2 0 1 7 A N N U A L R E P O R T
POSITIONED FOR LONG-TERM GROWTH
INDUSTRIAL
The industrial market is characterized by extremely diverse customers, products, and
applications, as well as long product life cycles. Focusing on the highest value opportunities,
ADI is ushering in a new era of innovation with technology and solutions that enable
intelligent, connected, and efficient automation, instrumentation, aerospace and
defense, and healthcare applications.
AUTOMOTIVE
We are leveraging more than two decades of experience in automotive to enable new
functionality in advanced driver assistance systems, infotainment, and powertrain.
As megatrends such as autonomous driving and vehicle electrification continue
to accelerate, we expect our dollar content opportunity per vehicle will more
than double over the next decade.
COMMUNICATIONS
In wired and wireless communications, our unparalleled product portfolio and expertise
in RF, microwave, and high-speed signal processing is becoming increasingly critical.
From ubiquitous broadband and 5G to networked data centers, communications
customers are turning to ADI to provide more complete system-level solutions
to enable the functionality needed in a connected world.
CONSUMER
We have built a strong consumer franchise by developing innovative technology
that provides a high level of differentiation. We drive high return on investment
for this business by selectively utilizing technology developed for other markets
to enable new functionality, while also broadly leveraging our consumer
technology across our B2B markets.
Dear Shareholder,
A Year of Record Results
Fiscal 2017 was a watershed year for Analog Devices.
We solidified our status as the premier high-performance
analog company by completing our acquisition of Linear
Technology Corporation and achieving historically high
levels of financial performance. In fiscal 2017, non-GAAP
revenue increased to a record $5.2 billion as we grew
in each of our end markets.1 In addition, our disciplined
operational execution helped to drive our non-GAAP gross
and operating margins to approximately 70% and 40%,
respectively. Adjusted free cash flow generation was also
very strong, increasing approximately 45% compared to
fiscal 2016..2
TOP 5%
OF S&P 500 COMPANIES IN ADJUSTED
FREE CASH FLOW MARGIN2
Our strong 2017 performance reflects our long-term
commitment to consistently improving our results. Over
the past five years, we have doubled Analog Devices’
revenue base and expanded non-GAAP operating margins
by over 900 basis points. Even more significantly, we have
nearly tripled adjusted free cash flow generation on
a combined company basis to $1.9 billion, or 34% of
sales, on a trailing twelve months basis, which earns us
a spot within the top 5% of all S&P 500 companies.
Our total shareholder return over this five-year period
is 131%, or 1.5× higher than the S&P 500 return over the
same period.
A New Wave of Innovation Driven by Semiconductors
We are living in a time of astonishing advances in information
and communications technology. The transformative
effects of this new era, which we refer to as the third
wave of innovation, are just beginning and will be largely
driven by sensing and signal processing. Many decades since
it was first introduced, semiconductor technology remains
as relevant and essential as ever. In fact, the need for new
semiconductor innovation is greater than ever before.
In the coming years, human and machine interaction will
become more immersive. We expect that ubiquitous
sensing, continuous connectivity, and new levels of
processing and storage will further accelerate the pace of
digitization in virtually all facets of our lives, changing the
way we live, communicate, work, learn, and stay healthy.
In this increasingly data hungry world, we believe that
analog technology will become a far greater differentiator
than in the past, playing a progressively more critical role in
raising the overall performance level of electronic systems.
90% OF R&D
B2B MARKETS
F O C U S E D O N
Stronger than Ever
At Analog Devices, we have been preparing for this
moment in time for more than 50 years. Guided by our
core belief that superior innovation drives superior revenue
growth and profitability, we have built an unparalleled
portfolio of technology to sense, measure, and interpret
the world. In the past 10 years, we have shifted our
R&D investments to focus primarily on business-to-
business (B2B) and select consumer applications. This
strategy has produced better alignment between our
technology and high-value opportunities, supporting our
goal of producing sustainable innovation that is relevant to
a rich diversity of applications and customers. In addition,
through our recent acquisitions of Linear Technology,
Hittite Microwave, and select early-stage companies,
we have increased Analog Devices’ scope and scale,
particularly in power management and RF/microwave
technology. We now have leading market positions
unabated change, we remain aligned with our traditional
across all of our product segments, with capabilities that
values, while also adding new complementary competencies
range from sensor to cloud, from DC to 100 GHz, and
and technologies that enhance our heritage and position
from nanowatts to kilowatts.3
As customers’ analog problems become increasingly
difficult and complex, we are creating and capturing value
by taking on a greater share of the engineering challenge.
We are actively leveraging our enhanced product portfolio,
us for even greater success. Acting as a true partner to
our customers, we will continue to strive to extend our
leadership positions in our legacy businesses and core
technology franchises. We are also focusing on exciting
new opportunities as applications such as Industrial 4.0,
autonomous transportation, next-generation mobility
engineering expertise, and differentiated customer
infrastructure, clinical-grade vital signs monitoring, and
engagement model to drive strong growth across our
augmented reality systems continue to evolve.
served markets.
Across many thousands of applications, Analog Devices’
innovative company, and I am energized about both the
technology is positively impacting the world around us. By
exciting work we are doing and the possibilities that lie
I am deeply proud to lead such a storied and highly
partnering with us, our industrial customers are able to
create a more flexible and configurable manufacturing
environment. In battery formation, our products are
enabling higher accuracy measurements, resulting in
better control during the formation process and thus higher
grade batteries. For healthcare, our optical sensor-based
solutions are improving vital signs monitoring and imaging
products. In automotive, we continue to design and deliver
highly
innovative solutions,
including high-precision
ahead. For our shareholders, I believe we are focused
on initiatives that will position us to produce a highly
attractive combination of growth, value, and strong free
cash flow generation. For our employees, an even
greater opportunity will emerge to work on problems
that truly matter. And, finally, for our customers, our
unwavering focus on innovation will keep them and their
own customers Ahead of What's Possible.™
battery management systems that enable more miles per
Sincerely,
charge, advanced radar technology that delivers superior
range and resolution for autonomous driving, and our A²B®
technology that enhances audio fidelity in infotainment
Vincent Roche
applications while also reducing vehicle weight. Our
President and Chief Executive Officer
software-defined radio transceivers have become a
Analog Devices, Inc.
market leader in macrocell, massive MIMO, and small-
cell networks as they greatly simplify the base station
radio card through aggressive integration and software
configuration. Through our innovative μModule® packaging
and proprietary thermal management techniques, we
are delivering unprecedented power density, helping
data centers to more efficiently process the ever-
increasing amounts of information generated and used
by networked devices.
Well Positioned for the Future
As the world becomes more digital, more autonomous, and
more intelligent, Analog Devices’ powerful capabilities to
effectively and efficiently bridge the digital and physical
worlds are needed more than ever before. Amidst
1 The non-GAAP financial measures included in this letter to shareholders exclude certain items. Please refer to Page 103 of the Annual Report for additional information regarding non-GAAP financial measures and reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures. 2 Adjusted free cash flow and adjusted free cash flow margin are non-GAAP financial measures. Adjusted free cash flow is defined as cash provided by (used in) operating activities, adjusted for a one-time tax payment in connection with the Linear Technology acquisition, less capital expenditures, and adjusted free cash flow margin is adjusted free cash flow as a percentage of revenue. Dear Shareholder,
A Year of Record Results
it was first introduced, semiconductor technology remains
Fiscal 2017 was a watershed year for Analog Devices.
as relevant and essential as ever. In fact, the need for new
We solidified our status as the premier high-performance
semiconductor innovation is greater than ever before.
analog company by completing our acquisition of Linear
Technology Corporation and achieving historically high
levels of financial performance. In fiscal 2017, non-GAAP
revenue increased to a record $5.2 billion as we grew
in each of our end markets.1 In addition, our disciplined
operational execution helped to drive our non-GAAP gross
and operating margins to approximately 70% and 40%,
respectively. Adjusted free cash flow generation was also
very strong, increasing approximately 45% compared to
fiscal 2016..2
In the coming years, human and machine interaction will
become more immersive. We expect that ubiquitous
sensing, continuous connectivity, and new levels of
processing and storage will further accelerate the pace of
digitization in virtually all facets of our lives, changing the
way we live, communicate, work, learn, and stay healthy.
In this increasingly data hungry world, we believe that
analog technology will become a far greater differentiator
than in the past, playing a progressively more critical role in
raising the overall performance level of electronic systems.
Our strong 2017 performance reflects our long-term
commitment to consistently improving our results. Over
the past five years, we have doubled Analog Devices’
revenue base and expanded non-GAAP operating margins
by over 900 basis points. Even more significantly, we have
nearly tripled adjusted free cash flow generation on
a combined company basis to $1.9 billion, or 34% of
sales, on a trailing twelve months basis, which earns us
a spot within the top 5% of all S&P 500 companies.
Our total shareholder return over this five-year period
is 131%, or 1.5× higher than the S&P 500 return over the
same period.
Stronger than Ever
At Analog Devices, we have been preparing for this
moment in time for more than 50 years. Guided by our
core belief that superior innovation drives superior revenue
growth and profitability, we have built an unparalleled
portfolio of technology to sense, measure, and interpret
the world. In the past 10 years, we have shifted our
R&D investments to focus primarily on business-to-
business (B2B) and select consumer applications. This
strategy has produced better alignment between our
technology and high-value opportunities, supporting our
A New Wave of Innovation Driven by Semiconductors
goal of producing sustainable innovation that is relevant to
We are living in a time of astonishing advances in information
a rich diversity of applications and customers. In addition,
and communications technology. The transformative
through our recent acquisitions of Linear Technology,
effects of this new era, which we refer to as the third
Hittite Microwave, and select early-stage companies,
wave of innovation, are just beginning and will be largely
we have increased Analog Devices’ scope and scale,
driven by sensing and signal processing. Many decades since
particularly in power management and RF/microwave
unabated change, we remain aligned with our traditional
values, while also adding new complementary competencies
and technologies that enhance our heritage and position
us for even greater success. Acting as a true partner to
our customers, we will continue to strive to extend our
leadership positions in our legacy businesses and core
technology franchises. We are also focusing on exciting
new opportunities as applications such as Industrial 4.0,
autonomous transportation, next-generation mobility
infrastructure, clinical-grade vital signs monitoring, and
augmented reality systems continue to evolve.
I am deeply proud to lead such a storied and highly
innovative company, and I am energized about both the
exciting work we are doing and the possibilities that lie
ahead. For our shareholders, I believe we are focused
on initiatives that will position us to produce a highly
attractive combination of growth, value, and strong free
cash flow generation. For our employees, an even
greater opportunity will emerge to work on problems
that truly matter. And, finally, for our customers, our
unwavering focus on innovation will keep them and their
own customers Ahead of What's Possible.™
Sincerely,
Vincent Roche
President and Chief Executive Officer
Analog Devices, Inc.
technology. We now have leading market positions
across all of our product segments, with capabilities that
range from sensor to cloud, from DC to 100 GHz, and
from nanowatts to kilowatts.3
As customers’ analog problems become increasingly
difficult and complex, we are creating and capturing value
by taking on a greater share of the engineering challenge.
We are actively leveraging our enhanced product portfolio,
engineering expertise, and differentiated customer
engagement model to drive strong growth across our
served markets.
innovative solutions,
Across many thousands of applications, Analog Devices’
technology is positively impacting the world around us. By
partnering with us, our industrial customers are able to
create a more flexible and configurable manufacturing
environment. In battery formation, our products are
enabling higher accuracy measurements, resulting in
better control during the formation process and thus higher
grade batteries. For healthcare, our optical sensor-based
solutions are improving vital signs monitoring and imaging
products. In automotive, we continue to design and deliver
highly
including high-precision
battery management systems that enable more miles per
charge, advanced radar technology that delivers superior
range and resolution for autonomous driving, and our A²B®
technology that enhances audio fidelity in infotainment
applications while also reducing vehicle weight. Our
software-defined radio transceivers have become a
market leader in macrocell, massive MIMO, and small-
cell networks as they greatly simplify the base station
radio card through aggressive integration and software
configuration. Through our innovative μModule® packaging
and proprietary thermal management techniques, we
are delivering unprecedented power density, helping
data centers to more efficiently process the ever-
increasing amounts of information generated and used
by networked devices.
Well Positioned for the Future
As the world becomes more digital, more autonomous, and
more intelligent, Analog Devices’ powerful capabilities to
effectively and efficiently bridge the digital and physical
worlds are needed more than ever before. Amidst
3 Data based on Gartner reports and Company estimates based on fiscal 2015 and 2016 data. RF/microwave is based on Company estimates and excludes consumer and cellular infrastructure and power amplifiers. 2 0 1 7 F I N A N C I A L P E R F O R M A N C E
2
SINCE 2012
$5.2 B ILLION IN REVENUE*
40%
70%
34%
ADJUSTED FREE CASH
GROSS MARGINS*
OPERATING MARGINS*
FLOW MARGINS*
1.5
TOTAL
SHAREHOLDER
RETURNS
VS. S&P 500
FIVE YEAR PERFORMANCE**
+131%
+88%
S&P 500
ADI
* Revenue, Gross Margins, Operating Margins and Adjusted Free Cash Flow Margins are presented on a non-GAAP basis and exclude special items. Please refer to Page 103 of the Annual Report for additional information regarding non-GAAP financial measures and reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures. ** Total Shareholder Returns calculation is share price appreciation plus cumulative cash dividend payments for the five years ended October 28, 2017, utilizing the 90 day average of the beginning and ending closing prices. 5,580
ENGINEERS IN 23 COUNTRIES
36% OF OUR POPULATION ARE IN ENGINEERING ROLES
$1B
INVESTED IN R&D
~19% OF SALES
THE HIGH-PERFORMANCE
ANALOG INDUSTRY LEADER
LTC
ANALOG
DEVICES
CONVERTERS
POWER MANAGEMENT
AMPLIFIERS
INTERFACE
RF/MICROWAVE
52
YEARS IN BUSINESS
125KCUSTOMERS
43KPRODUCTS
15KEMPLOYEES
COMBINED REVENUE*2nd1st2nd2nd1st * Data based on Gartner reports and Company estimates based on fiscal 2015 and 2016 data. RF/microwave is based on Company estimates and excludes consumer and cellular infrastructure and power amplifiers. UNITED STATT TESAA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
W
Form 10-K
(Mark One)
ANNUAL REPOR
L
TRR PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
F
TRANSITION REPORTRR PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
F
r
For the fiscal year
r
r
October 28, 2017
ended
OR
For the transition period fr
r
om to
Commission File No. 1-7819
Analog Devices, Inc.
g
gg
g
rr
(Exact name of r
egistrant as specified in its charter)
Massachusetts
(State or other jurisdiction of incorporation or organization)
r
04-2348234
(I.R.S. Employer Identification No.)
One Technology Way, Norwood, MA
(Address of principal executive offices)
yy
rr
02062-9106
(Zip Code)
(781) 329-4700
rr
, including ar
ea code)
rr
(Registrant’s telephone number
’
______________________________
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $0.16 2/3 Par Value
TT
Title of Each Class
Nasdaq Global Select Market
Name of Each Exchange on Which Registeredrr
Securities registered pursuant to Section 12(g) of the Act:
None
TT
Title of Class
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES
NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES
NO
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. YES
NO
yy
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any
, every Interactive
WW
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
Accelerated
Non-accelerated filer
(Do not check if a smaller
p
p y)
g
reporting company)
g
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Smaller reporting
company
filer
p
p
Emerging growth
company
Act). YES
NO
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately
$21,972,000,000 based on the last reported sale of the Common Stock on The Nasdaq Global Select Market on April 30, 2017. 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.
a conclusive determination for other purposes.
This determination of affiliate status is not
ff
ff
ff
ff
As of October 28, 2017, there were 368,635,788 shares of Common Stock, $0.16 2/3 par value per share, outstanding.
Documents Incorporated by Reference
Document Description
Form 10-K Part
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held March 14, 2018
III
F
TABLE OF
TT
CONTENTS
Note about Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TRR IT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PARPP
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers of the Company
ff
ff
PARPP
TRR IIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplementary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PARPP
TRR IIIT
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ff
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . .
Item 13. Certain Relationships and Related Transactions, and Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AND QUALIFYING ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AA
SCHEDULE II - VALUA
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TION
TRR IVT
PARPP
VV
1
2
2
11
20
21
21
22
23
25
25
27
28
43
45
46
46
47
48
49
50
51
89
90
90
92
93
93
93
93
93
93
94
94
99
100
This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and
Note About Forward-Looking Statements
yy
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,” “continues,”
“may,” “could” and “will,” and variations of such words and similar expressions are intended to identify such forward-looking
statements. In addition, any statements that refer to projections regarding our future financial performance; our anticipated
growth and trends in our businesses; our future liquidity, 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; our ability to successfully
integrate acquired businesses and technologies, including the integration of the acquired business, operations and employees of
Linear Technology Corporation; 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, including to
reflect events or circumstances occurring after the date of the filing of this report, except to the extent required by law.
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1
ITEM 1.
BUSINESS
Company Overview
PARPP
TRR I
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Analog Devices, Inc. (we, Analog Devices or the Company) is a leading global high-performance analog technology
company. Our products and technologies intelligently bridge the physical and digital domains through sensing, measuring,
powering, connecting and interpreting. We design, manufacture and market a broad portfolio of solutions that leverage high-
performance analog, mixed-signal and digital signal processing technology, including integrated circuits (ICs), algorithms,
software, and subsystems. Since our inception in 1965, we have focused on solving our customers’ toughest signal processing
engineering challenges and playing 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.
We combine sensors, data converters, amplifiers and linear products, radio frequency (RF) ICs, power management products,
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and signal processing products into technology platforms that meet specific customer and market needs, leveraging our
engineering investment across a broad base of markets and customers. As new generations of applications evolve, such as
autonomous vehicles and the Internet of Things, new needs for Analog Devices’ high-performance analog signal processing and
digital signal processing (DSP) products and technologies are emerging.
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We focus on key strategic markets where our signal processing technology is often a critical dif
ferentiator in our
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customers’ products; in particular, the industrial, automotive, consumer and communications markets. Used by more than
125,000 customers worldwide, our products are embedded inside many different types of electronic equipment including:
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• Industrial process control systems
• Factory process automation systems
• Instrumentation and measurement systems
• Energy management systems
• Aerospace and defense electronics
• Automobiles
• Medical imaging equipment
• Patient vital signs monitoring devices
• Wireless infrastructure equipment
• Networking equipment
• Optical systems
• Portable consumer devices
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We were incorporated in Massachusetts in 1965. Our headquarters are near Boston, in Norwood, Massachusetts. In
addition, we have manufacturing facilities in the United States, Ireland, and Southeast Asia. We have more than 50 design,
development, field application engineering, sales, and manufacturing centers 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.
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Acquisition of Linear Technology Corporation
On March 10, 2017 (Acquisition Date), we completed the acquisition of Linear Technology Corporation (Linear), a
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designer, manufacturer and marketer of high performance analog integrated circuits. The total consideration paid to acquire
Linear was approximately $15.8 billion, consisting of $11.1 billion in cash financed through existing cash on hand, net
proceeds from bridge and term loan facilities and proceeds received from the issuance of senior unsecured notes, $4.6 billion
from the issuance of our common stock and $0.1 billion of consideration related to the replacement of outstanding equity
awards held by Linear employees. The acquisition of Linear is referred to as the Acquisition.
AA
Available Information
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We maintain a website with the address www
.analog.com. We are not including the information contained on our website
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as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of char
ge 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 by-laws,
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
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, 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.
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2
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.
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Principal Products
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We design, manufacture and market a broad line of high-performance ICs that incorporate analog, mixed-signal and
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digital signal processing technologies. Our ICs are designed to address a wide range of real-world signal processing
applications. We sell our ICs to tens of thousands of customers worldwide, many of whom use products spanning our core
technologies in a wide range of applications. Our IC 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.
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We also focus on
working with leading customers to design application-specific solutions. We begin with our existing core technologies, which
leverage our data conversion, amplification, RF and microwave, microelectromechanical systems (MEMS), power
management and DSP capabilities, 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 platform for our general-purpose products, we can create
application-specific solutions quickly.
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We produce and market a broad range of ICs and operate in one reportable segment based on the aggregation of eight
operating segments. The ICs sold by each of our operating segments are manufactured using similar semiconductor
manufacturing processes and raw materials in either our own production facilities or by third-party wafer fabricators using
proprietary processes. Our ICs are sold to customers globally through a direct sales force, third-party distributors, independent
sales representatives and via our website. Our technology offerings are aligned with the predominant markets served in order to
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facilitate decision making throughout our organization. Our ten highest revenue products, in the aggregate, accounted for
approximately 14% of our revenue for our fiscal year ended October 28, 2017 (fiscal 2017).
Analog Products
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Our analog and mixed signal IC technology has been the foundation of our business for over five decades, and we are one
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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.
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.
We believe that the
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Converters — We are a leading supplier of data converter products. Data converters translate real-world analog signals
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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.
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Amplifiers/Radio Frequency
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— We are also a leading supplier of high-performance amplifiers.
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Amplifiers are used to
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condition analog signals. High performance amplifiers emphasize the performance dimensions of speed and precision. Within WW
this product portfolio we provide precision, instrumentation, high speed, intermediate frequency/RF, broadband, and other
amplifiers. We also of
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fer an extensive portfolio of precision voltage references that are used in a wide variety of applications.
Our analog product line also includes a broad portfolio of high performance RF ICs covering the entire RF signal chain, from
industry-leading stand-alone RF function blocks such as phase locked loops, frequency synthesizers, mixers, modulators,
demodulators, and power detectors, to highly integrated broadband and short-range single chip transceiver solutions. Our high
performance RF ICs support the high performance requirements of cellular infrastructure and a broad range of applications in
our target markets.
3
Power Management & Reference
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— Power management and reference 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 and provide efficient solutions for power management and conversion applications in
the automotive, communications, industrial and high-end consumer markets. Our high performance power ICs include
powerful densities and software design simulation tools to provide fast and accurate power supply designs.
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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. 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.
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Digital Signal Processing Pr
oducts
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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.
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Markets and Applications
The breakdown of our fiscal 2017 revenue by end market is set out in the table below.
End Market
Industrial
Automotive
Consumer
Communications
Percent of
Fiscal 2017
Revenue
46%
15%
21%
18%
The following describes some of the characteristics of, and customer products within, our major end markets:
Industrial — Our industrial market includes the following sectors:
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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
themselves by using the highest performance analog and mixed-signal ICs available. Our industrial and instrumentation market
includes applications such as:
. Our instrumentation customers differentiate
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• Process control systems
• Connected motion and robotics
• Environmental control systems
• Oscilloscopes
• Lab, chemical, and environmental analyzers
• Weigh scales
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4
Defense/Aerospace
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— 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.
As end systems are becoming more complex many of our customers in this market also look for
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sub-systems. We supply sub-systems to many of these customers.
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Customer products include:
• Navigation systems
• Space and satellite communications
• Communication systems
• Radar systems
• Security devices
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—
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Energy Management
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investments in renewable energy, power transmission and distribution systems, electric meters, and other innovative areas.
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:
The desire to improve energy efficiency
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, conservation, reliability
, and cleanliness is driving
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The
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• Utility meters
• Meter communication modules
• Substation relays and automation equipment
• Wind turbines
• Solar inverters
• Building energy automation/control
Healthcarerr — The healthcare market is calling for increased access to better and more affordable care.
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To help achieve
this, we are collaborating with customers and partners on innovative solutions that are designed to achieve better outcomes for
patients and physicians at reduced costs for all.
Our offerings include both standard and application-specific products and are used in applications such as:
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• Ultrasound systems
• X-Ray equipment (CT and DR)
• Image guided therapy
• Multi-parameter vital signs monitors
• Disease management, e.g. hypertension and diabetes
• Anesthesia equipment
• Lab diagnostic equipment
• Surgical tools and instruments
• Blood analyzers
• Point-of-care diagnostics
Automotive — We develop dif
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ferentiated high performance signal processing solutions that enable sophisticated
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automotive systems to be greener, safer and smarter. Through collaboration with manufacturers worldwide, we have achieved
significant market share through a broad portfolio of analog, digital and sensor ICs that increase fuel efficiency
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, enhance
vehicle safety and improve the in-cabin audio/video experience. Specifically, we have developed products used in applications
such as:
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•
•
Greener
Hybrid electric / electric vehicles
Battery monitoring and
management systems
•
•
•
Safer
Crash sensors in airbag systems
•
Smarter
Car audio, voice processing and
connectivity
Electronic stability systems
• Video processing and connectivity
Radar advanced driver assistance
systems
•
Car telematics
Consumer —
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To address the market demand for state of the art personal and professional entertainment systems and the
consumer demand for high quality user interfaces, music, movies and photographs, we have developed analog, digital and
mixed-signal 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 that enables best in class user experience. These products include:
• Portable devices (smart phones, tablets and wearable
devices) for media and vital signs motoring applications
• Prosumer audio/video equipment
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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 processing of 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, voice
communication and machine-type communications. In wireless and broadband communication applications, our products are
incorporated into:
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• Cellular basestation equipment
• Microwave backhaul systems
• Optical networking equipment for data center and service
providers
• Satellite and terrestrial broadband access equipment
See Note 4, Industry, Segment and Geographic Information,
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of 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 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
and improvement of new and existing products and manufacturing processes, compared to approximately $654 million during
the fiscal year ended October 29, 2016 (fiscal 2016) and approximately $637 million during the fiscal year ended October 31,
2015 (fiscal 2015).
$969 million during fiscal 2017 on the design, development
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Our research and development strategy focuses on building technical leadership in core technology platforms, which
include converters, amplifiers, RF and microwave, power management, MEMS, 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.
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Patents and Other Intellectual Pr
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operty Rights
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We seek to establish and maintain our proprietary rights in our technology and products through the use of patents,
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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 October 28, 2017, we held approximately 3,255 U.S. patents and approximately
801 non-provisional pending U.S. patent applications with expiration dates ranging from 2017 through 2037. 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.
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Sales Channels
We sell our products globally through a direct sales force, third-party distributors, independent sales representatives and
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via our website. We have direct sales of
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fices, sales representatives and/or distributors in over
America.
50 countries outside North
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We support our worldwide sales ef
forts through our website and with extensive promotional programs that include
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editorial coverage and paid advertising in online and printed trade publications, webinars, social media and communities,
promotional and training videos, direct mail programs, technical seminars and participation in trade shows. We publish, share
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and distribute technical content such as data sheets, application guides and catalogs. We maintain a staf
f 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.
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We derived approximately
53% of our fiscal 2017 revenue from sales made through distributors. These distributors
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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. We defer revenue and the related cost of sales on shipments to U.S. distributors and
certain international distributors until the distributors resell the products to their customers. . We make sales to distributors
under agreements that allow certain 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, certain 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, Revenue Recognition, of the Notes to
Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.
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Segment Financial Information and Geographic Information
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We operate and track our results in one reportable segment based on the aggregation of eight operating segments.
Through subsidiaries and affiliates, we conduct business in numerous countries outside the United States. During fiscal
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2017, we derived approximately 61% 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
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affected by changes in the exchange rate of the United States dollar against other currencies.
Revenue by geographic region, based on the primary location of our customers' design activity for our products, for fiscal
2017 was as follow:
Geographic
g p
Area
United States
Rest of North/South America
Europe
Japan
China
Rest of Asia
Percent of
Fiscal 2017
Revenue
39%
2%
24%
10%
16%
9%
For further detail regarding revenue and other financial information about our industry, segment and geographic areas,
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see our Consolidated Financial Statements and Note 4, Industry, Segment and Geographic Information
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Consolidated Financial Statements contained in in Item 8 of this Annual Report on Form 10-K. For a discussion of important
A
risk factors that may materially affect us, see the Risk Factors contained in Item 1A
Annual Report on Form 10-K.
of the Notes to
of this
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Customers
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We have over 125,000 customers worldwide.
The Company's largest single end customer, Apple Inc., represented
approximately 14%, 12% and 13% of total revenue in fiscal years 2017, 2016 and 2015, respectively. Our customers use
hundreds of different types of our products in a wide range of applications spanning the industrial, automotive, consumer and
communication markets. Our 20 largest customers accounted for approximately 35% of our fiscal 2017 revenue.
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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.
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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.
7
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We utilize, develop and employ a wide variety of manufacturing processes, primarily based on bipolar and
complementary metal-oxide semiconductor (CMOS) transistors, which are specifically tailored for use in fabricating high-
performance analog, DSP and mixed-signal ICs. Devices such as MEMS,
fabricated using specialized processes, which typically use substantially similar equipment as bipolar and CMOS processes.
iCoupler®isolators and various sensors, are
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Our IC products are fabricated on proprietary processes at our internal production facilities in Wilmington,
Massachusetts, Milpitas, California, Camas, Washington and Limerick, Ireland and also on a mix of proprietary and non-
proprietary processes at third-party wafer fabricators. We currently source approximately 45% of our wafer requirements
annually from third-party wafer fabrication foundries, primarily Taiwan Semiconductor Manufacturing Company (TSMC),
typically where deep-submicron lithography capabilities and/or large manufacturing capacity is required.
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We operate an assembly and wafer sort facility in Malaysia, and test facilities in the Philippines and Singapore.
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We also
make extensive use of third-party subcontractors for the assembly and testing of our products.
Capital spending was approximately $204 million in fiscal 2017, compared with approximately $127 million in fiscal
2016 and $154 million in fiscal 2015. We expect capital expenditures for the fiscal year ending November 3, 2018 (fiscal 2018)
to be in the range of $230 million to $270 million.
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Our products require a wide variety of components, raw materials and external foundry services, most of which we
purchase from third-party suppliers. We have multiple sources for many of the components and materials that we purchase and
incorporate into our products. However, a large portion of our external wafer purchases and foundry services are from a limited
number of suppliers, primarily TSMC. If TSMC or any of our other key suppliers are unable or unwilling to manufacture and
deliver sufficient quantities of components to us, on the time schedule and of the quality that we require, we may be forced to
seek to engage additional or replacement suppliers, which could result in significant expenses and disruptions or delays in
manufacturing, product development and shipment of product to our customers. Although we have experienced shortages of
components, materials and external foundry services from time to time, these items have generally been available to us as
needed.
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Backlog
Backlog at the end of fiscal 2017 was approximately $1.2 billion, up from approximately $700 million at the end of fiscal
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2016. 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 suf
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ficient
to fulfill all orders. As is customary in the semiconductor industry, we allow most orders to be canceled 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
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indication of our future revenue.
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We typically do not have long-term sales contracts with our customers. In some of our markets where end-user demand
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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,
ff As a result of lengthy manufacturing cycles for some of our products that are subject
resulting in potential inventory write-offs.
to these uncertainties, the amount of unsaleable product could be substantial.
Government Contracts
Less than 5% of our fiscal 2017 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
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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.
8
On March 10, 2017, we completed the acquisition of Linear. The total consideration paid to acquire Linear was
approximately $15.8 billion, consisting of $11.1 billion in cash financed through existing cash on hand, net proceeds from
bridge and term loan facilities and proceeds received from the issuance of senior unsecured notes, $4.6 billion from the
issuance of our common stock and $0.1 billion of consideration related to the replacement of outstanding equity awards held by
Linear employees.
