|
6,985
|
|
Expected Benefit Payments
|
|
|
|
2022
|
$
|
3,344
|
|
2023
|
$
|
2,906
|
|
2024
|
$
|
3,260
|
|
2025
|
$
|
3,359
|
|
2026
|
$
|
3,926
|
|
2027 through 2031
|
$
|
27,481
|
|
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. Income Taxes
The Tax Cuts and Jobs Act of 2017 (Tax Legislation), enacted on December 22, 2017, contained significant changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21.0%, implementing a territorial tax system, and imposing a one-time tax on deemed repatriated earnings of foreign subsidiaries. As a result, the Tax Legislation reduced the U.S. statutory tax rate from 35.0% to 21.0%, effective January 1, 2018, which resulted in a blended statutory income tax rate for the Company of 23.4% for fiscal 2018.
The Company's effective tax rate reflects the applicable tax rate in effect in the various tax jurisdictions around the world where the Company's income is earned. The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense for fiscal 2020, fiscal 2019 and fiscal 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018 (1)
|
U.S. federal statutory tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
23.4
|
%
|
Income tax provision reconciliation:
|
|
|
|
|
|
Tax at statutory rate
|
$
|
275,439
|
|
|
$
|
312,003
|
|
|
$
|
387,343
|
|
Net foreign income subject to lower tax rate
|
(225,937)
|
|
|
(242,893)
|
|
|
(420,756)
|
|
State income taxes, net of federal benefit
|
(23,537)
|
|
|
(31,265)
|
|
|
4,428
|
|
Valuation allowance
|
13,655
|
|
|
34,069
|
|
|
2,232
|
|
Federal research and development tax credits
|
(31,055)
|
|
|
(50,769)
|
|
|
(33,602)
|
|
Change in uncertain tax positions
|
(13,304)
|
|
|
7,233
|
|
|
(32,945)
|
|
Amortization of purchased intangibles
|
101,906
|
|
|
111,547
|
|
|
213,198
|
|
|
|
|
|
|
|
Taxes attributable to the Tax Cuts and Jobs Act of 2017
|
—
|
|
|
(7,500)
|
|
|
56,608
|
|
U.S. effects of international operations
|
11,903
|
|
|
19,782
|
|
|
—
|
|
Windfalls (under ASU 2016-09)
|
(16,240)
|
|
|
(28,677)
|
|
|
(26,237)
|
|
|
|
|
|
|
|
Other, net
|
(1,974)
|
|
|
(813)
|
|
|
(1,935)
|
|
Total income tax provision
|
$
|
90,856
|
|
|
$
|
122,717
|
|
|
$
|
148,334
|
|
_______________________________________
(1)Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, of the Notes to Consolidated Financial Statements.
Income before income taxes for fiscal 2020, fiscal 2019 and fiscal 2018 includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes (1)
|
2020
|
|
2019
|
|
2018 (2)
|
|
|
|
|
|
|
Domestic
|
$
|
355,442
|
|
|
$
|
484,876
|
|
|
$
|
615,238
|
|
Foreign
|
956,175
|
|
|
1,000,852
|
|
|
1,040,076
|
|
Income before income taxes
|
$
|
1,311,617
|
|
|
$
|
1,485,728
|
|
|
$
|
1,655,314
|
|
_______________________________________
(1)Income before income taxes reflects deemed intercompany royalties in all periods presented.
(2)Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, of the Notes to Consolidated Financial Statements
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of the provision for income taxes for fiscal 2020, fiscal 2019 and fiscal 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018 (1)
|
Current:
|
|
|
|
|
|
Federal tax
|
$
|
64,876
|
|
|
$
|
74,049
|
|
|
$
|
824,848
|
|
State
|
4,882
|
|
|
2
|
|
|
6,043
|
|
Foreign
|
135,046
|
|
|
139,919
|
|
|
47,819
|
|
Total current
|
$
|
204,804
|
|
|
$
|
213,970
|
|
|
$
|
878,710
|
|
Deferred:
|
|
|
|
|
|
Federal
|
$
|
(159,229)
|
|
|
$
|
(158,472)
|
|
|
$
|
(738,163)
|
|
State
|
(12,684)
|
|
|
(3,627)
|
|
|
1,092
|
|
Foreign
|
57,965
|
|
|
70,846
|
|
|
6,695
|
|
Total deferred
|
$
|
(113,948)
|
|
|
$
|
(91,253)
|
|
|
$
|
(730,376)
|
|
Provision for income tax
|
$
|
90,856
|
|
|
$
|
122,717
|
|
|
$
|
148,334
|
|
_______________________________________
(1)Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, of the Notes to Consolidated Financial Statements.
