2012 Annual Report
Dear Shareholders:
Fiscal 2012 was a good year for ADI despite the difficult and uncertain economy that affected much of the semiconductor industry. Reductions in
capital spending for industrial and infrastructure equipment, which is the primary driver of our business, resulted in our revenue declining from 2011
levels. Nevertheless, where there was opportunity to be captured and focus to be gained, we did so, generating $2.7 billion in revenue, 64.5% gross
margins, operating cash flow of more than $800 million, or 30% of revenue, and free cash flow of $682 million, or 25% of revenue. During 2012, we
returned over $500 million to our shareholders via dividends and share repurchases. As a result of this performance and increasing confidence in our
long-term prospects, our total shareholder return was 10% for the year — at the high end of our peer group.1
In cyclical industries, such as ours, we continue to believe that clarity of purpose and strategic intent are critical to long-term success. Our mission
has remained the same over many years: to be the world’s best signal processing company. By providing game changing technology to our customers
and ensuring world-class service and quality, we remain the preferred partner to the most innovative customers in the markets we serve. We focus
on markets, customers, and applications that have the potential to grow faster than the aggregate semiconductor market. We consistently generate
strong profitability and cash flow to enhance shareholder returns, despite industry volatility. And, most importantly, we have created an environment at
ADI where the most talented engineers can explore new ideas and train under the most knowledgeable and respected mentors, many of whom enjoy
international recognition. This model has worked well for us for over 45 years, allowing us to accumulate organizational experience and a portfolio of
proprietary high performance signal processing technology that has created one of the most profitable franchises in the semiconductor industry.
We will continue to follow this approach in the future.
Organizational focus and renewal are as important as clarity of purpose and strategic intent in ensuring continuing high performance at ADI.
During 2012, we promoted Vince Roche to President of ADI, reporting to me, ADI’s CEO. Vince is an extraordinarily talented executive with
whom I have worked closely for many years. He knows our business well, has a good blend of technology and market insight, and has been
instrumental in building relationships and partnerships with our largest customers around the world. In this new role, Vince has responsibility for all
product development, sales, marketing, and business development, which will provide better alignment of our technology and resource allocation
with customer and market needs. Vince has set very aggressive goals for raising investment returns at ADI by better focusing our innovation
process, and I am confident that he will lead his organization to achieve these objectives. We also promoted several other long-term ADI executives
to take on increased organizational responsibility. Robbie McAdam now leads our market segment strategies and organization and Dick Meaney
leads all product development resources worldwide. We also promoted Thomas Wessel, formerly our head of European sales and the automotive
segment, to Vice President of Worldwide Sales. These executives, together with the rest of our executive leadership team, have the collective vision
and experience to lead ADI to the next level of performance, and we are all invigorated to make that happen.
A proven strategy, a clear sense of purpose, and strong and experienced leadership are key advantages for ADI in a semiconductor industry
that continues to evolve at a rapid pace. In fact, I believe it will be the companies that can focus on the best opportunities, and whose people innovate
and create real value for customers, that will continue to prosper and, by earning good returns, will be able to afford to continue to invest heavily in the
development of new technology.
Even within the high performance analog market, which has been a very stable market for many years, competitive strategies have begun to
diverge much more than in the past. Only ADI has both the breadth of technology and the integration capability required by the largest customers,
while simultaneously maintaining the best brand with tens of thousands of customers around the world. While we are a key partner to the largest
customers, we typically supply these customers with hundreds of unique products. This broad and diversified customer base gives us an enviable
strength and stability: in fiscal 2012, our largest single customer represented only 3% of our revenue; we sold over 10,000 unique products to our
customer base; no single product comprised more than a few percent of our sales; and our 10 highest revenue products, in aggregate, accounted for
only 9% of our revenue for the year.
Our market leading converter technology remains the critical bridge between the analog and digital worlds and is the starting point for most
highly integrated signal processing systems. Our radio frequency and other linear components, MEMS, power, and DSP portfolio are the right
technologies for the next decade in the highest growth applications. These technologies provide the building blocks that allow our customers to
innovate in sensing, conditioning, conversion, and processing. These are key enablers of diverse applications, such as smart energy grids and
smartphones, advanced automotive safety and fuel efficiency systems, high bandwidth communications, nonintrusive medical diagnostics and
patient monitoring, and robotics and industrial controls in the factories of the future.
Despite all the economic uncertainty and challenges, we are more enthusiastic than ever before about ADI’s prospects for the future. We continue
to out-innovate our competition, have built important strategic relationships with the market share leaders in our customer base, and have the
enthusiastic support of all our employees around the world who continue to believe that ADI is the best company at which to build their careers.
While we have accomplished a great deal over many years, there is so much more to do to make ADI an even better company in the future and to
add to your returns as an ADI shareholder. And I am happy to report to you that we have the capability and the will to do just that.
Sincerely,
Jerald G. Fishman
Chief Executive Officer
1Total shareholder return equals year-over-year price appreciation plus cash dividends paid as of October 31, 2012.
ADI peer group is listed in the 2013 Proxy Statement.
FY2012: Solid Results from the World Leader in High Performance Signal Processing
•
$2.7 Billion in Revenue
• Diluted EPS of $2.13 and 5-Year Compound
• Operating Cash Flow of 30% and
Free Cash Flow of 25% of Revenue
• Gross Margins of 64.5% and
Annual Growth Rate of 7%
• Over $500 Million Returned to Shareholders
via Dividends and Share Repurchases
Operating Margins of 30.5% of Revenue
•
Click Here to Read ADI’s FY2012 Form 10-K
Product Revenue from
Continuing Operations ($M)
$3,500
$3,000
$2,500
$2,430
$2,583
$2,000
$1,500
74%
74%
$2,993
$2,762
$2,701
$2,015
75%
78%
81%
83%
$1,000
$500
$0
26%
26%
25%
22%
19%
17%
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
INDUSTRIAL, AUTOMOTIVE, COMMUNICATIONS INFRASTRUCTURE
CONSUMER A/V, IMAGING, SMARTPHONE, TABLET
Diluted EPS from
Continuing Operations ($)
$2.79
$2.33
$2.13
$1.77
$1.51
R
G
A
7 % C
$0.85
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0
Gross Margins as a % of Revenue
66.4%
65.2%
64.5%
61.2%
61.1%
55.5%
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
Dividends Paid per Share ($)
$1.15
R
G
A
0 % C
1
$0.94
$0.84
$0.80
$0.76
$0.70
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
75%
70%
65%
60%
55%
50%
$1.20
$1.10
$1.00
$0.90
$0.80
$0.70
$0.60
This letter may be deemed to contain forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These include, among
other things, our statements regarding expected growth and performance of our business and the markets and customers we serve, expected R&D investment levels and returns, technology development
and achievements, product development efforts, expected profitability, margins, and other financial results, expected cash generation and shareholder returns, and expected executive performance and
employee retention, that are based on our current expectations beliefs, assumptions, estimates, forecasts, and projections about the industry and markets in which Analog Devices operates. The statements
contained in this letter are not guarantees of future performance, are inherently uncertain, involve certain risks, uncertainties, and assumptions that are difficult to predict, and do not give effect to the potential
impact of any mergers, acquisitions, divestitures, or business combinations that may be announced or closed after the date hereof. Therefore, actual outcomes and results may differ materially from what is
expressed in such forward-looking statements, and such statements should not be relied upon as representing Analog Devices’ expectations or beliefs as of any date subsequent to the date of this letter.
We do not undertake any obligation to update forward-looking statements made by us. Important factors that may affect future operating results include: sovereign debt issues globally, any faltering in the global
economic conditions or the stability of credit and financial markets, erosion of consumer confidence and declines in customer spending, the effects of declines in customer demand for our products and for
end products that incorporate our products, competitive pricing pressures, unavailability of raw materials, services, supplies or manufacturing capacity, changes in geographic, product, or customer mix,
adverse results in litigation matters, and other risk factors described in our most recent filings with the Securities and Exchange Commission.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 3, 2012
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
(State or other jurisdiction of incorporation or organization)
04-2348234
(I.R.S. Employer Identification No.)
One Technology Way, Norwood, MA
(Address of principal executive offices)
02062-9106
(Zip Code)
(781) 329-4700
(Registrant’s telephone number, including area code)
______________________________
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $0.16 2/3 Par Value
Title of Each Class
NASDAQ Global Select Market
Name of Each Exchange on Which Registered
Securities registered pursuant to Section 12(g) of the Act:
None
Title of Class
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES
NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES
NO
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 and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES
NO
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately
$9,664,000 based on the last reported sale of the Common Stock on The NASDAQ Global Select Market on May 5, 2012. Shares of voting
and non-voting stock beneficially owned by executive officers, directors and holders of more than 5% of the outstanding stock have been
excluded from this calculation because such persons or institutions may be deemed affiliates. This determination of affiliate status is not a
conclusive determination for other purposes.
As of November 3, 2012, there were 301,389,176 shares of Common Stock, $0.162/3 par value per share, outstanding.
Documents Incorporated by Reference
Document Description
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held March 13, 2013
Form 10-K Part
III
Note About Forward-Looking Statements
This Annual Report on Form 10-K, including in particular the section entitled “Outlook,” contained in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, 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. 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,” and “may,” 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; our anticipated growth and trends in our businesses; our future
capital needs and capital expenditures; our future market position and expected competitive changes in the marketplace for our
products; our ability to pay dividends or repurchase stock; our ability to service our outstanding debt; our expected tax rate; the
effect of new accounting pronouncements; and other characterizations of future events or circumstances are forward-looking
statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks,
uncertainties, and assumptions that are difficult to predict, including those identified in Part I, Item 1A. Risk Factors and
elsewhere in our Annual Report on Form 10-K. Therefore, actual results may differ materially and adversely from those
expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements
except to the extent required by law.
1
ITEM 1.
BUSINESS
Company Overview
PART I
We are a world leader in the design, manufacture and marketing of a broad portfolio of high-performance analog, mixed-
signal and digital signal processing integrated circuits (ICs) used in virtually all types of electronic equipment. Since our
inception in 1965, we have focused on solving the engineering challenges associated with signal processing in electronic
equipment. Our signal processing products play a fundamental role in converting, conditioning, and processing real-world
phenomena such as temperature, pressure, sound, light, speed and motion into electrical signals to be used in a wide array of
electronic devices. As new generations of digital applications evolve, new needs for high-performance analog signal processing
and digital signal processing (DSP) technology are generated. As a result, we produce a wide range of innovative products —
including data converters, amplifiers and linear products, radio frequency (RF) ICs, power management products, sensors based
on micro-electro mechanical systems (MEMS) technology and other sensors, and processing products, including DSP and other
processors — that are designed to meet the needs of a broad base of customers.
We focus on key strategic markets where our signal processing technology is often a critical differentiator in our
customers’ products, in particular, the industrial, automotive, consumer and communications markets. Used by over 60,000
customers worldwide, our products are embedded inside many different types of electronic equipment including:
• Industrial process control systems
• Factory automation systems
• Instrumentation and measurement systems
• Energy management systems
• Aerospace and defense electronics
• Automobiles
• Digital televisions
• Medical imaging equipment
• Patient monitoring devices
• Wireless infrastructure equipment
• Networking equipment
• Optical systems
• Digital cameras
• Portable electronic devices
We were incorporated in Massachusetts in 1965. Our headquarters are near Boston, in Norwood, Massachusetts. In
addition, we have manufacturing facilities in Massachusetts, Ireland, and the Philippines, and have more than thirty design
facilities worldwide. Our common stock is listed on The NASDAQ Global Select Market under the symbol ADI and is included
in the Standard & Poor’s 500 Index.
Available Information
We maintain a website with the address www.analog.com. We are not including the information contained on our website
as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through
our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (including
exhibits), and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or
furnish such material to, the Securities and Exchange Commission (SEC). We also make available on our website our corporate
governance guidelines, the charters for our audit committee, compensation committee, and nominating and corporate
governance committee, our equity award granting policies, our code of business conduct and ethics which applies to our
directors, officers and employees, and our related person transaction policy, and such information is available in print and free
of charge to any shareholder of Analog Devices who requests it. In addition, we intend to disclose on our website any
amendments to, or waivers from, our code of business conduct and ethics that are required to be publicly disclosed pursuant to
rules of the SEC or NASDAQ.
Industry Background
Semiconductor components are the electronic building blocks used in electronic systems and equipment. These
components are classified as either discrete devices, such as individual transistors, or ICs, in which a number of transistors and
other elements are combined to form a more complicated electronic circuit. ICs may be divided into two general categories,
digital and analog. Digital circuits, such as memory devices and microprocessors, generally process on-off electrical signals,
represented by binary digits, “1” and “0”. In contrast, analog ICs monitor, condition, amplify or transform continuous analog
signals associated with physical properties, such as temperature, pressure, weight, light, sound or motion, and play an important
role in bridging between real world phenomena and a variety of electronic systems. Analog ICs also provide voltage regulation
and power control to electronic systems.
2
Organizational Structure
We operate in one reporting segment based on the aggregation of five operating segments. The organization of these
operating segments is based upon the products manufactured and the end markets served. The product group is focused on core
technology development and leadership in converters, amplifiers and RF, MEMS, power management, and DSP. The end
market-focused organization is dedicated to understanding, selecting, and resourcing initiatives that are more customized to a
particular market or application. The focus of this team is to apply the full expanse of our broad technology portfolio to more
integrated and targeted product strategies for the industrial, automotive, consumer, and communications markets. The end
market group includes our sales organization.
These two groups collaborate at all levels. On one hand, our product group develops key technology for use by the end
market groups, which apply these technologies to specific applications. Equally important, the applications expertise within
each end market group is used to enhance core technology development by our product group.
Principal Products
We design, manufacture and market a broad line of high-performance ICs that incorporate analog, mixed-signal and
digital signal processing technologies. Our ICs are designed to address a wide range of real-world signal processing
applications. Our product portfolio includes both general-purpose products used by a broad range of customers and
applications, as well as application-specific products designed for specific clusters of customers in key target markets. By using
readily available, high-performance, general-purpose products in their systems, our customers can reduce the time they need to
bring new products to market. Given the high cost of developing more customized ICs, our standard products often provide a
cost-effective solution for many low to medium volume applications. However, for some industrial, automotive, consumer, and
communications products, we focus on working with leading customers to design application-specific solutions. We begin with
our existing core technologies in data conversion, amplification, RF, MEMS, power management and DSP, and devise a
solution to more closely meet the needs of a specific customer or group of customers. Because we have already developed the
core technology for our general-purpose products, we can create application-specific solutions quickly.
We produce and market several thousand products and operate in one reporting segment. Our ten highest revenue
products, in the aggregate, accounted for approximately 9% of our revenue for fiscal 2012. A breakdown of our fiscal 2012
revenue by product category follows.
Product Category
Converters
Amplifiers/ Radio frequency
Other analog
Power management & reference
Digital signal processing
_________
Percent of
Fiscal 2012
Revenue*
44%
26%
15%
7%
9%
* The sum of the individual percentages do not equal 100% due to rounding.
Analog Products
Our analog and mixed signal IC technology has been the foundation of our business for over four decades, and we are
one of the world’s largest suppliers of high-performance analog ICs. Our analog signal processing ICs are primarily high-
performance devices, offering higher dynamic range, greater bandwidth, and other enhanced features. The principal advantages
these products have as compared to competitors’ products include higher accuracy, higher speed, lower cost per function,
smaller size, lower power consumption and fewer components, resulting in improved performance and reliability. Our product
portfolio includes several thousand analog ICs, any one of which can have as many as several hundred customers. Our analog
ICs typically have long product life cycles. Our analog IC customers include original equipment manufacturers (OEMs) and
customers who build electronic subsystems for integration into larger systems.
Converters — We are a leading supplier of data converter products. Data converters translate real-world analog signals
into digital data and also translate digital data into analog signals. Data converters remain our largest and most diverse product
family and an area where we are continuously innovating to enable our customers to redefine and differentiate their products.
Our converter products combine sampling rates and accuracy with the low noise, power, price and small package size required
by industrial, automotive, consumer, and communications electronics.
3
Amplifiers/Radio Frequency — We are also a leading supplier of high-performance amplifiers. Amplifiers are used to
condition analog signals. High performance amplifiers emphasize the performance dimensions of speed and precision. Within
this product portfolio we provide precision, instrumentation, high speed, intermediate frequency/RF, broadband, and other
amplifiers. We also offer an extensive portfolio of precision voltage references that are used in a wide variety of applications.
Our analog product line also includes a broad portfolio of high performance RF ICs covering the entire RF signal chain, from
industry-leading stand-alone RF function blocks such as phase locked loops, frequency synthesizers, mixers, modulators,
demodulators, and power detectors, to highly integrated broadband and short-range single chip transceiver solutions. Our high
performance RF ICs support the high performance requirements of cellular infrastructure and a broad range of applications in
our target markets.
Other Analog — Also within our analog technology portfolio are products that are based on MEMS technology. This
technology enables us to build extremely small sensors that incorporate an electromechanical structure and the supporting
analog circuitry for conditioning signals obtained from the sensing element. Our MEMS product portfolio includes
accelerometers used to sense acceleration, gyroscopes used to sense rotation, inertial measurement units used to sense multiple
degrees of freedom combining multiple sensing types along multiple axis, and MEMS microphones used to sense audio. The
majority of our current revenue from MEMS products is derived from the automotive end market. The consumer and, to a
lesser extent, the industrial end markets accounted for the balance of revenue from MEMS products in fiscal year 2012. In
addition to our MEMS products, our other analog product category includes isolators that enable designers to implement
isolation in designs without the cost, size, power, performance, and reliability constraints found with optocouplers. Our
isolators have been designed into hundreds of applications, such as universal serial bus isolation in patient monitors, where it
allows hospitals and physicians to adopt the latest advances in computer technology to supervise patient health and wirelessly
transmit medical records. In smart metering applications, our isolators provide reliable electrostatic discharge performance that
helps reduce meter tampering. Likewise, in satellites, where any malfunction can be catastrophic, our isolators help protect the
power system while enabling designers to achieve small form factors.
Power Management & Reference — Power management & reference products make up the balance of our analog sales.
Those products which include functions such as power conversion, driver monitoring, sequencing and energy management, are
developed to complement analog signal chain components across core market segments from micro power, energy-sensitive
battery applications to efficient, high performance power systems in infrastructure and industrial applications.
Digital Signal Processing Products
Digital Signal Processing products (DSPs) complete our product portfolio. DSPs are optimized for high-speed numeric
calculations, which are essential for instantaneous, or real-time, processing of digital data generated, in most cases, from analog
to digital signal conversion. Our DSPs are designed to be fully programmable and to efficiently execute specialized software
programs, or algorithms, associated with processing digitized real-time, real-world data. Programmable DSPs are designed to
provide the flexibility to modify the device’s function quickly and inexpensively using software. Our general-purpose DSP IC
customers typically write their own algorithms using software development tools provided by us and third-party suppliers. Our
DSPs are designed in families of products that share common architectures and therefore can execute the same software across
a range of products. We support these products with easy-to-use development tools, which are designed to reduce our
customers’ product development costs and time-to-market. Our customers use our products to solve a wide range of signal
processing challenges across our core market and segment focus areas within the industrial, automotive, consumer and
communications end markets. As an integrated part of our customers' signal chain, there are typically many other Analog
Devices products connected to our processors including converters, audio and video codecs and power management solutions.
4
Markets and Applications
The breakdown of our fiscal 2012 revenue by end market is set out in the table below.
End Market
Industrial
Automotive
Consumer
Communications
Percent of
Fiscal 2012
Revenue
46%
17%
17%
20%
The following describes some of the characteristics of, and customer products within, our major end markets:
Industrial — Our industrial market includes the following sectors:
Industrial and Instrumentation — Our industrial automation applications generally require ICs that offer performance
greater than that available from commodity-level ICs but generally do not have production volumes that warrant custom ICs.
There is a trend towards development of products focused on particular sub-applications, which incorporate combinations of
analog, mixed-signal, and DSP ICs to achieve the necessary functionality. Our instrumentation customers differentiate
themselves by using the highest performance analog and mixed-signal ICs available. Our industrial and instrumentation market
includes applications such as:
• Process control systems
• Robotics
• Environmental control systems
• Oscilloscopes
• Lab, chemical, and environmental analyzers
• Weigh scales
Defense/Aerospace — The defense, commercial avionics and space markets all require high-performance ICs that meet
rigorous environmental and reliability specifications. Many of our analog ICs can be supplied in versions that meet these
standards. In addition, many products can be supplied to meet the standards required for broadcast satellites and other
commercial space applications. Most of our products sold in this market are specially tested versions of products derived from
our standard product offering. Customer products include:
• Navigation systems
• Space and satellite communications
• Radar systems
• Security devices
Energy Management — The desire to improve energy efficiency, conservation, reliability, and cleanliness is driving
investments in renewable energy, power transmission and distribution systems, electric meters, and other innovative areas. The
common characteristic behind these efforts is the addition of sensing, measurement, and communication technologies to
electrical infrastructure. Our offerings include both standard and application-specific products and are used in applications such
as:
• Utility meters
• Meter communication modules
• Wind turbines
• Solar inverters
• Substation relays and automation equipment
• Building energy automation/control
Healthcare — Two significant trends in the healthcare market today are the increasing need for higher channel counts in
medical imaging systems to improve resolution and throughput while achieving a lower cost per channel, and the movement of
highly accurate patient monitoring devices from the hospital environment to the home, improving patient care and reducing
overall healthcare costs. Our innovative technologies are designed into a variety of high performance imaging, patient
monitoring, medical instrumentation, and home health devices. Our offerings include both standard and application-specific
products and are used in applications such as:
• Ultrasound
• CT scanners
• Digital x-ray
• Multi-parameter patient monitors
• Pulse oximeters
• Infusion pumps
• Clinical lab instrumentation
• Surgical instrumentation
• Blood analyzers
• Activity monitors
5
Automotive — We develop differentiated high performance signal processing solutions that enable sophisticated
automotive systems addressing the three industry macrotrends namely greener, safer and more comfort. Through collaboration
with manufacturers worldwide, ADI has achieved significant market share through a broad portfolio of analog, digital and
MEMS ICs that increase fuel efficiency, enhance vehicle stability and improve the audio/video experience of the passengers.
Specifically, we have developed products used in applications such as:
•
•
•
Green
Hybrid electric / electric vehicles
Intelligent battery sensors
Battery monitoring and
management systems
Safety
Crash sensors in airbag systems
Comfort
•
Car audio amplifiers
Electronic stability systems
• Head unit solutions
•
•
• Advanced driver assistance
systems (RADAR/Vision)
• Vehicle dynamic control systems
•
Rear seat entertainment systems
Consumer — Market demand for digital entertainment systems and the consumer demand for high quality voice
transmissions, music, movies and photographs with a high degree of interactivity have allowed us to combine analog and
digital design capability to provide solutions that meet the rigorous cost and time-to-market requirements of the consumer
electronics market. The emergence of high-performance, feature-rich consumer products has created a market for our high-
performance ICs with a high level of specific functionality. These products include:
• Digital cameras
• High-performance audio/video equipment
• High-definition televisions and DVD recorders/players
• Portable media devices (smart phones, tablets and cellular
handsets)
• Home theater systems
• Computers
Communications — The development of broadband, wireless and internet infrastructures around the world has created
an important market for our communications products. Communications technology involves the acquisition of analog signals
that are converted from analog to digital and digital to analog form during the process of transmitting and receiving data. The
need for higher speed and reduced power consumption, coupled with more reliable, bandwidth-efficient communications, has
been creating demand for our products. Our products are used in the full spectrum of signal processing for internet protocol,
video streaming and voice communication. In wireless and broadband communication applications, our products are
incorporated into:
•
Cellular basestation equipment
• Wireless backhaul systems
• Wired networking equipment
•
Satellite systems
See Note 4 in the Notes to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-
K for further information about our products by category and end market.
Research and Development
Our markets are characterized by rapid technological changes and advances. Accordingly, we make substantial
investments in the design and development of new products and manufacturing processes, and the improvement of existing
products and manufacturing processes. We spent approximately $512 million during fiscal 2012 on the design, development
and improvement of new and existing products and manufacturing processes, compared to approximately $506 million during
fiscal 2011 and approximately $492 million during fiscal 2010.
Our research and development strategy focuses on building technical leadership in core technologies of converters,
amplifiers and RF, MEMS, power management, and DSP. In support of our research and development activities, we employ
thousands of engineers involved in product and manufacturing process development throughout the world.
Patents and Other Intellectual Property Rights
We seek to establish and maintain our proprietary rights in our technology and products through the use of patents,
copyrights, mask works, trademarks and trade secrets. We have a program to file applications for and obtain patents,
copyrights, mask works and trademarks in the United States and in selected foreign countries where we believe filing for such
protection is appropriate. We also seek to maintain our trade secrets and confidential information by nondisclosure policies and
through the use of appropriate confidentiality agreements. We have obtained a substantial number of patents and trademarks in
the United States and in other countries. As of November 3, 2012, we held approximately 1,900 U.S. patents and approximately
700 non-provisional pending U.S. patent applications with expiration dates ranging from 2012 through 2031. There can be no
6
assurance, however, that the rights obtained can be successfully enforced against infringing products in every jurisdiction.
While our patents, copyrights, mask works, trademarks and trade secrets provide some advantage and protection, we believe
our competitive position and future success is largely determined by such factors as the system and application knowledge,
innovative skills, technological expertise and management ability and experience of our personnel; the range and success of
new products being developed by us; our market brand recognition and ongoing marketing efforts; and customer service and
technical support. It is generally our policy to seek patent protection for significant inventions that may be patented, though we
may elect, in certain cases, not to seek patent protection even for significant inventions, if we determine other protection, such
as maintaining the invention as a trade secret, to be more advantageous. We also have trademarks that are used in the conduct
of our business to distinguish genuine Analog Devices products and we maintain cooperative advertising programs to promote
our brands and identify products containing genuine Analog Devices components.
Sales Channels
We sell our products globally through a direct sales force, third-party distributors, independent sales representatives and
via our website. We have direct sales offices, sales representatives and/or distributors in over 40 countries outside North
America.
We support our worldwide technical direct field sales efforts by an extensive promotional program that includes editorial
coverage and paid advertising in trade publications, direct mail programs, promotional brochures, technical seminars and
participation in trade shows. We publish and distribute product catalogs, applications guides, technical handbooks and detailed
data sheets for individual products. We also provide this information and sell products via our website. We maintain a staff of
field application engineers who aid customers in incorporating our products into their products. In addition, we offer a variety
of web-based tools that ease product selection and aid in the design process for our customers.
We derived approximately 55% of our fiscal 2012 revenue from sales made through distributors. These distributors
typically maintain an inventory of our products. Some of them also sell products that compete with our products, including
those for which we are an alternate source. In all regions of the world, we defer revenue and the related cost of sales on
shipments to distributors until the distributors resell the products to their customers. We make sales to distributors under
agreements that allow distributors to receive price adjustment credits and to return qualifying products for credit, as determined
by us, in order to reduce the amounts of slow-moving, discontinued or obsolete product from their inventory. These agreements
limit such returns to a certain percentage of our shipments to that distributor during the prior quarter. In addition, distributors
are allowed to return unsold products if we terminate the relationship with the distributor. Additional information relating to our
sales to distributors is set forth in Note 2n in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual
Report on Form 10-K.
Segment Financial Information and Geographic Information
We operate and track our results in one reportable segment based on the aggregation of five operating segments.
Through subsidiaries and affiliates, we conduct business in numerous countries outside the United States. During fiscal
2012, we derived approximately 70% of our revenue from customers in international markets. Our international business is
subject to risks customarily encountered in foreign operations, including fluctuations in foreign currency exchange rates and
controls, import and export controls, and other laws, policies and regulations of foreign governments. Although we engage in
hedging transactions to reduce our exposure to currency exchange rate fluctuations, our competitive position may be adversely
affected by changes in the exchange rate of the United States dollar against other currencies.
During fiscal year 2012, we revised our method for classifying revenue by geographic region to more accurately reflect
the primary location of our customers' design activity for our products. In general, the prior classification method reflected the
customers' manufacturing location or the distributors' stocking territory. No changes have been made to our revenue
recognition policy. A breakdown of our fiscal 2012 revenue by geographic location follows.
Geographic Area
United States
Rest of North/South America
Europe
Japan
China
Rest of Asia
7
Percent of
Fiscal 2012
Revenue
30%
4%
32%
12%
13%
9%
For further detail regarding revenue and financial information about our industry, segment and geographic areas, see our
Consolidated Financial Statements and Note 4 in the related Notes contained in Item 8 of this Annual Report on Form 10-K.
Customers
We have tens of thousands of customers worldwide. No sales to an individual customer accounted for more than 10% of
fiscal year 2012, 2011, or 2010 revenue. These customers use hundreds of different types of our products in a wide range of
applications spanning the industrial, automotive, consumer and communication markets. Our largest single customer, excluding
distributors, represented approximately 3% of our fiscal 2012 revenue. Our 20 largest customers, excluding distributors,
accounted for approximately 33% of our fiscal 2012 revenue.
Seasonality
Sales to customers during our first fiscal quarter may be lower than other quarters due to plant shutdowns at some of our
customers during the holiday season. In general, the seasonality for any specific period of time has not had a material impact on
our results of operations. In addition, as explained in our risk factors contained in Item 1A of this Annual Report on Form 10-K,
our revenue is more likely to be influenced on a quarter to quarter basis by cyclicality in the semiconductor industry.
Production and Raw Materials
Monolithic IC components are manufactured in a sequence of semiconductor production steps that include wafer
fabrication, wafer testing, cutting the wafer into individual “chips,” or dice, assembly of the dice into packages and electrical
testing of the devices in final packaged form. The raw materials used to manufacture these devices include silicon wafers,
processing chemicals (including liquefied gases), precious metals and ceramic and plastic used for packaging.
We develop and employ a wide variety of proprietary manufacturing processes that are specifically tailored for use in
fabricating high-performance analog, DSP, mixed-signal and MEMS ICs. We also use bipolar and complementary metal-oxide
semiconductor, or CMOS, wafer fabrication processes.
Our IC products are fabricated both at our production facilities and by third-party wafer fabricators. Our products are
manufactured in our own wafer fabrication facilities using proprietary processes and at third-party wafer-fabrication foundries
using sub-micron digital CMOS processes. We currently source approximately 50% of our wafer requirements annually from
third-party wafer fabrication foundries, primarily Taiwan Semiconductor Manufacturing Company (TSMC). We operate wafer
fabrication facilities in Wilmington, Massachusetts and Limerick, Ireland. We also operate test facilities located in the
Philippines and use third-party subcontractors for the assembly and testing of our products.
Capital spending was approximately $132 million in fiscal 2012, compared with approximately $123 million in fiscal
2011. We currently plan to make capital expenditures in the range of approximately $90 million to $120 million in fiscal 2013.
Our products require a wide variety of components, raw materials and external foundry services, most of which we
purchase from third-party suppliers. We have multiple sources for many of the components and materials that we purchase and
incorporate into our products. However, a large portion of our external wafer purchases and foundry services are from a limited
number of suppliers, primarily TSMC. If TSMC or any of our other key suppliers are unable or unwilling to manufacture and
deliver sufficient quantities of components to us, on the time schedule and of the quality that we require, we may be forced to
seek to engage additional or replacement suppliers, which could result in significant expenses and disruptions or delays in
manufacturing, product development and shipment of product to our customers. Although we have experienced shortages of
components, materials and external foundry services from time to time, these items have generally been available to us as
needed.