Additional information relating to our acquisition activities during fiscal 2017, fiscal 2016 and fiscal 2015 is set forth in
Note 6, Acquisitions, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-
K. There were no divestitures during any of the fiscal years presented.
Competition
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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.
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We compete with a number of semiconductor companies in markets that are highly competitive. Our competitors include
but are not limited to:
• Robert Bosch GmbH
• Broadcom Limited
• Infineon Technologies
• Maxim Integrated Products, Inc.
• Microchip Technology, Inc.
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• NXP Semiconductors
• Texas Instruments, Inc.
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We believe that our technical innovation emphasizing product performance and reliability
, supported by our commitment
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to strong customer service and technical support, enables us to make a fundamental difference to our customers’
competitiveness in our chosen markets.
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Environment, Health and Safety
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We are committed to protecting the environment and the health and safety of our employees, customers and the public.
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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.
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Our EHS management systems are certified to ISO 14001 for environmental, and conform to OHSAS 18001 for
occupational health and safety. We are a member of the Electronic Industry Citizenship Coalition (EICC). Our Sustainability
Report, first published in 2009, states our commitment to reducing Greenhouse gas (GHG) emissions, conserving resources by
consuming less energy and water, complying with our code of business conduct and ethics, 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.
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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 October 28, 2017, we employed approximately 15,300 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 engineers involved in the design, development,
9
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.
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10
ITEM 1A. RISK FACT
FF
ORS
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.
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rr
rr
TT
Our acquisition of Linear Technology Corporation (Linear) and the integration of its business, operations and employees with
our own may be more difficult, costly or time consuming than expected, and the anticipated benefits and cost savings of the
acquisition may not be fully realized, which could adversely impact our business operations, financial condition and r
rr
esults of
operations.
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We completed the acquisition of Linear
Acquisition, including the achievement of anticipated benefits and cost savings of the Acquisition, is subject to a number of
uncertainties and will depend, in part, on our ability to successfully combine and integrate Linear's business into our business in
an efficient and ef
. Potential difficulties the combined company may encounter in the integration process include
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fective manner
the following:
, which we refer to as the Acquisition, on March 10, 2017. The success of the
ff
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•
•
•
•
•
•
•
•
•
•
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the inability to successfully integrate Linear's business into our own in a manner that permits the combined company
to achieve the cost savings and operating synergies anticipated to result from the Acquisition, which could result in the
anticipated benefits of the Acquisition not being realized partly or wholly in the time frame currently anticipated or at
all;
lost sales and customers as a result of certain customers of either or both of the two companies deciding not to do
business with the combined company, or deciding to decrease their amount of business in order to reduce their reliance
on a single company;
loss of key management and technical personnel, particularly our experienced engineers;
integrating personnel, IT systems and corporate, finance and administrative infrastructures of the two companies while
maintaining focus on providing consistent, high quality products and services;
coordinating and integrating our internal operations, compensation programs, policies and procedures, and corporate
structures;
potential unknown liabilities and unforeseen or increased costs and expenses;
the possibility of faulty assumptions underlying expectations regarding potential synergies and the integration process;
incurring significant Acquisition-related costs and expenses associated with combining our operations;
performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention
caused by integrating the companies’ operations; and
servicing the substantial debt that we have incurred in connection with the Acquisition.
Any of these factors could result in the combined company failing to realize the anticipated benefits of the Acquisition, on the
expected timeline or at all, and could adversely impact our business operations, financial condition and results of operations.
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Disruptions in global credit and financial markets could materially and adversely affect our business and r
esults of operations.
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Continuing uncertainty regarding the stability of global credit and financial markets may lead consumers and businesses
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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. Significant disruption to
global credit and financial markets may also adversely affect our ability to access external financing sources on acceptable
terms. Financial difficulties experienced by our customers could result in nonpayment or payment delays for previously
purchased products, thereby increasing our credit risk exposure. Uncertainty regarding the future stability of the global credit
and financial markets could cause the value of the currency in the affected markets to deteriorate, thus reducing the purchasing
power of those customers. In addition, financial difficulties experienced by our suppliers or distributors could result in product
delays, increased accounts receivable defaults and inventory challenges. 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.
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Our future rrr
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e difficult to pr
edict and may
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e ar
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esults, net income and earnings per shar
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gins, operating r
r
oss mar
rr
evenue, gr
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materially fluctuate.
Our future revenue, gross margins, operating results, net income and earnings per share are difficult to predict and may be
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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;
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changes in customer demand for our products and/or for end products that incorporate our products;
the timing, delay, reduction or cancellation of significant customer orders and our ability to manage inventory;
yy
11
•
•
•
•
•
•
•
fluctuations in customer order patterns and seasonality;
our ability to effectively manage our cost structure in both the short term and over a longer duration;
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changes in geographic, product or customer mix;
changes in our effective tax rates or new or revised tax legislation in the United States, Ireland or worldwide;
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the timing of new product announcements or introductions by us, our customers or our competitors and the market
acceptance of such products;
pricing decisions and 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
ff
•
•
•
•
•
•
•
•
materials, products and/or components;
a decline in infrastructure spending by foreign governments, including China;
a decline in the U.S. Government defense budget, changes in spending or budgetary priorities, a prolonged U.S.
Government shutdown or delays in contract awards;
any significant decline in our backlog;
our ability to recruit, hire, retain and motivate adequate numbers of engineers and other qualified employees to meet
the demands of our customers;
our ability to generate new design opportunities and win competitive bid selection processes;
the increasing costs of providing employee benefits, including health insurance, retirement plan and pension plan
contributions and retirement benefits;
our ability to utilize our manufacturing facilities at efficient levels;
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potential significant litigation-related costs or product warranty and/or indemnity claims, including those not covered
by our suppliers or insurers;
•
the difficulties inherent in forecasting future operating expense levels, including with respect to costs associated with
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labor, utilities, transportation and raw materials;
•
the costs related to compliance with increasing worldwide government, environmental and social responsibility
regulations;
new accounting pronouncements or changes in existing accounting standards and practices; and
the effects of public health emer
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gencies, natural disasters, widespread travel disruptions, security risks, terrorist
•
•
activities, international conflicts, government sanctions, changes in law, including executive orders, changes in import
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and export regulations 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 and certain of the end markets we serve are also subject to rapid technological changes and material
fluctuations in demand based on end-user preferences. 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 design, develop and produce products in a
timely fashion to accommodate changing customer demand. As a result of these and other factors, we may experience material
fluctuations in future revenue, gross margins, operating results, net income and earnings per share on a quarterly or annual
basis. Our historical financial performance and results of operations should not be relied upon as indicators of future
performance or results. In addition, if our revenue, gross margins, operating results, net income and earnings per share results
or expectations do not meet the expectations of securities analysts or investors, the market price of our common stock may
decline.
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e to additional tax liabilities may adversely impact our r
esults of operations.
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Increases in our effective tax rate and exposur
rr
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Our effective tax rate reflects the applicable tax rate in ef
fect in the various tax jurisdictions around the world where our
income is earned. Our effective tax rate for fiscal 2017 was below the U.S. federal statutory tax rate of 35%, primarily due to
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12
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A
lower statutory tax rates applicable to our operations in the foreign jurisdictions in which we earn income. A number of factors
may increase our future effective tax rate, including: new or revised tax laws or legislation or the interpretation of such laws or
legislation by governmental authorities; increases in tax rates in various jurisdictions; variation in the mix of jurisdictions in
which our profits are earned and taxed; repatriation of non-U.S. earnings; 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. In addition, we have a partial tax holiday through July
2025 in Malaysia and a partial tax holiday in Singapore through August 2019. The ability to extend such tax holidays beyond
their date of expiration cannot be assured; if we fail to meet certain conditions to the tax holidays, we may lose the benefit of
the tax holdings and/or be subject to additional taxes and/or penalties. Any significant increase in our future effective tax rate
could adversely impact our net income during future periods.
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On October 5, 2015, the Organization for Economic Cooperation and Development (OECD), an international association
of thirty-five countries, including the United States, Ireland and UK, released the final reports from its Base Erosion and Profit
Shifting (BEPS) Action Plans. The BEPS recommendations covered a number of issues, including country-by-country
reporting, permanent establishment rules, transfer pricing rules and tax treaties. Future tax reform resulting from such
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recommendations may result in changes to long-standing tax principles, which could adversely affect our ef
fective tax rate or
result in higher cash tax liabilities.
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Long-term contracts are not typical for us, and incorr
rr
eductions, cancellations or delays in or
ders for our
rr
ecasts or r
rr
ect for
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rr
rr
products could adversely affect our operating r
esults.
rr
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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, which may fluctuate
significantly on a quarterly or annual basis. Additionally, our U.S. government contracts and subcontracts may be funded in
increments over a number of government budget periods and typically can be terminated by the government for its
convenience. As a result, we may incur inventory and manufacturing costs in advance of anticipated sales, and we are subject
to the risk of lower than expected orders or cancellations of orders, leading to a sharp reduction of sales and backlog. Further,
orders or forecasts for products that meet the customer’s unique requirements and that are canceled or unrealized orders would,
in addition, result in an inventory of unsaleable products, causing potential inventory write-offs, and we may be unable to
recover all of our costs incurred or committed. 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.
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Our future success depends upon our ability to execute our business strategy
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, continue to innovate, impr
ove our existing
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oduce and market new pr
oducts, and identify and enter new markets.
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products, design, develop, pr
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Our future success significantly depends on our continued ability to execute our business strategy, continue to improve
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. Any inability to satisfy customer quality and reliability standards or
our existing products and design, develop, produce and market innovative new products. Product design, 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
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 ability to generate new design opportunities and win competitive bid
selection processes. Failure to obtain or maintain a particular design win may prevent us from obtaining or maintaining design
wins in subsequent generations of a particular product and could also weaken our position in future competitive selection
processes. Our growth is also dependent on our ability to identify and penetrate new markets where we have limited
experience and competition is intense. Some of our customers in new markets are less established, which could subject us to
increased credit risk. There can be no assurance that the markets we serve and/or target based on our business strategy will
grow in the future, that our existing and new products will meet the requirements of these markets, that our products, or the
products in which our products are used, 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. Additionally, developing markets, such as the Internet of
Things (IoT) and autonomous driving, require significant
investments, resources and technological advancements in order to compete effectively and there can be no assurance that we
13
yy
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will achieve success 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.
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We may not be able to compete successfully in markets within the semiconductor industry in the futur
e.rr
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We face intense competition in the semiconductor industry
, and we expect this competition to increase in the future,
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including from companies located outside of the United States. Competition is generally based on innovation, design, quality
and reliability of products, product performance, features and functionality, product pricing, availability and capacity
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technological service and support, and the availability of integrated system solutions, with the relative importance of these
factors varying among products, markets and customers. 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 and entities outside of the U.S.,
including entities associated with efforts by foreign governments to create indigenous semiconductor industries. Existing or
new competitors may develop products or technologies that more effectively address the demands of our customers and
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markets with enhanced performance, features and functionality, lower power requirements, greater levels of integration or
lower cost. In addition, as we seek to expand our business, including the design and production of products and services for the
IoT market, we may encounter increased competition from our current competitors and/or new competitors. Increased
competition in certain markets has resulted in and may continue to result in declining average selling prices, reduced gross
margins and loss of market share in those markets. There can be no assurance that we will be able to compete successfully in
the future against existing or new competitors, or that our operating results will not be adversely affected by increased
competition. In addition, the semiconductor industry has experienced significant consolidation over the past several years.
Consolidation among our competitors could lead to a changing competitive landscape, which could negatively impact our
competitive position and market share and harm our results of operations.
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We rWW ely on thir
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ers for some industry-standar
d wafers, manufacturing
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d-party suppliers, subcontractors and manufactur
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processes, assembly and test services, and transportation, and we generally cannot contr
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ol their availability or conditions of
supply.yy
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, and plan to continue to rely
, on third-party suppliers, assembly and test subcontractors, freight carriers and wafer
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fabricators (collectively, suppliers) to supply most of our products that can be manufactured using industry-standard processes.
This reliance involves several risks, including reduced control over availability, capacity utilization, delivery schedules,
manufacturing yields, and costs. We currently source approximately 45% of our wafer requirements annually from third-party
wafer fabrication foundries, primarily Taiwan Semiconductor Manufacturing Company
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 additional or 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.
. In addition, these suppliers often
TT
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A prolonged
condition and results
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of operations.
disruption of our internal manufacturing operations could have a material adverse effect on our business, financial
In addition to leveraging an outsourcing model for manufacturing operations, we also rely on our internal manufacturing
operations located in the United States, Ireland, the Philippines, Singapore and Malaysia. A prolonged disruption at, or inability
to utilize, one or more of our manufacturing facilities, loss of raw materials or damage to our manufacturing equipment for any
reason, including due to natural or man-made disasters or other events outside of our control, such as widespread outbreaks of
illness or the failure to maintain our labor force at one or more of these facilities, may disrupt our operations, delay production,
shipments and revenue and result in us being unable to timely satisfy customer demand. As a result, we could forgo revenue
opportunities, potentially lose market share and damage our customer relationships, all of which could materially and adversely
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affect our business, financial condition and results of operations.
A
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If we are unable to generate sufficient cash flow
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payments on our outstanding term loans and senior unsecured notes.
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, we may not be able to service our debt obligations, including making
Our ability to make payments of principal and interest on our indebtedness when due, including the significant
indebtedness that we have incurred in connection with the Acquisition, depends upon our future performance, which will be
subject to general economic conditions, industry cycles and financial, business and other factors affecting our consolidated
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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:
ff
•
seek additional financing in the debt or equity markets;
14
•
refinance or restructure all or a portion of our indebtedness;
• borrow under our revolving credit facility;
• divert funds that would otherwise be invested in our operations;
•
•
•
repatriate earnings at higher tax rates that are indefinitely reinvested in foreign locations;
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, which could negatively impact our financial
results. In addition, we may not be able to obtain any such financing, refinancing or complete a sale of assets on economically
favorable terms. In the case of financing or refinancing, favorable interest rates will be dependent on the health of the debt
capital markets.
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Our significant existing indebtedness could also have the effect, among other things, of reducing our flexibility to
respond to changing business and economic conditions, reducing funds available for working capital, capital expenditures,
acquisitions and other general corporate purposes or creating competitive disadvantages relative to other companies with lower
debt levels.
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oduction may lead to over
capacity and lower prices, and
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eased pr
rr
e cyclical, and incr
rr
The markets for semiconductor products ar
rr
conversely, we may not be able to satisfy unexpected demand for our pr
oducts.
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The cyclical nature of the semiconductor industry has resulted in periods when demand for our products has increased or
decreased rapidly. The demand for our products is subject to the strength of our four major end markets of Industrial,
Communications, Automotive and Consumer. 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 mar
ff
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, locate
suitable third-party suppliers, or respond effectively to changes in demand for our existing products or to demand for new
products requested by our customers, and our current or future business could be materially and adversely affected.
gins, underutilization of capacity or asset impairment charges.
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Our semiconductor products ar
rr
oduct warranty and indemnity claims, which could r
esult
rr
e complex and we may be subject to pr
rr
in significant costs and damage to our reputation and adversely affect customer r
rr
elationships, the market acceptance of our
rr
products and our operating r
esults.
rr
rr
rr
Semiconductor products are highly complex and may contain defects when they are first introduced or as new versions
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are developed. Failures in our products and services or in the products of customers could result in damage to our reputation for
reliability and increase our legal or financial exposure to third parties. Certain of our products and services could also contain
security vulnerabilities, defects, bugs and errors, which could also result in significant data losses, security breaches and theft
of intellectual property. We generally warrant our products to our customers for one year from the date title passes from us.
WeWW
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 and expenses associated
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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 be sued in the future, 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 contain defects, or have reliability, quality or compatibility problems, our reputation may be
damaged, which could make it more difficult for us to sell our products to customers and could also adversely af
ff
fect our
operating results.
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The fabrication of integrated circuits is highly complex and precise, and our manufacturing processes utilize a substantial
amount of technology. 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.
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15
This instability could result in manufacturing delays and product shortages, which could have a material adverse effect on our
operating results.
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We arWW e occasionally involved in litigation, including claims r
rr
ding intellectual pr
operty rights, which could be costly to
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egar
rr
rr
oducts or pay significant r
oyalties.
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edesign pr
rr
e us to r
rr
litigate and could requir
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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
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affected. Litigation may be necessary to enforce our patents or other of our intellectual property rights or to defend us against
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claims of infringement, and this litigation could be costly and divert the attention of our key personnel. We could also be
subject to litigation or arbitration disputes arising under our contractual obligations, as well as 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, and we may elect to self-insure
with respect to certain matters. An adverse outcome in litigation or arbitration could have a material adverse effect on our
financial position or on our operating results or cash flows in the period in which the dispute is resolved.
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We may be unable to adequately pr
rr
oprietary intellectual pr
operty rights, which may limit our ability to compete
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otect our pr
rr
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effectively.yy
Our future success depends, in part, on our ability to protect our intellectual property. We primarily rely on patent, mask
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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
yy
, it is possible that competitors or
other unauthorized third parties may obtain, copy, reverse engineer
, 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
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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 patents are granted, enforcement may not be
available or achieved under the circumstances. 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.
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We generally enter into confidentiality agreements with our employees, consultants and strategic partners.
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.
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We also try to
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A significant disruption in, or breach in security of, our information technology systems could materially and adversely affect
our business or reputation.
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We rely on information technology systems throughout our company to keep financial records and customer data, process
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orders, manage inventory, coordinate shipments to customers, maintain confidential and proprietary information, assist in
semiconductor engineering and other technical activities and operate other critical functions such as Internet connectivity, yy
network communications and email. 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 also utilize external cloud providers for certain infrastructure activities. If we were to experience a prolonged
disruption in the information technology systems that involve our internal communications or 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. 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 or our employees or contractors. Our security measures or those of our third party service
providers may not detect or prevent security breaches, defects, bugs or errors. In addition, we provide our confidential and
proprietary information to our strategic partners in certain cases where doing so is necessary to conduct our business. While we
employ confidentiality agreements to protect such information, nonetheless those third parties may also be subject to security
breaches or otherwise compromise the protection of such information. Security breaches of our information technology
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16
systems or those of our partners could result in the misappropriation or unauthorized disclosure of confidential and proprietary
information belonging to us or to our employees, partners, customers or suppliers, which could result in our suffering
significant financial or reputational damage.
ff
rr
ecruit or r
etain our key personnel, our ability to execute our business strategy will be adversely affected.
rr
If we are unable to r
rr
Our continued success depends to a significant extent upon the recruitment, retention and effective succession of our
ff
ff
executive officers and key management and technical personnel, particularly our experienced engineers.
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. The inability to attract and retain key employees with critical technical skills to achieve our strategy could
also have a material adverse effect on our business. In addition, there could be a material adverse ef
ff
fect on our business should
the turnover rates for engineers and other key personnel increase significantly or if we are unable to continue to attract and
ff
retain qualified personnel. We do not maintain any key person life insurance policy on any of our of
ficers or employees.
The competition for
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ff
ff
rr
chase or license technology fr
e other companies, pur
rr
To rTT emain competitive, we may need to invest in or acquir
rr
om thir
d parties,
rr
rr
rr
oducts or enhance our existing pr
oducts.
rr
rr
or enter into other strategic transactions in order to intr
oduce new pr
rr
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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, diversify our product portfolio, expand our market
coverage, increase our engineering workforce, expand our technical skill sets or enhance our technological capabilities. WeWW
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 invest in, purchase or license the technology or resources on commercially favorable terms or at all. Acquisitions,
investments 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. In addition, investments in private companies are subject to a risk of a partial or total loss of our
investment. Both in the U.S. and abroad, governmental regulation of acquisitions, including antitrust reviews and approvals,
has become more complex, increasing the costs and risks of undertaking and consummating 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 obtain 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.
WW
ff
ff
ff
Acquisitions also involve a number of challenges and risks, including:
•
•
•
•
•
•
•
•
•
difficulty or delay integrating acquired technologies, operations and personnel with our existing businesses;
ff
diversion of management's attention in connection with both negotiating the transaction and integrating the assets;
strain on managerial and operational resources as management tries to oversee larger or more complex operations;
the future funding requirements for acquired companies, which may be significant;
potential loss of key employees;
exposure to unforeseen liabilities or regulatory compliance issues of acquired companies;
higher than expected or unexpected costs relating to or associated with an acquisition and integration of assets;
difficulty realizing syner
ff
gies and growth prospects of an acquisition in a timely manner or at all; and
increased risk of costly and time-consuming legal proceedings.
If we are unable to successfully address these risks, we may not realize some or all of the expected benefits of the
yy
acquisition, which may have an adverse effect on our business strategy
, plans and operating results.
ff
We rWW ely on supplies, services and manufacturing capacity located in geologically unstable ar
rr
eas, which could affect our ability
rr
to produce pr
oducts.
rr
rr
,yy
, rely on supplies, services, internal manufacturing capacity
yy
We, like many companies in the semiconductor industry
WW
yy
wafer fabrication foundries and other subcontractors in geologically unstable locations around the world. Earthquakes,
tsunamis, flooding or other natural disasters may disrupt local semiconductor-related businesses and adversely affect
manufacturing capacity, availability and cost of key raw materials, utilities and equipment, and availability of key services,
including transport of our products worldwide. Our insurance may not adequately cover losses resulting from such disruptions.
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
ff
temporary or permanent loss of customers for affected products, which could have a material adverse ef
fect on our results of
operations and financial condition.
ff
ff
17
rr
We arWW e exposed to business, economic, political, legal, r
rr
egulatory and other risks thr
ough our significant worldwide
rr
operations, which could adversely affect our business, financial condition and results of operations.
rr
WW
We have significant operations and manufacturing facilities outside the United States, including in Ireland, the
Philippines, Singapore and Malaysia. A significant portion of our revenue is derived from customers in international markets,
and we expect that international sales will continue to account for a significant portion of our revenue in the future. Risks
associated with our international business operations include the following:
A
• political, legal and economic changes or instability and civil unrest in foreign markets;
• currency conversion risks and exchange rate and interest rate fluctuations;
• limitations on the repatriation of earnings;
• trade and travel restrictions or government sanctions, including import or export tariffs or restrictions imposed by the
ff
U.S. government on trading with parties in foreign countries;
• complex, varying and changing government regulations and legal standards and requirements, particularly with respect
to price protection, competition practices, export control regulations and restrictions, customs and tax requirements,
yy
immigration, anti-boycott regulations, data privacy, intellectual property
, anti-corruption and environmental
yy
compliance, including U.S. customs and export regulations and restrictions, International TrafTT fic in
ff
Arms Regulations
and the Foreign Corrupt Practices Act;
• economic disruption from terrorism and threats of terrorism and the response to them by the U.S. and its allies;
• increased managerial complexities, including different employment practices and labor issues;
ff
• greater difficulty enforcing intellectual property rights and weaker laws protecting such rights;
ff
• natural disasters or pandemics;
• transportation disruptions and delays and increases in labor and transportation costs;
• changes to foreign taxes, tariffs and freight rates;
ff
• fluctuations in raw material costs and energy costs;
• greater difficulty in accounts receivable collections and longer collection periods; and
ff
• costs associated with our foreign defined benefit pension plans.
Any of these risks, or any other risks related to international business operations, could materially adversely affect our
ff
business, financial condition and results of operations.
Many of these risks are present in China. While 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 policies, laws and regulations,
including those relating to taxation, import and export tariffs or restrictions, currency controls, antitrust, cybersecurity and data
protection, the environment, indigenous innovation and the promotion of a domestic semiconductor industry, and intellectual
property rights and enforcement and protection of those rights. Enforcement of existing laws or agreements may be
inconsistent. In addition, changes in the political environment, governmental policies, international trade policies and relations,
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, and restrictions on imports, import duties or currency revaluations, which
could have an adverse effect on our business plans and operating results.
yy
yy
ff
ff
ff
At October 28, 2017, our principal source of liquidity was $1.0 billion of cash and cash equivalents and short-term
investments, of which approximately $379.2 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 substantially all of our foreign earnings indefinitely, yy
this cash held outside the United States is not available to meet certain aspects of our cash requirements in the United States.
We require a substantial amount of cash in the United States for operating requirements, stock repurchases, cash dividends and
WW
acquisitions. If we are unable to address our U.S. cash requirements through operations, borrowings under our current
revolving credit facility, future debt or equity of
ff
ferings or other sources of cash obtained at an acceptable cost, it may be
yy
necessary for us to consider repatriation of earnings that are indefinitely reinvested, and we may be required to pay additional
taxes under current tax laws, which could have a material adverse effect on our results of operations and financial condition.
ff
rr
Our operating results ar
e dependent on the performance of independent distributors.
rr
These independent
A
A significant portion of our sales are through independent distributors that are not under our control.
ff
distributors generally represent product lines offered by several companies and thus could reduce their sales ef
forts applied to
ff
18
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.
ff
or a group of distributors, 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.
risks.
WW
We have also recently reduced the number of distributors we use, which may exacerbate the foregoing
TT
Termination of a significant distributor
WW
yy
ff
rr
We arWW e subject to envir
rr
egulations, which could incr
ease our expenses and affect our
rr
onmental, health and safety (EHS) r
rr
rr
operating results.
Our industry is subject to EHS requirements, particularly those environmental requirements that control and restrict the
sourcing, use, transportation, emission, discharge, storage and disposal of certain chemicals, 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 EHS laws or regulations may require us to invest in costly equipment or make manufacturing process changes
and may adversely affect the sourcing, supply and pricing of materials used in our products. 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 existing or future EHS statutory or regulatory
standards, requirements or contractual obligations could result in any of the following, each of which could have a material
adverse effect on our business and operating results:
ff
ff
• liability for damages and remediation;
• the imposition of regulatory penalties and civil and criminal fines;
• the suspension or termination of the development, manufacture, sale or use of certain of our products;
• changes to our manufacturing processes or a need to substitute materials that may cost more or be less available;
• damage to our reputation; and/or
• increased expenses associated with compliance.
If we fail to comply with government contracting regulations, we could suffer a loss of r
rr
evenue or incur price adjustments or
other penalties.
rr
Some of our revenue is derived from contracts with agencies of the United States government and subcontracts with its
prime contractors. As a United States government contractor or subcontractor, we are subject to federal contracting regulations,
including the Federal Acquisition Regulations, which govern the allowability of costs incurred by us in the performance of
United States government contracts. Certain contract pricing is based on estimated direct and indirect costs, which are subject
to change. Additionally, the United States government is entitled after final payment on certain negotiated contracts to examine
all of our cost records with respect to such contracts and to seek a downward adjustment to the price of the contract if it
determines that we failed to furnish complete, accurate and current cost or pricing data in connection with the negotiation of the
price of the contract.
yy
In connection with our United States government business, we are also subject to government audits and to review and
approval of our policies, procedures, and internal controls for compliance with procurement regulations and applicable laws. In
certain circumstances, if we do not comply with the terms of a contract or with regulations or statutes, we could be subject to
downward contract price adjustments or refund obligations or could in extreme circumstances be assessed civil and criminal
penalties or be debarred or suspended from obtaining future contracts for a specified period of time. Any such suspension or
debarment or other sanction could have an adverse effect on our business.
ff
Under some of our government subcontracts, we are required to maintain secure facilities and to obtain security
clearances for personnel involved in performance of the contract, in compliance with applicable federal standards. If we were
unable to comply with these requirements, or if personnel critical to our performance of these contracts were unable to obtain
or maintain their security clearances, we might be unable to perform these contracts or compete for other projects of this nature,
which could adversely affect our revenue.
ff
yy
edit facility
, term loans and outstanding debt instruments may limit our activities.
rr
Restrictions in our revolving cr
rr
Our current revolving credit facility, term loans and outstanding debt instruments impose, and future debt instruments to
yy
yy
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 and changes in technology, government regulations and the level of competition. In
yy
19
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, the indentures governing our outstanding senior unsecured notes, the term loans
or any future debt instruments to which we may become subject and do not obtain appropriate waivers, then, subject to
applicable cure periods, our outstanding indebtedness thereunder could be declared immediately due and payable or we may be
restricted from further borrowing under our revolving credit facility.
yy
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 factors including:
ff
• global economic conditions generally;
•
•
•
•
crises in global credit, debt and financial markets;
actual or anticipated fluctuations in our revenue and operating results;
changes in financial estimates or other statements made by securities analysts or others in analyst reports or other
publications or our failure to perform in line with those estimates or statements or our published guidance;
financial results and prospects of our customers;
• U.S. and foreign government actions;
•
•
•
changes in market valuations of other semiconductor companies;
rumors and speculation in the press, investment community or on social media about us, our customers or other
companies in our industry;
announcements by us, our customers or our competitors of significant new products, technical innovations, material
transactions, acquisitions or dispositions, litigation, capital commitments or revised earnings estimates;
• departures of key personnel;
•
alleged noncompliance with laws, regulations or ethics standards by us or any of our employees, officers or
ff
directors; and
• negative media publicity targeting us or our suppliers, customers or competitors.
yy
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.
yy
Our directors and executive officers periodically sell shares of our common stock in the market, including pursuant to
Rule 10b5-1 trading plans. Regardless of the individual's reasons for such sales, securities analysts and investors could view
such sales as a negative indicator and our stock price could be adversely affected as a result.
ff
ff
ITEM 1B. UNRESOLVED ST
LL
F
AFFTT
COMMENTS
None.
20
ITEM 2.
PROPERTIES
RR
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:
ff
Principal Properties
Owned:
Use
Cavite, Philippines
Wafer probe and testing, warehouse, engineering and administrative offices
ff
Approximate
Total Sq. Ft.
TT
873,000 sq. ft.
Wilmington, MA
Wafer fabrication, testing, engineering, marketing and administrative offices
ff
594,000 sq. ft.
Limerick, Ireland
Milpitas, CA
Singapore (a)
Malaysia (b)
Chelmsford, MA
Camas, WAWW
Greensboro, NC
San Jose, CA
Wafer fabrication, wafer probe and testing, engineering and administrative offices
Wafer fabrication, test and assembly; warehouse and distribution; engineering, sales,
marketing and administrative offices
Wafer test and packaging, warehouse and distribution, engineering, sales and
administrative offices
Assembly and engineering offices, employee parking
ff
ff
ff
ff
Final assembly of certain module and subsystem-level products, testing, engineering
and administrative offices
Wafer fabrication
ff
Product testing, engineering and administrative offices
Engineering, administrative offices
ff
ff
491,000 sq. ft.
430,000 sq. ft.
360,000 sq. ft.
350,000 sq. ft.
174,000 sq. ft.
105,000 sq. ft.
99,000 sq. ft.
77,000 sq. ft.
(a) Leases on the land used for this facility expire in 2021 through 2022 with an option to extend the lease for an
additional 30 years
(b) Leases on the land used for this facility expire in 2054 through 2057
Principal
Properties
Leased:
Norwood, MA
Bangalore, India
Use
Corporate headquarters, engineering, sales and
marketing offices
ff
Engineering
Approximate
Total Sq. Ft.
Lease
Termination
(fiscal year)
130,000 sq. ft.
2022
75,000 sq. ft.
2018
Greensboro, NC
Engineering and administrative offices
ff
51,000 sq. ft.
