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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 1, 2021
OR
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☐ | 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)
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Massachusetts | | 04-2348234 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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One Analog Way, | Wilmington, | MA | | 01887 |
(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:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock $0.16 2/3 par value per share | ADI | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | ☑ | | Accelerated filer | | ☐ |
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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 May 1, 2021 there were 368,826,918 shares of common stock of the registrant, $0.16 2/3 par value per share, outstanding.
PART I - FINANCIAL INFORMATION
| | | | | |
ITEM 1. | Financial Statements |
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| May 1, 2021 | | May 2, 2020 | | May 1, 2021 | | May 2, 2020 |
Revenue | $ | 1,661,407 | | | $ | 1,317,060 | | | $ | 3,219,865 | | | $ | 2,620,625 | |
Cost of sales | 524,770 | | | 470,386 | | | 1,037,857 | | | 925,809 | |
Gross margin | 1,136,637 | | | 846,674 | | | 2,182,008 | | | 1,694,816 | |
Operating expenses: | | | | | | | |
Research and development | 302,238 | | | 252,413 | | | 590,388 | | | 509,486 | |
Selling, marketing, general and administrative | 206,612 | | | 141,775 | | | 391,887 | | | 341,055 | |
Amortization of intangibles | 107,786 | | | 107,146 | | | 215,434 | | | 214,371 | |
Special charges | 311 | | | 1,320 | | | 749 | | | 12,456 | |
| 616,947 | | | 502,654 | | | 1,198,458 | | | 1,077,368 | |
Operating income: | 519,690 | | | 344,020 | | | 983,550 | | | 617,448 | |
Nonoperating expense (income): | | | | | | | |
Interest expense | 43,066 | | | 49,985 | | | 85,545 | | | 98,798 | |
Interest income | (290) | | | (1,334) | | | (499) | | | (3,274) | |
Other, net | 929 | | | 308 | | | (14,099) | | | 646 | |
| 43,705 | | | 48,959 | | | 70,947 | | | 96,170 | |
Income before income taxes | 475,985 | | | 295,061 | | | 912,603 | | | 521,278 | |
Provision for income taxes | 53,080 | | | 27,365 | | | 101,179 | | | 49,708 | |
Net income | $ | 422,905 | | | $ | 267,696 | | | $ | 811,424 | | | $ | 471,570 | |
| | | | | | | |
Shares used to compute earnings per common share – basic | 368,823 | | | 368,217 | | | 369,013 | | | 368,229 | |
Shares used to compute earnings per common share – diluted | 372,418 | | | 371,305 | | | 372,762 | | | 371,784 | |
| | | | | | | |
Basic earnings per common share | $ | 1.15 | | | $ | 0.73 | | | $ | 2.20 | | | $ | 1.28 | |
Diluted earnings per common share | $ | 1.14 | | | $ | 0.72 | | | $ | 2.18 | | | $ | 1.27 | |
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| | | | | | | |
| | | | | | | |
| | | | | | | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| May 1, 2021 | | May 2, 2020 | | May 1, 2021 | | May 2, 2020 |
Net income | $ | 422,905 | | | $ | 267,696 | | | $ | 811,424 | | | $ | 471,570 | |
Foreign currency translation adjustments | (254) | | | (6,862) | | | 8,025 | | | (7,060) | |
| | | | | | | |
Change in fair value of derivative instruments designated as cash flow hedges (net of taxes of $10,448, $19,604, $17,109 and $25,066, respectively) | 35,428 | | | (69,386) | | | 59,893 | | | (81,411) | |
Changes in pension plans, net actuarial loss and foreign currency translation adjustments (net of taxes of $86, $157, $172 and $317, respectively) | 412 | | | 1,393 | | | (1,372) | | | 1,647 | |
Other comprehensive income (loss) | 35,586 | | | (74,855) | | | 66,546 | | | (86,824) | |
Comprehensive income | $ | 458,491 | | | $ | 192,841 | | | $ | 877,970 | | | $ | 384,746 | |
| | | | | | | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
| | | | | | | | | | | |
| May 1, 2021 | | October 31, 2020 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 1,305,216 | | | $ | 1,055,860 | |
