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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 February 3, 2024
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 February 3, 2024 there were 495,908,150 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 | | |
| February 3, 2024 | | January 28, 2023 | | | | |
Revenue | $ | 2,512,704 | | | $ | 3,249,630 | | | | | |
Cost of sales | 1,038,763 | | | 1,125,289 | | | | | |
Gross margin | 1,473,941 | | | 2,124,341 | | | | | |
Operating expenses: | | | | | | | |
Research and development | 391,427 | | | 414,095 | | | | | |
Selling, marketing, general and administrative | 290,078 | | | 326,284 | | | | | |
Amortization of intangibles | 190,332 | | | 253,142 | | | | | |
Special charges, net | 16,140 | | | — | | | | | |
Total operating expenses | 887,977 | | | 993,521 | | | | | |
Operating income: | 585,964 | | | 1,130,820 | | | | | |
Nonoperating expense (income): | | | | | | | |
Interest expense | 77,141 | | | 60,453 | | | | | |
Interest income | (9,169) | | | (10,829) | | | | | |
Other, net | 4,574 | | | 7,723 | | | | | |
Total nonoperating expense (income) | 72,546 | | | 57,347 | | | | | |
Income before income taxes | 513,418 | | | 1,073,473 | | | | | |
Provision for income taxes | 50,691 | | | 111,999 | | | | | |
Net income | $ | 462,727 | | | $ | 961,474 | | | | | |
| | | | | | | |
Shares used to compute earnings per common share – basic | 495,765 | | | 507,121 | | | | | |
Shares used to compute earnings per common share – diluted | 498,741 | | | 511,184 | | | | | |
| | | | | | | |
Basic earnings per common share | $ | 0.93 | | | $ | 1.90 | | | | | |
Diluted earnings per common share | $ | 0.93 | | | $ | 1.88 | | | | | |
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See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | | | |
Net income | $ | 462,727 | | | $ | 961,474 | | | | | |
Foreign currency translation adjustments | 385 | | | 2,499 | | | | | |
| | | | | | | |
Change in fair value of derivative instruments designated as cash flow hedges, net | 8,020 | | | 25,467 | | | | | |
Changes in pension plans, net actuarial gain/loss and foreign currency translation adjustments, net | (1,388) | | | 452 | | | | | |
Other comprehensive income | 7,017 | | | 28,418 | | | | | |
Comprehensive income | $ | 469,744 | | | $ | 989,892 | | | | | |
| | | | | | | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
| | | | | | | | | | | |
| February 3, 2024 | | October 28, 2023 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 1,303,560 | | | $ | 958,061 | |
| | | |
Accounts receivable | 1,196,721 | | | 1,469,734 | |
Inventories | 1,553,221 | | | 1,642,214 | |
| | | |
| | | |
| | | |
Prepaid expenses and other current assets | 362,375 | | | 314,013 | |
Total current assets | 4,415,877 | | | 4,384,022 | |
Non-current Assets | | | |
| | | |
Net property, plant and equipment | 3,281,937 | | | 3,219,157 | |
Goodwill | 26,913,134 | | | 26,913,134 | |
Intangible assets, net | 10,871,054 | | | 11,311,957 | |
Deferred tax assets | 2,172,174 | | | 2,223,272 | |
| | | |
Other assets | 734,288 | | | 742,936 | |
Total non-current assets | 43,972,587 | | | 44,410,456 | |
TOTAL ASSETS | $ | 48,388,464 | | | $ | 48,794,478 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 398,107 | | | $ | 493,041 | |
| | | |
| | | |
Income taxes payable | 410,013 | | | 309,046 | |
Debt, current | 499,322 | | | 499,052 | |
Commercial paper notes | 544,444 | | | 547,224 | |
| | | |
Accrued liabilities | 1,071,480 | | | 1,352,608 | |
Total current liabilities | 2,923,366 | | | 3,200,971 | |
Non-current Liabilities | | | |
Long-term debt | 5,946,673 | | | 5,902,457 | |
Deferred income taxes | 2,975,815 | | | 3,127,852 | |
| | | |
Income taxes payable | 415,535 | | | 417,076 | |
| | | |
Other non-current liabilities | 579,002 | | | 581,000 | |
Total non-current liabilities | 9,917,025 | | | 10,028,385 | |
| | | |
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, 495,908,150 shares outstanding (496,261,678 on October 28, 2023) | 82,653 | | | 82,712 | |
Capital in excess of par value | 25,253,256 | | | 25,313,914 | |
Retained earnings | 10,393,449 | | | 10,356,798 | |
Accumulated other comprehensive loss | (181,285) | | | (188,302) | |
Total shareholders’ equity | 35,548,073 | | | 35,565,122 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 48,388,464 | | | $ | 48,794,478 | |
See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended February 3, 2024 |
| | | | | Capital in | | | | Accumulated Other |
| Common Stock | | Excess of | | Retained | | Comprehensive |
| Shares | | Amount | | Par Value | | Earnings | | Loss |
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BALANCE, OCTOBER 28, 2023 | 496,262 | | | $ | 82,712 | | | $ | 25,313,914 | | | $ | 10,356,798 | | | $ | (188,302) | |
| | | | | | | | | |
Net income | | | | | | | 462,727 | | | |
Dividends declared and paid - $0.86 per share | | | | | | | (426,076) | | | |
| | | | | | | | | |
Issuance of stock under stock plans and other | 676 | | | 113 | | | 49,706 | | | | | |
Stock-based compensation expense | | | | | 69,815 | | | | | |
Other comprehensive income | | | | | | | | | 7,017 | |
Common stock repurchased | (1,030) | | | (172) | | | (180,179) | | | | | |
BALANCE, FEBRUARY 3, 2024 | 495,908 | | | $ | 82,653 | | | $ | 25,253,256 | | | $ | 10,393,449 | | | $ | (181,285) | |
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| Three Months Ended January 28, 2023 |
| | | | | Capital in | | | | Accumulated Other |
| Common Stock | | Excess of | | Retained | | Comprehensive |
| Shares | | Amount | | Par Value | | Earnings | | Loss |
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BALANCE, OCTOBER 29, 2022 | 509,296 | | | $ | 84,880 | | | $ | 27,857,270 | | | $ | 8,721,325 | | | $ | (198,152) | |
| | | | | | | | | |
Net income | | | | | | | 961,474 | | | |
Dividends declared and paid - $0.76 per share | | | | | | | (385,452) | | | |
Issuance of stock under stock plans and other | 617 | | | 103 | | | 41,135 | | | | | |
Stock-based compensation expense | | | | | 75,041 | | | | | |
Other comprehensive income | | | | | | | | | 28,418 | |
Common stock repurchased | (4,061) | | | (677) | | | (653,880) | | | | | |
BALANCE, JANUARY 28, 2023 | 505,852 | | | $ | 84,306 | | | $ | 27,319,566 | | | $ | 9,297,347 | | | $ | (169,734) | |
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See accompanying notes.
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| | | | | | | | | | | |
| Three Months Ended |
| February 3, 2024 | | January 28, 2023 |
Cash flows from operating activities: | | | |
Net income | $ | 462,727 | | | $ | 961,474 | |
Adjustments to reconcile net income to net cash provided by operations: | | | |
Depreciation | 84,348 | | | 85,321 | |
Amortization of intangibles | 440,903 | | | 502,177 | |
| | | |
Stock-based compensation expense | 69,815 | | | 75,041 | |
| | | |
| | | |
| | | |
Deferred income taxes | (102,149) | | | (146,354) | |
| | | |
Other | 4,684 | | | 9,732 | |
Changes in operating assets and liabilities | 178,504 | | | (81,086) | |
Total adjustments | 676,105 | | | 444,831 | |
Net cash provided by operating activities | 1,138,832 | | | 1,406,305 | |
Cash flows from investing activities: | | | |
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| | | |
Additions to property, plant and equipment | (222,978) | | | (176,158) | |
| | | |
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Other | 3,877 | | | 102 | |
Net cash used for investing activities | (219,101) | | | (176,056) | |
Cash flows from financing activities: | | | |
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Proceeds from commercial paper notes | 2,779,494 | | | — | |
Payments of commercial paper notes | (2,782,274) | | | — | |
Repurchase of common stock | (180,351) | | | (654,557) | |
Dividend payments to shareholders | (426,076) | | | (385,452) | |
Proceeds from employee stock plans | 49,819 | | | 41,238 | |
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Other | (14,844) | | | (31,588) | |
Net cash used for financing activities | (574,232) | | | (1,030,359) | |
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Net increase in cash and cash equivalents | 345,499 | | | 199,890 | |
Cash and cash equivalents at beginning of period | 958,061 | | | 1,470,572 | |
Cash and cash equivalents at end of period | $ | 1,303,560 | | | $ | 1,670,462 | |
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See accompanying notes.
ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED FEBRUARY 3, 2024 (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 28, 2023 (fiscal 2023) 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 November 2, 2024 (fiscal 2024) 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. Fiscal 2024 is a 53-week fiscal year and fiscal 2023 was a 52-week fiscal year. The additional week in fiscal 2024 is included in the first quarter ended February 3, 2024. Therefore, the first quarter of fiscal 2024 included 14 weeks of operations and the first quarter of fiscal 2023 included 13 weeks of operations.