2018
Shanghai, China
Engineering and sales offices
ff
59,000 sq. ft.
2018
Beijing, China
Engineering and sales offices
ff
58,000 sq. ft.
2021
Renewals
2, five-yr.
periods
1, five-yr.
period
2, three-yr.
periods
2, two-yr.
periods
1, three-yr.
period
In addition to the principal properties listed in the above table, we also own or lease a number of other facilities in various
locations in the United States and internationally that are used for manufacturing, engineering, sales and marketing and
administration activities. Leases for these leased facilities expire at various dates through the year 2030. We do not anticipate
experiencing significant difficulty in retaining occupancy of any of our manufacturing, of
ff
fice 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, Lease Commitments, of the Notes to
Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.
WW
yy
ff
L
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.
give no assurance that we will prevail. We do not believe that any current legal matters will have a material adverse ef
ff
fect on
our financial position, results of operations or cash flows.
As to such claims and litigation, we can
WW
yy
yy
21
ITEM 4. MINE SAFETY DISCLOSURES
Y
Not Applicable.
22
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth (i) the name, age and position of each of our executive officers as of
ff
November 22, 2017
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.
ff
Executive Officer
Vincent Roche
Age
Position(s)
57 President and Chief Executive
Officer
ff
Prashanth Mahendra-Rajah
47 Senior Vice President, Finance
and Chief Financial Officer
ff
Martin Cotter
52 Senior Vice President,
Worldwide Sales and Digital
Marketing
Joseph (John) Hassett
59 Senior Vice President, Global
Operations and Technology
Gregory Henderson
49 Senior Vice President,
Automotive, Communications
and Aerospace and Defense
YY
Yusuf Jamal
40 Senior Vice President, Industrial,
Healthcare, Consumer, and IoT
Solutions and Security
23
Business Experience
ff
WW
President and 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;
and Product Marketing Manager from 1988 to
1995.
VV
ff
ff
Senior Vice President, Finance and Chief Financial
Officer since September 2017; Chief Financial
WW
WABCO Holdings Inc., a supplier of
Officer of
commercial vehicle technologies, from June 2014
to September 2017; Corporate Vice President and
Segment CFO of the Silicon Systems Group of
Applied Materials Inc., a provider of manufacturing
equipment, services and software to the global
semiconductor industry, from April 2012 to June
2014.
Senior Vice President, Worldwide Sales and Digital
WW
Marketing since September 2016; Vice President
Internet of Things (IoT), Healthcare, and Consumer
Business Units, from November 2015 to September
2016; Vice President, Healthcare and Consumer
Business Groups from November 2014 to
November 2015; and VP, Communications
Infrastructure Business Unit from October 2012 to
November 2014.
Senior Vice President, Global Operations and
Technology since May 2015; Vice President
Assembly and Test Worldwide Manufacturing from
WW
1994 to May 2015; and Director Assembly
Operations Worldwide Manufacturing from 1990 to
1994.
WW
Senior Vice President, Automotive,
Communications and Aerospace and Defense since
June 2017; Vice President, RF and Microwave
Business Unit from July 2014 to June 2017; Vice
President of the RF and Microwave Business Unit
of Hittite Microwave Corporation, a maker of chips
and related components, from October 2013 to July
2014; and Director Product Management of Harris
Corporation, a defense contractor and technology
provider of communications, electronic, and space
and intelligence systems, from 2011 to October
2013.
Senior Vice President, Industrial, Healthcare,
Consumer, and IoT Solutions and Security since
June 2017; Vice President, Healthcare and
Consumer Business Unit from September 2016 to
June 2017; General Manager, Consumer Business
Unit from September 2014 to September 2016;
Product Marketing Director, User eXperience
Technologies from October 2012 to September
TT
2014; and Business Director Portable Segment from
May 2008 to October 2012.
VV
VV
Business Experience
ff
Senior Vice President, Human Resources since
January 2016; Senior Vice President and Chief
People Officer for Kixeye, a developer of online
strategy and combat games, from December 2014
to December 2015; and Vice President of Human
Resources, Data Protection and Availability
Division at EMC Corporation, a provider of data
storage and data management hardware and
software, from January 2011 to November 2014.
AA
Senior Vice President, Power Products since June
2017; Vice President and General Manager of S
Power Products from March 2017 to June 2017;
Vice President and General Manager of S Power
Products at Linear Technology Corporation, a
manufacturer of high performance linear integrated
circuits, from July 2007 to March 2017; General
Manager, S Power Products at Linear Technology
Corporation from April 2005 to July 2007; and
Design Manager at Linear Technology Corporation
from April 1995 to April 2005.
Senior Vice President and Chief Technology Officer
since November 2014; Vice President, High Speed
Product and Technology Group from November
2012 to November 2014; Vice President, Linear and
Radio Frequency Group from August 2009 to
November 2012; Vice President, Radio Frequency
and Networking Group from January 2008 to
August 2009; Product Line Director from 1999 to
2007; and Engineering Manager from 1992 to 1999.
ff
ff
A
, Secretary and Senior Vice
Chief Legal Officer
President of Communications and Brand since
January 2016; Senior Vice President, General
Counsel and Secretary from November 2014 to
January 2016; Vice President, General Counsel and
Secretary from January 2006 to November 2014;
Senior Vice President, General Counsel and
Secretary of RSA Security Inc., a provider of
computer and network security, from January 2000
to November 2005; and Vice President, General
Counsel and Secretary of RSA Security Inc. from
June 1998 to January 2000.
Vice President and Chief
VV
April 2015; Interim Chief Financial Officer from
March 2017 to September 2017; Vice President,
Corporate Controller and Chief Accounting Officer
from May 2013 to April 2015; Corporate Controller
from April 2011 to May 2013; and Assistant
Corporate Controller from February 2004 to April
2011.
Accounting Officer since
ff
VV
A
ff
ff
Executive Officer
Jean Philibert
Age
Position(s)
56 Senior Vice President, Human
Resources
Steve Pietkiewicz
58 Senior Vice President, Power
Products
Peter Real
57 Senior Vice President and Chief
ff
Technology Officer
Margaret K. Seif
56 Chief Legal Officer
ff
and Senior Vice President of
Communications and Brand
, Secretary
Eileen WynneWW
51 Vice President and Chief
Accounting Officer
ff
24
PARPP
TRR II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELA
AA
Y
ISSUER PURCHASES OF EQUITY
SECURITIES
YY
F
TED ST
OCKHOLDER MATTERS
AA
AND
Our common stock is listed on The Nasdaq Global Select Market under the symbol ADI. 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 2017
Fiscal 2016
High
Low
High
Low
$76.94
$84.24
$90.49
$91.38
$62.50
$74.60
$74.65
$76.41
$62.40
$59.87
$66.91
$65.49
$47.24
$48.17
$52.17
$59.01
Dividends Declared Per Outstanding Shar
r
e of Common Stock
In fiscal 2017 and fiscal 2016, we paid a cash dividend in each quarter as follows:
Period
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2017
Fiscal 2016
$0.42
$0.45
$0.45
$0.45
$0.40
$0.42
$0.42
$0.42
During the first quarter of fiscal 2018, on November 20, 2017, our Board of Directors declared a cash dividend of $0.45
per outstanding share of common stock. The dividend will be paid on December 12, 2017 to all shareholders of record at the
close of business on December 1, 2017. The payment of future dividends, if any, will be based on several factors including our
financial performance, outlook and liquidity.
yy
Information regarding our equity compensation plans and the securities authorized for issuance thereunder is set forth in
Item 12 of this Annual Report on Form 10-K.
r
Issuer Pur
chases of Equity Securities
On March 10, 2017, we completed the acquisition of Linear Technology Corporation, an independent manufacturer of
high performance analog integrated circuits, which we refer to as the Acquisition. In connection with the Acquisition, we have
temporarily suspended our share repurchase program. The table below summarizes the activity related to stock repurchases for
the three months ended October 28, 2017.
TT
Period
July 30, 2017 through August 26, 2017
August 27, 2017 through September 23, 2017
September 24, 2017 through October 28, 2017
TotalTT
_______________________________________
Total Number
TT
of
Shares
Purchased(a)
Average
AA
Price Paid
Per Shar
r
e(b)
r
Total Number
of Shar
TT
Purchased as Part of
Publicly Announced
ograms(c)
Plans or Prr
es
Approximate Dollar
es that
Value of Shar
VV
May Yet Be Pur
chased
Under the Plans or
r
Programs
YY
22,342
10,538
89,295
122,175
$
$
$
$
79.51
84.92
88.77
86.75
— $
— $
— $
— $
792,501,619
792,501,619
792,501,619
792,501,619
(a)
(b)
Consists of 122,175 shares withheld by us from employees to satisfy employee minimum tax obligations upon vesting of
restricted stock units/awards granted to our employees under our equity compensation plans.
The average price paid for shares in connection with vesting of restricted stock units/awards are averages of the closing
stock price at the vesting date which is used to calculate the number of shares to be withheld.
25
(c)
Shares repurchased pursuant to the stock repurchase program publicly announced on August 12, 2004. On February 15,
2016, the Board of Directors of the Company approved an increase to the current authorization for the stock repurchase
program by $600.0 million to $1.0 billion in the aggregate. In the aggregate, our Board of Directors has authorized us to
repurchase $6.2 billion of our common stock under the program. Under the repurchase program, we may repurchase
outstanding shares of our common stock from time to time in the open market and through privately negotiated
transactions. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will expire when
we have repurchased all shares authorized for repurchase under the repurchase program.
The number of holders of record of our common stock at November 17, 2017 was 2,261. This number does not include
shareholders for whom shares are held in a “nominee” or “street” name. On October 27, 2017, the last reported sales price of
our common stock on The Nasdaq Global Select Market was $91.21 per share.
Comparative Stock Performance Graph
The following graph compares cumulative total shareholder return on our common stock since November 3, 2012 with
the cumulative total return of the Standard & Poor’s (S&P) 500 Index and the S&P Semiconductors Index.
the investment of $100 on November 3, 2012 in our common stock, the S&P 500 Index and the S&P
P
assumes all dividends are reinvested. Measurement points are the last trading day for each respective fiscal year.
This graph assumes
Semiconductors Index and
P
P
26
ITEM 6. SELECTED FINANCIAL DAL
TAA ATT
The following table includes selected financial data for each of our last five fiscal years and includes the results of
operations from the acquisition of Linear from March 10, 2017 and the acquisition of Hittite Microwave Corporation from July
22, 2014. See Note 6, Acquisitions, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual
Report on Form 10-K for information on the Linear acquisition.
(thousands, except per shar
r
e amounts)
2017
2016
2015
2014
2013
Statement of Operations data:
Total revenue from continuing operations
Net income
$ 5,107,503
727,259
$ 3,421,409
861,664
$ 3,435,092
696,878
$ 2,864,773
629,320
$ 2,633,689
673,487
Net income per common share
Basic
Diluted
Cash dividends declared per common share
Balance Sheet data:
Total assets (1)
Debt (1)
2.09
2.07
1.77
2.79
2.76
1.66
2.23
2.20
1.57
2.01
1.98
1.45
2.19
2.14
1.32
$ 21,141,294
$ 7,851,084
$ 7,970,278
$ 1,732,177
$ 7,058,777
869,935
$
$ 6,855,331
868,430
$
$ 6,376,433
866,924
$
_________________
(1) Amounts have been restated as a result of the Company's election to change its method of accounting for debt issuance costs
rr
est Simplifying the Pr
esentation
rr
in accordance with Accounting Standards Update (ASU) 2015-03, Interest - Imputation of Inter
of Debt Issuance Costs, during the first quarter of fiscal 2016 retrospectively for all prior periods. As a result of the adoption of
this ASU, the debt issuance costs related to the Company's outstanding notes have been reclassified as a deduction to the face
amount of the notes and are no longer shown as deferred assets within Other Assets on the Consolidated Balance Sheet.
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27
F
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
LL
CONDITION
AND RESULTS OF
LL
r
amounts in thousands except per
r
OPERATIONS (all tabular
AA
FINANCIAL
L
shar
e amounts)
Results of Operations
Overview
Revenue
Gross Margin %
Net income
Net income as a % of Revenue
Fiscal YearYY
2017 over 2016
2016 over 2015
2017
2016
2015
$ Change
$5,107,503
$3,421,409
$3,435,092
$1,686,094
%
Changeg
$ Change
49 % $ (13,683)
%
Changeg
— %
59.9%
65.1%
65.8%
$ 727,259
$ 861,664
$ 696,878
$ (134,405)
(16)% $ 164,786
24 %
14.2%
25.2%
20.3%
Diluted EPS
$
2.07
$
2.76
$
2.20
$
(0.69)
(25)% $
0.56
25 %
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Acquisition of Linear Technology Corporation
On March 10, 2017 (Acquisition Date), we completed the acquisition of Linear Technology
Corporation (Linear), a designer,
manufacturer and marketer of high performance analog integrated circuits. The total consideration paid to acquire Linear was
approximately $15.8 billion, consisting of $11.1 billion in cash financed through existing cash on hand, net proceeds from bridge
and term loan facilities and proceeds received from the issuance of senior unsecured notes, $4.6 billion from the issuance of our
common stock and $0.1 billion of consideration related to the replacement of outstanding equity awards held by Linear employees.
The acquisition of Linear is referred to as the Acquisition. The consolidated financial statements included in this Annual Report
on Form 10-K include the financial results of Linear prospectively from the Acquisition Date. See Note 6, Acquisitions and Note
16, Debt, of the Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further
information.
TT
Revenue TrTT ends by End Market
rr
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
TT
Total Revenue
2017
% of
TotalTT
Product
Revenue
46%
15%
21%
18%
100%
2016
2015
% of
TotalTT
Product
Revenue
Revenue
Y/Y%
Revenue
58% $ 1,497,070
44% $ 1,495,887
45%
52%
541,774
687,697
32%
694,868
49% $ 3,421,409
16%
20%
526,493
727,585
20%
685,127
100% $ 3,435,092
% of
TotalTT
Product
Revenue
44%
15%
21%
20%
100%
Revenue
$ 2,361,549
782,961
1,047,606
915,387
$ 5,107,503
The industrial end market included $489.7 million of revenue as a result of the Acquisition in the fiscal year ended
October 28, 2017 (fiscal 2017). Industrial end market revenue increased year-over-year, primarily as a result of the Acquisition
and a broad-based increase in demand for our products in this end market. The automotive end market included $199.8 million
of revenue as a result of the Acquisition in fiscal 2017. Automotive end market revenue increased year-over-year, primarily as a
result of the Acquisition and a broad-based increase in demand for our products. The consumer end market included $36.2
million of revenue as a result of the Acquisition in fiscal 2017. Consumer end market revenue increased year-over-year,
primarily as a result of an increased demand for products used in portable consumer applications and as a result of the
Acquisition. The communications end market included $187.6 million of revenue as a result of the Acquisition in fiscal 2017.
Communications end market revenue increased year-over-year primarily as a result of the Acquisition.
28
Automotive end market revenue increased year-over-year in the fiscal year ended October 29, 2016 (fiscal 2016)
primarily as a result of increased demand for our powertrain, advanced driver assistance systems, and infotainment products.
The year-over-year decrease in the consumer end market in fiscal 2016 was primarily the result of lower demand for products
sold into portable consumer applications.
Revenue TrTT ends by Geographic Region
rr
Revenue by geographic region, based upon the primary end customer location for fiscal 2017, fiscal 2016 and the fiscal
year ended October 31, 2015 (fiscal 2015) was as follows:
United States
Rest of North and South America
Europe
Japan
China
Rest of Asia
TT
Total Revenue
Change
Fiscal YearYY
2017 over 2016
2016 over 2015
2017
2016
2015
$ Change
%
Change
$ Change
%
Change
$1,999,041
$1,299,629
$1,325,279
$ 699,412
54% $
103,077
1,211,435
506,114
842,532
445,304
95,957
924,849
291,649
575,690
233,635
97,189
939,230
319,569
511,365
242,460
7,120
286,586
214,465
266,842
211,669
7%
31%
74%
46%
91%
(25,650)
(1,232)
(14,381)
(27,920)
64,325
(8,825)
(2)%
(1)%
(2)%
(9)%
13 %
(4)%
$5,107,503
$3,421,409
$3,435,092
$1,686,094
49% $
(13,683) — %
In fiscal 2017, fiscal 2016 and fiscal 2015, 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 South Korea and Taiwan.
TT
yy
yy
On a regional basis, the United States and Rest of North and South America included $201.4 million and $6.4 million,
Acquisition in fiscal 2017. The increase in the United States year-over-year in fiscal
respectively, of revenue as a result of the
2017 was primarily a result of an increase in demand of our products sold into the consumer and industrial end markets and as a
result of the Acquisition. Europe and Japan included $211.2 million and $123.7 million of revenue, respectively, as a result of
the Acquisition in fiscal 2017.The sales increase in Europe and Japan year-over-year in fiscal 2017 was primarily a result of the
Acquisition and an increase in demand of our products sold into the industrial end market. China included $213.6 million of
revenue as a result of the Acquisition in fiscal 2017. The sales increase in China year-over-year in fiscal 2017 was primarily a
result of the Acquisition and an increase in demand of our products sold into the industrial and automotive end markets. The
Rest of Asia included $156.9 million of revenue as a result of the Acquisition in fiscal 2017. The sales increase in the Rest of
Asia year-over year in 2017 was primarily a result of the Acquisition and an increase in demand of our products sold into the
industrial and communications end markets.
yy
On a regional basis, the sales increase in China in fiscal 2016 as compared to fiscal 2015 was primarily the result of an
increase in demand in the industrial, communications and automotive end markets. The sales decrease in Japan in fiscal 2016 as
compared to fiscal 2015 was primarily a result of a decrease in demand for our products in the industrial end market. The sales
decrease in the United States in fiscal 2016 as compared to fiscal 2015 was primarily the result of a decrease in demand in the
consumer end markets.
Gross Mar
rr
ginr
Fiscal YearYY
2017 over 2016
2016 over 2015
2017
2016
2015
$ Change
%
Change
$ Change
%
Change
$3,061,596
$2,227,173
$2,259,262
$ 834,423
37% $ (32,089)
(1)%
59.9%
65.1%
65.8%
Change
Gross Margin
Gross Margin %
Gross margin percentage in fiscal 2017 decreased by 520 basis points compared to fiscal 2016, primarily as a result of
recording additional cost related to Acquisition accounting adjustments, including $358.7 million related to the sale of acquired
inventory written up to fair value, $83.0 million related to amortization of acquired developed technology intangible assets, and
$22.9 million of depreciation related to the write up of fixed assets to fair value. The increases in cost of sales as a result of
29
Acquisition accounting adjustments were partially offset by favorable factory variances as a result of increased utilization at
our manufacturing facilities.
ff
Gross margin percentage in fiscal 2016 decreased by 70 basis points compared to fiscal 2015, primarily as a result of
ff
lower utilization rates in our manufacturing facilities, partially offset by a mix shift in favor of higher mar
sold.
gin products being
Research and Development (R&D)
rr
Fiscal YearYY
2017 over 2016
2016 over 2015
2017
2016
2015
$ Change
%
Change
$ Change
%
Change
$ 968,602
$ 653,816
$ 637,459
$ 314,786
48% $
16,357
3%
Change
19.0%
19.1%
18.6%
R&D Expenses
R&D Expenses as a % of
Revenue
R&D expenses increased in fiscal 2017 as compared to fiscal 2016. Approximately $205.2 million of the overall increase
was a result of the Acquisition. The remainder of the increase was primarily the result of an increase in variable compensation
expense linked to our overall profitability and revenue growth and an increase in R&D employee and related benefit expenses
and to a lesser extent an increase in operational spending.
R&D expenses increased in fiscal 2016 as compared to fiscal 2015 primarily as a result of increases in R&D employee
ff
and related benefit expenses and operational spending, partially offset by a decrease in 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
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success of new product development efforts, which we view as critical to our future growth.
projects underway, none of which we believe are material on an individual basis.
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.
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We expect to continue the development of
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We have hundreds of R&D
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ff
ff
Selling, Marketing, General and Administrative (SMG&A)
Fiscal YearYY
2017 over 2016
2016 over 2015
2017
2016
2015
$ Change
%
Change
$ Change
%
Change
$ 691,046
$ 461,438
$ 478,972
$ 229,608
50% $ (17,534)
(4)%
Change
13.5%
13.5%
13.9%
A
SMG&A Expenses
SMG&A Expenses as a % of
A
Revenue
A
SMG&A expenses increased in fiscal 2017 as compared to fiscal 2016 primarily as a result of the
Acquisition and
Acquisition-related costs. Approximately $119.8 million of the total increase was a result of the Acquisition. Acquisition-
related costs, which includes legal, accounting and other related fees resulting from the Acquisition increased $56.9 million in
fiscal 2017 as compared to fiscal 2016. The remainder of the increase in SMG&A expenses was a result of increases in variable
compensation expense linked to our overall profitability and revenue growth and an increase in SMG&A employee and related
benefit expenses.
A
A
SMG&A expenses decreased in fiscal 2016 as compared to fiscal 2015 primarily as a result of decreases in operational
A
spending and variable compensation expense linked to our overall profitability and revenue growth, partially offset by an
increase in SMG&A employee and related benefit expenses.
A
ff
30
Amortization of Intangibles
Amortization expenses
Amortization expenses as a % of
revenue
Fiscal YearYY
2017 over 2016
2016 over 2015
2017
2016
2015
$ Change
%
Change
$ Change
%
Change
$ 297,351
$ 70,123
$
88,318
$ 227,228
324% $ (18,195)
(21)%
Change
5.8%
2.0%
2.6%
Amortization expenses increased in fiscal 2017 as compared to fiscal 2016 primarily as a result of the purchase of
intangible assets as part of the Acquisition and to a lesser extent, other acquisitions in fiscal 2016 and fiscal 2017.
Amortization expenses decreased in fiscal 2016 as compared to fiscal 2015 as a result of certain intangible assets
becoming fully amortized during fiscal 2015.
Special Charges
r
WW
We monitor global macroeconomic conditions on an ongoing basis, and continue to assess opportunities for improved
operational effectiveness and ef
As a result of these assessments, we
ff
ficiency and better alignment of expenses with revenues.
have undertaken various restructuring actions over the past several years. The expense reductions relating to ongoing actions
are described below.
ff
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Early Retirement Offer
Action
During the first quarter of fiscal 2017, we initiated an early retirement offer
ff
. This resulted in a special charge of
approximately $41.3 million for severance, related benefits, and other costs in accordance with this program
for 225 manufacturing, engineering and SMG&A employees.
the 225 employees included in this cost reduction action. These employees must continue to be employed by us until their
employment is terminated in order to receive the severance benefits. We expect this action will result in estimated annual
salary, variable compensation and employee benefit savings of approximately $28.4 million once fully implemented.
As of October 28, 2017, we still employed 26 of
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A
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Reduction of Operating Costs Action
During the first quarter of fiscal 2017, we recorded special charges of approximately $8.1 million for severance and
fringe benefit costs in accordance with our ongoing benefit plan or statutory requirements at foreign locations for 177
manufacturing, engineering and SMG&A employees.
included in this cost reduction action. These employees must continue to be employed by us until their employment is
terminated in order to receive the severance benefits. We expect this action will result in estimated annual salary
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, variable
compensation and employee benefit savings of approximately $5.0 million once fully implemented.
As of October 28, 2017, we still employed 10 of the 177 employees
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A
During fiscal 2016, we recorded special charges of approximately $13.7 million for severance and fringe benefit costs in
accordance with our ongoing benefit plan for 123 manufacturing, engineering and SMG&A employees.
2017, we still employed 23 of the 123 employees included in these cost reduction actions. These employees must continue to be
employed by us until their employment is terminated in order to receive the severance benefit.
As of October 28,
A
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We expect that annual cost savings resulting from these actions will be used to make additional investments in products
that we expect will drive revenue growth in the future.
Other Operating Expense
During fiscal 2015, we converted the benefits provided to participants in our Irish defined benefits pension plan to
benefits provided under our Irish defined contribution plan. Retired pension plan participants received an annuity. As a result,
in fiscal 2015 we recorded settlement charges, legal, accounting and other professional fees totaling $223.7 million to settle all
existing and future Irish pension plan liabilities.
31
Operating Income
Fiscal YearYY
2017 over 2016
2016 over 2015
2017
2016
2015
$ Change
%
Change
$ Change
%
Change
Change
Operating income
$1,055,134
$1,028,112
$ 830,841
$
27,022
3% $ 197,271
24%
Operating income as a % of
Revenue
20.7%
30.0%
24.2%
The increase in operating income in fiscal 2017 as compared to fiscal 2016 was primarily the result of a $834.4 million
$314.8 million increase in R&D expenses, a $229.6 million increase in SMG&A
increase in gross margin, partially offset by a
expenses, a $227.2 million increase in amortization expenses and a $35.8 million increase in special charges as more fully
described above under the headings Research and Development (R&D), Selling, Marketing, General and
r
(SMG&A), Amortization of Intangibles and Special Char
ges.
Administrative
rr
d
ff
The increase in operating income in fiscal 2016 as compared to fiscal 2015 was primarily the result of a $223.7 million
decrease in other operating expense more fully described above under the heading Other Operating Expense, partially offset by
a 70 basis point decrease in gross margin percentage.
ff
Nonoperating (Income) Expense
Interest expense
Interest income
Other, net
TT
Total nonoperating expense
Change
Fiscal YearYY
2017 over 2016
2016 over 2015
2017
2016
2015
$ Change
$ Change
$
$
250,840
(30,333)
6,142
226,649
$
$
88,757
(21,221)
3,655
71,191
$
$
27,030
(8,625)
2,322
20,727
$
$
162,083
(9,112)
2,487
155,458
$
$
61,727
(12,596)
1,333
50,464
The increase in nonoperating expense in fiscal 2017 as compared to fiscal 2016 was primarily the result of an increase in
interest expense as a result of the issuance of $1.3 billion of senior unsecured notes in the first quarter of fiscal 2016 and, $2.1
billion of senior unsecured notes in the first quarter of fiscal 2017, and as a result of fees paid and financing commitments
entered into in connection with the Acquisition, including a 90-day Bridge Credit Agreement in the principal amount of $4.1
billion, a 3-year unsecured term loan in the principal amount of $2.5 billion and a 5-year unsecured term loan in the principal
amount of $2.5 billion. See Note 16, Debt, of the Notes to our Consolidated Financial Statements contained in Item 8 of this
Annual Report on Form 10-K for further information on the debt issuances and commitments related to the Acquisition. The
increase in nonoperating expense as a result of the increase in interest expense was partially offset by an increase in interest
income due to higher interest rates earned on our investments, partially offset by lower cash balances in fiscal 2017 as
compared to fiscal 2016.
ff
ff
The increase in nonoperating expense in fiscal 2016 as compared to fiscal 2015 was primarily the result of an increase in
interest expense as a result of the issuance of senior unsecured notes in fiscal 2016, and as a result of fees related to financing
commitments entered into in anticipation of the Acquisition. These increases were partially offset by a decrease in interest
expense as a result of the redemption of the $375.0 million aggregate principal amount of 3.0% senior unsecured notes (the
2016 Notes) in fiscal 2016. See Note 16, Debt, of the Notes to our Consolidated Financial Statements contained in Item 8 of
this Annual Report on Form 10-K for further information for further information on the issuance and redemption of these notes.
The increase in nonoperating expense as a result of the increase in interest expense in fiscal 2016 as compared to fiscal 2015
was partially offset by an increase in interest income due to higher interest rates earned on our investments and the investment
of higher cash balances in fiscal 2016 as compared to fiscal 2015.
ff
ff
32
TT
Provision for Income T
axes
rr
Provision for Income Taxes
TT
Tax Rate
Effective Income
ff
Fiscal YearYY
2017 over 2016
2016 over 2015
2017
2016
2015
$ Change
%
Changeg
$ Change
%
Changeg
$ 101,226
$
95,257
$ 113,236
$
5,969
6% $ (17,979)
(16)%
12.2%
10.0%
14.0%
Change
ff
Our effective tax rate reflects the applicable tax rate in ef
fect in the various tax jurisdictions around the world where our
ff
income is earned. Our effective income tax rate can also be impacted each year by discrete factors or events.
ff
TT
TT
ff
s favorable ruling, offset by approximately
The tax rate for all other periods presented was below the U.S. federal statutory tax
The tax rate for fiscal 2017 is below the U.S. federal statutory tax rate of 35% primarily due to lower statutory tax rates
applicable to our operations in the foreign jurisdictions in which we earn income and a tax benefit of $50.5 million related to
the reduction of reserves and related interest resulting from the U.S. Tax Court’
$98.2 million of tax expense incurred during the year as part of the post-Acquisition integration. See Note 14, Income Taxes, of
TT
the Notes to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further
information on the U.S. Tax Court ruling.
rate of 35%, primarily due to lower statutory tax rates applicable to our operations in the foreign jurisdictions in which we earn
income. For example, the Company has a partial tax holiday in Singapore through August 2019 and a partial tax holiday
through July 2025 in Malaysia. The impact on our provision for income taxes of income earned in foreign jurisdictions being
taxed at rates different than the U.S. statutory rate was a foreign ef
ff
fective tax rate of approximately 7.8% in fiscal 2017
ff
Additionally, our ef
fective tax rate in fiscal 2017
compared to a foreign effective tax rate of approximately 6.1% in fiscal 2016.
also included a tax benefit of approximately $15.0 million for the release of a state tax credit valuation allowance as a result of
the Acquisition. Our effective tax rate for the fiscal 2016 included a tax benefit of $7.5 million from the reinstatement of the
U.S. federal research and development tax credit in December 2015 retroactive to January 1, 2015. Our effective tax rate for
fiscal 2015 was reduced as a result of $13.0 million recorded from the reversal of certain prior period tax liabilities, a tax
benefit of $7.0 million from the reinstatement of the U.S. federal research and development tax credit in December 2014
retroactive to January 1, 2014 and a tax benefit of $3.8 million as a result of an acquisition accounting adjustment. In addition,
our effective tax rate for fiscal 2015 included $2.0 million of discrete tax expense items associated with the U.S. provision to
return adjustments.
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ff
ff
ff
ff
ff
Non-U.S. jurisdictions accounted for approximately 77.3% of our total revenues in fiscal 2017, compared to
approximately 77.7% of our total revenues for fiscal 2016 and 78.0% of our total revenues for fiscal 2015. This revenue
generated outside of the U.S. results in a material portion of our pretax income being taxed outside the U.S., primarily in
Bermuda and Ireland, at tax rates ranging from 0% to 35%. The impact on our effective tax rate related to income earned in
foreign jurisdictions was reduced for fiscal 2017 as compared to fiscal 2016, as a result of increased depreciation, amortization
and other expenses associated with Linear operations which are within foreign jurisdictions and subject to lower tax rates. A
change in the mix of revenue and income earned in the U.S. and outside of the U.S. will have a direct impact on the overall
ff
effective tax rate in any given period.
ff
Net Income
Net Income
Net Income, as a % of
Revenue
Fiscal YearYY
2017 over 2016
2016 over 2015
2017
2016
2015
$ 727,259
$ 861,664
$ 696,878
$ Change
$ (134,405)
%
Change
$ Change
%
Change
(16)% $ 164,786
24%
Change
14.2%
25.2%
20.3%
Diluted EPS
$
2.07
$
2.76
$
2.20
$
(0.69)
(25)% $
0.56
25%
The decrease in net income in fiscal 2017 as compared to fiscal 2016 was primarily a result of a $155.5 million increase
$27.0 million increase
in nonoperating expense and a $6.0 million increase in provision for income taxes, partially offset by a
in operating income.
ff
The increase in net income in fiscal 2016 as compared to fiscal 2015 was primarily a result of a $197.3 million increase
$50.5 million increase in
in operating income and a $18.0 million decrease in provision for income taxes, partially offset by a
nonoperating expense.
ff
33
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.
