2013 Annual Report
Dear Shareholder,
In 2013, ADI delivered solid profitability and shareholder
returns despite the uncertain macroeconomic environ-
ment that transpired. While fiscal year 2013 revenue of
$2.6 billion was 2% below the prior year, net income
increased by 3% and sales in the second half were 6%
higher than the first half, which we believe are positive
signs for the year ahead.
Net income for fiscal year 2013 totaled $673 million.
Diluted earnings per share were $2.14, rising slightly
from 2012. Cash flow from operations was $912 million,
or 35% of revenue; and over $460 million was returned
to shareholders, primarily through cash dividends. ADI
shareholders earned $1.32 per share in dividends, a 15%
increase over the prior year, and the total shareholder
return was 28%.
Strong, Consistent History of Dividend Growth
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
Cash Dividends Paid Per Share
15%
$1.32
22%
$1.15
5%
$0.80
5%
$0.76
25%
9%
$0.70
12%
$0.94
$0.84
75%
$0.56
60%
$0.32
$0.20
FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013
Percentages are year-over-year growth.
As always, we were guided in 2013 by our long-term strategy to drive superior results through superior innovation. During the
year, we sharpened our focus on developing the signal processing systems most critical to our customers, with the highest
potential to sustain the returns we expect of our investments. As such, we increased investments in industrial, communications
infrastructure, and automotive applications, which together accounted for 85% of our revenue in fiscal year 2013. We also
increased investments in the advanced technologies that we believe will secure ADI’s leadership position far into the future.
These increases were primarily achieved by redirecting resources, enabling us to keep expenses under tight control in the
uncertain economic climate.
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Focused on Sustainable and Highly Valued
Signal Processing Innovation
Revenue ($M)
74%
26%
75%
25%
78%
81%
83%
85%
22%
19%
17%
15%
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
Industrial, Automotive, Communications Infrastructure
Pro/Consumer A/V, Imaging, Smartphone, Tablet
e
d
e
u
n
bi n
#1
Co m
Market Share in
Converters
7 1 % of FY2013 Reve
71% of Revenue from Products with
#1 Market Share Position
ADI’s enduring stability stems from a
diverse business and a strong technology
foundation grounded by exceptionally
talented employees who thrive on creating
innovative solutions to our customers’
toughest challenges. Technical innovation
is deeply rooted in our culture and is our
primary strategy for not only maintaining
leading market share in converters and
high performance amplifiers, which
together represented 71% of revenue in
fiscal year 2013, but also advancing our
portfolio of complementary technologies.
Importantly, we are also increasingly
extending our culture of innovation beyond
circuit design and analog manufacturing
process technology into architecting signal processing systems to meet our customers’ need for more complete solutions.
These newest areas of innovation are creating higher barriers to entry for competitors and strengthening the ADI brand among
customers, partners, and industry experts.
Source: ADI FY2013 financial reports; industry analyst
market share report May 2013.
Market Share in
High Performance
Amplifiers
Other
Analog and
MEMS
Amplifiers/RF
Converters
Power DSP
#1
During 2013, ADI was recognized by many of our customers for providing the industry-leading technology, quality and
reliability that make high performance, mission critical applications possible. In one notable example, a world leading
provider of telecommunications equipment singled out ADI as its “Supplier of the Year,” citing ADI’s cutting edge
technology and consistent and excellent support at every level, and describing ADI as the very definition of what it
means to be a collaborative supplier.
In 2013, ADI’s EngineerZone® technical support community received top honors from Forrester Research, Inc., a global
research and advisory firm, for outstanding use of social media to engage customers in technical design support, thereby
increasing customer loyalty and value. In the EngineerZone® community, our technical support expertise is accessible
to engineers all over the world, all the time, and in an interactive way. And Thomson-Reuters included ADI for the third
consecutive year in its prestigious list of the Top 100 Global Innovators.
In every aspect of our business, by focusing
on driving superior results through superior
innovation, we are uncovering new sources
of growth and value creation, and proving
that the cycle of innovation that has fueled
the ADI franchise for decades will continue
to fuel our prosperity in the future. The cycle
begins by attracting and nurturing the best
engineering minds who create superior
innovations with high value for customers
and high profits for ADI. Strong profitability
and financial performance then affords us
the flexibility and stability, regardless of the
cyclicality of our industry, to continue the
cycle by attracting and nurturing top talent
and building superior innovations.
70%
68%
66%
64%
62%
60%
58%
56%
54%
52%
50%
Improving Margins Reflect Value of Innovation
and Operational Efficiency Gains
40%
37%
34%
31%
28%
25%
22%
19%
16%
13%
10%
Operating Margin
(% of Revenue)
FY2008
FY2009 FY2010 FY2011 FY2012
FY2013
Gross Margin
(% of Revenue)
FY2008
FY2009 FY2010 FY2011 FY2012
FY2013
Excluding special charges; product revenue from continuing operations.
Few worked harder than the late Jerry Fishman to nurture the culture of innovation that Ray Stata founded at ADI. Jerry led
ADI as CEO from 1996 to 2013, was an employee since 1974, and was my mentor and friend for many years. I know that
long into the future I will continue to draw deeply on the learning that he imparted to me as I challenge our people to reach
ever increasing levels of performance.
This year we made steady progress executing against our long-term plan to grow sales, earn extraordinary profits, and
use our cash generation to increase shareholder returns. Tremendous opportunities lie ahead for our great company.
ADI provides an essential technology portfolio that enables pervasive sensing, automation, and communication across
myriad applications that can improve how businesses operate and people live. Our brand is stronger than ever and our
capabilities more complete and more focused, providing us a great platform on which to keep building. I firmly believe
that our best is yet to come.
Sincerely,
v
Vincent Roche
President and CEO
Analog Devices, Inc.
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 forward looking statements 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, and product development
efforts, expected profitability and 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 our business and the 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: any faltering in the global economic conditions or the stability of credit and financial markets, erosion of consumer confidence and declines in customer
demand or spending, 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. Our results of operations for the periods
presented in this letter are not necessarily indicative of our results for any future periods. Any projections in this letter are based on limited information currently
available to Analog Devices, which is subject to change. Although any such projections and the factors influencing them will likely change, we will not necessarily
update the information, as we will only provide guidance at certain points during the year. Such information speaks only as of the original issuance date of this letter.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(cid:59) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 2, 2013
OR
(cid:134) 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 (cid:59) NO (cid:134)
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 (cid:134) NO (cid:59)
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 (cid:59) NO (cid:134)
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 (cid:59) NO (cid:134)
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. (cid:134)
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 (cid:59) Accelerated filer (cid:134)
Non-accelerated filer (cid:134)
(Do not check if a smaller reporting company)
Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES (cid:134) NO (cid:59)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately
$12,124,000,000 based on the last reported sale of the Common Stock on The NASDAQ Global Select Market on May 4, 2013. 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 2, 2013, there were 311,045,084 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 12, 2014
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 and other safe harbors under the Securities Act of 1933 and the Securities Exchange Act of
1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements.
These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we
operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,”
“projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may” and "will," and variations of such words and similar
expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections
regarding our future financial performance; 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
The organization is viewed 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. 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 and direct 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 reportable segment based on the aggregation of
five operating segments. Our ten highest revenue products, in the aggregate, accounted for approximately 9% of our revenue
for fiscal 2013. A breakdown of our fiscal 2013 revenue by product category follows.
Product Category
Converters
Amplifiers/ Radio frequency
Other analog
Power management & reference
Digital signal processing
Analog Products
Percent of
Fiscal 2013
Revenue
45%
26%
14%
7%
9%
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.
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,
3
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 and inertial measurement units used to sense
multiple degrees of freedom combining multiple sensing types along multiple axes. 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 2013. 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 2013 revenue by end market is set out in the table below.
End Market
Industrial
Automotive
Consumer
Communications
Percent of
Fiscal 2013
Revenue*
46%
18%
15%
20%
* The sum of the individual percentages do not equal 100% due to rounding.
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
• Substation relays and automation equipment
• Wind turbines
• Solar inverters
• Building energy automation/control
5
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
Automotive — We develop differentiated high performance signal processing solutions that enable sophisticated
automotive systems to be greener, safer and more comfortable. 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 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
•
•
Electronic stability systems
• Advanced driver assistance
systems (RADAR/Vision)
• Vehicle dynamic control systems
Comfort
Car audio amplifiers
Head unit solutions
Rear seat entertainment systems
•
•
•
Consumer — To address the 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, we have developed analog and digital
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-definition televisions and DVD recorders/players
• Home theater systems
• High-performance audio/video equipment
• Portable media devices (smart phones, tablets and cellular
handsets)
• 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,
creates demand for our products, which 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 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 $513 million during fiscal 2013 on the design, development
and improvement of new and existing products and manufacturing processes, compared to approximately $512 million during
fiscal 2012 and approximately $506 million during fiscal 2011.
6
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 2, 2013, we held approximately 1,950 U.S. patents and approximately
700 non-provisional pending U.S. patent applications with expiration dates ranging from 2013 through 2033. There can be no
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 2013 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
2013, we derived approximately 69% 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.
7
Revenue by geographic region, based on the primary location of our customers' design activity for our products, for fiscal
2013 was as follow:
Geographic Area
United States
Rest of North/South America
Europe
Japan
China
Rest of Asia
Percent of
Fiscal 2013
Revenue
31%
4%
32%
11%
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 2013, 2012, or 2011 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 4% of our fiscal 2013 revenue. Our 20 largest customers, excluding distributors,
accounted for approximately 34% of our fiscal 2013 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 $123 million in fiscal 2013, compared with approximately $132 million in fiscal
2012. We expect capital expenditures for fiscal 2014 to be approximately $150 million, of which about two-thirds relates to
ongoing capital spending, and about one-third relates to capital spending for a new building we are constructing on our campus
in Ireland.
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
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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 2013 was approximately $345 million, down from approximately $357 million at the end of
fiscal 2012. 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
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 2013 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.
On October 31, 2013, we completed the sale of the assets and intellectual property related to our microphone product line
to InvenSense, Inc. (InvenSense). We received $100.0 million in cash for the assets and intellectual property at the closing. In
addition, we have agreed to provide InvenSense with various transition services subsequent to the closing. We may receive
additional cash payments, not to exceed $70.0 million, based on the achievement of certain revenue milestones through the first
anniversary of the closing date.
Additional information relating to our acquisition and divestiture activities during fiscal years 2013, 2012 and 2011 is set
forth in Note 2u, Note 6 and Note 17 of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual
Report on Form 10-K.
9
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
• Freescale Semiconductor, Inc.
• Infineon Technologies
• Intersil Corporation
• 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.
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 2, 2013, we employed approximately 9,100 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 continuing uncertainty regarding the stability of global credit and financial markets. 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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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.
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
11
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: changes in tax laws or the interpretation of such
tax laws; increases in tax rates in various jurisdictions; variation in the jurisdictions in which profits are earned and taxed; any
adverse resolution of ongoing tax audits or adverse rulings from taxing authorities worldwide; 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; decreased availability of tax
deductions for stock-based compensation awards worldwide; and changes in available tax credits. 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 future 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.
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
12
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
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 integrated circuits
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.
13
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 and infringed by us. 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
indemnity, 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 future 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.
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 adequate protection. We may not be able to obtain 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.
A significant disruption in, or breach in security of, our information technology systems could materially and adversely affect
our business or reputation.
We rely on information technology systems throughout our Company to keep financial records, process orders, manage
inventory, coordinate shipments to customers, and operate other critical functions. Our information technology systems may be
susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, telecommunication failures, user
errors, catastrophes or other unforeseen events. 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 security breaches. If we were to experience a prolonged disruption in the
information technology systems that involve our interactions with customers or suppliers, it could result in the loss of sales and
customers and significant incremental costs, which could adversely affect our business. In addition, security breaches of our
information technology systems could result in the misappropriation or unauthorized disclosure of confidential information
belonging to us or to our employees, partners, customers or suppliers, which could result in our suffering significant financial
or reputational damage.
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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, in fiscal 2011, our revenue in Japan declined as a result of the severe earthquake and
tsunami in that country. In addition, flooding in Thailand and the Philippines in 2012 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.
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 69% 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 2, 2013, our principal source
15
of liquidity was $4,682.9 million of cash and cash equivalents and short-term investments, of which approximately $1,318.9
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 our foreign earnings indefinitely, this cash held outside the United States is not readily
available to meet 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, minerals,
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 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.
Compliance with new “conflict minerals” rules recently promulgated by the Securities and Exchange Commission will
result in increased costs related to investigations to determine the sources of raw materials used in our products, and to any
resulting changes to products, processes or sources of supply. The implementation of these rules could also adversely affect the
sourcing, supply and pricing of materials used in our products. 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
16
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 outstanding senior unsecured notes.