In fiscal 2018, the Company recorded a $637.0 million tax benefit for the re-measurement of deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21.0%. In addition, in fiscal 2018, the Company recorded a provisional tax expense amount for the one-time transition tax of $691.0 million, which is comprised of the $755.0 million transition tax liability less a deferred tax liability of $64.0 million that was recorded in prior years. In the first quarter of fiscal 2019, the Company completed its accounting for the income tax effects of the Tax Legislation, in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 and adjusted its provisional net charge by recording an additional tax benefit of $7.5 million for a change to its estimate for the transition tax due to the finalization of the aggregate foreign cash positions.
Additionally, the Tax Legislation subjects a U.S. shareholder to tax on global intangible low-taxed income (GILTI). Under U.S. GAAP, an accounting policy election can be made to either treat taxes due on the GILTI inclusion as a current period expense or to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years. The Company elected the deferral method and recorded the corresponding GILTI deferred tax assets and liabilities on its Consolidated Balance Sheets.
The Company carries other outside basis differences in its subsidiaries, primarily arising from purchase accounting adjustments and undistributed earnings that are considered indefinitely reinvested. As of October 31, 2020, the Company has not recognized deferred income tax on $22.8 billion of outside basis differences because of its intent and ability to indefinitely reinvest these basis differences. These basis differences could be reversed through a sale of the subsidiaries or the receipt of dividends from the subsidiaries, as well as various other events, none of which are considered probable at this time. Determination of the amount of unrecognized deferred income tax liability related to these outside basis differences is not practicable.
The Company adopted ASU 2016-16 in the first quarter of fiscal 2019 using the modified retrospective method with a cumulative-effect adjustment directly to retained earnings. The adoption of ASU 2016-16 resulted in a net cumulative-effect adjustment that resulted in an increase in retained earnings of $331.0 million, by recording new deferred tax assets from intra-entity transfers involving assets other than inventory, partially offset by a U.S. deferred tax liability related to GILTI. Adoption of the standard resulted in an increase in long-term deferred tax assets of $1.7 billion and an increase in long-term deferred tax liabilities of $1.3 billion.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The significant components of the Company’s deferred tax assets and liabilities for fiscal 2020 and fiscal 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Inventory reserves
|
$
|
17,074
|
|
|
$
|
21,081
|
|
|
|
|
|
Reserves for compensation and benefits
|
54,428
|
|
|
53,090
|
|
Tax credit carryovers
|
163,507
|
|
|
133,485
|
|
|
|
|
|
Stock-based compensation
|
12,758
|
|
|
63,589
|
|
|
|
|
|
|
|
|
|
Net operating losses
|
8,546
|
|
|
5,299
|
|
Intra-entity transfer of intangible assets
|
1,479,944
|
|
|
1,567,536
|
|
Lease liability
|
55,250
|
|
|
—
|
|
Other
|
159,838
|
|
|
70,974
|
|
Total gross deferred tax assets
|
1,951,345
|
|
|
1,915,054
|
|
Valuation allowance
|
(154,130)
|
|
|
(116,349)
|
|
Total deferred tax assets
|
1,797,215
|
|
|
1,798,705
|
|
Deferred tax liabilities:
|
|
|
|
Depreciation
|
(7,409)
|
|
|
(38,464)
|
|
Deferred GILTI tax liabilities
|
(1,183,955)
|
|
|
(1,254,029)
|
|
Right of use asset
|
(51,055)
|
|
|
—
|
|
Acquisition-related intangible
|
(971,327)
|
|
|
(1,012,042)
|
|
|
|
|
|
Total gross deferred tax liabilities
|
(2,213,746)
|
|
|
(2,304,535)
|
|
Net deferred tax liabilities
|
$
|
(416,531)
|
|
|
$
|
(505,830)
|
|
The valuation allowances of $154.1 million and $116.3 million at October 31, 2020 and November 2, 2019, respectively, are valuation allowances primarily for the Company’s state and international credit carryforwards. The Company believes that it is more-likely-than-not that these credit carryovers will not be realized and as a result has recorded a partial valuation allowance. The state credit carryover of $151.7 million will begin to expire in 2021 while the foreign investment tax credit carryover of $11.8 million will begin to expire in fiscal 2025.