Liquidity and Capital Resources
At October 28, 2017, our principal source of liquidity was $1.0 billion of cash and cash equivalents and short-term
yy
WW
investments, of which approximately $379.2 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 substantially all of our foreign earnings indefinitely, the majority of 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 principal and interest
payments. If these funds are needed for U.S. operations or can no longer be indefinitely reinvested outside the United States,
under current tax law we would be required to accrue and pay U.S. taxes to repatriate these funds and such amounts could be
material. Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including
money market funds. We maintain these balances with 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. In connection with the
accounting for the Acquisition, we recorded approximately $1.6 billion of cash and marketable securities from Linear, which
was remitted from foreign jurisdictions as part of our post-Acquisition integration. Also as part of the post-Acquisition
integration, we remitted legacy cash held outside of the United States of approximately $3.6 billion. The remittances resulted in
approximately $98.2 million in net tax expense recorded in fiscal 2017. We currently intend to use significant amounts of our
remaining cash and cash equivalents held outside of the United States to finance obligations and current operations of our
foreign businesses. On the Acquisition Date, we entered into a 90-day Bridge Credit Agreement that provided for unsecured
loans in an aggregate principal amount of up to $4.1 billion and borrowed under a term loan agreement consisting of a 3-year
unsecured term loan in the principal amount of $2.5 billion, due March 10, 2020 and a 5-year unsecured term loan in the
principal amount of $2.5 billion, due March 10, 2022. In fiscal 2017, we repaid $550.0 million of principal on the 3-year
unsecured term loan, repaid $400.0 million of principal on the 5-year unsecured term loan, and repaid all of the $4.1 billion of
outstanding loans under the Bridge Credit Agreement. In addition, in fiscal 2016, we amended and restated our existing
revolving credit facility to allow for the increase in the amount of commitments from $750.0 million to $1.0 billion at the
closing of the Acquisition. See Note 15, Revolving Credit Facility
Statements contained in Item 8 of this Annual Report on Form 10-K for further information.
and Note 16, Debt of the Notes to our Consolidated Financial
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rr
t
We believe that our existing sources of liquidity and cash expected to be generated from future operations, together with
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ff
existing and anticipated available long-term financing, will be sufficient to fund operations, capital expenditures, research and
development efforts and dividend payments (if any) in the immediate future and for at least the next twelve months.
ff
Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities as a % of Revenue
Net Cash Used for Investing Activities
Net Cash Provided by (Used for) Financing Activities
2017
Fiscal YearYY
2016
$ 1,112,592
$ 1,280,895
21.8%
$ (6,618,014)
$ 5,628,578
37.4%
$ (1,218,270)
(22,917)
$
$
$
$
2015
907,798
26.4%
(17,125)
(571,603)
At October 28, 2017, cash and cash equivalents totaled $1,047.8 million. The following changes contributed to the net
increase in cash and cash equivalents of $126.7 million in fiscal 2017.
Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and
liabilities.
The decrease in cash provided by operating activities during fiscal 2017, as compared to fiscal 2016, was primarily due to
higher tax payments as a result of the post-Acquisition integration, and other changes in working capital.
Investing Activities
Investing cash flows consist primarily of capital expenditures, investment purchases, maturities and sales of available-for-
sale securities, as well as cash used for acquisitions.
The increase in cash used for investing activities during fiscal 2017 as compared to fiscal 2016, was primarily the result
of cash payments made for the Acquisition, partially offset by a decrease in maturities of available for sale securities.
ff
34
The increase in cash used for investing activities during fiscal 2016 as compared to fiscal 2015 was primarily due to an
increase in the net purchases of available-for-sale securities and an increase in payments for acquisitions, partially offset by a
decrease in property, plant and equipment additions.
yy
ff
Financing Activities
Financing cash flows consist primarily of payments of dividends to stockholders, repurchases of common stock, issuance
and repayment of long-term debt, and proceeds from the sale of shares of common stock pursuant to employee equity incentive
plans.
The increase in cash provided by financing activities during fiscal 2017, as compared to fiscal 2016, was primarily due to
an increase in net debt proceeds of $9.9 billion received from the issuance of senior unsecured notes, financing commitments
entered into in connection with the Acquisition, consisting of a 90-day Bridge Credit Agreement and a term loan agreement,
and a decrease in stock repurchases of $323.5 million due to the temporary suspension of our share repurchase program in
connection with the Acquisition. These decreases were partially offset by payments of $5.1 billion related to financing
commitments entered into in connection with the Acquisition consisting of repayments of $550.0 million of principal on the 3-
year unsecured term loan, repayments of $400.0 million of principal on the 5-year unsecured term loan, and repayment of the
$4.1 billion of outstanding loans under the Bridge Credit Agreement.The decrease in cash used for financing activities during
fiscal 2016 as compared to fiscal 2015 was primarily due to net proceeds of $1.2 billion received from the issuance of the 2025
Notes and 2045 Notes, partially offset by $378.2 million of payments for the redemption of our 2016 Notes, an increase in
stock repurchases of $143.1 million, a decrease in proceeds from the sale of shares of common stock pursuant to employee
equity incentive plans of $61.1 million, payments of $33.4 million related to derivative instruments, payments of $26.6 million
in deferred financing fees related to the acquisition of Linear and an increase in dividend payments to shareholders of $22.1
million.
ff
ff
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Working Capital
Accounts Receivable, net
Days Sales Outstanding*
Inventory
Days Cost of Sales in Inventory*
Fiscal YearYY
2017
2016
$ Change % Change
$ 688,953
43
$ 550,816
104
$ 477,609
50
$ 376,555
121
$ 211,344
44%
$ 174,261
46%
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* We use the average of the current year and prior year ending net accounts receivable and ending inventory balance in our
calculation of days sales outstanding and days cost of sales in inventory, respectively
calculation of days cost of sales in inventory for fiscal 2017 include Acquisition accounting adjustments related to the sale of
acquired inventory written up to fair value, amortization of developed technology intangible assets acquired and depreciation
related to the write up of fixed assets to fair value.
. Cost of sales amounts used in the
yy
The increase in accounts receivable in dollars was primarily the result of the Acquisition and to a lesser extent higher
product shipments in the fourth quarter of fiscal 2017 as compared to the fourth quarter of fiscal 2016.
The increase in inventory in dollars was primarily the result of the Acquisition and our efforts to balance manufacturing
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production, demand and inventory levels.
Current liabilities increased to $1.6 billion at October 28, 2017 from $782.9 million recorded at the end of fiscal 2016.
The increase was primarily due to an increase in the current portion of our debt, an increase in accrued liabilities as a result of
the Acquisition, increases in accrued interest and accrued special charges, an increase in accounts payable resulting from higher
production volumes and the Acquisition and an increase in deferred income on shipments made to distributors as more fully
described below.
As of October 28, 2017 and October 29, 2016, we had gross deferred revenue of $589.5 million and $432.3 million,
yy
$115.5 million and $80.8 million, respectively. Deferred income on shipments
respectively, and gross deferred cost of sales of
to distributors increased in fiscal 2017 primarily as a result of the Acquisition and higher demand for products sold into the
channel. Sales to certain 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 certain 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 certain distributors until such distributors
35
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.
TT
Debt
As of October 28, 2017, we had $7.9 billion of carrying value outstanding on our long-term debt. The difference in the
ff
carrying value of the debt and the principal is due to the unamortized discount and issuance fees on these instruments that will
accrete to the face value over the term of the debt. Our debt obligations consist of the following:
$500.0 Million Aggregate Principal
rr
Amount of 2.875% Senior Unsecured Notes (2023 Notes)
rr
On June 3, 2013, we issued the 2023 Notes with semi-annual fixed interest payments due on June 1 and December 1 of
each year, commencing December 1, 2013.
$850.0 Million Aggregate Principal
Amount of 3.9% Senior Unsecured Notes (2025 Notes) and $400.0 Million
rr
Principal Amount of 5.3% Senior Unsecured Notes (2045 Notes)
rr
rr
rr
Aggregate
On December 14, 2015, we issued the 2025 Notes and the 2045 Notes with semi-annual fixed interest payments due on
June 15 and December 15 of each year, commencing June 15, 2016.
rr
$400 Million Aggregate Principal
Amount of 2.5% Senior Unsecured Notes (2021 Notes), $550 Million
rr
Principal Amount of 3.125% Senior Unsecured Notes (December 2023 Notes), $900 Million
3.5% Senior Unsecured Notes (2026 Notes) and $250 Million
(2036 Notes)
Aggregate Principal
rr
rr
rr
rr
Aggregate
Amount of
Aggregate Principal
rr
Amount of 4.5% Senior Unsecured Notes
rr
On December 5, 2016, we issued the 2021 Notes, the December 2023 Notes, the 2026 Notes and the 2036 Notes with semi-
annual fixed interest payments due on June 5 and December 5 of each year, commencing June 5, 2017.
The indentures governing the 2021 Notes, 2023 Notes, December 2023 Notes, 2025 Notes, 2026 Notes, 2036 Notes and
2045 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 October 28,
2017, we were compliant with these covenants. See Note 16, Debt, of 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.
TT
$5.0 Billion Aggregate Principal T
erm Loans
rr
On the Acquisition Date, we drew down on a 3-year unsecured term loan in the principal amount of $2.5 billion, due
March 10, 2020 and a 5-year unsecured term loan in the principal amount of $2.5 billion, due March 10, 2022. In fiscal 2017,
we repaid $550.0 million of principal on the 3-year unsecured term loan and repaid $400.0 million of principal on the 5-year
unsecured term loan.
rr
Revolving Credit Facility
yy
WW
We have a senior unsecured revolving credit facility with certain institutional lenders (the Credit
Agreement) that expires
on July 10, 2020. The Credit Agreement provides that we may borrow up to $1.0 billion. 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 Credit
Agreement impose restrictions on our ability to undertake certain transactions, to create certain liens on assets and to incur
certain subsidiary indebtedness. In addition, the Credit Agreement contains a consolidated leverage ratio covenant of total
consolidated funded debt to consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) of not
greater than 5.0 to 1.0. The debt covenant will be reduced over time to 3.0 to 1.0 starting in May 2018. As of October 28, 2017,
we were compliant with these covenants. See Note 15, Revolving Credit Facility
Statements contained in Item 8 of this Annual Report on Form 10-K for further information on our revolving credit facility.
,yy of the Notes to Consolidated Financial
TT
rr
rr
Stock Repurchase Pr
ogram
rr
Our common stock repurchase program has been in place since August 2004. In the aggregate, our Board of Directors has
authorized us to repurchase $6.2 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
36
repurchased all shares authorized under the program. As of October 28, 2017, we had repurchased a total of approximately
147.0 million shares of our common stock for approximately $5.4 billion under this program. As of October 28, 2017, an
additional $792.5 million remains available for repurchase under the current authorized program. The repurchased shares are
held as authorized but unissued shares of common stock. In connection with the Acquisition, we have temporarily suspended
our share repurchase program. While we do not plan to resume share repurchases in the near term, we expect to continue
repurchasing our common stock over the long-term. We also from time to time repurchase shares in settlement of employee
minimum tax withholding obligations due upon the vesting of restricted stock units.
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Capital Expendituresrr
Net additions to property, plant and equipment were
$204.1 million in fiscal 2017 and were funded with a combination of
cash on hand and cash generated from operations. We expect capital expenditures for the fiscal year ending November 3, 2018
(fiscal 2018) to be in the range of $230.0 million to $270.0 million. These capital expenditures will be funded with a
combination of cash on hand and cash generated from operations.
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yy
Dividends
On November 20, 2017, our Board of Directors declared a cash dividend of $0.45 per outstanding share of common
stock. The dividend will be paid on December 12, 2017 to all shareholders of record at the close of business on December 1,
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2017 and is expected to total approximately $166 million. We currently expect quarterly dividends to continue at $0.45 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
yy
Contractual Obligations
The table below summarizes our contractual obligations and the amounts we owe under these contracts in specified
periods as of October 28, 2017:
(thousands)
Contractual obligations:
Operating leases (a)
Debt obligations (b)
Interest payments associated with debt obligations
Deferred compensation plan (c)
Pension funding (d)
TotalTT
_______________________________________
Payment due by period
Less than
More than
Total
1 YearYY
1-3 YearsYY
3-5 YearsYY
5 YearsYY
$
142,913
7,900,000
1,956,164
33,510
4,978
$
41,795
300,000
232,202
938
4,978
$
41,142
1,937,500
$
22,398
2,212,500
$
37,578
3,450,000
437,494
—
—
327,212
—
—
959,256
32,572
—
$10,037,565
$ 579,913
$ 2,416,136
$ 2,562,110
$ 4,479,406
(a)
(b)
(c)
(d)
Certain of our operating lease obligations include escalation clauses. These escalating payment requirements are reflected
in the table.
On November 10, 2017 we pre-paid $300.0 million of principal on the 3-year unsecured term loan. This amount was not
contractually due under the terms of the loan. As such this amount is classified as current debt as of October 28, 2017.
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.
YY
YY
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 2018. 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.
ff
Certain of our acquisitions involve the potential payment of contingent consideration. The table above does not reflect
any such obligations, which could be up to $8.5 million, as the timing and amounts are uncertain.
37
As of October 28, 2017, our total liabilities associated with uncertain tax positions was $49.6 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 deferred taxes and 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 deferred taxes and uncertain tax
positions. Therefore, we have not included these deferred taxes and 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 October 28, 2017.
Off-balance Sheet Arrangements
As of October 28, 2017, we had no off-balance sheet financing arrangements.
ff
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) and
FF
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,
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.
of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual
rr
ff
Revenue Recognition
In May 2014, the FASB issued
FF
Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers
ff
yy
FF
(ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under generally accepted accounting
principles in the United States (U.S. GAAP). The core principle of ASU 2014-09 is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. Additionally, the guidance requires improved disclosures to help
users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising
from contracts with customers. The FASB has issued several amendments and updates to the new revenue standard, including
guidance related to when an entity should recognize revenue gross as a principal or net as an agent and how an entity should
identify performance obligations. As amended, ASU 2014-09 is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2017, which is our first quarter of the fiscal year ending November 2, 2019 (fiscal
2019). Early adoption is permitted for all entities only as of annual reporting periods beginning after December 15, 2016,
including interim reporting periods within that reporting period. We have developed a project plan for the implementation of
the guidance, including a review of all revenue streams to identify any differences in the timing, measurement or presentation
of revenue recognition. We have reviewed our revenue streams and are nearing completion in assessing all potential impacts of
the standard, including any impacts from recently issued amendments, and retrospectively adjusting financial information for
prior fiscal years under the full retrospective transition method. We have also made progress on our impact assessment of the
Acquisition. While we are still in the process of completing our evaluation of the standard, we currently believe the most
significant impact will be related to the timing of recognition of sales to certain distributors. As described in Note 2n, Revenue
Recognition, of the Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K,
we currently defer revenue and the related cost of sales on shipments to certain distributors until the distributors resell the
products to their customers. Upon adoption of ASU 2014-09, we will no longer be permitted to defer revenue until sale by the
distributor to the end customer, but rather, will be required to estimate the effects of returns and allowances provided to
distributors and record revenue at the time of sale to the distributor. We are continuing to evaluate the future impact and
method of adoption of ASU 2014-09 and related amendments on our consolidated financial statements and related disclosures.
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We will adopt
fiscal 2019.
ASU 2014-09, using the full retrospective method, upon its effective date for us which is our first quarter of
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ff
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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. GAAP.PP 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
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ff
ff
38
ff
material effect on our financial statements.
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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.
ff
Revenue Recognition
Revenue from product sales to customers is generally recognized when title passes, which is upon shipment in the U.S.
and in certain foreign counties. Revenue from product sales to other foreign countries is recognized subsequent to product
shipment. Title for these shipments to these other foreign countries ordinarily passes within a week of shipment. Accordingly,yy
we defer the revenue recognized relating to these other foreign countries until title has passed. For multiple element
arrangements, we allocate arrangement consideration among the elements based on the relative fair values of those elements as
determined using vendor-specific objective evidence or third-party evidence. We use our best estimate of selling price to
allocate arrangement consideration between the deliverables in cases where neither vendor-specific objective evidence nor
third-party evidence is available. A reserve for sales returns and allowances for customers is recorded based on historical
experience or specific identification of an event necessitating a reserve.
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A
Revenue from contracts with the United States government, government prime contractors and some commercial
customers is generally recorded on a percentage of completion basis, using either units delivered or costs incurred as the
measurement basis for progress toward completion. The output measure is used to measure results directly and is generally the
best measure of progress toward completion in circumstances in which a reliable measure of output can be established.
Estimated revenue in excess of amounts billed is reported as unbilled receivables. Contract accounting requires judgment in
estimating costs and assumptions related to technical issues and delivery schedule. Contract costs include material, subcontract
costs, labor and an allocation of indirect costs. The estimation of costs at completion of a contract is subject to numerous
variables involving contract costs and estimates as to the length of time to complete the contract. Changes in contract
performance, estimated gross margin, including the impact of final contract settlements, and estimated losses are recognized in
the period in which the changes or losses are determined.
Revenue from product sales to certain international distributors are made under agreements that permit limited stock
return privileges but not sales price rebates. Revenue on these sales is recognized upon shipment at which time title passes.
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We defer revenue and the related cost of sales on shipments to U.S. distributors and certain international distributors until
the distributors resell the products to their customers. As a result, our revenue fully reflects end customer purchases and is not
impacted by distributor inventory levels. Sales to certain of these distributors are made under agreements that allow such
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 the value of our shipments to that distributor during the prior quarter. In addition, such distributors are
allowed to return unsold products if the Company terminates the relationship with the distributor. Given the uncertainties
associated with the levels of price-adjustment credits to be granted to certain distributors, the sales price to the distributor is not
fixed or determinable until the distributor resells the products to their customers. Therefore, we defer revenue recognition from
sales to certain distributors until such distributors have sold the products to their customers.
VV
Inventory Valuation
yy
We value inventories at the lower of cost (first-in, first-out method) or market. Because of the cyclical nature of the
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yy
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 dif
ff
ferent than our estimates, and we do not expect them to be
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materially different in the future.
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Allowance for Doubtful Accounts
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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
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different than our estimates, and we do not expect them to be materially dif
ferent in the future.
TT
ff
39
Long-Lived Assets
yy
yy
We review property
, plant, and equipment and finite lived intangible assets for impairment whenever events or changes in
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circumstances indicate that the carrying value of assets may not be recoverable. Recoverability of these assets is determined by
comparison of their carrying value to the estimated future undiscounted cash flows that the assets are expected to generate over
their remaining estimated 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,yy
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 char
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. We perform a qualitative assessment on our indefinite-lived intangible assets to determine whether it is more
likely-than not that the indefinite-lived intangible asset is impaired. If it is determined that the fair value of the indefinite-lived
intangible asset is less than the carrying value, we would compare the fair value of the intangible asset with its carrying amount
and recognize an impairment equal to any amount by which the carrying value of the assets exceeds the fair value.
ges, which could have a material adverse impact on our results of
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yy
ff
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Goodwill
yy
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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 as of July 30, 2017, we identified our reporting units to be our eight operating segments.
The goodwill impairment test requires an entity to compare the fair value of a reporting unit with its carrying amount. If fair
value is determined to be less than carrying value, an impairment loss is recognized for the amount of the carrying value that
exceeds the amount of the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
Additionally, we consider income tax ef
ff
fects from any tax deductible goodwill on the carrying amount of the reporting unit
when measuring the goodwill impairment loss, if applicable. We determine the fair value of our reporting units using a
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weighting of the income and market approaches. Under the income approach, we use a discounted cash flow methodology
which requires management to make significant estimates and assumptions related to forecasted revenues, gross profit margins,
operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others. For
the market approach, we use the guideline public company method. Under this method we utilize information from comparable
publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation
multiples that are applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair
values. In order to assess the reasonableness of the calculated reporting unit fair values, we reconcile the aggregate fair values
of our reporting units determined, as described above, to its current market capitalization, allowing for a reasonable control
premium.
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Business Combinations
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Under the acquisition method of accounting, we recognize tangible and identifiable intangible assets acquired and
liabilities assumed based on their estimated fair values. We record the excess of the fair value of the purchase consideration
over the value of the net assets acquired as goodwill. The accounting for business combinations requires us to make significant
estimates and assumptions, especially with respect to intangible assets and the fair value of contingent payment obligations.
Critical estimates in valuing purchased technology, customer lists and other identifiable intangible assets include future cash
flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the
underlying business activity change compared with the assumptions and projections used to develop these values, we could
experience impairment charges which could be material. In addition, we have estimated the economic lives of certain acquired
assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives
change, depreciation or amortization expenses could be accelerated or slowed.
yy
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We record contingent consideration resulting from a business combination at its fair value on the acquisition date.
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
WeWW
40
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.
yy
Accounting for Income Taxes
TT
ff
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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 realize 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.
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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
This evaluation is based on factors
in the financial statements. We reevaluate these uncertain tax positions on a quarterly basis.
including, but not limited to, changes in known facts or circumstances, changes in tax law, efww fectively settled issues under audit,
ff
and new audit activity. A change in these factors would result in the recognition of a tax benefit or an additional char
tax provision.
ge to the
WW
A
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.
ff
ff
ff
ff
Stock-Based Compensation
Stock-based compensation expense associated with stock options and related awards is recognized in the consolidated
statements 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 and market-based restricted stock units. We calculate the grant-
date fair values of stock options using the Black-Scholes valuation model. The use of valuation models requires us to make
estimates of key assumptions such as expected option term and stock price volatility to determine the fair value of a stock
option. The estimate of these key assumptions is based on historical information and judgment regarding market factors and
trends. As it relates to our market-based restricted stock units, we utilize the Monte Carlo simulation valuation model to value
these awards. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying
the performance conditions stipulated in the award grant and calculates the fair market value for the market-based restricted
stock units granted. The Monte Carlo simulation model also uses stock price volatility and other variables to estimate the
probability of satisfying the performance conditions, including the possibility that the market condition may not be satisfied,
and the resulting fair value of the award. We recognize the expense related to these on a straight-line basis over the vesting
period, which is generally five years for stock options and three years for restricted stock units. See Note 3, Stock-Based
Compensation and Shareholders' Equity
Report on Form 10-K for more information related to stock based compensation.
,yy of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual
WW
WW
rr
41
Contingencies
yy
From time to time, in the ordinary course of 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.
contingent liability should be recorded. In making this determination, we may, depending on the nature of the matter
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.
WW
We periodically assess each matter to determine if a
, consult
yy
yy
42
ITEM 7A. QUANTITATT TIVE
AA
AND QUALITATT TIVE DISCLOSURES
AA
ABOUT MARKET RISK
err
Interest Rate Exposur
rr
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.
ff
In fiscal 2017, we borrowed $2.5 billion of 3-year term loans, $2.5 billion of 5-year term loans and a $4.1 billion bridge
loan as part of the financing for the Acquisition. During fiscal 2017, we repaid $550.0 million of principal on the 3-year
unsecured term loan, repaid $400.0 million of principal on the 5-year unsecured term loan and repaid all of the $4.1 billion of
the bridge loan. The term loans accrue interest at a floating rate, equal to the LIBOR rate corresponding with the tenor of the
borrowing period plus the applicable spread (112.5 basis points for the bridge loan and 3-year term loan and 125 basis points
for the 5-year term loan). Based on the $4.1 billion of floating rate debt outstanding as of October 28, 2017, our annual interest
expense would change by approximately $23.7 million for each 100 basis point increase in interest rates.
Based on our marketable securities and short-term investments outstanding as of October 28, 2017 and October 29, 2016,
our annual interest income would change by approximately $10.5 million and $41 million, respectively, for each 100 basis
point increase in interest rates.
yy
TT
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 October 28, 2017 and
October 29, 2016, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $0.1 million
and $7 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.
yy
As of October 28, 2017, we had $3.9 billion in principal amount of senior unsecured notes outstanding, with a fair value
of $4.0 billion. The fair value of our notes is subject to interest rate risk, market risk, and other factors. Generally, the fair value
of our notes will increase as interest rates fall and decrease as interest rates rise. The fair values of our notes as of October 28,
2017 and October 29, 2016, assuming a hypothetical 100 basis point increase in market interest rates, are as follows:
yy
October 28, 2017
October 29, 2016
Principal
Amount
Outstanding
Fair Value
$
$
$
$
$
$
$
400,000
500,000
550,000
850,000
900,000
250,000
400,000
399,530
498,582
554,411
884,861
902,769
259,442
460,588
Fair Value
given an
increase in
interest rates
of 100 basis
points
Principal
Amount
Outstanding
Fair Value as
of October
29, 2016
Fair ValueVV
given an
increase in
interest rates
of 100 basis
points
384,374
473,727
524,718
825,700
835,891
228,671
396,506
$
$
$
$
$
$
$
— $
500,000 $
— $
850,000 $
— $
$
501,307
— $
$
901,523
—
472,387
—
835,162
— $
— $
— $
— $
—
—
400,000 $
425,109
$
367,134
(thousands)
2021 Notes, due December 2021
2023 Notes, due June 2023
2023 Notes, due December 2023
2025 Notes, due December 2025
2026 Notes, due December 2026
2036 Notes, due December 2036
2045 Notes, due December 2045
err
ency Exposur
rr
Foreign Curr
rr
As more fully described in Note 2i, Derivative and Hedging Agreements,
rr
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 to twelve months. Currently, our lar
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 October 28, 2017 and October 29, 2016, a 10% unfavorable
movement in foreign currency exchange rates over the course of the year would result in approximately $10.1 million of losses
yy
and $8.0 million of losses, respectively, in changes in earnings or cash flows.
gest foreign currency
yy
The market risk associated with our derivative instruments results from currency exchange rates that are expected to
The counterparties to the agreements
ff
offset the market risk of the underlying transactions, assets and liabilities being hedged.
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 October 28, 2017, we do not believe that there is significant risk
43
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’
yy
counterparties.
obligations under the contracts exceed our obligations to the
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 October 28, 2017 and
October 29, 2016:
ff
Fair value of forward exchange contracts liability
Fair value of forward exchange contracts after a 10% unfavorable movement in foreign
currency exchange rates asset
Fair value of forward exchange contracts after a 10% favorable movement in foreign
currency exchange rates liability
October 28, 2017
r
October 29, 2016
$
$
$
(1,527) $
(5,231)
18,557
$
11,744
(20,415) $
(23,277)
The calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In
ff
addition to the direct effects of changes in exchange rates, such changes typically af
fect 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.
ff
ff
44
REPORTRR OF INDEPENDENT
F
REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Analog Devices, Inc.
We WW have audited the accompanying consolidated balance sheets of Analog Devices, Inc. as of October 28, 2017 and October 29,
2016, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of
the three years in the period ended October 28, 2017. Our audits also included the financial statement schedule listed in the Index
at Item 15(2). 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 WW 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 WW believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,yy in all material respects, the consolidated financial position
of Analog Devices, Inc. at October 28, 2017 and October 29, 2016, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended October 28, 2017, 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 WW also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Analog Devices, Inc.’s internal control over financial reporting as of October 28, 2017, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013
framework), and our report dated November 22, 2017 expressed an unqualified opinion thereon.
TT
YY
/s/ Ernst & Young LLP
Boston, Massachusetts
November 22, 2017
45
ITEM 8.
FINANCIAL STL ATT TEMENTS
AA
AND SUPPLEMENTARTT YRR DAY
TAA ATT
ANALOG DEVICES, INC.
YY
Years ended
CONSOLIDATED ST
r
October 28, 2017
F
ATT TEMENTS OF
INCOME
r
and October 31, 2015
r
, October 29, 2016
AA
AA
(thousands, except per shar
r
e amounts)
Revenue
Revenue
Costs and Expenses
Cost of sales(1)
Gross margin
Operating expenses:
Research and development(1)
Selling, marketing, general and administrative(1)
Amortization of intangibles
Special charges
Other operating expense
Operating income
Nonoperating (income) expenses:
Interest expense
Interest income
Other, net
Earnings
Income before income taxes
Provision for income taxes
Net Income
2017
2016
2015
$
5,107,503
$
3,421,409
$
3,435,092
2,045,907
3,061,596
968,602
691,046
297,351
49,463
—
2,006,462
1,055,134
250,840
(30,333)
6,142
226,649
828,485
101,226
1,194,236
2,227,173
653,816
461,438
70,123
13,684
—
1,199,061
1,028,112
88,757
(21,221)
3,655
71,191
956,921
95,257
$
727,259
$
861,664
$
1,175,830
2,259,262
637,459
478,972
88,318
—
223,672
1,428,421
830,841
27,030
(8,625)
2,322
20,727
810,114
113,236
696,878
312,660
316,872
2.23
2.20
1.57
8,983
26,617
33,319
Shares used to compute earnings per common share — Basic
Shares used to compute earnings per common share — Diluted
346,371
350,484
308,736
312,308
Basic earnings per common share
Diluted earnings per common share
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
$
$
$
$
$
$
2.09
2.07
1.77
12,569
51,258
40,361
$
$
$
$
$
$
2.79
2.76
1.66
7,808
27,039
28,574
$
$
$
$
$
$
See accompanying Notes.
46
ANALOG DEVICES, INC.
COMPREHENSIVE INCOME
ATT TEMENTS OF
CONSOLIDATED ST
AA
AA
F
and October 31, 2015
r
, October 29, 2016
r
October 28, 2017
YY
Years ended
r
(thousands)
Net Income
Foreign currency translation adjustment (net of taxes of $1,556 in 2017,
$1,175 in 2016 and $1,479 in 2015)
Change in unrecognized gains/losses on marketable securities:
Change in fair value of available-for-sale securities (net of taxes of $35 in
2017, $56 in 2016 and $55 in 2015)
Total change in unrealized gains/losses on marketable securities, net of tax
Change in unrecognized gains/losses on derivative instruments designated
as cash flow hedges:
Changes in fair value of derivatives (net of taxes of $920 in 2017, $903 in
2016 and $10,889 in 2015)
Adjustment for realized gain/loss reclassified into earnings (net of taxes
of $1,326 in 2017, $1,050 in 2016 and $1,064 in 2015)
Total change in derivative instruments designated as cash flow hedges, net
of tax
Changes in accumulated other comprehensive loss — pension plans:
Change in transition asset (net of taxes of $0 in 2017, $3 in 2016 and
$0 in 2015)
Change in actuarial loss/gain (net of taxes of $355 in 2017, $3,297 in
2016 and $23,500 in 2015)
Change in prior service cost/income (net of taxes of $61 in 2017, $47
in 2016 and $640 in 2015)
Total change in accumulated other comprehensive (loss) income —
pension plans, net of tax
Other comprehensive income (loss)
Comprehensive income
See accompanying Notes.