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 (the 2016 Notes). In June 2013, we issued in a public offering $500.0 million aggregate principal amount
of 2.875% senior unsecured notes due June 1, 2023 (the 2023 Notes and together with the 2016 Notes, the Notes). 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 outstanding 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;
• borrow under our existing revolving credit facility;
• 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, 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 facility and outstanding debt instruments may limit our activities.
Our current revolving credit facility and our outstanding 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 revolving
credit facility requires us to maintain compliance with specified financial ratios. If we breach any of the covenants under our
revolving credit facility 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.
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;
17
•
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:
Wilmington, MA
Cavite, Philippines
Limerick, Ireland
Greensboro, NC
San Jose, CA
Principal
Properties
Use
Wafer fabrication, testing, engineering, marketing and administrative offices
Wafer probe and testing, warehouse, engineering and administrative offices
Wafer fabrication, wafer probe and testing, engineering and administrative offices
Product testing, engineering and administrative offices
Engineering, administrative offices
Approximate
Total Sq. Ft.
586,000 sq. ft.
605,000 sq. ft.
351,500 sq. ft.
99,000 sq. ft.
77,000 sq. ft.
Approximate
Termination
Lease
Leased:
Norwood, MA
Use
Corporate headquarters, engineering, components
Total Sq. Ft.
130,000 sq. ft.
(fiscal year)
2017
testing, sales and marketing offices
Bangalore, India
Engineering
75,000 sq. ft.
2018
Greensboro, NC
Engineering and administrative offices
51,000 sq. ft.
2018
Shanghai, China
Engineering
59,000 sq. ft.
2018
Tokyo, Japan
Engineering
Beijing, China
Engineering
36,400 sq. ft.
2014
33,000 sq. ft.
2014
Renewals
2, five-yr.
periods
1, five-yr.
period
2, three-yr.
periods
2, 1 two-yr.
period, 1
three-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 18
locations in the United States and 48 locations internationally under operating lease agreements. These leases expire at various
dates through the year 2020. 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
Vincent Roche
Age
53
Position(s)
President and Chief Executive
Officer
David A. Zinsner
44
Vice President, Finance and
Chief Financial Officer
Samuel H. Fuller
67
Vice President, Research and
Development and Chief
Technology Officer
Robert R. Marshall
59
Vice President, Worldwide
Manufacturing
William Matson
54
Vice President, Human
Resources
Robert McAdam
62
Executive Vice President,
Strategic Business Segments
Group
Business Experience
Chief Executive Officer since May 2013; 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, 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 and Engineering Manager of the VAX
Architecture Group of Digital Equipment Corp.
from 1978 to 1983.
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.
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.
21
Executive Officer
Richard Meaney
Age
56
Position(s)
Vice President,
Products and Technologies
Group
Margaret K. Seif
52
Vice President, General Counsel
and Secretary
Thomas Wessel
46
Vice President,
Worldwide Sales
Eileen Wynne
Robert Yung
47
51
Vice President, Corporate
Controller and Chief Accounting
Officer
Vice President, Corporate
Development and Chief Strategy
Officer
Business Experience
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 and Chief Accounting Officer since
May 2013; Corporate Controller since April 2011;
Assistant Corporate Controller from February 2004
to April 2011.
Vice President, Corporate Development and Chief
Strategy Officer 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 2013
Fiscal 2012
High
Low
High
Low
$44.74
$47.27
$50.00
$49.79
$38.74
$41.81
$43.86
$45.28
$40.38
$40.83
$39.94
$41.79
$32.18
$36.95
$34.25
$37.82
Dividends Declared Per Outstanding Share of Common Stock
In fiscal 2013 and fiscal 2012, we paid a cash dividend in each quarter as follows:
Period
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2013
Fiscal 2012
$0.30
$0.34
$0.34
$0.34
$0.25
$0.30
$0.30
$0.30
During the first quarter of fiscal 2014, on November 25, 2013, our Board of Directors declared a cash dividend of $0.34
per outstanding share of common stock. The dividend will be paid on December 17, 2013 to all shareholders of record at the
close of business on December 6, 2013. 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 4, 2013 through August 31, 2013
September 1, 2013 through September 28, 2013
September 29, 2013 through November 2, 2013
Total
_______________________________________
Total Number of
Shares
Purchased(a)
576
86,773
829,172
916,521
Average Price
Paid
Per Share(b)
48.31
$
47.34
$
46.64
$
46.71
$
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
560,974,387
556,976,413
518,353,105
518,353,105
— $
$
$
$
84,500
828,100
912,600
(a)
(b)
(c)
Includes 3,921 shares withheld by us from employees to satisfy employee tax obligations upon vesting of restricted stock
units 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. The average price paid for shares in connection with vesting of restricted stock are averages of the
closing stock price at the vesting date which is used to calculate the number of shares to be withheld.
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 $5.0 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
23
negotiated transactions. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will
expire when we have repurchased all shares authorized for repurchase under the repurchase program.
The number of holders of record of our common stock at November 25, 2013 was 2,373. This number does not include
shareholders for whom shares are held in a “nominee” or “street” name. On November 1, 2013, the last reported sales price of
our common stock on The NASDAQ Global Select Market was $49.68 per share.
Comparative Stock Performance Graph
The following graph compares cumulative total shareholder return on our common stock since November 1, 2008 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 1, 2008 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.
168.38
148.65
127.94
193.40
168.52
138.29
210.66
159.32
153.18
100.00
124.74
124.56
109.80
270.72
202.61
199.15
$300
$250
$200
$150
$100
$50
$0
11/1/08
10/31/09
10/30/10
10/29/11
11/3/12
11/2/13
Analog Devices, Inc.
S&P 500
S&P Semi conductors
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:
Total revenue from continuing operations
Income from continuing operations, net of tax
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:
2013
2012
2011
2010
2009
$ 2,633,689
673,487
$ 2,701,142
651,236
$ 2,993,320
860,894
$ 2,761,503
711,225
$ 2,014,908
247,408
—
673,487
—
651,236
6,500
867,394
859
712,084
364
247,772
2.19
2.14
2.19
2.14
1.32
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
Total assets
Debt
$ 6,381,750
872,241
$
$ 5,620,347
821,598
$
$ 5,277,635
886,376
$
$ 4,328,831
$ 400,635
$ 3,369,407
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, which we
refer to as the Baseband Chipset Business, to MediaTek Inc. The financial results of this business is 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
2013 over 2012
2012 over 2011
2013
$2,633,689
2012
$2,701,142
2011
$2,993,320
$ Change
$ (67,453)
%
Change
$ Change
(2)% $(292,178)
%
Change
(10)%
64.3%
64.5%
66.4%
$ 673,487
$ 651,236
$ 860,894
$
22,251
3 % $(209,658)
(24)%
25.6%
24.1%
28.8%
$
$
2.14
2.14
$
$
2.13
2.13
$
$
2.79
2.81
$
$
0.01
0.01
— % $
— % $
(0.66)
(0.68)
(24)%
(24)%
Fiscal 2013 and fiscal 2011 were 52-week years. Fiscal 2012 was a 53-week year. 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 2013, our revenue decreased 2% compared to fiscal 2012. Our diluted earnings per share from continuing
operations increased to $2.14 in fiscal 2013 from $2.13 in fiscal 2012. Cash flow from operations in fiscal 2013 was $912.3
million, or 34.6% of revenue. The year-to-year decrease in revenue was primarily attributable to one less week of operations in
fiscal 2013 as compared to fiscal 2012 and continued weakness in the global economic environment. We believe that our
variable cost structure and continued efforts to manage production, inventory levels and expenses helped to mitigate the effect
of the lower sales level 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.
Industrial
Automotive
Consumer
Communications
Total Revenue
2013
2012
2011
% of
Total
Product
Y/Y%
Revenue
Revenue*
(2)% $ 1,246,380
46%
463,927
18%
4%
464,103
15% (13)%
20% —%
526,732
(2)% $ 2,701,142
100%
% of
Total
Product
Revenue
Revenue
46% $ 1,416,686
418,419
17%
556,056
17%
20%
602,159
100% $ 2,993,320
% of
Total
Product
Revenue
47%
14%
19%
20%
100%
Revenue
$ 1,219,798
481,803
403,649
528,439
$ 2,633,689
* The sum of the individual percentages do not equal the total due to rounding.
The year-to-year decrease in revenue in the industrial and consumer end markets in fiscal 2013 was primarily the
result of a weak global economic environment and one less week of operations in fiscal 2013 as compared to fiscal 2012.
Automotive end market revenue increased in fiscal 2013 primarily as a result of increasing electronic content in vehicles.
The year-to-year decrease in revenue in the industrial, consumer and communications end markets in fiscal 2012 was
primarily the result of a broad-based decrease in demand in these end markets. Automotive end market revenue increased in
fiscal 2012 primarily as a result of increasing electronic content in vehicles.
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.
2013
% of
Total
Product
Revenue*
45%
26%
14%
85%
7%
91%
9%
100%
Revenue
$ 1,180,072
682,759
372,281
2,235,112
172,920
$ 2,408,032
225,657
$ 2,633,689
2012
2011
Y/Y%
Revenue
(1)% $ 1,192,064
697,687
(2)%
(6)%
397,376
(2)% 2,287,127
(5)%
182,134
(2)% $ 2,469,261
(3)%
231,881
(2)% $ 2,701,142
% of
Total
Product
Revenue*
Revenue
% of
Total
Product
Revenue
44% $ 1,343,487
788,299
26%
15%
410,323
85% 2,542,109
217,615
7%
91% $ 2,759,724
233,596
100% $ 2,993,320
9%
45%
26%
14%
85%
7%
92%
8%
100%
Converters
Amplifiers/Radio frequency
Other analog
Subtotal analog signal processing
Power management & reference
Total analog products
Digital signal processing
Total Revenue
_____________________________________
* The sum of the individual percentages do not equal the total due to rounding.
The year-to-year decrease in total revenue in fiscal 2013 as compared to fiscal 2012 was the result of one less week of
operations in fiscal 2013 as compared to fiscal 2012 and a broad-based decrease in demand across most product type
categories.
The year-to-year decrease in total revenue in fiscal 2012 as compared to fiscal 2011 was the result of a broad-based
demand shift across all product categories.
Revenue Trends by Geographic Region
Revenue by geographic region, based upon the primary location of our customers' design activity for its products, for
fiscal 2013, 2012 and 2011 was as follows.
Fiscal Year
2013 over 2012
2012 over 2011
Change
United States
Rest of North and South America
Europe
Japan
China
Rest of Asia
Total Revenue
%
Change
$ Change
$ Change
$
2,616 — % $
2013
$ 821,269
2012
$ 818,653
2011
$ 866,142
99,215
840,585
292,804
349,575
230,241
114,133
852,668
333,558
341,196
240,934
144,585
967,417
398,587
360,594
255,995
(14,918)
(12,083)
(40,754)
8,379
(10,693)
(13)%
(1)%
(12)%
2 %
(4)%
%
Change
(5)%
(21)%
(12)%
(16)%
(5)%
(6)%
(47,489)
(30,452)
(114,749)
(65,029)
(19,398)
(15,061)
$2,633,689
$2,701,142
$2,993,320
$ (67,453)
(2)% $ (292,178)
(10)%
In fiscal years 2013, 2012 and 2011, 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.
On a regional basis, the year-over-year sales declines in Japan and Rest of Asia for fiscal 2013 were primarily the result
of lower demand for products used in consumer applications. The year-over-year sales increase in China for fiscal 2013 was
primarily the result of an increase in demand in the industrial end market.
28
Sales decreased in all regions in fiscal 2012 as compared to fiscal 2011 as a result of a broad-based decrease in demand.
Gross Margin
Fiscal Year
2013 over 2012
2012 over 2011
Change
Gross Margin
Gross Margin %
2013
$1,692,411
2012
$1,741,001
2011
$1,986,541
$ Change
$ (48,590)
64.3%
64.5%
66.4%
%
Change
$ Change
%
Change
(3)% $ (245,540)
(12)%
Gross margin percentage in fiscal 2013 decreased 20 basis points compared to fiscal 2012 primarily as a result of a slight
mix shift in favor of lower margin products being sold.
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.
Research and Development (R&D)
Fiscal Year
2013 over 2012
2012 over 2011
2013
$ 513,255
2012
$ 512,003
2011
$ 505,570
$ Change
1,252
$
%
Change
—% $
$ Change
6,433
%
Change
1%
Change
19.5%
19.0%
16.9%
R&D Expenses
R&D Expenses as a % of
Revenue
R&D expenses remained flat in fiscal 2013 as compared to fiscal 2012 as increases in R&D employee salary and benefit
expenses and other operational spending were offset by lower variable compensation expense linked to our overall profitability
and revenue growth.
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 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.
