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0-08-18


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

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




PART I - FINANCIAL INFORMATION
 

ITEM 1.Financial Statements


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

 Three Months EndedNine Months Ended
 August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Revenue$1,456,136 $1,480,143 $4,076,761 $4,547,846 
Cost of sales483,558 482,332 1,409,367 1,476,287 
Gross margin972,578 997,811 2,667,394 3,071,559 
Operating expenses:
Research and development260,794 280,102 770,280 853,330 
Selling, marketing, general and administrative153,753 162,825 494,808 493,295 
Amortization of intangibles107,077 107,231 321,448 321,816 
Special charges31,830 927 44,286 30,871 
553,454 551,085 1,630,822 1,699,312 
Operating income419,124 446,726 1,036,572 1,372,247 
Nonoperating expense (income):
Interest expense45,914 59,871 144,712 178,300 
Interest income(504)(2,625)(3,778)(8,241)
Other, net685 (78)1,331 4,287 
46,095 57,168 142,265 174,346 
Income before income taxes373,029 389,558 894,307 1,197,901 
Provision for income taxes10,364 27,184 60,072 112,584 
Net income$362,665 $362,374 $834,235 $1,085,317 
Shares used to compute earnings per common share – basic368,791 369,533 368,417 369,160 
Shares used to compute earnings per common share – diluted372,003 373,077 371,857 372,967 
Basic earnings per common share$0.98 $0.98 $2.26 $2.93 
Diluted earnings per common share$0.97 $0.97 $2.24 $2.90 

See accompanying notes.
1




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

Three Months EndedNine Months Ended
August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Net income$362,665 $362,374 $834,235 $1,085,317 
Foreign currency translation adjustments7,257 (4,021)197 (4,133)
Change in fair value of available-for-sale securities (5) 10 
Change in fair value of derivative instruments designated as cash flow hedges (net of taxes of $1,437, $14,574, $26,503 and $24,757, respectively)
(1,605)(54,811)(83,016)(92,661)
Changes in pension plans including transition obligation, net actuarial loss and foreign currency translation adjustments (net of taxes of $168, $60, $485 and $186, respectively)
(1,579)1,185 68 1,551 
Other comprehensive income (loss)4,073 (57,652)(82,751)(95,233)
Comprehensive income$366,738 $304,722 $751,484 $990,084 


See accompanying notes.


2


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

August 1, 2020November 2, 2019
ASSETS  
Current Assets
Cash and cash equivalents$1,090,264 $648,322 
Accounts receivable681,728 635,136 
Inventories612,646 609,886 
Prepaid expenses and other current assets100,599 91,782 
Total current assets2,485,237 1,985,126 
Property, Plant and Equipment, at Cost
Land and buildings968,527 956,099 
Machinery and equipment2,642,254 2,609,493 
Office equipment84,887 85,490 
Leasehold improvements157,196 160,175 
 3,852,864 3,811,257 
Less accumulated depreciation and amortization2,718,628 2,591,268 
Net property, plant and equipment1,134,236 1,219,989 
Other Assets
Other investments82,953 77,324 
Goodwill12,273,799 12,256,880 
Intangible assets, net3,796,932 4,217,224 
Deferred tax assets1,522,772 1,582,382 
Other assets303,639 53,716 
Total other assets17,980,095 18,187,526 
 $21,599,568 $21,392,641 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable$215,894 $225,270 
Income taxes payable149,376 187,879 
Debt, current449,324 299,667 
Accrued liabilities873,182 795,816 
Total current liabilities1,687,776 1,508,632 
Non-current liabilities
Long-term debt5,143,653 5,192,252 
Deferred income taxes1,961,009 2,088,212 
Income taxes payable591,509 654,420 
Other non-current liabilities438,061 239,937 
Total non-current liabilities8,134,232 8,174,821 
Commitments and contingencies  
Shareholders’ Equity
Preferred stock, $1.00 par value, 471,934 shares authorized, none outstanding
  
Common stock, 0.16 2/3 par value, 1,200,000,000 shares authorized, 369,166,257 shares outstanding (368,302,369 on November 2, 2019)
61,529 61,385 
Capital in excess of par value4,909,651 4,936,349 
Retained earnings7,079,309 6,899,253 
Accumulated other comprehensive loss(272,929)(187,799)
Total shareholders’ equity11,777,560 11,709,188 
 $21,599,568 $21,392,641 
See accompanying notes.
3