2017
2016
2015
$
727,259
$
861,664
$
696,878
1,572
(6,006)
(12,925)
(517)
(517)
847
847
(540)
(540)
3,806
4,199
8,005
(4,629)
(28,798)
3,437
10,447
(1,192)
(18,351)
14
17
19
3,513
(16,730)
153,953
(132)
101
(4,481)
3,395
12,455
$
739,714
$
(16,612)
(22,963)
838,701
$
149,491
117,675
814,553
47
ANALOG DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
and October 29, 2016
r
October 28, 2017
AA
r
(thousands, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Accounts receivable less allowances of $7,213 ($5,117 in 2016)
Inventories(1)
Prepaid income tax
Prepaid expenses and other current assets
Total current assets
Property, Plant and Equipment, at Cost
Land and buildings
Machinery and equipment
ff
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
Debt, current
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, $0.16 2/3 par value, 1,200,000,000 shares authorized, 368,635,788 shares outstanding
(308,170,560 on October 29, 2016)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
TT
Total shareholders’
equity
_______________________________________
2017
2016
$
1,047,838
$
—
688,953
550,816
3,522
60,209
2,351,338
794,456
2,368,215
66,493
75,263
3,304,427
2,197,123
1,107,304
32,572
24,838
12,217,455
5,319,425
32,322
56,040
17,682,652
$
$
21,141,294
$
236,629
$
473,972
86,905
300,000
498,826
1,596,332
7,551,084
1,674,683
32,572
125,083
9,383,422
921,132
3,134,661
477,609
376,555
6,405
58,501
4,974,863
564,329
1,994,115
58,785
59,649
2,676,878
2,040,762
636,116
26,152
21,937
1,679,116
549,368
36,005
46,721
2,359,299
7,970,278
171,439
351,538
4,100
—
255,857
782,934
1,732,177
109,931
26,152
153,466
2,021,726
—
—
61,441
5,250,519
4,910,939
(61,359)
10,161,540
21,141,294
$
$
51,363
402,270
4,785,799
(73,814)
5,165,618
7,970,278
(1) Includes $5,373 and $2,486 related to stock-based compensation at October 28, 2017 and October 29, 2016, respectively.
See accompanying Notes.
48
ANALOG DEVICES, INC.
CONSOLIDATED ST
YY
Years ended
SHAREHOLDERS’
ATT TEMENTS OF
AA
EQUITY
F
r
and October 31, 2015
r
, October 29, 2016
r
October 28, 2017
AA
(thousands)
BALANCE, NOVEMBER 1, 2014
Activity in Fiscal 2015
Net Income — 2015
Dividends declared and paid
Common Stock
Shares
Amount
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
311,205
$
51,869
$ 643,058
$ 4,231,496
$
(168,526)
696,878
(491,059)
Issuance of stock under stock plans and other
4,927
822
121,809
26,971
68,919
(4,071)
312,061
(680)
52,011
(226,273)
634,484
4,437,315
(50,851)
117,675
Tax benefit — equity based awards
Stock-based compensation expense
Other comprehensive loss
Common stock repurchased
BALANCE, OCTOBER 31, 2015
Activity in Fiscal 2016
Net Income — 2016
Dividends declared and paid
861,664
(513,180)
61,042
12,282
63,421
Issuance of stock under stock plans and other
Tax benefit — equity based awards
2,721
454
Stock-based compensation expense
Other comprehensive income
Common stock repurchased
BALANCE, OCTOBER 29, 2016
Activity in Fiscal 2017
Net Income — 2017
Dividends declared and paid
Issuance of stock under stock plans and other
Issuance of stock in connection with Acquisition
Tax benefit — equity based awards
Stock-based compensation expense
Replacement share-based awards issued in connection
with acquisition
Other comprehensive loss
Common stock repurchased
(6,611)
308,171
(1,102)
51,363
(368,959)
402,270
4,785,799
(73,814)
(22,963)
727,259
(602,119)
5,153
55,884
859
9,314
132,439
4,584,341
40,189
104,188
33,530
(572)
(95)
(46,438)
12,455
BALANCE, OCTOBER 28, 2017
368,636
$
61,441
$ 5,250,519
$ 4,910,939
$
(61,359)
See accompanying Notes.
49
ANALOG DEVICES, INC.
AA
CONSOLIDATED ST
r
October 28, 2017
F
ATT TEMENTS OF
AA
r
, October 29, 2016
YY
Years ended
CASH FLOWS
and October 31, 2015
r
2017
2016
2015
(thousands)
Operations
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operations:
$
727,259
$
861,664
$
696,878
Depreciation
Amortization of intangibles
Cost of goods sold for inventory acquired
Stock-based compensation expense
Loss on extinguishment of debt
Other non-cash activity
Excess tax benefit — equity based awards
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
Payments for acquisitions, net of cash acquired
Change in other assets
Net cash used for investing activities
Financing Activities
Cash flows from financing activities:
Proceeds from debt
Debt repayments
Early termination of debt
Proceeds from (payments of) derivative instruments
Payments of deferred financing fees
Dividend payments to shareholders
Repurchase of common stock
Proceeds from employee stock plans
Contingent consideration payment
Change in other financing activities
Excess tax benefit — equity based awards
Net cash provided by (used for) financing activities
ff
Effect of exchange rate changes on cash
Net 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.
$
50
194,666
389,393
358,718
104,188
—
(10,865)
(41,773)
(825,869)
(65,669)
(47,354)
(1,875)
(7,358)
2,679
192,249
7,358
119,618
17,227
385,333
1,112,592
(705,485)
3,362,792
577,187
(204,098)
(9,632,568)
))
(15,842
(
))
(
(6,618,014
11,156,164
(5,050,000)
—
3,904
(5,625)
(602,119)
(46,533)
133,302
(1,764)
(524)
41,773
5,628,578
3,550
126,706
921,132
,
,
1,047,838
134,540
75,250
—
63,421
3,290
24,570
(10,453)
8,124
(9,392)
38,221
(5,618)
(2,399)
(4,315)
85,502
2,399
9,950
6,141
419,231
1,280,895
130,147
92,093
—
68,919
—
6,974
(25,045)
(52,214)
(71,198)
(35,557)
2,861
(2,643)
4,546
56,614
2,643
25,060
7,720
210,920
907,798
(7,697,260)
6,375,361
332,716
(127,397)
(83,170)
))
(
(18,520
))
(
(1,218,270
(6,083,999)
4,984,980
1,251,194
(153,960)
(7,065)
))
(8,275
(
))
(
(17,125
1,235,331
—
(378,156)
(33,430)
(26,583)
(513,180)
(370,061)
61,496
(1,409)
(7,378)
10,453
(22,917
(
(
(2,929
36,779
884,353
921,132,
))
))
$
—
—
—
—
—
(491,059)
(226,953)
122,631
(1,767)
500
25,045
(571,603
))
(
))
(
(3,950
315,120
569,233
884,353,
$
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
r
, October 29, 2016
r
October 28, 2017
STL ATT TEMENTS
and October 31, 2015
YY
Years ended
AA
r
(all tabular amounts in thousands except per share amounts)
1. Description of Business
Analog Devices, Inc. (Analog Devices or the Company) is a leading global high-performance analog technology
company. The Company's products and technologies intelligently bridge the physical and digital domains through sensing,
measuring, powering, connecting and interpreting. The Company designs, manufactures and markets a broad portfolio of
solutions that leverage high-performance analog, mixed-signal and digital signal processing technology, including integrated
circuits (ICs), algorithms, software, and subsystems. Since the Company's inception in 1965, it has focused on solving its
customers’ toughest signal processing engineering challenges and playing 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. The Company combines sensors, data converters, amplifiers and linear products,
radio frequency (RF) ICs, power management products, and signal processing products, into technology platforms that meet
specific customer and market needs, leveraging its engineering investment across a broad base of markets and customers. As
new generations of applications evolve, such as autonomous vehicles and the Internet of Things, new needs for Analog
Devices’ high-performance analog signal processing and digital signal processing (DSP) products and technology are emerging.
yy
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 presentation for the fiscal year ended October 28, 2017 (fiscal 2017). Such reclassified amounts
are 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 2017, the fiscal year ended October 29, 2016 (fiscal 2016) and the fiscal year ended October 31, 2015 (fiscal 2015) were
52-week periods.
On March 10, 2017 (Acquisition Date), the Company completed the acquisition of Linear Technology Corporation
(Linear), a designer, manufacturer and marketer of high performance analog integrated circuits. The total consideration paid to
acquire Linear was approximately $15.8 billion, consisting of $11.1 billion in cash financed through existing cash on hand, net
proceeds from bridge and term loan facilities and proceeds received from the issuance of senior unsecured notes, $4.6 billion
from the issuance of the Company's common stock and $0.1 billion of consideration related to the replacement of outstanding
equity awards held by Linear employees. The acquisition of Linear is referred to as the Acquisition. The consolidated financial
statements included in this Annual Report on Form 10-K include the financial results of Linear prospectively from the
Acquisition Date.
TT
See Note 6, Acquisitions, of these notes to Consolidated Financial Statements for further discussion related to the
Acquisition.
b. Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents are highly liquid investments with insignificant interest rate risk and maturities of ninety days
or less at the time of acquisition. Cash, cash equivalents and short-term investments consist primarily of government and
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-
yy
yy
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.
classified as available-for-sale. Available-for
AA
related tax, reported in accumulated other comprehensive (loss) income. 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.
The Company’s other readily marketable cash equivalents and short-term investments are
-sale securities are carried at fair value with unrealized gains and losses, net of
51
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
The Company’s deferred compensation plan investments are classified as trading. See Note 7, Deferred Compensation
Plan Investments, of these Notes to Consolidated Financial Statements for additional information on these investments. There
were no cash equivalents or short-term investments classified as trading at October 28, 2017 or October 29, 2016.
rr
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 on investments are determined based on the specific identification basis and are recognized in
nonoperating (income) expense. There were no material net realized gains or losses from the sales of available-for-sale
investments during any of the fiscal periods presented.
Gross unrealized gains and losses on available-for-sale securities classified as short-term investments at October 28, 2017
and October 29, 2016 were as follows:
Unrealized gains on securities classified as short-term investments
Unrealized losses on securities classified as short-term investments
Net unrealized gain on securities classified as short-term investments
2017
2016
$
$
$
2
(2)
— $
846
(294)
552
As of October 28, 2017, the Company held 18 investment securities, 8 of which were in an unrealized loss position with
immaterial gross unrealized losses and an aggregate fair value of $143.9 million. As of October 29, 2016, the Company held
100 investment securities, 25 of which were in an unrealized loss position with gross unrealized losses of $0.3 million and an
aggregate fair value of $729.6 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 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 October 28, 2017 and October 29, 2016.
yy
The components of the Company’s cash and cash equivalents and short-term investments as of October 28, 2017 and
October 29, 2016 were as follows:
Cash and cash equivalents:
Cash
Available-for
rr
-sale
AA
Held-to-maturity
Total cash and cash equivalents
Short-term investments:
rr
Available-for
-sale
AA
Held-to-maturity (less than one year to maturity)
TT
Total short-term investments
2017
2016
226,160
751,678
70,000
1,047,838
$
$
67,877
693,255
160,000
921,132
— $
—
— $
3,110,011
24,650
3,134,661
$
$
$
$
See Note 2j, Fair Value,
VV
of these Notes to Consolidated Financial Statements 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
2017
2016
2015
$
$
868,492
183,117
$
$
77,918
41,701
$
$
142,931
25,625
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
52
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
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.
Inventories at October 28, 2017 and October 29, 2016 were as follows:
Raw materials
Work in process
Finished goods
TT
Total inventories
e. Property, Plant and Equipment
yy
2017
2016
$
$
35,436
376,476
138,904
550,816
$
$
20,263
232,196
124,096
376,555
Property, plant and equipment is recorded at cost, less allowances for depreciation.
yy
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 depreciated over the lesser of the term of the lease or the useful
life of the asset. Repairs and maintenance charges are expensed as incurred. Depreciation is based on the following ranges of
estimated useful lives:
Buildings
Machinery & equipment
Office equipment
ff
Up to 30 years
3-10 years
3-10 years
Depreciation expense for property, plant and equipment was
yy
$194.7 million, $134.5 million and $130.1 million in fiscal
2017, 2016 and 2015, respectively.
yy
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 determined 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 depreciated over the revised useful life. The Company has not recorded any material
impairment charges related to our property, plant and equipment in fiscal
2017, fiscal 2016 or fiscal 2015.
yy
yy
f. Goodwill and Intangible Assets
Goodwill
yy
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 which we have determined is consistent with our operating segments, 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 goodwill impairment test
requires an entity to compare the fair value of a reporting unit with its carrying amount. The Company determines the fair
value of its reporting units using a weighting of the income and market approaches. Under the income approach, the Company
uses a discounted cash flow methodology which requires management to make significant estimates and assumptions related to
forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and
long-term discount rates, among others. For the market approach, the Company uses the guideline public company method.
Under this method the Company utilizes information from comparable publicly traded companies with similar operating and
investment characteristics as the reporting units, to create valuation multiples that are applied to the operating performance of
the reporting unit being tested, in order to estimate their respective fair values. In order to assess the reasonableness of the
calculated reporting unit fair values, the Company reconciles the aggregate estimated fair values of its reporting units
determined to its current market capitalization, allowing for a reasonable control premium. If the carrying amount of a reporting
unit, calculated using the above approaches, exceeds the reporting unit’s fair value, an impairment loss is recognized for the
amount of the carrying value that exceeds the amount of the reporting unit's fair value, not to exceed the total amount of
goodwill allocated to the reporting unit. Additionally, the Company considers income tax ef
ff
fects from any tax deductible
goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. There was
53
ww
yy
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
no impairment of goodwill in any of the fiscal years presented. The Company’s next annual impairment assessment will be
performed as of the first day of the fourth quarter of the fiscal year ending November 3, 2018 (fiscal 2018) unless indicators
arise that would require the Company to reevaluate at an earlier date. The following table presents the changes in goodwill
during fiscal 2017 and fiscal 2016:
Balance at beginning of year
Acquisition of Linear (Note 6)
Goodwill adjustment related to other acquisitions (1)
Foreign currency translation adjustment
Balance at end of year
$
2017
1,679,116
10,532,272
$
4,198
1,869
$
12,217,455
$
2016
1,636,526
—
44,046
(1,456)
1,679,116
(1) Represents goodwill related to other acquisitions that were not material to the Company on either an individual or aggregate
basis.
Intangible Assets
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 determined by comparison of their
carrying value to the estimated future undiscounted cash flows the assets are expected to generate over their remaining
estimated useful 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 estimated fair value determined by either a quoted market price,
if any, or a value determined by utilizing a discounted cash flow technique.
yy
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 a qualitative assessment on
the indefinite-lived intangible assets to determine whether it is more likely-than not that the indefinite-lived intangible asset is
impaired. If it is determined that the fair value of the indefinite-lived intangible asset is less than the carrying value, the
Company would recognize into earnings the amount by which the carrying value of the assets exceeds the estimated fair value.
No impairment of intangible assets resulted from the impairment tests in any of the fiscal years presented.
Definite-lived intangible assets 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. In-process research and development
(IPR&D) assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research
and development (R&D) efforts. Upon completion of the projects, the IPR&D assets are reclassified to technology-based
intangible assets and amortized over their estimated useful lives.
ff
As of October 28, 2017 and October 29, 2016, the Company’s intangible assets consisted of the following:
Customer relationships
Technology-based
Trade-name
Backlog
IPR&D
TT
Total (1) (2)
October 28, 2017
r
October 29, 2016
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
$
$
4,683,461
1,097,025
72,800
200
24,334
5,877,820
$
$
449,369
101,920
6,906
200
—
558,395
$
$
649,159
38,731
600
200
29,675
718,365
$
$
158,979
9,958
60
—
—
168,997
________
(1) Foreign intangible asset carrying amounts are affected by foreign currency translation.
(2) Increases in intangible assets primarily relate to the Acquisition and other acquisitions. See Note 6, Acquisitions, of these
Notes to Consolidated Financial Statements for further information.
ff
Intangible assets, along with the related accumulated amortization, are removed from the table above at the end of the
fiscal year they become fully amortized.
Amortization expense related to finite-lived intangible assets was $389.4 million, $75.3 million and $92.1 million in fiscal
2017, 2016 and 2015, respectively. The remaining amortization expense will be recognized over a weighted average life of
approximately 5.1 years.
54
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
The Company expects annual amortization expense for intangible assets as follows:
Fiscal YearYY
2018
2019
2020
2021
2022
g. Grant Accounting
Amortization Expense
565,885
$
562,696
$
562,457
$
562,037
$
559,107
$
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 estimated 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. The amounts recognized
were not material in fiscal 2017, 2016 or 2015.
h. Translation of Foreign Currencies
TT
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 2017, 2016 or 2015.
TT
yy
i. Derivative Instruments and Hedging Agreements
t
e Management
rr
Foreign Exchange Exposur
rr
—
The Company enters into forward foreign currency exchange contracts to
yy
offset certain operational and balance sheet exposures from the impact of changes in foreign currency exchange rates. Such
ff
exposures result from the portion of the Company’s operations, assets and liabilities that are denominated in currencies other
than the U.S. dollar, primarily the Euro; other significant exposures include the British Pound, Philippine Peso and the Japanese
Yen.YY 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.
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 reported as a component of accumulated other comprehensive (loss)
ff
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
ff
(income) expense.
The contracts are for periods consistent with the terms of the underlying
ff
ff
ff
The total notional amounts of forward foreign currency derivative instruments designated as hedging instruments of cash
October 28, 2017 and October 29,
flow hedges denominated in Euros, British Pounds, Philippine Pesos and Japanese Yen as of
2016 was $194.3 million and $179.5 million, respectively. The fair values of forward foreign currency derivative instruments
designated as hedging instruments in the Company’s consolidated balance sheets as of October 28, 2017 and October 29, 2016
were as follows:
YY
Forward foreign currency exchange contracts Prepaid expenses and other current assets
Forward foreign currency exchange contracts Accrued liabilities
$
$
257
$
— $
—
5,260
Balance Sheet Location
October 28, 2017
r
October 29, 2016
Fair Value At
yy
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 October 28, 2017 and October 29, 2016, the total notional amount of these
ff
55
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
undesignated hedges was $100.4 million and $46.2 million, respectively. The fair value of these hedging instruments in the
Company’s consolidated balance sheets was a liability of $1.8 million as of October 28, 2017 and was immaterial as of
October 29, 2016.
The Company estimates that $0.5 million, net of tax, of forward foreign currency derivative instruments included in OCI
will be reclassified into earnings within the next 12 months. There was no material ineffectiveness
ended October 28, 2017 and October 29, 2016.
ff
during the fiscal years
All of the Company’s derivative financial instruments are eligible for netting arrangements that allow the Company and
its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these
arrangements have been presented in the Company's consolidated balance sheet on a net basis. As of October 28, 2017 and
October 29, 2016, none of the netting arrangements involved collateral. The following table presents the gross amounts of the
Company's derivative assets and liabilities and the net amounts recorded in the Company's consolidated balance sheet as of
October 28, 2017 and October 29, 2016:
Gross amount of recognized liabilities
ff
Gross amounts of recognized assets offset in the consolidated balance sheet
Net liabilities presented in the consolidated balance sheet
October 28, 2017
r
October 29, 2016
$
$
(5,039) $
3,512
(1,527) $
(5,788)
557
(5,231)
t
e Management
rr
Interest Rate Exposur
rr
—
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.
ff
The market risk associated with the Company’s derivative instruments results from currency exchange rate or interest rate
ff
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 October 28,
2017 and October 29, 2016, nonperformance is not perceived to be a material 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’
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.
yy
obligations under the
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 or the ineffective portion of designated hedges are reported in earnings as they occur
ff
For information on the unrealized holding gains (losses) on derivatives included in and reclassified out of accumulated
other comprehensive income into the consolidated statement of income related to forward foreign currency exchange contracts,
see Note 2o, Accumulated Other Comprehensive (Loss) Income
of these Notes to Consolidated Financial Statements.
rr
j. Fair ValueVV
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
yy
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.
56
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or
yy
. If the asset or liability has a specified (contractual) term, a Level 2 input must be
liability, either directly or indirectly
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
yy
for the asset or liability at the measurement date.
The tables below, set forth by level, presents the Company’
ww
s financial assets and liabilities, excluding accrued interest
components, that were accounted for at fair value on a recurring basis as of October 28, 2017 and October 29, 2016. 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
October 28, 2017 and October 29, 2016, the Company held $296.2 million and $252.5 million, respectively, of cash and held-
to-maturity investments that were excluded from the tables below.
yy
October 28, 2017
Fair Value measur
VV
ement at
Assets
Cash equivalents:
rr
-sale:
AA
Available-for
Government and institutional money market
funds
Corporate obligations (1)
Other assets:
Deferred compensation investments
Interest rate derivatives
Total assets measured at fair
r
value
Liabilities
rr
Contingent consideration
Forward foreign currency exchange contracts (2)
TT
Total liabilities measur
r
ed at fair value
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)
TotalTT
$
512,882
$
— $
— $
—
238,796
33,510
—
546,392
$
—
2,966
241,762
$
—
—
—
— $
—
—
—
1,527
7,891
—
— $
1,527
$
7,891
$
$
$
512,882
238,796
33,510
2,966
788,154
7,891
1,527
9,418
(1) The amortized cost of the Company’s investments classified as available-for-sale as of October 28, 2017 was $238.9
million.
(2) The Company has netting arrangements by counterparty with respect to derivative contracts. See Note 2i, Derivative
Instruments and Hedging Agreements
the Company's master netting arrangements.
rr
, of these Notes to Consolidated Financial Statements for more information related to
57
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
October 29, 2016
Fair Value measur
VV
ement 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)
TotalTT
Assets
Cash equivalents:
rr
-sale:
AA
Available-for
Institutional money market funds
Corporate obligations (1)
$
$
277,595
—
— $
415,660
— $
—
277,595
415,660
Short - term investments:
rr
Available-for
-sale:
AA
Securities with one year or less to maturity:
Corporate obligations (1)
Floating rate notes, issued at par
Floating rate notes (1)
Other assets:
Deferred compensation investments
r
Total assets measured at fair
value
rr
Liabilities
—
—
—
2,518,148
29,989
561,874
26,916
—
—
—
—
—
2,518,148
29,989
561,874
26,916
$
304,511
$
3,525,671
$
— $
3,830,182
Contingent consideration
Forward foreign currency exchange contracts (2)
TT
Total liabilities measur
r
ed at fair value
$
—
—
— $
—
5,231
5,231
$
7,555
—
7,555
$
7,555
5,231
12,786
(1) The amortized cost of the Company’s investments classified as available-for-sale as of October 29, 2016 was $3.5 billion.
(2) The Company has master netting arrangements by counterparty with respect to derivative contracts. See Note 2i,
, of these Notes to Consolidated Financial Statements for more
rr
Derivative Instruments and Hedging Agreements
information related to the Company's master netting arrangements.
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial
instruments:
Cash equivalents 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. The fair value of these instruments is based upon valuation models using current market
information such as strike price, spot rate, maturity date and volatility.
Interest rate derivatives — The fair value of interest rate derivatives are estimated using a discounted cash flow analysis
based on the contractual terms of the derivatives.
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
58
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
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 Inputsp
Potential contingent consideration payments
Discount rate
Timing of cash flows
Probability of achievement
Range
$8,500
0% - 2%
1 to 2 years
90% - 100%
Changes in the fair value of the contingent consideration are 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) from October 31, 2015 to October 28, 2017:
Balance as of October 31, 2015
Contingent consideration liability recorded
Payment made (1)
Fair value adjustment (2)
Effect of foreign currency
Balance as of October 29, 2016
ff
Contingent consideration liability recorded
Payment made (1)
Fair value adjustment (2)
Balance as of October 28, 2017
r
Contingent
Consideration
$
$
$
2,843
7,500
(1,489)
(888)
(411)
7,555
2,000
(2,000)
336
7,891
(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.
VV
Financial Instruments Not Recorded at Fair V
alue on a Recurring Basis
rr
The table below presents the estimated fair value of certain financial instruments not recorded at fair value on a recurring
basis. The carrying amounts of the term loans approximate fair value. The term loans are classified as Level 2 measurements
according to the fair value hierarchy. The fair values of the senior unsecured notes debt are obtained from broker prices and are
classified as Level 1 measurements according to the fair value hierarchy. See Note 16, Debt, of these Notes to Consolidated
Financial Statements for further discussion related outstanding debt.
59
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
3-Year term loan
5-Year term loan
2021 Notes, due December 2021
2023 Notes, due June 2023
2023 Notes, due December 2023
2025 Notes, due December 2025
2026 Notes, due December 2026
2036 Notes, due December 2036
2045 Notes, due December 2045
k. Use of Estimates
October 28, 2017
October 29, 2016
Principal
Amount
Outstanding
$
1,950,000
2,100,000
400,000
500,000
550,000
850,000
900,000
250,000
400,000
Fair Value
1,950,000
2,100,000
399,530
498,582
554,411
884,861
902,769
259,442
460,588
Principal
Amount
Outstanding
Fair ValueVV
—
—
—
500,000
—
850,000
—
—
—
—
—
501,307
—
901,523
—
—
400,000
425,109
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
ff
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, 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 fair value of acquired
assets and liabilities, including inventory, property
yy
, plant and equipment and acquired intangibles, and other reserves.
ff
results could differ from those estimates and such dif
ferences may be material to the financial statements.
Actual
yy
yy
ff
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.
The Company's largest single end customer represented approximately14%, 12% and 13% of total revenue in fiscal years
2017, 2016 and 2015, respectively.
m. Concentration of Other Risks
The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical
ff
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
ge portion of the
to the risk of obsolescence of its inventory depending on the mix of future business. Additionally, a lar
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
TT
yy
yy
ff
60
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
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 is upon shipment in the U.S.
and in certain foreign countries. Revenue from product sales to customers in other foreign countries is recognized subsequent to
product shipment. Title for shipments to these other foreign countries ordinarily passes within a week of shipment. Accordingly, yy
the Company defers the revenue recognized relating to these other foreign countries until title has passed. For multiple element
arrangements, the Company allocates arrangement consideration among the elements based on the relative fair values of those
elements as determined using vendor-specific objective evidence or third-party evidence. The Company uses its best estimate of
selling price to allocate arrangement consideration between the deliverables in cases where neither vendor-specific objective
evidence nor third-party evidence is available. A reserve for sales returns and allowances for customers is recorded based on
historical experience or specific identification of an event necessitating a reserve.
A
Revenue from contracts with the United States government, government prime contractors and some commercial
customers is generally recorded on a percentage of completion basis using either units delivered or costs incurred as the
measurement basis for progress towards completion. The output measure is used to measure results directly and is generally the
best measure of progress toward completion in circumstances in which a reliable measure of output can be established.
Estimated revenue in excess of amounts billed is reported as unbilled receivables. Contract accounting requires judgment in
estimating costs and assumptions related to technical issues and delivery schedule. Contract costs include material,
subcontractor costs, labor and an allocation of indirect costs. The estimation of costs at completion of a contract is subject to
numerous variables involving contract costs and estimates as to the length of time to complete the contract. Changes in contract
performance, estimated gross margin, including the impact of final contract settlements, and estimated losses are recognized in
the period in which the changes or losses are determined.
Product sales to certain international distributors are made under agreements that permit limited stock return privileges
but not sales price rebates. Revenue on these sales is recognized upon shipment at which time title passes.
The Company defers revenue and the related cost of sales on shipments to U.S. distributors and certain international
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 certain of these distributors are made under
agreements that allow such 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, such distributors are allowed to return unsold products if the
Company terminates the relationship with the distributor.
ww
yy
Certain distributors are granted price-adjustment credits for sales to their customers when the distributor’s standard cost
(i.e., the Company’s sales price to the distributor) does not provide the distributor with an appropriate margin on its sales to its
customers. As distributors negotiate selling prices with their customers, the final sales price agreed upon with the customer will
be influenced by many factors, including the particular product being sold, the quantity ordered, the particular customer, the
geographic location of the distributor and the competitive landscape. As a result, the distributor may request and receive a price-
adjustment credit from the Company to allow the distributor to earn an appropriate margin on the transaction.
Certain 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 dif
ff
ference 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.
yy
Given the uncertainties associated with the levels of price-adjustment credits to be granted to certain 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 certain distributors until such distributors have sold the products to their
customers.
Generally, title to the inventory transfers to the distributor at the time of shipment or delivery to the distributor
yy
, 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.
61
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
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 October 28, 2017 and October 29, 2016, the Company had gross deferred revenue of $589.5 million and $432.3
million, respectively, and gross deferred cost of sales of
yy
$115.5 million and $80.8 million, respectively.
The Company generally offers a
ff
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 2017, fiscal 2016 and fiscal 2015 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 October 28, 2017 and
October 29, 2016 consisted of the following, net of tax:
October 29, 2016
Other comprehensive income
before reclassifications
Amounts reclassified out of other
comprehensive income
Tax effects
ff
Other comprehensive income
r
October 28, 2017
Foreign
currency
translation
adjustment
$
(24,063) $
16
—
1,556
1,572
(22,491) $
$
800
(844)
—
47
(797)
3
Unrealized
holding gains
on available
for sale
securities
Unrealized
holding
(losses) on
available for
sale securities
$
Unrealized
holding
Gains on
Derivatives
(281) $
(18,884) $
Pension
Plans
(31,386) $
TotalTT
(73,814)
292
—
(12)
280
$
(1) $
4,726
1,941
6,131
5,525
(2,246)
8,005
(10,879) $
1,870
(416)
3,395
(27,991) $
7,395
(1,071)
12,455
(61,359)
The amounts reclassified out of accumulated other comprehensive loss into the consolidated statement of income, with
presentation location during each period were as follows:
62
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
Comprehensive Income Component
Unrealized holding (losses) gains on derivatives
Currency forwards
Interest rate derivatives
Amortization of pension components
Transition obligation
Prior service credit and curtailment recognition
Actuarial losses and settlement recognition
Total amounts reclassified out of accumulated
TT
other comprehensive income, net of tax
______________
2017
2016
Location
$
2,188
330
2,059 Cost of sales
1,038 Research and development
927
2,080
5,525
(1,326)
4,199
14
(9)
1,865
1,870
(400)
1,470
$
$
$
(579)
1,969
Selling, marketing, general and
administrative
Interest expense
4,487 Total before tax
(1,050) Tax
3,437 Net of tax
17
(a)
— (a)
(a)
830
847 Total before tax
(228) Tax
619 Net of tax
5,669
$
4,056
$
$
$
$
$
a) The amortization of pension components is included in the computation of net periodic pension cost. See Note 13,
Retirement Plans,
of these Notes to Consolidated Financial Statements for further information.
rr
p. Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was approximately $12.6 million in fiscal 2017, $6.1
million in fiscal 2016 and $4.7 million in fiscal 2015.
q.