| | | |
Accounts receivable | 814,135 | | | 737,536 | |
Inventories | 641,202 | | | 608,260 | |
| | | |
| | | |
| | | |
Prepaid expenses and other current assets | 142,247 | | | 116,032 | |
Total current assets | 2,902,800 | | | 2,517,688 | |
Property, Plant and Equipment, at Cost | | | |
Land and buildings | 984,879 | | | 974,604 | |
Machinery and equipment | 2,779,023 | | | 2,667,846 | |
Office equipment | 89,381 | | | 85,291 | |
Leasehold improvements | 161,132 | | | 157,915 | |
| 4,014,415 | | | 3,885,656 | |
Less accumulated depreciation and amortization | 2,853,829 | | | 2,765,095 | |
Net property, plant and equipment | 1,160,586 | | | 1,120,561 | |
Other Assets | | | |
| | | |
Other investments | 94,033 | | | 86,729 | |
Goodwill | 12,282,465 | | | 12,278,425 | |
Intangible assets, net | 3,393,546 | | | 3,650,280 | |
Deferred tax assets | 1,448,018 | | | 1,503,064 | |
| | | |
Other assets | 306,769 | | | 311,856 | |
Total other assets | 17,524,831 | | | 17,830,354 | |
| $ | 21,588,217 | | | $ | 21,468,603 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 279,222 | | | $ | 227,273 | |
| | | |
| | | |
Income taxes payable | 171,181 | | | 182,080 | |
Debt, current | 1,324,451 | | | — | |
| | | |
Accrued liabilities | 1,001,975 | | | 955,633 | |
Total current liabilities | 2,776,829 | | | 1,364,986 | |
Non-current liabilities | | | |
Long-term debt | 3,823,595 | | | 5,145,102 | |
Deferred income taxes | 1,833,520 | | | 1,919,595 | |
| | | |
Income taxes payable | 528,884 | | | 591,780 | |
| | | |
Other non-current liabilities | 458,285 | | | 449,195 | |
Total non-current liabilities | 6,644,284 | | | 8,105,672 | |
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, 368,826,918 shares outstanding (369,484,899 on October 31, 2020) | 61,472 | | | 61,582 | |
Capital in excess of par value | 4,724,493 | | | 4,949,586 | |
Retained earnings | 7,564,054 | | | 7,236,238 | |
Accumulated other comprehensive loss | (182,915) | | | (249,461) | |
Total shareholders’ equity | 12,167,104 | | | 11,997,945 | |
| $ | 21,588,217 | | | $ | 21,468,603 | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended May 1, 2021 |
| | | | | Capital in | | | | Accumulated Other |
| Common Stock | | Excess of | | Retained | | Comprehensive |
| Shares | | Amount | | Par Value | | Earnings | | Loss |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
BALANCE, JANUARY 30, 2021 | 368,894 | | | $ | 61,484 | | | $ | 4,849,185 | | | $ | 7,395,578 | | | $ | (218,501) | |
| | | | | | | | | |
Net income | | | | | | | 422,905 | | | |
Dividends declared and paid - $0.69 per share | | | | | | | (254,429) | | | |
| | | | | | | | | |
Issuance of stock under stock plans and other | 1,155 | | | 192 | | | 23,560 | | | | | |
Stock-based compensation expense | | | | | 40,358 | | | | | |
Other comprehensive income | | | | | | | | | 35,586 | |
Common stock repurchased | (1,222) | | | (204) | | | (188,610) | | | | | |
BALANCE, MAY 1, 2021 | 368,827 | | | $ | 61,472 | | | $ | 4,724,493 | | | $ | 7,564,054 | | | $ | (182,915) | |
| | | | | | | | | |
| Six Months Ended May 1, 2021 |
| | | | | Capital in | | | | Accumulated Other |
| Common Stock | | Excess of | | Retained | | Comprehensive |
| Shares | | Amount | | Par Value | | Earnings | | Loss |
BALANCE, OCTOBER 31, 2020 | 369,485 | | | $ | 61,582 | | | $ | 4,949,586 | | | $ | 7,236,238 | | | $ | (249,461) | |
Net income | | | | | | | 811,424 | | | |
Dividends declared and paid - $1.31 per share | | | | | | | (483,608) | | | |
Issuance of stock under stock plans and other | 1,644 | | | 274 | | | 43,398 | | | | | |
Stock-based compensation expense | | | | | 76,996 | | | | | |
Other comprehensive income | | | | | | | | | 66,546 | |
Common stock repurchased | (2,302) | | | (384) | | | (345,487) | | | | | |
BALANCE, MAY 1, 2021 | 368,827 | | | $ | 61,472 | | | $ | 4,724,493 | | | $ | 7,564,054 | | | $ | (182,915) | |
| | | | | | | | | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended May 2, 2020 |
| | | | | Capital in | | | | Accumulated Other |