Note 2 – Shareholders' Equity
As of February 3, 2024, the Company had repurchased a total of approximately 206.2 million shares of its common stock for approximately $14.7 billion under the Company's share repurchase program. As of February 3, 2024, an additional $2.0 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 three months of fiscal 2024. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | | | | Unrealized holding gains (losses) on derivatives | | Pension plans | | Total |
October 28, 2023 | $ | (72,544) | | | | | | | $ | (102,043) | | | $ | (13,715) | | | $ | (188,302) | |
Other comprehensive income before reclassifications | 385 | | | | | | | 6,795 | | | (1,904) | | | 5,276 | |
Amounts reclassified out of other comprehensive income | — | | | | | | | 2,699 | | | 516 | | | 3,215 | |
Tax effects | — | | | | | | | (1,474) | | | — | | | (1,474) | |
Other comprehensive income | 385 | | | | | | | 8,020 | | | (1,388) | | | 7,017 | |
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February 3, 2024 | $ | (72,159) | | | | | | | $ | (94,023) | | | $ | (15,103) | | | $ | (181,285) | |
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 | | | | |
Comprehensive (Loss) Income Component | | February 3, 2024 | | January 28, 2023 | | | | | | Location |
Unrealized holding (gains) losses on derivatives: | | | | | |
Currency forwards | | $ | (71) | | | $ | (1,059) | | | | | | | Cost of sales |
| | (69) | | | (447) | | | | | | | Research and development |
| | (891) | | | (1,297) | | | | | | | Selling, marketing, general and administrative |
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Interest rate derivatives | | 3,730 | | | 3,727 | | | | | | | Interest expense |
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| | 2,699 | | | 924 | | | | | | | Total before tax |
| | (848) | | | (802) | | | | | | | Tax |
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| | $ | 1,851 | | | $ | 122 | | | | | | | 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 | | $ | 516 | | | $ | 370 | | | | | | | Net of tax |
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Total amounts reclassified out of AOCI, net of tax | | $ | 2,367 | | | $ | 492 | | | | | | | |
Note 4 – Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share: | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | | | |
Net income | $ | 462,727 | | | $ | 961,474 | | | | | |
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Basic shares: | | | | | | | |
Weighted-average shares outstanding | 495,765 | | | 507,121 | | | | | |
Earnings per common share basic: | $ | 0.93 | | | $ | 1.90 | | | | | |
Diluted shares: | | | | | | | |
Weighted-average shares outstanding | 495,765 | | | 507,121 | | | | | |
Assumed exercise of common stock equivalents | 2,976 | | | 4,063 | | | | | |
Weighted-average common and common equivalent shares | 498,741 | | | 511,184 | | | | | |
Earnings per common share diluted: | $ | 0.93 | | | $ | 1.88 | | | | | |
Anti-dilutive shares related to: | | | | | | | |
Outstanding stock-based awards | 214 | | | 322 | | | | | |
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 | | Q4 2023 Plan | | |
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Balance at October 28, 2023 | | | | | | | $ | 36,981 | | | $ | 110,446 | | | |
Employee severance and benefit costs | | | | | | | — | | | 11,977 | | | |
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Severance and benefit payments | | | | | | | (4,420) | | | (87,013) | | | |
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Balance at February 3, 2024 | | | | | | | $ | 32,561 | | | $ | 35,410 | | | |
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Accrued liabilities | | | | | | | $ | 9,425 | | | $ | 35,410 | | | |
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 breaches 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 those alleged breaches 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, the plaintiffs filed a Motion for Reargument, which the Court denied on May 30, 2023. On June 21, 2023, the plaintiffs filed a Notice of Appeal to the Delaware Supreme Court. The appeal is fully briefed, and the Delaware Supreme Court heard argument on February 14, 2024. The Company believes that it and the other defendants have meritorious arguments in response to the appeal 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 results within, each end market. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| February 3, 2024 | | January 28, 2023 |
| Revenue | | % of Revenue* | | Y/Y% | | Revenue | | % of Revenue* |
Industrial | $ | 1,196,832 | | | 48 | % | | (31) | % | | $ | 1,740,780 | | | 54 | % |
Automotive | 739,158 | | | 29 | % | | 9 | % | | 680,637 | | | 21 | % |
Communications | 302,573 | | | 12 | % | | (37) | % | | 477,266 | | | 15 | % |
Consumer | 274,141 | | | 11 | % | | (22) | % | | 350,947 | | | 11 | % |
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Total revenue | $ | 2,512,704 | | | 100 | % | | (23) | % | | $ | 3,249,630 | | | 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. Other customers include the U.S. government, government prime contractors and certain commercial customers for which revenue is recorded over time. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| February 3, 2024 | | January 28, 2023 |
Channel | Revenue | | % of Revenue* | | Revenue | | % of Revenue* |
Distributors | $ | 1,535,210 | | | 61 | % | | $ | 2,011,323 | | | 62 | % |
Direct customers | 939,975 | | | 37 | % | | 1,195,534 | | | 37 | % |
Other | 37,519 | | | 1 | % | | 42,773 | | | 1 | % |
Total revenue | $ | 2,512,704 | | | 100 | % | | $ | 3,249,630 | | | 100 | % |
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* The sum of the individual percentages may not equal the total due to rounding. |
Note 8 – Fair Value
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The tables below, set forth by level, present the Company’s financial assets and liabilities, excluding accrued interest components that were accounted for at fair value on a recurring basis as of February 3, 2024 and October 28, 2023. 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 February 3, 2024 and October 28, 2023, the Company held $721.4 million and $642.1 million, respectively, of cash that is excluded from the tables below. | | | | | | | | | | | | | | | | | | | |
| February 3, 2024 |
| 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 | $ | 512,453 | | | $ | — | | | | | $ | 512,453 | |
Corporate obligations (1) | — | | | 69,755 | | | | | 69,755 | |
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Other assets: | | | | | | | |
Forward foreign currency exchange contracts (2) | $ | — | | | $ | 4,044 | | | | | 4,044 | |
Deferred compensation plan investments | 89,267 | | | — | | | | | 89,267 | |
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Total assets measured at fair value | $ | 601,720 | | | $ | 73,799 | | | | | $ | 675,519 | |
Liabilities | | | | | | | |
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Forward foreign currency exchange contracts (2) | $ | — | | | $ | 11,282 | | | | | $ | 11,282 | |
Interest rate derivatives (3) | — | | | 37,074 | | | | | 37,074 | |
Total liabilities measured at fair value | $ | — | | | $ | 48,356 | | | | | $ | 48,356 | |
(1)The amortized cost of the Company's investments classified as available-for-sale as of February 3, 2024 was $69.8 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.
(3)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 28, 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 | $ | 315,980 | | | $ | — | | | | | $ | 315,980 | |
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Other assets: | | | | | | | |
Forward foreign currency exchange contracts (1) | — | | | 1,940 | | | | | 1,940 | |
Deferred compensation plan investments | 78,246 | | | — | | | | | 78,246 | |
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Total assets measured at fair value | $ | 394,226 | | | $ | 1,940 | | | | | $ | 396,166 | |
Liabilities | | | | | | | |
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Forward foreign currency exchange contracts (1) | $ | — | | | $ | 13,515 | | | | | $ | 13,515 | |
Interest rate derivatives (2) | — | | | 81,602 | | | | | 81,602 | |
Total liabilities measured at fair value | $ | — | | | $ | 95,117 | | | | | $ | 95,117 | |
(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.
(2)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.
Assets and Liabilities Not Recorded at Fair Value on a Recurring Basis
The table below presents the estimated fair values of certain financial instruments not recorded at fair value on a recurring basis. Given the short tenure of the Company's commercial paper notes, the carrying value of the outstanding commercial paper notes approximates the fair values, and therefore, are excluded from the table below ($544.4 million and $547.2 million as of February 3, 2024 and October 28, 2023, respectively). 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. | | | | | | | | | | | | | | | | | | | | | | | |
| February 3, 2024 | | October 28, 2023 |
| Principal Amount Outstanding | | Fair Value | | Principal Amount Outstanding | | Fair Value |
2024 Notes, due October 2024 | $ | 500,000 | | | $ | 500,183 | | | $ | 500,000 | | | $ | 499,473 | |
2025 Notes, due April 2025 | 400,000 | | | 391,161 | | | 400,000 | | | 385,231 | |
2026 Notes, due December 2026 | 900,000 | | | 874,033 | | | 900,000 | | | 851,023 | |
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2027 Notes, due June 2027 | 440,212 | | | 420,472 | | | 440,212 | | | 408,595 | |
2028 Notes, due October 2028 | 750,000 | | | 659,548 | | | 750,000 | | | 628,999 | |
2031 Notes, due October 2031 | 1,000,000 | | | 836,328 | | | 1,000,000 | | | 773,404 | |
2032 Notes, due October 2032 | 300,000 | | | 286,680 | | | 300,000 | | | 269,828 | |
2036 Notes, due December 2036 | 144,278 | | | 128,570 | | | 144,278 | | | 118,554 | |
2041 Notes, due October 2041 | 750,000 | | | 545,101 | | | 750,000 | | | 479,078 | |
2045 Notes, due December 2045 | 332,587 | | | 326,610 | | | 332,587 | | | 292,248 | |
2051 Notes, due October 2051 | 1,000,000 | | | 685,693 | | | 1,000,000 | | | 590,666 | |
Total senior unsecured notes | $ | 6,517,077 | | | $ | 5,654,379 | | | $ | 6,517,077 | | | $ | 5,297,099 | |
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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 February 3, 2024 and October 28, 2023 were $292.7 million and $322.6 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 February 3, 2024 and October 28, 2023 were as follows: | | | | | | | | | | | | | | | | | |
| | | Fair Value At |
| Balance Sheet Location | | February 3, 2024 | | October 28, 2023 |
Forward foreign currency exchange contracts | Prepaid expenses and other current assets | | $ | 1,724 | | | $ | 471 | |
Forward foreign currency exchange contracts | Accrued liabilities | | $ | 4,637 | | | $ | 9,897 | |
As of February 3, 2024 and October 28, 2023, the total notional amounts of undesignated hedges related to forward foreign currency exchange contracts were $293.1 million and $334.7 million, respectively. The fair values of undesignated hedges in the Company’s Condensed Consolidated Balance Sheets as of February 3, 2024 and October 28, 2023 were as follows: | | | | | | | | | | | | | | | | | |
| | | Fair Value At |
| Balance Sheet Location | | February 3, 2024 | | October 28, 2023 |
Undesignated hedges related to forward foreign currency exchange contracts | Prepaid expenses and other current assets | | $ | 2,320 | | | $ | 1,469 | |
Undesignated hedges related to forward foreign currency exchange contracts | Accrued liabilities | | $ | 6,645 | | | $ | 3,618 | |
Interest Rate Exposure Management — The Company does not consider the risk of counterparty default to be significant. The gain or loss on the Company's interest rate swap transactions attributable to the hedged benchmark interest rate risk and the offsetting gain or loss on the related interest rate swaps were recorded as follows:
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| | February 3, 2024 | | |
Balance Sheet Location | | Loss on Swaps | | Gain on Note | | | | |
Accrued liabilities | | $ | 37,074 | | | $ | — | | | | | |
Long-term debt | | $ | — | | | $ | 37,074 | | | | | |
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 February 3, 2024 and October 28, 2023 were as follows: | | | | | | | | | | | |
| February 3, 2024 | | October 28, 2023 |
Raw materials | $ | 125,131 | | | $ | 128,142 | |
Work in process | 1,108,667 | | | 1,125,819 | |
Finished goods | 319,423 | | | 388,253 | |
Total inventories | $ | 1,553,221 | | | $ | 1,642,214 | |
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Note 11 – Income Taxes
The Company’s effective tax rates for the three-month periods ended February 3, 2024 and January 28, 2023 were below the U.S. statutory tax rate of 21.0%, due to lower statutory tax rates applicable to the Company's operations in the foreign jurisdictions in which it earns income. The Company's effective tax rate also includes the effects of the mandatory capitalization and amortization of research and development expenses which began in fiscal 2023 under the Tax Cuts and Jobs Act of 2017. The mandatory capitalization requirement decreases the Company's effective tax rate primarily by increasing the foreign-derived intangible income deduction.
It is reasonably possible that the balance of gross unrealized tax benefits, including accrued interest and penalties, could decrease by as much as approximately $136.0 million within the next twelve months due to the completion of tax audits, including any administrative appeals.
The Company has numerous audits ongoing throughout the world including: an IRS income tax audit for the fiscal years ended November 2, 2019 and November 3, 2018; a pre-acquisition IRS income tax audit for Maxim's fiscal years ended June 27, 2015 through August 26, 2021; various U.S. state and local audits and international audits, including an Irish corporate tax audit for the fiscal year ended November 2, 2019. The Company's U.S. federal income tax returns prior to the fiscal year ended November 3, 2018 are no longer subject to examination, except for the applicable Maxim pre-acquisition fiscal years noted above.
Note 12 – New Accounting Pronouncements
Standards Implemented
Acquired Contract Assets and Contract Liabilities
In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract Liabilities. Under this guidance (ASC 805-20-30-28), the acquirer should determine what contract assets and/or contract liabilities it would have recorded under ASC 606 (the revenue guidance) as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquiree. The recognition and measurement of those contract assets and contract liabilities will likely be comparable to what the acquiree has recorded on its books under ASC 606 as of the acquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2021-08 in the first quarter of fiscal 2024. Upon adoption, ASU 2021-08 did not have a material impact on the Company's financial position and results of operations.
Standards to be Implemented
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances the disclosure requirements for reportable segments. ASU 2023-07 requires segment disclosure to include significant segment expense categories and amounts, and qualitative detail of other segment items. Disclosure of multiple measures of segment profit and loss may also be reported. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact, if any, adoption will have on its financial position and results of operations.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires the disaggregation of information in existing income tax disclosures related to the effective tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact, if any, adoption will have on its financial position and results of operations.
Note 13 – Subsequent Events
On February 20, 2024, the Board of Directors of the Company declared a cash dividend of $0.92 per outstanding share of common stock. The dividend will be paid on March 15, 2024 to all shareholders of record at the close of business on March 5, 2024 and is expected to total approximately $456.2 million.
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ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 28, 2023 (fiscal 2023).
This Quarterly Report on Form 10-Q, including the following discussion, contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “potential,” “may,” “could” and “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections regarding our future financial performance or results; our anticipated growth and trends in our businesses; the effects of business, economic, political, legal and regulatory impacts or conflicts upon our global operations; changes in demand for semiconductors and the related changes in demand and supply for our products; manufacturing delays, product availability and supply chain disruptions; our ability to recruit or retain our key personnel; our future liquidity, capital needs and capital expenditures; our development of technologies and processes and research and development investments; our future market position and expected competitive changes in the marketplace for our products; the anticipated result of litigation matters; our plans to pay dividends or repurchase stock; servicing our outstanding debt; our plans to borrow under our third amended and restated revolving credit agreement, as amended, and issue notes under our commercial paper program and the planned use of proceeds from such borrowing and issuing; our expected tax rate; expected cost savings; the effect of new accounting pronouncements; our plans to integrate or realize the benefits or synergies expected of acquired businesses and technologies; our Global Repositioning Actions and Q4 2023 Plan; and other characterizations of future events or circumstances are forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors.