Income Taxes
TT
ff
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
A
A valuation allowance is recorded when it is more likely than not that some or
temporary differences are expected to reverse.
all of the deferred tax assets will not be realized. The calculation of the tax liabilities involves dealing with uncertainties in the
application of complex tax regulations. If it is more likely than not that the tax position will not be sustained on audit, an
uncertain tax position is recorded. The Company re-evaluates these uncertain tax positions on a quarterly basis. See Note 14,
Income Taxes
, of these Notes to Consolidated Financial Statements for further information related to income taxes.
TT
ff
ff
r. rr
Earnings Per Share of Common Stock
ff
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 and restricted stock units 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 and restricted stock units were excluded because they were anti-dilutive. Those potential shares, determined based on
the weighted average exercise prices during the respective periods, could be dilutive in the future.
ff
In connection with the Acquisition, the Company granted restricted stock awards to replace outstanding restricted stock
awards of Linear employees. These restricted stock awards entitle recipients to voting and nonforfeitable dividend rights from
63
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
the date of grant. These unvested stock-based compensation awards are considered participating securities and the two-class
method is used for purposes of calculating earnings per share. Under the two-class method, a portion of net income is allocated
to these participating securities and therefore is excluded from the calculation of earnings per share allocated to common stock,
as shown in the table below. The difference between the income allocated to participating securities under the basic and diluted
two-class methods is not material.
ff
The following table sets forth the computation of basic and diluted earnings per share:
Net Income
Less: income allocated to participating securities
Net income allocated to common shareholders
Basic shares:
Weighted-average shares outstanding
Earnings per common share basic
Diluted shares:
Weighted-average shares outstanding
Assumed exercise of common stock equivalents
Weighted-average common and common equivalent shares
Earnings per common share diluted
Anti-dilutive shares related to:
Outstanding stock options
s. Stock-Based Compensation
2017
2016
2015
$
727,259
$
861,664
$
2,243
725,016
—
861,664
696,878
—
696,878
$
$
346,371
2.09
$
308,736
2.79
$
312,660
2.23
346,371
4,113
350,484
2.07
$
308,736
3,572
312,308
2.76
$
312,660
4,212
316,872
2.20
1,527
3,077
2,089
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, or in annual installments of 20% on each of the first, second, third, fourth and fifth anniversaries of the date
of grant, and three years for restricted stock units/awards. In addition to restricted stock units with a service condition, the
Company grants restricted stock units with market conditions, performance conditions and service conditions. For awards with
both a market and service condition the number of shares of the Company's common stock to be issued upon vesting will range
from 0% to 200% of the target amount, based on the comparison of the Company's total shareholder return (TSR) to the median
TSR of a specified peer group over a three-year period. TSR is a measure of stock price appreciation plus any dividends paid
during the performance period. Determining the amount of stock-based compensation to be recorded for stock options and
restricted stock units with a market and service condition requires the Company to develop estimates used in calculating the
grant-date fair value of awards. The Company uses the Black-Scholes valuation model to calculate the grant-date fair value of
stock option awards and the Monte Carlo simulation model to calculate the grant-date fair value of restricted stock units with a
market and service condition. The use of these valuation models requires the Company to make estimates and assumptions,
The grant-date
such as expected volatility, expected term, risk-free interest rate, expected dividend yield and forfeiture rates.
fair value of restricted stock units with only a service condition and those with both a service and performance condition
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.
yy
See Note 3, Stock-Based Compensation and Shareholders' Equity
,yy of these Notes to Consolidated Financial Statements
rr
for additional information relating to stock-based compensation.
t. New Accounting Pronouncements
Standards Implemented
rr
Business combinations
In September 2015, the Financial Accounting Standards Board (FASB) issued
(ASU) 2015-16, Business Combinations (Topic 805): Simplifying the
2015-16). The update requires that an acquirer recognize adjustments to provisional amounts that are identified during the
Adjustments (ASU
TT
FF
Accounting for Measurement-Period
Accounting Standards Update
rr
64
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
measurement period in the reporting period in which the adjustment amounts are determined. The update also requires that the
acquirer record, in the financial statements of the period in which adjustments to provisional amounts are determined, the effect
, as a result of the change to the provisional
on earnings of changes in depreciation, amortization, or other income effects, if any
yy
amounts, calculated as if the accounting had been completed at the acquisition date. The new standard is effective prospectively
ff
for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, with early adoption
permitted. The adoption of ASU 2015-16 in the first quarter of fiscal 2017 did not impact the Company's financial position or
results of operations.
ff
ff
Intangibles-Goodwill and other
In April 2015, the FASB issued
FF
ASU 2015-05, Intangibles - Goodwill and Other - Internal Use Software (Subtopic
rr
350-40) - Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015-05), which provides guidance
to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement
includes a software license, then the customer should account for the software license element of the arrangement consistent
with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the
customer should account for the arrangement as a service contract. Consequently, all software licenses within the scope of
Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The guidance in ASU 2015-05 is
effective for fiscal years beginning after December 15, 2015 and early adoption is permitted.
ff
not impact the Company's financial position or results of operations.
The adoption of ASU 2015-05 did
yy
Consolidation
ff
FF
In February 2015, the FASB issued
ASU 2015-02, Amendments to the Consolidation Analysis (ASU 2015-02). ASU
ASU
2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities.
2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or
voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the
consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and
related party relationships. ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years,
beginning after December 15, 2015. Early adoption is permitted. A reporting entity may apply the amendments in this guidance
using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal
year of adoption. A reporting entity also may apply the amendments retrospectively
impact the Company’s financial position or results of operations.
. The adoption of ASU 2015-02 did not
A
A
ff
ff
ff
Stock Compensation
In June 2014, the FASB issued
FF
TT
ASU 2014-12, Accounting for Share-Based Payments When the T
erms of
rr
an Award rr
rr
r
arTT get Could Be
Provide That a Performance T
performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance
condition. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after
December 15, 2015. Early adoption is permitted. The adoption of ASU 2014-12 did not impact the Company's financial
position or results of operations.
Achieved after the Requisite Service Period (ASU 2014-12), which requires that a
ff
ff
Intangibles - Goodwill and Other
In January 2017, the FASB issued
FF
ASU 2017-04, Intangibles - Goodwill and Other (Topic 350)
TT
(ASU 2017-04). ASU
2017-04 simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The
amendment requires an entity to perform its annual, or interim goodwill impairment test by comparing the fair value of a
reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’
exceeds its fair value, not to exceed the carrying amount of goodwill. The amendment should be applied on a prospective basis.
ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
The Company early adopted ASU 2014-12 in the fourth quarter of fiscal 2017. The adoption did not impact the Company's
financial position or results of operations.
s carrying value
A
ff
Presentation of Financial Statements
rr
In August 2014, the FASB issued
FF
ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic
rr
205-40) (ASU 2014-15), which provides guidance about management's responsibility to evaluate whether there is substantial
doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The update requires
management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles
that are currently in U.S. auditing standards. Specifically, the update (1) provides a definition of the term "substantial doubt",
yy
65
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
ff
(2) requires an evaluation every reporting period including interim periods, (3) provides principles for considering the
mitigating effect of management’
s plans, (4) requires certain disclosures when substantial doubt is alleviated as a result of
consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not
alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or
available to be issued). ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016, and for annual
periods and interim periods thereafter. As of October 28, 2017, the Company has concluded that substantial doubt about our
ability to continue as a going concern does not exist.
ff
Standards to be Implemented
rr
Business combinations
In January 2017, the FASB issued
FF
TT
ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a
Business (ASU 2017-01). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist
entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The
definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.
The
guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.
Company will adopt ASU 2017-01 in the first quarter of the fiscal year ending November 2, 2019 (fiscal 2019). The impact of
the adoption on the Company's financial position and results of operations will be dependent upon any future acquisitions or
disposals.
ff
ff
The
Income Taxes
TT
FF
In October 2016, the FASB issued
TT
ASU 2016-16, Income Taxes (T
opic 740)
TT
an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer
occurs. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements have not
been issued or made available for issuance. ASU 2016-16 is effective for the Company in the first quarter of fiscal 2019.
ff
Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results
of operations.
(ASU 2016-16). ASU 2016-16 will require
The
yy
yy
ff
Statement of Cash Flows
In August 2016, the FASB issued
FF
TT
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 provides guidance on several specific cash flow issues, including
debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after
a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method
investees. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted in any interim or annual period. ASU 2016-15 is effective for the Company in the first
quarter of fiscal 2019. The Company is currently evaluating the adoption date but does not expect the adoption of ASU 2016-15
to have a material impact on its consolidated financial statements.
ff
ff
Equity Method Investments
FF
TT
VV
ASU 2016-07 eliminates the requirement that when an
ASU 2016-07, Investments - Equity Method and Joint Ventur
TT
es (T
opic 323): Simplifying
rr
g
Accounting
(ASU 2016-07).
In March 2016, the FASB issued
the Transition to the Equity Method of
ff
investment, initially accounted for under a method other than the equity method of accounting, subsequently qualifies for use of
the equity method, an investor must retrospectively apply the equity method in prior periods in which it held the investment.
This requires an investor to determine the fair value of the investee’s underlying assets and liabilities retrospectively at each
investment date and revise all prior periods as if the equity method had always been applied. The new guidance requires the
investor to apply the equity method prospectively from the date the investment qualifies for the equity method. The investor
will add the carrying value of the existing investment to the cost of the additional investment to determine the initial cost basis
of the equity method investment. ASU 2016-07 is effective for fiscal years beginning after December 15, 2016, and interim
periods within those fiscal years. Early adoption is permitted in any interim or annual period. ASU 2016-07 is effective for the
Company in the first quarter of fiscal 2018. The Company does not expect the adoption of ASU 2016-07 to have a material
impact on its consolidated financial statements.
ff
ff
Derivatives and Hedging
In August 2017, the FASB issued
rr
arTT geted Impr
ovements to
Accounting for Hedging Activities, which amends and simplifies existing guidance in order to allow companies to more
accurately present the economic effects of risk management activities in the financial statements.
ASU 2017-12, Derivatives and Hedging (Topic 815): T
ASU 2017-12 is effective for
TT
FF
r
ff
ff
66
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted. ASU
2017-12 is effective for the Company in the first quarter of the fiscal year ending October 31, 2020 (fiscal 2020).
The Company
is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of
operations.
yy
ff
In March 2016, the FASB issued
FF
ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options
TT
in Debt Instruments (ASU 2016-06). ASU 2016-06 clarifies the requirements for assessing whether contingent call (put) options
that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity
performing the assessment under ASU 2016-06 is required to assess the embedded call (put) options solely in accordance with
the four-step decision sequence. ASU 2016-06 is effective for annual periods beginning after December 15, 2017, and interim
periods within those annual periods. ASU 2016-06 is effective for the Company in the first quarter of fiscal 2019.
is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of
operations.
The Company
yy
ff
ff
Leases
In February 2016, the FASB issued
FF
ASU 2016-02, Leases (Topic 842)
TT
(ASU 2016-02). ASU 2016-02 requires a lessee to
recognize most leases on the balance sheet but recognize expenses on the income statement in a manner similar to current
practice. The update states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-to-
use asset for the right to use the underlying assets for the lease term. Leases will continue to be classified as either financing or
operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a
lease. ASU 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years. ASU 2016-02 is effective for the Company in the first quarter of fiscal 2020.
The Company is
currently evaluating the adoption date and the impact adoption will have on its financial position and results of operations.
ff
ff
ff
Financial Instruments
In June 2016, the FASB issued
FF
rr
ement of Cr
edit
rr
opic 326), Measur
TT
ASU 2016-13, Financial Instruments - Credit Losses (T
rr
Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 requires a financial asset (or group of financial assets)
measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a
valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the
amount expected to be collected on the financial asset. ASU 2016-13 is effective for fiscal years beginning after December 15,
2019, and for interim periods within those fiscal years. ASU 2016-13 is effective for the Company in the first quarter of fiscal
2020. The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position
and results of operations.
ff
ff
yy
In January 2016, the FASB issued
rr
FF
Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 requires equity investments to be
ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial
measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity
investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates
the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value
that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public
business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;
requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a
liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair
value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and
financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the
financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related
to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for financial
statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. ASU
2016-01 is effective for the Company in the first quarter of fiscal 2019.
The Company is currently evaluating the impact
adoption will have on its financial position and results of operations.
ff
ff
Inventory
In July 2015, the FASB issued
FF
ASU 2015-11, Inventory (Topic 330) -
TT
Simplifying the Measurement of Inventory
rr
(ASU
2015-11), which simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a
lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods
other than last-in first-out (LIFO) and the retail inventory method. The guidance in ASU 2015-11 is effective for fiscal years
beginning after December 15, 2016 and early adoption is permitted. ASU 2015-11 is effective for the Company in the first
ff
ff
67
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
quarter of fiscal 2018. The Company does not expect the adoption of ASU 2015-11 to have a material impact on its
consolidated financial statements.
Stock Compensation
FF
In May 2017, the FASB issued
ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification
Accounting (ASU 2017-09). The new guidance clarifies when a change to the terms or conditions of a share-based payment
award must be accounted for as a modification. ASU 2017-09 is effective for fiscal years, and interim periods within those
annual periods, beginning after December 15, 2017, with early adoption permitted. ASU 2017-09 is effective for the Company
in the first quarter of fiscal 2019. The Company is currently evaluating the adoption date and the impact, if any, adoption will
have on its financial position and results of operations.
TT
yy
ff
ff
((
rr
FF
Accounting (ASU 2016-09).
In March 2016, the FASB issued
rr
ASU 2016-09, Compensation - Stock Compensation (Topic 718): Impr
ovements to
TT
ASU 2016-09 simplifies several aspects of the accounting for
Employee Share-Based Payment
share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities,
and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those
annual periods, beginning after December 15, 2016 and allows for prospective, retrospective or modified retrospective
adoption, depending on the area covered in the update, with early adoption permitted. ASU 2016-09 is effective for the
Company in the first quarter of fiscal 2018. Currently, excess tax benefits or deficiencies from the Company’
payment awards are recorded in Capital in excess of par value (APIC) in its Consolidated Balance Sheets. Upon adoption, the
Company will record any excess tax benefits or deficiencies from its share-based payments in its Consolidated Statements of
Income in the reporting periods in which they occur. Currently excess tax benefits or deficiencies are classified within financing
activities in the statement of cash flows. Upon adoption, the Company will classify any excess tax benefits or deficiencies as an
operating activity in the Consolidated Statement of Cash Flows. As a result, subsequent to adoption, the Company’s income tax
expense and associated effective tax rate will be impacted by fluctuations in stock price from grant date to vesting date and the
exercises of awards by employees. The potential tax impacts remain unknown until the awards vest.
s share-based
yy
ff
ff
ff
Revenue Recognition
ff
yy
FF
FF
In May 2014, the FASB issued
rr
ASU 2014-09, Revenue from Contracts with Customers
(ASU 2014-09), which supersedes
nearly all existing revenue recognition guidance under U.S. GAAP. PP The core principle of ASU 2014-09 is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires improved
disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and
cash flows arising from contracts with customers. The FASB has issued several amendments and updates to the new revenue
standard, including guidance related to when an entity should recognize revenue gross as a principal or net as an agent and how
an entity should identify performance obligations. As amended, ASU 2014-09 is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2017, which is the Company's first quarter of fiscal 2019. Early
adoption is permitted for all entities only as of annual reporting periods beginning after December 15, 2016, including interim
reporting periods within that reporting period. The Company has developed a project plan for the implementation of the
guidance, including a review of all revenue streams to identify any differences in the timing, measurement or presentation of
revenue recognition. The Company has reviewed its revenue streams and is nearing completion in assessing all potential
impacts of the standard, including any impacts from recently issued amendments, and retrospectively adjusting financial
information for prior fiscal years. The Company has also made progress on its impact assessment of the recent acquisition of
Linear. While the Company is still in the process of completing its evaluation of the standard, it currently believes the most
significant impact will be related to the timing of recognition of sales to certain distributors. As described in Note 2n, Revenue
Recognition, of these Notes to the Consolidated Financial Statements, the Company currently defers revenue and the related
cost of sales on shipments to certain distributors until the distributors resell the products to their customers. Upon adoption of
ASU 2014-09, the Company will no longer be permitted to defer revenue until sale by the distributor to the end customer, but
rather, will be required to estimate the effects of returns and allowances provided to distributors and record revenue at the time
of sale to the distributor. The Company is continuing to evaluate the future impact and method of adoption of ASU 2014-09
and related amendments on its consolidated financial statements and related disclosures. The Company will adopt ASU
2014-09, using the full retrospective method, upon its effective date for the Company which is the Company’
ff
fiscal 2019.
s first quarter of
ff
ff
68
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
3. Stock-Based Compensation and Shareholders’ Equity
Equity Compensation Plans
q
p
y
The Company grants, or has granted, stock options and other stock and stock-based awards under the Company's
Amended and Restated 2006 Stock Incentive Plan (2006 Plan). This plan was originally approved by shareholders on
March 14, 2006, and shareholders subsequently approved the amended and restated 2006 Plan in March 2014. The 2006 Plan
provides for the grant of up to 34 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 equity compensation plans that have not been 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 12, 2021, but awards previously granted may extend
beyond that date. The Company will not grant further equity awards under any previous equity compensation plans.
ff
ff
While the Company may grant to employees options that become exercisable at different times or within dif
ferent
ff
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. 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 or in annual installments of 20% on each of the first,
second, third, fourth and fifth anniversaries of the date of grant.
As of October 28, 2017, a total of 14.7 million common shares were available for future grant under the 2006 Plan and
29.7 million common shares were reserved for issuance under the 2006 Plan and the Company's previous equity compensation
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.
p
Linear Replacement
Awardsrr
In connection with the Acquisition, the Company issued equity awards, consisting of restricted stock awards and restricted
stock units (replacement awards), to certain Linear employees in replacement of Linear equity awards. The replacement awards
consisted of restricted stock awards and restricted stock units for approximately 2.8 million shares of the Company's common
stock with a weighted average grant date fair value of $82.20. The terms and intrinsic value of these replacement awards are
substantially the same as the converted Linear awards. The fair value of the replacement awards associated with services
rendered through the Acquisition Date was recognized as a component of the total preliminary estimated acquisition
consideration, and the remaining fair value of the replacement awards associated with post-Acquisition services will be
recognized as an expense on a straight-line basis over the remaining vesting period.
Modification of
f Aff wardsrr
f
The Company has from time to time modified the terms of its equity awards to employees and directors. The
modifications made to the Company’s equity awards in fiscal 2017, fiscal 2016 and fiscal 2015 did not result in significant
incremental compensation costs, either individually or in the aggregate.
Grant-Date Fair ValueVV
The Company uses the Black-Scholes valuation model to calculate the grant-date fair value of stock option awards and the
Monte Carlo simulation model to calculate the grant-date fair value of market-based restricted stock units. The use of these
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 with a service
condition and those with both a service and performance condition 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.
yy
69
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
Information pertaining to the Company’s stock option awards and the related estimated weighted-average assumptions to
calculate the fair value of stock options using the Black-Scholes valuation model granted in fiscal 2017, fiscal 2016 and fiscal
2015 is as follows:
p
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
WW
Weighted-average expected dividend yield
2017
2016
2015
1,480
$82.99
$17.12
26.4%
5.1
2.1%
2.2%
1,814
$55.19
$12.67
34.0%
5.1
1.4%
3.0%
1,954
$57.20
$10.38
25.9%
5.3
1.6%
2.8%
The Company utilizes the Monte Carlo simulation valuation model to value market-based restricted stock units. The
Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market
conditions stipulated in the award grant and calculates the fair market value for the market-based restricted stock units granted.
The Monte Carlo simulation model also uses stock price volatility and other variables to estimate the probability of satisfying
the market conditions, including the possibility that the market condition may not be satisfied, and the resulting fair value of the
award. Information pertaining to the Company's market-based restricted stock units and the related estimated assumptions used
to calculate the fair value of market-based restricted stock units granted in fiscal 2017, fiscal 2016 and fiscal 2015 using the
Monte Carlo simulation model is as follows:
Market-based Restricted Stock Units
Units granted (in thousands)
Grant-date fair value
Assumptions:
Historical stock price volatility
Risk-free interest rate
Expected dividend yield
2017
59
$94.25
2016
102
$58.95
2015
75
$55.67
26.0%
1.6%
2.2%
25.1%
1.1%
3.0%
20.0%
1.1%
2.8%
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. The Company utilizes historical volatility as an input variable of the Monte Carlo
simulation to estimate the grant date fair value of market-based restricted stock units. The market performance measure of
these awards is based upon the interaction of multiple peer companies. Given the Company is required to use consistent
statistical properties in the Monte Carlo simulation and implied volatility is not available across the population, historical
volatility must be used.
yy
ff
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.
rr
Risk-free inter
est rate
rr
— The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the
TT
expected term assumption is used as the risk-free interest rate.
d
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,
70
ff
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
restricted stock or restricted stock units. In connection with the Acquisition, the Company granted restricted stock awards to
replace outstanding restricted stock awards of Linear employees. These restricted stock awards entitle recipients to voting and
nonforfeitable dividend rights from the date of grant.
p
Stock-Based Compensation Expense
p
The amount of stock-based compensation expense recognized during a period is based on the value of the awards that are
ff
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.
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 4.7% to all unvested stock-based awards as of October 28, 2017. 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.
The term “forfeitures” is distinct from “cancellations” or “expirations” and
yy
yy
Additional paid-in-capital (APIC) Pool
p
p
)
(
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 2017, fiscal 2016 and fiscal 2015, the
Company had a sufficient
ff
results of operations.
APIC pool to cover any tax deficiencies recorded and as a result, these deficiencies did not affect its
ff
Stock-Based Compensation
p
Activityy
A
A summary of the activity under the Company’
s stock option plans as of October 28, 2017 and changes during the fiscal
year then ended is presented below:
Options
Outstanding
(in thousands)
Weighted-
WW
cise
Average Exer
AA
e
Price Per Shar
r
Weighted-
WW
AA
Average
Remaining
Contractual
YearsYY
TT
Term in
Aggregate
Intrinsic
ValueVV
Options outstanding at October 29, 2016
r
Options granted
Options exercised
Options forfeited
Options expired
Options outstanding at October 28, 2017
Options exercisable at October 28, 2017
r
r
r
Options vested or expected to vest at October
28, 2017 (1)
r
11,704
1,480
(3,470)
(360)
(7)
9,347
4,907
9,011
$44.43
$82.99
$38.60
$55.56
$34.09
$52.27
$42.09
$51.69
6.2
4.7
6.2
$363,972
$240,991
$356,098
(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future.
The number of 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
ff
the employee to exercise the options) during fiscal 2017, fiscal 2016 and fiscal 2015 was $144.6 million, $46.6 million and
$99.2 million, respectively, and the total amount of proceeds received by the Company from exercise of these options during
fiscal 2017, fiscal 2016 and fiscal 2015 was $133.3 million, $61.5 million and $122.6 million, respectively.
yy
71
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
A
A summary of the Company’
year then ended is presented below:
s restricted stock unit award activity as of October 28, 2017 and changes during the fiscal
Restricted stock units/awards outstanding at October 29, 2016
r
Units/Awards granted
AA
Restrictions lapsed
Forfeited
Restricted stock units/awards outstanding at October 28, 2017
r
Restricted
Stock Units/
Awards
AA
Outstanding
(in thousands)
Weighted-
WW
Average Grant-
AA
Date Fair ValueVV
e
Per Shar
r
2,690
4,809
(1,580)
(239)
5,680
$50.11
$79.76
$60.02
$64.01
$71.88
As of October 28, 2017, there was $375.2 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 1.9 years. The total grant-date fair value of shares that vested during fiscal 2017, fiscal 2016 and fiscal 2015
was approximately $114.8 million, $62.8 million and $65.6 million, respectively.
Common Stock Repurp chases
rr
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 $6.2 billion of the Company’s common stock under the program. The
Company may repurchase outstanding shares of its common stock from time to time in the open market and through privately
negotiated transactions. Unless terminated earlier by resolution of the Company’s Board of Directors, the repurchase program
will expire when the Company has repurchased all shares authorized under the program. As of October 28, 2017, the Company
had repurchased a total of approximately 147.0 million shares of its common stock for approximately $5.4 billion under this
program. An additional $792.5 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. In connection with the Acquisition, the
Company temporarily suspended the common stock repurchase plan.
The Company also, from time to time, repurchases shares in settlement of employee minimum tax withholding
obligations due upon the vesting of restricted stock units/awards or the exercise of stock options. The withholding amount is
based on the employee'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.
rr
Preferr
ed Stock
frr
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
yy
The Company operates and tracks its results in one reportable segment based on the aggregation of eight operating
t
segments. The Company designs, develops, manufactures and markets a broad range of integrated circuits (ICs). The Chief
Executive Officer has been identified as the Company's Chief Operating Decision Maker
of the Company's operating segments share the following similar economic characteristics, and therefore meet the criteria
established for operating segments to be aggregated into one reportable segment, namely:
. The Company has determined that all
ff
• The primary source of revenue for each operating segment is the sale of integrated circuits.
• The integrated circuits sold by each of the Company's operating segments are manufactured using similar
semiconductor manufacturing processes and raw materials in either the Company’s own production facilities or by third-party
wafer fabricators using proprietary processes.
• The Company sells its products to tens of thousands of customers worldwide. Many of these customers use products
spanning all operating segments in a wide range of applications.
• The integrated circuits marketed by each of the Company's operating segments are sold globally through a direct sales
force, third-party distributors, independent sales representatives and via our website to the same types of customers.
72
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
All of the Company's operating segments share a similar long-term financial model as they have similar economic
characteristics. The causes for variation in operating and financial performance are the same among the Company's operating
segments and include factors such as (i) life cycle and price and cost fluctuations, (ii) number of competitors, (iii) product
differentiation and (iv) size of market opportunity
of the semiconductor industry. Lastly, the number and composition of employees and the amounts and types of tools and
materials required for production of products are proportionally similar for each operating segment.
. Additionally, each operating segment is subject to the overall cyclical nature
yy
yy
ff
Revenue TrTT ends by End Market
rr
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.
2017
2016
2015
% of
Total
Product
Revenue
Revenue
Revenue
% of
Total
Product
Revenue
Revenue
$
2,361,549
46% $
1,497,070
44% $
1,495,887
782,961
1,047,606
915,387
5,107,503
$
15%
21%
18%
100% $
541,774
687,697
694,868
3,421,409
16%
20%
20%
100% $
526,493
727,585
685,127
3,435,092
% of
TotalTT
Product
Revenue
44%
15%
21%
20%
100%
Industrial
Automotive
Consumer
Communications
TT
Total Revenue
Geographic Information
Revenue by geographic region is based upon the primary end customer location for the Company's products. In fiscal
2017, fiscal 2016 and fiscal 2015, 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 South Korea and Taiwan.
TT
yy
Revenue
United States
Rest of North and South America
Europe
Japan
China
Rest of Asia
Subtotal all foreign countries
Total revenue
yy
Property, plant and equipment
United States
Ireland
Philippines
Singapore
Malaysia
All other countries
Subtotal all foreign countries
yy
Total property
, plant and equipment
TT
2017
2016
2015
$
1,999,041
$
1,299,629
$
1,325,279
103,077
1,211,435
506,114
842,532
445,304
3,108,462
5,107,503
504,968
188,728
228,629
77,015
71,756
36,208
602,336
1,107,304
$
$
$
95,957
924,849
291,649
575,690
233,635
2,121,780
3,421,409
236,625
174,952
194,587
—
—
29,952
399,491
636,116
$
$
$
97,189
939,230
319,569
511,365
242,460
2,109,813
3,435,092
253,417
173,703
195,662
—
—
21,328
390,693
644,110
$
$
$
73
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
5.
Special Charges
The Company monitors global macroeconomic conditions on an ongoing basis and continues to assess opportunities for
As a result of these
improved operational effectiveness and ef
yy
ficiency
, as well as a better alignment of expenses with revenues.
ff
assessments, the Company has undertaken various restructuring actions over the past several years. These actions are described
below.
ff
The following tables display the special charges taken for ongoing actions and a roll-forward from November 1, 2014 to
October 28, 2017 of the employee separation and exit cost accruals established related to these actions.
Statement of Income
Workforce reductions
Total Fiscal 2016 Charges
Workforce reductions
WW
TT
Total Fiscal 2017 Charges
Accrued Restructuring
Balance at November 1, 2014
Severance payments
Facility closure costs
Non-cash impairment charge
ff
Effect of foreign currency on accrual
Balance at October 31, 2015
Fiscal 2016 special charges
Severance payments
ff
Effect of foreign currency on accrual
Balance at October 29, 2016
Fiscal 2017 special charges
Severance payments
ff
Effect of foreign currency on accrual
Balance at October 28, 2017
r
rr
Early Retirement Offer
Action
Reduction of
Operating
Costs Action
Early Retirement
Action
Total Special
TT
Charges
$
$
13,684
13,684
8,126
8,126
$
$
—
— $
41,337
41,337
$
13,684
13,684
49,463
49,463
Reduction of Operating
Costs Action
Early Retirement Action
$
$
$
$
40,503
(33,220)
(459)
(433)
(514)
5,877
13,684
(7,184)
(3)
12,374
8,126
(15,764)
401
5,137
$
$
$
$
—
—
—
—
—
—
—
—
—
—
41,337
(9,126)
—
32,211
During fiscal 2017, the Company initiated an early retirement offer
ff
. This resulted in a special charge of
approximately $41.3 million for severance, related benefits and other costs in accordance with this program for
225 manufacturing, engineering and selling, marketing, general and administrative (SMG&A) employees. As of October 28,
2017, the Company still employed 26 of the 225 employees included in these cost reduction actions. These employees must
continue to be employed by the Company until their employment is terminated in order to receive the severance benefits.
Reduction of Operating Costs Actions
During fiscal 2016, the Company recorded special charges of approximately $13.7 million for severance and fringe
benefit costs in accordance with the Company's ongoing benefit plan for 123 manufacturing, engineering and SMG&A
employees. As of October 28, 2017, the Company still employed 23 of the 123 employees included in these cost reduction
actions. These employees must continue to be employed by the Company until their employment is terminated in order to
receive the severance benefit.
During fiscal 2017, the Company recorded special charges of approximately $8.1 million for severance and fringe benefit
costs in accordance with the Company's ongoing benefit plan or statutory requirements at foreign locations for 177
manufacturing, engineering and SMG&A employees.
employees included in this cost reduction action. These employees must continue to be employed by the Company until their
employment is terminated in order to receive the severance benefits.
As of October 28, 2017, the Company still employed 10 of the 177
A
74
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
6.
Acquisitions
Linear Technology
TT
Corporation
On the Acquisition Date, the Company completed its acquisition of all of the voting interests of Linear, an independent
manufacturer of high performance analog integrated circuits. Under the terms of the agreement pursuant to which the Company
acquired Linear (Merger Agreement), Linear stockholders received, for each outstanding share of Linear common
stock, $46.00 in cash and 0.2321 of a share of the Company's common stock at the closing. The Company believes the
combination creates the premier analog technology company with the industry’s most comprehensive suite of high-
performance analog offerings.
consolidated statements of income, consolidated balance sheet, consolidated statement of cash flows and shareholders’ equity
for fiscal 2017. The amount of revenue attributable to Linear included in the Company's consolidated statements of income for
fiscal 2017 was $913.2 million.
