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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 April 30, 2022
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 Analog Way, | Wilmington, | MA | | 01887 |
(Address of principal executive offices) | | (Zip Code) |
(781) 935-5565
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock $0.16 2/3 par value per share | ADI | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☑ | | Accelerated filer | | ☐ |
| | | | | | |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | | | |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of April 30, 2022 there were 519,806,028 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 |
| April 30, 2022 | | May 1, 2021 | | April 30, 2022 | | May 1, 2021 |
Revenue | $ | 2,972,064 | | | $ | 1,661,407 | | | $ | 5,656,357 | | | $ | 3,219,865 | |
Cost of sales | 1,027,544 | | | 524,770 | | | 2,309,840 | | | 1,037,857 | |
Gross margin | 1,944,520 | | | 1,136,637 | | | 3,346,517 | | | 2,182,008 | |
Operating expenses: | | | | | | | |
Research and development | 420,901 | | | 302,238 | | | 847,681 | | | 590,388 | |
Selling, marketing, general and administrative | 305,308 | | | 206,612 | | | 602,673 | | | 391,887 | |
Amortization of intangibles | 253,476 | | | 107,786 | | | 506,843 | | | 215,434 | |
Special charges, net | 46,674 | | | 311 | | | 106,402 | | | 749 | |
Total operating expenses | 1,026,359 | | | 616,947 | | | 2,063,599 | | | 1,198,458 | |
Operating income: | 918,161 | | | 519,690 | | | 1,282,918 | | | 983,550 | |
Nonoperating expense (income): | | | | | | | |
Interest expense | 49,548 | | | 43,066 | | | 101,512 | | | 85,545 | |
Interest income | (563) | | | (290) | | | (781) | | | (499) | |
Other, net | (10,069) | | | 929 | | | (20,613) | | | (14,099) | |
Total nonoperating expense (income) | 38,916 | | | 43,705 | | | 80,118 | | | 70,947 | |
Income before income taxes | 879,245 | | | 475,985 | | | 1,202,800 | | | 912,603 | |
Provision for income taxes | 95,972 | | | 53,080 | | | 139,450 | | | 101,179 | |
Net income | $ | 783,273 | | | $ | 422,905 | | | $ | 1,063,350 | | | $ | 811,424 | |
| | | | | | | |
Shares used to compute earnings per common share – basic | 522,370 | | | 368,823 | | | 523,831 | | | 369,013 | |
Shares used to compute earnings per common share – diluted | 526,264 | | | 372,418 | | | 528,203 | | | 372,762 | |
| | | | | | | |
Basic earnings per common share | $ | 1.50 | | | $ | 1.15 | | | $ | 2.03 | | | $ | 2.20 | |
Diluted earnings per common share | $ | 1.49 | | | $ | 1.14 | | | $ | 2.01 | | | $ | 2.18 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| April 30, 2022 | | May 1, 2021 | | April 30, 2022 | | May 1, 2021 |
Net income | $ | 783,273 | | | $ | 422,905 | | | $ | 1,063,350 | | | $ | 811,424 | |
Foreign currency translation adjustments | (17,868) | | | (254) | | | (22,472) | | | 8,025 | |
| | | | | | | |
Change in fair value of derivative instruments designated as cash flow hedges (net of taxes of $258, $10,448, $248 and $17,109, respectively) | (3,757) | | | 35,428 | | | (2,710) | | | 59,893 | |
Changes in pension plans, net actuarial loss and foreign currency translation adjustments (net of taxes of $91, $86, $187 and $172, respectively) | 2,628 | | | 412 | | | 4,132 | | | (1,372) | |
Other comprehensive (loss) income | (18,997) | | | 35,586 | | | (21,050) | | | 66,546 | |
Comprehensive income | $ | 764,276 | | | $ | 458,491 | | | $ | 1,042,300 | | | $ | 877,970 | |
| | | | | | | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
| | | | | | | | | | | |
| April 30, 2022 | | October 30, 2021 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 1,737,733 | | | $ | 1,977,964 | |
| | | |
Accounts receivable | 1,608,254 | | | 1,459,056 | |
Inventories | 1,075,297 | | | 1,200,610 | |
| | | |
| | | |
| | | |
Prepaid expenses and other current assets | 212,905 | | | 740,687 | |
Total current assets | 4,634,189 | | | 5,378,317 | |
Non-current Assets | | | |
| | | |
Net property, plant and equipment | 2,094,148 | | | 1,979,051 | |
Goodwill | 26,923,756 | | | 26,918,470 | |
Intangible assets, net | 14,258,728 | | | 15,267,170 | |
Deferred tax assets | 2,325,317 | | | 2,267,269 | |
| | | |
Other assets | 564,514 | | | 511,794 | |
Total non-current assets | 46,166,463 | | | 46,943,754 | |
TOTAL ASSETS | $ | 50,800,652 | | | $ | 52,322,071 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 451,443 | | | $ | 443,434 | |