The following important factors and uncertainties, among others, could cause results to differ materially from those described in the forward-looking statements: economic, political, legal and regulatory uncertainty or conflicts; changes in demand for semiconductor products; manufacturing delays, product and raw materials availability and supply chain disruptions; products that may be diverted from our authorized distribution channels; changes in export classifications, import and export regulations or duties and tariffs; our development of technologies and research and development investments; our future liquidity, capital needs and capital expenditures; our ability to compete successfully in the markets in which we operate; our ability to recruit and retain key personnel; risks related to acquisitions or other strategic transactions; security breaches or other cyber incidents; adverse results in litigation matters; reputational damage; changes in our estimates of our expected tax rates based on current tax law; risks related to our indebtedness; unanticipated difficulties or expenditures relating to integrating Maxim; the discretion of our board of directors to declare dividends and our ability to pay dividends in the future; factors impacting our ability to repurchase shares; and uncertainty as to the long-term value of our common stock. Additional factors that could cause actual results to differ materially from those in these forward-looking statements include the risk factors included in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for fiscal 2023. We undertake no obligation to revise or update any forward-looking statements, including to reflect events or circumstances occurring after the date of the filing of this report, except to the extent required by law.
Results of Operations
Overview
(all tabular amounts in thousands except per share amounts and percentages) | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | $ Change | | % Change | | |
Revenue | $ | 2,512,704 | | | $ | 3,249,630 | | | $ | (736,926) | | | (23) | % | | |
Gross margin % | 58.7 | % | | 65.4 | % | | | | | | |
Net income | $ | 462,727 | | | $ | 961,474 | | | $ | (498,747) | | | (52) | % | | |
Net income as a % of revenue | 18.4 | % | | 29.6 | % | | | | | | |
Diluted EPS | $ | 0.93 | | | $ | 1.88 | | | $ | (0.95) | | | (51) | % | | |
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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 our product will be incorporated. As data systems for capturing and tracking this data and our methodology evolves and improves, the categorization of products by end market can vary over time. When this occurs, we reclassify 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 |
| February 3, 2024 | | January 28, 2023 |
| Revenue | | % of Revenue* | | Y/Y% | | Revenue | | % of Revenue* |
Industrial | $ | 1,196,832 | | | 48 | % | | (31) | % | | $ | 1,740,780 | | | 54 | % |
Automotive | 739,158 | | | 29 | % | | 9 | % | | 680,637 | | | 21 | % |
Communications | 302,573 | | | 12 | % | | (37) | % | | 477,266 | | | 15 | % |
Consumer | 274,141 | | | 11 | % | | (22) | % | | 350,947 | | | 11 | % |
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Total revenue | $ | 2,512,704 | | | 100 | % | | (23) | % | | $ | 3,249,630 | | | 100 | % |
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* The sum of the individual percentages may not equal the total due to rounding. |
Revenue decreased 23% in the three-month period ended February 3, 2024 as compared to the same period of the prior fiscal year, primarily as a result of broad-based decline in demand for our products, partially offset by increased demand in the Automotive end market, namely in cabin electronics, as well as an additional week of operations in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023.
Revenue by Sales Channel
The following table summarizes revenue by sales channel. We sell our products globally through a direct sales force, third party distributors, independent sales representatives and via our 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 |
| February 3, 2024 | | January 28, 2023 |
| Revenue | | % of Revenue* | | Revenue | | % of Revenue* |
Channel | | | | | | | |
Distributors | $ | 1,535,210 | | | 61 | % | | $ | 2,011,323 | | | 62 | % |
Direct customers | 939,975 | | | 37 | % | | 1,195,534 | | | 37 | % |
Other | 37,519 | | | 1 | % | | 42,773 | | | 1 | % |
Total revenue | $ | 2,512,704 | | | 100 | % | | $ | 3,249,630 | | | 100 | % |
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* The sum of the individual percentages may not equal the total due to rounding. |
As indicated in the table above, the percentage of total revenue sold via each channel has remained relatively consistent in the periods presented, but can fluctuate from time to time based on end customer demand.
Gross Margin | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | $ Change | | % Change | | | | | | | | |
Gross margin | $ | 1,473,941 | | | $ | 2,124,341 | | | $ | (650,400) | | | (31) | % | | | | | | | | |
Gross margin % | 58.7 | % | | 65.4 | % | | | | | | | | | | | | |
Gross margin percentage decreased by 670 basis points in the three-month period ended February 3, 2024, as compared to the same period of the prior fiscal year, primarily due to lower utilization of our factories due to decreased customer demand and unfavorable product mix.
Research and Development (R&D) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | $ Change | | % Change | | | | | | | | |
R&D expenses | $ | 391,427 | | | $ | 414,095 | | | $ | (22,668) | | | (5) | % | | | | | | | | |
R&D expenses as a % of revenue | 16 | % | | 13 | % | | | | | | | | | | | | |
R&D expenses decreased in the three-month period ended February 3, 2024, as compared to the same period of the prior fiscal year. The decrease was primarily as a result of lower R&D employee-related variable compensation expenses, partially offset by higher salary and benefit expenses, as well as an additional week of operations in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023.
R&D expenses as a percentage of revenue will fluctuate from year-to-year depending on the amount of revenue and the success of new product development efforts, which we view as critical to our future growth. We expect to continue the development of innovative technologies and processes for new products. We believe that a continued commitment to R&D is essential to maintain product leadership with our existing products as well as to provide innovative new product offerings.
Selling, Marketing, General and Administrative (SMG&A) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | $ Change | | % Change | | | | | | | | |
SMG&A expenses | $ | 290,078 | | | $ | 326,284 | | | $ | (36,206) | | | (11) | % | | | | | | | | |
SMG&A expenses as a % of revenue | 12 | % | | 10 | % | | | | | | | | | | | | |
SMG&A expenses decreased in the three-month period ended February 3, 2024, as compared to the same period of the prior fiscal year, primarily as a result of lower SMG&A employee-related variable compensation expenses and discretionary spending, partially offset by higher salary and benefit expenses, as well as an additional week of operations in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2023.
Amortization of Intangibles
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| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | $ Change | | % Change | | | | | | | | |
Amortization expenses | $ | 190,332 | | | $ | 253,142 | | | $ | (62,810) | | | (25) | % | | | | | | | | |
Amortization expenses as a % of revenue | 8 | % | | 8 | % | | | | | | | | | | | | |
Amortization expenses decreased in the three-month period ended February 3, 2024, as compared to the same period of the prior fiscal year as a result of a portion of our acquired intangible assets becoming fully amortized during fiscal 2023.
Special Charges, Net
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| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | $ Change | | % Change | | | | | | | | |
Special charges, net | $ | 16,140 | | | $ | — | | | $ | 16,140 | | | n/a | | | | | | | | |
Special charges, net as a % of revenue | 1 | % | | — | % | | | | | | | | | | | | |
Special charges, net increased in the three-month period ended February 3, 2024, as compared to the same period of the prior fiscal year, primarily as a result of the charges recorded for our plan, committed to during fiscal 2023, to reorganize our business (the Q4 2023 Plan). The Q4 2023 Plan, consisting of voluntary and involuntary reductions-in-force, and other cost-savings initiatives, was commenced to adjust our cost structure and business activities to better align with weaker market demand and continued economic uncertainty in our end markets, as well as make certain strategic shifts in our workforce necessary to achieve our long-term vision.
See Note 5, Special Charges, Net, in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Operating Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | $ Change | | % Change | | | | | | | | |
Operating income | $ | 585,964 | | | $ | 1,130,820 | | | $ | (544,856) | | | (48) | % | | | | | | | | |
Operating income as a % of revenue | 23.3 | % | | 34.8 | % | | | | | | | | | | | | |
The year-over-year decrease in operating income in the three-month period ended February 3, 2024 was primarily the result of a decrease in revenue, which contributed to a decrease in gross margin of $650.4 million, and an increase of $16.1 million in special charges, net, partially offset by decreases of $62.8 million in amortization expenses, $36.2 million in SMG&A expenses and $22.7 million in R&D expenses.
Nonoperating Expense (Income) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | $ Change | | | | | | |
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Total nonoperating expense (income) | $ | 72,546 | | | $ | 57,347 | | | $ | 15,199 | | | | | | | |
The year-over-year increase in nonoperating expense (income) in the three-month period ended February 3, 2024 as compared to the same period of the prior fiscal year was primarily the result of higher interest expense related to our commercial paper obligations and higher interest rates on certain of our existing debt obligations.
Provision for Income Taxes | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | $ Change | | | | | | |
Provision for income taxes | $ | 50,691 | | | $ | 111,999 | | | $ | (61,308) | | | | | | | |
Effective income tax rate | 9.9 | % | | 10.4 | % | | | | | | | | |
The effective tax rates for the three-month periods ended February 3, 2024 and January 28, 2023 were below the U.S. statutory tax rate of 21% due to lower statutory tax rates applicable to our operations in the foreign jurisdictions in which we earn income. Our pretax income for the three-month periods ended February 3, 2024 and January 28, 2023 was primarily generated in Ireland at a tax rate of 12.5%.
See Note 11, Income Taxes, in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Net Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| February 3, 2024 | | January 28, 2023 | | $ Change | | % Change | | | | | | | | |
Net income | $ | 462,727 | | | $ | 961,474 | | | $ | (498,747) | | | (52) | % | | | | | | | | |
Net income as a % of revenue | 18.4 | % | | 29.6 | % | | | | | | | | | | | | |
Diluted EPS | $ | 0.93 | | | $ | 1.88 | | | | | | | | | | | | | |
Net income decreased in the three-month period ended February 3, 2024, as compared to the same period of the prior fiscal year as the result of a $544.9 million decrease in operating income and a $15.2 million increase in nonoperating expense (income), partially offset by a $61.3 million decrease in provision for income taxes.
Liquidity and Capital Resources
At February 3, 2024, our principal source of liquidity was $1.3 billion of cash and cash equivalents, of which approximately $597.8 million was held in the United States, and the balance of our cash and cash equivalents was held outside the United States in various foreign subsidiaries. We manage our worldwide cash requirements by, among other things, reviewing available funds held by our foreign subsidiaries and the cost effectiveness by which those funds can be accessed in the United States. We do not expect current regulatory restrictions or taxes on repatriation to have a material adverse effect on our overall liquidity, financial condition or results of operations. Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds. We maintain these balances with counterparties with high credit ratings, and continually monitor the amount of credit exposure to any one issuer and diversify our investments in order to minimize our credit risk.
We believe that our existing sources of liquidity and cash expected to be generated from future operations, together with existing and anticipated available short- and long-term financing, will be sufficient to fund operations, capital expenditures, research and development efforts and dividend payments (if any) in the immediate future and for at least the next twelve months. | | | | | | | | | | | |
| Three Months Ended |
| February 3, 2024 | | January 28, 2023 |
Net cash provided by operating activities | $ | 1,138,832 | | | $ | 1,406,305 | |
Net cash provided by operations as a % of revenue | 45 | % | | 43 | % |
Net cash used for investing activities | $ | (219,101) | | | $ | (176,056) | |
Net cash used for financing activities | $ | (574,232) | | | $ | (1,030,359) | |
The following changes contributed to the net change in cash and cash equivalents in the three-month period ended February 3, 2024 as compared to the same period in fiscal 2023.
Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in operating assets and liabilities. The decrease in cash provided by operating activities during the three-month period ended February 3, 2024, as compared to the same period of the prior fiscal year, was mainly the result of lower net income adjusted for noncash items offset by changes in working capital.
Investing Activities
Investing cash flows generally consist of capital expenditures and cash used for acquisitions. The increase in cash used for investing activities during the three-month period ended February 3, 2024, as compared to the same period of the prior fiscal year, was primarily the result of an increase in cash used for capital expenditures.