Backlog
Backlog at the end of fiscal 2012 was approximately $357 million, down from approximately $379 million at the end of
fiscal 2011. We define backlog as of a particular date to mean firm orders from a customer or distributor with a requested
delivery date within thirteen weeks. Backlog is impacted by the tendency of customers to rely on shorter lead times available
from suppliers, including us, in periods of depressed demand. In periods of increased demand, there is a tendency towards
longer lead times that has the effect of increasing backlog and, in some instances, we may not have manufacturing capacity
sufficient to fulfill all orders. As is customary in the semiconductor industry, we allow most orders to be cancelled or deliveries
to be delayed by customers without significant penalty. Accordingly, we believe that our backlog at any time should not be used
as an indication of our future revenue.
We typically do not have long-term sales contracts with our customers. In some of our markets where end-user demand
may be particularly volatile and difficult to predict, some customers place orders that require us to manufacture product and
8
have it available for shipment, even though the customer is unwilling to make a binding commitment to purchase all, or even
any, of the product. In other instances, we manufacture product based on forecasts of customer demand. As a result, we may
incur inventory and manufacturing costs in advance of anticipated sales and are subject to the risk of cancellation of orders
leading to a sharp reduction of sales and backlog. Further, those orders or forecasts may be for products that meet the
customer’s unique requirements so that those canceled orders would, in addition, result in an inventory of unsaleable products,
resulting in potential inventory write-offs. As a result of lengthy manufacturing cycles for some of our products that are subject
to these uncertainties, the amount of unsaleable product could be substantial.
Government Contracts
We estimate that approximately 3% of our fiscal 2012 revenue was attributable to sales to the U.S. government and
U.S. government contractors and subcontractors. Our government contract business is predominantly in the form of negotiated,
firm, fixed-price subcontracts. Most of these contracts and subcontracts contain standard provisions relating to termination at
the election of the U.S. government.
Acquisitions, Divestitures and Investments
An element of our business strategy involves expansion through the acquisition of businesses, assets, products or
technologies that allow us to complement our existing product offerings, expand our market coverage, increase our engineering
workforce or enhance our technological capabilities. From time to time, we consider acquisitions and divestitures that may
strengthen our business.
Additional information relating to our acquisition and divestiture activities during fiscal years 2012, 2011 and 2010 is set
forth in Note 2u and Note 6 of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on
Form 10-K.
Competition
We believe that competitive performance in the marketplace for signal processing products depends upon multiple
factors, including technological innovation, strength of brand, diversity of product portfolio, product performance, technical
support, delivery capabilities, customer service quality, reliability and price, with the relative importance of these factors
varying among products, markets, and customers.
We compete with a number of semiconductor companies in markets that are highly competitive. Our competitors include
but are not limited to:
• Broadcom Corporation
• Cirrus Logic, Inc.
• Freescale Semiconductor, Inc.
• Infineon Technologies
• Intersil Corporation
• Knowles Electronics
• Linear Technology Corporation
• Maxim Integrated Products, Inc.
• Microchip Technology, Inc.
• NXP Semiconductors
• ST Microelectronics
• Silicon Laboratories, Inc.
• Texas Instruments, Inc.
We believe that our technical innovation emphasizing product performance and reliability, supported by our commitment
to strong customer service and technical support, enables us to make a fundamental difference to our customers’
competitiveness in our chosen markets.
Environment, Health and Safety
We are committed to protecting the environment and the health and safety of our employees, customers and the public.
We endeavor to adhere to applicable environmental, health and safety (EHS) regulatory and industry standards across all of our
facilities, and to encourage pollution prevention, reduce our water and energy consumption, reduce waste generation, and strive
towards continual improvement. We strive to achieve excellence in EHS management practices as an integral part of our total
quality management system.
Our management systems are certified to ISO 14001, OHSAS 18001, ISO 9001 and TS16949. We are a member of the
Electronic Industry Citizenship Coalition, (EICC). Our Sustainability Report, first published in 2009, states our commitment to
consuming less energy and applying fair labor standards, among other things. We are not including the information contained in
our Sustainability Report in, or incorporating it by reference into this Annual Report on Form 10-K.
9
Our manufacturing facilities are subject to numerous and increasingly strict federal, state, local and foreign EHS laws and
regulations, particularly with respect to the transportation, storage, handling, use, emission, discharge and disposal of certain
chemicals used or produced in the semiconductor manufacturing process. Our products are subject to increasingly stringent
regulations regarding chemical content in jurisdictions where we sell products, including the Restriction of Hazardous
Substances (RoHS) directive in the European Union and China and the Registration, Evaluation, Authorization and Restriction
of Chemicals (REACH) directive in the European Union. Contracts with many of our customers reflect these and additional
EHS compliance standards. Compliance with these laws and regulations has not had a material impact on our capital
expenditures, earnings, financial condition or competitive position. There can be no assurance, however, that current or future
environmental laws and regulations will not impose costly requirements upon us. Any failure by us to comply with applicable
environmental laws, regulations and contractual obligations could result in fines, suspension of production, the need to alter
manufacturing processes and legal liability.
Employees
As of November 3, 2012, we employed approximately 9,200 individuals worldwide. Our future success depends in large
part on the continued service of our key technical and senior management personnel, and on our ability to continue to attract,
retain and motivate qualified employees, particularly those highly-skilled design, process, test and applications engineers
involved in the design, support and manufacture of new and existing products and processes. We believe that relations with our
employees are good; however, the competition for such personnel is intense, and the loss of key personnel could have a
material adverse impact on our results of operations and financial condition.
10
ITEM 1A. RISK FACTORS
Set forth below and elsewhere in this report and in other documents we file with the SEC are descriptions of the risks and
uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking
statements contained in this report.
Disruptions in global credit and financial markets could materially and adversely affect our business and results of operations.
There is significant uncertainty regarding the stability of global credit and financial markets, exacerbated by the ongoing
European debt crisis. These economic uncertainties may lead consumers and businesses to postpone spending, which may
cause our customers to cancel, decrease or delay their existing and future orders for our products and make it difficult for us to
accurately forecast and plan our future business activities. Uncertainty regarding the future stability of the Euro Zone could
cause the value of the Euro to deteriorate, thus reducing the purchasing power of our European customers. In addition, financial
difficulties experienced by our suppliers or distributors could result in product delays, increased accounts receivable defaults
and inventory challenges. During the past few years, many governments adopted stimulus or spending programs designed to
ease the economic impact of the crisis. Some of our businesses benefited from these stimulus programs and there can be no
assurance that such programs will continue in the future. If economic conditions deteriorate, we may record additional charges
relating to restructuring costs or the impairment of assets and our business and results of operations could be materially and
adversely affected.
Our future revenue, gross margins, operating results and net income are difficult to predict and may materially fluctuate.
Our future revenue, gross margins, operating results and net income are difficult to predict and may be materially affected
by a number of factors, including:
•
•
•
•
•
•
the effects of adverse economic conditions in the markets in which we sell our products;
changes in customer demand for our products and for end products that incorporate our products;
our ability to effectively manage our cost structure in both the short term and over a longer duration;
the timing of new product announcements or introductions by us, our customers or our competitors;
competitive pricing pressures;
fluctuations in manufacturing yields, adequate availability of wafers and other raw materials, and manufacturing,
assembly and test capacity;
•
the ability of our third-party suppliers, subcontractors and manufacturers to supply us with sufficient quantities of raw
•
•
•
•
•
•
•
•
•
•
materials, products and/or components;
any significant decline in our backlog;
the timing, delay or cancellation of significant customer orders and our ability to manage inventory;
our ability to hire, retain and motivate adequate numbers of engineers and other qualified employees to meet the
demands of our customers;
changes in geographic, product or customer mix;
our ability to utilize our manufacturing facilities at efficient levels;
potential significant litigation-related costs;
the difficulties inherent in forecasting future operating expense levels, including with respect to costs associated with
labor, utilities, transportation and raw materials;
the costs related to compliance with increasing worldwide environmental and social responsibility regulations;
changes in our effective tax rates in the United States, Ireland or worldwide; and
the effects of public health emergencies, natural disasters, widespread travel disruptions, security risks, terrorist
activities, international conflicts and other events beyond our control.
11
In addition, the semiconductor market has historically been cyclical and subject to significant economic upturns and
downturns. Our business is subject to rapid technological changes and there can be no assurance (i) that products stocked in our
inventory will not be rendered obsolete before we ship them, or (ii) that we will be able to produce products in a timely fashion
to accommodate changing customer demand. As a result of these and other factors, there can be no assurance that we will not
experience material fluctuations in future revenue, gross margins, operating results and net income on a quarterly or annual
basis. In addition, if our revenue, gross margins, operating results and net income do not meet the expectations of securities
analysts or investors, the market price of our common stock may decline.
Changes in our effective tax rate may impact our results of operations.
A number of factors may increase our future effective tax rate, including: increases in tax rates in various jurisdictions;
variation in the jurisdictions in which profits are earned and taxed; the resolution of issues arising from tax audits with various
tax authorities; changes in the valuation of our deferred tax assets and liabilities; adjustments to income taxes upon finalization
of various tax returns; increases in expenses not deductible for tax purposes, including executive compensation subject to the
limitations of Section 162(m) of the Internal Revenue Code and amortization of assets acquired in connection with strategic
transactions; the lack of sufficient excess tax benefits (credits) in our additional paid in capital (APIC) pool in situations where
our realized tax deductions for certain stock-based compensation awards are less than those originally anticipated; changes in
available tax credits; and changes in tax laws or the interpretation of such tax laws. Any significant increase in our future
effective tax rates could adversely impact our net income during future periods.
Long-term contracts are not typical for us and reductions, cancellations or delays in orders for our products could adversely
affect our operating results.
We typically do not have long-term sales contracts with our customers. In certain markets where end-user demand may
be particularly volatile and difficult to predict, some customers place orders that require us to manufacture product and have it
available for shipment, even though the customer is unwilling to make a binding commitment to purchase all, or even any, of
the product. In other instances, we manufacture product based on forecasts of customer demands. As a result, we may incur
inventory and manufacturing costs in advance of anticipated sales and are subject to the risk of cancellations of orders, leading
to a sharp reduction of sales and backlog. Further, orders or forecasts may be for products that meet the customer’s unique
requirements so that those canceled or unrealized orders would, in addition, result in an inventory of unsaleable products,
causing potential inventory write-offs. As a result of lengthy manufacturing cycles for certain of the products that are subject to
these uncertainties, the amount of unsaleable product could be substantial. Incorrect forecasts, or reductions, cancellations or
delays in orders for our products could adversely affect our operating results.
Our future success depends upon our ability to continue to innovate, improve our products, develop and market new products,
and identify and enter new markets.
Our success significantly depends on our continued ability to improve our products and develop and market innovative
new products. Product development, innovation and enhancement is often a complex, time-consuming and costly process
involving significant investment in research and development, with no assurance of return on investment. There can be no
assurance that we will be able to develop and introduce new and improved products in a timely or efficient manner or that new
and improved products, if developed, will achieve market acceptance. Our products generally must conform to various
evolving and sometimes competing industry standards, which may adversely affect our ability to compete in certain markets or
require us to incur significant costs. In addition, our customers generally impose very high quality and reliability standards on
our products, which often change and may be difficult or costly to satisfy. Any inability to satisfy customer quality standards or
comply with industry standards and technical requirements may adversely affect demand for our products and our results of
operations. In addition, our growth is dependent on our continued ability to identify and penetrate new markets where we have
limited experience and competition is intense. Also, some of our customers in these markets are less established, which could
subject us to increased credit risk. There can be no assurance that the markets we serve will grow in the future, that our existing
and new products will meet the requirements of these markets, that our products will achieve customer acceptance in these
markets, that competitors will not force price reductions or take market share from us, or that we can achieve or maintain
adequate gross margins or profits in these markets. Furthermore, a decline in demand in one or several of our end-user markets
could have a material adverse effect on the demand for our products and our results of operations.
12
We may not be able to compete successfully in markets within the semiconductor industry in the future.
We face intense technological and pricing competition in the semiconductor industry, and we expect this competition to
increase in the future, including from companies located outside the United States. Many companies have sufficient financial,
manufacturing, technical, sales and marketing resources to develop and market products that compete with our products. Some
of our competitors may have more advantageous supply or development relationships with our current and potential customers
or suppliers. Our competitors also include emerging companies selling specialized products in markets we serve.
Competition is generally based on design and quality of products, product performance, features and functionality, and product
pricing, availability and capacity, with the relative importance of these factors varying among products, markets and customers.
Existing or new competitors may develop products or technologies that more effectively address the demands of our customers
and markets with enhanced performance, features and functionality, lower power requirements, greater levels of integration or
lower cost. Increased competition in certain markets has resulted in and may continue to result in declining average selling
prices, reduced gross margins and loss of market share in those markets. There can be no assurance that we will be able to
compete successfully in the future against existing or new competitors, or that our operating results will not be adversely
affected by increased competition.
We rely on third-party suppliers, subcontractors and manufacturers for some industry-standard wafers, manufacturing
processes and assembly and test services, and generally cannot control their availability or conditions of supply.
We rely, and plan to continue to rely, on suppliers, assembly and test subcontractors, and third-party wafer fabricators to
supply most of our wafers that can be manufactured using industry-standard submicron processes. This reliance involves
several risks, including reduced control over availability, capacity utilization, delivery schedules, manufacturing yields, and
costs. We currently source approximately 50% of our wafer requirements annually from third-party wafer fabrication foundries,
primarily Taiwan Semiconductor Manufacturing Company, or TSMC. In addition, these suppliers often provide manufacturing
services to our competitors and therefore periods of increased industry demand may result in capacity constraints. In certain
instances, the third-party supplier is the sole source of highly specialized processing services. If our suppliers are unable or
unwilling to manufacture and deliver components to us on the time schedule and of the quality or quantity that we require or
provide us with required manufacturing processes, we may be forced to seek to engage additional or replacement suppliers,
which could result in additional expenses and delays in product development or shipment of product to our customers. If
replacement suppliers or manufacturing processes are not available, we may also experience delays in product development or
shipment which could, in turn, result in the temporary or permanent loss of customers.
The markets for semiconductor products are cyclical, and increased production may lead to overcapacity and lower prices, and
conversely, we may not be able to satisfy unexpected demand for our products.
The cyclical nature of the semiconductor industry has resulted in periods when demand for our products has increased or
decreased rapidly. If we expand our operations and workforce too rapidly or procure excessive resources in anticipation of
increased demand for our products, and that demand does not materialize at the pace at which we expect, or declines, or if we
overbuild inventory in a period of decreased demand, our operating results may be adversely affected as a result of increased
operating expenses, reduced margins, underutilization of capacity or asset impairment charges. These capacity expansions by
us and other semiconductor manufacturers could also lead to overcapacity in our target markets which could lead to price
erosion that would adversely impact our operating results. Conversely, during periods of rapid increases in demand, our
available capacity may not be sufficient to satisfy the demand. In addition, we may not be able to expand our workforce and
operations in a sufficiently timely manner, procure adequate resources and raw materials, or locate suitable third-party
suppliers, to respond effectively to changes in demand for our existing products or to the demand for new products requested
by our customers, and our current or future business could be materially and adversely affected.
Our semiconductor products are complex and we may be subject to product warranty and indemnity claims, which could result
in significant costs and damage to our reputation and adversely affect the market acceptance of our products.
Semiconductor products are highly complex and may contain defects when they are first introduced or as new versions
are developed. We generally warrant our products to our customers for one year from the date title passes from us. We invest
significant resources in the testing of our products; however, if any of our products contain defects, we may be required to incur
additional development and remediation costs, pursuant to warranty and indemnification provisions in our customer contracts
and purchase orders. These problems may divert our technical and other resources from other product development efforts and
could result in claims against us by our customers or others, including liability for costs associated with product recalls, which
may adversely impact our operating results. We may also be subject to customer indemnity claims. Our customers have on
occasion been sued, and may in the future be sued, by third parties alleging infringement of intellectual property rights, or
damages resulting from use of our products. Those customers may seek indemnification from us under the terms and conditions
of our sales contracts with them. In certain cases, our potential indemnification liability may be significant. If any of our
13
products contains defects, or has reliability, quality or compatibility problems, our reputation may be damaged, which could
make it more difficult for us to sell our products to existing and prospective customers and could adversely affect our operating
results.
We have manufacturing processes that utilize a substantial amount of technology as the fabrication of ICs is a highly
complex and precise process. Minute impurities, contaminants in the manufacturing environment, difficulties in the fabrication
process, defects in the masks used in the wafer manufacturing process, manufacturing equipment failures, wafer breakage or
other factors can cause a substantial percentage of wafers to be rejected or numerous dice on each wafer to be nonfunctional.
While we have significant expertise in semiconductor manufacturing, it is possible that some processes could become unstable.
This instability could result in manufacturing delays and product shortages, which could have a material adverse effect on our
operating results.
We are involved in frequent litigation, including regarding intellectual property rights, which could be costly to bring or defend
and could require us to redesign products or pay significant royalties.
The semiconductor industry is characterized by frequent claims and litigation involving patent and other intellectual
property rights, including claims arising under our contractual obligations to indemnify our customers. Other companies or
individuals have obtained patents covering a variety of semiconductor designs and processes, and we might be required to
obtain licenses under some of these patents or be precluded from making and selling infringing products, if those patents are
found to be valid. From time to time, we receive claims from third parties asserting that our products or processes infringe their
patents or other intellectual property rights. In the event a third party makes a valid intellectual property claim against us and a
license is not available to us on commercially reasonable terms, or at all, we could be forced either to redesign or to stop
production of products incorporating that intellectual property, and our operating results could be materially and adversely
affected. Litigation may be necessary to enforce our patents or other of our intellectual property rights or to defend us against
claims of infringement, and this litigation could be costly and divert the attention of our key personnel. We could be subject to
warranty or product liability claims that could lead to significant costs and expenses as we defend those claims or pay damage
awards. There can be no assurance that we are adequately insured to protect against all claims and potential liabilities. We may
incur costs and expenses relating to a recall of our customers’ products due to an alleged failure of components we supply. An
adverse outcome in litigation could have a material adverse effect on our financial position or on our operating results or cash
flows in the period in which the litigation is resolved.
We may be unable to adequately protect our proprietary intellectual property rights, which may limit our ability to compete
effectively.
Our success depends, in part, on our ability to protect our intellectual property. We primarily rely on patent, mask work,
copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect our proprietary
technologies and processes. Despite our efforts to protect our intellectual property, it is possible that competitors or other
unauthorized third parties may obtain, copy, use or disclose our technologies, products and processes. Moreover, the laws of
foreign countries in which we design, manufacture, market and sell our products may afford little or no effective protection of
our proprietary intellectual property. We may also be subject to security breaches caused by computer viruses, illegal break-ins
or hacking, sabotage or acts of vandalism by third parties. Our security measures or those of our third party service providers
may not detect or prevent such security breaches. Any such compromise of our information security could result in
unauthorized access to our confidential business or proprietary information.
There can be no assurance that the claims allowed in our issued patents will be sufficiently broad to protect our
technology. In addition, any of our existing or future patents may be challenged, invalidated or circumvented. As such, any
rights granted under these patents may not provide us with meaningful protection. We may not have foreign patents or pending
applications corresponding to our U.S. patents and applications. Even if foreign patents are granted, effective enforcement in
foreign countries may not be available. If our patents and mask works do not adequately protect our technology, our
competitors may be able to offer products similar to ours. Our competitors may also be able to develop similar technology
independently or design around our patents.
We generally enter into confidentiality agreements with our employees, consultants and strategic partners. We also try to
control access to and distribution of our technologies, documentation and other proprietary information. Despite these efforts,
internal or external parties may attempt to copy, disclose, obtain or use our products or technology without our authorization.
Also, former employees may seek employment with our business partners, customers or competitors, and there can be no
assurance that the confidential nature of our proprietary information will be maintained in the course of such future
employment.
14
If we do not retain our key personnel, our ability to execute our business strategy will be adversely affected.
Our continued success depends to a significant extent upon the recruitment, retention and effective succession of our
executive officers and key management and technical personnel, particularly our experienced engineers. The competition for
these employees is intense. The loss of the services of one or more of our key personnel could have a material adverse effect on
our operating results. In addition, there could be a material adverse effect on our business should the turnover rates for
engineers and other key personnel increase significantly or if we are unable to continue to attract qualified personnel. We do not
maintain any key person life insurance policy on any of our officers or employees.
To remain competitive, we may need to acquire other companies, purchase or license technology from third parties, or enter
into other strategic transactions in order to introduce new products or enhance our existing products.
An element of our business strategy involves expansion through the acquisitions of businesses, assets, products or
technologies that allow us to complement our existing product offerings, expand our market coverage, increase our engineering
workforce or enhance our technological capabilities. We may not be able to find businesses that have the technology or
resources we need and, if we find such businesses, we may not be able to purchase or license the technology or resources on
commercially favorable terms or at all. Acquisitions and technology licenses are difficult to identify and complete for a number
of reasons, including the cost of potential transactions, competition among prospective buyers and licensees, the need for
regulatory approvals, and difficulties related to integration efforts. Both in the U.S. and abroad, governmental regulation of
acquisitions has become more complex, increasing the costs and risks of undertaking significant acquisitions. In order to
finance a potential transaction, we may need to raise additional funds by issuing securities or borrowing money. We may not be
able to find financing on favorable terms, and the sale of our stock may result in the dilution of our existing shareholders or the
issuance of securities with rights that are superior to the rights of our common shareholders.
Acquisitions also involve a number of risks, including:
•
•
•
•
•
•
•
difficulty integrating acquired technologies, operations and personnel with our existing businesses;
diversion of management attention in connection with both negotiating the acquisitions and integrating the assets;
strain on managerial and operational resources as management tries to oversee larger operations;
the future funding requirements for acquired companies, which may be significant;
potential loss of key employees;
exposure to unforeseen liabilities of acquired companies; and
increased risk of costly and time-consuming litigation.
If we are unable to successfully address these risks, we may not realize some or all of the expected benefits of the
acquisition, which may have an adverse effect on our business plans and operating results.
We rely on supplies, services and manufacturing capacity located in geologically unstable areas, which could affect our ability
to produce products.
We, like many companies in the semiconductor industry, rely on supplies, services, internal manufacturing capacity,
wafer fabrication foundries and other sub-contractors in geologically unstable locations around the world. This reliance
involves risks associated with the impact of earthquakes on us and the semiconductor industry, including temporary loss of
capacity, availability and cost of key raw materials, utilities and equipment and availability of key services, including transport
of our products worldwide. For example, our fiscal 2011 revenue in Japan declined as a result of the severe earthquake and
tsunami in that country. In addition, recent flooding in Thailand and the Philippines had disruptive effects on local
semiconductor-related businesses. Any prolonged inability to utilize one of our manufacturing facilities, or those of our
subcontractors or third-party wafer fabrication foundries, as a result of fire, flood, natural disaster, unavailability of utilities or
otherwise, could result in a temporary or permanent loss of customers for affected products, which could have a material
adverse effect on our results of operations and financial condition.
15
We are exposed to business, economic, political, legal and other risks through our significant worldwide operations.
We have significant operations and manufacturing facilities outside the United States, including in Ireland and the
Philippines. Approximately 70% of our revenue is derived from customers in international markets. Although we engage in
hedging transactions to reduce our exposure to currency exchange rate fluctuations, there can be no assurance that our
competitive position will not be adversely affected by changes in the exchange rate of the United States dollar against other
currencies. Potential interest rate increases, as well as high energy costs, could have an adverse impact on industrial and
consumer spending patterns and could adversely impact demand for our products. At November 3, 2012, our principal source
of liquidity was $3,900.4 million of cash and cash equivalents and short-term investments, of which approximately $1,105.8
million was held in the United States and the remaining balance was held outside the United States in various foreign
subsidiaries. As we intend to reinvest certain of our foreign earnings indefinitely, this cash held outside the United States is not
readily available to meet certain of our cash requirements in the United States. We require a substantial amount of cash in the
United States for operating requirements, stock repurchases, cash dividends and acquisitions. If we are unable to address our
U.S. cash requirements through operations, through borrowings under our current credit facility, through future debt or equity
offerings or from other sources of cash obtained at an acceptable cost, it may be necessary for us to consider repatriation of
earnings that are permanently reinvested, and we may be required to pay additional taxes under current tax laws, which could
have a material effect on our results of operations and financial condition.
In addition to being exposed to the ongoing economic cycles in the semiconductor industry, we are also subject to the
economic, political and legal risks inherent in international operations, including the risks associated with the recent crisis in
global credit and financial markets, ongoing uncertainties and political and economic instability in many countries around the
world, as well as economic disruption from acts of terrorism and the response to them by the United States and its allies. Other
business risks associated with global operations include increased managerial complexities, air transportation disruptions,
expropriation, currency controls, currency exchange rate movement, additional costs related to foreign taxes, tariffs and freight
rate increases, exposure to different business practices and legal standards, particularly with respect to price protection,
competition practices, intellectual property, anti-corruption and environmental compliance, trade and travel restrictions,
pandemics, import and export license requirements and restrictions, difficulties in staffing and managing worldwide operations,
and accounts receivable collections. We also incur significant costs associated with our foreign defined benefit pension plans.
There can be no assurance that the value of the plan assets will be sufficient in the future and it is possible that we may be
required to make higher cash contributions to the plans in future years, which would reduce the cash available for other
business purposes.
We expect to continue to expand our business and operations in China. Our success in the Chinese markets may be
adversely affected by China’s continuously evolving laws and regulations, including those relating to taxation, import and
export tariffs, currency controls, environmental regulations, indigenous innovation, and intellectual property rights and
enforcement of those rights. Enforcement of existing laws or agreements may be inconsistent. In addition, changes in the
political environment, governmental policies or U.S.-China relations could result in revisions to laws or regulations or their
interpretation and enforcement, exposure of our proprietary intellectual property, increased taxation, restrictions on imports,
import duties or currency revaluations, which could have an adverse effect on our business plans and operating results.
Our operating results are dependent on the performance of independent distributors.
A significant portion of our sales are through independent distributors that are not under our control. These independent
distributors generally represent product lines offered by several companies and thus could reduce their sales efforts applied to
our products or they could terminate their representation of us. We generally do not require letters of credit from our
distributors and are not protected against accounts receivable default or declarations of bankruptcy by these distributors. Our
inability to collect open accounts receivable could adversely affect our operating results. Termination of a significant
distributor, whether at our initiative or the distributor’s initiative or through consolidation in the distribution industry, could
disrupt our current business, and if we are unable to find suitable replacements, our operating results could be adversely
affected.
We are subject to increasingly strict environmental, health and safety (EHS) regulations, which could increase our expenses
and affect our operating results.
Our industry is subject to increasingly strict EHS requirements, particularly those environmental requirements that
control and restrict the sourcing, use, transportation, emission, discharge, storage and disposal of certain chemicals, elements
and materials used or produced in the semiconductor manufacturing process. Public attention to environmental, sustainability
and social responsibility concerns continues to increase, and our customers routinely include stringent environmental and other
standards in their contracts with us. Changes in environmental laws or regulations may require us to invest in costly equipment
or alter the way our products are made. In addition, we use hazardous and other regulated materials that subject us to risks of
strict liability for damages caused by potential or actual releases of such materials. Any failure to control such materials
16
adequately or to comply with statutory or regulatory standards or contractual obligations could result in liability for damages,
penalties, and civil and criminal fines, and might damage our reputation, increase our expenses, and adversely affect our
operating results.
New climate change laws and regulations could require us to change our manufacturing processes or obtain substitute
materials that may cost more or be less available for our manufacturing operations. In addition, new restrictions on emissions of
carbon dioxide or other greenhouse gases could result in significant costs for us. The Commonwealth of Massachusetts has
adopted greenhouse gas regulations, and the U.S. Congress may pass federal greenhouse gas legislation in the future. The
U.S. Environmental Protection Agency (EPA) has issued greenhouse gas reporting regulations that may apply to certain of our
operations. The EPA is developing other climate change-based regulations, as are certain states, that also may increase our
expenses and adversely affect our operating results. We expect increased worldwide regulatory activity relating to climate
change in the future. Compliance with these laws and regulations has not had a material impact on our capital expenditures,
earnings, financial condition or competitive position. There is no assurance that the cost to comply with current or future EHS
laws and regulations will not exceed our estimates or adversely affect our financial condition or results of operations.
Additionally, any failure by us to comply with applicable EHS requirements or contractual obligations could result in penalties,
civil and criminal fines, suspension of or changes to production, legal liability and damage to our reputation.
If we are unable to generate sufficient cash flow, we may not be able to service our debt obligations, including making
payments on our two issuances of $375.0 million senior unsecured notes or our $145.0 million term loan facility.
In fiscal 2009, we issued in a public offering $375.0 million aggregate principal amount of 5.0% senior unsecured notes
due July 1, 2014. In April 2011, we issued in a public offering $375.0 million aggregate principal amount of 3.0% senior
unsecured notes due April 15, 2016. In December 2010, Analog Devices Holdings B.V., a wholly owned subsidiary of ours,
entered into a $145.0 million term loan facility which matures on December 22, 2013. Our ability to make payments of
principal and interest on our indebtedness when due depends upon our future performance, which will be subject to general
economic conditions, industry cycles and financial, business and other factors affecting our consolidated operations, many of
which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our debt,
we may be required to, among other things:
• seek additional financing in the debt or equity markets;
•
refinance or restructure all or a portion of our indebtedness, including the notes;
• divert funds that would otherwise be invested in our operations;
• sell selected assets; or
•
reduce or delay planned capital expenditures or operating expenditures.
Such measures might not be sufficient to enable us to service our debt, including the notes or our term loan facility, which
could negatively impact our financial results. In addition, any such financing, refinancing or sale of assets might not be possible
on economically favorable terms.
Restrictions in our revolving credit and term loan facilities and outstanding debt instruments may limit our activities.
Our current revolving credit and term loan facilities and our 5.0% and 3.0% senior unsecured notes impose, and future
debt instruments to which we may become subject may impose, restrictions that limit our ability to engage in activities that
could otherwise benefit our company, including to undertake certain transactions, to create certain liens on our assets and to
incur certain subsidiary indebtedness. Our ability to comply with these financial restrictions and covenants is dependent on our
future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our
control such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition. In
addition, our credit and term loan facilities require us to maintain compliance with specified financial ratios. If we breach any
of the covenants under our credit or term loan facilities or the indenture governing our outstanding notes and do not obtain
appropriate waivers, then, subject to applicable cure periods, our outstanding indebtedness thereunder could be declared
immediately due and payable.
17
Our stock price may be volatile.
The market price of our common stock has been volatile in the past and may be volatile in the future, as it may be
significantly affected by the following factors:
• crises in global credit, debt and financial markets;
• actual or anticipated fluctuations in our revenue and operating results;
• changes in financial estimates by securities analysts or our failure to perform in line with those estimates or our
published guidance;
• changes in market valuations of other semiconductor companies;
• announcements by us or our competitors of significant new products, technical innovations, material transactions,
acquisitions or dispositions, litigation or capital commitments;
• departures of key personnel;
• alleged noncompliance with laws, regulations or ethics standards by us or any of our employees, officers or
directors; and
• negative media publicity targeting us or our suppliers, customers or competitors.
The stock market has historically experienced volatility, especially within the semiconductor industry, that often has been
unrelated to the performance of particular companies. These market fluctuations may cause our stock price to fall regardless of
our operating results.
18
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate headquarters is located in Norwood, Massachusetts. Manufacturing and other operations are conducted in
several locations worldwide. The following tables provide certain information about our principal general offices and
manufacturing facilities:
Principal Properties
Owned:
Use
Wilmington, MA
Wafer fabrication, testing, engineering, marketing and administrative offices
Cavite, Philippines
Wafer probe and testing, warehouse, engineering and administrative offices
Approximate
Total Sq. Ft.
586,200 sq. ft.
605,000 sq. ft.
Limerick, Ireland
Wafer fabrication, wafer probe and testing, engineering and administrative offices
351,500 sq. ft.