| | | |
| | | |
Income taxes payable | 337,362 | | | 332,685 | |
Debt, current | — | | | 516,663 | |
| | | |
Accrued liabilities | 1,537,407 | | | 1,477,530 | |
Total current liabilities | 2,326,212 | | | 2,770,312 | |
Non-current Liabilities | | | |
Long-term debt | 6,253,215 | | | 6,253,212 | |
Deferred income taxes | 3,873,084 | | | 3,938,830 | |
| | | |
Income taxes payable | 698,525 | | | 811,337 | |
| | | |
Other non-current liabilities | 549,834 | | | 555,838 | |
Total non-current liabilities | 11,374,658 | | | 11,559,217 | |
| | | |
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, 519,806,028 shares outstanding (525,330,672 on October 30, 2021) | 86,636 | | | 87,554 | |
Capital in excess of par value | 29,400,284 | | | 30,574,237 | |
Retained earnings | 7,820,477 | | | 7,517,316 | |
Accumulated other comprehensive loss | (207,615) | | | (186,565) | |
Total shareholders’ equity | 37,099,782 | | | 37,992,542 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 50,800,652 | | | $ | 52,322,071 | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended April 30, 2022 |
| | | | | Capital in | | | | Accumulated Other |
| Common Stock | | Excess of | | Retained | | Comprehensive |
| Shares | | Amount | | Par Value | | Earnings | | Loss |
| | | | | | | | | |
| | | | | | | | | |
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BALANCE, JANUARY 29, 2022 | 523,315 | | | $ | 87,221 | | | $ | 30,093,961 | | | $ | 7,434,748 | | | $ | (188,618) | |
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Net income | | | | | | | 783,273 | | | |
Dividends declared and paid - $0.76 per share | | | | | | | (397,544) | | | |
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Issuance of stock under stock plans and other | 1,404 | | | 234 | | | 11,348 | | | | | |
Stock-based compensation expense | | | | | 70,996 | | | | | |
Other comprehensive loss | | | | | | | | | (18,997) | |
Common stock repurchased | (4,913) | | | (819) | | | (776,021) | | | | | |
BALANCE, APRIL 30, 2022 | 519,806 | | | $ | 86,636 | | | $ | 29,400,284 | | | $ | 7,820,477 | | | $ | (207,615) | |
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| Six Months Ended April 30, 2022 |
| | | | | Capital in | | | | Accumulated Other |
| Common Stock | | Excess of | | Retained | | Comprehensive |
| Shares | | Amount | | Par Value | | Earnings | | Loss |
BALANCE, OCTOBER 30, 2021 | 525,331 | | | $ | 87,554 | | | $ | 30,574,237 | | | $ | 7,517,316 | | | $ | (186,565) | |
Net income | | | | | | | 1,063,350 | | | |
Dividends declared and paid - $1.45 per share | | | | | | | (760,189) | | | |
Issuance of stock under stock plans and other | 1,983 | | | 332 | | | 19,722 | | | | | |
Stock-based compensation expense | | | | | 157,935 | | | | | |
Other comprehensive loss | | | | | | | | | (21,050) | |
Common stock repurchased | (7,508) | | | (1,250) | | | (1,351,610) | | | | | |
BALANCE, APRIL 30, 2022 | 519,806 | | | $ | 86,636 | | | $ | 29,400,284 | | | $ | 7,820,477 | | | $ | (207,615) | |
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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 |
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BALANCE, JANUARY 30, 2021 | 368,894 | | | $ | 61,484 | | | $ | 4,849,185 | | | $ | 7,395,578 | | | $ | (218,501) | |
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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) | |
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| 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 CASH FLOWS
(Unaudited)
(in thousands)
| | | | | | | | | | | |
| Six Months Ended |
| April 30, 2022 | | May 1, 2021 |
Cash flows from operating activities: | | | |
Net income | $ | 1,063,350 | | | $ | 811,424 | |
Adjustments to reconcile net income to net cash provided by operations: | | | |
Depreciation | 137,016 | | | 108,775 | |
Amortization of intangibles | 1,008,900 | | | 290,745 | |
| | | |
Stock-based compensation expense | 157,935 | | | 76,996 | |
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Cost of goods sold for inventory acquired | 271,396 | | | — | |
Deferred income taxes | (122,992) | | | (48,292) | |
Non-cash operating lease costs | (27,697) | | | 8,040 | |
Other | (10,225) | | | (12,122) | |
Changes in operating assets and liabilities | (399,463) | | | (71,263) | |
Total adjustments | 1,014,870 | | | 352,879 | |