Selling, Marketing, General and Administrative (SMG&A)
Fiscal Year
2013 over 2012
2012 over 2011
2013
$ 396,233
2012
$ 396,519
2011
$ 406,707
$ Change
%
Change
$ Change
%
Change
$
(286)
— % $ (10,188)
(3)%
Change
15.0%
14.7%
13.6%
SMG&A Expenses
SMG&A Expenses as a %
of Revenue
SMG&A expenses remained flat in fiscal 2013 as compared to fiscal 2012 as decreases in SMG&A employee salary and
benefit expenses and variable compensation expense linked to our overall profitability and revenue growth were partially offset
by increases in other operational spending. In addition, fiscal 2013 also included $6.3 million of stock-based compensation
expense following the death of our CEO in the second quarter of fiscal 2013 due to the accelerated vesting of restricted stock
units in accordance with the terms of his restricted stock unit agreement.
29
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.
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.
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. This action resulted in annual savings in SMG&A expenses of approximately $12.0 million per
year. We have terminated the employment of all employees associated with this action.
During fiscal 2013, we recorded special charges of approximately $29.8 million for severance and fringe benefit costs in
accordance with our ongoing benefit plan or statutory requirements at foreign locations for 235 engineering and SMG&A
employees. As of November 2, 2013, we employed 98 of the 235 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 these actions will result in annual cost savings of approximately $32.6 million, once fully
implemented, which will be used to make additional investments in products that we expect will drive revenue growth in the
future.
Operating Income from Continuing Operations
Fiscal Year
2013 over 2012
2012 over 2011
2013
2012
2011
$ Change
%
Change
$ Change
%
Change
Change
$ 753,075
$ 824,048
$1,072,025
$ (70,973)
(9)% $ (247,977)
(23)%
28.6%
30.5%
35.8%
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 2013 as compared to fiscal 2012
was primarily the result of a decrease in revenue of $67.5 million, a 20 basis point decrease in gross margin percentage, and an
increase of $21.4 million in special charges as more fully described above under the heading Special Charges.
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.
30
Nonoperating (Income) Expense
Interest expense
Interest income
Other, net
Total nonoperating (income) expense
$
$
Change
Fiscal Year
2013 over 2012
2012 over 2011
2013
27,102
(12,753)
(76,597)
(62,248)
$
$
2012
26,422
(14,448)
(1,459)
10,515
$
$
2011
19,146
(9,060)
492
10,578
$
$ Change
680
1,695
(75,138)
(72,763) $
$
$
$ Change
7,276
(5,388)
(1,951)
(63)
The year-over-year increase in nonoperating income in fiscal 2013 as compared to fiscal 2012 was primarily the result of
recognizing a gain of $85.4 million from the sale of a product line, as more fully described below under the heading
Divestitures, partially offset by the net loss on extinguishment of debt of approximately $10.2 million in conjunction with the
redemption of our $375 million aggregate principal amount of 5.0% senior unsecured notes in fiscal 2013 as more fully
described below under the heading Liquidity and Capital Resources.
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.
Provision for Income Taxes
Fiscal Year
2013 over 2012
2012 over 2011
Change
Provision for Income Taxes $ 141,836
Effective Income Tax Rate
17.4%
$ 162,297
$ 200,553
19.9%
18.9%
2013
2012
2011
$ Change
$ (20,461)
% Change
$ Change
(13)% $ (38,256)
% Change
(19)%
Our effective tax rate reflects the applicable tax rate in effect in the various tax jurisdictions around the world where our
income is earned.
The decrease in our effective tax rate for fiscal 2013 compared to fiscal 2012 was primarily due to income earned in
lower tax rate jurisdictions as a result of an international tax restructuring effective January 1, 2013. In addition, our effective
tax rate for fiscal 2013 was lower by approximately 3% as a result of various discrete items including the reinstatement of the
U.S. federal research and development tax credit and the reversal of certain prior period tax liabilities. These decreases in our
effective tax rate were partially offset by the recording of a tax reserve of $36.5 million related to one open tax matter related to
Section 965 of the Internal Revenue Code which increased our effective tax rate by approximately 5% and the tax effect of the
gain on the sale of a product line in fiscal 2013 which increased our effective tax rate by approximately 3%.
The increase in our effective tax rate for fiscal 2012 compared to fiscal 2011 was primarily due to the expiration of the
U.S. federal research and development tax credit in December 2011.
31
Income from Continuing Operations, Net of Tax
Fiscal Year
2013 over 2012
2012 over 2011
Change
2013
2012
2011
$ Change
% Change
$ Change
% Change
$ 673,487
$ 651,236
$ 860,894
$
22,251
3% $ (209,658)
(24)%
25.6%
24.1%
28.8%
$
2.14
$
2.13
$
2.79
$
0.01
—% $
(0.66)
(24)%
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 increase in net income from continuing operations in fiscal 2013 from fiscal 2012 was primarily a
result of the lower provision for income taxes and the $72.8 million increase in nonoperating income, partially offset by the
$71.0 million decrease in operating income 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 partially offset by a lower provision for
income taxes in fiscal 2012.
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
2013
2012
2011
$
— $
—
— $
—
6,500
0.02
We sold our Baseband Chipset Business to MediaTek Inc. during the first quarter of fiscal 2008. Accordingly, the results
of the operations of this business has been presented as discontinued operations within the consolidated financial statements. In
fiscal 2011, additional proceeds of $10.0 million were released from escrow and $6.5 million net of tax was recorded as
additional gain from the sale of discontinued operations.
Divestitures
On October 31, 2013, we completed the sale of the assets and intellectual property related to our microphone product line
to InvenSense, Inc. (InvenSense). We received $100.0 million in cash for the assets and intellectual property and after
providing for the write-off of inventory, fixed assets and other costs incurred to complete the transaction, recorded a net gain of
$85.4 million in nonoperating income during fiscal 2013. We have agreed to provide InvenSense with various transition
services subsequent to the closing. We may receive additional cash payments, not to exceed $70.0 million, based on the
achievement of certain revenue milestones through the first anniversary of the closing date. The sale of the assets and
intellectual property related to the microphone product line did not qualify as a discontinued operation as it did not meet the
requirement to be considered a component of an entity.
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 was
payable within 15 months of the transaction date. During the third quarter of fiscal 2012, we reduced this holdback amount by
$0.1 million as a result of indemnification claims. During the third quarter of fiscal 2013, we paid the remaining $2.5 million
due under the holdback. 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. 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 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 2, 2013, no royalty
payments have been made. We recognized $0.5 million of acquisition-related costs that were expensed in 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 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. We 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 2, 2013,
the Company had paid $8.0 million in contingent consideration. These payments are 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 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 $6.5 million as of November 2, 2013, of which $3.8 million is
included in accrued liabilities and $2.7 million is included in other non-current liabilities in our consolidated balance sheet. 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 2, 2013, no royalty payments have been made. We recognized $0.2 million of
acquisition related costs that were expensed in 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 herein as these acquisitions were not
considered 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 each acquisition.
Liquidity and Capital Resources
At November 2, 2013, our principal source of liquidity was $4,682.9 million of cash and cash equivalents and short-term
investments, of which approximately $1,318.9 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
33
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.
Net Cash Provided by Operations
Net Cash Provided by Operations as a % of Revenue
Net Cash Used for Investing Activities
Net Cash (Used for) Provided by Financing
Activities
Fiscal Year
2013
$ 912,345
$
2012
814,542
2011
$ 900,529
34.6%
$ (949,926)
30.2%
30.1%
$ (703,738)
$ (1,339,690)
$ (100,557)
$
(349,627)
$ 138,612
At November 2, 2013, cash and cash equivalents totaled $392.1 million. The following changes contributed to the net
decrease in cash and cash equivalents of $136.7 million in fiscal 2013.
Operating Activities
During fiscal 2013, we generated cash from operating activities of $912.3 million, an increase of $97.8 million compared
to the $814.5 million generated in fiscal 2012. The increase in cash flow from operating activities was related to higher net
income adjusted for non-cash items and the gain on the sale of the product line coupled with net cash inflows from working
capital changes.
Investing Activities
During fiscal 2013, cash used for investing activities included $918.7 million for the net purchases of available-for-sale
short term investments, $123.1 million for property, plant and equipment additions and $100.0 million in proceeds from the
sale of a product line.
Financing Activities
During fiscal 2013, cash used for financing activities included net proceeds of $493.9 million from the issuance of $500.0
million aggregate principal amount of 2.875% senior unsecured notes on June 3, 2013, proceeds of $306.3 million from
employee stock options and proceeds of $11.0 million from the settlement of derivative instruments. We paid $392.8 million
related to the redemption of the $375.0 million aggregate principal amount of 5.0% senior unsecured notes, distributed $406.0
million to our shareholders in dividend payments, paid $60.5 million for the repurchase of 1.4 million shares of our common
stock and repaid the remaining outstanding principal balance on our $145 million term loan facility of $60.1 million.
Working Capital
Accounts Receivable
Days Sales Outstanding*
Inventory
Days Cost of Sales in Inventory*
_______________________________________
Fiscal Year
2013
$ 325,144
44
$ 283,337
111
2012
$ 339,881
45
$ 313,723
114
$ Change % Change
(4)%
$ (14,737)
$ (30,386)
(10)%
* 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.
34
The decrease in accounts receivable was primarily the result of lower revenue in the fourth quarter of fiscal 2013
compared to the fourth quarter of fiscal 2012. Days sales outstanding decreased as a result of lower product shipments in the
final month of the fourth quarter of fiscal 2013 compared to the final month of the fourth quarter of fiscal 2012.
Inventory as of November 2, 2013 decreased as compared to the end of the fourth quarter of fiscal 2012 as a result of our
continued efforts to balance manufacturing production, demand and inventory levels. Days cost of sales in inventory decreased
from 114 days at the end of fiscal 2012 to 111 days at the end of fiscal 2013 primarily as a result of cost of sales decreasing 7%
while inventory decreased by 10% for the same period.
Current liabilities increased to $570.5 million at November 2, 2013 from $525.1 million recorded at the end of fiscal
2012, as increases in income taxes payable, accrued liabilities and deferred income on shipments to distributors, more fully
described below, were partially offset by a decrease in the current portion of long term debt.
As of November 2, 2013 and November 3, 2012, we had gross deferred revenue of $309.2 million and $299.0 million,
respectively, and gross deferred cost of sales of $61.8 million and $60.5 million, respectively. Deferred income on shipments to
distributors increased in fiscal 2013 primarily as a result of a mix shift in favor of higher margin products sold into 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.
Debt
As of November 2, 2013, we had $872.2 million in principal outstanding on our long term debt. Our debt obligations
consist of the following:
$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 2016 Notes) with semi-annual fixed interest payments due on April 15 and October 15 of each year, commencing
October 15, 2011.
$500.0 million aggregate principal amount of 2.875% senior unsecured notes
On June 3, 2013, we issued $500.0 million aggregate principal amount of 2.875% senior unsecured notes due June 1,
2023 (the 2023 Notes) with semi-annual fixed interest payments due on June 1 and December 1 of each year, commencing
December 1, 2013.
The indentures governing the 2016 Notes and the 2023 Notes contain covenants that may limit our ability to: incur,
create, assume or guarantee any debt for borrowed money secured by a lien upon a principal property; enter into sale and lease-
back transactions with respect to a principal property; and consolidate with or merge into, or transfer or lease all or
substantially all of our assets to, any other party. As of November 2, 2013, we were compliant with these covenants. See Note
16 in the Notes to 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
During December 2012, we terminated our $165.0 million unsecured revolving credit facility with certain institutional
lenders entered into in May 2008. On December 19, 2012, we entered into a five-year, $500.0 million senior unsecured
revolving credit facility with certain institutional lenders. To date, we have not borrowed under this credit facility but we may
borrow in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital
expenditures, working capital and other lawful corporate purposes. The terms of the facility impose restrictions on our ability to
undertake certain transactions, to create certain liens on assets and to incur certain subsidiary indebtedness. In addition, the
credit agreement contains a consolidated leverage ratio covenant of total consolidated funded debt to consolidated EBITDA
(earnings before interest, taxes, depreciation, and amortization) of not greater than 3.0 to 1.0. As of November 2, 2013, we
were compliant with these covenants.
35
$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 borrower's obligations were guaranteed by us. The
credit agreement provided for a $145.0 million term loan facility, which was set to mature on December 22, 2013. During the
first quarter of fiscal 2013, we repaid the remaining outstanding principal balance on the loan of $60.1 million and the credit
agreement was terminated.
$375.0 million aggregate principal amount of 5.0% senior unsecured notes
During the third quarter of fiscal 2013, we redeemed our outstanding 5.0% senior unsecured notes which were due on
July 1, 2014 (the 2014 Notes). The redemption price was 104.744% of the principal amount of the 2014 Notes. We recognized
a net loss on the debt extinguishment of approximately $10.2 million recorded in other, net expense within non-operating
(income) expense. The loss was comprised of the make-whole premium of $17.8 million paid to bondholders on the 2014
Notes in accordance with the terms of the 2014 Notes, the recognition of the remaining $8.6 million of unamortized proceeds
received from the termination of the interest rate swap associated with the debt, and the write-off of approximately $1.0
million of debt issuance and discount costs that remained to be amortized. The write-off of the remaining unamortized portion
of debt issuance costs, discount and swap proceeds are reflected in our condensed consolidated statements of cash flows within
operating activities, and the make-whole premium is reflected within financing activities.
