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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 29, 2023
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 29, 2023 there were 501,418,304 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 29, 2023 | | April 30, 2022 | | April 29, 2023 | | April 30, 2022 |
Revenue | $ | 3,262,930 | | | $ | 2,972,064 | | | $ | 6,512,560 | | | $ | 5,656,357 | |
Cost of sales | 1,118,384 | | | 1,027,544 | | | 2,243,673 | | | 2,309,840 | |
Gross margin | 2,144,546 | | | 1,944,520 | | | 4,268,887 | | | 3,346,517 | |
Operating expenses: | | | | | | | |
Research and development | 415,754 | | | 420,901 | | | 829,849 | | | 847,681 | |
Selling, marketing, general and administrative | 324,251 | | | 305,308 | | | 650,535 | | | 602,673 | |
Amortization of intangibles | 253,021 | | | 253,476 | | | 506,163 | | | 506,843 | |
Special charges, net | 23,136 | | | 46,674 | | | 23,136 | | | 106,402 | |
Total operating expenses | 1,016,162 | | | 1,026,359 | | | 2,009,683 | | | 2,063,599 | |
Operating income: | 1,128,384 | | | 918,161 | | | 2,259,204 | | | 1,282,918 | |
Nonoperating expense (income): | | | | | | | |
Interest expense | 63,252 | | | 49,548 | | | 123,705 | | | 101,512 | |
Interest income | (12,575) | | | (563) | | | (23,404) | | | (781) | |
Other, net | (10,216) | | | (10,069) | | | (2,493) | | | (20,613) | |
Total nonoperating expense (income) | 40,461 | | | 38,916 | | | 97,808 | | | 80,118 | |
Income before income taxes | 1,087,923 | | | 879,245 | | | 2,161,396 | | | 1,202,800 | |
Provision for income taxes | 110,267 | | | 95,972 | | | 222,266 | | | 139,450 | |
Net income | $ | 977,656 | | | $ | 783,273 | | | $ | 1,939,130 | | | $ | 1,063,350 | |
| | | | | | | |
Shares used to compute earnings per common share – basic | 504,715 | | | 522,370 | | | 505,918 | | | 523,831 | |
Shares used to compute earnings per common share – diluted | 508,725 | | | 526,264 | | | 509,955 | | | 528,203 | |
| | | | | | | |
Basic earnings per common share | $ | 1.94 | | | $ | 1.50 | | | $ | 3.83 | | | $ | 2.03 | |
Diluted earnings per common share | $ | 1.92 | | | $ | 1.49 | | | $ | 3.80 | | | $ | 2.01 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| April 29, 2023 | | April 30, 2022 | | April 29, 2023 | | April 30, 2022 |
Net income | $ | 977,656 | | | $ | 783,273 | | | $ | 1,939,130 | | | $ | 1,063,350 | |
Foreign currency translation adjustments | (864) | | | (17,868) | | | 1,635 | | | (22,472) | |
| | | | | | | |
Change in fair value of derivative instruments designated as cash flow hedges, net | (2,109) | | | (3,757) | | | 23,358 | | | (2,710) | |
Changes in pension plans, net actuarial gain/loss and foreign currency translation adjustments, net | 344 | | | 2,628 | | | 796 | | | 4,132 | |
Other comprehensive (loss) income | (2,629) | | | (18,997) | | | 25,789 | | | (21,050) | |
Comprehensive income | $ | 975,027 | | | $ | 764,276 | | | $ | 1,964,919 | | | $ | 1,042,300 | |
| | | | | | | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
| | | | | | | | | | | |
| April 29, 2023 | | October 29, 2022 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 1,177,609 | | | $ | 1,470,572 | |
| | | |
Accounts receivable | 1,616,256 | | | 1,800,462 | |
Inventories | 1,648,136 | | | 1,399,914 | |
| | | |
| | | |
| | | |
Prepaid expenses and other current assets | 302,919 | | | 267,044 | |
Total current assets | 4,744,920 | | | 4,937,992 | |
Non-current Assets | | | |
| | | |
Net property, plant and equipment | 2,742,016 | | | 2,401,304 | |
Goodwill | 26,913,134 | | | 26,913,134 | |
Intangible assets, net | 12,261,693 | | | 13,265,406 | |
Deferred tax assets | 2,248,858 | | | 2,264,888 | |
| | | |
Other assets | 634,118 | | | 519,626 | |
Total non-current assets | 44,799,819 | | | 45,364,358 | |
TOTAL ASSETS | $ | 49,544,739 | | | $ | 50,302,350 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 569,002 | | | $ | 582,160 | |