Greensboro, NC
Product testing, engineering and administrative offices
San Jose, CA
Engineering, administrative offices
98,700 sq. ft.
76,700 sq. ft.
Principal
Properties
Leased:
Norwood, MA
Limerick, Ireland
Use
Total Sq. Ft.
(fiscal year)
Renewals
Approximate
Expiration
Lease
Corporate headquarters, engineering, components
testing, sales and marketing offices
130,000 sq. ft.
2022
Wafer fabrication, wafer probe and testing,
engineering and administrative offices
66,000 sq. ft.
2013
54,000 sq. ft.
2014
Bangalore, India
Engineering
Greensboro, NC
Engineering and administrative offices
47,600 sq. ft.
2013
Shanghai, China
Engineering
Tokyo, Japan
Engineering
Beijing, China
Engineering
42,500 sq. ft.
2013
36,000 sq. ft.
2014
33,000 sq. ft.
2014
2, five-yr.
periods
1, one-yr.
period
1, two-yr.
period
1, one-yr.
period
1, one-yr.
period
1, two-yr.
period
1, two-yr.
period
In addition to the principal leased properties listed in the above table, we also lease sales offices and other premises at 16
locations in the United States and 42 locations internationally under operating lease agreements. These leases expire at various
dates through the year 2022. We do not anticipate experiencing significant difficulty in retaining occupancy of any of our
manufacturing, office or sales facilities through lease renewals prior to expiration or through month-to-month occupancy, or in
replacing them with equivalent facilities. For information concerning our obligations under all operating leases see Note 11 in
the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.
19
ITEM 3. LEGAL PROCEEDINGS
From time to time in the ordinary course of our business, various claims, charges and litigation are asserted or
commenced against us arising from, or related to, contractual matters, patents, trademarks, personal injury, environmental
matters, product liability, insurance coverage and personnel and employment disputes. As to such claims and litigation, we can
give no assurance that we will prevail. We do not believe that any current legal matters will have a material adverse effect on
our financial position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
20
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth (i) the name, age and position of each of our executive officers and (ii) the business
experience of each person named in the table during at least the past five years. There is no family relationship among any of
our executive officers.
Executive Officer
Jerald G. Fishman
Age
Position(s)
66 Chief Executive Officer and
Director
Vincent Roche
52 President
David A. Zinsner
44 Vice President, Finance and
Chief Financial Officer
Seamus Brennan
61 Vice President and Chief
Accounting Officer
Samuel H. Fuller
66 Vice President, Research and
Development and Chief
Technology Officer
Robert R. Marshall
58 Vice President, Worldwide
Manufacturing
Business Experience
Chief Executive Officer since November 1996;
Director since November 1991; President from
1991 to November 2012; Executive Vice President
from 1988 to November 1991; Group Vice
President - Components from 1982 to 1988.
President since November 2012; Vice President,
Strategic Segments Group and Global Sales from
October 2009 to November 2012; Vice President,
Worldwide Sales from March 2001 to October
2009; Vice President and General Manager, Silicon
Valley Business Units and Computer & Networking
from 1999 to March 2001; Product Line Director
from 1995 to 1999; Product Marketing Manager
from 1988 to 1995.
Vice President, Finance and Chief Financial Officer
since January 2009; Senior Vice President and
Chief Financial Officer Intersil Corporation from
2005 to December 2008; Corporate Controller and
Treasurer Intersil Corporation from 2000 to 2005.
Corporate Treasurer Intersil Corporation from 1999
to 2000.
Vice President and Chief Accounting Officer from
April 2011;Vice President, Corporate Controller
and Chief Accounting Officer from December 2008
to April 2011; Corporate Controller from 2002 to
December 2008; Assistant Corporate Controller
from 1997 to 2002; Manager Enterprise System
Implementation from 1994 to 1997; Plant
Controller, Analog Devices, B.V. - Limerick,
Ireland from 1989 to 1994.
Vice President, Research and Development since
March 1998; Chief Technology Officer since March
2006; Vice President of Research and Chief
Scientist of Digital Equipment Corp. from 1983 to
1998.
Vice President, Worldwide Manufacturing since
February 1994; Vice President, Manufacturing,
Limerick Site, Analog Devices, B.V. - Limerick,
Ireland from November 1991 to February 1994;
Plant Manager, Analog Devices, B.V. - Limerick,
Ireland from January 1991 to November 1991.
21
Executive Officer
William Matson
Age
Position(s)
53 Vice President, Human
Resources
Robert McAdam
61 Executive Vice President,
Strategic Business Segments
Group
Dick Meaney
55 Vice President,
Products and Technologies
Group
Margaret K. Seif
51 Vice President, General Counsel
and Secretary
Thomas Wessel
45 Vice President,
Worldwide Sales
Robert Yung
50 Vice President, Strategy and
Corporate Development
Business Experience
Vice President, Human Resources since November
2006; Chief Human Resource Officer of Lenovo
from January 2005 to June 2006; General Manager
of IBM Business Transformation Outsourcing from
September 2003 to April 2005; Vice President,
Human Resources of IBM Asia Pacific Region
from December 1999 to September 2003.
Executive Vice President, Strategic Business
Segments Group since November 2012; Vice
President, Core Products and Technologies Group
from October 2009 to November 2012; Vice
President and General Manager, Analog
Semiconductor Components from February 1994 to
September 2009; Vice President and General
Manager, Analog Devices, B.V. - Limerick, Ireland
from January 1991 to February 1994; Product Line
Manager, Analog Devices, B.V. - Limerick, Ireland
from October 1988 to January 1991.
Vice President, Products and Technologies Group
since November 2012; Vice President, Converters
from August 2009 to November 2012; Vice
President, Precision Signal Processing from
October 1999 to August 2009; Product Line
Director from August 1991 to September 1999;
Engineering Manager from August 1988 to July
1991; Design Engineer Analog Devices B.V.
Limerick, Ireland from August 1979 to July 1988.
Vice President, General Counsel and Secretary
since January 2006; Senior Vice President, General
Counsel and Secretary of RSA Security Inc. from
January 2000 to November 2005; Vice President,
General Counsel and Secretary of RSA Security
Inc. from June 1998 to January 2000.
Vice President, Worldwide Sales since March 2012;
Vice President, Worldwide Automotive Segment
from November 2009 to March 2012; Vice
President, European Sales and Marketing from June
2008 to November 2009; Managing Director,
European Sales and Marketing from June 2005 to
June 2008.
Vice President, Strategy and Corporate
Development since December 2011; Executive Vice
President and Chief Technology Officer, Tessera
Technologies, Inc. from May 2009 to May 2011;
Vice President and Chief Technology Officer of
PMC-Sierra Inc., from September 2005 to May
2009.
22
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on The NASDAQ Global Select Market under the symbol ADI. Prior to April 2, 2012, our
common stock was listed on the New York Stock Exchange. The tables below set forth the high and low sales prices per share
of our common stock on the applicable exchange and the dividends declared for each quarterly period within our two most
recent fiscal years.
High and Low Sales Prices of Common Stock
Period
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2012
Fiscal 2011
High
Low
High
Low
$40.38
$40.83
$39.94
$41.79
$32.18
$36.95
$34.25
$37.82
$39.86
$41.66
$43.28
$37.75
$33.18
$36.29
$34.02
$29.23
Dividends Declared Per Outstanding Share of Common Stock
In fiscal 2012 and fiscal 2011, we paid a cash dividend in each quarter as follows:
Period
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2012
Fiscal 2011
$0.25
$0.30
$0.30
$0.30
$0.22
$0.22
$0.25
$0.25
During the first quarter of fiscal 2013, on November 26, 2012, our Board of Directors declared a cash dividend of $0.30
per outstanding share of common stock. The dividend will be paid on December 18, 2012 to all shareholders of record at the
close of business on December 7, 2012. The payment of future dividends, if any, will be based on several factors including our
financial performance, outlook and liquidity.
Information regarding our equity compensation plans and the securities authorized for issuance thereunder is set forth in
Item 12 below.
Issuer Purchases of Equity Securities
Period
August 5, 2012 through September 1, 2012
September 2, 2012 through September 29, 2012
September 30, 2012 through November 3, 2012
_______________________________________
Total
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
194
133
542,840
543,167
$
$
$
$
—
—
38.31
38.28
— $
— $
542,251
542,251
$
$
581,769,062
581,769,062
560,974,387
560,974,387
(a)
(b)
(c)
Includes 916 shares paid to us by employees to satisfy employee tax obligations upon vesting of restricted stock granted
to our employees under our equity compensation plans.
The average price paid per share of stock repurchased under the stock repurchase program includes the commissions paid
to the brokers.
Shares repurchased pursuant to the stock repurchase program publicly announced on August 12, 2004. In the aggregate,
our Board of Directors has authorized us to repurchase $5 billion of our common stock. 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.
23
The number of holders of record of our common stock at November 26, 2012 was 2,596. This number does not include
shareholders for whom shares are held in a “nominee” or “street” name. On November 2, 2012, the last reported sales price of
our common stock on The NASDAQ Global Select Market was $39.82 per share.
Comparative Stock Performance Graph
The following graph compares cumulative total shareholder return on our common stock since November 3, 2007 with
the cumulative total return of the Standard & Poor’s (S&P) 500 Index and the S&P Semiconductors Index. This graph assumes
the investment of $100 on November 3, 2007 in our common stock, the S&P 500 Index and the S&P Semiconductors Index and
assumes all dividends are reinvested. Measurement points are the last trading day for each respective fiscal year.
100.00
66.58
58.30
63.90
82.92
72.72
70.17
112.10
86.66
81.76
128.75
98.24
88.37
140.25
89.30
101.81
$160
$140
$120
$100
$80
$60
$40
$20
$0
11/3/07
11/1/08
10/31/09
10/30/10
10/29/11
11/3/12
Analog Devices, Inc.
S&P 500
S&P Semiconductors
24
ITEM 6. SELECTED FINANCIAL DATA
The following table includes selected financial data for each of our last five fiscal years.
(thousands, except per share amounts)
Statement of Operations data:
2012
2011
2010
2009
2008
Total revenue from continuing operations
$ 2,701,142
$ 2,993,320
$ 2,761,503
$ 2,014,908
$ 2,582,931
Income from continuing operations, net of tax
651,236
860,894
711,225
247,408
525,177
Total income from discontinued operations, net of
tax
Net income
Income per share from continuing operations, net of
tax:
Basic
Diluted
Net income per share
Basic
Diluted
Cash dividends declared per common share
Balance Sheet data:
—
651,236
6,500
867,394
859
364
712,084
247,772
261,107
786,284
2.18
2.13
2.18
2.13
1.15
2.88
2.79
2.90
2.81
0.94
2.39
2.33
2.39
2.33
0.84
0.85
0.85
0.85
0.85
0.80
1.79
1.77
2.69
2.65
0.76
Total assets
Debt
$ 5,620,347
$ 5,277,635
$ 4,328,831
$ 3,369,407
$ 3,081,132
$
821,598
$
886,376
$
400,635
$
379,626
$
—
25
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (all tabular amounts in thousands except per share amounts)
During the first quarter of fiscal 2008, we sold our baseband chipset business and related support operations, or Baseband
Chipset Business, to MediaTek Inc. and sold our CPU voltage regulation and PC thermal monitoring business to certain
subsidiaries of ON Semiconductor Corporation. The financial results of these businesses are presented as discontinued
operations in the consolidated statements of income for all periods presented. Unless otherwise noted, this Management’s
Discussion and Analysis relates only to financial results from continuing operations.
Results of Operations
Overview
Revenue
Gross Margin %
Net income from Continuing
Operations
Net income from Continuing
Operations as a % of Revenue
Diluted EPS from Continuing
Operations
Diluted EPS
Fiscal Year
2012 over 2011
2011 over 2010
2012
2011
2010
$ Change
%
Change
$ Change
%
Change
$2,701,142
$2,993,320
$2,761,503
$ (292,178)
(10)% $ 231,817
8%
64.5%
66.4%
65.2%
$ 651,236
$ 860,894
$ 711,225
$ (209,658)
(24)% $ 149,669
21%
24.1%
28.8%
25.8%
$
$
2.13
2.13
$
$
2.79
2.81
$
$
2.33
2.33
$
$
(0.66)
(0.68)
(24)% $
(24)% $
0.46
0.48
20%
21%
Fiscal 2012 was a 53-week year. Fiscal 2011 and fiscal 2010 were 52-week years. The additional week in fiscal 2012 was
included in the first quarter ended February 4, 2012.
The year-to-year revenue changes by end market and product category are more fully outlined below under Revenue
Trends by End Market and Revenue Trends by Product Type.
During fiscal 2012, our revenue decreased 10% compared to fiscal 2011. Our diluted earnings per share from continuing
operations decreased to $2.13 in fiscal 2012 from $2.79 in fiscal 2011. Cash flow from operations in fiscal 2012 was $814.5
million, or 30.2% of revenue. During fiscal 2012, we received $191.2 million in net proceeds from employee stock option
exercises, repurchased a total of approximately 4.2 million shares of our common stock for an aggregate of $160.5 million,
distributed $344.7 million to our shareholders in dividend payments, paid $56.5 million in principal payments related to our
$145.0 million term loan facility, paid $132.2 million for property, plant and equipment additions and paid $24.2 million, net of
cash acquired, for the acquisition of Multigig. In addition, we paid $1,183.5 million for the net purchase of short term
available-for-sale investments. These factors contributed to the net decrease in cash and cash equivalents of $876.3 million in
fiscal 2012.
The year-to-year decrease in revenue and profitability for fiscal 2012 was primarily the result of continued slowdown in
the growth of the global economy. Our customers were increasingly cautious through the year and reduced the inventory levels
of our products. We believe that our variable cost structure and continued efforts to manage production, inventory levels and
expenses helped to mitigate the effect that these lower sales levels had on our earnings.
26
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 evolve and improve, 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.
2012
% of
Total
Product
Revenue
Revenue
2011
2010
% of
Total
Product
Revenue
% of
Total
Product
Revenue
Revenue
Y/Y%
Revenue
Industrial
Automotive
Consumer
Communications
$ 1,240,344
46% (12)% $ 1,411,386
47% $ 1,280,027
463,577
467,626
529,595
17% 11 %
17% (16)%
20% (12)%
417,929
559,142
604,863
14%
19%
20%
335,163
605,541
540,772
46%
12%
22%
20%
Total Revenue
$ 2,701,142
100% (10)% $ 2,993,320
100% $ 2,761,503
100%
Industrial — The year-to-year decrease in revenue from fiscal 2011 to fiscal 2012 in industrial end market revenue was
primarily the result of a broad-based decrease in demand in this end market related to ongoing global macro-economic
weakness. The year-to-year decrease was most significant for products sold into the industrial automation and instrumentation
sectors. The year-to-year increase in revenue from fiscal 2010 to fiscal 2011 in industrial end market revenue was primarily the
result of a broad-based increase in demand in this end market, which was most significant for products sold into the automation
and instrumentation sectors and, to a lesser extent, products sold into the energy and healthcare sectors.
Automotive — The year-to-year increase in revenue from fiscal 2011 to fiscal 2012 in automotive end market revenue
was primarily the result of an increase in the electronic content in automobiles used in infotainment applications and to a lesser
extent in power train and safety applications and a general increase in demand by our customers. The year-to-year increase in
revenue from fiscal 2010 to fiscal 2011 in automotive end market revenue was primarily the result of a general increase in the
electronic content found in vehicles and, to a lesser extent, a general increase in demand by our customers.
Consumer — The year-to-year decrease in revenue from fiscal 2011 to fiscal 2012 in consumer end market revenue was
primarily the result of a broad-based decrease in demand for products sold in this end market. The year-to-year decrease in
revenue from fiscal 2010 to fiscal 2011 in consumer end market revenue was primarily the result of a decrease in demand for
products in the digital camera and home entertainment sector primarily as a result of the impact of the earthquake and tsunami
that occurred in Japan in March 2011, partially offset by an increase in demand for products used in portable devices in this end
market.
Communications — The year-to-year fluctuations in communications end market revenue for the years presented are
primarily the result of broad-based demand shifts in this end market, which were most significant for products sold into the
wireless base station end market sector.
27
Revenue Trends by Product Type
The following table summarizes revenue by product categories. The categorization of our products into broad categories
is based on the characteristics of the individual products, the specification of the products and in some cases the specific uses
that certain products have within applications. The categorization of products into categories is therefore subject to judgment in
some cases and can vary over time. In instances where products move between product categories, we reclassify the amounts in
the product categories for all prior periods. Such reclassifications typically do not materially change the sizing of, or the
underlying trends of results within, each product category.
2012
% of
Total
Product
Revenue*
Revenue
2011
2010
Y/Y%
Revenue
% of
Total
Product
Revenue
Revenue
% of
Total
Product
Revenue
Converters
$ 1,192,064
44% (11)% $ 1,343,487
45% $ 1,295,700
Amplifiers/Radio frequency
Other analog
Subtotal analog signal processing
Power management & reference
697,687
397,376
2,287,127
182,134
26% (11)%
15%
(3)%
788,299
410,323
26%
14%
701,557
334,663
85% (10)% 2,542,109
85% 2,331,920
7% (16)%
217,615
7%
194,740
Total analog products
Digital signal processing
$ 2,469,261
231,881
91% (11)% $ 2,759,724
233,596
9%
(1)%
92% $ 2,526,660
234,843
8%
47%
25%
12%
84%
7%
91%
9%
Total Revenue
$ 2,701,142
100% (10)% $ 2,993,320
100% $ 2,761,503
100%
_____________________________________
* The sum of the individual percentages do not equal the total due to rounding.
The year-to-year fluctuations in total revenue for the years presented were the result of a broad-based demand shift across
all product categories.
Revenue Trends by Geographic Region
During fiscal year 2012 we changed our method for classifying revenue by geographic region to more accurately reflect
the primary location of our customers' design activity for our products. Prior periods have been reclassified to align with this
definition. In general, the prior classification method reflected the customers' manufacturing location or the distributors'
stocking territory. No changes have been made to our revenue recognition policy. A breakdown of our fiscal 2012, 2011 and
2010 revenue by geographic location follows.
Fiscal Year
2012 over 2011
2011 over 2010
Change
United States
Rest of North and South America
Europe
Japan
China
Rest of Asia
Total Revenue
%
Change
$ Change
%
Change
2012
2011
2010
$ 818,653
$ 866,142
$ 794,463
114,133
852,668
333,558
341,196
240,934
144,585
967,417
398,587
360,594
255,995
134,327
816,561
433,706
320,739
261,707
$ Change
$ (47,489)
(30,452)
(114,749)
(65,029)
(19,398)
(15,061)
(5)% $
(21)%
(12)%
(16)%
(5)%
(6)%
71,679
10,258
150,856
(35,119)
39,855
(5,712)
$2,701,142
$2,993,320
$2,761,503
$ (292,178)
(10)% $
231,817
9 %
8 %
18 %
(8)%
12 %
(2)%
8 %
In fiscal years 2012, 2011 and 2010, the predominant countries comprising “Rest of North and South America” are
Canada and Mexico; the predominant countries comprising “Europe” are Germany, Sweden, France and the United Kingdom;
and the predominant countries comprising “Rest of Asia” are Taiwan and South Korea.
Sales decreased in all regions in fiscal 2012 as compared to fiscal 2011 as a result of a broad-based decrease in demand.
28
Sales increased in all geographic regions, except Japan and Rest of Asia, in fiscal 2011 as compared to fiscal 2010,
primarily as a result of increases in sales activity in the industrial, automotive and communications end market sectors. The
year-to-year decrease in sales in Japan and Rest of Asia was primarily the result of lower sales activity in the consumer end
market sector in this region due to the earthquake and tsunami that occurred in Japan in March 2011.
Gross Margin
Fiscal Year
2012 over 2011
2011 over 2010
Change
Gross Margin
Gross Margin %
2012
2011
2010
$1,741,001
$1,986,541
$1,799,422
64.5%
66.4%
65.2%
$ Change
$ (245,540)
%
Change
$ Change
%
Change
(12)% $ 187,119
10%
Gross margin percentage in fiscal 2012 decreased 190 basis points compared to fiscal 2011 primarily as a result of
decreased operating levels in our manufacturing facilities as well as a reduced percentage of sales of our products sold into the
industrial automation and instrumentation sectors of the industrial end market and the wireless base station sector of the
communications end market, which earn higher margins as compared to products sold into our other end market sectors.
Gross margin percentage in fiscal 2011 increased 120 basis points compared to fiscal 2010 primarily as a result of an
increase in sales of $231.8 million, increased operating levels in our manufacturing facilities and the impact of efforts to reduce
overall manufacturing costs, including the savings realized as a result of our wafer fabrication consolidation actions.
Additionally, a higher proportion of our revenues were from products sold into the instrumentation and automation sectors of
the industrial end market, which earn higher margins as compared to products sold into our other end markets.
Research and Development (R&D)
Fiscal Year
2012 over 2011
2011 over 2010
2012
2011
2010
$ Change
%
Change
$ Change
%
Change
$ 512,003
$ 505,570
$ 492,305
$
6,433
1% $
13,265
3%
Change
19.0%
16.9%
17.8%
R&D Expenses
R&D Expenses as a % of
Revenue
R&D expenses increased in fiscal 2012 as compared to fiscal 2011 as a result of annual salary increases that became
effective during the second quarter of fiscal 2012 and a general increase in spending, partially offset by lower variable
compensation expense, which is linked to our overall profitability and revenue growth.
R&D expenses increased in fiscal 2011 as compared to fiscal 2010. The increase was primarily the result of higher
employee salary and benefit expense due to salary increases that were effective in the second quarter of fiscal 2011, increased
headcount, and a general increase in spending. These increases were partially offset by lower variable compensation expense,
which is a variable expense linked to our overall profitability and revenue growth.
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 have hundreds of R&D
projects underway, none of which we believe are material on an individual basis. 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, and therefore,
we expect to continue to make significant R&D investments in the future.
29
Selling, Marketing, General and Administrative (SMG&A)
Fiscal Year
2012 over 2011
2011 over 2010
2012
2011
2010
$ 396,519
$ 406,707
$ 390,560
$ Change
$ (10,188)
%
Change
$ Change
%
Change
(3)% $
16,147
4%
Change
14.7%
13.6%
14.1%
SMG&A Expenses
SMG&A Expenses as a %
of Revenue
SMG&A expenses decreased in fiscal 2012 as compared to fiscal 2011 as lower variable compensation expense, which is
a variable expense linked to our overall profitability and revenue growth, was partially offset by annual salary increases that
became effective during the second quarter of fiscal 2012.
SMG&A, expenses increased in fiscal 2011 as compared to fiscal 2010. The increase was primarily the result of higher
employee salary and benefit expense due to salary increases that were effective in the second quarter of fiscal 2011, increased
headcount and a general increase in spending. These increases were partially offset by lower variable compensation expense,
which is a variable expense linked to our overall profitability and revenue growth.
Special Charges
We monitor global macroeconomic conditions on an ongoing basis, and continue to assess opportunities for improved
operational effectiveness and efficiency and better alignment of expenses with revenues. As a result of these assessments, we
have undertaken various restructuring actions over the past several years. The expense reductions relating to ongoing actions
are described below.
Closure of Wafer Fabrication Facility in Sunnyvale
We ceased production at our California wafer fabrication facility in November 2006. We paid the related lease obligation
costs on a monthly basis over the remaining lease term, which expired in March 2010. We recorded a one-time settlement
charge of $0.4 million in fiscal 2010 related to the termination of the lease. This action was completed during fiscal 2010.
Reduction of Operating Costs
During fiscal 2008 through fiscal 2010, we recorded special charges of approximately $43.3 million. These special
charges included: $39.1 million for severance and fringe benefit costs in accordance with our ongoing benefit plan or statutory
requirements at foreign locations for 245 manufacturing employees and 470 engineering and SMG&A employees; $2.1 million
for lease obligation costs for facilities that we ceased using during the first quarter of fiscal 2009; $0.8 million for the write-off
of property, plant and equipment; $0.5 million for contract termination costs and $0.3 million for clean-up and closure costs
that were expensed as incurred; and $0.5 million related to the impairment of intellectual property. This action resulted in
annual cost savings of approximately $52.0 million per year. We have terminated the employment of all employees associated
with these actions.
During fiscal 2011, we recorded a special charge of approximately $2.2 million for severance and fringe benefit costs in
accordance with our ongoing benefit plan or statutory requirements at foreign locations for 25 engineering and SMG&A
employees. This action was completed in the fourth quarter of fiscal 2012. This action resulted in annual cost savings of
approximately $4.0 million.
During fiscal 2012, we recorded special charges of approximately $8.4 million. The special charge included $7.9 million
for severance and fringe benefit costs in accordance with our ongoing benefit plan or statutory requirements at foreign locations
for 95 manufacturing, engineering and SMG&A employees; $0.1 million for contract termination costs; $0.2 million for lease
obligation costs for facilities that we ceased using during the third quarter of fiscal 2012 and $0.2 million for the write-off of
property, plant and equipment. As of November 3, 2012, we employed 6 of the 95 employees included in this cost reduction
action. These employees must continue to be employed by us until their employment is involuntarily terminated in order to
receive the severance benefit. We estimate this action will result in annual savings in SMG&A expenses of approximately
$12.0 million once fully implemented.
30
Closure of a Wafer Fabrication Facility in Cambridge
During fiscal 2009 and fiscal 2010, we recorded special charges of $26.8 million as a result of our decision to consolidate
our Cambridge, Massachusetts wafer fabrication facility into our existing Wilmington, Massachusetts facility. These special
charges included: $7.4 million for severance and fringe benefit costs recorded in accordance with our ongoing benefit plan for
124 manufacturing employees and 9 SMG&A employees; $14.6 million for the impairment of manufacturing assets; $3.4
million for lease obligation costs for the Cambridge wafer fabrication facility, which we ceased using in the first quarter of
fiscal 2010; and $1.4 million for clean-up and closure costs that were expensed as incurred. This action was completed during
the third quarter of fiscal 2011. This action resulted in annual cost savings of approximately $43 million per year.
Operating Income from Continuing Operations
Fiscal Year
2012 over 2011
2011 over 2010
2012
2011
2010
$ Change
%
Change
$ Change
%
Change
Change
$ 824,048
$1,072,025
$ 900,074
$ (247,977)
(23)% $ 171,951
19%
30.5%
35.8%
32.6%
Operating income from
Continuing Operations
Operating income from
Continuing Operations as a
% of Revenue
The year-over-year decrease in operating income from continuing operations in fiscal 2012 as compared to fiscal 2011
was primarily the result of a decrease in revenue of $292.2 million and a 190 basis point decrease in gross margin percentage.
The increase in operating income from continuing operations in fiscal 2011 as compared to fiscal 2010 was primarily the
result of an increase in revenue of $231.8 million and a 120 basis point increase in gross margin percentage.
Nonoperating (Income) Expense
Fiscal Year
2012 over 2011
2011 over 2010
2012
2011
2010
$ Change
$ Change
Change
Interest expense
Interest income
Other, net
$
26,422
$
(14,448)
(1,459)
$
19,146
(9,060)
492
Total nonoperating expense (income)
$
10,515
$
10,578
$
$
10,429
(9,837)
(2,183)
(1,591) $
$
7,276
(5,388)
(1,951)
8,717
777
2,675
(63) $
12,169
The year-over-year increase in nonoperating interest expense in fiscal 2012 as compared to fiscal 2011 was primarily a
result of our issuance of $375.0 million aggregate principal amount of 3.0% senior unsecured notes on April 4, 2011 which
was partially offset by the impact of the termination of our interest rate swap agreement more fully described below under the
heading Debt. The increases were partially offset by an increase in nonoperating interest income due to higher interest rates
earned on our investments and the investment of higher cash balances in fiscal 2012 as compared to fiscal 2011, and an
increase in nonoperating other income as a result of the gain from the sale of other investments in the second quarter of fiscal
2012.
The year-over-year increase in nonoperating expense (income) in fiscal 2011 as compared to fiscal 2010 was primarily
due to an increase in interest expense incurred as a result of the issuance of $375 million aggregate principal amount of
3.0% senior unsecured notes on April 4, 2011, and the $145 million term loan facility entered into by a wholly owned
subsidiary of ours in December 2010. In addition, we earned lower interest income as a result of lower interest rates in fiscal
2011 as compared to fiscal 2010, which was partially offset by interest earned on higher cash balances in fiscal 2011.
31
Provision for Income Taxes
Fiscal Year
2012 over 2011
2011 over 2010
Change
Provision for Income Taxes $ 162,297
$ 200,553
$ 190,440
Effective Income Tax Rate
19.9%
18.9%
21.1%
2012
2011
2010
$ Change
$ (38,256)
%
Change
$ Change
%
Change
(19)% $
10,113
5%
Our effective tax rate reflects the applicable tax rate in effect in the various tax jurisdictions around the world where our
income is earned.
Our effective tax rate for fiscal 2012 increased 100 basis points compared to our effective tax rate for fiscal 2011 due to
the expiration of the U.S. federal research and development tax credit in December 2011.
Our effective tax rate for fiscal 2011 decreased 220 basis points compared to our effective tax rate for fiscal 2010 due to
the impact of several discrete tax items. The effective tax rate for fiscal 2011 included the reinstatement of the federal R&D tax
credit in December 2010 retroactive to January 1, 2010, resulting in a $6.0 million income tax savings; a $6.7 million reduction
in the state tax credit valuation reserve; a $0.5 million tax benefit from the increase in Irish deferred taxes as a result of the
increase in the Irish manufacturing tax rate from 10% to 12.5%; and a net $10.8 million tax benefit related to the settlement
with the Appeals Office of the Internal Revenue Service of certain tax matters for the fiscal 2004 through fiscal 2007 tax years.
Income from Continuing Operations, Net of Tax
Fiscal Year
2012 over 2011
2011 over 2010
2012
2011
2010
$ Change
%
Change
$ Change
%
Change
Change
$ 651,236
$ 860,894
$ 711,225
$ (209,658)
(24)% $ 149,669
21%
24.1%
28.8%
25.8%
$
2.13
$
2.79
$
2.33
$
(0.66)
(24)% $
0.46
20%
Income from Continuing
Operations, net of tax
Income from Continuing
Operations, net of tax as a
% of Revenue
Diluted EPS from
Continuing Operations
The year-over-year decrease in net income from continuing operations in fiscal 2012 from fiscal 2011 was primarily a
result of the $248.0 million decrease in operating income from continuing operations offset by a lower provision for income
taxes in fiscal 2012.
Net income from continuing operations in fiscal 2011 was higher than in fiscal 2010 primarily as a result of the
$172.0 million increase in operating income from continuing operations, offset by lower nonoperating income and a higher
provision for income taxes in fiscal 2011 than in fiscal 2010.
The impact of inflation and foreign currency exchange rate movement on our results of operations during the past three
fiscal years has not been significant.
Discontinued Operations
Total income from Discontinued Operations, net of tax
Diluted earnings per share from Discontinued Operations
Fiscal Year
2012
2011
2010
$
$
— $
— $
6,500
0.02
$
$
859
0.00
We sold our Baseband Chipset Business to MediaTek Inc. and our CPU voltage regulation and PC thermal monitoring
business to certain subsidiaries of ON Semiconductor Corporation during the first quarter of fiscal 2008. Accordingly, the
results of the operations of these businesses have been presented as discontinued operations within the consolidated financial
statements.