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

Three Months Ended August 1, 2020
Capital inAccumulated
Other
 Common StockExcess ofRetainedComprehensive
SharesAmountPar ValueEarningsLoss
BALANCE, MAY 2, 2020
368,425 $61,405 $4,861,013 $6,945,442 $(277,002)
Net income362,665 
Dividends declared and paid - $0.62 per share
(228,798)
Issuance of stock under stock plans and other892 149 26,704 
Stock-based compensation expense39,560 
Other comprehensive income4,073 
Common stock repurchased(151)(25)(17,626)
BALANCE, AUGUST 1, 2020
369,166 $61,529 $4,909,651 $7,079,309 $(272,929)
Nine Months Ended August 1, 2020
Capital inAccumulated
Other
 Common StockExcess ofRetainedComprehensive
SharesAmountPar ValueEarningsLoss
BALANCE, NOVEMBER 2, 2019
368,302 $61,385 $4,936,349 $6,899,253 $(187,799)
Effect of Accounting Standards Update 2018-02
2,379 (2,379)
Net income834,235 
Dividends declared and paid - $1.78 per share
(656,558)
Issuance of stock as charitable contribution336 56 39,944 
Issuance of stock under stock plans and other2,730 455 57,295 
Stock-based compensation expense112,961 
Other comprehensive loss(82,751)
Common stock repurchased(2,202)(367)(236,898)
BALANCE, AUGUST 1, 2020369,166 $61,529 $4,909,651 $7,079,309 $(272,929)

See accompanying notes.













4


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

Three Months Ended August 3, 2019
Capital inAccumulated
Other
Common StockExcess ofRetainedComprehensive
SharesAmountPar ValueEarningsLoss
BALANCE, MAY 4, 2019369,761 $61,628 $5,117,202 $6,659,449 $(96,021)
Net income362,374 
Dividends declared and paid - $0.54 per share
(200,068)
Issuance of stock under stock plans and other667 111 19,117 
Stock-based compensation expense36,098 
Other comprehensive loss(57,652)
Common stock repurchased(1,022)(170)(111,831)
BALANCE, AUGUST 3, 2019
369,406 $61,569 $5,060,586 $6,821,755 $(153,673)
Nine Months Ended August 3, 2019
Capital inAccumulated
Other
Common StockExcess ofRetainedComprehensive
SharesAmountPar ValueEarningsLoss
BALANCE, NOVEMBER 3, 2018 (1)
370,160 $61,694 $5,282,222 $5,982,697 $(58,440)
Effect of Accounting Standards Update 2016-16331,026 
Net income1,085,317 
Dividends declared and paid - $1.56 per share
(577,285)
Issuance of stock under stock plans and other3,807 635 105,500 
Stock-based compensation expense112,720 
Other comprehensive loss(95,233)
Common stock repurchased(4,561)(760)(439,856)
BALANCE, AUGUST 3, 2019369,406 $61,569 $5,060,586 $6,821,755 $(153,673)
(1) Balances have been restated to reflect the full retrospective adoption of Accounting Standards Update ASU 2014-09, Revenue from Contracts with Customers, adopted by the Company in fiscal 2019.


See accompanying notes.
5



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

  
Nine Months Ended
 August 1, 2020August 3, 2019
Cash flows from operating activities:
Net income$834,235 $1,085,317 
Adjustments to reconcile net income to net cash provided by operations:
Depreciation176,722 179,041 
Amortization of intangibles431,985 427,046 
Stock-based compensation expense112,961 112,720 
Non-cash portion of special charge 4,367 
Deferred income taxes(42,802)(55,444)
Non-cash contribution to charitable foundation40,000  
Other non-cash activity5,675 26,701 
Changes in operating assets and liabilities(222,887)(184,552)
Total adjustments501,654 509,879 
Net cash provided by operating activities1,335,889 1,595,196 
Cash flows from investing activities:
Additions to property, plant and equipment(135,804)(224,297)
Payments for acquisitions, net of cash acquired(12,763) 
Changes in other assets(1,214)(5,132)
Net cash used for investing activities(149,781)(229,429)
Cash flows from financing activities:
Proceeds from debt395,646 1,250,000 
Early termination of debt (1,250,000)
Proceeds from revolver350,000 75,000 
Payments on revolver(350,000)(75,000)
Debt repayments(300,000)(650,000)
Dividend payments to shareholders(656,558)(577,285)
Repurchase of common stock(237,265)(440,616)
Proceeds from employee stock plans57,750 106,135 
Changes in other financing activities(4,015)(7,918)
Net cash used for financing activities(744,442)(1,569,684)
Effect of exchange rate changes on cash276 (510)
Net increase (decrease) in cash and cash equivalents441,942 (204,427)
Cash and cash equivalents at beginning of period648,322 816,591 
Cash and cash equivalents at end of period$1,090,264 $612,164 

See accompanying notes.
6


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

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

7

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Details of the Company's operating leases are as follows:
Three Months EndedNine Months Ended
August 1, 2020August 1, 2020
Lease expense$11,728 $33,864 
Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows from operating leases$12,159 $35,094 
Lease assets obtained in exchange for new lease liabilities$11,158 $36,888 
Weighted average remaining lease term9.4 years9.4 years
Weighted average discount rate3.2 %3.2 %
The following table presents the maturities of the Company's operating lease liabilities as of August 1, 2020:
Fiscal yearOperating Leases
Remainder of 2020$11,778 
202146,347 
202240,463 
202337,053 
202436,429 
202534,148 
Thereafter166,800 
Total future minimum operating lease payments373,018 
Less: imputed interest(53,489)
Present value of operating lease liabilities$319,529 
As of August 1, 2020, the Company has an additional lease for office space, which has not yet commenced, of approximately $9.1 million. This lease will commence in fiscal 2020, with a lease term of 10 years.