| Common Stock | | Excess of | | Retained | | Comprehensive |
| Shares | | Amount | | Par Value | | Earnings | | Loss |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
BALANCE, FEBRUARY 1, 2020 | 368,220 | | | $ | 61,371 | | | $ | 4,923,947 | | | $ | 6,906,346 | | | $ | (202,147) | |
| | | | | | | | | |
Net income | | | | | | | 267,696 | | | |
Dividends declared and paid - $0.62 per share | | | | | | | (228,600) | | | |
Issuance of stock under stock plans and other | 1,347 | | | 224 | | | 14,560 | | | | | |
Stock-based compensation expense | | | | | 35,900 | | | | | |
Other comprehensive loss | | | | | | | | | (74,855) | |
Common stock repurchased | (1,142) | | | (190) | | | (113,394) | | | | | |
BALANCE, MAY 2, 2020 | 368,425 | | | $ | 61,405 | | | $ | 4,861,013 | | | $ | 6,945,442 | | | $ | (277,002) | |
| | | | | | | | | |
| Six Months Ended May 2, 2020 |
| | | | | Capital in | | | | Accumulated Other |
| Common Stock | | Excess of | | Retained | | Comprehensive |
| Shares | | Amount | | Par Value | | Earnings | | Loss |
BALANCE, NOVEMBER 2, 2019 | 368,302 | | | $ | 61,385 | | | $ | 4,936,349 | | | $ | 6,899,253 | | | $ | (187,799) | |
Effect of Accounting Standards Update 2018-02 | | | | | | | 2,379 | | | (2,379) | |
Net income | | | | | | | 471,570 | | | |
Dividends declared and paid - $1.16 per share | | | | | | | (427,760) | | | |
Issuance of stock as charitable contribution | 336 | | | 56 | | | 39,944 | | | | | |
Issuance of stock under stock plans and other | 1,838 | | | 306 | | | 30,591 | | | | | |
Stock-based compensation expense | | | | | 73,401 | | | | | |
Other comprehensive loss | | | | | | | | | (86,824) | |
Common stock repurchased | (2,051) | | | (342) | | | (219,272) | | | | | |
BALANCE, MAY 2, 2020 | 368,425 | | | $ | 61,405 | | | $ | 4,861,013 | | | $ | 6,945,442 | | | $ | (277,002) | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| | | | | | | | | | | |
| Six Months Ended |
| May 1, 2021 | | May 2, 2020 |
Cash flows from operating activities: | | | |
Net income | $ | 811,424 | | | $ | 471,570 | |
Adjustments to reconcile net income to net cash provided by operations: | | | |
Depreciation | 108,775 | | | 119,124 | |
Amortization of intangibles | 290,745 | | | 288,120 | |
| | | |
Stock-based compensation expense | 76,996 | | | 73,401 | |
| | | |
| | | |
Deferred income taxes | (48,292) | | | (35,390) | |
Non-cash contribution to charitable foundation | — | | | 40,000 | |
Other non-cash activity | (12,122) | | | 3,801 | |
Changes in operating assets and liabilities | (63,223) | | | (181,937) | |
Total adjustments | 352,879 | | | 307,119 | |
Net cash provided by operating activities | 1,164,303 | | | 778,689 | |
Cash flows from investing activities: | | | |
| | | |
| | | |
Proceeds from other investments | 18,566 | | | — | |
Additions to property, plant and equipment | (126,558) | | | (115,000) | |
Cash paid for asset acquisition | (22,522) | | | — | |
Payments for acquisitions, net of cash acquired | (2,428) | | | — | |
Changes in other assets | (2,826) | | | (1,284) | |
Net cash used for investing activities | (135,768) | | | (116,284) | |
Cash flows from financing activities: | | | |
| | | |
Proceeds from debt | — | | | 395,646 | |
| | | |
| | | |
| | | |
Proceeds from revolver | — | | | 350,000 | |
Payments on revolver | — | | | (350,000) | |
Debt repayments | — | | | (300,000) | |
Dividend payments to shareholders | (483,608) | | | (427,760) | |
Repurchase of common stock | (345,871) | | | (219,614) | |
Proceeds from employee stock plans | 43,672 | | | 30,897 | |
| | | |
Changes in other financing activities | 2,399 | | | (4,451) | |
Net cash used for financing activities | (783,408) | | | (525,282) | |
Effect of exchange rate changes on cash | 4,229 | | | (508) | |
Net increase in cash and cash equivalents | 249,356 | | | 136,615 | |
Cash and cash equivalents at beginning of period | 1,055,860 | | | 648,322 | |
Cash and cash equivalents at end of period | $ | 1,305,216 | | | $ | 784,937 | |
See accompanying notes.
ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MAY 1, 2021 (UNAUDITED)
(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 October 31, 2020 (fiscal 2020) 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 30, 2021 (fiscal 2021) 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 2021 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 13, Acquisitions, for additional information.
Note 2 – Stock-Based Compensation and Shareholders' Equity
A summary of the Company’s stock option activity as of May 1, 2021 and changes during the six-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 October 31, 2020 | 4,192 | | | $70.73 | | | | | |
Options granted | 644 | | | $145.04 | | | | | |
Options exercised | (695) | | | $62.80 | | | | | |
Options forfeited | (30) | | | $86.47 | | | | | |
Options expired | (6) | | | $40.70 | | | | |
Options outstanding at May 1, 2021 | 4,105 | | | $83.66 | | | 5.9 | | $285,319 | |
Options exercisable at May 1, 2021 | 2,673 | | | $65.99 | | | 4.6 | | $233,013 | |
Options vested or expected to vest at May 1, 2021 (1) | 3,985 | | | $82.43 | | | 5.8 | | $281,816 | |
(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.
In the first quarter of fiscal 2021, the Company issued a special performance stock option award to the Company's chief executive officer. The performance stock option award is exercisable for up to 460,000 shares of the Company's common stock (the Target Number of Shares) at an exercise price per share of $144.06, which was the closing price of the Company's common stock on the date of grant, and vests subject to the satisfaction of certain target stock price thresholds during a five-year period, measured on the basis of the average of the closing prices of the Company's common stock over 70 consecutive trading days. The actual number of shares that will become exercisable will range from 0% to a maximum of 100% of the Target Number of Shares based on the attainment of such target stock price thresholds at any time during a five-year period from December 15, 2020 to December 15, 2025. The grant date fair value of the award was calculated using the Monte Carlo simulation model which utilizes multiple input variables that determine the probability of satisfying the performance conditions stipulated in the award to calculate the fair market value. The Monte Carlo simulation model also uses stock price volatility and other variables to estimate the probability of satisfying the performance conditions, including the possibility that the market condition may not be satisfied, and the resulting fair value of the award.
During the six-month periods ended May 1, 2021 and May 2, 2020, 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 $61.0 million and $35.3 million, respectively.
A summary of the Company’s restricted stock unit/award activity as of May 1, 2021 and changes during the six-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 October 31, 2020 | 3,637 | | | $91.54 | |
Units/Awards granted | 1,011 | | | $143.71 | |
Restrictions lapsed | (945) | | | $90.21 | |
Forfeited | (100) | | | $99.51 | |
Restricted stock units/awards outstanding at May 1, 2021 | 3,603 | | | $104.18 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
In the first half of fiscal 2021, the Company issued approximately 121,000 performance-based restricted stock units (Maxim Integration PRSUs) related to the Company's planned acquisition of Maxim to a select group of employees. The number of Maxim Integration PRSUs that may be earned will range from 0% to a maximum of 200% of the issued amount of Maxim Integration PRSUs and will be determined according to the achievement of certain performance metrics. Any shares earned will vest on the 60th day following the two-year anniversary of the closing of the Maxim acquisition. If the Maxim acquisition does not close, the awards will be cancelled. The grant date fair value of these awards were 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. The grant-date fair value of these awards 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.