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 2, 2013, we had repurchased a total of approximately
130.1 million shares of our common stock for approximately $4,481.6 million under this program. As of November 2, 2013, an
additional $518.4 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. 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 $123.1 million in fiscal 2013 and were funded with a combination of
cash on hand and cash generated from operations. We expect capital expenditures for fiscal 2014 to be approximately $150
million, of which about two-thirds relates to ongoing capital spending, and about one-third relates to capital spending for a new
building we are constructing on our campus in Ireland. These capital expenditures will be funded with a combination of cash on
hand and cash generated from operations.
Dividends
On November 25, 2013, our Board of Directors declared a cash dividend of $0.34 per outstanding share of common
stock. The dividend will be paid on December 17, 2013 to all shareholders of record at the close of business on December 6,
2013 and is expected to total approximately $105.8 million. We currently expect quarterly dividends to continue at $0.34 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.
36
Contractual Obligations
The table below summarizes our contractual obligations and the amounts we owe under these contracts in specified
periods as of November 2, 2013:
(thousands)
Contractual obligations:
Operating leases (a)
Debt obligations
Interest payments associated with long-term debt
obligations
Deferred compensation plan (b)
Pension funding (c)
Total
_______________________________________
Payment due by period
Less than
More than
Total
1 Year
1-3 Years
3-5 Years
5 Years
$
69,071
875,000
$
28,045
—
$
27,766
375,000
$
11,507
—
$
1,753
500,000
171,795
17,431
3,511
25,545
67
3,511
45,625
—
—
28,750
—
—
71,875
17,364
—
$1,136,808
$
57,168
$ 448,391
$
40,257
$ 590,992
(a)
(b)
Certain of our operating lease obligations include escalation clauses. These escalating payment requirements are reflected
in the table.
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.
(c) 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 2014. 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
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 Consolidated
Financial Statements contained in Item 8 of this Annual Report on Form 10-K for more information regarding our acquisitions.
As of November 2, 2013, our total liabilities associated with uncertain tax positions was $71.3 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 2, 2013.
Off-balance Sheet Financing
As of November 2, 2013, we had no off-balance sheet financing arrangements.
37
Outlook
The following statements are based on current expectations. These statements are forward-looking, and actual results may
differ materially as a result of, among other things, the important factors contained in Part I, Item 1A. "Risk Factors" and
elsewhere in this Annual Report on Form 10-K. 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 2014 to be down approximately 5% to down approximately 10%
from the fourth quarter of fiscal 2013. Our plan is for gross margin percentage for the first quarter of fiscal 2014 to be
approximately 64% to 65%. We are planning for operating expenses in the first quarter of fiscal 2014 to be approximately $226
million and our tax rate to be approximately 13%. As a result, our plan is for Diluted EPS to be approximately $0.44 to $0.52 in
the first quarter of fiscal 2014.
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 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.
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
38
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 4, 2013, 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.
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.
39
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:
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 2, 2013. 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.
40
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.
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 2) 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 2, 2013.
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) $
(1.8) $
0.5
1.9
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 and debt.
Based on our marketable securities and short-term investments outstanding as of November 2, 2013 and November 3,
2012, our annual interest income would change by approximately $46 million and $41 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 2, 2013 and
November 3, 2012, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $15 million
and $10 million decline, respectively in the fair market value of the portfolio. Such losses would only be realized if we sold the
investments prior to maturity.
41
As of November 2, 2013, we had $875 million in principal amount of senior unsecured notes outstanding, which
consisted of $375 million 3% senior unsecured notes (the 2016 Notes), due April 15, 2016 and $500 million 2.875% senior
unsecured notes (the 2023 Notes), due June 1, 2023. As of November 2, 2013, a hypothetical 100 basis point increase in market
interest rates would reduce the fair value of our 2016 Notes outstanding by approximately $9 million. As of November 2, 2013,
a similar increase in market interest rates would reduce the fair value of our 2023 Notes by $41 million.
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 2, 2013 and November 3, 2012, a 10% unfavorable movement in foreign currency exchange
rates over the course of the year would expose us to approximately $2 million and $1 million, respectively, 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 2, 2013, 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 2, 2013 and
November 3, 2012:
Fair value of forward exchange contracts asset
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 2, 2013 November 3, 2012
1,061
$
$
2,267
$
$
22,763
$
16,800
(17,216) $
(13,885)
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 2, 2013, November 3, 2012 and October 29, 2011
(thousands, except per share amounts)
2013
2012
2011
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
$
2,633,689
$
2,701,142
$
2,993,320
941,278
1,692,411
960,141
1,741,001
513,255
396,233
29,848
939,336
753,075
27,102
(12,753)
(76,597)
(62,248)
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
Income from continuing operations before income taxes
815,323
813,533
1,061,447
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
159,535
(17,699)
141,836
673,487
—
172,098
(9,801 )
162,297
651,236
—
673,487
$
651,236
$
307,763
314,041
298,761
306,191
2.19
2.19
2.14
2.14
1.32
6,593
21,901
28,392
$
$
$
$
$
$
$
$
2.18
2.18
2.13
2.13
1.15
7,254
23,169
23,077
$
$
$
$
$
$
$
$
198,849
1,704
200,553
860,894
6,500
867,394
299,417
308,236
2.88
2.90
2.79
2.81
0.94
7,294
23,289
21,775
$
$
$
$
$
$
$
$
$
See accompanying Notes.
43
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended November 2, 2013, November 3, 2012 and October 29, 2011
(thousands)
Income from continuing operations, net of tax
Foreign currency translation adjustment (net of taxes of $1,404 in 2013,
$3,612 in 2012 and $1,667 in 2011)
Net unrealized gains (losses) on securities:
Net unrealized holding gains (losses) (net of taxes of $67 in 2013, $115 in
2012 and $67 in 2011) on available-for-sale securities classified as short-
term investments
Net unrealized holding losses (net of taxes of $0 in 2013, $129 in 2012
and $64 in 2011) on securities classified as other investments
Net realized holding gain (net of taxes of $0 in 2013, $430 in 2012 and $0
in 2011) on securities classified as other investments reclassified into
earnings
Net unrealized gains (losses) on securities
Derivative instruments designated as cash flow hedges:
Changes in fair value of derivatives (net of taxes of $4,242 in 2013,
$1,233 in 2012 and $539 in 2011)
Realized (gain) loss reclassification (net of taxes of $354 in 2013, $1,160
in 2012 and $1,171 in 2011)
Net change in derivative instruments designated as cash flow hedges
Accumulated other comprehensive (loss) income — pension plans:
2013
673,487
$
2012
651,236
$
2011
860,894
$
(499)
3,020
(647)
497
—
—
497
525
241
(799)
(33)
(459)
(118)
—
(577)
9,708
(7,923)
3,347
(1,776)
7,932
7,401
(522)
(7,793)
(4,446)
Transition asset (net of taxes of $4 in 2013, $1 in 2012 and $1 in 2011)
Net actuarial (loss) gain (net of taxes of $4,146 in 2013, $7,243 in
2012 and $1,770 in 2011)
Net prior service (cost) income (net of taxes of $3 in 2013, $584 in
2012 and $0 in 2011)
20
15
12
(24,099)
(44,784)
13,084
(3)
4,079
—
Net change in accumulated other comprehensive (loss) income — pension
plans (net of taxes of $4,145 in 2013, $6,658 in 2012 and $1,771 in 2011)
Other comprehensive (loss) income
Comprehensive income from continuing operations
Gain on sale of discontinued operations, net of tax
Comprehensive income
$
(24,082)
(16,152)
657,335
—
657,335
$
(40,690)
(38,225)
613,011
—
613,011
$
13,096
7,426
868,320
6,500
874,820
See accompanying Notes.
44
ANALOG DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
November 2, 2013 and November 3, 2012
(thousands, except per share amounts)
2013
2012
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Accounts receivable less allowances of $2,593 ($2,721 in 2012)
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, 311,045,084 shares issued and outstanding
(301,389,176 on November 3, 2012)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
_______________________________________
$
392,089
$
4,290,823
325,144
283,337
136,299
2,391
42,342
528,833
3,371,545
339,881
313,723
90,335
8,624
43,244
5,472,425
4,696,185
458,853
1,733,850
49,321
50,870
2,292,894
1,784,723
508,171
17,364
3,816
284,112
28,552
26,226
41,084
401,154
6,381,750
$
119,994
$
247,428
45,490
—
157,600
570,512
872,241
6,037
17,364
176,020
1,071,662
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
—
—
51,842
711,879
4,056,401
(80,546)
4,739,576
6,381,750
$
50,233
390,651
3,788,869
(64,394)
4,165,359
5,620,347
$
$
$
(1) Includes $2,273 and $2,517 related to stock-based compensation at November 2, 2013 and November 3, 2012,
respectively.
See accompanying Notes.
45
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years ended November 2, 2013, November 3, 2012 and October 29, 2011
(thousands)
BALANCE, OCTOBER 30, 2010
Activity in Fiscal 2011
Net Income — 2011
Dividends declared and paid
Issuance of stock under stock plans and other
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
Issuance of stock under stock plans and other
Tax benefit — stock options
Stock-based compensation expense
Other comprehensive income
Common stock repurchased
BALANCE, NOVEMBER 3, 2012
Activity in Fiscal 2013
Net Income — 2013
Dividends declared and paid
Issuance of stock under stock plans and other
Tax benefit — stock options
Stock-based compensation expense
Other comprehensive income
Common stock repurchased
Common Stock
Capital in
Excess of
Accumulated
Other
Retained
Comprehensive
Shares
298,653
Amount
49,777
$
Par Value
$ 286,969
Earnings
$ 2,896,566
(Loss) Income
(33,595)
$
867,394
(281,626)
8,322
1,387
216,010
63,236
52,358
(9,014)
297,961
(1,503)
49,661
(328,986)
289,587
3,482,334
651,236
(344,701)
7,662
1,277
190,453
17,452
53,500
(4,234)
301,389
(705)
50,233
(160,341)
390,651
3,788,869
673,487
(405,955)
11,078
1,846
304,431
20,203
56,886
(1,422)
(237)
(60,292)
7,426
(26,169)
(38,225)
(64,394)
(16,152)
BALANCE, NOVEMBER 2, 2013
311,045
$
51,842
$ 711,879
$ 4,056,401
$
(80,546)
See accompanying Notes.
46
ANALOG DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 2, 2013, November 3, 2012 and October 29, 2011
(thousands)
Operations
Cash flows from operating activities:
2013
2012
2011
Net income
Adjustments to reconcile net income to net cash provided by operations:
$
673,487
$
651,236
$
867,394
Depreciation
Amortization of intangibles
Stock-based compensation expense
Gain on sale of business
Gain on sale of investments
Gain on sale of product line
Loss on extinguishment of debt
Non-cash portion of special charges
Other non-cash activity
Excess tax benefit — stock options
Deferred income taxes
Change in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Deferred compensation plan investments
Prepaid income tax
Accounts payable, deferred income and accrued liabilities
Deferred compensation plan liability
Income taxes payable
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
Proceeds related to sale of product line
Payments for acquisitions, net of cash acquired
Increase in other assets
Net cash used for investing activities
Financing Activities
Cash flows from financing activities:
Proceeds from long-term debt
Payment of senior unsecured notes
Early termination of swap agreements
Proceeds from derivative instruments
Term loan repayments
Dividend payments to shareholders
Repurchase of common stock
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
110,196
220
56,886
—
—
(85,444 )
10,205
—
(185 )
(16,171 )
(17,699 )
12,377
28,527
4,660
11,116
6,124
17,487
(11,116 )
50,705
60,970
238,858
912,345
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
(8,540,335 )
6,970,885
650,730
(123,074 )
—
—
100,000
(2,475 )
(5,657 )
(949,926 )
493,880
(392,790 )
—
10,952
(60,108 )
(405,955 )
(60,529 )
306,277
(5,665 )
(2,790 )
16,171
(100,557 )
1,394
(136,744 )
528,833
392,089
(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)
(161,046)
191,730
(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)
(330,489)
217,397
—
1,279
44,936
138,612
(303)
335,100
1,070,000
1,405,100
$
$
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended November 2, 2013, November 3, 2012 and October 29, 2011
(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
• 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
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 2013 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 2013 and 2011 were 52-
week periods. Fiscal year 2012 was a 53-week period. 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. during the first quarter of fiscal 2008. The Company has reflected the financial results of this business as
discontinued operations in the consolidated statements of income for all periods presented. The historical results of operations
of this business has 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 floating rate notes, 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 2, 2013 or November 3, 2012.