| | | |
| | | |
Income taxes payable | 308,968 | | | 265,845 | |
Commercial paper notes | 253,635 | | | — | |
| | | |
Accrued liabilities | 1,514,805 | | | 1,594,650 | |
Total current liabilities | 2,646,410 | | | 2,442,655 | |
Non-current Liabilities | | | |
Long-term debt | 6,475,646 | | | 6,548,625 | |
Deferred income taxes | 3,325,350 | | | 3,622,538 | |
| | | |
Income taxes payable | 523,653 | | | 707,846 | |
| | | |
Other non-current liabilities | 560,456 | | | 515,363 | |
Total non-current liabilities | 10,885,105 | | | 11,394,372 | |
| | | |
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, 501,418,304 shares outstanding (509,295,941 on October 29, 2022) | 83,571 | | | 84,880 | |
Capital in excess of par value | 26,262,226 | | | 27,857,270 | |
Retained earnings | 9,839,790 | | | 8,721,325 | |
Accumulated other comprehensive loss | (172,363) | | | (198,152) | |
Total shareholders’ equity | 36,013,224 | | | 36,465,323 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 49,544,739 | | | $ | 50,302,350 | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended April 29, 2023 |
| | | | | Capital in | | | | Accumulated Other |
| Common Stock | | Excess of | | Retained | | Comprehensive |
| Shares | | Amount | | Par Value | | Earnings | | Loss |
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BALANCE, JANUARY 28, 2023 | 505,852 | | | $ | 84,306 | | | $ | 27,319,566 | | | $ | 9,297,347 | | | $ | (169,734) | |
| | | | | | | | | |
Net income | | | | | | | 977,656 | | | |
Dividends declared and paid - $0.86 per share | | | | | | | (435,213) | | | |
| | | | | | | | | |
Issuance of stock under stock plans and other | 1,764 | | | 294 | | | 25,480 | | | | | |
Stock-based compensation expense | | | | | 69,102 | | | | | |
Other comprehensive loss | | | | | | | | | (2,629) | |
Common stock repurchased | (6,198) | | | (1,029) | | | (1,151,922) | | | | | |
BALANCE, APRIL 29, 2023 | 501,418 | | | $ | 83,571 | | | $ | 26,262,226 | | | $ | 9,839,790 | | | $ | (172,363) | |
| | | | | | | | | |
| Six Months Ended April 29, 2023 |
| | | | | Capital in | | | | Accumulated Other |
| Common Stock | | Excess of | | Retained | | Comprehensive |
| Shares | | Amount | | Par Value | | Earnings | | Loss |
BALANCE, OCTOBER 29, 2022 | 509,296 | | | $ | 84,880 | | | $ | 27,857,270 | | | $ | 8,721,325 | | | $ | (198,152) | |
Net income | | | | | | | 1,939,130 | | | |
Dividends declared and paid - $1.62 per share | | | | | | | (820,665) | | | |
Issuance of stock under stock plans and other | 2,381 | | | 397 | | | 66,615 | | | | | |
Stock-based compensation expense | | | | | 144,143 | | | | | |
Other comprehensive income | | | | | | | | | 25,789 | |
Common stock repurchased | (10,259) | | | (1,706) | | | (1,805,802) | | | | | |
BALANCE, APRIL 29, 2023 | 501,418 | | | $ | 83,571 | | | $ | 26,262,226 | | | $ | 9,839,790 | | | $ | (172,363) | |
| | | | | | | | | |
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) | |
| | | | | | | | | |
Net income | | | | | | | 783,273 | | | |
Dividends declared and paid - $0.76 per share | | | | | | | (397,544) | | | |
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) | |
| | | | | | | | | |
| 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) | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| | | | | | | | | | | |
| Six Months Ended |
| April 29, 2023 | | April 30, 2022 |
Cash flows from operating activities: | | | |
Net income | $ | 1,939,130 | | | $ | 1,063,350 | |
Adjustments to reconcile net income to net cash provided by operations: | | | |
Depreciation | 165,581 | | | 137,016 | |
Amortization of intangibles | 1,003,713 | | | 1,008,900 | |
Cost of goods sold for inventory acquired | — | | | 271,396 | |
Stock-based compensation expense | 144,143 | | | 157,935 | |
| | | |
| | | |
| | | |
Deferred income taxes | (280,110) | | | (122,992) | |