Net cash provided by operating activities | 2,078,220 | | | 1,164,303 | |
Cash flows from investing activities: | | | |
| | | |
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| | | |
Additions to property, plant and equipment | (229,912) | | | (126,558) | |
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Other | 13,010 | | | (9,210) | |
Net cash used for investing activities | (216,902) | | | (135,768) | |
Cash flows from financing activities: | | | |
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Early termination of debt | (519,116) | | | — | |
Dividend payments to shareholders | (760,189) | | | (483,608) | |
Repurchase of common stock | (852,860) | | | (345,871) | |
Proceeds from employee stock plans | 20,054 | | | 43,672 | |
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Other | 26,657 | | | 2,399 | |
Net cash used for financing activities | (2,085,454) | | | (783,408) | |
Effect of exchange rate changes on cash | (16,095) | | | 4,229 | |
Net (decrease) increase in cash and cash equivalents | (240,231) | | | 249,356 | |
Cash and cash equivalents at beginning of period | 1,977,964 | | | 1,055,860 | |
Cash and cash equivalents at end of period | $ | 1,737,733 | | | $ | 1,305,216 | |
See accompanying notes.
ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2022 (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 30, 2021 (fiscal 2021) 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 29, 2022 (fiscal 2022) 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 2022 presentation.
On August 26, 2021 (Acquisition Date), the Company completed the acquisition of Maxim Integrated Products, Inc. (Maxim), an independent manufacturer of innovative analog and mixed-signal products and technologies. The acquisition of Maxim is referred to as the Acquisition. The consolidated financial statements included in this Quarterly Report on Form 10-Q include the financial results of Maxim prospectively from the Acquisition Date. See Note 14, Acquisitions, in these Notes to Condensed Consolidated Financial Statements for additional information.
Note 2 – Shareholders' Equity
In fiscal 2021, the Company entered into accelerated share repurchase agreements (ASR) with third party financial institutions, paid $2.5 billion and received an initial delivery of 12.3 million shares of common stock, which represented approximately 80% of the notional amount of the ASR. As of October 30, 2021, the Company recorded the remaining 20%, or $500.0 million, within Prepaid expenses and other current assets on the Consolidated Balance Sheet, which was utilized during the first quarter of fiscal 2022. During the first quarter of fiscal 2022, the ASR was completed and an additional 2.1 million shares of common stock were received as final settlement of the ASR. In total, the Company repurchased 14.4 million shares under the ASR at an average price per share of $173.77.
As of April 30, 2022, the Company had repurchased a total of approximately 178.5 million shares of its common stock for approximately $10.0 billion under the Company's share repurchase program. As of April 30, 2022, an additional $6.6 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 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | | | | Unrealized holding gains (losses) on derivatives | | Pension plans | | Total |
October 30, 2021 | $ | (25,795) | | | | | | | $ | (123,754) | | | $ | (37,016) | | | $ | (186,565) | |
Other comprehensive (loss) income before reclassifications | (22,472) | | | | | | | (20,728) | | | 3,185 | | | (40,015) | |
Amounts reclassified out of other comprehensive income | — | | | | | | | 18,266 | | | 1,134 | | | 19,400 | |
Tax effects | — | | | | | | | (248) | | | (187) | | | (435) | |
Other comprehensive (loss) income | (22,472) | | | | | | | (2,710) | | | 4,132 | | | (21,050) | |
| | | | | | | | | | | |
April 30, 2022 | $ | (48,267) | | | | | | | $ | (126,464) | | | $ | (32,884) | | | $ | (207,615) | |
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:
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| | Three Months Ended | | Six Months Ended | | |
Comprehensive Income Component | | April 30, 2022 | | May 1, 2021 | | April 30, 2022 | | May 1, 2021 | | Location |
Unrealized holding (gains) losses on derivatives | | | | | |
Currency forwards | | $ | 2,113 | | | $ | (1,363) | | | $ | 3,864 | | | $ | (3,350) | | | Cost of sales |