As of May 1, 2021, there was $382.2 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 1.5 years. The total grant-date fair values of awards that vested during the six-month periods ended May 1, 2021 and May 2, 2020 were approximately $94.2 million and $113.4 million, respectively.
Total stock-based compensation expense recognized was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| May 1, 2021 | | May 2, 2020 | | May 1, 2021 | | May 2, 2020 |
Cost of sales | $ | 4,653 | | | $ | 4,356 | | | $ | 9,007 | | | $ | 8,920 | |
Research and development | 19,548 | | | 18,400 | | | 37,869 | | | 36,005 | |
Selling, marketing, general and administrative | 16,157 | | | 13,144 | | | 30,120 | | | 28,476 | |
| | | | | | | |
Total stock-based compensation expense | $ | 40,358 | | | $ | 35,900 | | | $ | 76,996 | | | $ | 73,401 | |
As of May 1, 2021 and October 31, 2020, the Company capitalized $6.0 million and $5.8 million, respectively, of stock-based compensation in Inventories on the Condensed Consolidated Balance Sheets.
Common Stock Repurchases
As of May 1, 2021, the Company had repurchased a total of approximately 158.0 million shares of its common stock for approximately $6.6 billion under the Company's share repurchase program. As of May 1, 2021, an additional $1.6 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. 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.
Note 3 – 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 six months of fiscal 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | | | | Unrealized holding gains (losses) on derivatives | | Pension plans | | Total |
October 31, 2020 | $ | (26,852) | | | | | | | $ | (172,670) | | | $ | (49,939) | | | $ | (249,461) | |
Other comprehensive income (loss) before reclassifications | 8,025 | | | | | | | 83,103 | | | (2,698) | | | 88,430 | |
Amounts reclassified out of other comprehensive income (loss) | — | | | | | | | (6,101) | | | 1,498 | | | (4,603) | |
Tax effects | — | | | | | | | (17,109) | | | (172) | | | (17,281) | |
Other comprehensive income (loss) | 8,025 | | | | | | | 59,893 | | | (1,372) | | | 66,546 | |
| | | | | | | | | | | |
May 1, 2021 | $ | (18,827) | | | | | | | $ | (112,777) | | | $ | (51,311) | | | $ | (182,915) | |
The amounts reclassified out of AOCI into the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Shareholders' Equity with presentation location during each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | |
Comprehensive Income Component | | May 1, 2021 | | May 2, 2020 | | May 1, 2021 | | May 2, 2020 | | Location |
Unrealized holding losses (gains) on derivatives | | | | | |
Currency forwards | | $ | (1,363) | | | $ | 160 | | | $ | (3,350) | | | $ | 80 | | | Cost of sales |
| | (791) | | | 488 | | | (1,855) | | | 866 | | | Research and development |
| | (606) | | | 552 | | | (1,824) | | | 1,084 | | | Selling, marketing, general and administrative |
| | | | | | | | | | |
Interest rate derivatives | | 464 | | | 464 | | | 928 | | | 928 | | | Interest expense |
| | | | | | | | | | |
| | (2,296) | | | 1,664 | | | (6,101) | | | 2,958 | | | Total before tax |
| | 329 | | | (197) | | | 533 | | | (567) | | | Tax |
Effect of Accounting Standards Update 2018-02 | | — | | | — | | | — | | | (2,379) | | | Retained earnings |
| | $ | (1,967) | | | $ | 1,467 | | | $ | (5,568) | | | $ | 12 | | | Net of tax |
| | | | | | | | | | |
Amortization of pension components included in the computation of net periodic pension cost |
| | | | | | | | | | |
| | | | | | | | | | |
Actuarial losses | | 750 | | | 634 | | | 1,498 | | | 1,282 | | | |
| | (86) | | | (157) | | | (172) | | | (317) | | | Tax |
| | $ | 664 | | | $ | 477 | | | $ | 1,326 | | | $ | 965 | | | Net of tax |
| | | | | | | | | | |
Total amounts reclassified out of AOCI, net of tax | | $ | (1,303) | | | $ | 1,944 | | | $ | (4,242) | | | $ | 977 | | | |
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.