Non-cash operating lease costs | (6,902) | | | (27,697) | |
Other | 9,670 | | | (10,225) | |
Changes in operating assets and liabilities | (487,339) | | | (399,463) | |
Total adjustments | 548,756 | | | 1,014,870 | |
Net cash provided by operating activities | 2,487,886 | | | 2,078,220 | |
Cash flows from investing activities: | | | |
| | | |
| | | |
| | | |
Additions to property, plant and equipment | (460,496) | | | (229,912) | |
| | | |
| | | |
| | | |
Other | (81) | | | 13,010 | |
Net cash used for investing activities | (460,577) | | | (216,902) | |
Cash flows from financing activities: | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Early termination of debt | (65,688) | | | (519,116) | |
Dividend payments to shareholders | (820,665) | | | (760,189) | |
Repurchase of common stock | (1,807,508) | | | (852,860) | |
Proceeds from employee stock plans | 67,012 | | | 20,054 | |
Proceeds from commercial paper notes | 253,635 | | | — | |
| | | |
Other | 52,942 | | | 26,657 | |
Net cash used for financing activities | (2,320,272) | | | (2,085,454) | |
Effect of exchange rate changes on cash | — | | | (16,095) | |
Net decrease in cash and cash equivalents | (292,963) | | | (240,231) | |
Cash and cash equivalents at beginning of period | 1,470,572 | | | 1,977,964 | |
Cash and cash equivalents at end of period | $ | 1,177,609 | | | $ | 1,737,733 | |
| | | |
See accompanying notes.
ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED APRIL 29, 2023 (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 29, 2022 (fiscal 2022) 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 28, 2023 (fiscal 2023) 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 2023 presentation.
Note 2 – Shareholders' Equity
As of April 29, 2023, the Company had repurchased a total of approximately 199.3 million shares of its common stock for approximately $13.4 billion under the Company's share repurchase program. As of April 29, 2023, an additional $3.2 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 as well as for the Company's employee stock purchase plan. 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 2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | | | | Unrealized holding gains (losses) on derivatives | | Pension plans | | Total |
October 29, 2022 | $ | (72,136) | | | | | | | $ | (119,613) | | | $ | (6,403) | | | $ | (198,152) | |
Other comprehensive income before reclassifications | 1,635 | | | | | | | 20,324 | | | 50 | | | 22,009 | |
Amounts reclassified out of other comprehensive income | — | | | | | | | 6,911 | | | 746 | | | 7,657 | |
Tax effects | — | | | | | | | (3,877) | | | — | | | (3,877) | |
Other comprehensive income | 1,635 | | | | | | | 23,358 | | | 796 | | | 25,789 | |
| | | | | | | | | | | |
April 29, 2023 | $ | (70,501) | | | | | | | $ | (96,255) | | | $ | (5,607) | | | $ | (172,363) | |
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 (Loss) Income Component | | April 29, 2023 | | April 30, 2022 | | April 29, 2023 | | April 30, 2022 | | Location |
Unrealized holding (gains) losses on derivatives: | | | | | |
Currency forwards | | $ | 1,342 | | | $ | 2,113 | | | $ | 283 | | | $ | 3,864 | | | Cost of sales |
| | 570 | | | 1,373 | | | 123 | | | 2,583 | | | Research and development |
| | 344 | | | 2,485 | | | (953) | | | 4,357 | | | Selling, marketing, general and administrative |
| | | | | | | | | | |
Interest rate derivatives | | 3,731 | | | 3,731 | | | 7,458 | | | 7,462 | | | Interest expense |
| | | | | | | | | | |
| | 5,987 | | | 9,702 | | | 6,911 | | | 18,266 | | | Total before tax |
| | (701) | | | (1,485) | | | (1,503) | | | (2,786) | | | Tax |
| | | | | | | | | | |
| | $ | 5,286 | | | $ | 8,217 | | | $ | 5,408 | | | $ | 15,480 | | | Net of tax |
| | | | | | | | | | |