As of October 31, 2020 and November 2, 2019, the Company had gross unrealized tax benefits of $21.3 million and $34.3 million, respectively, which if settled in the Company's favor, would lower the Company's effective tax rate in the period recorded. Liabilities for uncertain tax benefits are classified as non-current because the Company believes that the ultimate payment or settlement of these liabilities may not occur within the next twelve months. As of October 31, 2020 and November 2, 2019, the Company had a liability of approximately $3.4 million and $4.7 million, respectively, for interest and penalties, which is included within the provision for taxes in the Consolidated Statements of Income. The Consolidated Statements of Income for fiscal year 2020, fiscal 2019 and fiscal 2018 include $1.0 million, $1.5 million and $7.3 million, respectively, of interest and penalties related to these uncertain tax positions.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the changes in the total amounts of unrealized tax benefits for fiscal 2018 through fiscal 2020:
|
|
|
|
|
|
|
Unrealized Tax Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 28, 2017
|
$
|
37,857
|
|
Additions for tax positions related to current year
|
1,334
|
|
|
|
Reductions for tax positions related to prior years
|
(295)
|
|
Reductions due to lapse of applicable statute of limitations
|
(25,640)
|
|
Balance, November 3, 2018
|
$
|
13,256
|
|
Additions for tax positions related to current year
|
3,398
|
|
|
|
Additions for tax positions related to prior years
|
18,613
|
|
Reductions due to lapse of applicable statute of limitations
|
(924)
|
|
Balance, November 2, 2019
|
$
|
34,343
|
|
Additions for tax positions related to current year
|
3,270
|
|
Reductions for tax positions related to prior years
|
(16,152)
|
|
Reductions due to lapse of applicable statute of limitations
|
(170)
|
|
Balance, October 31, 2020
|
$
|
21,291
|
|
In fiscal 2018, the Company released reserves of $18.1 million relating to certain international transfer pricing matters, $4.2 million relating to worthless stock deductions and $3.3 million relating to other releases in fiscal year 2013 due to the lapse of the statute of limitations. With accrued interest of $9.9 million, the released reserves totaled $35.5 million.
In fiscal 2019, the Company has reflected an unrealized tax benefit related to a refund claim of $11.4 million on a recently filed amended tax return that was previously under review by the Joint Committee on Taxation.
In fiscal 2020, the Company released reserves of $18.6 million, which included accrued interest as a result of the resolution of the amended tax return that was previously under review by the Joint Committee on Taxation, combined with other tax positions resolved by the closing of the Internal Revenue Service audit of Linear’s pre-acquisition federal income tax returns for fiscal 2015 through fiscal 2017.
The Company has numerous audits ongoing at any time throughout the world including: an IRS income tax audit for fiscal 2019 and fiscal 2018, various U.S. state and local tax audits and international audits, including the transfer pricing audit in Ireland discussed below. The Company’s U.S. federal tax returns prior to fiscal 2017 are no longer subject to examination.
The Company’s Ireland tax returns prior to 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 fiscal 2013 of approximately €43.0 million, or $50.2 million (as of October 31, 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 2013 could have a material unfavorable impact on the Company's income tax expense and net earnings in future periods. During the first quarter of fiscal 2019, Irish Revenue commenced transfer pricing audits of the fiscal years ended November 1, 2014 (fiscal 2014); the fiscal year ended October 31, 2015 (fiscal 2015); the fiscal year ended October 29, 2016 (fiscal 2016); and fiscal 2017. During fiscal 2019, the Company received confirmation from Irish Revenue that the audit relating to fiscal 2014 was complete with no further tax amount due in respect of that period. During fiscal 2020, the Company settled the audit relating to fiscal 2015 for an additional tax payment that was not material. The audits relating to fiscal 2016 and fiscal 2017 are on-going.