32
Acquisitions
In fiscal 2012, we acquired privately-held Multigig, Inc. (Multigig) of San Jose, California. The acquisition of Multigig is
expected to enhance our clocking capabilities in stand-alone and embedded applications and strengthen our high speed signal
processing solutions. The acquisition-date fair value of the consideration transferred totaled $26.8 million, which consisted of
$24.2 million in initial cash payments at closing and an additional $2.6 million subject to an indemnification holdback that is
payable within 15 months of the transaction date, which is included in accrued liabilities in the consolidated balance sheet as of
November 3, 2012. Our assessment of fair value of the tangible and intangible assets acquired and liabilities assumed was
based on their estimated fair values at the date of acquisition, resulting in the recognition of $15.6 million of in-process
research and development (IPR&D), $1.1 million of developed technology, $7.0 million of goodwill and $3.1 million of net
deferred tax assets. During the third quarter of fiscal 2012, we reduced the indemnification holdback amount by $0.1 million as
a result of indemnification claims. During the fourth quarter of fiscal 2012, we finalized our purchase accounting for Multigig
which resulted in adjustments of $0.4 million to deferred taxes and goodwill. In addition, we will be obligated to pay royalties
to the Multigig employees on revenue recognized from the sale of certain Multigig products through the earlier of 5 years or the
aggregate maximum payment of $1.0 million. Royalty payments to Multigig employees require post-acquisition services to be
rendered and, as such, we will record these amounts as compensation expense in the related periods. As of November 3, 2012,
no royalty payments have been made. We recognized $0.5 million of acquisition-related costs that were expensed in the second
quarter of fiscal 2012, which were included in operating expenses in the consolidated statement of income.
In fiscal 2011, we acquired privately-held Lyric Semiconductor, Inc. (Lyric) of Cambridge, Massachusetts. The
acquisition of Lyric gives us the potential to achieve an order of magnitude improvement in power efficiency in mixed signal
processing. The acquisition-date fair value of the consideration transferred totaled $27.8 million, which consisted of $14.0
million in initial cash payments at closing and contingent consideration of up to $13.8 million. The contingent consideration
arrangement requires additional cash payments to the former equity holders of Lyric upon the achievement of certain
technological and product development milestones payable during the period from June 2011 through June 2016. As of
November 3, 2012, we paid $2.0 million in contingent consideration. The payment is reflected in the statements of cash flows
as cash used in financing activities related to the liability recognized at fair value as of the acquisition date and cash provided
by operating activities related to the fair value adjustments previously recognized in earnings. The fair value of the remaining
contingent consideration was approximately $12.2 million of IPR&D as of November 3, 2012, of which $6.8 million is
included in accrued liabilities and $5.4 million is included in other non-current liabilities in the consolidated balance sheet. We
allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair
values at the date of acquisition, resulting in the recognition of $12.2 million of in-process research and development, $18.9
million of goodwill and $3.3 million of net deferred tax liabilities. In addition, we will be obligated to pay royalties to the
former equity holders of Lyric on revenue recognized from the sale of Lyric products and licenses through the earlier of 20
years or the accrual of a maximum of $25.0 million. Royalty payments to Lyric employees require post-acquisition services to
be rendered and, as such, we will record these amounts as compensation expense in the related periods. As of November 3,
2012, no royalty payments have been made. We recognized $0.2 million of acquisition related costs that we expensed in the
third quarter of fiscal 2011. These costs are included in operating expenses in the consolidated statement of income.
We have not provided pro forma results of operations for Multigig and Lyric in this report as they were not material to us
on either an individual or an aggregate basis. We included the results of operations of each acquisition in our consolidated
statement of income from the date of such acquisition.
Liquidity and Capital Resources
At November 3, 2012, our principal source of liquidity was $3,900.4 million of cash and cash equivalents and short-term
investments, of which approximately $1,105.8 million was held in the United States. The balance of our cash and cash
equivalents and short-term investments was held outside the United States in various foreign subsidiaries. As we intend to
reinvest our foreign earnings indefinitely, this cash held outside the United States is not available to meet certain aspects of our
cash requirements in the United States, including cash dividends and common stock repurchases. Our cash and cash equivalents
consist of highly liquid investments with maturities of three months or less at the time of acquisition, including money market
funds, and our short-term investments consist primarily of corporate obligations, such as commercial paper and floating rate
notes, bonds and bank time deposits. We maintain these balances with high credit quality counterparties, 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 long-term financing, will be sufficient to fund operations, capital expenditures, research and
development efforts, dividend payments (if any) and repurchases of our stock (if any) under our stock repurchase program in
the immediate future and for at least the next twelve months.
33
Fiscal Year
2012 over 2011
2011 over 2010
2012
2011
2010
$ Change
%
Change
$ Change
%
Change
Change
$ 814,542
$ 900,529
$ 991,175
$ (85,987)
(10)% $ (90,646)
(9)%
30.2%
30.1%
35.9%
Net Cash Provided by
Operations
Net Cash Provided by
Operations as a % of
Revenue
At November 3, 2012, cash and cash equivalents totaled $528.8 million. The primary sources of funds for fiscal 2012
were net cash generated from operating activities of $814.5 million. In addition, we received $191.2 million in net proceeds
from employee stock option exercises. The principal uses of funds for fiscal 2012 were the repurchase of approximately
4.2 million shares of our common stock for an aggregate of $160.5 million, dividend payments of $344.7 million, principal
payments of $56.5 million related to our $145 million term loan facility, additions to property, plant and equipment of $132.2
million and payments of $24.2 million, net of cash acquired, for the acquisition of Multigig. In addition, we paid $1,183.5
million for the net purchase of short term available-for-sale investments. These factors contributed to the net decrease in cash
and cash equivalents of $876.3 million in fiscal 2012.
Working Capital
Accounts Receivable
Days Sales Outstanding*
Inventory
Days Cost of Sales in Inventory*
_______________________________________
Fiscal Year
2012
2011
$ 339,881
$ 348,416
45
44
$ Change % Change
$ (8,535)
(2)%
$ 313,723
$ 295,081
$ 18,642
6 %
114
105
* We use the annualized fourth quarter revenue in our calculation of days sales outstanding and we use the annualized
fourth quarter cost of sales in our calculation of days cost of sales in inventory.
The decrease in accounts receivable was primarily the result of lower revenue in the fourth quarter of fiscal 2012
compared to the fourth quarter of fiscal 2011. Days sales outstanding increased as a result of higher product shipments made to
our distributors in the final month of the fourth quarter of fiscal 2012 compared to the final month of the fourth quarter of fiscal
2011.
Inventory as of November 3, 2012 increased as compared to the end of the fourth quarter of fiscal 2011 as a result of an
increase in manufacturing production to support anticipated higher sales demand. Days cost of sales in inventory increased
primarily due to lower manufacturing costs which resulted in cost of sales decreasing 2% from the fourth quarter of fiscal 2011
to the fourth quarter of fiscal 2012. In addition, inventory levels increased by 6% for the same period.
Current liabilities of $525.1 million at November 3, 2012, remained flat to the $525.0 million recorded at the end of fiscal
2011, as an increase in deferred income on shipments to distributors, net, which is more fully described below and an increase
in accounts payable was offset by a decrease in accrued liabilities as a result of lower variable compensation expense accruals.
As of November 3, 2012 and October 29, 2011, we had gross deferred revenue of $299.0 million and $309.6 million,
respectively, and gross deferred cost of sales of $60.5 million and $76.4 million, respectively. Deferred income on shipments to
distributors increased in fiscal 2012 primarily as a result of a mix shift in favor of higher margin products in the channel. Sales
to distributors are made under agreements that allow distributors to receive price-adjustment credits and to return qualifying
products for credit, as determined by us, in order to reduce the amounts of slow-moving, discontinued or obsolete product from
their inventory. Given the uncertainties associated with the levels of price-adjustment credits to be granted to distributors, the
sales price to the distributors is not fixed or determinable until the distributors resell the products to their customers. Therefore,
we defer revenue recognition from sales to distributors until the distributors have sold the products to their customers. The
amount of price-adjustments is dependent on future overall market conditions, and therefore the levels of these adjustments
could fluctuate significantly from period to period. To the extent that we experience a significant increase in the amount of
credits we issue to our distributors, there could be a material impact on the ultimate revenue and gross margin recognized
relating to these transactions.
34
Debt
As of November 3, 2012, we had $821.6 million in debt outstanding, of which $14.5 million was current. Our debt
obligations consist of the following:
$375.0 million aggregate principal amount of 5.0% senior unsecured notes
On June 30, 2009, we issued $375.0 million aggregate principal amount of 5.0% senior unsecured notes due July 1, 2014
(the 5.0% Notes) with semi-annual fixed interest payments due on January 1 and July 1 of each year, commencing January 1,
2010. We swapped the fixed interest portion of these notes for a variable interest rate based on the three-month LIBOR plus
2.05%. The variable interest payments based on the variable annual rate were payable quarterly. The LIBOR based rate was set
quarterly three months prior to the date of the interest payment. In the second quarter of fiscal 2012, we terminated the interest
rate swap agreement. We received $19.8 million in cash proceeds from the swap termination, which included $1.3 million in
accrued interest. The proceeds, net of interest received, are disclosed in cash flows from financing activities in the consolidated
statements of cash flows. As a result of the termination, the carrying value of the 5.0% Notes was adjusted for the change in fair
value of the interest component of the debt up to the date of the termination of the swap in an amount equal to the fair value of
the swap, and will be amortized to earnings as a reduction of interest expense over the remaining life of the debt. This
amortization is reflected in the consolidated statements of cash flows within operating activities.
$145.0 million term loan facility
On December 22, 2010, Analog Devices Holdings B.V., our wholly owned subsidiary, entered into a credit agreement
with Bank of America, N.A., London Branch as administrative agent. The credit agreement provides for a $145.0 million term
loan facility, which matures on December 22, 2013. We have guaranteed the borrower’s obligations. The terms of the
agreement provide for a three-year principal amortization schedule with $3.6 million payable quarterly every March, June,
September and December with the balance payable upon the maturity date.
$375.0 million aggregate principal amount of 3.0% senior unsecured notes
On April 4, 2011, we issued $375.0 million aggregate principal amount of 3.0% senior unsecured notes due April 15,
2016 (the 3.0% Notes) with semi-annual fixed interest payments due on April 15 and October 15 of each year, commencing
October 15, 2011.
The indenture governing the 5.0% Notes and 3.0% Notes contains 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 November 3, 2012, we were compliant with these covenants. The terms of the $145.0
million term loan facility include limitations on subsidiary indebtedness and on liens against our assets and the assets of our
subsidiaries, and also include financial covenants that require us to maintain a minimum interest coverage ratio and not exceed
a maximum leverage ratio. As of November 3, 2012, we were compliant with these covenants. See Note 16, Debt, of the Notes
to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on
our outstanding debt.
Revolving Credit Facility
We have a five-year $165.0 million unsecured revolving credit facility that expires in May 2013. To date, we have not
borrowed under this credit facility but we may borrow in the future and use the proceeds for support of commercial paper
issuance, stock repurchases, dividend payments, acquisitions, capital expenditures, working capital and other lawful corporate
purposes. The terms of this facility also include financial covenants that require us to maintain a minimum interest coverage
ratio and not exceed a maximum leverage ratio. As of November 3, 2012, we were compliant with these covenants.
Stock Repurchase Program
Our common stock repurchase program has been in place since August 2004. In the aggregate, our Board of Directors has
authorized us to repurchase $5.0 billion of our common stock under the program. Under the 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 under the program. As of November 3, 2012, we had repurchased a total of approximately
129.2 million shares of our common stock for approximately $4,439.0 million under this program. As of November 3, 2012, an
additional $561.0 million worth of shares remains available for repurchase under the current authorized program. The
repurchased shares are held as authorized but unissued shares of common stock. We also from time to time repurchase shares in
settlement of employee tax withholding obligations due upon the vesting of restricted stock units or the exercise of stock
options, or in certain limited circumstances to satisfy the exercise price of options granted to our employees under our equity
35
compensation plans. Any future common stock repurchases will be based on several factors, including our financial
performance, outlook, liquidity and the amount of cash we have available in the United States.
Capital Expenditures
Net additions to property, plant and equipment were $132.2 million in fiscal 2012 and were funded with a combination of
cash on hand and cash generated from operations. We expect capital expenditures to be in the range of approximately $90
million to $120 million in fiscal 2013 to be used primarily in our manufacturing facilities and to be funded with a combination
of cash on hand and cash generated from operations.
Dividends
On November 26, 2012, our Board of Directors declared a cash dividend of $0.30 per outstanding share of common
stock. The dividend will be paid on December 18, 2012 to all shareholders of record at the close of business on December 7,
2012 and is expected to total approximately $90.4 million. We currently expect quarterly dividends to continue at $0.30 per
share, although they remain subject to determination and declaration by our Board of Directors. The payment of future
dividends, if any, will be based on several factors, including our financial performance, outlook and liquidity.
Contractual Obligations
The table below summarizes our contractual obligations and the amounts we owe under these contracts in specified
periods as of November 3, 2012:
(thousands)
Contractual obligations:
Operating leases (a)
Debt obligations
Interest payments associated with long-term debt
obligations (b)
Deferred compensation plan (c)
Pension funding (d)
Total
_______________________________________
Payment due by period
Less than
More than
Total
1 Year
1-3 Years
3-5 Years
5 Years
$
89,028
$
29,559
$
36,299
$
10,733
$
12,437
810,108
14,500
420,608
375,000
77,763
28,480
2,488
30,775
54
2,488
41,363
5,625
—
—
—
—
28,426
—
$1,007,867
$
77,376
$ 498,270
$ 391,358
$
40,863
—
—
(a)
(b)
(c)
Certain of our operating lease obligations include escalation clauses. These escalating payment requirements are reflected
in the table.
The interest payments related to our term loan facility are based on LIBOR plus a spread of 1.25% (1.46% as of
November 3, 2012). The actual payments will be based on the LIBOR rate corresponding to the tenor of the interest
period chosen, plus a spread of 1.25% which is set two business days prior to the start of the new interest period.
These payments relate to obligations under our deferred compensation plan. The deferred compensation plan allows
certain members of management and other highly-compensated employees and non-employee directors to defer receipt
of all or any portion of their compensation. The amount in the “More than 5 Years” column of the table represents the
remaining total balance under the deferred compensation plan to be paid to participants who have not terminated
employment. Since we cannot reasonably estimate the timing of withdrawals for participants who have not yet
terminated employment, we have included the future obligation to these participants in the “More than 5 Years” column
of the table.
(d) Our funding policy for our foreign defined benefit plans is consistent with the local requirements of each country. The
payment obligations in the table are estimates of our expected contributions to these plans for fiscal year 2013. The
actual future payments may differ from the amounts presented in the table and reasonable estimates of payments beyond
one year are not practical because of potential future changes in variables, such as plan asset performance, interest rates
and the rate of increase in compensation levels.
Purchase orders for the purchase of raw materials and other goods and services are not included in the table above. We
are not able to determine the total amount of these purchase orders that represent contractual obligations, as purchase orders
may represent authorizations to purchase rather than binding agreements. In addition, our purchase orders generally allow for
36
cancellation without significant penalties. We do not have significant agreements for the purchase of raw materials or other
goods specifying minimum quantities or set prices that exceed our expected short-term requirements.
Our 2011 acquisition of Lyric Semiconductor involves the potential payment of contingent consideration. The table above
does not reflect any such obligations, as the timing and amounts are uncertain. See Note 6 in the Notes to our Consolidated
Financial Statements contained in Item 8 of this Annual Report on Form 10-K for more information regarding our acquisitions.
As of November 3, 2012, our total liabilities associated with uncertain tax positions was $10.1 million, which are
included in “Other non-current liabilities” in our consolidated balance sheet contained in Item 8 of this Annual Report on
Form 10-K. Due to the complexity associated with our tax uncertainties, we cannot make a reasonably reliable estimate of the
period in which we expect to settle the non-current liabilities associated with these uncertain tax positions. Therefore, we have
not included these uncertain tax positions in the above contractual obligations table.
The expected timing of payments and the amounts of the obligations discussed above are estimated based on current
information available as of November 3, 2012.
Off-balance Sheet Financing
As of November 3, 2012, we had no off-balance sheet financing arrangements.
Outlook
The following statements are based on current expectations. These statements are forward-looking, and actual results may
differ materially. Unless specifically mentioned, these statements do not give effect to the potential impact of any mergers,
acquisitions, divestitures, or business combinations that may be announced or closed after the date of filing this report. These
statements supersede all prior statements regarding our business outlook made by us.
We are planning for revenue in the first quarter of fiscal 2013 to be down approximately 6% to 12% from the fourth
quarter of fiscal 2012. Our plan is for gross margin percentage for the first quarter of fiscal 2013 to be approximately 62.0%.
We are planning for operating expenses in the first quarter of fiscal 2013 to be approximately $223 million and our tax rate to
be approximately 18%. As a result, our plan is for Diluted EPS to be approximately $0.40 to $0.48 in the first quarter of fiscal
2013.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) 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
2t, New Accounting Pronouncements, of the Notes to our Consolidated Financial Statements contained in Item 8 of this Annual
Report on Form 10-K 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.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of the financial condition and results of operations is based upon the consolidated
financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and
judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future based on
available information. We consider the following accounting policies to be both those most important to the portrayal of our
financial condition and those that require the most subjective judgment. If actual results differ significantly from management’s
estimates and projections, there could be a material effect on our financial statements. We also have other policies that we
consider key accounting policies, such as our policy for revenue recognition, including the deferral of revenue on sales to
distributors until the products are sold to the end user; however, the application of these policies does not require us to make
significant estimates or judgments that are difficult or subjective.
37
Inventory Valuation
We value inventories at the lower of cost (first-in, first-out method) or market. Because of the cyclical nature of the
semiconductor industry, changes in inventory levels, obsolescence of technology, and product life cycles, we write down
inventories to net realizable value. We employ a variety of methodologies to determine the net realizable value of inventory.
While a portion of the calculation is determined via reference to the age of inventory and lower of cost or market calculations,
an element of the calculation is subject to significant judgments made by us about future demand for our inventory. If actual
demand for our products is less than our estimates, additional adjustments to existing inventories may need to be recorded in
future periods. To date, our actual results have not been materially different than our estimates, and we do not expect them to be
materially different in the future.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts, when appropriate, for estimated losses resulting from the inability of our
customers to make required payments. If the financial condition of our customers were to deteriorate, our actual losses may
exceed our estimates, and additional allowances would be required. To date, our actual results have not been materially
different than our estimates, and we do not expect them to be materially different in the future.
Long-Lived Assets
We review property, plant, and equipment and finite lived intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of assets may not be recoverable. Recoverability of these assets is measured by
comparison of their carrying value to future undiscounted cash flows that the assets are expected to generate over their
remaining economic lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the
amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or
a value determined by utilizing a discounted cash flow technique. Although we have recognized no material impairment
adjustments related to our property, plant, and equipment and identified intangible assets during the past three fiscal years,
except those made in conjunction with restructuring actions, deterioration in our business in the future could lead to such
impairment adjustments in future periods. Evaluation of impairment of long-lived assets requires estimates of future operating
results that are used in the preparation of the expected future undiscounted cash flows. Actual future operating results and the
remaining economic lives of our long-lived assets could differ from the estimates used in assessing the recoverability of these
assets. These differences could result in impairment charges, which could have a material adverse impact on our results of
operations. In addition, in certain instances, assets may not be impaired but their estimated useful lives may have decreased. In
these situations, we amortize the remaining net book values over the revised useful lives. We review indefinite-lived intangible
assets for impairment annually, on the first day of the fourth quarter (on or about August 1) or more frequently if indicators of
impairment exist. The impairment test involves the comparison of the fair value of the intangible asset with its carrying
amount.
Goodwill
Goodwill is subject to annual impairment tests or more frequently if indicators of potential impairment exist and suggest
that the carrying value of goodwill may not be recoverable from estimated discounted future cash flows. We test goodwill for
impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis in the
fourth quarter (on or about August 1) or more frequently if we believe indicators of impairment exist. For our latest annual
impairment assessment that occurred on August 5, 2012, we identified our reporting units to be our five operating segments,
which meet the aggregation criteria for one reportable segment. The performance of the test involves a two-step process. The
first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate
carrying values, including goodwill. We generally determine the fair value of our reporting units using the income approach
methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation
methodologies, which requires significant judgment by management. If the carrying amount of a reporting unit exceeds the
reporting unit’s fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment
loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s
goodwill with the carrying value of that goodwill. These impairment tests may result in impairment losses that could have a
material adverse impact on our results of operations.
38
Value of Contingent Consideration related to Business Combination
We record contingent consideration resulting from a business combination at its fair value on the acquisition date. We
generally determine the fair value of the contingent consideration using the income approach methodology of valuation. Each
reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value as an adjustment to
operating expenses within the consolidated statement of income. Changes in the fair value of the contingent consideration can
result from changes in assumed discount periods and rates, and from changes pertaining to the achievement of the defined
milestones. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date
and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the
assumptions described above, can materially impact the amount of contingent consideration expense we record in any given
period.
Accounting for Income Taxes
We must make certain estimates and judgments in determining income tax expense for financial statement purposes.
These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain
tax assets and liabilities, which arise from differences in the timing of the recognition of revenue and expense for tax and
financial statement purposes, as well as the interest and penalties relating to these uncertain tax positions. We assessed the
likelihood of the realization of deferred tax assets and concluded that a valuation allowance is needed to reserve the amount of
the deferred tax assets that may not be realized due to the uncertainty of the timing and amount of the realization of certain state
credit carryovers. In reaching our conclusion, we evaluated certain relevant criteria including the existence of deferred tax
liabilities that can be used to absorb deferred tax assets, the taxable income in prior carryback years in the impacted state
jurisdictions that can be used to absorb net operating losses and taxable income in future years. Our judgments regarding future
profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. These
changes, if any, may require material adjustments to these deferred tax assets, resulting in a reduction in net income or an
increase in net loss in the period when such determinations are made, which in turn, may result in an increase or decrease to our
tax provision in a subsequent period.
We account for uncertain tax positions by determining if it is “more likely than not” that a tax position will be sustained
by the appropriate taxing authorities prior to recording any benefit in the financial statements. An uncertain income tax position
is not recognized if it has less than a 50% likelihood of being sustained. For those tax positions where it is more likely than not
that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of
being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those
income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized
in the financial statements. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors
including, but not limited to, changes in known facts or circumstances, changes in tax law, effectively settled issues under audit,
and new audit activity. A change in these factors would result in the recognition of a tax benefit or an additional charge to the
tax provision.
In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is
uncertain. Some of these uncertainties arise as a consequence of cost reimbursement and royalty arrangements among related
entities. Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these
matters will not be different than that which is reflected in our historical income tax provisions and accruals. In the event our
assumptions are incorrect, the differences could have a material impact on our income tax provision and operating results in the
period in which such determination is made. In addition to the factors described above, our current and expected effective tax
rate is based on then-current tax law. Significant changes during the year in enacted tax law could affect these estimates.
Stock-Based Compensation
Stock-based compensation expense associated with stock options and related awards is recognized in the statement of
income. Determining the amount of stock-based compensation to be recorded requires us to develop estimates to be used in
calculating the grant-date fair value of stock options. We calculate the grant-date fair values using the Black-Scholes valuation
model. The use of valuation models requires us to make estimates of the following items:
39
Expected volatility — We are responsible for estimating volatility and have considered a number of factors, including
third-party estimates, when estimating volatility. We currently believe that the exclusive use of implied volatility results in the
best estimate of the grant-date fair value of employee stock options because it reflects the market’s current expectations of
future volatility. In evaluating the appropriateness of exclusively relying on implied volatility, we concluded that: (1) options in
our common stock are actively traded with sufficient volume on several exchanges; (2) the market prices of both the traded
options and the underlying shares are measured at a similar point in time to each other and on a date close to the grant date of
the employee share options; (3) the traded options have exercise prices that are both near-the-money and close to the exercise
price of the employee share options; and (4) the remaining maturities of the traded options used to estimate volatility are at
least one year.
Expected term — We use historical employee exercise and option expiration data to estimate the expected term
assumption for the Black-Scholes grant-date valuation. We believe that this historical data is currently the best estimate of the
expected term of a new option, and that generally, all of our employees exhibit similar exercise behavior. In general, the longer
the expected term used in the Black-Scholes valuation model, the higher the grant-date fair value of the option.
Risk-free interest rate — The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the
expected term assumption is used as the risk-free interest rate.
Expected dividend yield — Expected dividend yield is calculated by annualizing the cash dividend declared by our Board
of Directors for the current quarter and dividing that result by the closing stock price on the date of grant of the option. Until
such time as our Board of Directors declares a cash dividend for an amount that is different from the current quarter’s cash
dividend, the current dividend will be used in deriving this assumption. Cash dividends are not paid on options, restricted stock
or restricted stock units.
The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the
awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or
“expirations” and represents only the unvested portion of the surrendered option. Based on an analysis of our historical
forfeitures, we have applied an annual forfeiture rate of 4.4% to all unvested stock-based awards as of November 3, 2012. The
rate of 4.4% represents the portion that is expected to be forfeited each year over the vesting period. This analysis is re-
evaluated quarterly and the forfeiture rate is adjusted as necessary. Ultimately, the actual expense recognized over the vesting
period will only be for those awards that vest.
Contingencies
From time to time, we receive demands from third parties alleging that our products or manufacturing processes infringe
the patent or intellectual property rights of these parties. We periodically assess each matter to determine if a contingent
liability should be recorded. In making this determination, we may, depending on the nature of the matter, consult with internal
and external legal counsel and technical experts. Based on the information we obtain, combined with our judgment regarding
all the facts and circumstances of each matter, we determine whether it is probable that a contingent loss may be incurred and
whether the amount of such loss can be reasonably estimated. If a loss is probable and reasonably estimable, we record a
contingent loss. In determining the amount of a contingent loss, we consider advice received from experts in the specific
matter, current status of legal proceedings, settlement negotiations that may be ongoing, prior case history and other factors. If
the judgments and estimates made by us are incorrect, we may need to record additional contingent losses that could materially
adversely impact our results of operations.
40
Post-Retirement Benefits
We have significant pension costs and liabilities related to our foreign defined benefit pension plans that are developed
from actuarial valuations specific to each country. Inherent in these valuations are key assumptions including discount rates,
expected return on plan assets, mortality rates, merit and promotion increases. We are required to consider current market
conditions, including changes in interest rates, in making our assumptions. Changes in the related pension costs or liabilities
may occur in the future due to changes in our assumptions. Our assumptions as to the expected long-term rates of return on
plan assets are based upon the composition of plan assets, historical long-term rates of return on similar assets and current and
expected market conditions. The discount rate used for non-U.S. plans reflects the market rate for high-quality fixed-income
investments on our annual measurement date (November 3) and is subject to change each year. The discount rates used for
plans outside the U.S. are based on a combination of relevant indices regarding corporate and government securities, the
duration of the liability and appropriate judgment. Changes in pension income/costs or assets/liabilities may occur in the future
due to changes in the assumptions and changes in asset values. If the actual results and events of our pension plan differ from
our current assumptions, our benefit obligations may be over-or under-valued. See the disclosures about pension obligations,
the composition of plan assets, assumptions and other matters in Note 13 of the Notes to Consolidated Financial Statements
contained in Item 8 of this Annual Report on Form 10-K.
We performed a sensitivity analysis on the discount rate and long-term rate of return on assets, which are key
assumptions in determining our net periodic post-retirement benefit cost. The table below illustrates the impact of an increase/
(decrease) of 25 basis points in these assumptions for the year ended November 3, 2012.
Long-term rate of return on assets used to determine net periodic
benefit cost
Discount rate used to determine net periodic benefit cost
$
$
(0.5) $
(1) $
0.5
1
Increase/(Decrease) in Pension Expense
25 Basis Point Increase
25 Basis Point Decrease
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Exposure
Our interest income and expense are sensitive to changes in the general level of interest rates. In this regard, changes in
interest rates affect the interest earned on our marketable securities and short term investments, as well as the fair value of our
investments, debt and interest-rate swap agreement.
Based on our marketable securities and short-term investments outstanding as of November 3, 2012 and October 29,
2011, our annual interest income would change by approximately $41 million and $38 million, respectively, for each 100 basis
point increase in interest rates.
To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a
sensitivity analysis to determine the impact a change in interest rates would have on the value of our investment portfolio
assuming a 100 basis point parallel shift in the yield curve. Based on investment positions as of November 3, 2012 and
October 29, 2011, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $10 million
decline in each year in the fair market value of the portfolio. Such losses would only be realized if we sold the investments
prior to maturity.
As of November 3, 2012, we had $750 million in principal amount of senior unsecured notes outstanding, which
consisted of $375 million 5% senior unsecured notes, due July 1, 2014 and $375 million 3% senior unsecured notes, due
April 15, 2016. As of November 3, 2012, a hypothetical 100 basis point increase in market interest rates would reduce the fair
value of our $375 million of 3% senior unsecured notes outstanding by approximately $13 million. As of November 3, 2012 a
similar increase in market interest rates would change the fair value of our $375 million 5% senior unsecured notes by $6
million.
41
Foreign Currency Exposure
As more fully described in Note 2i in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual
Report on Form 10-K, we regularly hedge our non-U.S. dollar-based exposures by entering into forward foreign currency
exchange contracts. The terms of these contracts are for periods matching the duration of the underlying exposure and generally
range from one month to twelve months. Currently, our largest foreign currency exposure is the Euro, primarily because our
European operations have the highest proportion of our local currency denominated expenses. Relative to foreign currency
exposures existing at November 3, 2012 and October 29, 2011, a 10% unfavorable movement in foreign currency exchange
rates over the course of the year would expose us to approximately $1 million in losses in earnings or cash flows.
The market risk associated with our derivative instruments results from currency exchange rates that are expected to
offset the market risk of the underlying transactions, assets and liabilities being hedged. The counterparties to the agreements
relating to our foreign exchange instruments consist of a number of major international financial institutions with high credit
ratings. Based on the credit ratings of our counterparties as of November 3, 2012, we do not believe that there is significant risk
of nonperformance by them. While the contract or notional amounts of derivative financial instruments provide one measure of
the volume of these transactions, they do not represent the amount of our exposure to credit risk. The amounts potentially
subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally
limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed our obligations to the
counterparties.
The following table illustrates the effect that a 10% unfavorable or favorable movement in foreign currency exchange
rates, relative to the U.S. dollar, would have on the fair value of our forward exchange contracts as of November 3, 2012 and
October 29, 2011:
Fair value of forward exchange contracts asset
Fair value of forward exchange contracts liability
Fair value of forward exchange contracts after a 10% unfavorable movement in foreign
currency exchange rates asset
Fair value of forward exchange contracts after a 10% favorable movement in foreign
currency exchange rates liability
November 3, 2012 October 29, 2011
$
$
$
$
1,061
$
— $
2,472
—
16,800
$
17,859
(13,885) $
(13,332)
The calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In
addition to the direct effects of changes in exchange rates, such changes typically affect the volume of sales or the foreign
currency sales price as competitors’ products become more or less attractive. Our sensitivity analysis of the effects of changes
in foreign currency exchange rates does not factor in a potential change in sales levels or local currency selling prices.