The results of operations of Linear from the Acquisition Date are included in the Company’s
ff
The Acquisition Date fair value of the consideration transferred in the Acquisition consisted of the following:
(in thousands)
Cash consideration (a)
Issuance of common stock (b)
Fair value of replacement share-based and cash awards (c)
TT
Total estimated purchase consideration
_______________
$
$
11,092,047
4,593,655
70,954
15,756,656
(a)The cash consideration was funded utilizing cash on hand, the net proceeds from bridge credit and term loan
facilities and the proceeds received from the Company's issuance of the Notes (see Note 16, Debt, of these Notes to
Consolidated Financial Statements). This reflects the cash portion of the purchase consideration paid to Linear
stockholders of approximately $11.1 billion, as well as $16.3 million for the cash-settled portion of consideration paid
to holders of restricted stock and restricted stock awards that automatically vested at the effective time of the
Acquisition pursuant to pre-existing change-of-control agreements.
(b) The fair value is based on the issuance of approximately 55.9 million shares of the Company's common stock with
a per-share value of $82.20 (the closing price of the Company's common stock on The Nasdaq Global Select Market
on the Acquisition Date).
(c) In connection with the Acquisition, the Company issued equity and cash awards to certain Linear employees to
replace Linear equity awards. This amount represents the portion of the fair value of the replacement equity and cash
awards associated with services rendered though the Acquisition Date and have been included as a component of the
total estimated purchase consideration.
ff
The preliminary fair values of assets acquired and liabilities assumed as of the Acquisition Date are set forth in the table
below. The excess of the purchase consideration over the aggregate Acquisition Date value of identifiable net assets acquired
was recorded as goodwill. None of the goodwill is expected to be deductible for tax purposes. These preliminary Acquisition
Date values were generally determined through established and generally accepted valuation techniques and are subject to
change during the measurement period as valuations are finalized. As a result, the Acquisition accounting is not complete and
additional information that existed at the Acquisition Date may become known to the Company during the remainder of the
measurement period. Subsequent to the initial acquisition accounting recognized during the second quarter of fiscal 2017, the
Company recorded acquisition accounting adjustments of $52.1 million to goodwill comprised of $23.8 million to inventory, yy
$0.7 million to fixed assets, $12.2 million to intangible assets, $0.3 million to accounts receivable, $2.8 million to assumed
liabilities and $18.4 million to deferred tax liabilities. As of the filing date of this Annual Report on Form 10-K, the Company
is still in the process of valuing Linear's assets, including inventory, fixed assets, intangible assets, and liabilities, including
deferred revenue and related income tax accounting.
yy
75
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
(in thousands)
Cash and cash equivalents
Marketable securities
Accounts receivable (a)
Inventories
Prepaid expenses and other assets
Property, plant and equipment
Intangible assets (Note 10)
Goodwill (Note 10)
Total assets
Assumed liabilities
Deferred tax liabilities
TT
Total estimated purchase consideration
____________
$
1,466,445
100,246
146,282
461,698
14,782
462,285
5,152,600
10,532,272
18,336,610
188,454
2,391,500
15,756,656
$
$
(a) The fair value of accounts receivable was $146.5 million, with the gross contractual amount being $148.2 million, of
which the Company estimates that $1.7 million is uncollectible.
The acquired intangible assets consisted of the following, which are being 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.
Technology-based
Trade name
Customer relationships
Total amortizable intangible assets
TT
Fair ValueVV
(in thousands)
WW
Weighted
AA
Average
Useful Lives
YY
(in Years)
$
$
1,046,100
72,200
4,034,300
5,152,600
8
7
12
11
The goodwill recognized is attributable to synergies which are expected to enhance and expand the Company’s overall
product portfolio and opportunities in new and existing markets, future technologies that have yet to be determined and Linear's
assembled workforce. Future technologies do not meet the criteria for recognition separately from goodwill because they are
part of future development and growth of the business.
There were no significant contingencies assumed as part of the Acquisition.
The Company recognized $69.5 million of transaction-related costs, including legal, accounting and other related fees that
were expensed in fiscal 2017. These costs are included in the consolidated statements of income in operating expenses within
SMG&A expenses.
The Company may incur additional transaction-related costs within the next twelve months related to the
Acquisition that will be expensed as incurred.
A
The following unaudited pro forma consolidated financial information combines the unaudited results of the Company for
the year ended October 28, 2017 and the unaudited results of Linear for the year ended October 28, 2017 and assumes that the
Acquisition, which closed on March 10, 2017, was completed on November 1, 2015 (the first day of fiscal 2016). The pro
forma consolidated financial information has been calculated after applying the Company’s accounting policies and includes
adjustments for amortization expense of acquired intangible assets, transaction-related costs, a step-up in the value of acquired
inventory and property, plant and equipment, compensation expense for ongoing share-based compensation arrangements
replaced and interest expense for the debt incurred to fund the Acquisition, together with the consequential tax effects.
pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the operating results
of the Company that would have been achieved had the Acquisition actually taken place on November 1, 2015. In addition,
these results are not intended to be a projection of future results and do not reflect events that may occur after the Acquisition,
including but not limited to revenue enhancements, cost savings or operating synergies that the combined Company may
achieve as a result of the Acquisition.
These
yy
ff
76
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
(thousands, except per share data)
Revenue
Net income
Basic net income per common share
Diluted net income per common share
Other Acquisitions
Pro Forma Twelve Months Ended
TT
October 28, 2017
r
October 29, 2016
$
$
$
$
5,702,841
1,039,522
2.82
2.78
$
$
$
$
4,842,658
359,037
0.98
0.97
The Company has not provided pro forma results of operations for any other acquisitions completed in fiscal 2017, fiscal
2016 or fiscal 2015 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 October 28, 2017 and October 29, 2016 were as follows:
Money market funds
Mutual funds
TT
Total Deferred Compensation Plan investments
2017
2016
$
$
2,413
31,097
33,510
$
$
3,129
23,787
26,916
The fair values of these investments are based on published market quotes on October 28, 2017 and October 29, 2016,
respectively. Adjustments to the fair value of, and income pertaining to, Deferred Compensation Plan investments are recorded
in operating expenses within selling, marketing, general and administrative. Gross realized and unrealized gains and losses
from trading securities were not material in fiscal 2017, fiscal 2016 or fiscal 2015.
The Company has recorded a corresponding liability for amounts owed to the Deferred Compensation Plan participants.
rr
See Note 10, Deferred Compensation Plan Liability
information. 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 were to become insolvent, the investments
would be available to all unsecured general creditors.
, yy of these Notes to Consolidated Financial Statements for further
8.
Other Investments
r
Other investments consist of interests in venture capital funds and other long-term investments. Investments are
accounted for using the equity or cost method of accounting, depending on the nature of the investment, as appropriate.
Realized gains and losses from equity method investments are reflected in nonoperating (income) expense based upon the
Company's ownership share of the investee's financial results. Realized gains or losses on cost-method investments are
determined based on the specific identification basis and are recognized in nonoperating (income) expense.
During fiscal 2017 and fiscal 2016, the Company recognized other-than-temporary impairments of $5.0 million and $6.0
million, respectively, recorded in the condensed consolidated statement of income in other
, net, within non-operating (income)
expense, related to cost method investments that the Company determined were impaired. There were no other-than-temporary
impairments recognized in any other of the fiscal periods presented.
yy
There were no material net realized or unrealized gains or losses from other investments during fiscal 2017, fiscal 2016
and fiscal 2015.
77
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
9.
Accrued Liabilities
Accrued liabilities at October 28, 2017 and October 29, 2016 consisted of the following:
Accrued compensation and benefits
Accrued interest (Note 16)
Special charges (Note 5)
Other
TT
Total accrued liabilities
10. Deferred Compensation Plan Liability
2017
2016
$
$
271,321
59,400
37,348
130,757
$
498,826
$
112,003
26,411
12,374
105,069
255,857
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 2057. 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
$58.8 million in fiscal 2017,
$58.5 million in fiscal 2016 and $51.8 million in fiscal 2015.
TT
The following is a schedule of future minimum rental payments required under long-term operating leases at October 28,
2017:
Fiscal YearsYY
2018
2019
2020
2021
2022
Later YearsYY
TotalTT
$
Operating
Leases
41,795
23,663
17,479
13,048
9,350
37,578
$
142,913
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,yy
environmental matters, product liability, insurance coverage and personnel and employment disputes.
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.
As to such claims and
yy
ff
78
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
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
compensation. For former Linear employees, the Company contributes to a defined contribution plan for qualified U.S.
employees as part of the Company’s semi-annual profit sharing payouts. The total expense related to the defined contribution
plans for U.S. employees was $35.8 million in fiscal 2017, $28.3 million in fiscal 2016 and $26.3 million in fiscal 2015. 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, contribution
and other retirement plans for certain non-U.S. employees, excluding settlement charges related to the Company's Irish defined
benefit plan in fiscal 2015, was $33.0 million in fiscal 2017, $26.9 million in fiscal 2016 and $33.3 million in fiscal 2015.
3% of each participant’s total eligible
yy
Non-U.S. Plan Disclosuresrr
During fiscal 2015, the Company converted the benefits provided to participants in the Company’s Irish defined benefits
pension plan (the DB Plan) to benefits provided under the Company’s Irish defined contribution plan. As a result, in fiscal
2015 the Company recorded expenses of $223.7 million, including settlement charges, legal, accounting and other professional
fees to settle the pension obligation. The assets related to the DB Plan were liquidated and used to purchase annuities for
retirees and distributed to active and deferred members' accounts in the Company's Irish defined contribution plan in
connection with the plan conversion. Accordingly, plan assets for the DB Plan were zero as of the end of fiscal 2015.
yy
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 Company has elected to measure defined benefit plan assets and obligations as of October 31, which is the month-end that
is closest to its fiscal year-ends, which were October 28, 2017 for fiscal 2017 and October 29, 2016 for fiscal 2016.
Components of Net Periodic Benefit Cost
Net annual periodic pension cost of non-U.S. plans for fiscal 2017, fiscal 2016 and fiscal 2015 is presented in the
following table:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of transition obligation
Recognized actuarial loss
Subtotal
Curtailment impact
Settlement impact
Net periodic pension cost
2017
2016
2015
$
6,688
$
5,520
$
3,581
(4,086)
14
(9)
1,865
8,053
—
—
$
3,675
(3,764)
—
17
679
6,127
—
151
$
15,675
11,636
(13,509)
(229)
18
7,257
20,848
(4,463)
226,810
8,053
$
6,278
$
243,195
$
$
79
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
Benefit Obligations and Plan Assets
Obligation and asset data of the Company’s non-U.S. plans at October 28, 2017 and October 29, 2016 is presented in the
following table:
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan amendments
Settlement
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
Settlements
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
Current liabilities
Non-current liabilities
Net amount recognized
2017
2016
$
$
$
129,711
6,688
3,581
176
—
(2,615)
(2,663)
4,638
139,516
69,823
5,420
4,995
—
(2,663)
2,041
79,616
$
106,533
5,520
3,675
(142)
(632)
30,223
(1,701)
(13,765)
129,711
70,365
9,002
4,880
(632)
(1,701)
(12,091)
69,823
(59,900) $
(59,888)
(733)
(59,167)
(59,900) $
(606)
(59,282)
(59,888)
$
$
$
$
$
$
80
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
Reconciliation of Amounts Recognized in the Statement of Financial Position
Initial net obligation
Prior service credit
Net loss
Accumulated other comprehensive loss
Accumulated contributions less than net periodic benefit cost
Net amount recognized
Changes Recognized in Other Comprehensive Income
Changes in plan assets and benefit obligations recognized in other compr
rr
ehensive income
Prior service cost
rr
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
ff
(loss)
rr
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
r
Estimated amounts that will be amortized from accumulated other compr
(loss) income over the next fiscal year
r
ehensive
Initial net obligation
Prior service credit
Net loss
TotalTT
2017
2016
(10) $
(45)
(35,779)
(35,834)
(24,066)
(59,900) $
(24)
148
(39,647)
(39,523)
(20,365)
(59,888)
176
$
(142)
(3,949) $
24,985
1,952
(4,137)
(14)
9
(1,865)
(3,691) $
$
4,362
(10) $
(2)
(1,582)
(1,594) $
(17)
—
(830)
19,859
26,137
(14)
10
(1,808)
(1,812)
$
$
$
$
$
$
$
$
The accumulated benefit obligation for non-U.S. pension plans was $116.7 million and $106.4 million at October 28,
2017 and October 29, 2016, 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 October 28, 2017 and October 29, 2016 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
2017
2016
$
$
$
$
$
139,516
79,616
109,261
103,470
53,747
$
$
$
$
$
129,711
69,823
98,244
93,164
45,948
81
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
Assumptions
The range of assumptions used for the non-U.S. defined benefit plans reflects the different economic environments within
ff
ff
the various countries as well as the differences in the attributes of the participants.
changed the method utilized to estimate the service cost and interest cost components of net periodic benefit cost for certain of
its defined benefit pension plans. Prior to October 29, 2016, the Company estimated the service cost and interest cost
components of net periodic benefit costs using a single weighted average discount rate. Beginning October 29, 2016, the
Company uses a spot rate approach to estimate the service and interest cost components of net periodic benefit cost for certain
of its defined benefit pension plans as the Company believes this approach calculates a better estimate. The change did not, and
is not expected to, materially affect the Company's Consolidated Statement of Income.
As of October 29, 2016, the Company
ff
The projected benefit obligation was determined using the following weighted-average assumptions:
Discount rate
Rate of increase in compensation levels
2017
2016
3.02%
3.18%
2.92%
3.36%
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
2017
2016
2.92%
5.58%
3.36%
3.64%
5.65%
3.05%
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.
yy
r
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.
r
Fair value of plan assets
The following table presents plan assets measured at fair value on a recurring basis by investment categories as of
October 28, 2017 and October 29, 2016 using the same three-level hierarchy described in Note 2j, Fair Value,
Consolidated Financial Statements:
VV
of these Notes to
82
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
October 28, 2017
Fair Value Measurement at Reporting
rr
Date Using:
October 29, 2016
Fair Value Measurement at Reporting
rr
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)
TotalTT
Unit trust funds(1)
$
— $
1,676
$
— $
1,676
$
— $
4,681
$
— $
4,681
Equities(1)
Fixed income securities(2)
Cash and cash equivalents
4,701
—
1,208
32,520
39,442
—
69
—
—
37,290
39,442
1,208
—
—
985
30,510
33,573
—
74
—
—
30,584
33,573
985
Total assets measur
TT
fair value
r
ed at
$
5,909
$
73,638
$
69
$ 79,616
$
985
$
68,764
$
74
$ 69,823
_______________________________________
(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.
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.
These investments are redeemable at net asset value to the extent provided
yy
(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.
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 2017 and fiscal 2016.
Balance as of October 31, 2015
r
Exchange rate adjustment
Balance as of October 29, 2016
r
Purchases, sales, and settlements, net
Realized and unrealized return on plan assets
Exchange rate adjustment
Balance as of October 28, 2017
r
rr
Estimated future cash flows
Expected fiscal 2018 Company contributions and estimated future benefit payments are as follows:
Expected Company Contributions
2018
Expected Benefit Payments
2019
2020
2021
2022
2023
2024 through 2027
83
Equities
77
(3)
74
(420)
420
(5)
69
4,978
1,958
2,111
2,079
2,280
2,936
21,083
$
$
$
$
$
$
$
$
$
$
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
14.
Income Taxes
TT
The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense for fiscal 2017, fiscal
2016 and fiscal 2015 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
VV
Valuation allowance
Federal research and development tax credits
Change in uncertain tax positions
Amortization of purchased intangibles
Acquisition and integration costs
Other, net
TT
Total income tax provision
2017
2016
2015
35.0%
35.0%
35.0%
$
$
289,970
(385,189)
(8,801)
(7,778)
(16,475)
(51,088)
159,466
109,040
12,081
$
101,226
$
334,922
(264,157)
(10,821)
13,658
(16,237)
4,797
35,641
—
(2,546)
95,257
$
$
283,540
(198,061)
(4,425)
4,875
(8,232)
2,449
38,973
—
(5,883)
113,236
Included in income tax expense for fiscal 2017 is $98.2 million related to post acquisition integration and $10.8 million
related to non-deductible acquisition costs. For financial reporting purposes, income before income taxes for fiscal 2017, fiscal
2016 and fiscal 2015 includes the following components:
Pretax income:
Domestic
Foreign
Income before income taxes
2017
2016
2015
$
$
109,565
718,920
828,485
$
$
2,642
954,279
956,921
$
$
110,710
699,404
810,114
The components of the provision for income taxes for fiscal 2017, fiscal 2016 and fiscal 2015 are as follows:
Current:
Federal tax
State
Foreign
Total current
Deferred:
Federal
State
Foreign
TT
Total deferred
2017
2016
2015
$
$
$
$
857,664
$
27,790
$
7,335
62,096
927,095
$
(795,478) $
(24,285)
(6,106)
(825,869) $
1,409
57,934
87,133
325
2,820
4,979
8,124
$
$
$
65,942
695
98,813
165,450
(27,933)
541
(24,822)
(52,214)
The Company has a basis difference in its investment in foreign subsidiaries of
ff
$10.7 billion primarily as a result of
unremitted earnings, the Acquisition and post-acquisition integration . The unremitted earnings as of October 28, 2017 was $6.3
billion. The Company intends for this basis difference to be permanently reinvested.
been provided. Determination of the amount of unrecognized deferred income tax liability related to the outside basis
difference associated with the
basis difference could reverse including through receipt of dividends, sale or various other events.
Acquisition is not practicable, due to the complexities associated with the manner in which the
Accordingly no U.S. income taxes have
ff
ff
ff
84
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
The significant components of the Company’s deferred tax assets and liabilities for fiscal 2017 and fiscal 2016 are as
follows:
Deferred tax assets:
Inventory reserves
Deferred income on shipments to distributors
Reserves for compensation and benefits
Tax credit carryovers
Stock-based compensation
Depreciation
Net operating losses
Acquisition-related costs
Other
Total gross deferred tax assets
VV
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Undistributed earnings of foreign subsidiaries
Acquisition-related intangibles
Other
Total gross deferred tax liabilities
TT
Net deferred tax liabilities
2017
2016
$
28,137
$
62,923
84,096
68,317
99,815
2,659
11,158
3,384
34,737
395,226
(53,787)
341,439
(64,868)
(64,067)
(1,851,818)
(3,047)
(1,983,800)
(1,642,361) $
$
22,527
49,455
48,062
68,669
56,345
3,078
8,225
13,336
39,256
308,953
(67,094)
241,859
(59,218)
(60,986)
(193,059)
(2,522)
(315,785)
(73,926)
The valuation allowances of $53.8 million and $67.1 million at October 28, 2017 and October 29, 2016, respectively, are
yy
valuation allowances primarily for the Company’s state credit carryforwards. The reduction in the valuation allowance is
primarily attributable to the Acquisition. The Company believes that it is more-likely-than-not that these credit carryovers will
not be realized and as a result has recorded a full valuation allowance as of October 28, 2017. The state credit carryover of
$68.3 million will begin to expire in 2018.
The net operating losses relate to the U.S and are not subject to a valuation allowance. These losses will begin to expire
in 2025.
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’
income tax provision and operating results in the period in which such determination is made.
ff
ff
s
As of October 28, 2017 and October 29, 2016, the Company had a net liability of $47.6 million and $75.6 million,
yy
yy
s favor, would lower the Company’s effective
respectively, for unrealized tax benefits, all of which, if settled in the Company’
tax rate in the period recorded. As of October 28, 2017 and October 29, 2016, the Company had a liability of approximately
$10.8 million and $20.1 million, respectively, for interest and penalties.
The Company includes interest and penalties related to
unrecognized tax benefits within the provision for taxes in the consolidated statements of income. The total gross liability as of
October 28, 2017 and October 29, 2016 of $49.6 million and $81.7 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
year 2017, fiscal 2016 and fiscal 2015 include $(12.3) million, $4.0 million and $4.1 million, respectively, of interest and
penalties related to these uncertain tax positions. Over the next fiscal year, the Company anticipates the liability may be
reduced up to $22.6 million for the possible expiration of an income tax statute of limitations.
yy
yy
ff
85
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
The following table summarizes the changes in the total amounts of unrealized tax benefits for fiscal 2015 through fiscal
2017:
TT
Unrealized Tax Benefits
Balance, November 1, 2014
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, October 31, 2015
Additions for tax positions related to current year
Reductions for tax positions related to prior years
Reductions due to lapse of applicable statute of limitations
Balance, October 29, 2016
Additions for tax positions related to current year
Additions for tax positions related to acquisition
Reductions for tax positions related to prior years
Reductions due to lapse of applicable statute of limitations
Balance, October 28, 2017
r
$
$
$
$
65,464
524
9,799
(2,745)
(1,260)
71,782
2,539
(4,475)
(1,311)
68,535
1,742
12,332
(43,186)
(1,566)
37,857
TT
The Company had filed a petition with the U.S. Tax Court for one open matter for fiscal years 2006 and 2007 that
pertained 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 Company recorded a $36.5 million reserve for this potential
TT
Tax Court on November 22, 2016. On
liability in the fourth quarter of fiscal 2013. A favorable ruling was rendered by the U.S.
A
February 27, 2017, the U.S. Tax Court’
s Decision Order was entered and the 90-day period for the Internal Revenue Service to
file a Notice of Appeal lapsed on May 30, 2017. As a result, on May 30, 2017, the Company released the $50.5 million reserve,
which was comprised of the $41.7 million in originally-recorded and subsequent accruals for this potential liability, plus
million of net interest.
$8.8
TT
yy
All of the Company's U.S. federal tax returns prior to fiscal 2014 are no longer subject to examination.
All of the Company's Ireland tax returns prior to fiscal 2013 are no longer subject to examination.
The tax returns for Linear Technology Pte. Ltd. (Singapore) prior to the fiscal year ended June 2012 are no longer subject
TT
to examination.
The tax returns for Linear Semiconductor Sdn. Bhd. (Malaysia) prior to the fiscal year ended June 2011 are no longer
subject to examination.
The Company has a partial tax holiday in Singapore and Malaysia whereby the local statutory rate is significantly
reduced, if certain conditions are met. The tax holiday for Singapore is effective through
Malaysia is effective through
approximately $27.4 million in fiscal year 2017.
ff
ff
July 2025. The impact of the Singapore and Malaysia tax holidays was to increase net income by
August 2019 and the tax holiday for
15.
Revolving Credit Facility
The Company has a senior unsecured revolving credit facility with certain institutional lenders (the Credit Agreement)
that expires on July 10, 2020. The Credit Agreement provides that the Company may borrow up to $1.0 billion. To date, the
Company has not borrowed under this revolving credit facility but may borrow in the future and use the proceeds for
repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful
corporate purposes. 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 0.50% or (iii) one month Eurodollar Rate plus 1%). The Credit Agreement
imposes 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
A
TT
86
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
greater than 5.0 to 1.0. The debt covenant will be reduced over time to 3.0 to 1.0 starting in May 2018. As of October 28, 2017,
the Company was compliant with these covenants.
16. Debt
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. The net proceeds of the offering were
after discount and issuance costs. Debt discount and issuance costs will be 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 October 28, 2017, 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.
$493.9 million,
TT
ff
On December 14, 2015, the Company issued $850.0 million aggregate principal amount of 3.9% senior unsecured notes
due December 15, 2025 (the 2025 Notes) and $400.0 million aggregate principal amount of 5.3% senior unsecured notes due
December 15, 2045 (the 2045 Notes) with semi-annual fixed interest payments due on June 15 and December 15 of each year,
commencing June 15, 2016. The net proceeds of the offering were
discount and issuance costs will be amortized through interest expense over the term of the 2025 Notes and 2045 Notes. The
indenture governing the 2025 Notes and 2045 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 October 28, 2017, the Company was compliant with these covenants. The 2025 Notes and
2045 Notes are subordinated to any future secured debt and to the other liabilities of the Company's subsidiaries.
$1.2 billion, after discount and issuance costs. Debt
ff
On July 26, 2016, the Company entered into a definitive agreement to acquire Linear (the Merger Agreement). In connection
with the Acquisition, the Company announced that it had obtained commitment financing in the form of a 364-day senior unsecured
bridge facility in an aggregate principal amount of up to $7.5 billion (364-day Bridge Commitment) and a 90-day senior unsecured
bridge facility in an aggregate principal amount of up to $4.1 billion (90-day Bridge Commitment). As discussed below, ww as a result
of entering into the term loan facility and the issuance of $2.1 billion senior unsecured notes, the 364-day Bridge Commitment
was terminated and $13.7 million and $7.2 million of unamortized bridge fees relating to the 364-day Bridge Commitment were
accelerated and amortized into interest expense in fiscal 2016 and first quarter of fiscal 2017, respectively. TotalTT
fees incurred by
the Company for the 364-day Bridge Commitment were approximately $27.5 million.
On the Acquisition Date, the Company entered into a 90-day Bridge Credit Agreement (the Bridge Credit Agreement).
The Bridge Credit Agreement provided for unsecured loans in an aggregate principal amount of up to $4.1 billion. In the third
quarter of fiscal 2017, the Company repaid all of the $4.1 billion of outstanding loans under the Bridge Credit Agreement. TotalTT
fees incurred by the Company for the 90-day Bridge Commitment and Bridge Credit Agreement were approximately $15.0
million.
On September 23, 2016, the Company entered into a term loan facility consisting of a 3-year unsecured term loan facility
TT
TT
Agreement). The Term Loan
TT
Agreement replaced $5.0 billion of the 364-
Agreement, consisting of a 3-year
in the principal amount of $2.5 billion and a 5-year unsecured term loan facility in the principal amount of $2.5 billion
established pursuant to a credit agreement (Term Loan
Bridge Commitment. On the Acquisition Date, the Company borrowed under the Term Loan
unsecured term loan in the principal amount of $2.5 billion, due March 10, 2020 and a 5-year unsecured term loan in the
principal amount of $2.5 billion, due March 10, 2022. The 5-year term loan requires repayment in quarterly installments on the
last business day of each March, June, September and December with the first required payment due June 2017. Prepayments
of principal on the term loans can be made at any time without penalty. In fiscal 2017, the Company repaid $400.0 million of
principal on the 5-year unsecured term loan, which satisfied the quarterly obligations due through September 2019. In addition,
in fiscal 2017, the Company repaid $550.0 million of principal on the 3-year unsecured term loan. The term loans bear interest
at a rate per annum equal to the Eurodollar Rate plus a margin based on the Company’s debt ratings from time to time of
between 0.75% and 1.63% in the case of the 3-year term loan, and a margin of between 0.88% and 1.75% in the case of the 5-
year term loan. As a result of entering into the Term Loan
Agreement and drawing on the available borrowings, the Company
incurred fees of approximately $11.5 million. The Company recorded these costs as deferred financing costs and will amortize
them on a straight-line basis through interest expense over the expected 3- and 5-year terms of the term loans. On November
10, 2017, the Company paid $300.0 million of principal on the 3-year unsecured term loan using cash on hand as of October
TT
87
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL
AA
STL ATT TEMENTS — (Continued)
AA
28, 2017. This amount was not contractually due under the terms of the loan. As such this amount was classified as current in
the Consolidated Balance Sheet as of October 28, 2017.
On December 5, 2016, the Company issued $400.0 million aggregate principal amount of 2.5% senior unsecured notes
due December 5, 2021 (the 2021 Notes), $550.0 million aggregate principal amount of 3.125% senior unsecured notes due
December 5, 2023 (the December 2023 Notes), $900.0 million aggregate principal amount of 3.5% senior unsecured notes due
December 5, 2026 (the 2026 Notes) and $250.0 million aggregate principal amount of 4.5% senior unsecured notes due
December 5, 2036 (the 2036 Notes, and together with the 2021 Notes, the December 2023 Notes and the 2026 Notes, the
Notes) with semi-annual fixed interest payments due on June 5 and December 5 of each year, commencing June 5, 2017. The
net proceeds of the offering were
amortized through interest expense over the term of the Notes. The Notes were issued pursuant to an indenture, as
supplemented by a supplemental indenture, and the indenture and supplemental indenture contain certain covenants, events of
default and other customary provisions. As of October 28, 2017, the Company was compliant with these covenants. The Notes
rank without preference or priority among themselves and equally in right of payment with all other existing and future senior
unsecured debt and senior in right of payment to all of the Company's future subordinated debt. The issuance of the Notes
replaced the remaining $2.5 billion of the 364-day Bridge Commitment.
$2.1 billion, after discount and issuance costs. Debt discount and issuance costs will be
ff
The Company’s debt consisted of the following as of October 28, 2017 and October 29, 2016:
October 28, 2017
r
October 29, 2016
Principal
Unamortized
discount and debt
issuance costs
Principal
Unamortized
discount and debt
issuance costs
3-Year term loan
$
1,650,000
$
3,270
$
5-Year term loan
2021 Notes, due December 2021
2023 Notes, due June 2023
2023 Notes, due December 2023
2025 Notes, due December 2025
2026 Notes, due December 2026
2036 Notes, due December 2036
2045 Notes, due December 2045
Total Long-Term Debt
3-Year term loan, current
TT
Total Current Debt
TT
Total Debt
17.
Subsequent Events
2,100,000
400,000
500,000
550,000
850,000
900,000
250,000
400,000
$
$
$
7,600,000
300,000
300,000
7,900,000
$
$
$
4,727
3,756
3,434
5,392
7,154
11,655
3,983
5,545
48,916
—
$
— $
$
48,916
— $
—
—
500,000
—
850,000
—
—
400,000
1,750,000
—
$
— $
$
1,750,000
—
—
—
4,047
—
8,034
—
—
5,742
17,823
—
—
17,823
On November 10, 2017, the Company repaid $300.0 million of principal on its 3-year unsecured term loan facility. This
amount was not contractually due under the terms of the loan. As such this amount is classified as current in the Consolidated
Balance Sheet as of October 28, 2017.
On November 20, 2017, the Board of Directors of the Company declared a cash dividend of $0.45 per outstanding share
of common stock. The dividend will be paid on December 12, 2017 to all shareholders of record at the close of business on
December 1, 2017.
88
ANALOG DEVICES, INC.
INFORMA
SUPPLEMENTARTT YRR FINANCIAL
AA
L
e amounts and as noted)
(Unaudited) (thousands, except per shar
TION
Y
r
The Company’s fiscal year is the 52-week or 53-week period ending on the Saturday closest to the last day in October.