The Company has a partial tax holiday in Malaysia whereby the local statutory rate is significantly reduced, if certain conditions are met. The tax holiday for Malaysia is effective through July 2025. A partial tax holiday in Singapore was terminated in September 2018 through negotiations with the Economic Development Board. The impact of the Singapore and Malaysia tax holidays increased net income by approximately $4.6 million, $14.9 million and $27.7 million in fiscal 2020, fiscal 2019 and fiscal 2018, respectively, resulting in increases in basic and diluted net income per common share by $0.01, $0.04 and $0.07 in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Revolving Credit Facility
On June 28, 2019, the Company entered into a second amended and restated revolving credit agreement with certain institutional lenders that expires on June 28, 2024. The agreement for such revolving credit facility (Revolving Credit Agreement), which further amended and restated the Company's amended and restated revolving credit agreement dated as of September 23, 2016, provides for a five year unsecured revolving credit facility in an aggregate principal amount of up to $1.25 billion. 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. As of October 31, 2020, the Company had no outstanding borrowings under this revolving credit facility but may borrow in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes. Loans under the Revolving Credit Agreement can be Eurocurrency Rate Loans or Base Rate Loans at the Company's option. Each Eurocurrency Loan will bear interest at a rate per annum equal to the Eurocurrency Rate plus a margin based on the Company's debt ratings from time to time of between 0.690% and 1.375%. Each Base Rate Loan will bear interest at a rate per annum equal to the Base Rate plus a margin based on the Company's debt ratings from time to time of between 0.00% and 0.375%. The Revolving Credit Agreement imposes restrictions on the Company’s ability to undertake certain transactions, to create certain liens on assets and to incur certain subsidiary indebtedness. In addition, the Revolving Credit Agreement 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, it may be authorized to increase the covenant to 4.0 to 1.0. As of October 31, 2020, the Company was compliant with these covenants.
14. Debt
On June 3, 2013, the Company issued $500.0 million aggregate principal amount of 2.875% senior unsecured notes due June 1, 2023 (the 2023 Notes) with semi-annual fixed interest payments due on June 1 and December 1 of each year, commencing December 1, 2013. Prior to issuing the 2023 Notes, on April 24, 2013, the Company entered into a treasury rate lock agreement with Bank of America. This agreement allowed the Company to lock a 10-year US Treasury rate of 1.7845% through June 14, 2013 for its anticipated issuance of the 2023 Notes. The net proceeds of the offering were $493.9 million, after discount and issuance costs. Debt discount and issuance costs will be amortized through interest expense over the term of the 2023 Notes. The indenture governing the 2023 Notes contains covenants that may limit the Company's ability to: incur, create, assume or guarantee any debt for borrowed money secured by a lien upon a principal property; enter into sale and lease-back transactions with respect to a principal property; and consolidate with or merge into, or transfer or lease all or substantially all of its assets to, any other party. As of October 31, 2020, the Company was compliant with these covenants. The notes are subordinated to any future secured debt and to the other liabilities of the Company's subsidiaries.
On December 14, 2015, the Company issued $850.0 million aggregate principal amount of 3.9% senior unsecured notes due December 15, 2025 (the 2025 Notes) and $400.0 million aggregate principal amount of 5.3% senior unsecured notes due December 15, 2045 (the 2045 Notes) with semi-annual fixed interest payments due on June 15 and December 15 of each year, commencing June 15, 2016. The net proceeds of the offering were $1.2 billion, after discount and issuance costs. Debt discount and issuance costs will be amortized through interest expense over the term of the 2025 Notes and 2045 Notes. The indenture governing the 2025 Notes and 2045 Notes contains covenants that may limit the Company's ability to: incur, create, assume or guarantee any debt for borrowed money secured by a lien upon a principal property; enter into sale and lease-back transactions with respect to a principal property; and consolidate with or merge into, or transfer or lease all or substantially all of its assets to, any other party. As of October 31, 2020, the Company was compliant with these covenants. The 2025 Notes and 2045 Notes are subordinated to any future secured debt and to the other liabilities of the Company's subsidiaries.