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 2, 2013 and
November 3, 2012 were as follows:
Unrealized gains on securities classified as short-term investments
Unrealized losses on securities classified as short-term investments
Net unrealized gains on securities classified as short-term investments
2013
2012
$
$
1,137
(511)
626
$
$
581
(519)
62
Unrealized gains and losses in fiscal years 2013 and 2012 relate to corporate obligations.
The components of the Company’s cash and cash equivalents and short-term investments as of November 2, 2013 and
November 3, 2012 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
2013
2012
$
$
$
$
45,637
346,452
—
392,089
4,290,823
—
4,290,823
$
$
$
$
35,413
490,904
2,516
528,833
3,370,551
994
3,371,545
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
2013
2012
2011
$
$
36,863
29,354
$
$
143,899
29,177
$
$
223,716
16,492
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
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
Inventories at November 2, 2013 and November 3, 2012 were as follows:
Raw materials
Work in process
Finished goods
Total inventories
e. Property, Plant and Equipment
2013
19,641
175,155
88,541
283,337
$
$
$
$
2012
28,111
185,773
99,839
313,723
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 $110.2 million, $109.7 million and $116.9 million in fiscal
2013, 2012 and 2011, 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 4, 2013, 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. Upon the sale of the assets and
intellectual property related to the Company's microphone product line in the fourth quarter of fiscal 2013, as more fully
described in Note 17, the Company assessed the goodwill of the remaining reporting unit for impairment. The Company’s next
annual impairment assessment will be performed as of the first day of the fourth quarter of fiscal 2014 unless indicators arise
that would require the Company to reevaluate at an earlier date. The following table presents the changes in goodwill during
fiscal 2013 and fiscal 2012:
50
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
Balance at beginning of year
Acquisition of Multigig, Inc. (Note 6)
Goodwill allocated to sale of product line (Note 17)
Foreign currency translation adjustment
Balance at end of year
Intangible Assets
2013
283,833
—
(1,609)
1,888
284,112
2012
$ 275,087
7,298
—
1,448
$ 283,833
$
$
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 November 2, 2013 and November 3, 2012, the Company’s finite-lived intangible assets
consisted of the following which related to the acquisition of Multigig, Inc. See Note 6 below for further information related to
the acquisition of Multigig, Inc.
Technology-based
November 2, 2013
November 3, 2012
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
$
1,100
$
348
$
1,100
$
128
Amortization expense related to finite-lived intangible assets was $0.2 million, $0.1 million and $1.3 million in fiscal
2013, 2012 and 2011, respectively. The remaining amortization expense will be recognized over a period of approximately 3.5
years.
The Company expects annual amortization expense for intangible assets to be:
Fiscal Year
2014
2015
2016
2017
Amortization Expense
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 from the impairment
tests 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 of IPR&D as of November 2, 2013 and November 3, 2012,
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
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.
51
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
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 2013, 2012 or 2011.
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, the Japanese Yen 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 affects 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 2, 2013 and November 3, 2012, the total
notional amount of these undesignated hedges was $33.4 million and $31.5 million, respectively. The fair value of these
hedging instruments in the Company’s consolidated balance sheets as of November 2, 2013 and November 3, 2012 was
immaterial.
Interest Rate Exposure Management — The Company's current and future debt may be subject to interest rate risk. The
Company utilizes interest rate derivatives to alter interest rate exposure in an attempt to reduce the effects of these changes. On
April 24, 2013, the Company entered into a treasury rate lock agreement with Bank of America. This agreement allowed the
Company to lock a 10-year US Treasury rate of 1.7845% through June 14, 2013 for its anticipated issuance of the 2023 Notes.
The Company designated this agreement as a cash flow hedge. On June 3, 2013, the Company terminated the treasury rate lock
simultaneously with the issuance of the 2023 Notes which resulted in a gain of approximately $11.0 million. This gain is being
amortized into interest expense over the 10-year term of the 2023 Notes. During fiscal 2013 approximately $0.5 million was
amortized from OCI into interest expense and approximately $1.1 million will be amortized from OCI into interest expense
within the next 12 months.
On June 30, 2009, the Company entered into interest rate swap transactions related to its outstanding $375.0 million
aggregate principal amount of 5.0% senior unsecured notes (the 2014 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. 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 was as follows:
November 3, 2012
October 29, 2011
Statement of income classification
Other income
Loss on Swaps
$
(769) $
Gain on Note
769
Net Income Effect
$
— $
Loss on Swaps
Gain on Note
4,614
Net Income Effect
—
$
(4,614) $
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
52
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
from financing activities in the consolidated statements of cash flows. As a result of the termination, the carrying value of the
2014 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, to be amortized to earnings as a reduction of interest expense over
the remaining life of the debt. During fiscal year 2013 and 2012, $4.6 million and $5.3 million, respectively, were 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. During the third quarter of fiscal 2013, in conjunction with
the redemption of the 2014 Notes, the Company recognized the remaining $8.6 million in unamortized proceeds received from
the termination of the interest rate swap as other, net expense.
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 2,
2013, 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 its 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 forward foreign currency derivative instruments designated as hedging instruments of cash
flow hedges denominated in Euros, British Pounds, Philippine Pesos and Japanese Yen as of November 2, 2013 and
November 3, 2012 was $196.9 million and $151.8 million, respectively. The fair values of these hedging instruments in the
Company’s consolidated balance sheets as of November 2, 2013 and November 3, 2012 were as follows:
Forward foreign currency exchange contracts
Balance Sheet Location
Prepaid expenses and other current
assets
Fair Value At
November 2, 2013
November 3, 2012
$
2,377
$
1,161
The effect of forward foreign currency derivative instruments designated as cash-flow hedges on the consolidated
statements of income and OCI for fiscal 2013 and 2012 were as follows:
Loss recognized in OCI on derivatives (net of tax of $409 in 2013 and $1,233 in 2012)
Amounts reclassified from OCI into income (net of tax of $195 in 2013 and $1,160 in
2012)
November 2, 2013
November 3, 2012
$
$
(2,589) $
(7,923)
(1,479) $
7,401
The amounts reclassified into earnings before tax related to forward foreign currency derivative instruments, are
recognized in cost of sales and operating expenses for fiscal 2013 and fiscal 2012 were as follows:
Cost of sales
Research and development
Selling, marketing, general and administrative
53
November 2, 2013
$
$
$
(967 ) $
(551 ) $
(156 ) $
November 3, 2012
3,096
2,344
3,121
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
The Company estimates that $1.0 million of forward foreign currency derivative instruments included in OCI will be
reclassified into earnings within the next 12 months. There was no ineffectiveness during fiscal years ended November 2, 2013
and November 3, 2012.
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 30, 2011 through November 2, 2013:
Balance at beginning of year, net of tax
Changes in fair value of derivatives — gain (loss), net of tax
(Gain) loss reclassified into earnings from other comprehensive income (loss), net of tax
Balance at end of year, net of tax
$
$
1,165
9,708
(1,776)
9,097
$
$
1,687
(7,923)
7,401
1,165
2013
2012
j. Fair Value
The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The Company applies the following fair value
hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the
hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements).
Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date.
Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be
observable for substantially the full term of the asset or liability.
Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity
for the asset or liability at the measurement date.
The tables below, set forth by level, 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 2, 2013 and November 3, 2012. 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 2, 2013 and November 3, 2012, the Company held $45.6 million and $38.9 million, respectively, of cash and held-
to-maturity investments that were excluded from the tables below.
54
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
November 2, 2013
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)
$
$
186,896
—
— $
159,556
— $
—
186,896
159,556
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
$
$
$
—
—
—
—
3,764,213
207,521
113,886
205,203
—
—
—
—
3,764,213
207,521
113,886
205,203
— $
17,431
204,327
$
2,267
—
4,452,646
$
$
— $
—
— $
2,267
17,431
4,656,973
—
— $
—
— $
6,479
6,479
$
6,479
6,479
(1) The amortized cost of the Company’s investments classified as available-for-sale as of November 2, 2013 was $3,824.0
million.
(2) The Company has a master netting arrangement by counterparty with respect to derivative contracts. As of November 2,
2013, contracts in a liability position of $2.0 million were netted against contracts in an asset position in the consolidated
balance sheet.
55
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
—
—
—
—
2,818,798
280,065
234,280
37,408
—
28,480
172,356
$
1,061
—
3,718,640
$
—
—
— $
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.
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 — The fair value of these mutual fund, money market fund and equity
investments are based on quoted market prices.
Forward foreign currency exchange contracts — The estimated fair value of forward foreign currency exchange
contracts, which includes derivatives that are accounted for as cash flow hedges and those that are not designated as cash flow
hedges, is based on the estimated amount the Company would receive if it sold these agreements at the reporting date taking
into consideration current interest rates as well as the creditworthiness of the counterparty for assets and the Company’s
creditworthiness for liabilities.
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 that is based on the Company’s estimates of the timing and probability of achieving the
56
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
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
$7,000
8% - 10%
1 - 23 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 may 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 November 3, 2012 and November 2, 2013:
Balance as of October 30, 2010
Contingent consideration liability recorded
Fair value adjustment (2)
Balance as of October 29, 2011
Payment made (1)
Fair value adjustment (2)
Balance as of November 3, 2012
Payment made (1)
Fair value adjustment (2)
Balance as of November 2, 2013
Contingent
Consideration
—
13,790
183
13,973
(2,000)
246
12,219
(6,000)
260
6,479
$
$
$
$
(1) 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.
(2) Recorded in research and development expense in the consolidated statements of income.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
On June 30, 2009, the Company issued the 2014 Notes with semi-annual fixed interest payments due on January 1 and
July 1 of each year, commencing January 1, 2010. On June 6, 2013, the Company redeemed the 2014 Notes. Based on quotes
received from third-party banks, the fair value of the 2014 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 2016 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 2016 Notes as of
November 2, 2013 and November 3, 2012 was $392.8 million and $402.3 million, respectively and is classified as a Level 1
measurement according to the fair value hierarchy.
On June 3, 2013, the Company issued $500.0 million aggregate principal amount of 2.875% senior unsecured notes due
June 1, 2023 (the 2023 Notes) with semi-annual fixed interest payments due on June 1 and December 1 of each year,
commencing December 1, 2013. Based on quotes received from third-party banks, the fair value of the 2023 Notes as of
November 2, 2013 was $466.0 million and is classified as a Level 1 measurement according to the fair value hierarchy.
57
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
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.
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
58
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
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. Shipping costs are charged to cost of sales as incurred.
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 2, 2013 and November 3, 2012, the Company had gross deferred revenue of $309.2 million and $299.0
million, respectively, and gross deferred cost of sales of $61.8 million and $60.5 million, respectively. Deferred income on
shipments to distributors increased in fiscal 2013 primarily as a result of a mix shift in favor of higher margin products sold into
the channel.
The Company generally offers a twelve-month warranty for its products. The Company’s warranty policy provides for
replacement of defective products. Specific accruals are recorded for known product warranty issues. Product warranty
expenses during fiscal 2013, 2012 and 2011 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 2, 2013 and
November 3, 2012 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
2013
2012
$
$
$
483
953
(435)
9,097
4,076
(82)
(94,638)
(80,546) $
982
444
(423)
1,165
4,079
(102)
(70,539)
(64,394)
As of November 2, 2013, the Company held 137 investment securities, 31 of which were in an unrealized loss position
with gross unrealized losses of $0.5 million and an aggregate fair value of $972.2 million. As of November 3, 2012, the
Company held 88 investment securities, 29 of which were in an unrealized loss position with gross unrealized losses of $0.5
million and an aggregate fair value of $1,214.1 million. These unrealized losses were primarily related to corporate obligations
that earn lower interest rates than current market rates. None of these investments have been in a loss position for more than
twelve months. As the Company does not intend to sell these investments and it is unlikely that the Company will be required
59
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
to sell the investments before recovery of their amortized basis, which will be at maturity, the Company does not consider those
investments to be other-than-temporarily impaired at November 2, 2013 and November 3, 2012.
p. Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was approximately $3.3 million in fiscal 2013, $3.9
million in fiscal 2012 and $4.2 million in fiscal 2011.
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
Anti-dilutive shares related to:
Outstanding stock options
$
$
$
$
$
$
$
$
$
$
2013
673,487
—
673,487
307,763
2.19
—
2.19
307,763
6,278
314,041
2012
651,236
—
651,236
298,761
2.18
—
2.18
298,761
7,430
306,191
2.14
—
2.14
$
$
2.13
—
2.13
$
$
$
$
$
$
2011
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
4,116
7,209
9,526
60
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
Comprehensive Income
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-
05, Presentation of Comprehensive Income (ASU No. 2011-05). ASU No. 2011-05 amended Accounting Standards
Codification (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.