42
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended November 3, 2012, October 29, 2011 and October 30, 2010
(thousands, except per share amounts)
2012
2011
2010
Revenue
Revenue
Costs and Expenses
Cost of sales(1)
Gross margin
Operating expenses:
Research and development(1)
Selling, marketing, general and administrative(1)
Special charges
Operating income from continuing operations
Nonoperating (income) expenses:
Interest expense
Interest income
Other, net
Earnings
$
2,701,142
$
2,993,320
$
2,761,503
960,141
1,741,001
512,003
396,519
8,431
916,953
824,048
26,422
(14,448)
(1,459)
10,515
1,006,779
1,986,541
505,570
406,707
2,239
914,516
1,072,025
19,146
(9,060)
492
10,578
962,081
1,799,422
492,305
390,560
16,483
899,348
900,074
10,429
(9,837)
(2,183)
(1,591)
Income from continuing operations before income taxes
813,533
1,061,447
901,665
Provision for income taxes:
Payable currently
Deferred
Income from continuing operations, net of tax
Gain on sale of discontinued operations, net of tax
Net income
Shares used to compute earnings per share — Basic
Shares used to compute earnings per share — Diluted
Earnings per share — Basic
Income from continuing operations, net of tax
Net income
Earnings per share — Diluted
Income from continuing operations, net of tax
Net income
Dividends declared and paid per share
(1) Includes stock-based compensation expense as follows:
Cost of sales
Research and development
Selling, marketing, general and administrative
172,098
(9,801)
162,297
651,236
—
198,849
1,704
200,553
860,894
6,500
651,236
$
867,394
$
298,761
306,191
299,417
308,236
2.18
2.18
2.13
2.13
1.15
7,254
23,169
23,077
$
$
$
$
$
$
$
$
2.88
2.90
2.79
2.81
0.94
7,294
23,289
21,775
$
$
$
$
$
$
$
$
200,306
(9,866)
190,440
711,225
859
712,084
297,387
305,861
2.39
2.39
2.33
2.33
0.84
7,333
23,342
21,077
$
$
$
$
$
$
$
$
$
See accompanying Notes.
43
ANALOG DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
November 3, 2012 and October 29, 2011
(thousands, except per share amounts)
2012
2011
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Accounts receivable less allowances of $2,721 ($1,465 in 2011)
Inventories(1)
Deferred tax assets
Prepaid income tax
Prepaid expenses and other current assets
Total current assets
Property, Plant and Equipment, at Cost
Land and buildings
Machinery and equipment
Office equipment
Leasehold improvements
Less accumulated depreciation and amortization
Net property, plant and equipment
Other Assets
Deferred compensation plan investments
Other investments
Goodwill
Intangible assets, net
Deferred tax assets
Other assets
Total other assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable
Deferred income on shipments to distributors, net
Income taxes payable
Current portion of long-term debt
Accrued liabilities
Total current liabilities
Non-current Liabilities
Long-term debt
Deferred income taxes
Deferred compensation plan liability
Other non-current liabilities
Total non-current liabilities
Commitments and contingencies (Note 12)
Shareholders’ Equity
Preferred stock, $1.00 par value, 471,934 shares authorized, none outstanding
Common stock, $0.162/3 par value, 1,200,000,000 shares authorized, 301,389,176 shares issued and outstanding
(297,960,718 on October 29, 2011)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
_______________________________________
$
528,833
$
3,371,545
339,881
313,723
90,335
8,624
43,244
1,405,100
2,187,362
348,416
295,081
82,171
22,002
46,216
4,696,185
4,386,348
447,818
1,681,661
50,042
48,630
2,228,151
1,727,284
500,867
28,426
1,816
283,833
28,772
43,531
36,917
423,295
$
$
5,620,347
$
117,034
$
238,541
6,097
14,500
148,907
525,079
807,098
1,130
28,426
93,255
929,909
430,453
1,606,150
51,960
48,338
2,136,901
1,658,062
478,839
26,410
2,951
275,087
12,200
37,645
58,155
412,448
5,277,635
113,056
233,249
6,584
14,500
157,616
525,005
871,876
1,260
26,428
57,653
957,217
—
—
50,233
390,651
3,788,869
(64,394)
4,165,359
$
5,620,347
$
49,661
289,587
3,482,334
(26,169)
3,795,413
5,277,635
(1) Includes $2,517 and $2,431 related to stock-based compensation at November 3, 2012 and October 29, 2011, respectively.
See accompanying Notes.
44
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years ended November 3, 2012, October 29, 2011 and October 30, 2010
(thousands)
Common Stock
Capital in
Excess of
Shares
Amount
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
BALANCE, OCTOBER 31, 2009
291,862
$
48,645
$
56,306
$ 2,434,446
$
(10,248)
Activity in Fiscal 2010
Net Income — 2010
Dividends declared and paid
712,084
(249,964)
Issuance of stock under stock plans and other, net of
repurchases
8,066
1,344
214,803
Tax deficit— stock options
Stock-based compensation expense
Other comprehensive income
Common stock repurchased
BALANCE, OCTOBER 30, 2010
Activity in Fiscal 2011
Net Income — 2011
Dividends declared and paid
3,744
51,752
(1,275)
298,653
(212)
49,777
(39,636)
286,969
2,896,566
(33,595)
(23,347)
867,394
(281,626)
Issuance of stock under stock plans and other, net of
repurchases
8,316
1,385
215,779
Tax benefit — stock options
Stock-based compensation expense
Other comprehensive loss
Common stock repurchased
BALANCE, OCTOBER 29, 2011
Activity in Fiscal 2012
Net Income — 2012
Dividends declared and paid
63,236
52,358
(9,008)
297,961
(1,501)
49,661
(328,755)
289,587
3,482,334
(26,169)
7,426
651,236
(344,701)
Issuance of stock under stock plans and other, net of
repurchases
7,648
1,275
189,945
Tax benefit — stock options
Stock-based compensation expense
Other comprehensive income
Common stock repurchased
17,452
53,500
(4,220)
(703)
(159,833)
(38,225)
BALANCE, NOVEMBER 3, 2012
301,389
$
50,233
$ 390,651
$ 3,788,869
$
(64,394)
See accompanying Notes.
45
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended November 3, 2012, October 29, 2011 and October 30, 2010
(thousands)
Income from continuing operations, net of tax
Foreign currency translation adjustment
Net unrealized (losses) gains on securities:
Net unrealized holding gains (losses) (net of taxes of $115 in 2012, $67 in
2011 and $6 in 2010) on available-for-sale securities classified as short-
term investments
Net unrealized holding (losses) gains (net of taxes of $301 in 2012, $64 in
2011 and $175 in 2010) on securities classified as other investments
Net unrealized (losses) gains on securities
Derivative instruments designated as cash flow hedges:
2012
2011
2010
$
651,236
$
3,020
860,894
(647)
$
711,225
6,085
525
(558)
(33)
(459)
(118)
(577)
(50)
325
275
Changes in fair value of derivatives (net of taxes of $1,233 in 2012, $539
in 2011 and $449 in 2010)
(7,923)
3,347
(1,339)
Realized loss (gain) reclassification (net of taxes of $1,160 in 2012,
$1,171 in 2011 and $458 in 2010)
Net change in derivative instruments designated as cash flow hedges
Accumulated other comprehensive (loss) income — pension plans:
Transition asset (obligation) (net of taxes of $1 in 2012, $1 in 2011 and
$34 in 2010)
Net actuarial (loss) gain (net of taxes of $7,243 in 2012, $1,770 in
2011 and $4,594 in 2010)
Net prior service income (net of taxes of $584 in 2012, $0 in 2011 and
$0 in 2010)
Net change in accumulated other comprehensive (loss) income — pension
plans (net of taxes of $6,658 in 2012, $1,771 in 2011 and $4,560 in 2010)
Other comprehensive (loss) income
Comprehensive income from continuing operations
Gain on sale of discontinued operations, net of tax
7,401
(522)
(7,793)
(4,446)
1,863
524
15
12
(80)
(44,784)
13,084
(30,151)
4,079
—
—
(40,690)
(38,225)
613,011
—
13,096
7,426
868,320
6,500
(30,231)
(23,347)
687,878
859
Comprehensive income
$
613,011
$
874,820
$
688,737
See accompanying Notes.
46
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 3, 2012 October 29, 2011 and October 30, 2010
(thousands)
Operations
Cash flows from operating activities:
2012
2011
2010
Net income
Adjustments to reconcile net income to net cash provided by operations:
$
651,236
$
867,394
$
712,084
Depreciation
Amortization of intangibles
Stock-based compensation expense
Gain on sale of business
Gain on sale of investments
Non-cash portion of special charges
Other non-cash activity
Excess tax benefit — stock options
Deferred income taxes
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable
Increase in inventories
Decrease (increase) in prepaid expenses and other current assets
Increase in deferred compensation plan investments
Increase (decrease) in prepaid income tax
Increase (decrease) in accounts payable, deferred income and accrued liabilities
Increase in deferred compensation plan liability
Increase in income taxes payable
Decrease in other liabilities
Total adjustments
Net cash provided by operating activities
Investing Activities
Cash flows from investing:
Purchases of short-term available-for-sale investments
Maturities of short-term available-for-sale investments
Sales of short-term available-for-sale investments
Additions to property, plant and equipment, net
Net proceeds related to sale of businesses
Proceeds related to sale of investments
Payments for acquisitions, net of cash acquired
(Increase) decrease in other assets
Net cash used for investing activities
Financing Activities
Cash flows from financing activities:
Proceeds from long-term debt
Early termination of swap agreements
Term loan repayments
Dividend payments to shareholders
Repurchase of common stock
Net proceeds from employee stock plans
Contingent consideration payment
(Decrease) Increase in other financing activities
Excess tax benefit — stock options
Net cash (used for) provided by financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying Notes.
47
$
109,705
128
53,500
—
(1,231)
219
(3,187)
(12,230)
(9,801)
5,774
(18,592)
8,471
(2,070)
13,319
60
2,052
25,930
(8,741)
163,306
814,542
116,873
1,346
52,358
(6,500)
—
—
833
(44,936)
1,704
40,025
(17,603)
822
(17,720)
(16,681)
(90,323)
17,738
893
(5,694)
33,135
900,529
116,083
4,828
51,752
(859)
—
487
1,662
(317)
(9,866)
(82,380)
(24,274)
(4,002)
(747)
—
190,043
750
61,984
(26,053)
279,091
991,175
(8,165,043)
6,543,795
437,748
(132,176)
—
1,506
(24,158)
(1,362)
(1,339,690)
—
18,520
(56,500)
(344,701)
(160,536)
191,220
(1,991)
(7,869)
12,230
(349,627)
(1,492)
(876,267)
1,405,100
528,833
(4,289,304)
3,436,284
282,861
(122,996)
10,000
—
(13,988)
(6,595)
(703,738)
515,507
—
(28,392)
(281,626)
(330,256)
217,164
—
1,279
44,936
138,612
(303)
335,100
1,070,000
1,405,100
$
(3,478,025)
2,801,727
234,718
(111,557)
63,036
—
—
4,276
(485,825)
—
—
—
(249,964)
(39,848)
216,147
—
710
317
(72,638)
(2,441)
430,271
639,729
1,070,000
$
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended November 3, 2012, October 29, 2011 and October 30, 2010
(all tabular amounts in thousands except per share amounts)
1. Description of Business
Analog Devices, Inc. (“Analog Devices” or the “Company”) is a world leader in the design, manufacture and marketing
of a broad portfolio of high-performance analog, mixed-signal and digital signal processing integrated circuits (ICs) used in
virtually all types of electronic equipment. Since the Company’s inception in 1965, it has focused on solving the engineering
challenges associated with signal processing in electronic equipment. The Company’s signal processing products play a
fundamental role in converting, conditioning, and processing real-world phenomena such as temperature, pressure, sound, light,
speed and motion into electrical signals to be used in a wide array of electronic devices. As new generations of digital
applications evolve, new needs for high-performance analog signal processing and digital signal processing (DSP) technology
are generated. As a result, the Company produces a wide range of innovative products — including data converters, amplifiers
and linear products, radio frequency (RF) ICs, power management products, sensors based on micro-electro mechanical
systems (MEMS) technology and other sensors, and processing products, including DSP and other processors — that are
designed to meet the needs of a broad base of customers.
The Company’s products are embedded inside many types of electronic equipment including:
• Industrial process control systems
• Factory automation systems
• Medical imaging equipment
• Patient monitoring devices
• Instrumentation and measurement systems
• Wireless infrastructure equipment
• Energy management systems
• Networking equipment
• Aerospace and defense electronics
• Automobiles
• Digital televisions
• Optical systems
• Digital cameras
• Portable electronic devices
2. Summary of Significant Accounting Policies
a. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its subsidiaries. Upon
consolidation, all intercompany accounts and transactions are eliminated. Certain amounts reported in previous years have been
reclassified to conform to the fiscal 2012 presentation. Such reclassified amounts were immaterial. The Company’s fiscal year
is the 52-week or 53-week period ending on the Saturday closest to the last day in October. Fiscal year 2012 was a 53-week
period. Fiscal years 2011 and 2010 were 52-week periods. The additional week in fiscal 2012 was included in the first quarter
ended February 4, 2012.
The Company sold its baseband chipset business and related support operations (Baseband Chipset Business) to
MediaTek Inc. and sold its CPU voltage regulation and PC thermal monitoring business to certain subsidiaries of ON
Semiconductor Corporation during the first quarter of fiscal 2008. The Company has reflected the financial results of these
businesses as discontinued operations in the consolidated statements of income for all periods presented. The historical results
of operations of these businesses have been segregated from the Company’s consolidated financial statements and are included
in income from discontinued operations, net of tax, in the consolidated statements of income.
b. Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents are highly liquid investments with insignificant interest rate risk and maturities of three months
or less at the time of acquisition. Cash, cash equivalents and short-term investments consist primarily of institutional money
market funds, corporate obligations such as commercial paper and bonds and bank time deposits.
The Company classifies its investments in readily marketable debt and equity securities as “held-to-maturity,” “available-
for-sale” or “trading” at the time of purchase. There were no transfers between investment classifications in any of the fiscal
years presented. Held-to-maturity securities, which are carried at amortized cost, include only those securities the Company has
the positive intent and ability to hold to maturity. Securities such as bank time deposits, which by their nature are typically held
to maturity, are classified as such. The Company’s other readily marketable cash equivalents and short-term investments are
classified as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses, net of
related tax, reported in accumulated other comprehensive (loss) income.
48
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s deferred compensation plan investments are classified as trading. See Note 7 for additional information
on the Company’s deferred compensation plan investments. There were no cash equivalents or short-term investments
classified as trading at November 3, 2012 or October 29, 2011.
The Company periodically evaluates its investments for impairment. There were no other-than-temporary impairments of
short-term investments in any of the fiscal years presented.
Realized gains or losses recognized in non-operating income from the sales of available-for-sale securities were not
material during any of the fiscal years presented.
Unrealized gains and losses on available-for-sale securities classified as short-term investments at November 3, 2012 and
October 29, 2011 were as follows:
Unrealized gains on securities classified as short-term investments
Unrealized losses on securities classified as short-term investments
Net unrealized losses on securities classified as short-term investments
2012
2011
$
$
581
(519)
62
$
$
22
(600)
(578)
Unrealized gains and losses in fiscal years 2012 and 2011 relate to corporate obligations.
The components of the Company’s cash and cash equivalents and short-term investments as of November 3, 2012 and
October 29, 2011 were as follows:
Cash and cash equivalents:
Cash
Available-for-sale
Held-to-maturity
Total cash and cash equivalents
Short-term investments:
Available-for-sale
Held-to-maturity (less than one year to maturity)
Total short-term investments
2012
2011
$
$
$
$
35,413
490,904
2,516
528,833
3,370,551
994
3,371,545
$
$
$
$
17,857
1,374,069
13,174
1,405,100
2,186,782
580
2,187,362
See Note 2j for additional information on the Company’s cash equivalents and short-term investments.
c. Supplemental Cash Flow Statement Information
Cash paid during the fiscal year for:
Income taxes
Interest
d.
Inventories
2012
2011
2010
$
$
143,899
29,177
$
$
223,716
16,492
$
$
137,149
9,199
Inventories are valued at the lower of cost (first-in, first-out method) or market. The valuation of inventory requires the
Company to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The Company employs a
variety of methodologies to determine the net realizable value of its inventory. While a portion of the calculation to record
inventory at its net realizable value is based on the age of the inventory and lower of cost or market calculations, a key factor in
estimating obsolete or excess inventory requires the Company to estimate the future demand for its products. If actual demand
is less than the Company’s estimates, impairment charges, which are recorded to cost of sales, may need to be recorded in
future periods. Inventory in excess of saleable amounts is not valued, and the remaining inventory is valued at the lower of cost
or market.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inventories at November 3, 2012 and October 29, 2011 were as follows:
ANALOG DEVICES, INC.
Raw materials
Work in process
Finished goods
Total inventories
e. Property, Plant and Equipment
2012
2011
28,111
$
185,773
99,839
28,085
170,398
96,598
313,723
$
295,081
$
$
Property, plant and equipment is recorded at cost less allowances for depreciation. The straight-line method of
depreciation is used for all classes of assets for financial statement purposes while both straight-line and accelerated methods
are used for income tax purposes. Leasehold improvements are amortized based upon the lesser of the term of the lease or the
useful life of the asset. Repairs and maintenance charges are expensed as incurred. Depreciation and amortization are based on
the following useful lives:
Buildings & building equipment
Machinery & equipment
Office equipment
Up to 25 years
3-8 years
3-8 years
Depreciation expense for property, plant and equipment was $109.7 million, $116.9 million and $116.1 million in fiscal
2012, 2011 and 2010, respectively.
The Company reviews property, plant and equipment for impairment whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable. Recoverability of these assets is measured by comparison of
their carrying amount to the future undiscounted cash flows the assets are expected to generate over their remaining economic
lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the
carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by
utilizing a discounted cash flow technique. If such assets are not impaired, but their useful lives have decreased, the remaining
net book value is amortized over the revised useful life.
f. Goodwill and Intangible Assets
Goodwill
The Company evaluates goodwill for impairment annually as well as whenever events or changes in circumstances
suggest that the carrying value of goodwill may not be recoverable. The Company tests goodwill for impairment at the
reporting unit level (operating segment or one level below an operating segment) on an annual basis on the first day of the
fourth quarter (on or about August 1) or more frequently if indicators of impairment exist. For the Company’s latest annual
impairment assessment that occurred on August 5, 2012, the Company identified its reporting units to be its five operating
segments, which meet the aggregation criteria for one reportable segment. The performance of the test involves a two-step
process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their
aggregate carrying values, including goodwill. The Company determines the fair value of its reporting units using the income
approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation
methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs the
second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill
impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of
that goodwill. No impairment of goodwill resulted in any of the fiscal years presented. The Company’s next annual impairment
assessment will be performed as of the first day of the fourth quarter of fiscal 2013 unless indicators arise that would require the
Company to reevaluate at an earlier date. The following table presents the changes in goodwill during fiscal 2012 and fiscal
2011:
50
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Balance at beginning of year
Acquisition of Lyric Semiconductor (Note 6)
Acquisition of Multigig, Inc. (Note 6)
Foreign currency translation adjustment
Balance at end of year
Intangible Assets
$
2012
275,087
—
2011
$ 255,580
18,865
7,298
1,448
—
642
$
283,833
$ 275,087
The Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate
that the carrying value of assets may not be recoverable. Recoverability of these assets is measured by comparison of their
carrying value to future undiscounted cash flows the assets are expected to generate over their remaining economic lives. If
such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying
value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing
a discounted cash flow technique. As of October 29, 2011, the Company’s finite-lived intangible assets were fully amortized. As
of November 3, 2012, the Company’s finite-lived intangible assets consisted of the following which related to the acquisition of
Multigig, Inc. (Note 6):
Technology-based
November 3, 2012
Gross Carrying
Amount
Accumulated
Amortization
$
1,100
$
128
Amortization expense related to finite-lived intangible assets was $0.1 million, $1.3 million and $4.8 million in fiscal
2012, 2011 and 2010, respectively. The remaining amortization expense will be recognized over a weighted-average period of
approximately 2.3 years.
The Company expects annual amortization expense for intangible assets to be:
Fiscal Year
2013
2014
2015
2016
2017
Amortization Expense
220
$
220
$
220
$
220
$
92
$
Indefinite-lived intangible assets are tested for impairment on an annual basis on the first day of the fourth quarter (on or
about August 1) or more frequently if indicators of impairment exist. The impairment test involves the comparison of the fair
values of the intangible assets with their carrying amount. No impairment of intangible assets resulted in any of the fiscal years
presented.
Intangible assets, excluding in-process research and development (IPR&D), are amortized on a straight-line basis over
their estimated useful lives or on an accelerated method of amortization that is expected to reflect the estimated pattern of
economic use. IPR&D assets are considered indefinite-lived intangible assets until completion or abandonment of the
associated R&D efforts. Upon completion of the projects, the IPR&D assets will be amortized over their estimated useful lives.
Indefinite-lived intangible assets consisted of $27.8 million and $12.2 million of IPR&D as of November 3, 2012 and
October 29, 2011, respectively.
g. Grant Accounting
Certain of the Company’s foreign subsidiaries have received grants from governmental agencies. These grants include
capital, employment and research and development grants. Capital grants for the acquisition of property and equipment are
netted against the related capital expenditures and amortized as a credit to depreciation expense over the useful life of the
51
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
related asset. Employment grants, which relate to employee hiring and training, and research and development grants are
recognized in earnings in the period in which the related expenditures are incurred by the Company.
h. Translation of Foreign Currencies
The functional currency for the Company’s foreign sales and research and development operations is the applicable local
currency. Gains and losses resulting from translation of these foreign currencies into U.S. dollars are recorded in accumulated
other comprehensive (loss) income. Transaction gains and losses and re-measurement of foreign currency denominated assets
and liabilities are included in income currently, including those at the Company’s principal foreign manufacturing operations
where the functional currency is the U.S. dollar. Foreign currency transaction gains or losses included in other expenses, net,
were not material in fiscal 2012, 2011 or 2010.
i. Derivative Instruments and Hedging Agreements
Foreign Exchange Exposure Management — The Company enters into forward foreign currency exchange contracts to
offset certain operational and balance sheet exposures from the impact of changes in foreign currency exchange rates. Such
exposures result from the portion of the Company’s operations, assets and liabilities that are denominated in currencies other
than the U.S. dollar, primarily the Euro; other significant exposures include the Philippine Peso and the British Pound. These
foreign currency exchange contracts are entered into to support transactions made in the normal course of business, and
accordingly, are not speculative in nature. The contracts are for periods consistent with the terms of the underlying transactions,
generally one year or less. Hedges related to anticipated transactions are designated and documented at the inception of the
respective hedges as cash flow hedges and are evaluated for effectiveness monthly. Derivative instruments are employed to
eliminate or minimize certain foreign currency exposures that can be confidently identified and quantified. As the terms of the
contract and the underlying transaction are matched at inception, forward contract effectiveness is calculated by comparing the
change in fair value of the contract to the change in the forward value of the anticipated transaction, with the effective portion
of the gain or loss on the derivative instrument reported as a component of accumulated other comprehensive (loss) income
(OCI) in shareholders’ equity and reclassified into earnings in the same period during which the hedged transaction effects
earnings. Any residual change in fair value of the instruments, or ineffectiveness, is recognized immediately in other (income)
expense. Additionally, the Company enters into forward foreign currency contracts that economically hedge the gains and
losses generated by the re-measurement of certain recorded assets and liabilities in a non-functional currency. Changes in the
fair value of these undesignated hedges are recognized in other (income) expense immediately as an offset to the changes in the
fair value of the asset or liability being hedged. As of November 3, 2012 and October 29, 2011, the total notional amount of
these undesignated hedges was $31.5 million and $41.2 million, respectively. The fair value of these hedging instruments in the
Company’s consolidated balance sheets as of November 3, 2012 and October 29, 2011 was immaterial.
Interest Rate Exposure Management — On June 30, 2009, the Company entered into interest rate swap transactions
related to its outstanding 5.0% senior unsecured notes where the Company swapped the notional amount of its $375.0 million
of fixed rate debt at 5.0% into floating interest rate debt through July 1, 2014. Under the terms of the swaps, the Company
would (i) receive on the $375.0 million notional amount a 5.0% annual interest payment that is paid in two installments on the
1st business day of every January and July, commencing January 1, 2010 through and ending on the maturity date; and (ii) pay
on the $375.0 million notional amount an annual three months LIBOR plus 2.05% interest payment, payable in four
installments on the 1st business day of every January, April, July and October, commencing on October 1, 2009 and ending on
the maturity date. The LIBOR-based rate was set quarterly three months prior to the date of the interest payment. The Company
designated these swaps as fair value hedges. The fair value of the swaps at inception was zero and subsequent changes in the
fair value of the interest rate swaps were reflected in the carrying value of the interest rate swaps on the balance sheet. The
carrying value of the debt on the balance sheet was adjusted by an equal and offsetting amount. The gain or loss on the hedged
item (that is, the fixed-rate borrowings) attributable to the hedged benchmark interest rate risk and the offsetting gain or loss on
the related interest rate swaps for fiscal year 2012 and fiscal year 2011 were as follows:
Statement of income classification
Other income
Loss on Swaps
Gain on Note
Net Income Effect
Loss on Swaps
Gain on Note
Net Income Effect
$
(769) $
769
$
— $
(4,614) $
4,614
$
—
November 3, 2012
October 29, 2011
The amounts earned and owed under the swap agreements were accrued each period and were reported in interest
expense. There was no ineffectiveness recognized in any of the periods presented. In the second quarter of fiscal 2012, the
Company terminated the interest rate swap agreement. The Company received $19.8 million in cash proceeds from the swap
termination, which included $1.3 million in accrued interest. The proceeds, net of interest received, are disclosed in cash flows
from financing activities in the consolidated statements of cash flows. As a result of the termination, the carrying value of the
52
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5.0% Notes was adjusted for the change in the fair value of the interest component of the debt up to the date of the termination
of the swap in an amount equal to the fair value of the swap, and will be amortized to earnings as a reduction of interest
expense over the remaining life of the debt. During fiscal year 2012, $5.3 million was amortized into earnings as a reduction of
interest expense related to the swap termination. This amortization is reflected in the consolidated statements of cash flows
within operating activities.
The market risk associated with the Company’s derivative instruments results from currency exchange rate or interest rate
movements that are expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. The
counterparties to the agreements relating to the Company’s derivative instruments consist of a number of major international
financial institutions with high credit ratings. Based on the credit ratings of the Company’s counterparties as of November 3,
2012, nonperformance is not perceived to be a significant risk. Furthermore, none of the Company’s derivatives are subject to
collateral or other security arrangements and none contain provisions that are dependent on the Company’s credit ratings from
any credit rating agency. While the contract or notional amounts of derivative financial instruments provide one measure of the
volume of these transactions, they do not represent the amount of the Company’s exposure to credit risk. The amounts
potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are
generally limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the obligations of
the Company to the counterparties. As a result of the above considerations, the Company does not consider the risk of
counterparty default to be significant.
The Company records the fair value of its derivative financial instruments in the consolidated financial statements in
other current assets, other assets or accrued liabilities, depending on their net position, regardless of the purpose or intent for
holding the derivative contract. Changes in the fair value of the derivative financial instruments are either recognized
periodically in earnings or in shareholders’ equity as a component of OCI. Changes in the fair value of cash flow hedges are
recorded in OCI and reclassified into earnings when the underlying contract matures. Changes in the fair values of derivatives
not qualifying for hedge accounting are reported in earnings as they occur.
The total notional amounts of derivative instruments designated as hedging instruments was $151.8 million and $153.7
million, respectively, of cash flow hedges denominated in Euros, British Pounds, Philippine Pesos and Japanese Yen as of
November 3, 2012 and October 29, 2011, respectively. The Company also had $375.0 million of interest rate swap agreements
accounted for as fair value hedges as of October 29, 2011. The fair values of these hedging instruments in the Company’s
consolidated balance sheets as of November 3, 2012 and October 29, 2011 were as follows:
Interest rate swap agreements
Other assets
Forward foreign currency exchange contracts
Prepaid expenses and other current
assets
$
$
— $
22,187
1,161
$
2,038
Balance Sheet Location
November 3, 2012
October 29, 2011
Fair Value At
The effect of derivative instruments designated as cash flow hedges on the consolidated statements of income for fiscal
2012 and 2011 were as follows:
(Gain) loss recognized in OCI on derivatives (net of tax of $1,233 in 2012 and $539 in
2011)
Loss (gain) reclassified from OCI into income (net of tax of $1,160 in 2012 and $1,171 in
2011)
November 3, 2012 October 29, 2011
$
$
(7,923) $
3,347
7,401
$
(7,793)
The amounts reclassified into earnings before tax are recognized in cost of sales and operating expenses for fiscal 2012
and fiscal 2011 were as follows:
Cost of sales
Research and development
Selling, marketing, general and administrative
November 3, 2012
October 29, 2011
$
$
$
3,096
2,344
3,121
$
$
$
(4,363)
(2,264)
(2,337)
53
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
All derivative gains and losses included in OCI will be reclassified into earnings within the next 12 months. There was no
ineffectiveness during fiscal years ended November 3, 2012 and October 29, 2011.
Accumulated Derivative Gains or Losses
The following table summarizes activity in accumulated other comprehensive (loss) income related to derivatives
classified as cash flow hedges held by the Company during the period from October 31, 2010 through November 3, 2012:
Balance at beginning of year
Changes in fair value of derivatives — (loss) gain, net of tax
Loss (gain) reclassified into earnings from other comprehensive income (loss), net of tax
Balance at end of year
j. Fair Value
2012
2011
$
1,687
(7,923)
7,401
1,165
$
6,133
3,347
(7,793)
1,687
$
$
The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The Company applies the following fair value
hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the
hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements).
Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date.
Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be
observable for substantially the full term of the asset or liability.
Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity
for the asset or liability at the measurement date.
The tables below, set forth by level, the Company’s financial assets and liabilities, excluding accrued interest components
that were accounted for at fair value on a recurring basis as of November 3, 2012 and October 29, 2011. 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 November 3,
2012 and October 29, 2011, the Company held $38.9 million and $31.6 million, respectively, of cash and held-to-maturity
investments that were excluded from the tables below. The carrying value of the debt outstanding on our $145 million term loan
facility is considered to approximate fair value as the term loan bears interest at a variable rate.
54
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
November 3, 2012
Fair Value measurement at
Reporting Date using:
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
Total
Assets
Cash equivalents:
Available-for-sale:
Institutional money market funds
Corporate obligations (1)
$
143,876
$
— $
—
347,028
— $
—
143,876
347,028
Short - term investments:
Available-for-sale:
Securities with one year or less to maturity:
Corporate obligations (1)
Floating rate notes, issued at par
Floating rate notes (1)
Securities with greater than one year to maturity:
Floating rate notes, issued at par
Other assets:
Forward foreign currency exchange contracts (2)
Deferred compensation investments
Total assets measured at fair value
Liabilities
Contingent consideration
Total liabilities measured at fair value
—
—
—
2,818,798
280,065
234,280
37,408
1,061
—
— $
28,480
172,356
$
3,718,640
$
$
—
—
—
2,818,798
280,065
234,280
37,408
1,061
28,480
— $
—
— $
3,890,996
—
— $
—
12,219
— $
12,219
$
12,219
12,219
$
$
$
(1) The amortized cost of the Company’s investments classified as available-for-sale as of November 3, 2012 was $3,327.5
million.
(2) The Company has a master netting arrangement by counterparty with respect to derivative contracts. As of November 3,
2012, contracts in a liability position of $1.9 million were netted against contracts in an asset position in the consolidated
balance sheet.
55
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
October 29, 2011
Fair Value measurement at
Reporting Date using:
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
Total
Assets
Cash equivalents:
Available-for-sale:
Institutional money market funds
Corporate obligations (1)
$
1,278,121
$
— $
—
95,948
— $
1,278,121
—
95,948
Short - term investments:
Available-for-sale:
Securities with one year or less to maturity:
Corporate obligations (1)
Floating rate notes (1)
Other assets:
Forward foreign currency exchange contracts (2)
Deferred compensation investments
Other investments
Interest rate swap agreements
Total assets measured at fair value
Liabilities
$375 million aggregate principal 5.0% debt (3)
Contingent consideration
Total liabilities measured at fair value
—
—
—
26,410
1,135
—
2,169,078
17,704
2,472
—
—
22,187
1,305,666
$
2,307,389
— $
396,337
—
—
— $
396,337
$
$
$
—
—
—
—
—
—
2,169,078
17,704
2,472
26,410
1,135
22,187
$
$
$
— $
3,613,055
— $
396,337
13,973
13,973
13,973
$
410,310
(1) The amortized cost of the Company’s investments classified as available-for-sale as of October 29, 2011 was $2,284.9
million.