On December 5, 2016, the Company issued $400.0 million aggregate principal amount of 2.5% senior unsecured notes due December 5, 2021 (the 2021 Notes), $550.0 million aggregate principal amount of 3.125% senior unsecured notes due December 5, 2023 (the December 2023 Notes), $900.0 million aggregate principal amount of 3.5% senior unsecured notes due December 5, 2026 (the 2026 Notes) and $250.0 million aggregate principal amount of 4.5% senior unsecured notes due December 5, 2036 (the 2036 Notes, and together with the 2021 Notes, the December 2023 Notes and the 2026 Notes, the Notes) with semi-annual fixed interest payments due on June 5 and December 5 of each year, commencing June 5, 2017. The net proceeds of the offering were $2.1 billion, after discount and issuance costs. Debt discount and issuance costs will be amortized through interest expense over the term of the Notes. The 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 October 31, 2020, the Company was compliant with these covenants. The Notes
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
rank without preference or priority among themselves and equally in right of payment with all other existing and future senior unsecured debt and senior in right of payment to all of the Company's future subordinated debt.
On March 12, 2018, in an underwritten public offering, the Company issued $300.0 million aggregate principal amount of 2.850% senior unsecured notes due March 12, 2020 (the 2020 Notes) and $450.0 million aggregate principal amount of 2.950% senior unsecured notes due January 12, 2021 (the January 2021 Notes and, together with the 2020 Notes, the 2018 Note Offerings). Interest on the 2020 Notes was payable on March 12 and September 12 of each year, beginning on September 12, 2018. Interest on the January 2021 Notes was payable on January 12 and July 12 of each year, beginning on July 12, 2018. The net proceeds of the offering were $743.8 million, after discount and issuance costs, which were used to repay a portion of the Company’s outstanding 5-year term loan. Debt discount and issuance costs will be amortized through interest expense over the term of the 2018 Note Offerings. The 2018 Note Offerings were unsecured and ranked equally in right of payment with all of the Company’s other unsecured senior indebtedness. The 2018 Note Offerings 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. In fiscal 2020, the Company repaid $300.0 million of principal on the 2020 Notes and $450.0 million of principal on the January 2021 Notes. These obligations have been paid in full and are no longer outstanding as of October 31, 2020.
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, under which the Company borrowed unsecured term loans in the aggregate principal amount of $1.25 billion, maturing on March 10, 2022. Loans under the Term Loan Agreement 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 0.50%, 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 to 4.0 to 1.0. As of October 31, 2020, the Company was compliant with these covenants. In fiscal 2019, the Company made principal payments on the term loans in the amount of $325.0 million. These amounts were not contractually due under the terms of the term loan credit agreement.
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 April 2025 Notes). Interest on the April 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 April 2025 Notes at a redemption price equal to the greater of 100% of the principal amount of the April 2025 Notes being redeemed and the make-whole premium, plus accrued and unpaid interest on the April 2025 Notes being redeemed, if any, to but excluding the date of redemption. The April 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 April 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 October 31, 2020, the Company was in compliance with these covenants.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s debt consisted of the following as of October 31, 2020 and November 2, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
November 2, 2019
|
|
Principal
|
|
Unamortized discount and debt issuance costs
|
|
Principal
|
|
Unamortized discount and debt issuance costs
|
3-Year term loan, due March 2022
|
$
|
925,000
|
|
|
$
|
—
|
|
|
$
|
925,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 Notes, due January 2021
|
—
|
|
|
—
|
|
|
450,000
|
|
|
1,819
|
|
2021 Notes, due December 2021
|
400,000
|
|
|
1,009
|
|
|
400,000
|
|
|
1,918
|
|
2023 Notes, due June 2023
|
500,000
|
|
|
1,589
|
|
|
500,000
|
|
|
2,200
|
|
2023 Notes, due December 2023
|
550,000
|
|
|
2,741
|
|
|
550,000
|
|
|
3,619
|
|
2025 Notes, due April 2025
|
400,000
|
|
|
3,916
|
|
|
—
|
|
|
—
|
|
2025 Notes, due December 2025
|
850,000
|
|
|
4,504
|
|
|
850,000
|
|
|
5,382
|
|
2026 Notes, due December 2026
|
900,000
|
|
|
7,813
|
|
|
900,000
|
|
|
9,086
|
|
2036 Notes, due December 2036
|
250,000
|
|
|
3,375
|
|
|
250,000
|
|
|
3,576
|
|
2045 Notes, due December 2045
|
400,000
|
|
|
4,951
|
|
|
400,000
|
|
|
5,148
|
|
Total Long-Term Debt
|
$
|
5,175,000
|
|
|
$
|
29,898
|
|
|
$
|
5,225,000
|
|
|
$
|
32,748
|
|
2020 Notes, due March 2020
|
—
|
|
|
—
|
|
|
300,000
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
300,000
|
|
|
$
|
333
|
|
Total Debt
|
$
|
5,175,000
|
|
|
$
|
29,898
|
|
|
$
|
5,525,000
|
|
|
$
|
33,081
|
|
15. Subsequent Events
On November 23, 2020, the Board of Directors of the Company declared a cash dividend of $0.62 per outstanding share of common stock. The dividend will be paid on December 15, 2020 to all shareholders of record at the close of business on December 4, 2020 and is expected to total $229.1 million.