ASU No. 2011-05 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011,
which was the Company’s first quarter of fiscal year 2013. The adoption of ASU No. 2011-05 in the first quarter of fiscal 2013
affected the presentation of comprehensive income but did not impact the Company’s financial condition or 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. GAAP and 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. Subsequently, in
January 2013, the FASB issued ASU No. 2013-01, Clarifying the Scope of Disclosures about offsetting Assets and Liabilities,
which clarifies that the scope of ASU No. 2011-11 applies to derivatives accounted for in accordance with Topic 815,
Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase
agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-
20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. The adoption of ASU
No. 2011-11 and ASU No. 2013-01 in the first quarter of fiscal 2014 will require additional disclosures related to offsetting
assets and liabilities but will not impact the Company's financial condition or results of operations.
Comprehensive Income
In January 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other
Comprehensive Income (ASU No. 2013-02), which seeks to improve the reporting of reclassifications out of accumulated other
comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other
comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP
to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in
their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required
under U.S. GAAP that provide additional detail about those amounts. The amendments in ASU No. 2013-02 supersede the
presentation requirements for reclassifications out of accumulated other comprehensive income in ASU No. 2011-05,
Presentation of Comprehensive Income, and 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
61
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
No. 2011-05. ASU No. 2013-02 is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2012, which is the Company's first quarter of fiscal year 2014. The adoption of ASU No. 2013-02 in the first
quarter of fiscal 2014 will affect the presentation of comprehensive income but will not impact the Company's financial
condition or results of operations.
Income Taxes
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating
Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU No. 2013-11). ASU No. 2013-11 requires
that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented as a reduction to a deferred
tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward, with certain exceptions. ASU
No. 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, which is
the Company's first quarter of fiscal year 2015. The adoption of ASU No. 2013-11 in the first quarter of fiscal 2015 will affect
the presentation of our unrecognized tax benefits but will not impact the Company's financial condition or results of operations.
u. Discontinued Operations
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 Baseband Chipset Business 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
2013
2012
$
$
— $
—
— $
— $
—
— $
2011
10,000
3,500
6,500
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
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.
62
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
As of November 2, 2013, a total of 3,353,057 common shares were available for future grant under the 2006 Plan and
24,837,852 common shares were reserved for issuance under the 2006 Plan and the Company's previous plans.
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
2013
2,407
$46.40
$7.38
24.6%
5.4
1.0%
2.9%
2012
2,456
$39.58
$7.37
28.4%
5.3
1.1%
3.0%
2011
1,990
$37.59
$8.62
29.3%
5.3
2.1%
2.4%
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 2, 2013. The rate of
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.
63
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
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 2013, 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 years 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 2, 2013 and changes during the fiscal
year then ended is presented below:
Options outstanding November 3, 2012
Options granted
Options exercised
Options forfeited
Options expired
Options outstanding at November 2, 2013
Options exercisable at November 2, 2013
Options vested or expected to vest at November 2, 2013 (1)
Options
Outstanding
(in thousands)
26,453
2,407
(9,649)
(185)
(34)
18,992
12,100
18,531
Weighted-
Average Exercise
Price Per Share
$31.73
$46.40
$31.73
$32.73
$40.89
$33.56
$30.93
$33.35
Weighted-
Average
Remaining
Contractual
Term in Years
Aggregate
Intrinsic
Value
5.1
3.5
5.0
$306,077
$226,893
$302,569
(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 2013, 2012 and 2011 was $128.4 million, $105.4 million and $96.5 million,
respectively, and the total amount of proceeds received by the Company from exercise of these options during fiscal 2013, 2012
and 2011 was $306.3 million, $191.8 million and $217.4 million, respectively.
A summary of the Company’s restricted stock unit award activity as of November 2, 2013 and changes during the fiscal
year then ended is presented below:
Restricted stock units outstanding at November 3, 2012
Units granted
Restrictions lapsed
Forfeited
Restricted stock units outstanding at November 2, 2013
Restricted
Stock Units
Outstanding
(in thousands)
3,060
810
(1,313)
(64)
2,493
Weighted-
Average Grant-
Date Fair Value
Per Share
$33.01
$42.37
$29.93
$35.39
$37.62
As of November 2, 2013, there was $82.5 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 2013, 2012 and 2011 was
approximately $63.9 million, $48.6 million and $49.6 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 $5.0 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
64
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
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 2, 2013, the Company had repurchased a total of approximately 130.1 million shares of its common stock for
approximately $4,481.6 million under this program. An additional $518.4 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. 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 the exercise of stock options. The withholding amount is based on the Company's minimum
statutory withholding requirement. Any future common stock repurchases will be dependent upon several factors, including the
Company's financial performance, outlook, liquidity and the amount of cash the Company has available in the United States.
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 integrated circuits (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.
2013
2012
2011
Industrial
Automotive
Consumer
Communications
Total Revenue
________________
* The sum of the individual percentages do not equal the total due to rounding.
Revenue
$ 1,219,798
481,803
403,649
528,439
$ 2,633,689
% of
Total
Product
Y/Y%
Revenue
Revenue*
(2)% $ 1,246,380
46%
463,927
4%
18%
464,103
15% (13)%
20% —%
526,732
(2)% $ 2,701,142
100%
% of
Total
Product
Revenue
Revenue
46% $ 1,416,686
418,419
17%
556,056
17%
20%
602,159
100% $ 2,993,320
% of
Total
Product
Revenue
47%
14%
19%
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.
2013
% of
Total
Product
Revenue*
Revenue
2012
2011
Y/Y%
Revenue
% of
Total
Product
Revenue*
Revenue
Converters
Amplifiers/Radio frequency
Other analog
Subtotal analog signal processing
Power management & reference
Total analog products
Digital signal processing
Total Revenue
________________
* The sum of the individual percentages do not equal the total due to rounding.
$ 1,180,072
682,759
372,281
2,235,112
172,920
$ 2,408,032
225,657
$ 2,633,689
(1)% $ 1,192,064
697,687
(2)%
397,376
(6)%
2,287,127
(2)%
(5)%
182,134
(2)% $ 2,469,261
231,881
(3)%
(2)% $ 2,701,142
45%
26%
14%
85%
7%
91%
9%
100%
44% $ 1,343,487
788,299
26%
15%
410,323
85% 2,542,109
217,615
91% $ 2,759,724
233,596
100% $ 2,993,320
7%
9%
% of
Total
Product
Revenue
45%
26%
14%
85%
7%
92%
8%
100%
Geographic Information
Revenue by geographic region is based upon the primary location of the Company's customers' design activity for its
products. In fiscal years 2013, 2012 and 2011, 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
66
2013
2012
2011
$
$
$
$
821,269
99,215
840,585
292,804
349,575
230,241
1,812,420
2,633,689
201,957
124,227
165,815
16,172
306,214
508,171
$
$
$
$
818,653
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
500,867
$
$
$
$
866,142
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
478,839
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, as well as a 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 30, 2010 to
November 2, 2013 of the employee separation and exit cost accruals established related to these actions.
Statement of Income
Workforce reductions
Total Fiscal 2011 Charges
Workforce reductions
Facility closure costs
Non-cash impairment charge
Other items
Total Fiscal 2012 Charges
Workforce reductions
Total Fiscal 2013 Charges
Accrued Restructuring
Balance at October 30, 2010
Fiscal 2011 special charges
Severance payments
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
Fiscal 2013 special charges
Severance payments
Effect of foreign currency on accrual
Balance at November 2, 2013
Reduction of
Operating
Costs
2,239
2,239
7,966
186
219
60
8,431
29,848
29,848
Reduction of
Operating
Costs
5,546
2,239
(3,913)
4
3,876
8,431
(8,931)
(186)
(219)
22
2,993
29,848
(12,907)
21
19,955
$
$
$
$
$
$
$
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.
67
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
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. The Company terminated the employment of all employees
associated with this action.
During the fiscal 2013, the Company recorded special charges of approximately $29.8 million for severance and fringe
benefit costs in accordance with its ongoing benefit plan or statutory requirements at foreign locations for 235 engineering and
SMG&A employees. As of November 2, 2013, the Company still employed 98 of the 235 employees included in this cost
reduction action. These employees must continue to be employed by the Company until their employment is involuntarily
terminated in order to receive the severance benefit.
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 was payable within 15 months of the transaction date. 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 third quarter of fiscal 2013, the Company paid the remaining $2.5 million due under the holdback. 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 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 2, 2013, no royalty payments have been made. The Company
recognized $0.5 million of acquisition-related costs that were expensed in 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 2, 2013, the Company had paid $8.0 million in contingent consideration. These payments are 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 $6.5
million as of November 2, 2013, of which $3.8 million is included in accrued liabilities and $2.7 million is included in other
68
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
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
be rendered and, as such, the Company will record these amounts as compensation expense in the related periods. As of
November 2, 2013, no royalty payments have been made. The Company recognized $0.2 million of acquisition-related costs
that were expensed in 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 2, 2013 and November 3, 2012 were as follows:
Money market funds
Mutual funds
Total Deferred Compensation Plan investments
2013
2012
$
$
3,462
13,969
17,431
$
$
17,939
10,541
28,480
The fair values of these investments are based on published market quotes on November 2, 2013 and November 3, 2012,
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 2013,
2012 or 2011.
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.
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 2013 and fiscal 2011.
There were no net unrealized gains or losses on securities classified as other investments as of November 2, 2013 and
November 3, 2012.
9.
Accrued Liabilities
Accrued liabilities at November 2, 2013 and November 3, 2012 consisted of the following:
Accrued compensation and benefits
Special charges
Other
Total accrued liabilities
2013
71,094
19,955
66,551
157,600
$
$
$
$
2012
82,027
2,993
63,887
148,907
69
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
10. Deferred Compensation Plan Liability
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 2020. 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 $49 million in fiscal 2013,
$48 million in fiscal 2012 and $45 million in fiscal 2011.
The following is a schedule of future minimum rental payments required under long-term operating leases at
November 2, 2013:
Fiscal Years
2014
2015
2016
2017
2018
Later Years
Total
Operating
Leases
28,045
17,879
9,887
7,016
4,491
1,753
69,071
$
$
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 $23.1 million in fiscal 2013,
$22.8 million in fiscal 2012 and $21.9 million in fiscal 2011. 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
expense related to the various defined benefit pension and other retirement plans for certain non-U.S. employees was $26.5
million in fiscal 2013, $18.9 million in fiscal 2012 and $21.4 million in fiscal 2011.
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 2, 2013 and November 3, 2012.
Components of Net Periodic Benefit Cost
Net annual periodic pension cost of non-U.S. plans is presented in the following table:
70
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of transition obligation
Recognized actuarial loss
Net periodic pension cost
Benefit Obligations and Plan Assets
2013
2012
2011
11,323
12,528
(11,771)
(235)
20
2,999
14,864
$
$
7,909
10,901
(10,469 )
—
19
361
8,721
$
$
9,175
11,395
(10,938)
—
15
1,630
11,277
$
$
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
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
71
2013
2012
272,256
11,323
12,528
2,412
—
(244 )
41,808
(2,693 )
10,275
347,665
200,161
26,480
16,181
2,412
(244 )
(2,693 )
7,032
249,329
$
$
$
$
210,913
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
(98,336) $
(72,095)
— $
(642 )
(97,694 )
(98,336) $
2,596
(657)
(74,034)
(72,095)
$
$
$
$
$
$
$
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
2013
2012
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 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 income
(loss)
Amounts recognized as a component of net periodic benefit cost
Amortization, settlement or curtailment recognition of net transition obligation
Amortization or curtailment recognition of prior service credit (cost)
Amortization or settlement recognition of net loss
Total recognized in other comprehensive loss
Total recognized in net periodic cost and other comprehensive loss
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
$
$
$
$
$
$
$
$
(85) $
4,657
(110,885 )
(106,313 )
7,977
(98,336) $
(109)
4,663
(82,640)
(78,086)
5,991
(72,095)
— $
(4,663)
27,099
$
55,205
3,912
(2,202)
(20 )
235
(2,999 )
28,227
43,091
$
$
(20) $
240
(4,523 )
(4,303) $
(19)
—
(361)
47,960
56,681
(20)
228
(2,939)
(2,731)
The accumulated benefit obligation for non-U.S. pension plans was $272.0 million and $214.5 million at November 2,
2013 and November 3, 2012, 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
2013
2012
$
$
$
$
$
347,666
249,330
280,958
221,715
185,863
$
$
$
$
$
237,422
162,731
219,248
175,243
146,155
72
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
Assumptions
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
2013
2012
4.05%
2.84%
4.55%
2.85%
Net annual periodic pension cost was determined using the following weighted average assumptions:
Discount rate
Expected long-term return on plan assets
Rate of increase in compensation levels
2013
2012
4.55%
5.59%
2.85%
5.60%
5.71%
3.07%
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 2, 2013 and November 3, 2012 using the same three-level hierarchy described in Note 2j:
November 2, 2013
Fair Value Measurement at Reporting Date
Using:
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)
Unobservable
Inputs
(Level 3)
Total
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Total
Unit trust funds(1)
$
— $ 183,062
$
— $ 183,062
$
— $
142,556
$
— $ 142,556
Equities(1)
Fixed income
securities(2)
Property(3)
Cash and cash
equivalents
Total assets measured at
fair value
3,676
29,236
—
29,356
—
770
—
—
83
—
3,146
32,995
2,892
24,176
635
27,703
29,356
3,146
—
—
26,340
—
—
2,881
26,340
2,881
—
770
681
—
—
681
$
4,446
$ 241,654
$
3,229
$ 249,329
$
3,573
$
193,072
$
3,516
$ 200,161
_______________________________________
73
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
(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.