The Company's interim periods operates on a 4-4-5 fiscal calendar, where each fiscal quarter is comprised of two 4-week
periods and one 5-week period, with each week ending on a Saturday. The Company's fiscal year quarterly financial
information for fiscal 2017 and fiscal 2016 include results of operations of Linear from March 10, 2017:
Revenue
Cost of sales
Gross margin
% of Revenue
Research and development
Selling, marketing, general and
administrative
Special charges
Other operating expense
Amortization of intangibles
Total operating expenses
Operating income
% of Revenue
Nonoperating (income) expenses:
Interest expense (a)
Interest income
Other, net
4Q17
3Q17
2Q17
1Q17
4Q16
3Q16
2Q16
1Q16
1,541,170
1,433,902
1,147,982
984,449
1,003,623
535,145
1,006,025
667,278
766,624
507,539
640,443
335,945
648,504
336,936
666,687
869,591
297,301
572,290
778,766
267,863
510,903
769,429
292,136
477,293
65.3%
53.5%
55.8%
65.9%
66.4%
65.8%
65.6%
62.0%
273,746
275,670
235,232
183,954
172,926
163,227
160,235
157,428
185,721
183,980
190,686
130,659
118,881
122,909
112,186
107,462
—
—
98,348
557,815
448,210
—
—
112,153
571,803
194,821
—
—
68,690
494,608
145,835
49,463
—
18,160
382,236
266,268
—
—
17,899
309,706
356,981
—
—
17,447
303,583
268,707
13,684
—
17,419
303,524
207,379
—
—
17,358
282,248
195,045
29%
14%
13%
27%
36%
31%
27%
25%
63,517
(2,388)
5,417
73,073
71,636
42,614
(5,524)
(12,421)
(10,000)
474
(94)
345
38,764
(7,114)
1,897
18,476
(5,665)
(504)
18,455
(5,243)
(743)
13,062
(3,199)
3,005
Total nonoperating (income)
expense
66,546
68,023
Income before income taxes
381,664
126,798
59,121
86,714
32,959
33,547
12,307
12,469
12,868
233,309
323,434
256,400
194,910
182,177
% of Revenue
Provision for income taxes (b)
Net income
% of Revenue
Basic earnings per common
share
Diluted earnings per
common share
Shares used to compute earnings
per share (in thousands):
Basic
Diluted
Dividends declared per share
25%
9%
8%
24%
32%
29%
25%
24%
34,014
347,650
57,882
68,916
(6,850)
16,180
27,277
25,970
24,337
17,673
93,564
217,129
296,157
230,430
170,573
164,504
23%
5%
8%
22%
30%
26%
22%
21%
0.94
0.93
0.18
0.18
0.27
0.27
0.70
0.69
0.96
0.95
0.75
0.74
0.55
0.55
0.53
0.52
368,043
372,053
0.45
367,315
371,159
0.45
341,316
345,654
0.45
308,786
313,076
0.42
307,854
311,633
0.42
307,135
310,558
0.42
308,790
312,250
0.42
311,166
314,793
0.40
a) Interest expense in fiscal 2017 and the fourth quarter of fiscal 2016 includes interest and fees associated with financing
commitments entered into in connection with the Acquisition.
b) Provision for income taxes in the second quarter of fiscal 2017 included a tax benefit of $15.0 million for the release of a
state tax credit valuation allowance as a result of the Acquisition. Provision for income taxes in the third quarter of fiscal 2017
included approximately $98.2 million of tax expense incurred during the quarter as part of the post-Acquisition integration,
ff
partially offset by a tax benefit of
Tax Court’
s favorable ruling, as well as lower statutory tax rates applicable to our operations in the foreign jurisdictions in
TT
which we earn income.
$50.5 million related to the reduction of reserves and related interest resulting from the U.S.
89
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
FINANCIAL DISCLOSURE
L
TT
ACCOUNTING AND
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
ff
Analog’s disclosure controls and procedures as of
Our management, with the participation of our Chief Executive
ocedur
rr
es.
rr
ols and Pr
rr
(a) Evaluation of Disclosure Contr
ff
, evaluated the effectiveness of
rr
Officer and Chief Financial Of
ff
ficer
October 28, 2017. 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 October 28, 2017, our Chief Executive Officer and Chief Financial
ff
Officer concluded that, as of such date, our disclosure controls and procedures were ef
fective at the reasonable assurance level.
ff
ff
ff
rr
(b) Management’s Report on Internal Contr
ol Over Financial Reporting.
’
Management’s Report on Internal Control Over Financial Reporting
r
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
s principal executive and principal financial
yy
Act of 1934 as a process designed by, or under the supervision of, the company’
officers and ef
s board of directors, management and other personnel, to provide reasonable assurance
ff
fected by the company’
ff
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.
ff
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.
ff
Our management assessed the effectiveness of our internal control over financial reporting as of
ff
October 28, 2017. 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 2013 Framework.
TT
Based on this assessment, our management concluded that, as of October 28, 2017, our internal control over financial
reporting is effective based on those criteria.
ff
Management excluded from its assessment of the Company’s internal control over financial reporting as of October 28,
2017, the internal control over financial reporting of Linear Technology Corporation (Linear), which was acquired by the
TT
Company on March 10, 2017. This exclusion is consistent with guidance issued by the SEC that an assessment of a recently
acquired business may be omitted from the scope of management's report on internal control over financial reporting in the year
of acquisition. Total and net assets of Linear as October 28, 2017, excluding goodwill and other intangible assets, which are
included in management’s assessment of internal control over financial reporting as of October 28, 2017, were approximately
$864.5 million and $106.9 million, respectively. Linear represented $913.2 million of our consolidated net revenues for the year
ended October 28, 2017. See a discussion of this acquisition in Note 6, Acquisitions, of the Notes to the Consolidated Financial
Statements contained in Item 8 of this Annual Report on Form 10-K.
TT
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.
90
(c) Attestation Report of the Registered Public
rr
Accounting Firm
REPORTRR OF INDEPENDENT
F
REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Analog Devices, Inc.
WeWW have audited Analog Devices, Inc.’s internal control over financial reporting as of October 28, 2017, based on criteria established
Commission
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
internal
(2013 framework), (the COSO criteria). Analog Devices, Inc.’s management is responsible for maintaining effective
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.
TT
ff
ff
WeWW 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
ff
the circumstances. WeWW believe that our audit provides a reasonable basis for our opinion.
ff
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect
on the financial statements.
ff
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ff
ff
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment
of and conclusion on the effectiveness
of internal control over financial reporting did not include the internal controls of Linear
Technology
Corporation, which is included in the 2017 consolidated financial statements of Analog Devices, Inc. and constituted
TT
$864.5 million and $106.9 million of total and net assets, respectively,yy as of October 28, 2017 and $913.2 million of revenues for
the year then ended. Our audit of internal control over financial reporting of Analog Devices, Inc. also did not include an evaluation
of the internal control over financial reporting of Linear Technology
Corporation.
TT
In our opinion, Analog Devices, Inc. maintained, in all material respects, effective
October 28, 2017, based on the COSO criteria.
ff
internal control over financial reporting as of
WeWW also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Analog Devices, Inc. as of October 28, 2017 and October 29, 2016, and the related consolidated
statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended
October 28, 2017 of Analog Devices, Inc. and our report dated November 22, 2017 expressed an unqualified opinion thereon.
YY
/s/ Ernst & Young LLP
Boston, Massachusetts
November 22, 2017
91
rr
(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
October 28, 2017 that has materially affected, or is reasonably likely to materially af
ff
fect, our internal control over financial
reporting.
ff
ITEM 9B. OTHER INFORMATION
AA
Not applicable.
92
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
AA
PARPP
TRR III
Information required by this item relating to our directors and nominees is contained under the caption “Proposal 1 —
Election of Directors” contained in our 2018 proxy statement to be filed with the U.S. Securities and Exchange Commission
(the SEC) within 120 days after October 28, 2017 and is incorporated herein by reference. Information required by this item
relating to our executive officers is contained under the caption “EXECUTIVE OFFICERS OF
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 under the caption “Section 16(a) Beneficial
Ownership Reporting Compliance” in our 2018 proxy statement to be filed with the SEC within 120 days after October 28,
2017 and is incorporated herein by reference.
THE REGISTRANT” in Part I
ff
ff
, principal accounting officer or controller
ff
We have adopted a written code of business conduct and ethics that applies to our principal executive of
ficer
WW
financial officer
Corporate Governance section of our website which is located at www.analog.comg
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.
, principal
, or persons performing similar functions and have posted it in the
TT
. To the extent permitted by Nasdaq and SEC
g
ff
During fiscal 2017, we made no material change to the procedures by which shareholders may recommend nominees to
our Board of Directors, as described in our 2017 proxy statement.
Information required by this item relating to the audit committee of our Board of Directors is contained under the caption
“Corporate Governance — Board of Directors Meetings and Committees — Audit Committee” in our 2018 proxy statement to
be filed with the SEC within 120 days after October 28, 2017 and is incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION
AA
Information required by this item is contained under the captions “Corporate Governance — Director Compensation” and
“Information About Executive Compensation” in our 2018 proxy statement to be filed with the SEC within 120 days after
October 28, 2017 and is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP
RELATED ST
F
OFP
OCKHOLDER MATTERS
CER
AA
Y
AA
L
TRR AIN BENEFICIAL
TT
OWNERS
AND MANAGEMENT AND
Information required by this item relating to security ownership of certain beneficial owners and management is
contained under the caption “Security Ownership of Certain Beneficial Owners and Management” in our 2018 proxy statement
to be filed with the SEC within 120 days after October 28, 2017 and is incorporated herein by reference. Information required
by this item relating to securities authorized for issuance under equity compensation plans is contained under the caption
“Information About Executive Compensation — Securities Authorized for Issuance Under Equity Compensation Plans” in our
2018 proxy statement to be filed with the SEC within 120 days after October 28, 2017 and is incorporated herein by reference.
ITEM 13.
TT
CERTRR AIN RELA
AA
INDEPENDENCE
TIONSHIPS
AND RELATED
AA
TRANSACTIONS, AND DIRECTOR
Information required by this item relating to transactions with related persons is contained under the caption “Corporate
Governance — Certain Relationships and Related Transactions” in our
2018 proxy statement to be filed with the SEC within
120 days after October 28, 2017 and is incorporated herein by reference. Information required by this item relating to director
independence is contained under the caption “Corporate Governance — Determination of Independence” in our 2018 proxy
statement to be filed with the SEC within 120 days after October 28, 2017 and is incorporated herein by reference.
TT
ITEM 14.
PRINCIPALPP
ACCOUNTING FEES AND SERVICES
RR
Information required by this item is contained under the caption “Corporate Governance — Independent Registered
Public Accounting Firm Fees and Other Matters” in our 2018 proxy statement to be filed with the SEC within 120 days after
October 28, 2017 and is incorporated herein by reference.
93
PARPP
TRR IV
ITEM 15.
EXHIBITS, FINANCIAL STL ATT TEMENT
AA
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 October 28, 2017, October 29, 2016 and October 31, 2015
— Consolidated Statements of Comprehensive Income for the years ended October 28, 2017, October 29, 2016 and October
31, 2015
— Consolidated Balance Sheets as of October 28, 2017 and October 29, 2016
— Consolidated Statements of Shareholders’ Equity for the years ended October 28, 2017, October 29, 2016 and October
31, 2015
— Consolidated Statements of Cash Flows for the years ended October 28, 2017, October 29, 2016 and October 31, 2015
2. Financial Statement Schedules
Schedule II — Valuation and Qualifying
All other schedules have been omitted since the required information is not present, or not present in amounts sufficient
Accounts
VV
ff
to require submission of the schedule or because the information required is included in the consolidated financial statements or
the Notes thereto.
3. Exhibits
Exhibit No.
2.1
3.1
3.2
3.3
4.1
4.2
4.3
4.4
Description
Agreement and Plan of Merger, dated as of July 26, 2016, by and among Analog Devices, Inc., Linear
Technology Corporation and
TT
Form 8-K (File No. 1-7819) as filed with the Commission on July 29, 2016 and incorporated herein by
reference.
Acquisition Corp., filed as exhibit 2.1 to the Company's Current Report on
TT
Tahoe
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 (File No. 1-7819) as filed with the Commission on December 8, 2008 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 (File No. 1-7819) as filed with the Commission on January 28, 2010 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
, filed as exhibit 4.1 to the Company's Current Report on Form 8-K (File No.
yy
, N.A., as trustee
TT
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
YY
(File No. 1-7819) as filed with the Commission on June 3, 2013 and incorporated herein by reference.
Supplemental Indenture, dated December 14, 2015, between Analog Devices, Inc. and The Bank of New York YY
Mellon Trust Company
yy
, N.A., as trustee
No. 1-7819) as filed with the Commission on December 14, 2015 and incorporated herein by reference.
Supplemental Indenture, dated December 5, 2016, between Analog Devices, Inc. and The Bank of New York YY
Mellon Trust Company
yy
, N.A., as trustee
No. 1-7819) as filed with the Commission on December 5, 2016 and incorporated herein by reference.
, filed as exhibit 4.2 to the Company's Current Report on Form 8-K (File
, filed as exhibit 4.2 to the Company's Current Report on Form 8-K (File
, filed as exhibit 4.2 to the Company's Current Report on Form 8-K
yy
Trust Company
, N.A., as trustee
TT
YY
TT
TT
94
Exhibit No.
*10.1
*10.2
*10.3
*10.4
*10.5
*10.6
*10.7
*10.8
*10.9
*10.10
*10.11
*10.12
*10.13
*10.14
*10.15
*10.16
Description
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.
Second 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 August 1, 2015 (File
No. 1-7819) as filed with the Commission on August 18, 2015 and incorporated herein by reference.
Third Amendment to the Analog Devices, Inc. Amended and Restated Deferred Compensation Plan, filed as
exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 29, 2017
(File No. 1-7819) as filed with the Commission on August 30, 2017 and incorporated herein by reference.
TT
Agreement for Deferred Compensation Plan dated as of October 1, 2003 between Analog Devices, Inc.
TT
Trust
and Fidelity Management Trust Company
yy
, filed as exhibit 10.28 to the Company's
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.
TT
First Amendment to Trust
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.
Agreement for Deferred Compensation Plan between Analog Devices, Inc. and
Annual Report on Form 10-K
TT
TT
TT
Agreement for Deferred Compensation Plan between Analog Devices, Inc. and
Second Amendment to Trust
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.
Amended and Restated 2006 Stock Incentive Plan of Analog Devices, Inc., filed as exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended February 1, 2014 (File No. 1-7819) as
filed with the Commission on February 18, 2014 and incorporated herein by reference.
TT
Linear Technology Corporation
Post-Effective
ff
333-213454) as filed with the Commission on March 15, 2017 and incorporated herein by reference.
Amendment No. 1 on Form S-8 to the Company's Registration Statement on Form S-4 (File No.
Amended and Restated 2005 Equity Incentive Plan, filed as Exhibit 4.1 to the
ff
Amendment No. 1 on Form S-8 to the Company's Registration Statement on Form S-4 (File No.
Analog Devices, Inc. Amended and Restated 2010 Equity Incentive Plan, filed as Exhibit 4.2 to the Post-
Effective
333-213454) as filed with the Commission on March 15, 2017 and incorporated herein by reference.
Form of Global Non-Qualified Stock Option Agreement for Employees for usage under the Company's
Amended and Restated 2006 Stock Incentive Plan, filed as exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended January 28, 2017 (File No. 1-7819) as filed with the Commission on
February 15, 2017 and incorporated herein by reference.
Form of Non-Qualified Stock Option Agreement for Directors for usage under the Company's Amended and
Restated 2006 Stock Incentive Plan, filed as exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended January 28, 2017 (File No. 1-7819) as filed with the Commission on February 15, 2017
and incorporated herein by reference.
Form of Global Restricted Stock Unit Agreement for Employees for usage under the Company's Amended and
Restated 2006 Stock Incentive Plan, filed as exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended January 28, 2017 (File No. 1-7819) as filed with the Commission on February 15, 2017
and incorporated herein by reference.
Form of Performance Restricted Stock Unit Agreement for Employees for usage under the Company's Amended
and Restated 2006 Stock Incentive Plan, filed as exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended January 28, 2017 (File No. 1-7819) as filed with the Commission on February 15,
2017 and incorporated herein by reference.
Form of Restricted Stock Unit Agreement for Directors for usage under the Company's Amended and Restated
2006 Stock Incentive Plan, filed as exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended January 28, 2017 (File No. 1-7819) as filed with the Commission on February 15, 2017 and
incorporated herein by reference.
Form of Analog Devices, Inc. Equity Award Conversion Notice to Linear employees
, filed as exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 2017 (File No. 1-7819) as filed
with the Commission on May 31, 2017 and incorporated herein by reference.
AA
Exhibit No.
*10.17
*10.18
*10.19
*10.20
*10.21
*10.22
*10.23
*10.24
*10.25
*10.26
*10.27
†*10.28
*10.29
*10.30
*10.31
*10.32
*10.33
*10.34
Form of Linear Integration Performance Restricted Stock Unit Agreement for Employees for usage under the
Analog Devices, Inc. Amended and Restated 2006 Stock 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 July 11, 2017 and incorporated
by reference herein.
Description
V
Analog Devices BV (Ireland) Employee Stock Option Program, as amended
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.
2017 Executive Performance Incentive Plan, filed as exhibit 10.15 to the Company's Annual Report on Form 10-
K for the fiscal year ended October 29, 2016 (File No. 1-7819) as filed with the Commission on November 22,
2016 and incorporated herein by reference.
, filed as exhibit 10.3 to the
TT
Linear Technology Executive Bonus Plan
, filed as Appendix A to Linear
Definitive Proxy Statement on Schedule 14A (File No. 000-14864), as filed with the Commission on September
26, 2014.
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.
TT
Technology Corporation's 2014
A
A
Separation Agreement between Analog Devices, Inc. and David A. Zinsner, dated March 27, 2017, filed as
exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 2017
(File No. 1-7819) as filed with the Commission on May 31, 2017 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.
Change of Control Severance Agreement between Linear Technology Corporation and Steve Pietkiewicz, dated
July 25, 2017,filed as exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 29, 2017 (File No. 1-7819) as filed with the Commission on August 30, 2017 and incorporated herein by
reference.
Employee Retention Agreement between the Company and Steve Pietkiewicz, dated July 25, 2017, filed as
exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 29, 2017
(File No. 1-7819) as filed with the Commission on August 30, 2017 and incorporated herein by reference.
TT
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 Prashanth Mahendra-Rajah, dated
August 4, 2017.
ff
Form of Indemnification Agreement for Directors and Officers
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.
, filed as exhibit 10.30 to the Company's Annual
ff
Employment Agreement between Hittite Microwave Corporation and Rick D. Hess dated March 13, 2013, filed
as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2015
(File No. 1-7819) as filed with the Commission on February 17, 2015 and incorporated herein by reference.
Amendment No. 1 to Employment Agreement between Hittite Microwave Corporation and Rick D. Hess dated
August 27, 2013, filed as exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 2015 (File No. 1-7819) as filed with the Commission on February 17, 2015 and incorporated
herein by reference.
Amendment No. 2 to Employment Agreement between Hittite Microwave Corporation and Rick D. Hess dated
April 9, 2014, filed as exhibit 10.2 to Hittite Microwave Corporation's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2014 (File No. 000-51448) as filed with the Commission on May 6, 2014 and
incorporated herein by reference.
Amendment No. 3 to Employment Agreement with Rick D. Hess dated June 9, 2014, filed as exhibit d(3) to the
Company's Tender Of
ff
fer Statement on Schedule
June 23, 2014 and incorporated herein by reference.
Amendment No. 4 to Employment Agreement with Rick D. Hess dated June 9, 2014, filed as exhibit d(4) to the
Company’s Tender Of
ff
fer Statement on Schedule
June 23, 2014 and incorporated herein by reference.
TO-T (File No, 005-81515) as filed with the Commission on
TO-T (File No. 005-81515) as filed with the Commission on
TT
TT
Exhibit No.
*10.35
*10.36
10.37
10.38
†12.1
†21
†23
†31.1
†31.2
†32.1
†32.2
Description
Amendment No. 5 to Employment Agreement with Rick D. Hess dated October 31, 2014, filed as exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2015 (File No. 1-7819)
as filed with the Commission on February 17, 2015 and incorporated herein by reference.
Amendment No. 6 to Employment Agreement with Rick D. Hess, dated June 13, 2017, 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 June 15, 2017
and incorporated herein by reference.
Credit Agreement, dated as of September 23, 2016, among Analog Devices, Inc., as Borrower, JPMorgan Chase
Bank, N.A. as Administrative Agent 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 September 26, 2016
and incorporated herein by reference.
Amendment and Restatement Agreement, dated as of September 23, 2016, 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 10.2 to the Company's Current Report on Form 8-K (File No.
1-7819) as filed with the Commission on September 26, 2016 and incorporated herein by reference.
Computation of Consolidated Ratios of Earnings to Fixed Charges.
Subsidiaries of the Company.
PP
Consent of Ernst & Young LLP
, Independent Registered Public
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)
Accounting Firm.
YY
ff
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)
ff
ff
.
Certification Pursuant to 18 U.S.C. Section 1350 (Chief Financial Officer)
ff
101. INS XBRL Instance Document.
101. SCH XBRL Schema Document.
101. CAL XBRL Calculation Linkbase Document.
101. LAB XBRL Labels Linkbase Document.
101. PRE XBRL Presentation Linkbase Document.
101. DEF XBRL Definition Linkbase Document
L
_______________________________________
†
*
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):
L
(i) Consolidated Statements of Income for the years ended October 28, 2017, October 29, 2016 and October 31, 2015,
(ii) Consolidated Balance Sheets as of October 28, 2017 and October 29, 2016, (iii) Consolidated Statements of Shareholders’
Equity for the years ended October 28, 2017, October 29, 2016 and October 31, 2015, (iv) Consolidated Statements of
Comprehensive Income for the years ended October 28, 2017, October 29, 2016 and October 31, 2015, (v) Consolidated
Statements of Cash Flows for the years ended October 28, 2017, October 29, 2016 and October 31, 2015, (vi) Notes to
Consolidated Financial Statements for the years ended October 28, 2017, October 29, 2016 and October 31, 2015.
ANALOG DEVICES, INC.
TRR ON FORM 10-K
L
ANNUAL REPOR
YEAR ENDED OCTOBER 28, 2017
FINANCIAL STL ATT TEMENT
AA
SCHEDULE
98
ANALOG DEVICES, INC.
AA
SCHEDULE II — VALUA
VV
TION
AND QUALIFYING ACCOUNTS
YY
Years ended
r
October 28, 2017
r
, October 29, 2016
and October 31, 2015
r
Description
Accounts Receivable Reserves and
Allowances:
Year ended October 31, 2015
Year ended October 29, 2016
Year ended October 28, 2017
r
Valuation Reserve for
Deferr
VV
ed Tax TT Asset:
Year ended October 31, 2015
Year ended October 29, 2016
YY
Year ended October 28, 2017
(dollar amounts in thousands)
Balance at
Beginning of
Period
Additions
(Reductions)
Charged to
Income
Statement
Other
Deductions
Balance at
End of Period
$
$
$
$
$
$
2,919
2,081
5,117
52,064
52,675
67,094
$
$
$
$
$
$
$
$
$
$
$
2,686
3,936
12,284
4,876
13,658
(7,778)
— $
— $
— $
3,524
900
10,188
$
$
$
2,081
5,117
7,213
— $
761
$
$
4,265
$
— $
$
5,529
52,675
67,094
53,787
99
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.
AA
SIGNATURES
ANALOG DEVICES, INC.
By:
/s/ VINCENT ROCHE
VV
Vincent Roche
President and Chief Executive Officer
ff
(Principal Executive Officer)
ff
Date: November 22, 2017
100
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Ray Stata
Ray Stata
/s/ Vincent Roche
Vincent Roche
/s/ Prashanth Mahendra-Rajah
Prashanth Mahendra-Rajah
/s/ Eileen WynneWW
Eileen WynneWW
/s/ James A. Champy
James A. Champy
/s/ Bruce R. Evans
Bruce R. Evans
/s/ Edward H. Frank
Edward H. Frank
/s/ Mark M. Little
Mark M. Little
/s/ Neil Novich
Neil Novich
/s/ Kenton J. Sicchitano
Kenton J. Sicchitano
/s/ Lisa T. Su
Lisa T. Su
Chairman of the Board
November 22, 2017
President and Chief Executive Officer
and Director
(Principal Executive Officer)
ff
ff
Senior Vice President, Finance and
VV
Chief Financial Officer
(Principal Financial Officer)
ff
ff
November 22, 2017
November 22, 2017
VV
Vice President and Chief
Accounting
November 22, 2017
Officer
(Principal Accounting Officer)
ff
ff
Director
November 22, 2017
Director
November 22, 2017
Director
November 22, 2017
Director
November 22, 2017
Director
November 22, 2017
Director
November 22, 2017
Director
November 22, 2017
101
Note About Forward Looking Statements
Certain statements contained in this Annual Report may be deemed “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, profitability 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, and product offerings; expected financial results, including revenue,
earnings per share, free cash flow and free cash flow margins; expected cash generation; expected market
trends; expected customer demand and order rates for our products; the expected benefits and synergies of
the acquisition of Linear Technology Corporation (“Linear Technology”), including the expected growth
rates of the combined companies, Analog Devices’ expected product offerings, product development,
marketing position and technical advances resulting from the acquisition, 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 Annual Report, are not
guarantees of future performance, are inherently uncertain and involve certain risks, uncertainties, and
assumptions that are difficult to predict. Therefore, actual results may differ materially from 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. Important factors that
may affect future operating results include: any faltering in global economic conditions or the stability of
credit and financial markets; erosion of consumer confidence and declines in customer spending;
unavailability of raw materials, services, supplies or manufacturing capacity; changes in geographic,
product or customer mix; higher than expected or unexpected costs associated with or relating to the
acquisition of Linear Technology and the integration of the businesses; the risk that expected benefits,
synergies and growth prospects of the transaction may not be achieved in a timely manner, or at all; the
risk that Linear Technology’s business may not be successfully integrated with Analog Devices’; the risk
that Analog Devices will be unable to retain and hire key personnel; and the risk that disruption from the
acquisition may adversely affect our business and relationships with our customers, suppliers or
employees, and other risk factors described in our most recent filings with the Securities and Exchange
Commission, including our most recent Annual Report on Form 10-K and subsequent Quarterly Reports
on Form 10-Q. Analog Devices assumes no obligation to update any of these forward-looking statements
to reflect subsequent events or circumstances.
102
This Annual Report includes non-GAAP financial measures that are not in accordance with, nor an alternative to, generally accepted accounting principles and
may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of
accounting rules or principles. Management uses non-GAAP measures internally to evaluate the Company's operating performance from continuing operations
against past periods and to budget and allocate resources in future periods. These non-GAAP measures also assist management in evaluating the Company's
core business and trends across different reporting periods on a consistent basis.
ff
Reconciliation from GAAP to Non-GAAP Revenue and Earnings Measures (In thousands) (Unaudited)
GAAP Revenue
Acquisition-Related Deferred Revenues
Non-GAAP Revenue
GAAP Gross Margin
Gross Margin Percentage
Acquisition-Related Deferred Revenues
Acquisition-Related Expenses
Non-GAAP Gross Margin
Gross Margin Percentage
GAAP Operating Income/Margin
Percent of Revenue
Acquisition-Related Deferred Revenues
Acquisition-Related Expenses
Acquisition-Related Transaction Costs
Restructuring-Related Expense
Non-GAAP Operating Income/Margin
Percent of Revenue
$
$
$
$
$
Twelve Months Ended
FY 17
Oct. 28,
$
$
$
5,107,503
85,334
5,192,837
3,061,596
59.9%
66,261
480,438
FY 16
Oct. 29,
3,421,409
—
3,421,409
2,227,173
65.1 %
—
6,849
3,608,295
$
2,234,022
69.5%
65.3 %
1,055,134
$
1,028,112
20.7%
30.0 %
66,261
808,497
70,401
49,463
—
77,404
13,519
13,684
$
2,049,756
$
1,132,719
39.5%
33.1 %
Reconciliation of Adjusted Free Cash Flow to Net Cash Flows Provided by Operating Activities (In thousands) (Unaudited)
Net cash provided by operating activities
$
1,112,592
Non-GAAP adjustments:
Federal income tax payments
Adjusted cash flows from operations
Capital expenditures
Adjusted free cash flow
Percent of non-GAAP revenue
750,000
1,862,592
(204,098)
1,658,494
$
$
$
$
$
1,280,895
—
1,280,895
(127,397)
1,153,498
31.9 %
33.7 %
$ millions
Combined
Trailing Twelve
Months
Consolidated
ADI
Consolidated
ADI
Standalo
ne
ADI
ADI
(as
reported)
Linear (as reported)
Revenues*
Net cash provided by operating
activities
Capital Expenditures
One Time Tax Payment
Adjusted Free Cash Flow
Trailing Twelve Months, Adjusted
Free Cash Flow as % Revenues
$5,734
1,406
$1,935
34%
10/28/2017
7/29/2017
4/29/2017
1/28/2017
1/1/2017
10/2/2016
$1,541
$1,458
$1,001
$984
$376
$374
696
(65)
$631
(364)
(64)
750
$322
413
(43)
314
(28)
179
(12)
168
(8)
$370
$286
$167
$159
* Consolidated ADI revenues as of July 29, 2017 are presented on a non-GAAP basis and include $24.6M of acquisition-
related deferred revenues.
103
Notes
Notes
Notes
BOARD OF DIRECTORS
Ray Stata
Chairman of the Board
Analog Devices, Inc.
Vincent Roche
President and Chief Executive Officer
Analog Devices, Inc.
James A. Champy
Retired Vice President
of the Dell/Perot Systems
business unit of Dell, Inc.
Bruce R. Evans
Mark M. Little, Ph.D.
Kenton J. Sicchitano
Chairman of the Board and
Senior Advisor
Summit Partners
Edward H. Frank, Ph.D.
Co-founder and
Former Chief Executive Officer
Cloud Parity
Former SVP, GE Global
Research and
Chief Technology Officer
GE
Neil Novich
Former Chairman, President
and Chief Executive Officer
Ryerson Inc.
Retired Global Managing Partner
PricewaterhouseCoopers LLP
Lisa T. Su, Ph.D.
President and
Chief Executive Officer
Advanced Micro Devices, Inc.
EXECUTIVE OFFICERS
Vincent Roche
President and Chief Executive Officer
Martin Cotter
Senior Vice President, Worldwide Sales
and Digital Marketing
John Hassett
Senior Vice President,
Global Operations and Technology
Greg Henderson
Senior Vice President, Automotive
Communications, and Aerospace & Defense
Yusuf Jamal
Senior Vice President, Industrial,
Healthcare, Consumer, and IoT
Solutions and Security
Prashanth Mahendra-Rajah
Senior Vice President, Finance
and Chief Financial Officer
Jean Philibert
Senior Vice President,
Human Resources
Steve Pietkiewicz
Senior Vice President,
Power Products
Peter Real
Senior Vice President and
Chief Technology Officer
Margaret K. Seif
Chief Legal Officer, Secretary and
Senior Vice President of Communications
and Brand
Eileen Wynne
Vice President and Chief Accounting Officer
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
Other Information
To obtain a free copy of the 2017 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:
Transfer Agent
Computershare
P.O. Box 505000
Louisville, KY 40233
(877) 282-1168 (U.S.)
(781) 575-2715 (Outside U.S.)
computershare.com/investor
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.
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 14, 2018
at 125 Summer Street, Boston, MA.
Analog Devices, the Analog Devices logo, Ahead of What’s Possible, and A²B 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
74.394563254.721395401073.427396273.4832872825.563707210.964031 DIGITAL BEAMFORMINGPHASED ARRAY RF INTEGRATION ATTHE COMPONENT LEVEL