The Company reinstated its common stock repurchase program effective November 2020 (fiscal 2021). For additional information about the common stock repurchase program, see Note 3, Stock-Based Compensation and Shareholders' Equity, of the Notes to Consolidated Financial Statements.
ANALOG DEVICES, INC.
SUPPLEMENTARY FINANCIAL INFORMATION
(Unaudited) (thousands, except per share amounts)
The Company’s fiscal year is the 52-week or 53-week period ending on the Saturday closest to the last day in October. Fiscal 2020 and fiscal 2019 were 52-week fiscal years. The Company's interim periods operate on a 4-4-5 fiscal calendar, where each fiscal quarter is comprised of two 4-week periods and one 5-week period, with each week ending on a Saturday.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4Q20
|
|
3Q20
|
|
2Q20
|
|
1Q20
|
|
4Q19
|
|
3Q19
|
|
2Q19
|
|
1Q19
|
Revenue
|
|
$
|
1,526,295
|
|
|
$
|
1,456,136
|
|
|
$
|
1,317,060
|
|
|
$
|
1,303,565
|
|
|
$
|
1,443,219
|
|
|
$
|
1,480,143
|
|
|
$
|
1,526,602
|
|
|
$
|
1,541,101
|
|
Cost of sales
|
|
503,211
|
|
|
483,558
|
|
|
470,386
|
|
|
455,423
|
|
|
501,028
|
|
|
482,332
|
|
|
492,510
|
|
|
501,445
|
|
Gross margin
|
|
1,023,084
|
|
|
972,578
|
|
|
846,674
|
|
|
848,142
|
|
|
942,191
|
|
|
997,811
|
|
|
1,034,092
|
|
|
1,039,656
|
|
% of Revenue
|
|
67
|
%
|
|
67
|
%
|
|
64
|
%
|
|
65
|
%
|
|
65
|
%
|
|
67
|
%
|
|
68
|
%
|
|
67
|
%
|
Research and development
|
|
280,239
|
|
|
260,794
|
|
|
252,413
|
|
|
257,073
|
|
|
277,018
|
|
|
280,102
|
|
|
285,846
|
|
|
287,382
|
|
Selling, marketing, general and administrative
|
|
165,115
|
|
|
153,753
|
|
|
141,775
|
|
|
199,280
|
|
|
154,799
|
|
|
162,825
|
|
|
163,128
|
|
|
167,342
|
|
Special charges (1)
|
|
8,051
|
|
|
31,830
|
|
|
1,320
|
|
|
11,136
|
|
|
64,788
|
|
|
927
|
|
|
8,162
|
|
|
21,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
108,007
|
|
|
107,077
|
|
|
107,146
|
|
|
107,225
|
|
|
107,225
|
|
|
107,231
|
|
|
107,261
|
|
|
107,324
|
|
Total operating expenses
|
|
561,412
|
|
|
553,454
|
|
|
502,654
|
|
|
574,714
|
|
|
603,830
|
|
|
551,085
|
|
|
564,397
|
|
|
583,830
|
|
Operating income
|
|
461,672
|
|
|
419,124
|
|
|
344,020
|
|
|
273,428
|
|
|
338,361
|
|
|
446,726
|
|
|
469,695
|
|
|
455,826
|
|
% of Revenue
|
|
30
|
%
|
|
29
|
%
|
|
26
|
%
|
|
21
|
%
|
|
23
|
%
|
|
30
|
%
|
|
31
|
%
|
|
30
|
%
|
Nonoperating (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