Amortization of pension components included in the computation of net periodic pension cost: |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Actuarial losses | | $ | 376 | | | $ | 458 | | | $ | 746 | | | $ | 947 | | | Net of tax |
| | | | | | | | | | |
Total amounts reclassified out of AOCI, net of tax | | $ | 5,662 | | | $ | 8,675 | | | $ | 6,154 | | | $ | 16,427 | | | |
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 29, 2023 | | April 30, 2022 | | April 29, 2023 | | April 30, 2022 |
Net Income | $ | 977,656 | | | $ | 783,273 | | | $ | 1,939,130 | | | $ | 1,063,350 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic shares: | | | | | | | |
Weighted-average shares outstanding | 504,715 | | | 522,370 | | | 505,918 | | | 523,831 | |
Earnings per common share basic: | $ | 1.94 | | | $ | 1.50 | | | $ | 3.83 | | | $ | 2.03 | |
Diluted shares: | | | | | | | |
Weighted-average shares outstanding | 504,715 | | | 522,370 | | | 505,918 | | | 523,831 | |
Assumed exercise of common stock equivalents | 4,010 | | | 3,894 | | | 4,037 | | | 4,372 | |
Weighted-average common and common equivalent shares | 508,725 | | | 526,264 | | | 509,955 | | | 528,203 | |
Earnings per common share diluted: | $ | 1.92 | | | $ | 1.49 | | | $ | 3.80 | | | $ | 2.01 | |
Anti-dilutive shares related to: | | | | | | | |
Outstanding stock-based awards | 387 | | | 738 | | | 354 | | | 461 | |
Note 5 – Special Charges, Net
Liabilities related to special charges, net are included in Accrued liabilities and Other non-current liabilities in the Condensed Consolidated Balance Sheets. The activity is detailed below: | | | | | | | | | | | | | | | |
Accrued Special Charges | | | | | | | Global Repositioning Actions | | |
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Balance at October 29, 2022 | | | | | | | $ | 52,070 | | | |
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Severance and benefit payments | | | | | | | (16,298) | | | |
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Balance at January 28, 2023 | | | | | | | $ | 35,772 | | | |
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Severance and benefit payments | | | | | | | (22,820) | | | |
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Employee severance and benefit costs | | | | | | | 23,136 | | | |
Balance at April 29, 2023 | | | | | | | $ | 36,088 | | | |
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Accrued liabilities | | | | | | | $ | 12,952 | | | |
Other non-current liabilities | | | | | | | $ | 23,136 | | | |
Note 6 – Commitments and Contingencies
On March 17, 2022, Walter E. Ryan and Ryan Asset Management, LLC, purported stockholders of Maxim Integrated Products, Inc. (Maxim), filed a putative class action in the Court of Chancery of the State of Delaware (C.A. No. 2022—0255) against the Company and the former directors of Maxim. The complaint alleges breach of fiduciary duties by the individual defendants in connection with Maxim’s agreement, as part of the merger negotiations with the Company, to suspend Maxim dividends for up to four quarters prior to the closing of the Company's acquisition of Maxim. The complaint further alleges that the Company aided and abetted that alleged breach of fiduciary duties. The plaintiffs seek damages in an amount to be determined at trial, plaintiffs’ costs and disbursements, including reasonable attorneys’ and experts’ fees, costs and other expenses. On May 2, 2023, the Court of Chancery entered an order dismissing the action in its entirety and with prejudice. On May 9, 2023, plaintiffs filed a Motion for Reargument. The Company believes that it and the other defendants have meritorious arguments in response to the motion and defenses to the underlying allegations; however, the Company is currently unable to determine the ultimate outcome of this matter or determine an estimate, or a range of estimates, of potential losses, if any.
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 revenue within, each end market.