(2) The Company has a master netting arrangement by counterparty with respect to derivative contracts. As of October 29,
2011, contracts in a liability position of $0.8 million were netted against contracts in an asset position in the consolidated
balance sheet.
(3) Equal to the accreted notional value of the debt plus the fair value of the interest rate component of the long-term debt. The
fair value of the long-term debt as of October 29, 2011 was $413.4 million, which is classified as a level 1 measurement
according to the fair value hierarchy.
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial
instruments:
Cash equivalents and short-term investments — These investments are adjusted to fair value based on quoted market
prices or are determined using a yield curve model based on current market rates.
Deferred compensation plan investments and other investments — The fair value of these mutual fund, money market
fund and equity investments are based on quoted market prices.
Long-term debt — The fair value of long-term debt is based on quotes received from third-party banks.
Interest rate swap agreements — The fair value of interest rate swap agreements is based on quotes received from third-
party banks. These values represent the estimated amount the Company would receive or pay to terminate the agreements
taking into consideration current interest rates as well as the creditworthiness of the counterparty.
56
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Forward foreign currency exchange contracts — The estimated fair value of forward foreign currency exchange
contracts, which includes derivatives that are accounted for as cash flow hedges and those that are not designated as cash flow
hedges, is based on the estimated amount the Company would receive if it sold these agreements at the reporting date taking
into consideration current interest rates as well as the creditworthiness of the counterparty for assets and the Company’s
creditworthiness for liabilities.
Contingent consideration — The fair value of the contingent consideration was estimated utilizing the income approach
and is based upon significant inputs not observable in the market. The income approach is based on two steps. The first step
involves a projection of the cash flows which is based on the Company’s estimates of the timing and probability of achieving
the defined milestones. The second step involves converting the cash flows into a present value equivalent through discounting.
The discount rate reflects the Baa costs of debt plus the relevant risk associated with the asset and the time value of money.
The fair value measurement of the contingent consideration encompasses the following significant unobservable inputs:
Unobservable Inputs
Estimated contingent consideration payments
Discount rate
Timing of cash flows
Probability of achievement
Range
$13,000
7% - 10%
1 - 20 months
100%
Changes in the fair value of the contingent consideration subsequent to the acquisition date that are primarily driven by
assumptions pertaining to the achievement of the defined milestones will be recognized in operating income in the period of the
estimated fair value change. Significant increases or decreases in any of the inputs in isolation could result in a fluctuation in
the fair value measurement.
The following table summarizes the change in the fair value of the contingent consideration measured using significant
unobservable inputs (Level 3) as of October 29, 2011 and November 3, 2012:
Balance as of October 30, 2010
Contingent consideration liability recorded
Fair value adjustment (1)
Balance as of October 29, 2011
Payment made (2)
Fair value adjustment (1)
Balance as of November 3, 2012
Contingent
Consideration
$
$
$
—
13,790
183
13,973
(2,000)
246
12,219
(1) Recorded in research and development expense in the consolidated statements of income.
(2) The payment is reflected in the statements of cash flows as cash used in financing activities related to the liability
recognized at fair value as of the acquisition date and as cash provided by operating activities related to the fair value
adjustments previously recognized in earnings.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
On June 30, 2009, the Company issued $375.0 million aggregate principal amount of 5.0% senior unsecured notes due
July 1, 2014 (the 5.0% Notes) with semi-annual fixed interest payments due on January 1 and July 1 of each year, commencing
January 1, 2010. Based on quotes received from third-party banks, the fair value of the 5.0% Notes as of November 3, 2012 was
$402.5 million and is classified as a Level 1 measurement according to the fair value hierarchy.
On April 4, 2011, the Company issued $375.0 million aggregate principal amount of 3.0% senior unsecured notes due
April 15, 2016 (the 3.0% Notes) with semi-annual fixed interest payments due on April 15 and October 15 of each year,
commencing October 15, 2011. Based on quotes received from third-party banks, the fair value of the 3.0% Notes as of
57
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
November 3, 2012 and October 29, 2011 was $402.3 million and $392.8 million, respectively and is classified as a Level 1
measurement according to the fair value hierarchy.
k. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingencies at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Such estimates relate to the useful lives of fixed assets and identified intangible assets, allowances for doubtful accounts
and customer returns, the net realizable value of inventory, potential reserves relating to litigation matters, accrued liabilities,
accrued taxes, deferred tax valuation allowances, assumptions pertaining to share-based payments and other reserves. Actual
results could differ from those estimates and such differences may be material to the financial statements.
l. Concentrations of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
investments and trade accounts receivable.
The Company maintains cash, cash equivalents and short-term and long-term investments with high credit quality
counterparties, continuously monitors the amount of credit exposure to any one issuer and diversifies its investments in order to
minimize its credit risk.
The Company sells its products to distributors and original equipment manufacturers involved in a variety of industries
including industrial process automation, instrumentation, defense/aerospace, automotive, communications, computers and
computer peripherals and consumer electronics. The Company has adopted credit policies and standards to accommodate
growth in these markets. The Company performs continuing credit evaluations of its customers’ financial condition and
although the Company generally does not require collateral, the Company may require letters of credit from customers in
certain circumstances. The Company provides reserves for estimated amounts of accounts receivable that may not be collected.
m. Concentration of Other Risks
The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical
market patterns. The Company’s financial results are affected by a wide variety of factors, including general economic
conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new
manufacturing technologies, the ability to safeguard patents and intellectual property in a rapidly evolving market and reliance
on assembly and test subcontractors, third-party wafer fabricators and independent distributors. In addition, the semiconductor
market has historically been cyclical and subject to significant economic downturns at various times. The Company is exposed
to the risk of obsolescence of its inventory depending on the mix of future business. Additionally, a large portion of the
Company’s purchases of external wafer and foundry services are from a limited number of suppliers, primarily Taiwan
Semiconductor Manufacturing Company (TSMC). If TSMC or any of the Company’s other key suppliers are unable or
unwilling to manufacture and deliver sufficient quantities of components, on the time schedule and of the quality that the
Company requires, the Company may be forced to engage additional or replacement suppliers, which could result in significant
expenses and disruptions or delays in manufacturing, product development and shipment of product to the Company’s
customers. Although the Company has experienced shortages of components, materials and external foundry services from time
to time, these items have generally been available to the Company as needed.
n. Revenue Recognition
Revenue from product sales to customers is generally recognized when title passes, which for shipments to certain foreign
countries is subsequent to product shipment. Title for these shipments ordinarily passes within a week of shipment. A reserve
for sales returns and allowances for customers is recorded based on historical experience or specific identification of an event
necessitating a reserve.
In all regions of the world, the Company defers revenue and the related cost of sales on shipments to distributors until the
distributors resell the products to their customers. As a result, the Company’s revenue fully reflects end customer purchases and
is not impacted by distributor inventory levels. Sales to distributors are made under agreements that allow distributors to receive
price-adjustment credits, as discussed below, and to return qualifying products for credit, as determined by the Company, in
order to reduce the amounts of slow-moving, discontinued or obsolete product from their inventory. These agreements limit
such returns to a certain percentage of the value of the Company’s shipments to that distributor during the prior quarter. In
addition, distributors are allowed to return unsold products if the Company terminates the relationship with the distributor.
58
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Distributors are granted price-adjustment credits for sales to their customers when the distributor’s standard cost (i.e., the
Company’s sales price to the distributor) does not provide the distributor with an appropriate margin on its sales to its
customers. As distributors negotiate selling prices with their customers, the final sales price agreed upon with the customer will
be influenced by many factors, including the particular product being sold, the quantity ordered, the particular customer, the
geographic location of the distributor and the competitive landscape. As a result, the distributor may request and receive a price-
adjustment credit from the Company to allow the distributor to earn an appropriate margin on the transaction.
Distributors are also granted price-adjustment credits in the event of a price decrease subsequent to the date the product
was shipped and billed to the distributor. Generally, the Company will provide a credit equal to the difference between the price
paid by the distributor (less any prior credits on such products) and the new price for the product multiplied by the quantity of
the specific product in the distributor’s inventory at the time of the price decrease.
Given the uncertainties associated with the levels of price-adjustment credits to be granted to distributors, the sales price
to the distributor is not fixed or determinable until the distributor resells the products to their customers. Therefore, the
Company defers revenue recognition from sales to distributors until the distributors have sold the products to their customers.
Title to the inventory transfers to the distributor at the time of shipment or delivery to the distributor, and payment from
the distributor is due in accordance with the Company’s standard payment terms. These payment terms are not contingent upon
the distributors’ sale of the products to their customers. Upon title transfer to distributors, inventory is reduced for the cost of
goods shipped, the margin (sales less cost of sales) is recorded as “deferred income on shipments to distributors, net” and an
account receivable is recorded.
The deferred costs of sales to distributors have historically had very little risk of impairment due to the margins the
Company earns on sales of its products and the relatively long life-cycle of the Company’s products. Product returns from
distributors that are ultimately scrapped have historically been immaterial. In addition, price protection and price-adjustment
credits granted to distributors historically have not exceeded the margins the Company earns on sales of its products. The
Company continuously monitors the level and nature of product returns and is in frequent contact with the distributors to ensure
reserves are established for all known material issues.
As of November 3, 2012 and October 29, 2011, the Company had gross deferred revenue of $299.0 million and $309.6
million, respectively, and gross deferred cost of sales of $60.5 million and $76.4 million, respectively. Deferred income on
shipments to distributors increased in fiscal 2012 primarily as a result of a mix shift in favor of higher margin products in the
channel.
Shipping costs are charged to cost of sales as incurred.
The Company generally offers a 12-month warranty for its products. The Company’s warranty policy provides for
replacement of the defective product. Specific accruals are recorded for known product warranty issues. Product warranty
expenses during fiscal 2012, 2011 and 2010 were not material.
o. Accumulated Other Comprehensive (Loss) Income
Other comprehensive (loss) income includes certain transactions that have generally been reported in the consolidated
statement of shareholders’ equity. The components of accumulated other comprehensive loss at November 3, 2012 and
October 29, 2011 consisted of the following, net of tax:
Foreign currency translation adjustment
Unrealized gains on available-for-sale securities
Unrealized losses on available-for-sale securities
Unrealized gains on derivative instruments
Pension plans
Prior Service Cost
Transition obligation
Net actuarial loss
Total accumulated other comprehensive loss
59
2012
2011
$
$
$
982
444
(423)
1,165
4,079
(102)
(70,539)
(64,394) $
(2,038)
695
(641)
1,687
—
(117)
(25,755)
(26,169)
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The aggregate fair value of investments with unrealized losses as of November 3, 2012 and October 29, 2011 was
$1,214.1 million and $1,899.4 million, respectively. These unrealized losses were primarily related to commercial paper that
earns lower interest rates than current market rates. None of these investments have been in a loss position for more than twelve
months.
p. Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was approximately $3.8 million in fiscal 2012, $4.1
million in fiscal 2011 and $3.7 million in fiscal 2010.
q.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting and tax basis of
assets and liabilities and are measured using the enacted income tax rates and laws that are expected to be in effect when the
temporary differences are expected to reverse. Additionally, deferred tax assets and liabilities are separated into current and
non-current amounts based on the classification of the related assets and liabilities for financial reporting purposes.
r. Earnings Per Share of Common Stock
Basic earnings per share is computed based only on the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during
the period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other
potentially dilutive securities using the treasury stock method. In calculating diluted earnings per share, the dilutive effect of
stock options is computed using the average market price for the respective period. In addition, the assumed proceeds under the
treasury stock method include the average unrecognized compensation expense of stock options that are in-the-money and
restricted stock units. This results in the “assumed” buyback of additional shares, thereby reducing the dilutive impact of in-the-
money stock options. Potential shares related to certain of the Company’s outstanding stock options were excluded because
they were anti-dilutive. Those potential shares, determined based on the weighted average exercise prices during the respective
years, related to the Company’s outstanding stock options could be dilutive in the future.
The following table sets forth the computation of basic and diluted earnings per share:
Income from continuing operations, net of tax
Gain on sale of discontinued operations, net of tax
Net income
Basic shares:
Weighted average shares outstanding
Earnings per share-basic:
Income from continuing operations, net of tax
Total income from discontinued operations, net of tax
Net income
Diluted shares:
Weighted average shares outstanding
Assumed exercise of common stock equivalents
Weighted average common and common equivalent shares
Earnings per share-diluted:
Income from continuing operations, net of tax
Total income from discontinued operations, net of tax
Net income
Weighted average anti-dilutive shares related to:
Outstanding stock options
60
2012
2011
2010
$
$
$
$
$
$
651,236
—
651,236
298,761
2.18
—
2.18
298,761
7,430
306,191
2.13
—
2.13
$
$
$
$
$
$
860,894
6,500
867,394
299,417
2.88
0.02
2.90
299,417
8,819
308,236
2.79
0.02
2.81
$
$
$
$
$
$
711,225
859
712,084
297,387
2.39
—
2.39
297,387
8,474
305,861
2.33
0.00
2.33
5,860
7,298
18,206
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
s. Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards ultimately
expected to vest, and is recognized as an expense on a straight-line basis over the vesting period, which is generally five years
for stock options and three years for restricted stock units. Determining the amount of stock-based compensation to be recorded
requires the Company to develop estimates used in calculating the grant-date fair value of stock options. The Company
calculates the grant-date fair value of stock options using the Black-Scholes valuation model. The use of valuation models
requires the Company to make estimates and assumptions such as expected volatility, expected term, risk-free interest rate,
expected dividend yield and forfeiture rates. The grant-date fair value of restricted stock units represents the value of the
Company's common stock on the date of grant, reduced by the present value of dividends expected to be paid on the Company's
common stock prior to vesting.
See Note 3 for additional information relating to stock-based compensation.
t. New Accounting Pronouncements
Standards Implemented
Intangibles – Goodwill and Other
In December 2010, the Financial Accounting Standards Board (FASB) issued ASU No. 2010-28, Intangibles - Goodwill
and Other (ASC Topic 350) (ASU No. 2010-28). ASU No. 2010-28 modifies Step 1 of the goodwill impairment test for
reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the
goodwill impairment test only if it is more likely than not that a goodwill impairment exists. In determining whether it is more
likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors
indicating that an impairment may exist. ASU No. 2010-28 is effective for fiscal years that begin after December 15, 2010,
which is the Company’s fiscal year 2012. The adoption of ASU No. 2010-28 in the first quarter of fiscal 2012 did not have a
material impact on the Company’s financial condition and results of operations.
Intangibles – Goodwill and Other
In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other (ASC Topic 350) Testing Indefinite-
Lived Intangible Assets for Impairment (ASU No. 2012-02). ASU No. 2012-02 permits an entity to first assess qualitative
factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for
determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30,
Intangibles-Goodwill and Other-General Intangibles Other than Goodwill. ASU No. 2012-02 is effective for fiscal years that
begin after September 15, 2012, which is the Company’s fiscal year 2013, however early adoption is permitted. The Company
adopted this standard in the fourth quarter of fiscal 2012. The adoption of ASU No. 2012-02 in the fourth quarter of fiscal 2012
did not have a material impact on the Company's financial condition and results of operations.
Standards to be Implemented
Balance Sheet
In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities (ASU
No. 2011-11). ASU No. 2011-11 amended ASC 210, Balance Sheet, to converge the presentation of offsetting assets and
liabilities between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards
(IFRS). ASU No. 2011-11 requires that entities disclose both gross information and net information about both instruments and
transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement
similar to a master netting arrangement. ASU No. 2011-11 is effective for fiscal years, and interim periods within those years,
beginning after January 1, 2013, which is the Company’s fiscal year 2014. The adoption of ASU No. 2011-11 will require
additional disclosures related to offsetting assets and liabilities but will not materially impact the Company’s financial condition
or results of operations.
Comprehensive Income
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (ASU No. 2011-05). ASU
No. 2011-05 amended ASC 220, Comprehensive Income, to converge the presentation of comprehensive income between U.S.
GAAP and IFRS. ASU No. 2011-05 requires that all non-owner changes in stockholders’ equity be presented in either a single
continuous statement of comprehensive income or in two separate but consecutive statements and requires reclassification
adjustments for items that are reclassified from other comprehensive income to net income in the statements where the
components of net income and the components of other comprehensive income are presented. ASU No. 2011-05 eliminates the
option to present the components of other comprehensive income as part of the statement in changes of stockholders' equity.
61
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ASU No. 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011,
which is the Company’s fiscal year 2013. Subsequently, in December 2011, the FASB issued ASU No. 2011-12, Deferral of the
Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive
Income in Accounting Standards Update No. 2011-05 (ASU No. 2011-12), which defers only those changes in ASU
No. 2011-05 that relate to the presentation of reclassification adjustments but does not affect all other requirements in ASU
No. 2011-05. The adoption of ASU No. 2011-05 and ASU No. 2011-12 will affect the presentation of comprehensive income
but will not materially impact the Company’s financial condition or results of operations.
u. Discontinued Operations
In November 2007, the Company entered into a purchase and sale agreement with certain subsidiaries of ON
Semiconductor Corporation to sell the Company’s CPU voltage regulation and PC thermal monitoring business which consisted
of core voltage regulator products for the central processing unit in computing and gaming applications and temperature sensors
and fan-speed controllers for managing the temperature of the central processing unit. During fiscal 2008, the Company
completed the sale of this business. In the first quarter of fiscal 2010, proceeds of $1 million were released from escrow and
$0.6 million net of tax was recorded as additional gain from the sale of discontinued operations. The Company does not expect
any additional proceeds from this sale.
In September 2007, the Company entered into a definitive agreement to sell its Baseband Chipset Business to MediaTek
Inc. The decision to sell the Baseband Chipset Business was due to the Company’s decision to focus its resources in areas
where its signal processing expertise can provide unique capabilities and earn superior returns. During fiscal 2008, the
Company completed the sale of its Baseband Chipset Business for net cash proceeds of $269 million. The Company made cash
payments of $1.7 million during fiscal 2009 related to retention payments for employees who transferred to MediaTek Inc. and
for the reimbursement of intellectual property license fees incurred by MediaTek. During fiscal 2010, the Company received
cash proceeds of $62 million as a result of the receipt of a refundable withholding tax and also recorded an additional gain on
sale of $0.3 million, or $0.2 million net of tax, due to the settlement of certain items at less than the amounts accrued. In fiscal
2011, additional proceeds of $10 million were released from escrow and $6.5 million net of tax was recorded as additional gain
from the sale of discontinued operations. The Company does not expect any additional proceeds from this sale.
The following amounts related to the CPU voltage regulation and PC thermal monitoring and baseband chipset businesses
have been segregated from continuing operations and reported as discontinued operations.
Gain on sale of discontinued operations before income taxes
Provision for income taxes
Gain on sale of discontinued operations, net of tax
3. Stock-Based Compensation and Shareholders’ Equity
Equity Compensation Plans
2012
2011
2010
$
$
— $
10,000
—
— $
3,500
6,500
$
$
1,316
457
859
The Company grants, or has granted, stock options and other stock and stock-based awards under The 2006 Stock
Incentive Plan (2006 Plan). The 2006 Plan was approved by the Company’s Board of Directors on January 23, 2006 and was
approved by shareholders on March 14, 2006 and subsequently amended in March 2006, June 2009, September 2009,
December 2009, December 2010 and June 2011. The 2006 Plan provides for the grant of up to 15 million shares of the
Company’s common stock, plus such number of additional shares that were subject to outstanding options under the
Company’s previous plans that are not issued because the applicable option award subsequently terminates or expires without
being exercised. The 2006 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended, non-statutory stock options, stock appreciation rights, restricted stock, restricted
stock units and other stock-based awards. Employees, officers, directors, consultants and advisors of the Company and its
subsidiaries are eligible to be granted awards under the 2006 Plan. No award may be made under the 2006 Plan after March 13,
2016, but awards previously granted may extend beyond that date. The Company will not grant further options under any
previous plans.
While the Company may grant to employees options that become exercisable at different times or within different
periods, the Company has generally granted to employees options that vest over five years and become exercisable in annual
installments of 20% on each of the first, second, third, fourth and fifth anniversaries of the date of grant; 33.3% on each of the
third, fourth, and fifth anniversaries of the date of grant; or in annual installments of 25% on each of the second, third, fourth
62
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and fifth anniversaries of the date of grant. The maximum contractual term of all options is ten years. In addition, the Company
has granted to employees restricted stock units that generally vest in one installment on the third anniversary of the grant date.
As of November 3, 2012, a total of 7,781,812 common shares were available for future grant and 37,294,337 common
shares were reserved for issuance under the 2006 Plan.
Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards ultimately
expected to vest, and is recognized as an expense on a straight-line basis over the vesting period, which is generally five years
for stock options and three years for restricted stock units. Determining the amount of stock-based compensation to be recorded
requires the Company to develop estimates used in calculating the grant-date fair value of stock options.
Grant-Date Fair Value
Information pertaining to the Company’s stock option awards and the related estimated weighted-average assumptions to
calculate the fair value of stock options granted is as follows:
Stock Options
Options granted (in thousands)
Weighted-average exercise price
Weighted-average grant-date fair value
Assumptions:
Weighted-average expected volatility
Weighted-average expected term (in years)
Weighted-average risk-free interest rate
Weighted-average expected dividend yield
2012
2011
2010
2,456
$39.58
$7.37
28.4%
5.3
1.1%
3.0%
1,990
$37.59
$8.62
29.3%
5.3
2.1%
2.4%
1,866
$31.49
$7.77
31.4%
5.3
2.5%
2.6%
Expected volatility — The Company is responsible for estimating volatility and has considered a number of factors,
including third-party estimates. The Company currently believes that the exclusive use of implied volatility results in the best
estimate of the grant-date fair value of employee stock options because it reflects the market’s current expectations of future
volatility. In evaluating the appropriateness of exclusively relying on implied volatility, the Company concluded that:
(1) options in the Company’s common stock are actively traded with sufficient volume on several exchanges; (2) the market
prices of both the traded options and the underlying shares are measured at a similar point in time to each other and on a date
close to the grant date of the employee share options; (3) the traded options have exercise prices that are both near-the-money
and close to the exercise price of the employee share options; and (4) the remaining maturities of the traded options used to
estimate volatility are at least one year.
Expected term — The Company uses historical employee exercise and option expiration data to estimate the expected
term assumption for the Black-Scholes grant-date valuation. The Company believes that this historical data is currently the best
estimate of the expected term of a new option, and that generally its employees exhibit similar exercise behavior.
Risk-free interest rate — The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the
expected term assumption is used as the risk-free interest rate.
Expected dividend yield — Expected dividend yield is calculated by annualizing the cash dividend declared by the
Company’s Board of Directors for the current quarter and dividing that result by the closing stock price on the date of grant.
Until such time as the Company’s Board of Directors declares a cash dividend for an amount that is different from the current
quarter’s cash dividend, the current dividend will be used in deriving this assumption. Cash dividends are not paid on options,
restricted stock or restricted stock units.
Stock-Based Compensation Expense
The amount of stock-based compensation expense recognized during a period is based on the value of the awards that are
ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and
represents only the unvested portion of the surrendered stock-based award. Based on an analysis of its historical forfeitures, the
Company has applied an annual forfeiture rate of 4.4% to all unvested stock-based awards as of November 3, 2012. The rate of
63
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4.4% represents the portion that is expected to be forfeited each year over the vesting period. This analysis will be re-evaluated
quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period
will only be for those options that vest.
Additional paid-in-capital (APIC) Pool
The APIC pool represents the excess tax benefits related to share-based compensation that are available to absorb future
tax deficiencies. If the amount of future tax deficiencies is greater than the available APIC pool, the Company records the
excess as income tax expense in its consolidated statements of income. For fiscal year 2010, the Company had a sufficient
APIC pool to cover any tax deficiencies recorded and as a result, these deficiencies did not affect its results of operations.
During fiscal year 2012 and 2011, the Company recognized an immaterial amount of income tax expense resulting from tax
shortfalls related to share-based compensation in its consolidated statements of income.
Stock-Based Compensation Activity
A summary of the activity under the Company’s stock option plans as of November 3, 2012 and changes during the fiscal
year then ended is presented below:
Options
Outstanding
(in thousands)
Weighted-
Average Exercise
Price Per Share
Weighted-
Average
Remaining
Contractual
Term in Years
Aggregate
Intrinsic
Value
Options outstanding October 29, 2011
Options granted
Options exercised
Options forfeited
Options expired
Options outstanding at November 3, 2012
Options exercisable at November 3, 2012
Options vested or expected to vest at November 3, 2012 (1)
34,116
2,456
(7,568)
(396)
(2,155)
26,453
18,605
26,019
$30.27
$39.58
$25.34
$27.85
$40.78
$31.73
$31.63
$31.66
4.7
3.4
4.6
$222,689
$161,135
$221,059
(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future.
Options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.
The total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid
by the employee to exercise the options) during fiscal 2012, 2011 and 2010 was $105.4 million, $96.5 million and $29.6
million, respectively, and the total amount of proceeds received by the Company from exercise of these options during fiscal
2012, 2011 and 2010 was $191.8 million, $217.4 million and $240.4 million, respectively. Proceeds from stock option
exercises pursuant to employee stock plans in the Company’s statement of cash flows of $191.2 million, $217.2 million, and
$216.1 million for fiscal 2012, 2011 and 2010, respectively, are net of the value of shares surrendered by employees in certain
limited circumstances to satisfy the exercise price of options and employee tax obligations upon vesting of restricted stock units
and in connection with the exercise of stock options granted to the Company’s employees under the Company’s equity
compensation plans. The withholding amount is based on the Company’s minimum statutory withholding requirement.
A summary of the Company’s restricted stock unit award activity as of November 3, 2012 and changes during the fiscal
year then ended is presented below:
Restricted stock units outstanding at October 29, 2011
Units granted
Restrictions lapsed
Forfeited
Restricted stock units outstanding at November 3, 2012
64
Restricted
Stock Units
Outstanding
(in thousands)
Weighted-
Average Grant-
Date Fair Value
Per Share
2,088
1,122
(67)
(83)
3,060
$31.10
$36.05
$27.48
$30.37
$33.01
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of November 3, 2012, there was $89.9 million of total unrecognized compensation cost related to unvested share-
based awards comprised of stock options and restricted stock units. That cost is expected to be recognized over a weighted-
average period of 1.4 years. The total grant-date fair value of shares that vested during fiscal 2012, 2011 and 2010 was
approximately $48.6 million, $49.6 million and $67.7 million, respectively.
Common Stock Repurchase Program
The Company’s common stock repurchase program has been in place since August 2004. In the aggregate, the Board of
Directors has authorized the Company to repurchase $5 billion of the Company’s common stock under the program. Under the
program, the Company may repurchase outstanding shares of its common stock from time to time in the open market and
through privately negotiated transactions. Unless terminated earlier by resolution of the Company’s Board of Directors, the
repurchase program will expire when the Company has repurchased all shares authorized under the program. As of
November 3, 2012, the Company had repurchased a total of approximately 129.2 million shares of its common stock for
approximately $4,439.0 million under this program. An additional $561.0 million remains available for repurchase of shares
under the current authorized program. The repurchased shares are held as authorized but unissued shares of common stock. Any
future common stock repurchases will be dependent upon several factors, including the amount of cash available to the
Company in the United States and the Company’s financial performance, outlook and liquidity. The Company also from time to
time repurchases shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units, or
in certain limited circumstances to satisfy the exercise price of options granted to the Company’s employees under the
Company’s equity compensation plans.
Preferred Stock
The Company has 471,934 authorized shares of $1.00 par value preferred stock, none of which is issued or outstanding.
The Board of Directors is authorized to fix designations, relative rights, preferences and limitations on the preferred stock at
the time of issuance.
4.
Industry, Segment and Geographic Information
The Company operates and tracks its results in one reportable segment based on the aggregation of five operating
segments. The Company designs, develops, manufactures and markets a broad range of ICs. The Chief Executive Officer has
been identified as the Chief Operating Decision Maker.
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 evolve and improve, 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.
Industrial
Automotive
Consumer
Communications
Total Revenue
2012
% of
Total
Product
Revenue
Revenue
2011
2010
% of
Total
Product
Revenue
Revenue
Y/Y%
Revenue
$ 1,240,344
46% (12)% $ 1,411,386
47% $ 1,280,027
463,577
467,626
529,595
$ 2,701,142
17% 11 %
17% (16)%
417,929
559,142
20% (12)%
604,863
100% (10)% $ 2,993,320
14%
19%
335,163
605,541
20%
540,772
100% $ 2,761,503
% of
Total
Product
Revenue
46%
12%
22%
20%
100%
65
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue Trends by Product Type
The following table summarizes revenue by product categories. The categorization of the Company’s products into broad
categories is based on the characteristics of the individual products, the specification of the products and in some cases the
specific uses that certain products have within applications. The categorization of products into categories is therefore subject
to judgment in some cases and can vary over time. In instances where products move between product categories, the Company
reclassifies the amounts in the product categories for all prior periods. Such reclassifications typically do not materially change
the sizing of, or the underlying trends of results within, each product category.
2012
% of
Total
Product
Revenue*
Revenue
2011
2010
% of
Total
Product
Revenue
% of
Total
Product
Revenue
Revenue
Y/Y%
Revenue
Converters
$ 1,192,064
44% (11)% $ 1,343,487
45% $ 1,295,700
Amplifiers/Radio frequency
Other analog
697,687
397,376
26% (11)%
15%
(3)%
788,299
410,323
26%
14%
701,557
334,663
Subtotal analog signal processing
2,287,127
85% (10)% 2,542,109
85% 2,331,920
Power management & reference
Total analog products
Digital signal processing
Total Revenue
182,134
$ 2,469,261
231,881
$ 2,701,142
217,615
7% (16)%
91% (11)% $ 2,759,724
233,596
9%
100% (10)% $ 2,993,320
(1)%
194,740
7%
92% $ 2,526,660
234,843
8%
100% $ 2,761,503
47%
25%
12%
84%
7%
91%
9%
100%
________________
* The sum of the individual percentages do not equal the total due to rounding.
Geographic Information
During fiscal 2012, the Company revised its method for classifying revenue by geographic region to more accurately
reflect the primary location of our customers’ design activity for our products. Prior periods have been reclassified to align with
this definition. In general, the prior classification method reflected the customers’ manufacturing location or the distributors’
stocking territory. No changes have been made to the Company’s revenue recognition policy. In fiscal years 2012, 2011 and
2010, the predominant countries comprising “Rest of North and South America” are Canada and Mexico; the predominant
countries comprising “Europe” are Germany, Sweden, France and the United Kingdom; and the predominant countries
comprising “Rest of Asia” are Taiwan and South Korea.
Revenue from continuing operations
United States
Rest of North and South America
Europe
Japan
China
Rest of Asia
Subtotal all foreign countries
Total revenue
Property, plant and equipment
United States
Ireland
Philippines
All other countries
Subtotal all foreign countries
Total property, plant and equipment
2012
2011
2010
$
818,653
$
866,142
$
114,133
852,668
333,558
341,196
240,934
1,882,489
2,701,142
194,937
127,669
164,727
13,534
305,930
$
$
144,585
967,417
398,587
360,594
255,995
2,127,178
2,993,320
187,013
128,660
149,098
14,068
291,826
$
$
$
$
$
500,867
$
478,839
$
794,463
134,327
816,561
433,706
320,739
261,707
1,967,040
2,761,503
188,776
139,165
131,963
12,761
283,889
472,665
66
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5.