| | 1,373 | | | (791) | | | 2,583 | | | (1,855) | | | Research and development |
| | 2,485 | | | (606) | | | 4,357 | | | (1,824) | | | Selling, marketing, general and administrative |
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Interest rate derivatives | | 3,731 | | | 464 | | | 7,462 | | | 928 | | | Interest expense |
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| | 9,702 | | | (2,296) | | | 18,266 | | | (6,101) | | | Total before tax |
| | (1,485) | | | 329 | | | (2,786) | | | 533 | | | Tax |
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| | $ | 8,217 | | | $ | (1,967) | | | $ | 15,480 | | | $ | (5,568) | | | Net of tax |
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Amortization of pension components included in the computation of net periodic pension cost |
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Actuarial losses | | 549 | | | 750 | | | 1,134 | | | 1,498 | | | |
| | (91) | | | (86) | | | (187) | | | (172) | | | Tax |
| | $ | 458 | | | $ | 664 | | | $ | 947 | | | $ | 1,326 | | | Net of tax |
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Total amounts reclassified out of AOCI, net of tax | | $ | 8,675 | | | $ | (1,303) | | | $ | 16,427 | | | $ | (4,242) | | | |
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 |
| April 30, 2022 | | May 1, 2021 | | April 30, 2022 | | May 1, 2021 |
Net Income | $ | 783,273 | | | $ | 422,905 | | | $ | 1,063,350 | | | $ | 811,424 | |
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Basic shares: | | | | | | | |
Weighted-average shares outstanding | 522,370 | | | 368,823 | | | 523,831 | | | 369,013 | |
Earnings per common share basic: | $ | 1.50 | | | $ | 1.15 | | | $ | 2.03 | | | $ | 2.20 | |
Diluted shares: | | | | | | | |
Weighted-average shares outstanding | 522,370 | | | 368,823 | | | 523,831 | | | 369,013 | |
Assumed exercise of common stock equivalents | 3,894 | | | 3,595 | | | 4,372 | | | 3,749 | |
Weighted-average common and common equivalent shares | 526,264 | | | 372,418 | | | 528,203 | | | 372,762 | |
Earnings per common share diluted: | $ | 1.49 | | | $ | 1.14 | | | $ | 2.01 | | | $ | 2.18 | |
Anti-dilutive shares related to: | | | | | | | |
Outstanding stock-based awards | 738 | | | 622 | | | 461 | | | 430 | |
Note 5 – Special Charges, net
Liabilities related to special charges, net are included in Accrued liabilities in the Condensed Consolidated Balance Sheets. The activity is detailed below: | | | | | | | | | | | | | | | | | |
Accrued Special Charges | Closure of Manufacturing Facilities | | | | | | Global Repositioning Actions | | |
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Balance at October 30, 2021 | $ | 25,774 | | | | | | | $ | 21,065 | | | |
Employee severance and benefit costs | 75 | | | | | | | 44,411 | | | |
Facility closure costs | 6,513 | | | | | | | — | | | |
Severance and benefit payments | (4,016) | | | | | | | (25,776) | | | |
Facility closure cost payments | (6,513) | | | | | | | — | | | |
Effect of foreign currency on accrual | — | | | | | | | (54) | | | |
Balance at January 29, 2022 | $ | 21,833 | | | | | | | $ | 39,646 | | | |
Employee severance and benefit costs | — | | | | | | | 39,610 | | | |
Facility closure costs | 4,287 | | | | | | | — | | | |
Severance and benefit payments | (14,026) | | | | | | | (25,608) | | | |
Facility closure cost payments | (4,287) | | | | | | | — | | | |
Effect of foreign currency on accrual | — | | | | | | | (156) | | | |
Balance at April 30, 2022 | $ | 7,807 | | | | | | | $ | 53,492 | | | |
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Closure of Manufacturing Facilities
The Company recorded net special charges of $66.9 million on a cumulative basis through April 30, 2022 as a result of its decision to consolidate certain wafer and test facility operations acquired as part of the acquisition of Linear Technology Corporation.
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 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.
During fiscal 2021, the Company ceased production at its Hillview wafer fabrication facility located in Milpitas, California and determined that this facility met the held for sale criteria specified in Accounting Standards Codification (ASC) 360. See Note 6, Property, Plant and Equipment in these Notes to Condensed Consolidated Financial Statements for amounts reclassified.