Financing Activities
Financing cash flows generally consist of payments of dividends to stockholders, repurchases of common stock, issuance and repayment of debt and proceeds from the sale of shares of common stock pursuant to employee equity incentive plans. The decrease in cash used for financing activities during the three-month period ended February 3, 2024, as compared to the same period of the prior fiscal year, was primarily the result of lower common stock repurchases, partially offset by higher dividend payments.
Working Capital | | | | | | | | | | | | | | | | | | | | | | | |
| February 3, 2024 | | October 28, 2023 | | $ Change | | % Change |
Accounts receivable | $ | 1,196,721 | | | $ | 1,469,734 | | | $ | (273,013) | | | (19) | % |
Days sales outstanding* | 52 | | | 52 | | | | | |
Inventory | $ | 1,553,221 | | | $ | 1,642,214 | | | $ | (88,993) | | | (5) | % |
Days cost of sales in inventory* | 151 | | | 143 | | | | | |
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*We use the average of the current quarter and prior quarter ending net accounts receivable and ending inventory balance in our calculation of days sales outstanding and days cost of sales in inventory, respectively. The first quarter of fiscal 2024 included an additional week of operations as compared to the first quarter of 2023.
The decrease in accounts receivable in dollars was primarily the result of variations in the timing of collections and billings and decreased revenue levels in the first quarter of fiscal 2024 as compared to the fourth quarter of fiscal 2023.
Inventory decreased primarily as a result of our efforts to balance manufacturing production, demand and inventory levels. Our inventory levels are impacted by our need to support forecasted sales demand and variations between those forecasts and actual demand.
Current liabilities decreased to $2,923.4 million at February 3, 2024 as compared to $3,201.0 million at the end of fiscal 2023 due to lower accrued liabilities and accounts payable, partially offset by higher income taxes payable.
Debt
As of February 3, 2024, our debt obligations consisted of the following: | | | | | | |
| | Principal Amount Outstanding |
Commercial paper notes | | $ | 544,444 | |
2024 Notes, due October 2024 | | 500,000 | |
2025 Notes, due April 2025 | | 400,000 | |
2026 Notes, due December 2026 | | 900,000 | |
2027 Notes, due June 2027 | | 440,212 | |
2028 Notes, due October 2028 | | 750,000 | |
2031 Notes, due October 2031 | | 1,000,000 | |
2032 Notes, due October 2032 | | 300,000 | |
2036 Notes, due December 2036 | | 144,278 | |
2041 Notes, due October 2041 | | 750,000 | |
2045 Notes, due December 2045 | | 332,587 | |
2051 Notes, due October 2051 | | 1,000,000 | |
Total debt | | $ | 7,061,521 | |
The indentures governing our outstanding notes contain covenants that may limit our ability to: incur, create, assume or guarantee any debt for borrowed money secured by a lien upon a principal property; enter into sale and lease-back transactions with respect to a principal property; and consolidate with or merge into, or transfer or lease all or substantially all of our assets to, any other party. As of February 3, 2024, we were in compliance with these covenants.
Commercial Paper Program
Under our commercial paper program, we may issue short-term, unsecured commercial paper notes in amounts up to a maximum aggregate face amount of $2.5 billion outstanding at any time, with maturities of up to 397 days from the date of issuance. As of February 3, 2024, we had $544.4 million of outstanding borrowings under the commercial paper program recorded in the Condensed Consolidated Balance Sheet. We use the net proceeds of the commercial paper program for general corporate purposes, including without limitation, repayment of indebtedness, stock repurchases, acquisitions, capital expenditures and working capital.
Revolving Credit Facility
Our Third Amended and Restated Revolving Credit Agreement, dated as of June 23, 2021 and as amended (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).
We may borrow under this revolving credit facility in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes. The terms of the Revolving Credit Agreement impose restrictions on our ability to undertake certain transactions, to create certain liens on assets and to incur certain subsidiary indebtedness. In addition, the Revolving Credit Agreement contains a consolidated leverage ratio covenant of total consolidated funded debt to consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) of not greater than 3.5 to 1.0. As of February 3, 2024, we were in compliance with these covenants.
Stock Repurchase Program
In the aggregate, our Board of Directors has authorized us to repurchase $16.7 billion of our common stock under our common stock repurchase program. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized under the program. As of February 3, 2024, an additional $2.0 billion remains available for repurchase under the current authorized program. The repurchased shares are held as authorized but unissued shares of common stock. We also repurchase 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 our employee stock purchase plan. Future repurchases of common stock will be dependent upon our financial position, results of operations, outlook, liquidity and other factors we deem relevant.
Capital Expenditures
Net additions to property, plant and equipment were $223.0 million in the first three months of fiscal 2024. We expect capital expenditures for fiscal 2024 to be between approximately $600 million and $800 million. These capital expenditures will be funded with a combination of cash on hand and cash expected to be generated from future operations, together with existing and anticipated available short- and long-term financing.
Dividends
On February 20, 2024, our Board of Directors declared a cash dividend of $0.92 per outstanding share of common stock. The dividend will be paid on March 15, 2024 to all shareholders of record at the close of business on March 5, 2024 and is expected to total approximately $456.2 million. We currently expect quarterly dividends to continue in future periods. The payment of any future quarterly dividends, or a future increase in the quarterly dividend amount, will be at the discretion of the Board and will be dependent upon our financial position, results of operations, outlook, liquidity and other factors deemed relevant by the Board.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board that are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards will not have a material impact on our future financial condition and results of operations. See Note 12, New Accounting Pronouncements, in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recently issued and adopted accounting pronouncements, including the dates of adoption and impact on our historical financial condition and results of operations.
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ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
There were no material changes in the three-month period ended February 3, 2024 to the information provided under Item 7A. “Quantitative and Qualitative Disclosures about Market Risk,” set forth in our Annual Report on Form 10-K for the fiscal year ended October 28, 2023.
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ITEM 4. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of February 3, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of February 3, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Changes in Internal Control over Financial Reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended February 3, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
The information required by this Item is provided in Note 6, Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We are subject to a number of risks that could adversely affect our business, results of operations, financial condition and future prospects, including those identified in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended October 28, 2023, which was filed with the Securities and Exchange Commission on November 21, 2023.
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ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
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Period | Total Number of Shares Purchased (a) | | Average Price Paid Per Share (b) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (c) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
October 29, 2023 through November 25, 2023 | 836,805 | | | $ | 170.95 | | | 796,643 | | | $ | 1,994,312,494 | |
November 26, 2023 through December 30, 2023 | 177,796 | | | $ | 183.84 | | | 169,189 | | | $ | 1,963,312,783 | |
December 31, 2023 through February 3, 2024 | 15,477 | | | $ | 190.14 | | | — | | | $ | 1,963,312,783 | |
Total | 1,030,078 | | | $ | 173.47 | | | 965,832 | | | $ | 1,963,312,783 | |
| | | | | | | |
(a)Includes 64,246 shares withheld by us from employees to satisfy employee tax obligations upon vesting of restricted stock units/awards granted to our employees under our equity compensation plans.
(b)The average price paid for shares in connection with vesting of restricted stock units/awards are averages of the closing stock price at the vesting date which is used to calculate the number of shares to be withheld.
(c)Shares repurchased pursuant to the stock repurchase program publicly announced on August 12, 2004 and updated thereafter. Under the repurchase program, we may repurchase outstanding shares of our common stock from time to time in the open market and through privately negotiated transactions. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program.
The following table describes contracts, instructions or written plans for the sale or purchase of our securities adopted by our directors or officers during the first quarter of fiscal 2024 that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (Rule 10b5-1 trading arrangement).
| | | | | | | | | | | |
Name and Title | Date of Adoption | Duration of Rule 10b5-1 Trading Arrangement | Aggregate Number of Securities to Be Purchased or Sold |
James Mollica, Vice President, Finance and Sales Operations and former Interim Chief Financial Officer | November 28, 2023 | Until June 28, 2024, or such earlier date upon which all transactions are completed or expire without execution | Sale of up to 4,381 shares |
None of our directors or officers terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the first quarter of fiscal 2024.
| | | | | | | | |
Exhibit No. | | Description |
#10.1† | | |
#10.2† | | |
#10.3† | | |
#10.4† | | |
#10.5† | | |
#10.6† | | |
#10.7† | | |
#10.8† | | |
31.1† | | |
31.2† | | |
32.1†* | | |
32.2†* | | |
101.INS | | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.** |
101.SCH | | Inline XBRL Schema Document.** |
101.CAL | | Inline XBRL Calculation Linkbase Document.** |
101.LAB | | Inline XBRL Labels Linkbase Document.** |
101.PRE | | Inline XBRL Presentation Linkbase Document.** |
101.DEF | | Inline XBRL Definition Linkbase Document.** |
104 | | Cover page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). |
† | | Filed or furnished herewith. |
# | | Indicates management contract or compensatory plan, contract or agreement. |
* | | The certification furnished in each of Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates each by reference. Such certification will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference. |
** | | Submitted electronically herewith. |
Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the three months ended February 3, 2024 and January 28, 2023, (ii) Condensed Consolidated Statements of Comprehensive Income for the three months ended February 3, 2024 and January 28, 2023, (iii) Condensed Consolidated Balance Sheets at February 3, 2024 and October 28, 2023, (iv) Condensed Consolidated Statements of Shareholders' Equity for the three months ended February 3, 2024 and January 28, 2023, (v) Condensed Consolidated Statements of Cash Flows for the three months ended February 3, 2024 and January 28, 2023 and (vi) Notes to Condensed Consolidated Financial Statements for the three months ended February 3, 2024.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| ANALOG DEVICES, INC. |
| | |
Date: February 21, 2024 | By: | | /s/ Vincent Roche |
| | | Vincent Roche |
| | | Chief Executive Officer and Chair of the Board of Directors |
| | | (Principal Executive Officer) |
| | |
Date: February 21, 2024 | By: | | /s/ Richard C. Puccio, Jr. |
| | | Richard C. Puccio, Jr. |
| | | Executive Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
DocumentExhibit 10.1
AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
GLOBAL NON-QUALIFIED STOCK OPTION AGREEMENT
Private & Confidential (Addressee Only)
Participant Name
Employee ID
Grant ID: Client Grant ID
We are pleased to advise the Optionee (the “Optionee”) that Analog Devices, Inc., a Massachusetts corporation (the “Company”), has granted to the Optionee an option to purchase that number of shares of Common Stock set forth below (the “Option”) subject to the terms and conditions of the Analog Devices, Inc. Amended and Restated 1996 Stock Incentive Plan (the “Plan”), and this Global Non-Qualified Stock Option Agreement, including Appendix A, which includes any applicable country-specific provisions. This Global Non-Qualified Stock Option Agreement, together with Appendix A, is referred to as the “Agreement.” The grant of this Option reflects the Company’s confidence in the Optionee’s commitment and contributions to the success and continued growth of the Company.
All terms not defined herein shall have the meanings assigned to such terms in the Plan.
1.Grant of Option. Subject to the terms and conditions of the Plan and this Agreement, the Company has granted to the Optionee an Option to purchase that number of shares of Common Stock (the “Option Shares”) effective on the Date of Grant set forth below:
Date of Grant: Grant Date
Number of Option Shares Granted: Number of Awards Granted
Option Exercise Price Per Share: Grant Price
2.Vesting and Exercise of Option. Subject to the Optionee’s continued employment with the Company or the Employer (as defined in 7 below) and other limitations set forth in this Agreement and the Plan, the Option will vest as to a set number of shares on each of the scheduled vesting dates. Vesting Schedule.
The right of exercise is cumulative, so that an Option, once vested, may be exercised, in whole or in part, at any time up to Expiration Date, the expiration date, or such earlier date as provided in Section 3 below or in the country-specific provisions in Appendix A.
3.Term of Option; Termination of Employment.
(a)The term of the Option is ten (10) years after the Date of Grant, subject, however, to the early termination provisions set forth herein.