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| Three Months Ended |
| April 29, 2023 | | April 30, 2022 |
| Revenue | | % of Revenue* | | Y/Y% | | Revenue | | % of Revenue* |
Industrial | $ | 1,744,567 | | | 53 | % | | 16 | % | | $ | 1,502,731 | | | 51 | % |
Automotive | 784,775 | | | 24 | % | | 24 | % | | 633,255 | | | 21 | % |
Communications | 453,530 | | | 14 | % | | (4) | % | | 474,722 | | | 16 | % |
Consumer | 280,058 | | | 9 | % | | (22) | % | | 361,356 | | | 12 | % |
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Total revenue | $ | 3,262,930 | | | 100 | % | | 10 | % | | $ | 2,972,064 | | | 100 | % |
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| Six Months Ended |
| April 29, 2023 | | April 30, 2022 |
| Revenue | | % of Revenue* | | Y/Y% | | Revenue | | % of Revenue* |
Industrial | $ | 3,438,006 | | | 53 | % | | 21 | % | | $ | 2,849,577 | | | 50 | % |
Automotive | 1,498,178 | | | 23 | % | | 27 | % | | 1,183,985 | | | 21 | % |
Communications | 941,735 | | | 14 | % | | 6 | % | | 887,663 | | | 16 | % |
Consumer | 634,641 | | | 10 | % | | (14) | % | | 735,132 | | | 13 | % |
Total revenue | $ | 6,512,560 | | | 100 | % | | 15 | % | | $ | 5,656,357 | | | 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. 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 29, 2023 | | April 30, 2022 |
Channel | Revenue | | % of Revenue* | | Revenue | | % of Revenue* |
Distributors | $ | 1,996,410 | | | 61 | % | | $ | 1,849,988 | | | 62 | % |
Direct customers | 1,224,786 | | | 38 | % | | 1,091,710 | | | 37 | % |
Other | 41,734 | | | 1 | % | | 30,366 | | | 1 | % |
Total revenue | $ | 3,262,930 | | | 100 | % | | $ | 2,972,064 | | | 100 | % |
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| | | | | | | |
| Six Months Ended |
| April 29, 2023 | | April 30, 2022 |
Channel | Revenue | | % of Revenue* | | Revenue | | % of Revenue* |
Distributors | $ | 4,007,733 | | | 62 | % | | $ | 3,503,042 | | | 62 | % |
Direct customers | 2,420,320 | | | 37 | % | | 2,094,891 | | | 37 | % |
Other | 84,507 | | | 1 | % | | 58,424 | | | 1 | % |
Total revenue | $ | 6,512,560 | | | 100 | % | | $ | 5,656,357 | | | 100 | % |
* The sum of the individual percentages may not equal the total due to rounding. |
Note 8 – Fair Value
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 29, 2023 and October 29, 2022. 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 29, 2023 and October 29, 2022, the Company held $661.3 million and $1,016.0 million, respectively, of cash that was
excluded from the tables below. | | | | | | | | | | | | | | | | | | | |
| April 29, 2023 |
| 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 | $ | 516,265 | | | $ | — | | | | | $ | 516,265 | |
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Other assets: | | | | | | | |
Deferred compensation plan investments | 68,645 | | | — | | | | | 68,645 | |
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Forward foreign currency exchange contracts | — | | | 8,541 | | | | | 8,541 | |
Total assets measured at fair value | $ | 584,910 | | | $ | 8,541 | | | | | $ | 593,451 | |
Liabilities | | | | | | | |
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Interest rate derivatives (1) | $ | — | | | $ | 1,866 | | | | | $ | 1,866 | |
Total liabilities measured at fair value | $ | — | | | $ | 1,866 | | | | | $ | 1,866 | |
(1)The carrying value of the related debt was adjusted by an equal and offsetting amount. The fair value of interest rate derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivatives. See Note 9, Derivatives, in these Notes to Condensed Consolidated Financial Statements.
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| October 29, 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 | $ | 454,545 | | | $ | — | | | | | $ | 454,545 | |
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Other assets: | | | | | | | |
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Deferred compensation plan investments | 63,211 | | | — | | | | | 63,211 | |
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Total assets measured at fair value | $ | 517,756 | | | $ | — | | | | | $ | 517,756 | |
Liabilities | | | | | | | |
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Forward foreign currency exchange contracts | $ | — | | | $ | 16,984 | | | | | $ | 16,984 | |
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Total liabilities measured at fair value | $ | — | | | $ | 16,984 | | | | | $ | 16,984 | |
In addition to the methods and assumptions used by the Company in estimating its fair value disclosure for financial instruments disclosed in Note 2j, Summary of Significant Accounting Policies, in the Company's Annual Report on Form 10-K for fiscal 2022, which was filed with the Securities and Exchange Commission on November 22, 2022, the following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments:
Interest rate derivative — The fair value of interest rate derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivatives.