(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 United Kingdom, Europe and other
established international markets. Investments in properties are stated at estimated fair values based upon valuations by
external independent property appraisers.
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 2012 and 2013.
Balance as of October 29, 2011
Realized and unrealized return on plan assets
Exchange rate adjustment
Balance as of November 3, 2012
Purchases, sales, and settlements, net
Realized and unrealized return on plan assets
Exchange rate adjustment
Balance as of November 2, 2013
Estimated future cash flows
Properties
Equities
$
$
$
3,166
12
(297 )
2,881
—
116
149
3,146
$
$
$
614
—
21
635
(522)
—
(30)
83
Expected fiscal 2014 Company contributions and estimated future benefit payments are as follows:
Expected Company Contributions
2014
Expected Benefit Payments
2014
2015
2016
2017
2018
2019 through 2023
$
$
$
$
$
$
$
16,302
3,511
2,849
3,500
3,800
4,234
32,345
74
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:
Net foreign income subject to lower tax rate
State income taxes, net of federal benefit
Valuation allowance
Federal research and development tax credits
Change in uncertain tax positions
Other, net
Total income tax provision
2013
2012
2011
35.0%
35.0%
35.0%
$
285,363
(162,286)
(2,098)
3,113
(12,914)
37,226
(6,568)
$
$
284,737
(117,679)
(2,472)
3,908
(964)
(5,184)
(49)
$
141,836
$
162,297
$
371,506
(144,507)
1,162
(6,700)
(14,681)
(9,897)
3,670
200,553
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
2013
2012
2011
124,737
690,586
815,323
$
$
233,478
580,055
813,533
2013
2012
88,431
70,656
448
159,535
$
$
90,303
80,825
970
172,098
$
$
$
$
(18,182) $
1,982
(1,499)
(17,699) $
(9,948) $
(551 )
698
(9,801) $
355,819
705,628
1,061,447
2011
92,103
104,959
1,787
198,849
9,399
(5,762)
(1,933)
1,704
$
$
$
$
$
$
The Company continues to intend to reinvest certain of its foreign earnings indefinitely. Accordingly, no U.S. income
taxes have been provided for approximately $3,761.6 million of unremitted earnings of international subsidiaries. As of
November 2, 2013, the amount of unrecognized deferred tax liability on these earnings was $1,018.4 million.
The significant components of the Company’s deferred tax assets and liabilities for the fiscal years ended November 2,
2013 and November 3, 2012 are as follows:
75
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
Deferred tax assets:
Inventory reserves
Deferred income on shipments to distributors
Reserves for compensation and benefits
Tax credit carryovers
Stock-based compensation
Depreciation
Sale of business assets
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
2013
2012
$
$
23,238
34,882
32,473
48,920
89,944
4,507
22,564
24,803
281,331
(43,502 )
237,829
(46,636 )
(26,325 )
(8,380 )
(81,341 )
156,488
$
$
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
The valuation allowances of $43.5 million and $37.4 million at November 2, 2013 and November 3, 2012, 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 2, 2013 and November 3, 2012, the Company had a liability of $62.3 million and $7.1 million,
respectively, for 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 2, 2013 and November 3, 2012, the Company had a liability of
approximately $10.1 million and $4.6 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 2, 2013 and November 3, 2012 of $71.3 million and $10.1 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 2013, 2012 and 2011 include $7.1 million, ($7.1) million and $0.9 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 $1.3 million for the possible expiration of an income tax statute of limitations.
The following table summarizes the changes in the total amounts of unrealized tax benefits for fiscal 2011 through fiscal
2013.
76
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
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
Additions for tax positions related to current year
Additions for tax positions related to prior years
Reductions for tax positions related to prior years
Reductions due to lapse of applicable statute of limitations
Balance, November 2, 2013
Unrealized Tax Benefits
9,665
(6,168)
2,212
1,394
7,103
22,762
41,945
(2,176)
(1,495)
68,139
$
$
$
The Company has filed a petition with the U.S. 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. On September
18, 2013, in a matter not involving the Company, the U.S. Tax Court held that accounts receivable created under Rev. Proc. 99-
32 may constitute indebtedness for purposes of Section 965 (b)(3) of the Internal Revenue Code and that the IRS was not
precluded from reducing the beneficial dividend received deduction because of the increase in related-party indebtedness
(BMC Software Inc. v Commissioner, 141 T.C. No. 5 2013). After analyzing the Tax Court’s decision, the Company has
determined that its tax position with respect to the Section 965(b)(3) no longer meets the more likely than not standard of
recognition for accounting purposes. Accordingly, the Company recorded a $36.5 million reserve for this matter in the fourth
quarter of 2013.
All of the Company's U.S. federal tax returns prior to fiscal year 2010 are no longer subject to examination.
All of the Company's Ireland tax returns prior to fiscal year 2009 are no longer subject to examination.
15. Revolving Credit Facility
As of November 2, 2013, the Company had $4,682.9 million of cash and cash equivalents and short-term investments, of
which $1,318.9 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 the Company's cash requirements in the United States, including cash
dividends and common stock repurchases. During December 2012, the Company terminated its five-year, $165.0 million
unsecured revolving credit facility with certain institutional lenders entered into in May 2008. On December 19, 2012, the
Company entered into a five-year, $500.0 million senior unsecured revolving credit facility with certain institutional lenders
(the Credit Agreement). To date, the Company has not borrowed under this credit facility but the Company may borrow in the
future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures,
working capital and other lawful corporate purposes. Revolving loans under the Credit Agreement (other than swing line loans)
bear interest, at the Company's option, at either a rate equal to (a) the Eurodollar Rate (as defined in the Credit Agreement) plus
a margin based on the Company's debt rating or (b) the Base Rate (defined as the highest of (i) the Bank of America prime rate,
(ii) the Federal Funds Rate (as defined in the Credit Agreement) plus .50% or (iii) one month Eurodollar Rate plus 1.00%) plus
a margin based on the Company's debt rating. 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. In addition, the
Credit Agreement contains a consolidated leverage ratio covenant of total consolidated funded debt to consolidated EBITDA
(earnings before interest, taxes, depreciation, and amortization) of not greater than 3.0 to 1.0. As of November 2, 2013, 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 2014 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 2014 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 were amortized over the term of the 2014 Notes.
77
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
On June 30, 2009, the Company entered into interest rate swap transactions related to its outstanding 2014 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. 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 2014 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 was amortized into 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. During the third quarter of fiscal 2013, in conjunction with the redemption of the 2014 Notes,
the Company recognized the remaining $8.6 million in unamortized proceeds received from the termination of the interest rate
swap as other, net expense, within non-operating (income) expense.
During the third quarter of fiscal 2013, the Company redeemed its outstanding 2014 Notes. The redemption price was
104.744% of the principal amount of the 2014 Notes. The Company applied the provisions of Accounting Standards
Codification (ASC) Subtopic 470-50, Modifications and Extinguishments (ASC 470-50) in order to determine if the terms of
the debt were substantially different and, as a result, whether to apply modification or extinguishment accounting. The
Company concluded that the debt transaction qualified as a debt extinguishment and as a result recognized a net loss on debt
extinguishment of approximately $10.2 million recorded in other, net within non-operating (income) expense. This loss was
comprised of the make-whole premium of $17.8 million paid to bondholders on the 2014 Notes in accordance with the terms of
the notes, the recognition of the remaining $8.6 million of unamortized proceeds received from the termination of the interest
rate swap associated with the debt, and the write-off of approximately $1.0 million of debt issuance and discount costs that
remained to be amortized. The write-off of the remaining unamortized portion of debt issuance costs, discount and swap
proceeds are reflected in the Company's condensed consolidated statements of cash flows within operating activities, and the
make-whole premium is reflected within financing activities.
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 were guaranteed
by the Company. The credit agreement provided for a term loan facility of $145.0 million, which was set to mature on
December 22, 2013. During the first quarter of fiscal 2013, the Company repaid the remaining outstanding principal balance on
the loan of $60.1 million and the credit agreement was terminated. The terms of the agreement provided 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 fiscal 2011 and fiscal 2012, the Company made additional principal payments
of $17.5 million and $42.0 million, respectively. The loan bore 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%. The terms of this facility included limitations on
subsidiary indebtedness and on liens against the assets of the Company and its subsidiaries, and also included financial
covenants that required the Company to maintain a minimum interest coverage ratio and not exceed a maximum leverage ratio.
On April 4, 2011, the Company issued $375.0 million aggregate principal amount of 3.0% senior unsecured notes due
April 15, 2016 (the 2016 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 2016 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 are being
amortized over the term of the 2016 Notes. The indenture governing the 2016 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 2, 2013, the Company was compliant
with these covenants. The 2016 Notes are subordinated to any future secured debt and to the other liabilities of the Company’s
subsidiaries.
On June 3, 2013, the Company issued $500.0 million aggregate principal amount of 2.875% senior unsecured notes due
June 1, 2023 (the 2023 Notes) with semi-annual fixed interest payments due on June 1 and December 1 of each year,
commencing December 1, 2013. Prior to issuing the 2023 Notes, on April 24, 2013, the Company entered into a treasury rate
lock agreement with Bank of America. This agreement allowed the Company to lock a 10-year US Treasury rate of 1.7845%
through June 14, 2013 for its anticipated issuance of the 2023 Notes. Upon issuing the 2023 Notes, the Company
simultaneously terminated the treasury rate lock agreement resulting in a gain of approximately $11.0 million. This gain is
78
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----- (Continued)
being amortized into interest expense over the 10-year term of the 2023 Notes. The sale of the 2023 Notes was made pursuant
to the terms of an underwriting agreement, dated as of May 22, 2013, among the Company and J.P. Morgan Securities LLC,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC, as the representatives of the
several underwriters named therein. The net proceeds of the offering were $493.9 million, after discount and issuance costs.
Debt discount and issuance costs are being amortized through interest expense over the term of the 2023 Notes. The indenture
governing the 2023 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 2, 2013, 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: $375.0 million in fiscal year 2016 and
$500.0 million in fiscal year 2023.
17. Gain on Sale of Product Line
On October 31, 2013, we completed the sale of the assets and intellectual property related to our microphone product
line to InvenSense, Inc. (InvenSense). The Company received $100.0 million in cash for the assets and intellectual property
and after providing for the write-off of inventory, fixed assets and other costs incurred to complete the transaction, recorded a
net gain of $85.4 million in nonoperating income during fiscal 2013. The Company has agreed to provide InvenSense with
various transition services subsequent to the closing. The Company may receive additional cash payments, not to exceed
$70.0 million, based on the achievement of certain revenue milestones through the first anniversary of the closing date. The
sale of the assets and intellectual property related to the microphone product line did not qualify as a discontinued operation as
it did not meet the requirement to be considered a component of an entity.
18.
Subsequent Events
On November 25, 2013, the Board of Directors of the Company declared a cash dividend of $0.34 per outstanding share
of common stock. The dividend will be paid on December 17, 2013 to all shareholders of record at the close of business on
December 6, 2013.
79
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 2, 2013 and
November 3, 2012, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash
flows for each of the three years in the period ended November 2, 2013. 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 2, 2013 and November 3, 2012, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended November 2, 2013, 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 have also 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 2, 2013, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(1992 framework) and our report dated November 26, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
November 26, 2013
80
ANALOG DEVICES, INC.