(b)Except as otherwise provided herein, the Option shall be exercisable by the Optionee (or his or her successor in interest) following the termination of the Optionee’s employment only to the extent that the Option was vested on or prior to the date of such termination.
(c)The vesting of the Option shall terminate on the date the Optionee voluntarily terminates employment with the Company or the Employer (as defined in Section 7) or on the date his or her employment is terminated by the Company or the Employer without “Cause” (as defined in paragraph (d)), but any Option that is vested on the date of such termination shall continue to be exercisable for a period of three (3) months following such termination date.
(d)The Option shall terminate on the date the Optionee’s employment with the Company or the Employer is terminated by the Company or one of its Subsidiaries for “Cause”, and all Option Shares that are then vested shall forthwith cease to be exercisable. “Cause” for this purpose means unsatisfactory job performance (as determined by the Company), willful misconduct, fraud, gross negligence, disobedience or dishonesty, or as otherwise determined under applicable law.
(e)Upon the death of the Optionee while he or she is an employee of the Company or the Employer, the Option shall become immediately vested in full as to all shares on the date of death and shall continue to be exercisable (by the Optionee’s successor in interest) over the remaining term of the Option.
(f)If the Optionee’s employment with the Company or the Employer terminates by reason of the retirement of the Optionee after attaining age 60, the vesting of the Option shall terminate on the date of such retirement, but any Option that is vested on the date of such retirement shall continue to be exercisable over the remaining term of the Option; provided that all then-exercisable Options held by such Optionee shall immediately cease to be exercisable in the event that such Optionee becomes an employee of any competitor of the Company or the Employer (as determined in the sole discretion of the Company).
(g)If the Optionee becomes Disabled, regardless of whether Optionee terminates employment with the Company or the Employer, the Option shall vest and become exercisable in full on the date the Optionee is determined to be Disabled and shall continue to be exercisable until the date that is ten (10) years after the Date of Grant, at which time the Option
shall terminate. “Disabled” with respect to the Optionee shall have the meaning set forth in Section 409(a)(2)(C) of the Code.
(h)To be eligible for grants of Options under the Plan and this Agreement, the Optionee must be an Employee, Director, or Consultant. Should an Optionee transfer employment to become a Director or Consultant following the Date of Grant, he or she will be considered employed for vesting purposes until he or she ceases to provide services to the Company or any direct or indirect Parent or Subsidiary of the Company, or any successor to the Company or any such Parent or Subsidiary.
(i)Notwithstanding the provisions in this Section 3, if the Company or the Employer develops a good faith belief that any provision in this Section 3 may be found to be unlawful, discriminatory or against public policy in any relevant jurisdiction, then the Company in its sole discretion may choose not to apply such provision to this Option, nor any Option grant in the Optionee’s jurisdiction.
(j)For the avoidance of doubt, the Options granted to the Optionee under this Agreement are expressly excluded from any Equity Award Policy for Acceleration of Vesting in the Event of a Change in Control that was previously adopted by Maxim Integrated Products, Inc.
4.Payment of Exercise Price. The following payment methods may be used to purchase Option Shares:
(a)A cashless exercise in a manner described in Section 6(e)(ii)(D) of the Plan.
(b)Cash or check payable to the Company.
(c)Delivery by the Optionee of shares of Common Stock (by actual delivery or attestation) in accordance with Section 6(e)(ii)(C) of the Plan.
(d)Any combination of the above methods.
5.Non-Transferability of Option. Except in the event of death (whether by beneficiary designation or by will or the laws of descent and distribution) or as permitted by the Plan, this Option is personal and no rights granted hereunder shall be transferred, assigned, pledged, or hypothecated in any way (whether by operation of law or otherwise), nor shall any such rights be subject to execution, attachment or similar process.
6.Adjustment. This Option is subject to adjustment (including with respect to vesting of the Option Shares) upon certain changes in the Common Stock and certain other events, including a Change in Control Event or a Reorganization Event, as provided in Section 14 of the Plan.
7.Withholding Taxes. Regardless of any action the Company or, if different, the Optionee’s employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax related items related to the Optionee’s participation in the Plan and legally applicable to the Optionee (“Tax-Related Items”), the Optionee acknowledges that the ultimate liability for all Tax-Related Items is and remains the Optionee’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Employer. The Optionee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including, but not limited to, the grant, vesting or exercise of the Option, the subsequent sale of Option Shares acquired pursuant to such exercise and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Option to reduce or eliminate the Optionee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Optionee has become subject to Tax-Related Items in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, the Optionee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
In connection with any relevant taxable or tax withholding event, as applicable, the Optionee will pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Optionee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations, if any, with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Optionee’s wages or other cash compensation payable to the Optionee by the Company, the Employer and/or any other subsidiary of the Company; (ii) withholding from proceeds of the sale of Option Shares acquired at exercise of the Option either through a voluntary sale or through a mandatory sale arranged by the Company (on the Optionee’s behalf pursuant to this authorization); or (iii) any other method determined by the Company, to the extent permitted under the Plan and applicable laws. The Company may withhold or account for Tax-Related Items by considering statutory withholding amounts or other applicable withholding rates in the Optionee’s jurisdiction(s), including maximum applicable rates. If the Company and/or the Employer withhold more than the amount necessary to satisfy the liability for Tax-Related Items, the Optionee may receive a refund of any over-withheld amount in cash (with no entitlement to the equivalent in shares of Common Stock) or, if not refunded, the Optionee may be able to seek a refund from the applicable tax authorities. If the Company and/or the Employer withhold less than the amount necessary to satisfy the liability for Tax-Related Items, the Optionee may be required to pay additional Tax-Related Items directly to the applicable tax authorities or to the Company and/or the Employer.
Finally, the Optionee shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares or the proceeds of the sale of Option Shares, if the Optionee fails to comply with the Optionee’s obligations in connection with the Tax-Related Items.
8.Nature of Grant. In accepting the Option, the Optionee acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, it is discretionary in nature, and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
(b)the grant of the Option is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past;
(c)all decisions with respect to future option grants, if any, will be at the sole discretion of the Company;
(d)the Optionee’s participation in the Plan shall not create a right to further employment with the Employer and shall not interfere with the ability of the Employer to terminate the Optionee’s employment or service relationship (if any) at any time;
(e)the Optionee is voluntarily participating in the Plan;
(f)the Option and any Option Shares acquired under the Plan, and the income and value of same, are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, holiday pay, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or the Employer;
(g)the Option grant and the Optionee’s participation in the Plan will not be interpreted to form or amend an employment or service contract or relationship with the Company or the Employer;
(h)the future value of the Option Shares underlying the Option is unknown, indeterminable, and cannot be predicted with certainty;
(i)if the underlying Option Shares do not increase in value, the Option will have no value;
(j)if the Optionee exercises the Option and acquires Option Shares, the value of such Option Shares may increase or decrease in value, even below the Exercise Price;
(k)for Optionees who reside outside the U.S. and/or the Company is not the Optionee’s employer, the following additional provisions shall apply:
(i)the Option and any Option Shares acquired under the Plan, and the income and value of same, are not intended to replace any pension rights or compensation;
(ii)the Option and any Option Shares acquired under the Plan are extraordinary items that do not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which are outside the scope of the Optionee’s employment or service contract, if any;
(iii)the Optionee acknowledges and agrees that neither the Company nor the Employer shall be liable for any foreign exchange rate fluctuation between the Optionee’s local currency and the United States Dollar that may affect the value of the Option or of any amounts due to the Optionee pursuant to the exercise of the Option or the subsequent sale of any Option Shares acquired upon exercise; and
(iv)no claim or entitlement to compensation or damages shall arise from forfeiture of the Option resulting from termination of the Optionee’s employment by the Company or the Employer (regardless of the reason for such termination and whether or not later found to be invalid or in breach of applicable laws in the jurisdiction where Optionee is employed or the terms of Optionee’s employment agreement, if any) and in consideration of the grant of the Option to which the Optionee is otherwise not entitled, the Optionee irrevocably agrees never to institute any claim against the Company or the Employer and waives his or her ability, if any, to bring such a claim, and releases the Company and the Employer from any such claim; if notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Optionee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claims.
9.No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Optionee’s participation in the Plan, or the Optionee’s acquisition or sale of the underlying Option Shares. The Optionee is encouraged to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
10.Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Optionee and his or her respective heirs, executors, administrators, legal representatives, successors and assigns, subject to the restrictions on transfer set forth in Section 5 of this Agreement.
11.Notice. Each notice relating to this Award shall be in writing (which shall include electronic form) and delivered in person, electronically or by first class mail, postage prepaid, to the address as hereinafter provided. Each notice shall be deemed to have been given on the date it is received. Each notice to the Company shall be addressed to it at its offices at Analog Devices, Inc., One Analog Way, Wilmington, Massachusetts, 01887 U.S.A., Attention: Stock Plan Administrator. Each notice to the Optionee shall be addressed to the Optionee at the Optionee’s last known mailing or email address, as applicable, on the records of the Company.
12.Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.
13.Entire Agreement. This Agreement and the Plan constitute the entire understanding between the parties, and supersede all prior agreements and understandings, relating to the subject matter of these documents.
14.Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the Commonwealth of Massachusetts without regard to any applicable conflicts of laws.
15.Compliance with Law. Notwithstanding any other provision of the Plan or this Agreement, unless there is an available exemption from any registration, qualification or other legal requirement applicable to the Option Shares, the Company shall not be required to deliver any shares issuable upon exercise of the Option prior to the completion of any registration or qualification of the Option Shares under any U.S. or non-U.S. federal, state, or local securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any U.S. or non-U.S. federal, state, or local governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. The Optionee understands that the Company is under no obligation to register or qualify the Option Shares with the SEC or any state or non-U.S. securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the Option Shares. The Optionee also understands and agrees that the Awards granted under the Plan, including the Options and the underlying Option Shares, are subject to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), and any SEC regulations, as now or hereafter in effect. Further, the Optionee agrees that the Company shall have unilateral authority to amend the Plan and this Agreement without the Optionee’s consent to the extent necessary to comply with securities or other laws applicable to issuance of Option Shares.
16.Clawback/Recoupment. The Option and any cash payment or Option Shares delivered pursuant to the Option are subject to forfeiture, recovery by the Company or other action pursuant to any clawback or recoupment policy which the Company may adopt from time to time, including without limitation any such policy which the Company may be required to adopt under the Dodd-Frank Act and implementing rules and regulations thereunder, or as otherwise required by law. Further, the Option and any Option Shares issued upon exercise of the Option, shall be subject to deduction, clawback or forfeiture to the extent required to comply with any recoupment requirement imposed under applicable laws, rules, regulations or stock exchange listing standards. In order to satisfy any recoupment obligation arising under any clawback or recoupment policy of the Company or otherwise under applicable laws, rules, regulations or stock exchange listing standards, among other things, the Optionee expressly and explicitly authorizes the Company to issue instructions, on the Optionee’s behalf, to any brokerage firm or stock plan service provider engaged by the Company to hold any Option Shares or other amounts acquired pursuant to the Option to re-convey, transfer or otherwise return such Option Shares and/or other amounts to the Company upon the Company’s enforcement of any clawback or recoupment policy.
17.Interpretation. The interpretation and construction of any terms or conditions of this Agreement or the Plan, or other matters related to the Plan, by the Compensation Committee of the Board of the Company shall be final and conclusive.
18.Optionee’s Acceptance. The Optionee is urged to read this Agreement carefully and to consult with his or her own legal counsel regarding the terms and consequences of this Agreement and the legal and binding effect of this Agreement. By virtue of his or her acceptance of this Option, the Optionee is deemed to have accepted and agreed to all of the terms and conditions of this Agreement and the provisions of the Plan.
19.Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
20.Language. If the Optionee has received this Agreement, or any other document related to the Option and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
21.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
22.Appendix. The Option shall be subject to any additional provisions set forth in the Appendix for the Optionee’s country of employment and/or residence, if any. If the Optionee relocates to one of the countries included in the Appendix during the life of the Option, the additional provisions for such country shall apply to the Optionee, to the extent the Company determines that the application of such provisions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan. The Appendix constitutes part of this Agreement.