Assets and Liabilities Not Recorded at Fair Value on a Recurring Basis
Commercial paper — The fair value of commercial paper is obtained from indicative market prices and are classified as Level 2 measurements according to the fair value hierarchy. As of April 29, 2023, the fair value of the commercial paper notes was $254.2 million.
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 29, 2023 | | October 29, 2022 |
| Principal Amount Outstanding | | Fair Value | | Principal Amount Outstanding | | Fair Value |
2024 Notes, due October 2024 | $ | 500,000 | | | $ | 492,992 | | | $ | 500,000 | | | $ | 491,982 | |
2025 Notes, due April 2025 | 400,000 | | | 389,004 | | | 400,000 | | | 383,378 | |
2026 Notes, due December 2026 | 900,000 | | | 877,748 | | | 900,000 | | | 851,479 | |
Maxim 2027 Notes, due June 2027 | — | | | — | | | 59,788 | | | 54,771 | |
2027 Notes, due June 2027 | 440,212 | | | 427,235 | | | 440,212 | | | 410,091 | |
2028 Notes, due October 2028 | 750,000 | | | 661,084 | | | 750,000 | | | 621,093 | |
2031 Notes, due October 2031 | 1,000,000 | | | 848,781 | | | 1,000,000 | | | 786,772 | |
2032 Notes, due October 2032 | 300,000 | | | 293,269 | | | 300,000 | | | 278,359 | |
2036 Notes, due December 2036 | 144,278 | | | 136,193 | | | 144,278 | | | 126,274 | |
2041 Notes, due October 2041 | 750,000 | | | 573,996 | | | 750,000 | | | 513,709 | |
2045 Notes, due December 2045 | 332,587 | | | 345,948 | | | 332,587 | | | 313,931 | |
2051 Notes, due October 2051 | 1,000,000 | | | 723,063 | | | 1,000,000 | | | 640,766 | |
Total debt | $ | 6,517,077 | | | $ | 5,769,313 | | | $ | 6,576,865 | | | $ | 5,472,605 | |
| | | | | | | |
Note 9 – Derivatives
Foreign Exchange Exposure Management — The total notional amounts of forward foreign currency derivative instruments designated as hedging instruments of cash flow hedges denominated in Euros, British Pounds, Philippine Pesos, Thai Baht, South Korean Won and Japanese Yen as of April 29, 2023 and October 29, 2022 were $307.0 million and $307.1 million, respectively. The fair values of forward foreign currency derivative instruments designated as hedging instruments in the Company’s Condensed Consolidated Balance Sheets as of April 29, 2023 and October 29, 2022 were as follows: | | | | | | | | | | | | | | | | | |
| | | Fair Value At |
| Balance Sheet Location | | April 29, 2023 | | October 29, 2022 |
Forward foreign currency exchange contracts | Prepaid expenses and other current assets | | $ | 6,022 | | | $ | — | |
Forward foreign currency exchange contracts | Accrued liabilities | | $ | — | | | $ | 18,050 | |
As of April 29, 2023 and October 29, 2022, the total notional amounts of undesignated hedges related to forward foreign currency exchange contracts were $413.6 million and $246.4 million, respectively.