During fiscal 2021, the Company completed the sale of its facility and certain equipment in Singapore, which were previously classified as held for sale, for approximately $35.7 million, which resulted in a gain of $13.6 million. Concurrent with the sale, the Company entered into a short-term lease agreement to leaseback a portion of the facility while it completes its transition of related operations to its facilities in Penang, Malaysia and the Philippines, as well as to its outsourced assembly and test partners.
Global Repositioning Actions
The Company recorded net special charges of $316.4 million on a cumulative basis through April 30, 2022, as part of the integration of the Acquisition and continued organizational initiatives to better align its global workforce with the Company's long-term strategic plan. Special charges of $95.5 million recognized in the first six months of fiscal 2022 primarily consisted of $103.8 million of severance and benefit costs as well as charges recorded from the acceleration of equity awards in connection with the termination of certain employees in manufacturing, engineering and SMG&A roles at sites assumed related to the Acquisition and various locations throughout the world. These charges were partially offset by a gain of $8.3 million recognized upon the sale of a business.
Note 6 – Property, Plant and Equipment
During fiscal 2021, the Company ceased production at its Hillview wafer fabrication facility located in Milpitas, California and determined that this facility met the held for sale criteria specified in ASC 360. As of April 30, 2022, Prepaid expenses and other current assets includes the following assets held for sale recorded at the fair value of the asset group, less costs to sell:
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Land and buildings | $ | 40,070 | | | |
Less accumulated depreciation and amortization | (13,634) | | | |
Net property, plant and equipment reclassified to Prepaid expenses and other current assets | $ | 26,436 | | | |
Note 7 – Revenue
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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| April 30, 2022 | | May 1, 2021 |
| Revenue | | % of Revenue* | | Y/Y% | | Revenue | | % of Revenue* |
Industrial | $ | 1,501,111 | | | 51 | % | | 54 | % | | $ | 975,706 | | | 59 | % |
Automotive | 633,926 | | | 21 | % | | 145 | % | | 258,943 | | | 16 | % |
Communications | 473,074 | | | 16 | % | | 70 | % | | 278,650 | | | 17 | % |
Consumer | 363,953 | | | 12 | % | | 146 | % | | 148,108 | | | 9 | % |
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Total revenue | $ | 2,972,064 | | | 100 | % | | 79 | % | | $ | 1,661,407 | | | 100 | % |
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| Six Months Ended |
| April 30, 2022 | | May 1, 2021 |
| Revenue | | % of Revenue* | | Y/Y% | | Revenue | | % of Revenue* |
Industrial | $ | 2,847,838 | | | 50 | % | | 55 | % | | $ | 1,833,198 | | | 57 | % |
Automotive | 1,184,927 | | | 21 | % | | 134 | % | | 505,748 | | | 16 | % |
Communications | 885,450 | | | 16 | % | | 58 | % | | 560,904 | | | 17 | % |
Consumer | 738,142 | | | 13 | % | | 131 | % | | 320,015 | | | 10 | % |
Total revenue | $ | 5,656,357 | | | 100 | % | | 76 | % | | $ | 3,219,865 | | | 100 | % |
* The sum of the individual percentages may not equal the total due to rounding. |
Revenue by Sales Channel
The following table summarizes revenue by channel. The Company sells its products globally through a direct sales force, third party distributors, independent sales representatives and via its website. Distributors are customers that buy products with the intention of reselling them. Direct customers are non-distributor customers and consist primarily of original equipment manufacturers (OEMs). Other customers include the U.S. government, government prime contractors and certain commercial
customers for which revenue is recorded over time. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| April 30, 2022 | | May 1, 2021 |
Channel | Revenue | | % of Revenue* | | Revenue | | % of Revenue* |
Distributors | $ | 1,849,988 | | | 62 | % | | $ | 1,092,928 | | | 66 | % |
Direct customers | 1,091,710 | | | 37 | % | | 546,555 | | | 33 | % |
Other | 30,366 | | | 1 | % | | 21,924 | | | 1 | % |
Total revenue | $ | 2,972,064 | | | 100 | % | | $ | 1,661,407 | | | 100 | % |
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| Six Months Ended |
| April 30, 2022 | | May 1, 2021 |
Channel | Revenue | | % of Revenue* | | Revenue | | % of Revenue* |
Distributors | $ | 3,503,042 | | | 62 | % | | $ | 2,039,314 | | | 63 | % |
Direct customers | 2,094,891 | | | 37 | % | | 1,136,011 | | | 35 | % |
Other | 58,424 | | | 1 | % | | 44,540 | | | 1 | % |
Total revenue | $ | 5,656,357 | | | 100 | % | | $ | 3,219,865 | | | 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 April 30, 2022 and October 30, 2021. 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 April 30, 2022 and October 30, 2021, the Company held $1,030.1 million and $1,315.0 million, respectively, of cash that was
excluded from the tables below. | | | | | | | | | | | | | | | | | | | |
| April 30, 2022 |
| 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 | $ | 577,683 | | | $ | — | | | | | $ | 577,683 | |
Corporate obligations (1) | — | | | 129,941 | | | | | 129,941 | |
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Other assets: | | | | | | | |
Deferred compensation plan investments | 66,390 | | | — | | | | | 66,390 | |
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Total assets measured at fair value | $ | 644,073 | | | $ | 129,941 | | | | | $ | 774,014 | |
Liabilities | | | | | | | |
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Forward foreign currency exchange contracts (2) | $ | — | | | $ | 22,524 | | | | | $ | 22,524 | |
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Total liabilities measured at fair value | $ | — | | | $ | 22,524 | | | | | $ | 22,524 | |
(1)The amortized cost of the Company’s investments classified as available-for-sale as of April 30, 2022 was $130.0 million.