23.Additional Requirements. The Company reserves the right to impose other requirements on the Option and the Option Shares purchased upon exercise of the Option, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
24.Private Placement. The Company has submitted filings in the United States in connection with the Plan. The Company has not submitted any registration statement, prospectus or other filings with other local securities authorities (unless otherwise required under such local law), and the grant of the Option is not intended to be a public offering of securities in any other jurisdiction or subject to the supervision of other local securities authorities.
25.Insider Trading Restrictions/Market Abuse Laws. The Optionee may be subject to insider trading restrictions and/or market abuse laws, which may affect the Optionee’s ability to accept, acquire, sell, or otherwise dispose of Common Stock, rights to Common Stock (e.g., Options) or rights linked to the value of Common Stock (e.g., phantom awards, futures) during such times as Optionee is considered to have “inside information” regarding the Company (as defined by the laws or regulations in the Optionee’s country). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Optionee placed before possessing inside information. Furthermore, the Optionee could be prohibited from (i) disclosing the inside information to any third party (other than on a “need to know” basis) and (ii) “tipping” third parties or otherwise causing them to buy or sell securities. Keep in mind third parties includes fellow employees. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Optionee acknowledges that it is his or her responsibility to comply with any applicable restrictions, and the Optionee should speak to his or her personal advisor on this matter.
26.Foreign Asset/Account, Exchange Control, and Tax Reporting. The Optionee may be subject to foreign asset/account, exchange control and/or tax reporting requirements as a result of the exercise of the Option, the acquisition, holding, and/or transfer of Option Shares or cash resulting from participation in the Plan and/or the opening and maintenance of a brokerage or bank account in connection with the Plan. The Optionee may be required to report such assets, accounts, account balances and values and/or related transactions to the applicable authorities in his or her country. The Optionee also may be required to repatriate sale proceeds or other funds received as a result of participation in the Plan to the Optionee’s country through a designated broker or bank and/or within a certain time after receipt. The Optionee acknowledges that he or she is responsible for ensuring compliance with any applicable foreign asset/account, exchange control and tax reporting requirements. The Optionee further understands that he or she should consult the Optionee’s personal legal advisor on these matters.
27.Waiver. The Optionee acknowledges that a waiver by the Company or breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee or any other optionee.
A copy of the Plan prospectus is available on the Company’s Intranet at https://thecircuit.web.analog.com/Pages/CircuitHome.aspx. (From The Circuit home page, click Knowledge Centers, HR, Employee Stock Programs. The related documents can be found in the right-hand column.) If the Optionee is unable to access this information via the Intranet, the Company’s Stock Plan Administrator can provide the Optionee with copies (Stock_Plan_Admin@Analog.com).
| | | | | |
By: | /s/ Vincent Roche |
| Vincent Roche |
| Chief Executive Officer & Chair |
APPENDIX A
AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
GLOBAL NON-QUALIFIED STOCK OPTION AGREEMENT
This Appendix A includes additional terms and conditions that govern the Options granted to the Optionee if the Optionee resides and/or works in one of the countries listed herein. These terms and conditions are in addition to, or, if so indicated, in place of, the terms and conditions set forth in the Agreement. Capitalized terms used but not defined shall have the same meanings as set forth in the Plan and/or the Agreement.
This Appendix A also includes certain issues of which the Optionee should be aware with respect to his or her participation in the Plan. The information is based on the securities, exchange control, income tax and other laws in effect in the respective countries as of October 2023. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Optionee not rely on the information noted herein as the only source of information relating to the consequences of participation in the Plan because the information may be out of date when the Optionee exercises the Options or when the Option Shares purchased under the Plan are subsequently sold.
In addition, the information is general in nature and may not apply to the Optionee’s particular situation, and the Company is not in a position to assure the Optionee of any particular result. Therefore, the Optionee should seek appropriate professional advice as to how the relevant laws in the Optionee’s country may apply to his or her situation.
Finally, the Optionee understands that if he or she is a citizen or resident of a country other than the one in which the Optionee is currently working and/or residing, transfers employment and/or residency after the Date of Grant, or is considered a resident of another country for local law purposes, the information contained herein may not apply to the Optionee, and the Company shall, in its discretion, determine to what extent the terms and conditions contained herein shall apply.
TERMS AND CONDITIONS APPLICABLE TO OPTIONEES OUTSIDE THE U.S.
Data Privacy Information and Consent. The Company is located at One Analog Way, Wilmington, Massachusetts, 01887 U.S.A. and grants employees of the Company and its Subsidiaries Options, at the Company’s sole discretion. If the Optionee would like to participate in the Plan, please review the following information about the Company’s data processing practices and declare the Optionee’s consent.
(a)Data Collection and Usage. The Company collects, processes and uses personal data of Optionees, including, name, home address and telephone number, date of birth, social insurance number or other identification number, salary, citizenship, job title, any shares of stock or directorships held in the Company, and details of all Options, canceled, vested, or outstanding in the Optionee’s favor, which the Company receives from the Optionee or the Employer. If the Company offers the Optionee a grant of Options under the Plan, then the Company will collect the Optionee’s personal data for purposes of allocating stock and implementing, administering and managing the Plan. The Company’s legal basis for the processing of the Optionee’s personal data would be his or her consent.
(b)Stock Plan Administration Service Providers. The Company transfers participant data to Fidelity Stock Plan Services LLC and certain of its affiliates (“Fidelity”), an independent service provider based in the United States, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select a different service provider and share the Optionee’s data with another company that serves in a similar manner. The Company’s service provider will open an account for the Optionee to receive and trade shares of Common Stock. The Optionee will be asked to agree on separate terms and data processing practices with the service provider, which is a condition to the Optionee’s ability to participate in the Plan.
(c)International Data Transfers. The Company and its service providers are based in the United States. If the Optionee is outside the United States, the Optionee should note that his or her country has enacted data privacy laws that are different from the United States and that the United States might not provide a level of protection of personal data equivalent to the level of protection in the Optionee’s country. In order to ensure an appropriate level of protection for the transfer of the Optionee’s personal data to the Company in the United States, the Company has implemented the EU Standard Contractual Clauses. However, the onward transfer of the Optionee’s personal data by the Company to its service provider is not subject to appropriate safeguards such as the EU Standard Contractual Clauses and is based solely on the Optionee’s consent. The Optionee understands and acknowledges that this might result in certain risks to the protection of his or her personal data due to the lack of legal principles governing the processing of the personal data, oversight by a supervisory authority or enforceable data subject rights in the United States.
(d)Data Retention. The Company will use the Optionee’s personal data only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan or as required to comply with applicable laws, exercise or defense of legal rights, and archiving, deletion and backup purposes. This means the Optionee’s personal data may be retained beyond the termination of the Optionee’s employment with the Employer.
(e)Voluntariness and Consequences of Consent Denial or Withdrawal. The Optionee’s participation in the Plan and the Optionee’s grant of consent is purely voluntary. The Optionee may deny or withdraw his or her consent at any time. If the Optionee does not consent, or if the Optionee withdraws his or her consent, the Optionee cannot participate in the Plan. This would not affect the Optionee’s salary from or employment with the Employer; the Optionee would merely forfeit the opportunities associated with the Plan.
(f)Data Subject Rights. The Optionee has a number of rights under data privacy laws in his or her country. Depending on where the Optionee is based, the Optionee’s rights may include the right to (a) request access or copies of personal data the Company processes, (b) rectification of incorrect data, (c) deletion of data, (d) restrictions on processing, (e) portability of data, (f) lodge complaints with competent authorities in the Optionee’s country, and/or (g) a list with the names and addresses of any potential recipients of the Optionee’s personal data. To receive clarification regarding the Optionee’s rights or to exercise the Optionee’s rights please contact the Company at Analog Devices, Inc., One Analog Way, Wilmington, Massachusetts, 01887 U.S.A., Attention: Stock Plan Administrator.
If the Optionee resides in a European Economic Area, European Union member state or the United Kingdom and agrees with the data processing practices described in this notice, the Optionee declares his or her consent by clicking “Accept Your Grant” on the Accepting Your Grants page on Fidelity’s participant website.
Language. The Optionee acknowledges that he or she is sufficiently proficient in English, or has consulted with an advisor who is sufficiently proficient in English, to understand the terms and conditions of this Agreement.
AUSTRIA
Exchange Control Information. If the Optionee holds securities (including Option Shares acquired under the Plan) or cash (including proceeds from the sale of Option Shares) outside Austria, he or she may be subject to reporting obligations to the Austrian National Bank. If the value of the Option Shares meets or exceeds a certain threshold, the Optionee must report the securities held on a quarterly basis to the Austrian National Bank as of the last day of the quarter, on or before the 15th day of the month following the end of the calendar quarter. In all other cases, an annual reporting obligation applies and the report has to be filed as of December 31 on or before January 31 of the following year using the form P2. Where the cash amounts held outside Austria meet or exceed a certain threshold, monthly reporting obligations apply as explained in the next paragraph.
If the Optionee sells Option Shares, or receives any cash dividends, the Optionee may have exchange control obligations if he or she holds the cash proceeds outside Austria. If the transaction volume of all the Optionee’s accounts abroad meets or exceeds a certain threshold, the Optionee must report to the Austrian National Bank the movements and balances of all accounts on a monthly basis, as of the last day of the month, on or before the 15th day of the following month, using the form “Meldungen SI-Forderungen und/oder SI-Verpflichtungen.”
BELGIUM
Taxation of Option. The Optionee will not be permitted to accept the Options until after 60 days from the offer date. If the Optionee accepts the Options within 60 days of the offer date, the Optionee will be deemed to have accepted the Option after the 60th day from the offer date. Therefore, the Options will not be subject to Belgian tax until they are exercised by the Optionee.
Foreign Asset / Account Reporting Information. The Optionee is required to report any securities (e.g., Option Shares) or bank accounts opened and maintained outside Belgium on his or her annual tax return. In a separate report, certain details regarding such foreign accounts (including the account number, bank name and country in which such account was opened) must be reported to the Central Contact Point of the National Bank of Belgium. The forms to complete this report are available on the website of the National Bank of Belgium.
Stock Exchange Tax. A stock exchange tax applies to transactions executed by a Belgian resident through a financial intermediary, such as a bank or broker. If the transaction is conducted through a Belgian financial intermediary, it may withhold the stock exchange tax, but if the transaction is conducted through a non-Belgian financial intermediary, the Belgian resident may need to report and pay the stock exchange tax directly. The stock exchange tax likely will apply when Option Shares acquired under the Plan are sold. Belgian residents should consult with a personal tax or financial advisor for additional details on their obligations with respect to the stock exchange tax.
Annual Securities Accounts Tax. An annual securities accounts tax may be payable if the total average value of securities held in a Belgian or foreign securities account (e.g., Shares) exceeds a certain threshold on four reference dates within the relevant reporting period (i.e., December 31, March 31, June 30 and September 30). In such case, the tax will be due on the value of the qualifying securities held in such account. The Optionee should consult with his or her personal tax or financial advisor for additional details.
CANADA
Securities Law Information. The Optionee is permitted to sell Option Shares acquired through the Plan through the designated broker appointed under the Plan, if any (or any other broker acceptable to the Company), provided the resale of Option Shares acquired under the Plan takes place outside Canada through the facilities of a stock exchange on which the Option Shares are listed. The Option Shares are currently listed on the Nasdaq Global Select Market.
Payment of Exercise Price and Withholding Taxes. Notwithstanding anything in the Agreement or the Plan, the Optionee agrees to pay the Exercise Price and any Tax-Related Items solely by means of (i) cash, which may be paid by check, or other instrument acceptable to the Company or (ii) a broker-assisted cashless exercise, whereby the broker sells some or all of the Option Shares to be issued upon exercise to pay the Exercise Price, brokerage fees and any applicable Tax-Related Items. To the extent that tax regulatory requirements change, the Company reserves the right to permit the Optionee to exercise the Option and pay the Exercise Price and any applicable Tax-Related Items in Option Shares to the extent permitted by the Plan.