The following table presents the gross amounts of the Company's forward foreign currency exchange contract derivative assets and liabilities and the net amounts recorded in the Company's Condensed Consolidated Balance Sheets: | | | | | | | | | | | |
| April 29, 2023 | | October 29, 2022 |
Gross amounts of recognized liabilities | $ | (3,802) | | | $ | (19,846) | |
Gross amount of recognized assets | 12,343 | | | 2,862 | |
| | | |
Net assets (liabilities) presented in the Condensed Consolidated Balance Sheets | $ | 8,541 | | | $ | (16,984) | |
Interest Rate Exposure Management — The Company's current and future debt may be subject to interest rate risk. The Company utilizes interest rate derivatives to alter interest rate exposure in an attempt to reduce the effects of changes in interest rates. During fiscal 2023, the Company entered into interest rate swap transactions related to its outstanding $1,000.0 million aggregate principal amount of 2.1% senior unsecured notes (the 2031 Notes) where the Company swapped the notional amount of its $1,000.0 million of fixed rate debt at 2.1% into floating interest rate debt through April 1, 2031. The fair value of the swaps at inception was zero and subsequent changes in the fair value of the interest rate swaps were reflected in the carrying value of the interest rate swaps on the balance sheet. The carrying value of the debt on the balance sheet was adjusted by an equal and offsetting amount. The interest rate swaps were designated and qualified as fair value hedges. The Company does not consider the risk of counterparty default to be significant. The gain or loss on the hedged item attributable to the hedged benchmark interest rate risk and the offsetting gain or loss on the related interest rate swaps were recorded as follows:
| | | | | | | | | | | | | | | | | | |
| | April 29, 2023 | | |
Balance Sheet location | | Loss on Swaps | | Gain on Note | | | | |
Accrued liabilities | | $ | 1,866 | | | $ | — | | | | | |
Long term debt | | $ | — | | | $ | 1,866 | | | | | |
For information on the unrealized holding gains (losses) on derivatives included in and reclassified out of AOCI into the Condensed Consolidated Statements of Income related to forward foreign currency exchange contracts, see Note 3, Accumulated Other Comprehensive (Loss) Income, in these Notes to Condensed Consolidated Financial Statements for further information.
Note 10 – Inventories
Inventories at April 29, 2023 and October 29, 2022 were as follows: | | | | | | | | | | | |
| April 29, 2023 | | October 29, 2022 |
Raw materials | $ | 122,518 | | | $ | 110,908 | |
Work in process | 1,084,541 | | | 904,648 | |
Finished goods | 441,077 | | | 384,358 | |
Total inventories | $ | 1,648,136 | | | $ | 1,399,914 | |
| | | |
Note 11 – Debt
Revolving Credit Facility. On June 23, 2021, the Company entered into a Third Amended and Restated Credit Agreement (Revolving Credit Agreement) with Bank of America, N.A. as administrative agent and the other banks identified therein as lenders. The Revolving Credit Agreement provides for a five year unsecured revolving credit facility in an aggregate principal amount not to exceed $2.5 billion (subject to certain terms and conditions).
In the first quarter of fiscal 2023, the Company amended the Revolving Credit Agreement, replacing the LIBOR interest rate provisions with interest rate provisions based on a forward-looking term rate based on the secured overnight financing rate (SOFR) plus a 10 basis point credit spread adjustment. After the amendment, revolving loans under the Revolving Credit Agreement can be Term SOFR Loans or Base Rate Loans (each as defined in the Revolving Credit Agreement, as amended) at the Company's option. Each Term SOFR Loan will bear interest at a rate per annum equal to the applicable adjusted term SOFR plus a margin based on the Company's Debt Ratings (as defined in the Revolving Credit Agreement, as amended) from time to time of between 0.690% and 1.175%. As of April 29, 2023, the Company had no outstanding borrowings under this revolving credit facility but may borrow in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes.
Outstanding Debt. On April 26, 2023 (Redemption Date), the Company redeemed for cash $59.8 million representing all of the outstanding 3.450% senior notes due June 15, 2027 issued by Maxim (Maxim Notes) in accordance with the terms of the indenture governing the Maxim Notes. The Maxim Notes were redeemed for cash at a redemption price equal to $1,012.55 for each $1,000 principal of the Maxim Notes and included accrued interest.
Commercial Paper Program. On April 14, 2023, the Company established a commercial paper program under which the Company may issue short-term, unsecured commercial paper notes (CP Notes) in an amount up to a maximum aggregate face amount of $2.5 billion outstanding at any time, with maturities up to 397 days from the date of issuance. The CP Notes will be sold under customary market terms in the U.S. commercial paper market at a discount from par or at par and bear interest at rates determined at the time of issuance. The Company intends to use the net proceeds of the CP Notes for general corporate purposes, including without limitation, repayment of indebtedness, stock repurchases, acquisitions, capital expenditures and working capital. As of April 29, 2023, the Company had $