48,593
|
|
|
45,914
|
|
|
49,985
|
|
|
48,813
|
|
|
50,775
|
|
|
59,871
|
|
|
59,701
|
|
|
58,728
|
|
Interest income
|
|
(527)
|
|
|
(504)
|
|
|
(1,334)
|
|
|
(1,940)
|
|
|
(1,988)
|
|
|
(2,625)
|
|
|
(2,928)
|
|
|
(2,688)
|
|
Other, net
|
|
(3,704)
|
|
|
685
|
|
|
308
|
|
|
338
|
|
|
1,747
|
|
|
(78)
|
|
|
4,525
|
|
|
(160)
|
|
Total nonoperating (income) expense
|
|
44,362
|
|
|
46,095
|
|
|
48,959
|
|
|
47,211
|
|
|
50,534
|
|
|
57,168
|
|
|
61,298
|
|
|
55,880
|
|
Income before income taxes
|
|
417,310
|
|
|
373,029
|
|
|
295,061
|
|
|
226,217
|
|
|
287,827
|
|
|
389,558
|
|
|
408,397
|
|
|
399,946
|
|
% of Revenue
|
|
27
|
%
|
|
26
|
%
|
|
22
|
%
|
|
17
|
%
|
|
20
|
%
|
|
26
|
%
|
|
27
|
%
|
|
26
|
%
|
Provision for income taxes (2)
|
|
30,784
|
|
|
10,364
|
|
|
27,365
|
|
|
22,343
|
|
|
10,133
|
|
|
27,184
|
|
|
40,460
|
|
|
44,940
|
|
Net income
|
|
$
|
386,526
|
|
|
$
|
362,665
|
|
|
$
|
267,696
|
|
|
$
|
203,874
|
|
|
$
|
277,694
|
|
|
$
|
362,374
|
|
|
$
|
367,937
|
|
|
$
|
355,006
|
|
% of Revenue
|
|
25
|
%
|
|
25
|
%
|
|
20
|
%
|
|
16
|
%
|
|
19
|
%
|
|
24
|
%
|
|
24
|
%
|
|
23
|
%
|
Net income allocated to common shares (3)
|
|
$
|
386,526
|
|
|
$
|
362,665
|
|
|
$
|
267,696
|
|
|
$
|
203,874
|
|
|
$
|
277,182
|
|
|
$
|
361,562
|
|
|
$
|
367,029
|
|
|
$
|
353,969
|
|
Basic earnings per common share
|
|
$
|
1.05
|
|
|
$
|
0.98
|
|
|
$
|
0.73
|
|
|
$
|
0.55
|
|
|
$
|
0.75
|
|
|
$
|
0.98
|
|
|
$
|
0.99
|
|
|
$
|
0.96
|
|
Diluted earnings per common share
|
|
$
|
1.04
|
|
|
$
|
0.97
|
|
|
$
|
0.72
|
|
|
$
|
0.55
|
|
|
$
|
0.74
|
|
|
$
|
0.97
|
|
|
$
|
0.98
|
|
|
$
|
0.95
|
|
Shares used to compute earnings per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
369,284
|
|
|
368,791
|
|
|
368,217
|
|
|
368,241
|
|
|
369,051
|
|
|
369,533
|
|
|
369,246
|
|
|
368,703
|
|
Diluted
|
|
372,322
|
|
|
372,003
|
|
|
371,305
|
|
|
372,264
|
|
|
372,584
|
|
|
373,077
|
|
|
373,342
|
|
|
372,506
|
|
Dividends declared per share
|
|
$
|
0.62
|
|
|
$
|
0.62
|
|
|
$
|
0.62
|
|
|
$
|
0.54
|
|
|
$
|
0.54
|
|
|
$
|
0.54
|
|
|
$
|
0.54
|
|
|
$
|
0.48
|
|
_______________________________________
(1)See Note 5, Special Charges, of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.
(2)See Note 12, Income Taxes, of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.
(3)See Note 2q, Earnings per Share of Common Stock, of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.