Special Charges
The Company monitors global macroeconomic conditions on an ongoing basis and continues to assess opportunities for
improved operational effectiveness and efficiency and better alignment of expenses with revenues. As a result of these
assessments, the Company has undertaken various restructuring actions over the past several years. These actions are described
below.
The following tables display the special charges taken for ongoing actions and a roll-forward from October 31, 2009 to
November 3, 2012 of the employee separation and exit cost accruals established related to these actions.
Statement of Income
Workforce reductions
Total Fiscal 2008 Charges
Workforce reductions
Facility closure costs
Non-cash impairment charge
Other items
Total Fiscal 2009 Charges
Workforce reductions
Facility closure costs
Non-cash impairment charge
Other items
Total Fiscal 2010 Charges
Workforce reductions
Total Fiscal 2011 Charges
Workforce reductions
Facility closure costs
Non-cash impairment charge
Other items
Total Fiscal 2012 Charges
Closure of
Wafer
Fabrication
Facility
in Cambridge
$
$
— $
— $
$
7,446
57
14,629
—
22,132
—
4,689
—
—
4,689
—
— $
—
—
—
—
— $
$
$
$
$
$
Total
Special
Charges
Related to
Ongoing
Actions
1,627
1,627
34,029
2,468
15,468
500
52,465
10,908
5,064
487
24
16,483
2,239
2,239
7,966
186
219
60
8,431
Closure of
Wafer
Fabrication
Facility
in Sunnyvale
$
$
Reduction of
Operating
Costs
— $
— $
—
—
—
—
— $
—
375
—
—
375
—
— $
—
—
—
—
— $
$
1,627
1,627
26,583
2,411
839
500
30,333
10,908
—
487
24
11,419
2,239
2,239
7,966
186
219
60
8,431
$
$
$
$
67
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accrued Restructuring
Balance at October 31, 2009
Fiscal 2010 special charges
Severance payments
Facility closure costs
Non-cash impairment charge
Other payments
Effect of foreign currency on accrual
Balance at October 30, 2010
Fiscal 2011 special charges
Severance payments
Facility closure costs
Effect of foreign currency on accrual
Balance at October 29, 2011
Fiscal 2012 special charges
Severance payments
Facility closure costs
Non-cash impairment charge
Effect of foreign currency on accrual
Balance at November 3, 2012
$
$
$
Closure of
Wafer
Fabrication
Facility
in Sunnyvale
Reduction of
Operating
Costs
Closure of
Wafer
Fabrication
Facility
in Cambridge
Total
$
8,161
$
6,690
$
15,020
169
375
—
(544)
—
—
—
— $
—
—
—
—
— $
—
—
—
—
—
11,419
(12,223)
(1,216)
(487)
(24)
(84)
5,546
2,239
(3,913)
—
4
3,876
8,431
(8,931)
(186)
(219)
22
4,689
(5,337)
(4,079)
—
—
—
$
1,963
$
—
(1,352)
(611)
—
— $
$
—
—
—
—
—
16,483
(17,560)
(5,839)
(487)
(24)
(84)
7,509
2,239
(5,265)
(611)
4
3,876
8,431
(8,931)
(186)
(219)
22
$
— $
2,993
$
— $
2,993
Closure of Wafer Fabrication Facility in Sunnyvale
The Company ceased production at its California wafer fabrication facility in November 2006. The Company paid the
related lease obligation costs on a monthly basis over the remaining lease term, which expired in March 2010. The Company
recorded a one-time settlement charge of $0.4 million in fiscal 2010 related to the termination of the lease. This action was
completed during fiscal 2010.
Reduction of Operating Costs
During fiscal 2008 through fiscal 2010, the Company recorded special charges of approximately $43.3 million. These
special charges included: $39.1 million for severance and fringe benefit costs in accordance with its ongoing benefit plan or
statutory requirements at foreign locations for 245 manufacturing employees and 470 engineering and SMG&A employees;
$2.1 million for lease obligation costs for facilities that the Company ceased using during the first quarter of fiscal 2009; $0.8
million for the write-off of property, plant and equipment; $0.5 million for contract termination costs and $0.3 million for
clean-up and closure costs that were expensed as incurred; and $0.5 million related to the impairment of intellectual property.
The Company terminated the employment of all employees associated with these actions.
During fiscal 2011, the Company recorded a special charge of approximately $2.2 million for severance and fringe
benefit costs in accordance with its ongoing benefit plan or statutory requirements at foreign locations for 25 engineering and
SMG&A employees. The Company terminated the employment of all employees associated with these actions.
During fiscal 2012, the Company recorded special charges of approximately $8.4 million. The special charges included
$7.9 million for severance and fringe benefit costs in accordance with its ongoing benefit plan or statutory requirements at
foreign locations for 95 manufacturing, engineering and SMG&A employees; $0.1 million for contract termination costs; $0.2
million for lease obligation costs for facilities that the Company ceased using during the third quarter of fiscal 2012 and $0.2
million for the write-off of property, plant and equipment. As of November 3, 2012, the Company employed 6 of the 95
employees included in these cost reduction actions. These employees must continue to be employed by the Company until their
employment is involuntarily terminated in order to receive the severance benefit.
68
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Closure of a Wafer Fabrication Facility in Cambridge
During fiscal 2009 and fiscal 2010, the Company recorded special charges of $26.8 million as a result of its decision to
consolidate its Cambridge, Massachusetts wafer fabrication facility into its existing Wilmington, Massachusetts facility. These
special charges included: $7.4 million for severance and fringe benefit costs recorded in accordance with the Company’s
ongoing benefit plan for 124 manufacturing employees and 9 SMG&A employees; $14.6 million for the impairment of
manufacturing assets; $3.4 million for lease obligation costs for the Cambridge wafer fabrication facility, which the Company
ceased using in the first quarter of fiscal 2010; and $1.4 million for clean-up and closure costs that were expensed as incurred.
This action was completed during the third quarter of fiscal 2011.
6.
Acquisitions
On March 30, 2012, the Company acquired privately-held Multigig, Inc. (Multigig) of San Jose, California. The
acquisition of Multigig is expected to enhance the Company’s clocking capabilities in stand-alone and embedded applications
and strengthen the Company’s high speed signal processing solutions. The acquisition-date fair value of the consideration
transferred totaled $26.8 million, which consisted of $24.2 million in initial cash payments at closing and an additional $2.6
million subject to an indemnification holdback that is payable within 15 months of the transaction date, which is included in
accrued liabilities in the consolidated balance sheet as of November 3, 2012. The Company’s assessment of fair value of the
tangible and intangible assets acquired and liabilities assumed was based on their estimated fair values at the date of
acquisition, resulting in the recognition of $15.6 million of IPR&D, $1.1 million of developed technology, $7.0 million of
goodwill and $3.1 million of net deferred tax assets. The goodwill recognized is attributable to future technologies that have yet
to be determined as well as the assembled workforce of Multigig. Future technologies do not meet the criteria for recognition
separately from goodwill because they are a part of future development and growth of the business. None of the goodwill is
expected to be deductible for tax purposes. During the third quarter of fiscal 2012, the Company reduced this holdback amount
by $0.1 million as a result of indemnification claims. During the fourth quarter of fiscal 2012, the Company finalized its
purchase accounting for Multigig which resulted in adjustments of $0.4 million to deferred taxes and goodwill. In addition, the
Company will be obligated to pay royalties to the Multigig employees on revenue recognized from the sale of certain Multigig
products through the earlier of 5 years or the aggregate maximum payment of $1.0 million. Royalty payments to Multigig
employees require post-acquisition services to be rendered and, as such, the Company will record these amounts as
compensation expense in the related periods. As of November 3, 2012, no royalty payments have been made. The Company
recognized $0.5 million of acquisition-related costs that were expensed in the second quarter of fiscal 2012, which were
included in operating expenses in the consolidated statement of income.
On June 9, 2011, the Company acquired privately-held Lyric Semiconductor, Inc. (Lyric) of Cambridge, Massachusetts.
The acquisition of Lyric gives the Company the potential to achieve significant improvement in power efficiency in mixed
signal processing. The acquisition-date fair value of the consideration transferred totaled $27.8 million, which consisted of
$14.0 million in initial cash payments at closing and contingent consideration of up to $13.8 million. The contingent
consideration arrangement requires additional cash payments to the former equity holders of Lyric upon the achievement of
certain technological and product development milestones payable during the period from June 2011 through June 2016. The
Company estimated the fair value of the contingent consideration arrangement utilizing the income approach. Changes in the
fair value of the contingent consideration subsequent to the acquisition date primarily driven by assumptions pertaining to the
achievement of the defined milestones will be recognized in operating income in the period of the estimated fair value change.
As of November 3, 2012, the Company has paid $2.0 million in contingent consideration. The payment is reflected in the
statements of cash flows as cash used in financing activities related to the liability recognized at fair value as of the acquisition
date and cash provided by operating activities related to the fair value adjustments previously recognized in earnings. The
Company’s assessment of the fair value of the tangible and intangible assets acquired and liabilities assumed was based on their
estimated fair values at the date of acquisition, resulting in the recognition of $12.2 million of IPR&D, $18.9 million of
goodwill and $3.3 million of net deferred tax liabilities. The goodwill recognized is attributable to future technologies that have
yet to be determined as well as the assembled workforce of Lyric. Future technologies do not meet the criteria for recognition
separately from goodwill because they are a part of future development and growth of the business. None of the goodwill is
expected to be deductible for tax purposes. The fair value of the remaining contingent consideration was approximately $12.2
million as of November 3, 2012, of which $6.8 million is included in accrued liabilities and $5.4 million is included in other
non-current liabilities in the consolidated balance sheet. In addition, the Company will be obligated to pay royalties to the
former equity holders of Lyric on revenue recognized from the sale of Lyric products and licenses through the earlier of 20
years or the accrual of a maximum of $25.0 million. Royalty payments to Lyric employees require post-acquisition services to
69
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
be rendered and, as such, the Company will record these amounts as compensation expense in the related periods. As of
November 3, 2012, no royalty payments have been made. The Company recognized $0.2 million of acquisition-related costs
that were expensed in the third quarter of fiscal 2011, which were included in operating expenses in the consolidated statement
of income.
The Company has not provided pro forma results of operations for Multigig and Lyric herein as they were not material to
the Company on either an individual or an aggregate basis. The Company included the results of operations of each acquisition
in its consolidated statement of income from the date of each acquisition.
7.
Deferred Compensation Plan Investments
Investments in The Analog Devices, Inc. Deferred Compensation Plan (the Deferred Compensation Plan) are classified as
trading. The components of the investments as of November 3, 2012 and October 29, 2011 were as follows:
Money market funds
Mutual funds
Total Deferred Compensation Plan investments
2012
2011
$
$
17,939
10,541
28,480
$
$
17,187
9,223
26,410
The fair values of these investments are based on published market quotes on November 3, 2012 and October 29, 2011,
respectively. Adjustments to the fair value of, and income pertaining to, Deferred Compensation Plan investments are recorded
in operating expenses. Gross realized and unrealized gains and losses from trading securities were not material in fiscal 2012,
2011 or 2010.
The Company has recorded a corresponding liability for amounts owed to the Deferred Compensation Plan participants
(see Note 10). These investments are specifically designated as available to the Company solely for the purpose of paying
benefits under the Deferred Compensation Plan. However, in the event the Company became insolvent, the investments would
be available to all unsecured general creditors.
8.
Other Investments
Other investments consist of equity securities and other long-term investments. Investments are stated at fair value, which
is based on market quotes or on a cost-basis, dependent on the nature of the investment, as appropriate. Adjustments to the fair
value of investments classified as available-for-sale are recorded as an increase or decrease in accumulated other
comprehensive (loss) income, unless the adjustment is considered an other-than-temporary impairment, in which case the
adjustment is recorded as a charge in the statement of income.
During fiscal 2010, the Company recognized an other-than-temporary impairment of $0.7 million. The investment
impairment was related to the decline in fair value of a publicly-traded equity investment below its cost basis that was
determined to be other-than-temporary.
Realized gains or losses on investments are determined based on the specific identification basis and are recognized in
nonoperating (income) expense. Gross realized gains of approximately $1.3 million and gross realized losses of approximately
$0.1 million on sales of available-for-sale investments were recognized in fiscal 2012. There were no material net realized
gains or losses from the sales of available-for-sale investments during fiscal 2011 and fiscal 2010.
There were no net unrealized gains or losses on securities classified as other investments as of November 3, 2012.
Unrealized gains and losses on securities classified as other investments as of October 29, 2011 were as follows:
Unrealized gains
Unrealized losses
Net unrealized gains on securities classified as other investments
2011
1,038
(179)
859
$
$
70
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9.
Accrued Liabilities
Accrued liabilities at November 3, 2012 and October 29, 2011 consisted of the following:
Accrued compensation and benefits
Special charges
Other
Total accrued liabilities
10. Deferred Compensation Plan Liability
2012
2011
82,027
$
2,993
63,887
91,918
3,876
61,822
148,907
$
157,616
$
$
The deferred compensation plan liability relates to obligations due under the Deferred Compensation Plan. The Deferred
Compensation Plan allows certain members of management and other highly-compensated employees and non-employee
directors to defer receipt of all or any portion of their compensation. The balance represents Deferred Compensation Plan
participant accumulated deferrals and earnings thereon since the inception of the Deferred Compensation Plan net of
withdrawals. The Company’s liability under the Deferred Compensation Plan is an unsecured general obligation of the
Company.
11. Lease Commitments
The Company leases certain facilities, equipment and software under various operating leases that expire at various dates
through 2022. The lease agreements frequently include renewal and escalation clauses and require the Company to pay taxes,
insurance and maintenance costs. Total rental expense under operating leases was approximately $48 million in fiscal 2012,
$45 million in fiscal 2011 and $40 million in fiscal 2010.
The following is a schedule of future minimum rental payments required under long-term operating leases at
November 3, 2012:
Fiscal Years
2013
2014
2015
2016
2017
Later Years
Total
Operating
Leases
29,559
23,714
12,585
6,494
4,239
12,437
89,028
$
$
12. Commitments and Contingencies
From time to time, in the ordinary course of the Company’s business, various claims, charges and litigation are asserted
or commenced against the Company arising from, or related to, contractual matters, patents, trademarks, personal injury,
environmental matters, product liability, insurance coverage and personnel and employment disputes. As to such claims and
litigation, the Company can give no assurance that it will prevail. The Company does not believe that any current legal matters
will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
13. Retirement Plans
The Company and its subsidiaries have various savings and retirement plans covering substantially all employees. The
Company maintains a defined contribution plan for the benefit of its eligible U.S. employees. This plan provides for Company
contributions of up to 5% of each participant’s total eligible compensation. In addition, the Company contributes an amount
equal to each participant’s pre-tax contribution, if any, up to a maximum of 3% of each participant’s total eligible
compensation. The total expense related to the defined contribution plan for U.S. employees was $22.8 million in fiscal 2012,
$21.9 million in fiscal 2011 and $20.5 million in fiscal 2010. The Company also has various defined benefit pension and other
retirement plans for certain non-U.S. employees that are consistent with local statutory requirements and practices. The total
71
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
expense related to the various defined benefit pension and other retirement plans for certain non-U.S. employees was $18.9
million in fiscal 2012, $21.4 million in fiscal 2011 and $11.7 million in fiscal 2010.
Non-U.S. Plan Disclosures
The Company’s funding policy for its foreign defined benefit pension plans is consistent with the local requirements of
each country. The plans’ assets consist primarily of U.S. and non-U.S. equity securities, bonds, property and cash. The benefit
obligations and related assets under these plans have been measured at November 3, 2012 and October 29, 2011.
Components of Net Periodic Benefit Cost
Net annual periodic pension cost of non-U.S. plans is presented in the following table:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of transition obligation (asset)
Recognized actuarial loss (gain)
Subtotal
Settlement impact
Net periodic pension cost
2012
2011
2010
$
7,909
$
9,175
$
10,901
(10,469)
—
19
361
8,721
—
8,721
$
$
11,395
(10,938)
—
15
1,630
11,277
—
11,277
$
$
$
$
5,933
9,594
(11,079)
1
(27)
(133)
4,289
(39)
4,250
72
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Benefit Obligations and Plan Assets
Obligation and asset data of the Company’s non-U.S. plans at each fiscal year end is presented in the following table:
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Participant contributions
Plan Amendments
Premiums paid
Actuarial loss (gain)
Benefits paid
Exchange rate adjustment
Benefit obligation at end of year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Participant contributions
Premiums paid
Benefits paid
Exchange rate adjustment
Fair value of plan assets at end of year
Reconciliation of Funded Status
Funded status
Amounts Recognized in the Balance Sheet
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognized
2012
2011
$
210,913
$
215,012
7,909
10,901
2,523
(4,663)
(191)
63,127
(3,411)
(14,852)
272,256
184,754
18,391
10,611
2,523
(191)
(3,411)
(12,516)
200,161
9,175
11,395
2,301
—
(192)
(27,544)
(2,625)
3,391
210,913
176,220
(2,938)
9,233
2,301
(192)
(2,625)
2,755
$
$
$
184,754
(72,095) $
(26,159)
$
2,596
(657)
(74,034)
(72,095) $
2,741
(573)
(28,327)
(26,159)
$
$
$
$
$
$
73
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reconciliation of Amounts Recognized in the Statement of Financial Position
Initial net obligation
Prior Service credit
Net loss
Accumulated other comprehensive loss
Accumulated contributions in excess of net periodic benefit cost
Net amount recognized
Changes Recognized in Other Comprehensive Income
Changes in plan assets and benefit obligations recognized in other comprehensive income
Prior Service cost
Net loss (gain) arising during the year (includes curtailment gains not recognized as a
component of net periodic cost)
Effect of exchange rates on amounts included in accumulated other comprehensive (loss)
income
Amounts recognized as a component of net periodic benefit cost
Amortization, settlement or curtailment recognition of net transition obligation
Amortization or settlement recognition of net loss
Total recognized in other comprehensive loss (income)
Total recognized in net periodic cost and other comprehensive loss (income)
Estimated amounts that will be amortized from accumulated other comprehensive
(loss) income over the next fiscal year
Initial net obligation
Prior Service credit
Net loss
Total
2012
2011
(109) $
4,663
(82,640)
(78,086)
5,991
(72,095) $
(125)
—
(30,613)
(30,738)
4,579
(26,159)
(4,663) $
—
55,205
$
(13,667)
(2,202)
445
(19)
(361)
47,960
56,681
$
$
(15)
(1,630)
(14,867)
(3,590)
(20) $
228
(2,939)
(2,731) $
(20)
—
(366)
(386)
$
$
$
$
$
$
$
$
The accumulated benefit obligation for non-U.S. pension plans was $214.5 million and $169.0 million at November 3,
2012 and October 29, 2011, respectively.
Information relating to the Company’s non-U.S. plans with projected benefit obligations in excess of plan assets and
accumulated benefit obligations in excess of plan assets at each fiscal year end is presented in the following table:
Plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation
Fair value of plan assets
Plans with accumulated benefit obligations in excess of plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Assumptions
2012
2011
$
$
$
$
$
237,422
162,731
219,248
175,243
146,155
$
$
$
$
$
180,182
151,281
25,236
21,022
635
The range of assumptions used for the non-U.S. defined benefit plans reflects the different economic environments within
the various countries. The projected benefit obligation was determined using the following weighted-average assumptions:
Discount rate
Rate of increase in compensation levels
74
2012
2011
4.55%
2.85%
5.60%
3.07%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net annual periodic pension cost was determined using the following weighted average assumptions:
ANALOG DEVICES, INC.
Discount rate
Expected long-term return on plan assets
Rate of increase in compensation levels
2012
2011
5.60%
5.71%
3.07%
5.33%
6.15%
3.40%
The expected long-term rate of return on assets is a weighted-average of the long-term rates of return selected for the
various countries where the Company has funded pension plans. The expected long-term rate of return on assets assumption is
selected based on the facts and circumstances that exist as of the measurement date and the specific portfolio mix of plan
assets. Management, in conjunction with its actuaries, reviewed anticipated future long-term performance of individual asset
categories and considered the asset allocation strategy adopted by the Company and/or the trustees of the plans. While the
review considered recent fund performance and historical returns, the assumption is primarily a long-term prospective rate.
The Company’s investment strategy is based on an expectation that equity securities will outperform debt securities over
the long term. Accordingly, in order to maximize the return on assets, a majority of assets are invested in equities. Investments
within each asset class are diversified to reduce the impact of losses in single investments. The use of derivative instruments is
permitted where appropriate and necessary to achieve overall investment policy objectives and asset class targets.
The Company establishes strategic asset allocation percentage targets and appropriate benchmarks for each significant
asset class to obtain a prudent balance between return and risk. The interaction between plan assets and benefit obligations is
periodically studied by the Company and its actuaries to assist in the establishment of strategic asset allocation targets.
Fair value of plan assets
The following table presents plan assets measured at fair value on a recurring basis by investment categories as of
November 3, 2012 and October 29, 2011 using the same three-level hierarchy described in Note 2j:
November 3, 2012
Fair Value Measurement at Reporting
Date Using:
October 29, 2011
Fair Value Measurement at Reporting
Date Using:
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observabl
e
Inputs
(Level 2)
Unobservabl
e
Inputs
(Level 3)
Total
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observabl
e
Inputs
(Level 2)
Unobservabl
e
Inputs
(Level 3)
Total
Unit trust funds(1)
$
— $ 142,556
$
— $ 142,556
$
— $ 100,161
$
— $ 100,161
Equities(1)
2,892
24,176
635
27,703
2,003
56,163
614
58,780
Fixed income securities(2)
Property(3)
Cash and cash equivalents
Total assets measured at
fair value
—
—
681
26,340
—
—
—
2,881
26,340
2,881
—
—
—
681
663
21,984
—
—
—
3,166
21,984
3,166
—
663
$
3,573
$ 193,072
$
3,516
$ 200,161
$
2,666
$ 178,308
$
3,780
$ 184,754
_______________________________________
(1) The majority of the assets in these categories are invested in a mix of equities, including those from North America,
Europe and Asia. The funds are valued using the net asset value method in which an average of the market prices for
underlying investments is used to value the fund. Due to the nature of the underlying assets of these funds, changes in
market conditions and the economic environment may significantly impact the net asset value of these investments and,
consequently, the fair value of the investments. These investments are redeemable at net asset value to the extent provided
in the documentation governing the investments. However, these redemption rights may be restricted in accordance with
governing documents. Publicly traded securities are valued at the last trade or closing price reported in the active market
in which the individual securities are traded. Level 3 securities are valued at book value per share based upon the financial
statements of the investment.
75
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(2) The majority of the assets in this category are invested in funds primarily concentrated in non-U.S. debt instruments. The
funds are valued using the net asset value method in which an average of the market prices for underlying investments is
used to value the fund.
(3) The majority of the assets in this category are invested in properties in Ireland, the UK, Europe and other established
international markets. Investments in properties are stated at estimated fair values based upon valuations by external
independent property valuers.
The table below presents a reconciliation of the plan assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for fiscal years 2011 and 2012.
Properties
Equities
Balance as of October 30, 2010
Purchases, sales, and settlements, net
Realized and unrealized return on plan assets
Exchange rate adjustment
Balance as of October 29, 2011
Purchases, sales, and settlements, net
Realized and unrealized return on plan assets
Exchange rate adjustment
Balance as of November 3, 2012
Estimated future cash flows
$
$
$
3,186
$
64
(141)
57
3,166
$
—
12
(297)
2,881
Expected fiscal 2013 Company contributions and estimated future benefit payments are as follows:
Expected Company Contributions
2013
Expected Benefit Payments
2013
2014
2015
2016
2017
2018 through 2022
76
607
—
—
7
614
—
—
21
635
15,975
2,488
3,430
3,015
3,168
4,290
28,867
$
$
$
$
$
$
$
$
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
14.
Income Taxes
The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is as follows:
U.S. federal statutory tax rate
Income tax provision reconciliation:
Tax at statutory rate:
Irish income subject to lower tax rate
State income taxes, net of federal benefit
Valuation allowance
Research and development tax credits
Change in uncertain tax positions
Net foreign tax in excess of U.S. federal statutory tax rate
Other, net
Total income tax provision
2012
2011
2010
35.0%
35.0%
35.0%
$
$
284,737
(117,693)
610
(599)
(964)
(5,184)
14
1,376
371,506
(144,845)
1,162
(6,700)
(14,681)
(9,897)
338
3,670
$
315,583
(131,823)
2,622
—
(1,045)
2,082
1,315
1,706
$
162,297
$
200,553
$
190,440
For financial reporting purposes, income before income taxes includes the following components:
Pretax income:
Domestic
Foreign
Income from continuing operations before income taxes
The components of the provision for income taxes are as follows:
Current:
Federal tax
Foreign
State
Total current
Deferred (prepaid):
Federal
State
Foreign
Total (prepaid) deferred
2012
2011
2010
233,478
580,055
813,533
$
$
355,819
705,628
1,061,447
$
$
289,748
611,917
901,665
2012
2011
2010
90,303
$
92,103
$
117,097
80,825
970
104,959
1,787
172,098
$
198,849
(9,948) $
(551)
698
(9,801) $
9,399
(5,762)
(1,933)
1,704
79,055
4,154
200,306
(6,159)
(173)
(3,534)
(9,866)
$
$
$
$
$
$
$
$
$
The Company continues to intend to reinvest certain of its foreign earnings indefinitely. Accordingly, no U.S. income
taxes have been provided for approximately $3,221 million of unremitted earnings of international subsidiaries. As of
November 3, 2012, the amount of unrecognized deferred tax liability on these earnings was $848 million.
77
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The significant components of the Company’s deferred tax assets and liabilities for the fiscal years ended November 3,
2012 and October 29, 2011 are as follows:
Deferred tax assets:
Inventory reserves
Deferred income on shipments to distributors
Reserves for compensation and benefits
Tax credit carryovers
Stock-based compensation
Depreciation
Other
Total gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Undistributed earnings of foreign subsidiaries
Other
Total gross deferred tax liabilities
Net deferred tax assets
2012
2011
$
23,496
$
33,236
26,046
44,550
96,140
4,386
8,712
236,566
(37,350)
199,216
(40,634)
(19,928)
(5,918)
(66,480)
132,736
$
$
23,503
34,061
21,164
41,468
91,417
4,781
(592)
215,802
(34,768)
181,034
(36,624)
(24,025)
(1,829)
(62,478)
118,556
The valuation allowances of $37.4 million and $34.8 million at November 3, 2012 and October 29, 2011, respectively,
are valuation allowances for the Company’s state credit carryovers that began expiring in 2008.
The Company has provided for potential tax liabilities due in the various jurisdictions in which the Company operates.
Judgment is required in determining the worldwide income tax expense provision. In the ordinary course of global business,
there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a
consequence of cost reimbursement arrangements among related entities. Although the Company believes its estimates are
reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is
reflected in the historical income tax provisions and accruals. Such differences could have a material impact on the Company’s
income tax provision and operating results in the period in which such determination is made.
As of November 3, 2012 and October 29, 2011, the Company had a liability of $7.1 million and $9.7 million,
respectively, for gross unrealized tax benefits, all of which, if settled in the Company’s favor, would lower the Company’s
effective tax rate in the period recorded. In addition, as of November 3, 2012 and October 29, 2011, the Company had a
liability of approximately $3.0 million and $11.1 million, respectively, for interest and penalties. The Company includes
interest and penalties related to unrecognized tax benefits within the provision for taxes in the consolidated statements of
income. The total liability as of November 3, 2012 and October 29, 2011 of $10.1 million and $20.8 million, respectively, for
uncertain tax positions is classified as non-current, and is included in other non-current liabilities, because the Company
believes that the ultimate payment or settlement of these liabilities may not occur within the next twelve months. The
consolidated statements of income for fiscal years 2012, 2011 and 2010 include $(7.1) million, $0.9 million and $1.8 million,
respectively, of interest and penalties related to these uncertain tax positions. Over the next fiscal year, the Company anticipates
the liability to be reduced by $3.6 million for a tax settlement payment and the possible expiration of an income tax statute of
limitations.
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the changes in the total amounts of unrealized tax benefits for fiscal 2010 through fiscal
ANALOG DEVICES, INC.
2012.
Balance, October 31, 2009
Additions for tax positions of 2010
Balance, October 30, 2010
Additions for tax positions related to prior years
Reductions for tax positions related to prior years
Settlements with taxing authorities
Balance, October 29, 2011
Reductions for tax positions related to prior years
Additions for tax positions related to prior years
Additions for tax positions related to current year
Balance, November 3, 2012
$
$
$
$
18,161
286
18,447
9,265
(17,677)
(370)
9,665
(6,168)
2,212
1,394
7,103
The Company has filed a petition with the Tax Court for one open matter for fiscal years 2006 and 2007 that pertains to
Section 965 of the Internal Revenue Code related to the beneficial tax treatment of dividends paid from foreign owned
companies under The American Jobs Creation Act. The potential liability for this adjustment is $36.5 million. The Company
has concluded, based on discussions with its tax advisors, that this item is not likely to result in any additional tax liability.
Therefore, the Company has not recorded any additional tax liability for this issue.
All of the Company's U.S. federal tax returns prior to fiscal year 2009 are no longer subject to examination.
All of the Company's Ireland tax returns prior to fiscal year 2008 are no longer subject to examination.
15. Revolving Credit Facility
As of November 3, 2012, the Company had $3,900.4 million of cash and cash equivalents and short-term investments, of
which $1,105.8 million was held in the United States. The balance of the Company’s cash and cash equivalents and short-term
investments was held outside the United States in various foreign subsidiaries. As the Company intends to reinvest its foreign
earnings indefinitely, this cash is not available to meet certain aspects of the Company’s cash requirements in the United States,
including cash dividends and common stock repurchases. The Company entered into a five-year, $165.0 million unsecured
revolving credit facility with certain institutional lenders in May 2008. To date, the Company has not borrowed under this
credit facility but the Company may borrow in the future and use the proceeds for support of commercial paper issuance, stock
repurchases, dividend payments, acquisitions, capital expenditures, working capital and other lawful corporate purposes. Any
advances under this credit agreement will accrue interest at rates that are equal to LIBOR plus a margin that is based on either
the Company's leverage ratio or public debt rating by both Standard & Poor's and Moody's, whichever results in the lowest
margin. The terms of the facility impose restrictions on the Company’s ability to undertake certain transactions, to create
certain liens on assets and to incur certain subsidiary indebtedness. The terms of this facility also include financial covenants
that require the Company to maintain a minimum interest coverage ratio and not exceed a maximum leverage ratio. As of
November 3, 2012, the Company was compliant with these covenants.
16. Debt
On June 30, 2009, the Company issued $375.0 million aggregate principal amount of 5.0% senior unsecured notes due
July 1, 2014 (the 5.0% Notes) with semi-annual fixed interest payments due on January 1 and July 1 of each year, commencing
January 1, 2010. The sale of the 5.0% Notes was made pursuant to the terms of an underwriting agreement dated June 25, 2009
between the Company and Credit Suisse Securities (USA) LLC, as representative of the several underwriters named therein.
The net proceeds of the offering were $370.4 million, after issuing at a discount and deducting expenses, underwriting
discounts and commissions, which will be amortized over the term of the 5.0% Notes. The indenture governing the 5.0% Notes
contains covenants that may limit the Company’s 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 its assets to, any other party. As of November 3,
2012, the Company was compliant with these covenants. The notes are subordinated to any future secured debt and to the other
liabilities of the Company’s subsidiaries.