Note 4 – Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| May 1, 2021 | | May 2, 2020 | | May 1, 2021 | | May 2, 2020 |
Net Income | $ | 422,905 | | | $ | 267,696 | | | $ | 811,424 | | | $ | 471,570 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic shares: | | | | | | | |
Weighted-average shares outstanding | 368,823 | | | 368,217 | | | 369,013 | | | 368,229 | |
Earnings per common share basic: | $ | 1.15 | | | $ | 0.73 | | | $ | 2.20 | | | $ | 1.28 | |
Diluted shares: | | | | | | | |
Weighted-average shares outstanding | 368,823 | | | 368,217 | | | 369,013 | | | 368,229 | |
Assumed exercise of common stock equivalents | 3,595 | | | 3,088 | | | 3,749 | | | 3,555 | |
Weighted-average common and common equivalent shares | 372,418 | | | 371,305 | | | 372,762 | | | 371,784 | |
Earnings per common share diluted: | $ | 1.14 | | | $ | 0.72 | | | $ | 2.18 | | | $ | 1.27 | |
Anti-dilutive shares related to: | | | | | | | |
Outstanding stock-based awards | 622 | | | 681 | | | 430 | | | 539 | |
Note 5 – Special Charges
The following table is a quarterly roll-forward from October 31, 2020 to May 1, 2021 of the employee separation and exit cost accruals established related to existing restructuring actions:
| | | | | | | | | | | | | | | | | | | | | |
Accrued Restructuring | Closure of Manufacturing Facilities | | | | | | Repositioning Action | | Other Actions |
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Balance at October 31, 2020 | $ | 45,176 | | | | | | | $ | 20,774 | | | $ | 3,489 | |
First quarter fiscal 2021 special charges | 438 | | | | | | | — | | | — | |
Severance and other payments | (1,950) | | | | | | | (8,128) | | | (333) | |
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Effect of foreign currency on accrual | — | | | | | | | 248 | | | — | |
Balance at January 30, 2021 | $ | 43,664 | | | | | | | $ | 12,894 | | | $ | 3,156 | |
Second quarter fiscal 2021 special charges | 311 | | | | | | | — | | | — | |
Severance and other payments | (5,769) | | | | | | | (2,767) | | | (270) | |
Effect of foreign currency on accrual | — | | | | | | | (44) | | | — | |
Balance at May 1, 2021 | $ | 38,206 | | | | | | | $ | 10,083 | | | $ | 2,886 | |
Current - accrued liabilities | $ | 36,440 | | | | | | | $ | 10,083 | | | $ | 2,886 | |
Other non-current liabilities | $ | 1,766 | | | | | | | $ | — | | | $ | — | |
Repositioning Action
The Company recorded special charges of $137.5 million on a cumulative basis through May 1, 2021, as a result of organizational initiatives to better align the global workforce with the Company's 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 selling, marketing, general and administrative (SMG&A) employees. The remaining $14.2 million of the charges were recorded in the fiscal year ended November 2, 2019 (fiscal 2019) and related to the write-off of acquired intellectual property due to the Company's decision to discontinue certain product development strategies.
Closure of Manufacturing Facilities
The Company recorded special charges of $55.7 million on a cumulative basis through May 1, 2021 as a result of its decision to consolidate certain wafer and test facility operations acquired as part of the acquisition of Linear Technology Corporation (Linear). The Company plans to close its Hillview wafer fabrication facility located in Milpitas, California in fiscal 2021 and complete the transition from its Singapore test facility in the fiscal year ending October 29, 2022. 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, one-time termination benefits for the impacted manufacturing, engineering and SMG&A employees and other exit costs. These one-time termination benefits are being recognized over the future service period required for employees to earn these benefits.
Note 6 – Property, Plant and Equipment
As discussed in Note 5, Special Charges, the Company is planning to transition testing operations currently handled in its Singapore facility to its facilities in Penang, Malaysia and the Philippines, in addition to its outsourced assembly and test partners. Accordingly, management has entered into an agreement to sell the facility in Singapore at the end of 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 during fiscal 2020, 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 various line items within Property, plant and equipment to Prepaid expenses and other current assets upon designation and remains in Prepaid expenses and other current assets as of May 1, 2021.