Note 3 – Stock-Based Compensation and Shareholders' Equity
A summary of the Company’s stock option activity as of August 1, 2020 and changes during the nine-month period then ended is presented below:
Options
Outstanding
(in thousands)
Weighted-
Average Exercise
Price Per Share
Weighted-
Average
Remaining
Contractual
Term in Years
Aggregate
Intrinsic
Value
Options outstanding at November 2, 20195,183 $65.97 
Options granted359 $94.41 
Options exercised(1,032)$55.96 
Options forfeited(97)$84.27 
Options outstanding at August 1, 20204,413 $70.18 5.73$197,106 
Options exercisable at August 1, 20202,845 $60.81 4.66$153,749 
Options vested or expected to vest at August 1, 2020 (1)4,309 $69.67 5.67$194,685 
(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. The number of options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.
During the nine-month periods ended August 1, 2020 and August 3, 2019, the total intrinsic value of options exercised (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the options) was $61.7 million and $120.7 million, respectively.
8

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of the Company’s restricted stock unit/award activity as of August 1, 2020 and changes during the nine-month period then ended is presented below: 
Restricted
Stock Units/Awards
Outstanding
(in thousands)
Weighted-
Average Grant-
Date Fair Value
Per Share
Restricted stock units/awards outstanding at November 2, 20194,396 $87.18 
Units/Awards granted1,390 $92.00 
Restrictions lapsed(1,691)$86.51 
Forfeited(196)$88.86 
Restricted stock units/awards outstanding at August 1, 20203,899 $89.65 
As of August 1, 2020, there was $316.0 million of total unrecognized compensation cost related to unvested stock-based awards comprised of stock options and restricted stock units/awards. That cost is expected to be recognized over a weighted-average period of 1.4 years. The total grant-date fair values of awards that vested during the nine-month periods ended August 1, 2020 and August 3, 2019 were approximately $157.9 million and $131.0 million, respectively.

Total stock-based compensation expense recognized was as follows:
Three Months EndedNine Months Ended
August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Cost of sales$4,508 $5,247 $13,428 $15,720 
Research and development19,158 18,802 55,163 57,294 
Selling, marketing, general and administrative14,951 12,049 43,427 39,706 
Special charges943  943  
Total stock-based compensation expense$39,560 $36,098 $112,961 $112,720 

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

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4 – Accumulated Other Comprehensive (Loss) Income
The following table provides the changes in accumulated other comprehensive (loss) income (AOCI) by component and the related tax effects during the first nine months of fiscal 2020.
Foreign currency translation adjustment
Unrealized holding gains (losses) on derivatives
Pension plans
Total
November 2, 2019$(30,076)$(118,015)$(39,708)$(187,799)
Other comprehensive loss before reclassifications197 (111,684)(1,401)(112,888)
Amounts reclassified out of other comprehensive income (loss) 2,165 1,954 4,119 
Tax effects 26,503 (485)26,018 
Other comprehensive (loss) income197 (83,016)68 (82,751)
Effect of Accounting Standards Update 2018-02
 (2,379) (2,379)
August 1, 2020$(29,879)$(203,410)$(39,640)$(272,929)
The amounts reclassified out of AOCI into the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Shareholders' Equity with presentation location during each period were as follows:

Three Months EndedNine Months Ended
Comprehensive Income ComponentAugust 1, 2020August 3, 2019August 1, 2020August 3, 2019Location
Unrealized holding losses (gains) on derivatives
Currency forwards $(842)$185 $(762)$1,382 Cost of sales
(226)652 640 2,270 Research and development
(189)617 895 2,488 Selling, marketing, general and administrative
Interest rate derivatives464 464 1,392 974 Interest expense
(793)1,918 2,165 7,114 Total before tax
79 (384)(488)(1,187)Tax
Effect of Accounting Standards Update 2018-02
— — (2,379)— Retained earnings
$(714)$1,534 $(702)$5,927 Net of tax
Amortization of pension components included in the computation of net periodic pension cost
     Actuarial losses672 243 1,954 754 
(168)(60)(485)(186)Tax
$504 $183 $1,469 $568 Net of tax
Total amounts reclassified out of AOCI, net of tax$(210)$1,717 $767 $6,495 

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

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5 – Earnings Per Share
The Company utilized the two-class method for calculating earnings per share because certain restricted stock awards granted were participating securities containing non-forfeitable rights to receive dividend equivalents. Under the two-class method, a portion of net income is allocated to these participating securities and therefore is excluded from the calculation of earnings per share allocated to common stock. The following table sets forth the computation of basic and diluted earnings per share:
 Three Months EndedNine Months Ended
 August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Net Income$362,665 $362,374 $834,235 $1,085,317 
Less: income allocated to participating securities* 812  2,750 
Net income allocated to common stockholders$362,665 $361,562 $834,235 $1,082,567 
Basic shares:
Weighted-average shares outstanding368,791 369,533 368,417 369,160