Termination of Employment. The following supplements Section 3 of the Agreement (except Section 3(g) regarding disability) as well as any other section required to give effect to the same:
In the event of termination of the Optionee’s employment for any reason (other than by reason of the Optionee’s death), either by the Optionee or by the Employer, with or without cause, the Optionee's right to vest or continue to vest in the Option under the Plan, if any, will terminate as of the actual Date of Termination. For this purpose, “Date of Termination” shall mean the earlier of (1) the date the Optionee’s employment with the Employer is terminated for any reason; or (2) the date the Optionee receives written notice of termination from the Employer and shall not include or be extended by any period following such day during which the Optionee is in receipt of or eligible to receive any notice of termination, pay in lieu of notice of termination, severance pay or any other payments or damages, whether arising under statute, contract or at common law. For greater certainty, the Optionee will not earn or be entitled to any pro-rated vesting or extended exercisability for that portion of time before the date on which the Optionee’s right to vest in or exercise the Option terminates, nor will the Optionee be entitled to any compensation for lost vesting or exercisability.
Notwithstanding the foregoing, if applicable employment standards legislation explicitly requires continued entitlement to vesting during a statutory notice period, the Optionee’s right to vest in the Options under the Plan, if any, will terminate effective as of the last day of the Optionee’s minimum statutory notice period, but the Optionee will not earn or be entitled to pro-rated vesting if the vesting date falls after the end of the Optionee’s statutory notice period, nor will the Optionee be entitled to any compensation for lost vesting.
Foreign Asset / Account Reporting Information. Foreign specified property (including cash held outside Canada or Option Shares) held by Canadian residents must be reported annually on Form T1135 (Foreign Income Verification Statement) if the cost of such foreign specified property exceeds C$100,000 at any time during the year. Foreign specified property may also include the unvested portion of the Options. The Options must be reported (generally at a nil cost) if the $100,000 cost threshold is exceeded because of other foreign specified property the Optionee holds. If Option Shares are acquired, their cost generally is the adjusted cost base (“ACB”) of the Option Shares. The ACB would normally equal the fair market value of the Option Shares at exercise, but if the Optionee owns other shares, this ACB may have to be averaged with the ACB of the other shares. If due, the Form must be filed by April 30 of the following year. The Optionee should consult with his or her personal tax advisor to determine the reporting requirements.
The following terms and conditions apply if the Optionee is in Quebec:
Data Privacy. This provision supplements the Data Privacy Information and Consent provision in the Terms and Conditions for Optionees Outside the U.S. set forth above:
The Optionee hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information from all personnel, professional or not, involved in the administration and operation of the Plan. The Optionee further authorizes the Company and the administrator of the Plan to disclose and discuss the Plan with their advisors. The Optionee acknowledges that his or her personal information, may be transferred or disclosed outside the Province of Quebec, including to the United States. The Optionee further authorizes the Company and the Employer to record such information and to keep such information in the Optionee’s employee file. The Optionee also acknowledges that the Company, Fidelity, and the Employer may use technology of profiling purposes and to make automated decisions that may have an impact on the Optionee or the administration of the Plan.
CHINA
The following provision applies if the Optionee is subject to exchange control restrictions and regulations in the People's Republic of China (“PRC”), including the requirements imposed by the China State Administration of Foreign Exchange (“SAFE”), as determined by the Company in its sole discretion:
Vesting. Notwithstanding anything to the contrary in the Plan or the Agreement, the Options will not vest and no Option Shares will be issued to the Optionee unless and until all necessary exchange control or other approvals with respect to the Options under the Plan have been obtained from the SAFE or its local counterpart (“SAFE Approval”). In the event that SAFE Approval has not been obtained prior to any date(s) on which the Options are scheduled to vest in accordance with the vesting schedule set forth in the Agreement, the Options will not vest until the seventh day of the month following the month in which SAFE Approval is obtained (the “Actual Vesting Date”). If the Optionee’s status as a service provider terminates prior to the Actual Vesting Date, the Optionee shall not be entitled to vest in any portion of the Options and the Options shall be forfeited without any liability to the Company, the Employer or any other Parent or Subsidiary of the Company.
Payment of Exercise Price. The following supplements Section 4 of the Agreement:
Due to regulatory requirements in the PRC, the Optionee will be required to exercise the Option using a broker assisted cashless sell-all exercise method pursuant to which all Option Shares subject to the exercised Option will be sold immediately upon exercise and the proceeds of sale, less any broker’s fees or commissions, will be remitted to the Optionee. The Optionee will not be permitted to hold Option Shares after exercise. The Optionee understands and agrees that the Tax-Related Items with respect to the exercise of the Options may be taken by the Employer from the Optionee’s salary or other cash compensation. The Optionee acknowledges that the Company’s designated broker is under no obligation to arrange for the sale of the Option Shares pursuant to the cashless sell-all exercise method at any particular price. The Company reserves the right to provide additional methods of exercise depending on the development of local law.
Exchange Control Requirements. Due to exchange control laws in the PRC, if the Optionee is a PRC national he or she will be required to repatriate the proceeds from the cashless sell-all exercise to the PRC. The Optionee understands and agrees that such cash proceeds must be repatriated to the PRC through a special exchange control account established by the Company, the Employer, or a Subsidiary of the Company, and the Optionee hereby consents and agrees that any proceeds from the sale of Option Shares may be transferred to such special account prior to being delivered to the Optionee.
Further, notwithstanding Section 3(e) or 3(g) of the Agreement, if the Optionee terminates employment with the Company or the Employer due to death or the Optionee becomes Disabled as determined by the Company, the vesting of the Option shall accelerate on the date of such termination or determination of disability, and the Option shall continue to be exercisable for a period of three (3) months (or such other period as may be required by the SAFE) following the termination date due to death or disability. If the Optionee or the Optionee’s heirs do not exercise the Option within three (3) months (or such other period as may be required by the SAFE) of the Optionee’s death or date of termination in the event of disability, the Option will be forfeited and the Optionee or the Optionee’s heirs will not be able to exercise the Option.
The Optionee understands and agrees that there will be a delay between the date the Option Shares are sold and the date the cash proceeds are distributed to the Optionee. The Optionee also understands and agrees that the Company is not responsible for any currency fluctuation that may occur between the date the Option Shares are sold and the date the cash proceeds are distributed to the Optionee. The Optionee further agrees to comply with any other requirements that may be imposed by the Company in the future to facilitate compliance with exchange control requirements in the PRC.
DENMARK
Danish Stock Option Act. By participating in the Plan, the Optionee acknowledges that he or she received an Employer Statement translated into Danish, which is being provided to comply with the Danish Stock Option Act, as amended effective January 1, 2019, and is attached hereto as Appendix B.
Notice of Grant. This provision supplements Section 8 in the Agreement:
By accepting the Option, the Optionee acknowledges, understands and agrees that this grant relates to future services to be performed and is not a bonus or compensation for past services.
Foreign Asset / Account Reporting Information. If the Optionee establishes an account holding Option Shares or cash outside Denmark, the Optionee must report the account to the Danish Tax Administration. The form which should be used in this respect can be obtained from a local bank.
EGYPT
Exchange Control Information. If the Optionee transfers funds out of or into Egypt in connection with the exercise of the Option or remits proceeds from the sale of Option Shares, the Optionee is required to transfer the funds through a registered bank in Egypt.
ESTONIA
Responsibility for Taxes. This provision supplements Section 7 of the Agreement:
The Optionee understands that he or she would generally not be subject to taxation in Estonia when the Option is exercised and Shares are issued under the Plan, and that the Employer would generally be subject to fringe benefits tax (“FBT”) due, unless an exemption applies. Notwithstanding the foregoing, as a condition to the Optionee’s participation in the Plan, the Optionee agrees and consents that the Company and/or the Employer may in their discretion seek indemnification / reimbursement from the Optionee for any FBT the Employer is required to pay, has paid or will pay. If the Company and/or the Employer exercise such discretion and choose to seek indemnification / reimbursement from the Optionee, they will reduce the number of Shares otherwise issuable to the Optionee by an amount determined by the Company to be appropriate to offset the FBT, and may otherwise recover the FBT by any other means referred to in Section 7 of the Agreement. The Optionee further acknowledges that the discretion of the Company and/or Employer to seek indemnification for the FBT is not imbalanced or harmful to the Optionee, and the Optionee unconditionally and irrevocably waives any rights to amend or dispute its validity on the basis of any law or regulation of Estonia or any other jurisdiction.
Language Consent. Võttes vastu piiratud aktsiaühikute (Option) pakkumise, kinnitab Osaleja, et ta on ingliskeelsena esitatud pakkumisega seotud dokumendid (Optsioonilepingu ja Plaani) läbi lugenud ja nendest aru saanud ning et ta ei vaja nende tõlkimist eesti keelde. Sellest tulenevalt Osaleja nõustub viidatud dokumentide tingimustega.
By accepting the grant of the Option, the Optionee confirms having read and understood the documents related to the grant (the Agreement and the Plan), which were provided in the English language, and that he or she does not need the translation thereof into the Estonian language. The Optionee accepts the terms of those documents accordingly.
FINLAND
There are no country-specific provisions.
FRANCE
Options Not Tax-Qualified. The Optionee understand that this Option is not intended to qualify for favorable tax and social security treatment applicable to stock options granted under Section L.225-177 to L.225-186 and Sections L. 22-10-56 to L. 22-10-58 of the French Commercial Code, as amended.
Language Consent. By accepting this Option, the Optionee confirms having read and understood the documents relating to this Option (e.g., the Plan, the French Sub-plan, and the Agreement, including Appendix A) which were provided in the English language. The Optionee accordingly accepts the terms of those documents.
Consentement a la Langue. En signant et renvoyant cet Accord, ou par acceptant autrement l’Accord, le Titulaire de l’Option confirme ainsi avoir lu et compris les documents relatifs à l’Option, (c’est-à-dire, Le Plan, Le Plan pour la France et cet Accord) qui ont été fournis en langue anglaise. Le Titulaire de l’Option accepte les termes de ces documents en connaissance de cause.
Foreign Asset/Account Reporting Information. French residents holding Option Shares outside France or maintaining a foreign bank account are required to report such to French tax authorities when filing his or her annual tax return. Failure to comply may trigger significant penalties.
GERMANY
Exchange Control Information. Cross-border payments in excess of €12,500 must be reported to the German Federal Bank (Bundesbank). If the Optionee otherwise makes or receives a payment in excess of €12,500 (including if the Optionee acquires Option Shares with a value in excess of this amount or sells Option Shares via a foreign broker, bank or service provider and receives proceeds in excess of this amount) and/or if the Company withholds or sells Option Shares with a value in excess of this amount to cover Tax-Related Items, the Optionee must report the payment and/or the value of the Option Shares withheld or sold to the Bundesbank. Such reports must be filed either electronically by accessing the electronic General Statistics Reporting Portal (“Allgemeines Meldeportal Statistik”) via the Bundesbank’s website (www.bundesbank.de), or by such other method (e.g., email or telephone) and within such other timing as permitted or required by Bundesbank. The report must be submitted monthly or within such timing as it permitted or required by the Bundesbank. It is the Optionee’s responsibility to comply with this reporting obligation and the Optionee should consult with his or her personal legal advisor in this regard.
Foreign Asset/Account Reporting Information. If the Optionee’s acquisition of Option Shares under the Plan leads to a “qualified participation” at any point during the calendar year, the Optionee will need to report the acquisition when the Optionee files his or her tax return for the relevant year. A qualified participation is attained if (i) the value of the Option Shares acquired exceeds a certain threshold or (ii) in the unlikely event the Optionee holds shares of Common Stock exceeding a certain threshold of the total Common Stock. However, provided the Common Stock is listed on a recognized stock exchange (e.g., the Nasdaq Stock Market) and the Optionee owns less than 1% of the Company, this requirement will not apply.
HUNGARY
There are no country-specific provisions.