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Land and buildings | $ | 36,451 | | | |
Machinery and equipment | 1,468 | | | |
Office equipment | 197 | | | |
Leasehold improvements | 5,744 | | | |
| 43,860 | | | |
Less accumulated depreciation and amortization | (21,706) | | | |
Net property, plant and equipment reclassified to Prepaid expenses and other current assets | $ | 22,154 | | | |
Note 7 – Segment Information
The Company designs, develops, manufactures and markets a broad range of integrated circuits. The Company operates and tracks its results in one reportable segment based on the aggregation of eight operating segments.
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 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.
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| Three Months Ended |
| May 1, 2021 | | May 2, 2020 |
| Revenue | | % of Revenue* | | Y/Y% | | Revenue | | % of Revenue* |
Industrial | $ | 972,177 | | | 59 | % | | 36 | % | | $ | 716,364 | | | 54 | % |
Communications | 276,960 | | | 17 | % | | — | % | | 276,575 | | | 21 | % |
Automotive | 257,586 | | | 16 | % | | 42 | % | | 181,211 | | | 14 | % |
Consumer | 154,684 | | | 9 | % | | 8 | % | | 142,910 | | | 11 | % |
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Total revenue | $ | 1,661,407 | | | 100 | % | | 26 | % | | $ | 1,317,060 | | | 100 | % |
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| Six Months Ended |
| May 1, 2021 | | May 2, 2020 |
| Revenue | | % of Revenue* | | Y/Y% | | Revenue | | % of Revenue* |
Industrial | $ | 1,828,140 | | | 57 | % | | 30 | % | | $ | 1,405,224 | | | 54 | % |
Communications | 557,786 | | | 17 | % | | 8 | % | | 517,872 | | | 20 | % |
Automotive | 503,501 | | | 16 | % | | 30 | % | | 386,618 | | | 15 | % |
Consumer | 330,438 | | | 10 | % | | 6 | % | | 310,911 | | | 12 | % |
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Total revenue | $ | 3,219,865 | | | 100 | % | | 23 | % | | $ | 2,620,625 | | | 100 | % |
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* The sum of the individual percentages may not equal the total due to rounding. |
Revenue by Sales Channel
The following table summarizes revenue by channel. The Company sells its products globally through a direct sales force, third party distributors, independent sales representatives and via its website. Distributors are customers that buy products with the intention of reselling them. Direct customers are non-distributor customers and consist primarily of original equipment manufacturers (OEMs). Other customers include the U.S. government, government prime contractors and certain commercial customers for which revenue is recorded over time.
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| Three Months Ended |
| May 1, 2021 | | May 2, 2020 |
Channel | Revenue | | % of Revenue* | | Revenue | | % of Revenue* |
Distributors | $ | 1,092,928 | | | 66 | % | | $ | 750,388 | | | 57 | % |
Direct customers | 546,555 | | | 33 | % | | 546,051 | | | 41 | % |
Other | 21,924 | | | 1 | % | | 20,621 | | | 2 | % |
Total revenue | $ | 1,661,407 | | | 100 | % | | $ | 1,317,060 | | | 100 | % |
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| Six Months Ended |
| May 1, 2021 | | May 2, 2020 |
Channel | Revenue | | % of Revenue* | | Revenue | | % of Revenue* |
Distributors | $ | 2,039,314 | | | 63 | % | | $ | 1,497,949 | | | 57 | % |
Direct customers | 1,136,011 | | | 35 | % | | 1,077,382 | | | 41 | % |
Other | 44,540 | | | 1 | % | | 45,294 | | | 2 | % |
Total revenue | $ | 3,219,865 | | | 100 | % | | $ | 2,620,625 | | | 100 | % |
* The sum of the individual percentages may not equal the total due to rounding. |
Note 8 – Fair Value
The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
The tables below, set forth by level, presents the Company’s financial assets and liabilities, excluding accrued interest components that were accounted for at fair value on a recurring basis as of May 1, 2021 and October 31, 2020. 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 May 1, 2021 and October 31, 2020, the Company held $