79
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On June 30, 2009, the Company entered into interest rate swap transactions where the Company swapped the notional
amount of its $375.0 million of fixed rate debt at 5.0% into floating interest rate debt through July 1, 2014. Under the terms of
the swaps, the Company would (i) receive on the $375.0 million notional amount a 5.0% annual interest payment that is paid in
two installments on the 1st business day of every January and July, commencing January 1, 2010 through and ending on the
maturity date; and (ii) pay on the $375.0 million notional amount an annual three months LIBOR plus 2.05% interest payment,
payable in four installments on the 1st business day of every January, April, July and October, commencing on October 1, 2009
and ending on the maturity date. The LIBOR-based rate was set quarterly three months prior to the date of the interest payment.
The Company designated these swaps as fair value hedges. The changes in the fair value of the interest rate swaps were
reflected in the carrying value of the interest rate swaps in other assets on the balance sheet. The carrying value of the debt on
the balance sheet was adjusted by an equal and offsetting amount. In fiscal 2012, the Company terminated the interest rate swap
agreement. The Company received $19.8 million in cash proceeds from the swap termination, which included $1.3 million in
accrued interest. The proceeds, net of interest received, are disclosed in cash flows from financing activities in the consolidated
statements of cash flows. As a result of the termination, the carrying value of the 5.0% Notes was adjusted for the change in the
fair value of the interest component of the debt up to the date of the termination of the swap in an amount equal to the fair value
of the swap, and will be amortized to earnings as a reduction of interest expense over the remaining life of the debt. This
amortization is reflected in the consolidated statements of cash flows within operating activities. During fiscal year 2012, $5.3
million was amortized into earnings as a reduction of interest expense related to the swap termination.
On December 22, 2010, Analog Devices Holdings B.V., a wholly owned subsidiary of the Company, entered into a credit
agreement with Bank of America, N.A., London Branch as administrative agent. The borrower’s obligations are guaranteed by
the Company. The credit agreement provides for a term loan facility of $145.0 million, which matures on December 22, 2013.
The terms of the agreement provide for a three year principal amortization schedule with $3.6 million payable quarterly every
March, June, September and December with the balance payable upon the maturity date. During the third quarter of fiscal 2011,
the Company made an additional principal payment of $17.5 million. During the first quarter and fourth quarter of fiscal 2012,
the Company made additional principal payments of $12.0 million and $30.0 million, respectively. The loan will bear interest at
a fluctuating rate for each period equal to the LIBOR rate corresponding with the tenor of the interest period plus a spread of
1.25% (1.46% as of November 3, 2012). The terms of this facility include limitations on subsidiary indebtedness and on liens
against the assets of the Company and its subsidiaries, and also include financial covenants that require the Company to
maintain a minimum interest coverage ratio and not exceed a maximum leverage ratio. As of November 3, 2012, the Company
was compliant with these covenants. As of November 3, 2012, $14.5 million of this debt was classified as short-term.
On April 4, 2011, the Company issued $375.0 million aggregate principal amount of 3.0% senior unsecured notes due
April 15, 2016 (the 3.0% Notes) with semi-annual fixed interest payments due on April 15 and October 15 of each year,
commencing October 15, 2011. The sale of the 3.0% Notes was made pursuant to the terms of an underwriting agreement dated
March 30, 2011 between the Company and Credit Suisse Securities (USA) LLC and Merrill Lynch, Pierce, Fenner and Smith
Incorporated, as representative of the several underwriters named therein. The net proceeds of the offering were $370.5 million,
after issuing at a discount and deducting expenses, underwriting discounts and commissions, which will be amortized over the
term of the 3.0% Notes. The indenture governing the 3.0% Notes contains covenants that may limit the Company’s 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 its assets to, any other party. As of November 3, 2012, the Company was compliant with these covenants.
The notes are subordinated to any future secured debt and to the other liabilities of the Company’s subsidiaries.
The Company’s principal payments related to its debt obligations are as follows: $14.5 million in fiscal year 2013; $420.6
million in fiscal year 2014; and $375.0 million in fiscal year 2016.
17.
Subsequent Events
On November 26, 2012, the Board of Directors of the Company declared a cash dividend of $0.30 per outstanding share
of common stock. The dividend will be paid on December 18, 2012 to all shareholders of record at the close of business on
December 7, 2012.
80
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Analog Devices, Inc.
We have audited the accompanying consolidated balance sheets of Analog Devices, Inc. as of November 3, 2012 and
October 29, 2011, and the related consolidated statements of income, shareholders’ equity, comprehensive income, and cash
flows for each of the three years in the period ended November 3, 2012. Our audits also included the financial statement
schedule listed in the Index at Item 15(b). These financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Analog Devices, Inc. at November 3, 2012 and October 29, 2011, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended November 3, 2012, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Analog Devices, Inc.’s internal control over financial reporting as of November 3, 2012, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated November 27, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
November 27, 2012
81
ANALOG DEVICES, INC.
SUPPLEMENTARY FINANCIAL INFORMATION
(Unaudited)
Quarterly financial information for fiscal 2012 and fiscal 2011 (thousands, except per share amounts and as noted):
Revenue
Cost of sales
Gross margin
% of Revenue
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
694,964
251,682
443,282
683,026
235,152
447,874
675,094
234,639
440,455
648,058
238,668
409,390
716,134
255,620
460,514
757,902
248,262
509,640
790,780
256,566
534,214
728,504
246,331
482,173
63.8%
65.6%
65.2%
63.2%
64.3%
67.2%
67.6%
66.2%
Research and development
130,394
129,694
127,537
124,378
123,889
128,476
130,460
122,745
Selling, marketing, general
and administrative
Special charges
97,609
—
99,873
5,836
99,992
—
99,045
2,595
99,094
2,239
102,323
105,268
100,022
—
—
—
Total operating expenses
228,003
235,403
227,529
226,018
225,222
230,799
235,728
222,767
Operating income from
continuing operations
% of Revenue
Nonoperating (income)
expenses:
Interest expense
Interest income
Other, net
Total nonoperating (income)
expense
Income from continuing
operations before income taxes
215,279
212,471
212,926
183,372
235,292
278,841
298,486
259,406
31%
31%
32%
28%
33%
37%
38%
36%
6,391
(3,627)
(9)
6,459
(3,506)
49
6,890
(3,967)
(1,451)
6,682
(3,348)
(48)
6,079
(2,183)
396
6,159
(2,395)
206
4,078
(2,197)
(151)
2,755
3,002
1,472
3,286
4,292
3,970
1,730
2,830
(2,285)
41
586
212,524
209,469
211,454
180,086
231,000
274,871
296,756
258,820
% of Revenue
31%
31%
31%
28%
32%
36%
38%
36%
Provision for income taxes
33,337
39,701
48,555
40,704
47,473
54,936
54,930
43,214
Net income from continuing
operations
Gain on sale of discontinued
operations
Net income
% of Revenue
Earnings per share — basic
Income from continuing
operations
Net income
Earnings per share — diluted
Income from continuing
operations
Net income
Shares used to compute earnings
per share (in thousands):
179,187
169,768
162,899
139,382
183,527
219,935
241,826
215,606
—
—
—
—
—
—
—
6,500
179,187
169,768
162,899
139,382
183,527
219,935
241,826
222,106
26%
25%
24%
22%
26%
29%
31%
30%
0.60
0.60
0.58
0.58
0.57
0.57
0.56
0.56
0.55
0.55
0.53
0.53
0.47
0.47
0.46
0.46
0.61
0.61
0.60
0.60
0.73
0.73
0.71
0.71
0.81
0.81
0.78
0.78
0.72
0.74
0.70
0.72
Basic
Diluted
Dividends declared per share
300,679
307,954
0.30
298,445
305,359
0.30
298,130
305,921
0.30
297,788
305,531
0.25
298,910
305,734
0.25
299,616
308,744
0.25
299,923
309,619
0.22
299,218
308,848
0.22
82
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. 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 Analog’s disclosure controls and procedures as of November
3, 2012. 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 (the “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 SEC’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 November 3, 2012, 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) Management’s Report on Internal Control Over Financial Reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange
Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial
officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of November 3, 2012. In
making this assessment, the company’s management used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
Based on this assessment, our management concluded that, as of November 3, 2012, our internal control over financial
reporting is effective based on those criteria.
Our independent registered public accounting firm that audited the financial statements included in this annual report has
issued an attestation report on our internal control over financial reporting. This report appears below.
(c) Attestation Report of the Registered Public Accounting Firm
83
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Analog Devices, Inc.
We have audited Analog Devices, Inc.’s internal control over financial reporting as of November 3, 2012, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Analog Devices, Inc.’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Analog Devices, Inc. maintained, in all material respects, effective internal control over financial
reporting as of November 3, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Analog Devices, Inc. as of November 3, 2012 and October 29, 2011, and the related
consolidated statements of income, shareholders’ equity, comprehensive income, and cash flows for each of the three years in
the period ended November 3, 2012 of Analog Devices, Inc. and our report dated November 27, 2012 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
November 27, 2012
84
(d) Changes in Internal Controls 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 Securities Exchange Act) occurred during the fiscal quarter ended
November 3, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
85
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this item relating to our directors and nominees is contained in our 2013 proxy statement under
the caption “Proposal 1 — Election of Directors” and is incorporated herein by reference. Information required by this item
relating to our executive officers is contained under the caption “EXECUTIVE OFFICERS OF THE COMPANY” in Part I of
this Annual Report on Form 10-K and is incorporated herein by reference. Information required by this item relating to
compliance with Section 16(a) of the Securities Exchange Act of 1934 is contained in our 2013 proxy statement under the
caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.
We have adopted a written code of business conduct and ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions and have posted it in the
Corporate Governance section of our website which is located at www.analog.com. To the extent permitted by NASDAQ and
SEC regulations, we intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding any amendments to,
or waivers from, our code of business conduct and ethics by posting such information on our website which is located at
www.analog.com.
During the fourth quarter of fiscal 2012, we made no material change to the procedures by which shareholders may
recommend nominees to our Board of Directors, as described in our 2012 proxy statement.
Information required by this item relating to the audit committee of our Board of Directors is contained in our 2013 proxy
statement under the caption “Corporate Governance — Board of Directors Meetings and Committees — Audit Committee” and
is incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION
Information required by this item is contained in our 2013 proxy statement under the captions “Corporate Governance —
Director Compensation”, “Information About Executive Compensation” and "Corporate Governance — Risk Considerations in
our Compensation Program" and is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required by this item relating to security ownership of certain beneficial owners and management is
contained in our 2013 proxy statement under the caption “Security Ownership of Certain Beneficial Owners and Management”
and is incorporated herein by reference. Information required by this item relating to securities authorized for issuance under
equity compensation plans is contained in our 2013 proxy statement under the caption “Information About Executive
Compensation — Securities Authorized for Issuance Under Equity Compensation Plans” and is incorporated herein by
reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by this item relating to transactions with related persons is contained in our 2013 proxy statement
under the caption “Corporate Governance — Certain Relationships and Related Transactions” and is incorporated herein by
reference. Information required by this item relating to director independence is contained in our 2013 proxy statement under
the caption “Corporate Governance — Determination of Independence” and is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this item is contained in our 2013 proxy statement under the caption “Corporate Governance —
Independent Registered Public Accounting Firm Fees and Other Matters” and is incorporated herein by reference.
86
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following are filed as part of this Annual Report on Form 10-K:
1. Financial Statements
The following consolidated financial statements are included in Item 8 of this Annual Report on Form 10-K:
— Consolidated Statements of Income for the years ended November 3, 2012, October 29, 2011 and October 30, 2010
— Consolidated Balance Sheets as of November 3, 2012 and October 29, 2011
— Consolidated Statements of Shareholders’ Equity for the years ended November 3, 2012, October 29, 2011 and
October 30, 2010
— Consolidated Statements of Comprehensive Income for the years ended November 3, 2012, October 29, 2011, and
October 30, 2010
— Consolidated Statements of Cash Flows for the years ended November 3, 2012, October 29, 2011and October 30, 2010
(b) Financial Statement Schedules
The following consolidated financial statement schedule is included in Item 15(b) of this Annual Report on Form 10-K:
Schedule II — Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is not present, or not present in amounts sufficient
to require submission of the schedule or because the information required is included in the consolidated financial statements or
the Notes thereto.
(c) Exhibits
The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed or furnished with or incorporated by
reference in this Annual Report on Form 10-K.
87
ANALOG DEVICES, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED NOVEMBER 3, 2012
ITEM 15(b)
FINANCIAL STATEMENT SCHEDULE
88
ANALOG DEVICES, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years ended November 3, 2012, October 29, 2011 and October 30, 2010
(Thousands)
Description
Accounts Receivable Reserves and Allowances:
Year ended October 30, 2010
Year ended October 29, 2011
Year ended November 3, 2012
Balance at
Beginning of
Additions
Charged to
Balance at
End of
Period
Income Statement
Deductions
Period
$
$
$
1,681
1,581
1,465
$
$
$
2,918
846
1,910
$
$
$
3,018
962
654
$
$
$
1,581
1,465
2,721
89
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
ANALOG DEVICES, INC.
By:
/s/ JERALD G. FISHMAN
Jerald G. Fishman
Chief Executive Officer and Director
(Principal Executive Officer)
Date: November 27, 2012
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Ray Stata
Ray Stata
/s/ Jerald G. Fishman
Jerald G. Fishman
/s/ David A. Zinsner
David A. Zinsner
/s/ Seamus Brennan
Seamus Brennan
/s/ James A. Champy
James A. Champy
/s/ John C. Hodgson
John C. Hodgson
/s/ Yves-Andre Istel
Yves-Andre Istel
/s/ Neil Novich
Neil Novich
/s/ F. Grant Saviers
F. Grant Saviers
Chairman of the Board
November 27, 2012
Chief Executive Officer
and Director
(Principal Executive Officer)
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
November 27, 2012
November 27, 2012
November 27, 2012
Director
November 27, 2012
Director
November 27, 2012
Director
November 27, 2012
Director
November 27, 2012
Director
November 27, 2012
90
Name
/s/ Paul J. Severino
Paul J. Severino
/s/ Kenton J. Sicchitano
Kenton J. Sicchitano
/s/ Lisa T. Su
Lisa T. Su
Title
Director
Date
November 27, 2012
Director
November 27, 2012
Director
November 27, 2012
91
Exhibit No.
1.1
1.2
2.1
2.2
2.3
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
Exhibit Index
Description
Underwriting Agreement, dated June 25, 2009, between Analog Devices, Inc. and Credit Suisse Securities
(USA) LLC, as representative of the several underwriters named therein, filed as exhibit 1.1 to the Company's
Current Report on Form 8-K (File No. 1-7819), filed with the Commission on June 30, 2009 and incorporated
herein by reference.
Underwriting Agreement, dated March 30, 2011, between Analog Devices, Inc. and Credit Suisse Securities
(USA) LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several
underwriters named therein, filed as exhibit 1.1 to the Company's Current Report on Form 8-K (File No.
1-7819), filed with the Commission on March 31, 2011 and incorporated herein by reference.
Purchase and Sale Agreement, dated as of September 9, 2007, among Analog Devices, Inc., various subsidiaries,
and MediaTek Inc., filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended
November 3, 2007 (File No. 1-7819) as filed with the Commission on November 30, 2007 and incorporated
herein by reference.
Amendment No. 1 to Purchase and Sale Agreement, dated January 11, 2008, among Analog Devices, Inc.,
various subsidiaries, and MediaTek Inc. filed as an exhibit to the Company's Current Report on Form 8-K (File
No. 1-7819), as filed with the Commission on January 16, 2008 and incorporated herein by reference.
License Agreement, dated as of January 11, 2008, among Analog Devices, Inc., Analog Devices B.V., MediaTek
Inc. and MediaTek Singapore Pte. Ltd., filed as an exhibit to the Company's Current Report on Form 8-K (File
No. 1-7819), as filed with the Commission on January 16, 2008 and incorporated herein by reference.
Restated Articles of Organization of Analog Devices, Inc., as amended, filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended May 3, 2008 (File No. 1-7819) as filed with the
Commission on May 20, 2008 and incorporated herein by reference.
Amendment to Restated Articles of Organization of Analog Devices, Inc., filed as exhibit 3.1 to the Company's
Current Report on Form 8-K filed with the Commission on December 8, 2008 (File No. 1-7819) and
incorporated herein by reference.
Amended and Restated By-Laws of Analog Devices, Inc., filed as exhibit 3.1 to the Company's Current Report
on Form 8-K filed with the Commission on January 28, 2010 (File No. 1-7819) and incorporated herein by
reference.
Indenture, by and between Analog Devices, Inc. and The Bank of New York Mellon Trust Company, N.A. (as
Trustee) dated as of June 30, 2009, filed as exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 1, 2009 (File No. 1-7819) and incorporated herein by reference.
Supplemental Indenture, dated June 30, 2009, between Analog Devices, Inc. and The Bank of New York Mellon
Trust Company, N.A., as trustee, filed as exhibit 4.1 to the Company's Current Report on Form 8-K (File No.
1-7819), filed with the Commission on June 30, 2009 and incorporated herein by reference.
Form of 5.00% Global Note due July 1, 2014, filed as exhibit 4.2 to the Company's Current Report on Form 8-K
(File No. 1-7819), filed with the Commission on June 30, 2009 and incorporated herein by reference
Supplemental Indenture, dated April 4, 2011, between Analog Devices, Inc. and The Bank of New York Mellon
Trust Company, N.A., as trustee, filed as exhibit 4.1 to the Company's Current Report on Form 8-K (File No.
1-7819), filed with the Commission on April 4, 2011 and incorporated herein by reference.
Form of 3.00% Global Note due April 15, 2016, filed as exhibit 4.2 to the Company's Current Report on Form 8-
K (File No. 1-7819), filed with the Commission on April 4, 2011 and incorporated herein by reference.
*10.1
Analog Devices, Inc. Amended and Restated Deferred Compensation Plan, incorporated herein by reference to
exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Commission on December 8, 2008
(File No. 1-7819) and incorporated herein by reference.
Exhibit No.
*10.2
Description
First Amendment to the Analog Devices, Inc. Amended and Restated Deferred Compensation Plan, filed as an
exhibit to the Company's Quarterly Report on Form 10-Q for fiscal quarter ended July 30, 2011 (File No.
1-7819) as filed with the Commission on August 16, 2011 and incorporated herein by reference.
*10.3
*10.4
*10.5
*10.6
*10.7
*10.8
*10.9
*10.10
*10.11
*10.12
*10.13
10.14
10.15
Trust Agreement for Deferred Compensation Plan dated as of October 1, 2003 between Analog Devices, Inc.
and Fidelity Management Trust Company, filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended November 1, 2003 (File No. 1-7819) as filed with the Commission on December 23, 2003
and incorporated herein by reference.
First Amendment to Trust Agreement for Deferred Compensation Plan between Analog Devices, Inc. and
Fidelity Management Trust Company dated as of January 1, 2005, filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended October 28, 2006 (File No. 1-7819) as filed with the Commission
on November 20, 2006 and incorporated herein by reference.
Second Amendment to Trust Agreement for Deferred Compensation Plan between Analog Devices, Inc. and
Fidelity Management Trust Company dated as of December 10, 2007, filed as exhibit 10.41 to the Company's
Annual Report on Form 10-K for the fiscal year ended November 1, 2008 (File No. 1-7819) as filed with the
Commission on November 25, 2008 and incorporated herein by reference.
1998 Stock Option Plan of Analog Devices Inc., as amended, filed as an exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended November 2, 2002 (File No. 1-7819) as filed with the Commission on
January 29, 2003 and incorporated herein by reference.
Analog Devices, Inc. 2001 Broad-Based Stock Option Plan, as amended, filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended November 2, 2002 (File No. 1-7819) as filed with the
Commission on January 29, 2003 and incorporated herein by reference.
Amended and Restated 2006 Stock Incentive Plan of Analog Devices, Inc., filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 5, 2012 (File No. 1-7819) as filed with the
Commission on May 22, 2012 and incorporated herein by reference.
Form of Global Non-Qualified Stock Option Agreement for Employees for usage under the Company's 2006
Stock Incentive Plan, filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended
May 5, 2012 (File No. 1-7819) as filed with the Commission on May 22, 2012 and incorporated herein by
reference.
Form of Agreement for Grants of Non-Qualified Stock Options to Directors for usage under the Company's
2006 Stock Incentive Plan, filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year
ended October 29, 2011 (File No. 1-7819) as filed with the Commission on November 22, 2011 and
incorporated herein by reference..
Form of Global Restricted Stock Unit Agreement for Employees for usage under the Company's 2006 Stock
Incentive Plan, filed as an exhibit to the Company's Current Report on Form 10-Q for the quarter ended May 5,
2012 (File No. 1-7819) as filed with the Commission on May 22, 2012 and incorporated herein by reference
Form of Global Restricted Stock Unit Agreement for Directors for usage under the Company's 2006 Stock
Incentive Plan, filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended
August 4, 2012 (File No. 1-7819) as filed with the Commission on August 21, 2012 and incorporated herein by
reference.
Analog Devices BV (Ireland) Employee Stock Option Program, as amended, filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended November 2, 2002 (File No. 1-7819) as filed
with the Commission on January 29, 2003 and incorporated herein by reference.
BCO Technologies Plc Unapproved Share Option Scheme, filed as an exhibit to the Company's Registration
Statement on Form S-8 (File No. 333-50092) as filed with the Commission on November 16, 2000 and
incorporated herein by reference.
BCO Technologies Plc Approved Share Option Scheme, filed as an exhibit to the Company's Registration
Statement on Form S-8 (File No. 333-50092) as filed with the Commission on November 16, 2000 and
incorporated herein by reference.
Exhibit No.
10.16
10.17
10.18
*10.19
*10.20
*10.21
*10.22
*10.23
*10.24
*10.25
*10.26
*10.27
*10.28
*10.29
*10.30
Description
ChipLogic, Inc. Amended and Restated 1998 Stock Plan, filed as an exhibit to the Company's Registration
Statement on Form S-8 (File No. 333-53314) as filed with the Commission on January 5, 2001 and incorporated
herein by reference.
Staccato Systems, Inc. 1998 Stock Plan, filed as an exhibit to the Company's Registration Statement on Form
S-8 (File No. 333-53828) as filed with the Commission on January 17, 2001 and incorporated herein by
reference.
Various individual stock restriction and similar agreements between the registrant and employees thereof
relating to ChipLogic, Inc., filed as an exhibit to the Company's Registration Statement on Form S-8 (File No.
333-57444) as filed with the Commission on March 22, 2001, as amended by Amendment No. 1 filed as an
exhibit to the Company's Post-Effective Amendment to Registration Statement on Form S-8 (File No.
333-57444) as filed with the Commission on March 23, 2001 and incorporated herein by reference.
Amended and Restated Employment Agreement between Jerald G. Fishman and Analog Devices, Inc., dated
January 14, 2010, filed as an exhibit to the Company's Current Report on Form 8-K (File No. 1-7819) as filed
with the Commission on January 19, 2010 and incorporated herein by reference.
Executive Retention Agreement dated October 22, 2007 between Jerald G. Fishman and Analog Devices, Inc.,
filed as an exhibit to the Company's Current Report on Form 8-K (File No. 1-7819) as filed with the
Commission on October 26, 2007 and incorporated herein by reference.
Amendment to Long-Term Retention Agreement between Jerald G. Fishman and Analog Devices, Inc., filed as
exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 1-7819) as filed with the Commission on
January 19, 2010 and incorporated herein by reference.
Letter Agreement between Analog Devices Inc. and Jerald G. Fishman dated June 21, 2000 relating to
acceleration of stock options upon the occurrence of certain events, filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended October 28, 2000 (File No. 1-7819) as filed with the Commission
on January 26, 2001 and incorporated herein by reference.
Amendment dated as of October 22, 2007 to the Employee Retention Agreement dated as of January 16, 1989
between Jerald G. Fishman and Analog Devices, Inc., filed as an exhibit to the Company's Current Report on
Form 8-K (File No. 1-7819) as filed with the Commission on October 26, 2007 and incorporated herein by
reference.
Form of Restricted Stock Unit Agreement between Analog Devices, Inc. and Jerald G. Fishman, filed as an
exhibit to the Company's Current Report on Form 8-K (File No. 1-7819), as filed with the Commission on
September 24, 2012 and incorporated herein by reference.
2012 Executive Performance Incentive Plan, as amended and restated, filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 4, 2012 (File No. 1-7819) as filed with the
Commission on February 22, 2012 and incorporated herein by reference.
2013 Executive Performance Incentive Plan, filed as an exhibit to the Company's Current Report on Form 8-K
(File No. 1-7819), as filed with the Commission on October 31, 2012 and incorporated herein by reference.
Form of Employee Retention Agreement, filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended May 5, 2012 (File No. 1-7819) as filed with the Commission on May 22, 2012 and
incorporated herein by reference.
Employee Change in Control Severance Policy of Analog Devices, Inc., as amended, filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended October 30, 1999 (File No. 1-7819) as filed
with the Commission on January 28, 2000 and incorporated herein by reference.
Senior Management Change in Control Severance Policy of Analog Devices, Inc., as amended, filed as an
exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended October 30, 1999 (File No.
1-7819) as filed with the Commission on January 28, 2000 and incorporated herein by reference.
Offer Letter for David A. Zinsner, dated November 18, 2008, filed as exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 2009 (File No. 1-7819) as filed with the Commission on
February 18, 2009 and incorporated herein by reference.
Exhibit No.
*10.31
Description
Form of Indemnification Agreement for Directors and Officers, filed as exhibit 10.30 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 1, 2008 (File No. 1-7819) as filed with the
Commission on November 25, 2008 and incorporated herein by reference.
10.32
10.33
10.34
10.35
10.36
10.37
Amended and Restated Lease Agreement dated May 1, 1992 between Analog Devices, Inc. and the trustees of
Everett Street Trust relating to the premises at 3 Technology Way, Norwood, Massachusetts, filed as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended November 1, 1997 (File No. 1-7819) as
filed with the Commission on January 28, 1998 and incorporated herein by reference.
Guaranty dated as of May 1, 1994 between Analog Devices, Inc. and Metropolitan Life Insurance Company
relating to the premises at 3 Technology Way, Norwood, Massachusetts, filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended October 30, 1999 (File No. 1-7819) as filed with the
Commission on January 28, 2000 and incorporated herein by reference.
Letter Agreement dated as of May 18, 1994 between Analog Devices, Inc. and Metropolitan Life Insurance
Company relating to the premises at 3 Technology Way, Norwood, Massachusetts, filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended October 30, 1999 (File No. 1-7819) as filed
with the Commission on January 28, 2000 and incorporated herein by reference.
Reimbursement Agreement dated May 18, 1992 between Analog Devices, Inc. and the trustees of Everett Street
Trust, filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 1,
1997 (File No. 1-7819) as filed with the Commission on January 28, 1998 and incorporated herein by reference.
Lease Agreement dated November 14, 1997, as amended, between Analog Devices, Inc. and Liberty Property
Limited Partnership, relating to premises located at 7736 McCloud Road, Greensboro, North Carolina, filed as
an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended October 28, 2006 (File No.
1-7819) as filed with the Commission on November 20, 2006 and incorporated herein by reference.
Fifth Amendment dated September 14, 2007 to Lease Agreement dated November 14, 1997, as amended,
between Analog Devices, Inc. and Crown-Greensboro I, LLC (as successor to Liberty Property Limited
Partnership), relating to premises located at 7736 McCloud Road, Greensboro, North Carolina, filed as an
exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 3, 2007 (File No.
1-7819) as filed with the Commission on November 30, 2007 and incorporated herein by reference.
†12.1
Computation of Consolidated Ratios of Earnings to Fixed Charges.
†21
†23
†31.1
†31.2
†32.1
†32.2
Subsidiaries of the Company.
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
Certification Pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer).
Certification Pursuant to 18 U.S.C. Section 1350 (Chief Financial Officer).
101. INS XBRL Instance Document.
101. SCH XBRL Schema Document.
101. CAL XBRL Calculation Linkbase Document.
101. LAB XBRL Labels Linkbase Document.
101. PRE XBRL Presentation Linkbase Document.
101. DEF XBRL Definition Linkbase Document
_______________________________________
†
*
Filed herewith.
Management contracts and compensatory plan or arrangements required to be filed as an Exhibit pursuant to Item 15
(b) of Form 10-K.
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):
(i) Consolidated Statements of Income for the years ended November 3, 2012, October 29, 2011 and October 30, 2010,
(ii) Consolidated Balance Sheets as of November 3, 2012 and October 29, 2011, (iii) Consolidated Statements of Shareholders’
Equity for the years ended November 3, 2012, October 29, 2011 and October 30, 2010, (iv) Consolidated Statements of
Comprehensive Income for the years ended November 3, 2012, October 29, 2011 and October 30, 2010, (v) Consolidated
Statements of Cash Flows for the years ended November 3, 2012, October 29, 2011 and October 30, 2010, (vi) Notes to
Consolidated Financial Statements for the years ended November 3, 2012, October 29, 2011 and October 30, 2010.
Board of Directors
Ray Stata, Chairman
Chairman of the Board
Analog Devices, Inc.
Jerald G. Fishman
Chief Executive Officer
Analog Devices, Inc.
James A. Champy
Retired Vice President of the
Dell/Perot Systems business
unit of Dell, Inc.
John C. Hodgson
Retired Senior Vice President and
Chief Marketing and Sales Officer
DuPont
F. Grant Saviers
Retired Chairman of the Board
and Chief Executive Officer
Adaptec, Inc.
Yves-Andre Istel
Senior Adviser
Rothschild, Inc.
Neil Novich
Former Chairman, President
and Chief Executive Officer
Ryerson Inc.
Paul J. Severino
Private Investor, Founder and
Former Chairman
Bay Networks, Inc.
Kenton J. Sicchitano
Retired Global Managing Partner
PricewaterhouseCoopers LLP
Lisa T. Su
Senior Vice President and
General Manager, Global
Business Units
Advanced Micro Devices
Executive Officers
Jerald G. Fishman
Chief Executive Officer
Vincent Roche
President
David A. Zinsner
Vice President, Finance and Chief
Financial Officer
Seamus Brennan
Vice President and Chief Accounting
Officer
Samuel H. Fuller
Vice President, Research and Development
and Chief Technology Officer
Dick Meaney
Vice President, Products and Technology
Group
Robert R. Marshall
Vice President, Worldwide Manufacturing
William Matson
Vice President, Human Resources
Robert McAdam
Executive Vice President,
Strategic Business Segments Group
Margaret K. Seif
Vice President, General Counsel and
Secretary
Thomas Wessel
Vice President, Worldwide Sales
Robert Yung
Vice President, Corporate Development and
Chief Strategy Officer
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
(877) 282-1168 (U.S.)
(781) 575-2879 (Outside U.S.)
www-us.computershare.com
Other Information
To obtain a free copy of the 2012 Annual Report on Form 10-K,
Corporate Governance Guidelines, Code of Business Conduct
and Ethics, or additional information, visit ADI’s home page at
www.analog.com or write to:
Analog Devices, Inc.
Investor Relations
One Technology Way
P.O. Box 9106
Norwood, MA 02062-9106
Email: investor.relations@analog.com
Shareholder Inquiries
Shareholders of record should contact Analog Devices’ transfer
agent regarding any changes in address, transfer of stock, or
account consolidation.
Annual Meeting
Analog Devices will hold its Annual Shareholders’ Meeting at
9:00 a.m. (local time) on Wednesday, March 13, 2013, at One
Technology Way, Norwood, MA.
Stock Trading
Analog Devices’ common stock trades on The NASDAQ Global
Select Market under the symbol ADI.
Analog Devices and the Analog Devices logo are registered trademarks of Analog Devices, Inc. All other marks are trademarks of their respective owners.
One Technology Way
P.O. Box 9106
Norwood, MA 02062-9106
1-800-262-5643
www.analog.com
ANNUAL-REPORT-2012