(2)The Company has master netting arrangements by counterparty with respect to derivative contracts. See Note 9, Derivatives, in these Notes to Condensed Consolidated Financial Statements for more information related to the Company's master netting arrangements.
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| October 30, 2021 |
| 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 | $ | 662,997 | | | $ | — | | | | | $ | 662,997 | |
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Other assets: | | | | | | | |
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Deferred compensation plan investments | 71,301 | | | — | | | | | 71,301 | |
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Total assets measured at fair value | $ | 734,298 | | | $ | — | | | | | $ | 734,298 | |
Liabilities | | | | | | | |
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Forward foreign currency exchange contracts (1) | $ | — | | | $ | 8,085 | | | | | $ | 8,085 | |
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Total liabilities measured at fair value | $ | — | | | $ | 8,085 | | | | | $ | 8,085 | |
(1)The Company has master netting arrangements by counterparty with respect to derivative contracts. See Note 9, Derivatives, in these Notes to Condensed Consolidated Financial Statements for more information related to the Company's master netting arrangements.
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.
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 fair value, which is determined based on the use of appraisals and input from market participants, and as such is considered a Level 3 fair value measurement. See Note 6, Property, Plant and Equipment, in these Notes to Condensed Consolidated Financial Statements for more information 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 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. | | | | | | | | | | | | | | | | | | | | | | | |
| April 30, 2022 | | October 30, 2021 |
| Principal Amount Outstanding | | Fair Value | | Principal Amount Outstanding | | Fair Value |
Maxim 2023 Notes, due March 2023 | $ | — | | | $ | — | | | $ | 500,000 | | | $ | 520,236 | |
2024 Notes, due October 2024 | 500,000 | | | 496,904 | | | 500,000 | | | 500,482 | |
2025 Notes, due April 2025 | 400,000 | | | 394,337 | | | 400,000 | | | 423,265 | |
2026 Notes, due December 2026 | 900,000 | | | 895,250 | | | 900,000 | | | 986,243 | |
Maxim 2027 Notes, due June 2027 | 500,000 | | | 484,078 | | | 500,000 | | | 542,942 | |
2028 Notes, due October 2028 | 750,000 | | | 655,130 | | | 750,000 | | | 743,109 | |
2031 Notes, due October 2031 | 1,000,000 | | | 854,753 | | | 1,000,000 | | | 996,702 | |
2036 Notes, due December 2036 | 144,278 | | | 143,752 | | | 144,278 | | | 176,960 | |
2041 Notes, due October 2041 | 750,000 | | | 595,806 | | | 750,000 | | | 758,246 | |
2045 Notes, due December 2045 | 332,587 | | | 365,491 | | | 332,587 | | | 469,592 | |
2051 Notes, due October 2051 | 1,000,000 | | | 772,751 | | | 1,000,000 | | | 1,029,830 | |
Total debt | $ | 6,276,865 | | | $ | 5,658,252 | | | $ | 6,776,865 | | | $ | 7,147,607 | |
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Note 9 – Derivatives
Foreign Exchange Exposure Management — The Company enters into forward foreign currency exchange contracts to offset certain operational and balance sheet exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company’s operations, assets and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Euro; other significant exposures include the British Pound, Philippine Peso, Thai Baht, South Korean Won and the Japanese Yen. Derivative instruments are employed to eliminate or minimize cert