SUPPLEMENTARY FINANCIAL INFORMATION
(Unaudited)
Quarterly financial information for fiscal 2013 and fiscal 2012 (thousands, except per share amounts and as noted):
Revenue
Cost of sales
Gross margin
4Q13
3Q13
678,133
674,172
233,263
239,110
444,870
435,062
2Q13
659,250
237,055
422,195
1Q13
622,134
231,850
390,284
4Q12
694,964
251,682
443,282
3Q12
2Q12
683,026
675,094
235,152
234,639
447,874
440,455
1Q12
648,058
238,668
409,390
% of Revenue
65.6%
64.5%
64.0%
62.7%
63.8%
65.6%
65.2%
63.2%
Research and development
131,034
128,947
128,110
125,164
130,394
129,694
127,537
124,378
Selling, marketing, general
and administrative
Special charges
98,197
15,777
Total operating expenses
245,008
226,720
97,773
102,703
—
—
230,813
191,382
97,560
14,071
236,795
153,489
97,609
—
228,003
215,279
99,873
5,836
99,992
—
235,403
227,529
212,471
212,926
99,045
2,595
226,018
183,372
199,862
208,342
29%
31%
29%
25%
31%
31%
32%
28%
6,659
(3,351)
(85,958)
7,672
6,357
6,414
6,391
6,459
(3,125)
(3,044)
(3,233)
(3,627)
(3,506)
8,754
408
199
(9)
49
6,890
(3,967)
(1,451)
6,682
(3,348)
(48)
(82,650)
13,301
3,721
3,380
2,755
3,002
1,472
3,286
Income before income taxes
282,512
195,041
187,661
150,109
212,524
209,469
211,454
180,086
% of Revenue
42%
29%
28%
24%
31%
31%
31%
28%
Provision for income taxes (b)
80,958
18,802
201,554
176,239
23,189
164,472
18,887
131,222
33,337
179,187
39,701
48,555
169,768
162,899
40,704
139,382
30%
26%
25%
21%
26%
25%
24%
22%
0.65
0.64
0.57
0.56
0.53
0.52
0.43
0.42
0.60
0.58
0.57
0.56
0.55
0.53
0.47
0.46
Operating income
% of Revenue
Nonoperating (income)
expenses:
Interest expense
Interest income
Other, net (a)
Total nonoperating (income)
expense
Net income
% of Revenue
Earnings per share — basic
Net income
Earnings per share — diluted
Net income
Shares used to compute earnings
per share (in thousands):
Basic
Diluted
311,009
309,117
317,216
315,307
Dividends declared per share
0.34
0.34
307,444
313,368
0.34
303,484
310,275
0.30
300,679
307,954
0.30
298,445
298,130
305,359
305,921
0.30
0.30
297,788
305,531
0.25
a) Other, net in the fourth quarter of fiscal 2013 includes a gain on the sale of the assets and intellectual property related to the
Company's microphone product line of $85.4 million.
b) The provision for income taxes in the fourth quarter of fiscal 2013 includes (i) $36.5 million of additional tax expense
recorded in connection with the Company's uncertain tax position related to the beneficial treatment of dividends paid by a
foreign subsidiary and (ii) $26.7 million of income tax expense on the sale of the assets and intellectual property related to the
Company's microphone product line.
81
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 2, 2013. 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 2, 2013, 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 2, 2013. 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 2, 2013, 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
82
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 2, 2013 based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 framework) (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 the 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 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 2, 2013, based on the COSO criteria.
We have also 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 2, 2013 and November 3, 2012, and the
related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three
years in the period ended November 2, 2013 of Analog Devices, Inc. and our report dated November 26, 2013 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
November 26, 2013
83
(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 2, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
84
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 2014 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 2014 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 2013, we made no material change to the procedures by which shareholders may
recommend nominees to our Board of Directors, as described in our 2013 proxy statement.
Information required by this item relating to the audit committee of our Board of Directors is contained in our 2014 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 2014 proxy statement under the captions “Corporate Governance —
Director Compensation” and “Information About Executive Compensation” 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 2014 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 2014 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 2014 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 2014 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 2014 proxy statement under the caption “Corporate Governance —
Independent Registered Public Accounting Firm Fees and Other Matters” and is incorporated herein by reference.
85
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 2, 2013, November 3, 2012 and October 29, 2011
— Consolidated Balance Sheets as of November 2, 2013 and November 3, 2012
— Consolidated Statements of Shareholders’ Equity for the years ended November 2, 2013, November 3, 2012 and
October 29, 2011
— Consolidated Statements of Comprehensive Income for the years ended November 2, 2013, November 3, 2012 and
October 29, 2011
— Consolidated Statements of Cash Flows for the years ended November 2, 2013, November 3, 2012 and October 29, 2011
(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.
86
ANALOG DEVICES, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED NOVEMBER 2, 2013
ITEM 15(b)
FINANCIAL STATEMENT SCHEDULE
87
ANALOG DEVICES, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years ended November 2, 2013, November 3, 2012 and October 29, 2011
(Thousands)
Description
Accounts Receivable Reserves and Allowances:
Year ended October 29, 2011
Year ended November 3, 2012
Year ended November 2, 2013
Balance at
Beginning of
Additions
Charged to
Balance at
End of
Period
Income Statement
Deductions
Period
$
$
$
1,581
1,465
2,721
$
$
$
846
1,910
1,789
$
$
$
962
654
1,917
$
$
$
1,465
2,721
2,593
88
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/ VINCENT ROCHE
Vincent Roche
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 26, 2013
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
Chairman of the Board
Date
November 26, 2013
/s/ Ray Stata
Ray Stata
/s/ Vincent Roche
Vincent Roche
/s/ David A. Zinsner
David A. Zinsner
/s/ Eileen Wynne
Eileen Wynne
/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
President and Chief Executive Officer
(Principal Executive Officer)
November 26, 2013
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Vice President, Corporate Controller
and Chief Accounting Officer
(Principal Accounting Officer)
November 26, 2013
November 26, 2013
Director
November 26, 2013
Director
November 26, 2013
Director
November 26, 2013
Director
November 26, 2013
Director
November 26, 2013
89
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 26, 2013
Director
November 26, 2013
Director
November 26, 2013
90
Exhibit No.
1.1
1.2
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
*10.1
*10.2
Exhibit Index
Description
Underwriting Agreement, dated March 30, 2011, between Analog Devices, Inc. and Credit
Suisse Securities (USA) LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
representatives 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) as filed with the Commission on March 31,
2011 and incorporated herein by reference.
Underwriting Agreement, dated May 22, 2013, between Analog Devices, Inc. and J.P. Morgan
Securities, LLC, Credit Suisse Securities (USA) LLC and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as representatives 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) as filed with the
Commission on May 23, 2013 and incorporated herein by reference.
Restated Articles of Organization of Analog Devices, Inc., as amended, filed as exhibit 3.1 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 as 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 as 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)
as filed with the Commission on August 18, 2009 and incorporated herein by reference.
Supplemental Indenture, dated April 4, 2011, by and 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) as 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) as filed with the Commission on April 4, 2011 and
incorporated herein by reference.
Indenture, dated as of June 3, 2013, by and 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) as filed with the Commission on June 3, 2013
and incorporated herein by reference.
Supplemental Indenture, dated as of June 3, 2013, by and between Analog Devices, Inc. and
The Bank of New York Mellon Trust Company, N.A., as trustee, filed as exhibit 4.2 to the
Company's Current Report on Form 8-K (File No. 1-7819) as filed with the Commission on
June 3, 2013 and incorporated herein by reference.
Analog Devices, Inc. Amended and Restated Deferred Compensation Plan, filed as exhibit 10.1
to the Company's Current Report on Form 8-K as filed with the Commission on December 8,
2008 (File No. 1-7819) and incorporated herein by reference.
First Amendment to the Analog Devices, Inc. Amended and Restated Deferred Compensation
Plan, filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 2011 (File No. 1-7819) as filed with the Commission on August 16,
2011 and incorporated herein by reference.
Exhibit No.
*10.3
*10.4
*10.5
*10.6
*10.7
*10.8
*10.9
*10.10
*10.11
*10.12
*10.13
*10.14
Description
Trust Agreement for Deferred Compensation Plan dated as of October 1, 2003 between Analog
Devices, Inc. and Fidelity Management Trust Company, filed as exhibit 10.28 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
exhibit 10.3 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 exhibit 10.2 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 exhibit 10.12
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.
2006 Stock Incentive Plan of Analog Devices, Inc., as amended, filed as exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal 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 exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 4, 2013 (File No. 1-7819) as filed with the
Commission on May 21, 2013 and incorporated herein by reference.
Form of Non-Qualified Stock Option Agreement for Directors for usage under the Company's
2006 Stock Incentive Plan, filed as exhibit 10.4 to the Company's Quarterly Report on Form 10-
Q for the fiscal quarter ended May 4, 2013 (File No. 1-7819) as filed with the Commission on
May 21, 2013 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 exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 4, 2013 (File No. 1-7819) as filed with the
Commission on May 21, 2013 and incorporated herein by reference.
Form of Restricted Stock Unit Agreement for Directors for usage under the Company's 2006
Stock Incentive Plan, filed as exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 4, 2013 (File No. 1-7819) as filed with the Commission on May
21, 2013 and incorporated herein by reference.
Analog Devices BV (Ireland) Employee Stock Option Program, as amended, filed as exhibit
10.3 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 Employment Agreement between Jerald G. Fishman and Analog
Devices, Inc., dated January 14, 2010, filed as exhibit 10.2 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.
Exhibit No.
*10.15
Executive Retention Agreement dated October 22, 2007 between Jerald G. Fishman and Analog
Devices, Inc., filed as exhibit 99.2 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.
Description
*10.16
*10.17
*10.18
*10.19
*10.20
*10.21
*10.22
*10.23
*10.24
*10.25
*10.26
*10.27
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 exhibit
10.19 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 exhibit 99.3 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 exhibit 10.1 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.
2013 Executive Performance Incentive Plan, 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 October 31, 2012 and
incorporated herein by reference.
2014 Executive Performance Incentive Plan, 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 September 12, 2013
and incorporated herein by reference.
Analog Devices, Inc. Executive Section 162(m) plan, as amended, filed as exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 2013
(File No. 1-7819) as filed with the Commission on May 21, 2013 and incorporated herein by
reference.
Form of Employee Retention Agreement, filed as exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal 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
exhibit 10.20 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 exhibit 10.21 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 fiscal quarter ended January 31, 2009
(File No. 1-7819) as filed with the Commission on February 18, 2009 and incorporated herein
by reference.
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.
Exhibit No.
10.28
10.29
10.30
10.31
10.32
10.33
10.34
†12.1
†21
†23
†31.1
†31.2
†32.1
†32.2
Description
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 exhibit 10.8 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 exhibit 10.9 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 exhibit 10.10 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 exhibit 10.11 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 exhibit 10.38 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 exhibit 10.39 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.
Credit Agreement, dated as of December 19, 2012, among Analog Devices, Inc., as Borrower,
Bank of America, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer and each
lender from time to time party thereto, 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 December 20, 2012 and
incorporated herein by reference.
Computation of Consolidated Ratios of Earnings to Fixed Charges.
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.
Exhibit No.
Description
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 2, 2013,
November 3, 2012 and October 29, 2011, (ii) Consolidated Balance Sheets as of November 2, 2013 and
November 3, 2012, (iii) Consolidated Statements of Shareholders’ Equity for the years ended November 2,
2013, November 3, 2012 and October 29, 2011, (iv) Consolidated Statements of Comprehensive Income for
the years ended November 2, 2013, November 3, 2012 and October 29, 2011, (v) Consolidated Statements of
Cash Flows for the years ended November 2, 2013, November 3, 2012 and October 29, 2011, (vi) Notes to
Consolidated Financial Statements for the years ended November 2, 2013, November 3, 2012 and
October 29, 2011.
Board of Directors
Ray Stata, Chairman
Chairman of the Board
Analog Devices, Inc.
Vincent T. Roche
President and Chief Executive
Officer
Analog Devices, Inc.
Richard M. Beyer
Former Chairman and
Chief Executive Officer
Freescale Semiconductor, Inc.
Executive Officers
James A. Champy
Retired Vice President of the
Dell/Perot Systems business
unit of Dell, Inc.
Neil Novich
Former Chairman, President
and Chief Executive Officer
Ryerson Inc.
Kenton J. Sicchitano
Retired Global Managing
Partner
PricewaterhouseCoopers LLP
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.
Lisa T. Su
Senior Vice President and
General Manager, Global
Business Units
Advanced Micro Devices, Inc.
Yves-Andre Istel
Senior Adviser
Rothschild, Inc.
Paul J. Severino
Private Investor, Founder and
Former Chairman
Bay Networks, Inc.
Vincent T. Roche
President and Chief Executive Officer
Robert R. Marshall
Vice President, Worldwide Manufacturing
David A. Zinsner
Vice President, Finance and
Chief Financial Officer
Samuel H. Fuller
Vice President, Research and
Development and
Chief Technology Officer
William Matson
Vice President, Human Resources
Robert McAdam
Executive Vice President, Strategic
Business Segments Group
Richard Meaney
Vice President, Products and
Technology Group
Margaret K. Seif
Vice President, General Counsel and
Secretary
Thomas Wessel
Vice President, Worldwide Sales
Eileen Wynne
Vice President, Corporate Controller,
and Chief Accounting 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
Shareholder Inquiries
Shareholders of record should contact Analog Devices’
transfer agent regarding any changes in address, transfer
of stock, or account consolidation.
Stock Trading
Analog Devices’ common stock trades on The NASDAQ
Global Select Market under the symbol ADI.
Other Information
To obtain a free copy of the 2013 Annual Report on
Form 10-K, Corporate Governance Guidelines, Code of
Business Conduct and Ethics, or additional information,
visit investor.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
Annual Meeting
Analog Devices will hold its Annual Shareholders’ Meeting
at 9:00 a.m. (local time) on Wednesday, March 12, 2014, at
One Technology Way, Norwood, MA.
Analog Devices, the Analog Devices logo and EngineerZone 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-2013