INDIA
Exchange Control Notification. If the Optionee remits funds out of India to purchase Option Shares, it is the Optionee’s responsibility to comply with applicable exchange control laws. The Optionee may be subject to Tax Collection At Source (“TCS”) if the Optionee’s annual remittances out of India exceed a certain amount (currently INR 700,000). The Optionee may be required to provide a declaration to the bank remitting the funds to determine if such amount has been reached. Regardless of the method of exercise used to purchase the Option Shares, the Optionee understands that he or she must repatriate any proceeds from the sale of Option Shares acquired under the Plan and any dividends received in relation to the Option Shares to India and convert the funds into local currency within ninety (90) days of receipt, or such other period of time as required under applicable regulations. The Optionee must obtain a foreign inward remittance certificate (“FIRC”) from the bank where the Optionee deposits the foreign currency and maintains the FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or the Employer requests proof of repatriation. The Optionee agrees to provide any information that may be required by the Company or the Employer to make any applicable filings under exchange control laws in India.
Foreign Asset / Account Reporting Information. The Optionee is required to declare any foreign bank accounts and assets (including Option Shares acquired under the Plan) on his or her annual tax return. The Optionee should consult with his or her personal tax advisor to determine his or her reporting requirements.
IRELAND
Labor Law Acknowledgment. This provision supplements Section 8 of the Agreement:
By accepting the Option, the Optionee acknowledges, understands, and agrees that the benefits received under the Plan will not be taken into account for any redundancy or unfair dismissal claim.
Restriction on Type of Shares Issued to Directors. If the Optionee is a director of an Irish Subsidiary, the Option will be granted over newly issued shares only. In no event will treasury shares be issued pursuant to the exercise of the Option. This restriction also applies to a shadow director of an Irish Subsidiary.
ISRAEL
Payment of Exercise Price. This provision supplements Section 4 of the Agreement:
Due to regulatory requirements and notwithstanding any terms or conditions of the Plan or the Agreement to the contrary, the Optionee will be restricted to a broker assisted cashless sell-all method of exercise with respect to the Options. To complete a cashless sell-all exercise, the Optionee should instruct the broker to: (i) sell all of the Option Shares issued upon exercise; (ii) use the proceeds to pay the Exercise Price, brokerage fees and any Tax-Related Items; and (iii) remit the balance in cash to the Optionee. In the event of changes in regulatory requirements, the Company reserves the right to eliminate the cashless sell-all method of exercise requirement and, in its sole discretion, to permit cash exercise or cashless sell-to-cover exercise.
Securities Law Information: This offer of Options does not constitute a public offering under the Securities Law, 1968.
ITALY
Plan Document Acknowledgment. By accepting the Option, the Optionee acknowledges a copy of the Plan was made available to the Optionee, and that the Optionee has reviewed the Plan and the Agreement, including Appendix A, in their entirety and fully understands and accepts all provisions of the Plan, the Agreement and Appendix A.
The Optionee further acknowledges that he or she has read and specifically and expressly approves the following provision in the Agreement: Term of Option; Termination of Employment; Withholding Taxes; Nature of Grant; and Additional Requirements.
Foreign Asset Tax. The value of any Option Shares (and other the financial assets) held outside Italy by individuals resident of Italy may be subject to a foreign asset tax. The taxable amount will be the fair market value of the financial assets (e.g., Option Shares) assessed at the end of the calendar year. The value of financial assets held abroad must be reported in Form RM of the annual tax return. The Optionee should consult his or her personal tax advisor for additional information on the foreign asset tax.
Foreign Asset / Account Reporting Information. If the Optionee holds investments abroad or foreign financial assets (e.g., cash, Option Shares, Options) that may generate income taxable in Italy, the Optionee is required to report them on his or her annual tax returns (UNICO Form, RW Schedule) or on a special form if no tax return is due, irrespective of their value. The same reporting duties apply to the Optionee if he or she is a beneficial owner of the investments, even if the Optionee does not directly hold investments abroad or foreign assets.
JAPAN
Exchange Control Information. If the Optionee is a Japanese resident and acquires Option Shares valued at more than ¥100,000,000 in a single transaction, the Optionee must file a Securities Acquisition Report with the Ministry of Finance through the Bank of Japan within 20 days of the acquisition of the Option Shares.
In addition, if the Optionee is a Japanese resident and pays more than ¥30,000,000 in a single transaction for the purchase of Option Shares when he or she exercises the option, the Optionee must file a Payment Report with the Ministry of Finance through the Bank of Japan by the 20th day following the month in which the payment was made. The precise reporting requirements vary depending on whether the relevant payment is made through a bank in Japan. The Optionee should consult with his or her legal advisor in this regard.
A Payment Report is required independently of a Securities Acquisition Report. Therefore, if the total amount that the Optionee pays upon a one-time transaction for exercising this Option and purchasing Option Shares exceeds ¥100,000,000, then the Optionee must file both a Payment Report and a Securities Acquisition Report.
Foreign Asset / Account Reporting Information. The Optionee will be required to report details of any assets held outside Japan as of December 31st to the extent such assets have a total net fair market value exceeding ¥50,000,000. This report is due by March 15th each year. The Optionee should consult with his or her personal tax advisor as to whether the reporting obligation applies to him or her and whether the requirement extends to any outstanding Options or Option Shares acquired under the Plan.
KOREA
Foreign Asset / Account Reporting Information. Korean residents must declare all foreign financial accounts (i.e., non-Korean bank accounts, brokerage accounts, and so on) to the Korean tax authority and file a report with respect to such accounts if the value of such accounts exceeds KRW 500 million (or an equivalent amount in foreign currency). The Optionee should consult with his or her personal tax advisor to determine any personal reporting obligations.
Restriction on Sale of Shares. Korean residents are not permitted to sell foreign securities (e.g., Option Shares) through non-Korean brokers or deposit funds resulting from the sale of Option Shares in an account with an overseas financial institution. If a Korean resident wishes to sell Option Shares acquired under the Plan, the Korean resident may be required to transfer the Option Shares to a domestic investment broker in Korea and to effect the sale through such broker. The Korean resident is solely responsible for engaging the domestic broker. Non-compliance with the requirement to sell Option Shares through a domestic broker can result in significant penalties. Because regulations may change without notice, Korean residents should consult with a legal advisor to ensure compliance with any regulations applicable to any aspect of participation in the Plan.
MALAYSIA
Director Notification. If the Optionee is a director of a Subsidiary of the Company or other related company in Malaysia, then the Optionee is subject to certain notification requirements under the Malaysian Companies Act, 2016. Among these requirements is an obligation to notify the Malaysian Subsidiary in writing when the Optionee receives an interest (e.g., Options, Option Shares) in the Company or any related companies. In addition, the Optionee must notify the Malaysian Subsidiary when he or she sells Shares of the Company or any related company (including when the Optionee sells Option Shares acquired under the Plan). These notifications must be made within fourteen (14) days of acquiring or disposing of any interest in the Company or any related company.
Data Privacy. The following provision replaces the Data Privacy Information and Consent provision under the Terms and Conditions for Optionees Outside the U.S. set forth above:
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The Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in this document by and among, as applicable, the Employer, and the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Optionee's participation in the Plan.
The Optionee understands that the Company and the Employer may hold certain personal information about the Optionee, including, but not limited to, his or her name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Optionee's favor, for the purpose of implementing, administering and managing the Plan (“Data”). The source of the Data is the Employer as well as information the Optionee is providing to the Company and the Employer in connection with the Option. The Optionee understands that Data may be transferred to Fidelity or any other third parties as may be selected by the Company in the future, which are assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Optionee’s country or elsewhere and that the recipients' country (e.g., the United States) may have different data privacy laws and protections than the Optionee's country. The Optionee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Optionee authorizes the Company, Fidelity and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Optionee may elect to deposit any Shares acquired upon exercise of this Option. The Optionee understands that Data will be held only as long as is necessary to implement, administer and manage the Optionee's participation in the Plan. The Optionee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. The Optionee understands, however, that refusing or withdrawing his or her consent may affect the Optionee's ability to participate in the Plan. For more information on the consequences of a refusal to consent or withdrawal of consent, the Optionee understands that he or she may contact his or her regional stock plan administrator at Stock_Plan_Admin@Analog.com. | Pemegang Opsyen dengan ini secara eksplicit, secara sukarela dan tanpa sebarang keraguan mengizinkan pengumpulan, penggunaan dan pemindahan, dalam bentuk elektronik atau lain-lain, data peribadinya seperti yang dinyatakan dalam dokumen ini, oleh dan di antara, sebagaimana yang berkenaan, Majikan, Syarikat, dan mana-mana Anak Syarikatnya bagi tujuan ekslusif untuk membantu dalam pelaksanaan, pentadbiran dan pengurusan penyertaan Pemegang Opsyen dalam Pelan. Pemegang Opsyen memahami bahawa Syarikat dan Majikan mungkin memegang maklumat peribadi tertentu tentang Pemegang Opsyen, termasuk, tetapi tidak terhad kepada, namanya , alamat rumah dan nombor telefon, tarikh lahir, nombor insurans sosial atau nombor pengenalan lain, gaji, kewarganegaraan, jawatan, apa-apa syer dalam saham atau jawatan pengarah yang dipegang dalam Syarikat, butir-butir semua opsyen atau apa-apa hak lain untuk syer dalam saham yang dianugerahkan, dibatalkan, dilaksanakan, terletak hak, tidak diletak hak ataupun yang belum dijelaskan bagi faedah Pemegang Opsyen, untuk tujuan eksklusif bagi melaksanakan, mentadbir dan menguruskan Pelan (“Data”). Sumber Data adalah daripada Majikan dan juga daripada maklumat yang dibekalkan oleh Pemegang Opsyen kepada Syarikat dan Majikan berkenaan dengan Opysen. Pemegang Opysen juga memahami bahawa Data mungkin dipindahkan kepada Fidelity atau mana-mana pihak ketiga yang mungkin dipilih oleh Syarikat pada masa depan, yang membantu dalam pelaksanaan, pentadbiran dan pengurusan Pelan, bahawa penerima-penerima ini mungkin berada di negara Pemegang Opsyen atau di tempat lain, dan bahawa negara penerima (contohnya, Amerika Syarikat) mungkin mempunyai undang-undang privasi data dan perlindungan yang berbeza daripada negara Pemegang Opsyen. Pemegang Opsyen memahami bahawa dia boleh meminta senarai nama dan alamat mana-mana penerima Data dengan menghubungi wakil sumber manusia tempatannya. Pemegang Opsyen memberi kuasa kepada Syarikat, Fidelity, dan mana-mana penerima lain yang mungkin membantu Syarikat (masa sekarang atau pada masa depan) untuk melaksanakan, mentadbir dan menguruskan penyertaan Pemegang Opsyen dalam Pelan untuk menerima, memiliki, menggunakan, mengekalkan dan memindahkan Data, dalam bentuk elektronik atau lain-lain, semata-mata dengan tujuan untuk melaksanakan, mentadbir dan menguruskan penyertaan Pemegang Opsyen dalam Pelan, termasuk apa-apa pemindahan Data yang diperlukan kepada broker atau pihak ketiga dengan siapa Pemegang Opsyen mungkin pilih untuk mendepositkan apa-apa Saham yang diperolehi di atas pelaksanaan Opsyen ini. Pemegang Opsyen memahami bahawa Data akan dipegang hanya untuk tempoh yang diperlukan untuk melaksanakan, mentadbir dan menguruskan penyertaannya dalam Pelan tersebut. Pemegang Opsyen memahami bahawa dia boleh, pada bila-bila masa, melihat data, meminta maklumat tambahan mengenai penyimpanan dan pemprosesan Data, meminta bahawa pindaan-pindaan dilaksanakan ke atas Data atau menolak atau menarik balik persetujuan dalam ini, dalam mana-mana kes, tanpa kos, dengan menghubungi secara bertulis wakil sumber manusia tempatannya. Pemegang Opsyen memahami bahawa keengganan atau penarikan balik persetujuannya boleh menjejaskan keupayaannya untuk mengambil bahagian dalam Pelan. Untuk maklumat lanjut mengenai akibat keengganannya untuk memberikan keizinan atau penarikan balik keizinan, Pemegang Opsyen fahami bahawa dia boleh menghubungi pentadbir pelan saham serantau di Stock_Plan_Admin@Analog.com. |