One Technology Way P.O. Box 9106 Norwood, MA 02062-9106 1-800-262-5643 www.analog.com l A n a o g D e v i c e s 2 0 1 9 A n n u a l R e p o r t 2019 ANNUAL REPORT Dear Fellow Shareholders, We are living in a time of astonishing innovation in the Third Wave of Information and Communications Technology (ICT), as we refer to it at ADI. This wave is characterized by ubiquitous sensing, hyper-scale and edge computing, and pervasive connectivity. These technology modalities enable the generation of vast amounts of data that allow us to glean actionable intelligence about the world. As one of the very broadest high-performance analog solutions providers, we play a critical role at the nuanced intersection of the physical and digital domains, by providing the building blocks to sense, measure, interpret, connect, and power the edge. Essentially, ADI is where the data is born. This era of extraordinary technological change will continue to improve quality of life globally through continuous advancements in areas such as seamless and efficient automation, more sophisticated communications networks, universal and affordable healthcare, environmental integrity, and much more. Through our research and development (R&D) investments and strategic acquisitions, ADI is better equipped than ever to solve our customers’ toughest engineering challenges from sensor to cloud, from DC to 100 gigahertz, and from nanowatts to kilowatts. And as analog engineering challenges become more complex, our customers are telling us that they want us to provide more complete solutions. This provides ADI with new, attractive opportunities to deliver profitable growth in the years ahead. Solid Financial Results for Fiscal 2019 In fiscal 2019, we delivered revenue of approximately $6 billion amidst challenging macroeconomic conditions and trade uncertain- ty. Our business-to-business (B2B) markets, comprised of industrial, automotive, and communications, achieved modest year-over-year growth and outperformed the semiconductor industry again. We delivered industry-leading adjusted gross margins of approximately 70%, adjusted operating margins of more than 40%, and adjusted diluted earnings per share of $5.15.1 Notably, we generated strong cash flow as evidenced by our 33% free cash flow margin, which places us in the top 10% of the S&P 500.2 The strength of our innovations and customer engagements, the diversity of our franchise, and our operational discipline have enabled us to consistently deliver strong returns. Over the last five years, ADI has generated a total shareholder return of 148%, or more than double the S&P 500 return.3 1 The non-GAAP financial measures included in this letter to shareholders exclude certain items. Please refer to Page 106 of this Annual Report for additional information regarding these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures. Fiscal 2018 was a 53-week year, and for purposes of year-over-year revenue comparisons for fiscal 2019, we normalized our fiscal 2018 result to a 52-week year. 2 Free cash flow is defined as cash provided by (used in) operating activities, less capital expenditures. Please refer to Page 107 of this Annual Report for a reconciliation of free cash flow to net cash provided by operating activities. 3 Total Shareholder Return calculation is share price appreciation plus cumulative cash dividend payments and the effect of reinvesting those dividends into the security for the five years ended November 2, 2019. 4 Link: https://gartner.com/smarterwithgartner/what-edge-computing-means-for-infrastructure-and- operations-leaders/ Our Fiscal 2020 Priorities As we enter fiscal 2020, I would like to describe the three primary priorities on which we are focused to continue driving ADI’s long-term success. 1. Deepening Customer-Centricity ADI possesses among the broadest product portfolios, applications expertise, and manufacturing capabilities in high-performance power management and precision and high-speed signal process- ing technologies, which helps our customers bridge the intersection between the physical and digital worlds. Throughout the year, we saw robust customer engagement driven by a couple of factors. First, our customers are facing a scarcity of available analog engineering talent and they are increasingly turning to us for that expertise. Second, our customers are encountering more complex challenges in the Third Wave of ICT with digital systems increasingly relying on real-world data to create actionable intelligence. As a result, we see our customers partnering with us more deeply to gain the full benefit of our technology capabilities and product innovations with relationships starting earlier and lasting longer. As a testament to that, our opportunity pipeline value achieved record levels in fiscal 2019. 2. Efficient Use of Capital At ADI, we have an intense focus on creating and delivering best-in-class value for our customers and doing so is our first call on capital. Our success is underpinned by our philosophy that superior innovation drives superior results and we understand that R&D enables our virtuous cycle of innovation-driven success. This is why we invested more than $1 billion in R&D during fiscal 2019. We choose our investment areas judiciously—focusing on what we believe are the most attractive opportunities across our business, particularly in our B2B markets. Also, given the growing demand for analog technology and the evolving needs of our customers, we have acquired two companies to increase the scale and the scope of our offerings over the past five years. With the acquisition of Hittite in 2014, ADI became the market leader in high-performance RF and our portfolio now spans the entire frequency spectrum from DC to 100 gigahertz. Since this acquisition, ADI has more than doubled the revenue from this portfolio, and in fiscal 2019, our RF revenue increased more than 30% year-over-year led by growth in industrial and wireless communications. The acquisition of Linear Technology (LTC) in 2017 added high- performance power management and additional precision signal processing to our portfolio, expanding our offerings to deliver more complete solutions. Our new power management design wins across 5G infrastructure, data center, and automotive are moving to production this year, and we expect a more meaningful revenue ramp in fiscal 2021. This puts us on a path to double LTC’s historical revenue growth rate in the years ahead. Board of Directors Ray Stata Chairman of the Board Analog Devices, Inc. Bruce R. Evans Chairman of the Board and Senior Advisor Summit Partners Vincent Roche President and Chief Executive Officer Analog Devices, Inc. James A. Champy Former Vice President of the Dell/Perot Systems business unit of Dell, Inc. Edward H. Frank, Ph.D. Co-founder and former Chief Executive Officer Cloud Parity Karen M. Golz Former Partner Ernst & Young Anantha P. Chandrakasan, Ph.D. Dean of the MIT School of Engineering and Vannevar Bush Professor of Electrical Engineering and Computer Science Mark M. Little, Ph.D. Former Senior Vice President, GE Global Research and Chief Technology Officer GE Neil Novich Former Chairman, President and Chief Executive Officer Ryerson Inc. Kenton J. Sicchitano Former Global Managing Partner PricewaterhouseCoopers LLP Lisa T. Su, Ph.D. President and Chief Executive Officer Advanced Micro Devices, Inc. Susie Wee, Ph.D. Senior Vice President and General Manager of DevNet and CX Ecosystem Success Group Cisco Systems, Inc. Leadership Team Vincent Roche President and Chief Executive Officer Martin Cotter Senior Vice President, Worldwide Sales and Digital Marketing Joseph (John) Hassett Senior Vice President, Industrial and Consumer Greg Henderson Senior Vice President, Automotive, Communications, and Aerospace & Defense Stephan Lattari Senior Vice President, Global Operations and Technology Daniel Leibholz Senior Vice President and Chief Technology Officer Prashanth Mahendra-Rajah Senior Vice President, Finance and Chief Financial Officer Patrick O’Doherty Senior Vice President, Digital Healthcare Steve Pietkiewicz Senior Vice President, Power Products Margaret Seif Chief People Officer and Senior Vice President of Communications Larry Weiss Senior Vice President, General Counsel and Secretary Independent Registered Public Accounting Firm Ernst & Young LLP 200 Clarendon Street Boston, MA 02116 Transfer Agent Computershare P.O. Box 505000 Louisville, KY 40233 (877) 282-1168 (U.S.) (781) 575-2715 (Outside U.S.) http://www.computershare.com/investor Shareholder Inquiries Shareholders of record should contact Computer- share with inquiries about their holdings, dividends, transfers of ownership, address changes or account consolidations. Stock Trading Analog Devices’ common stock trades on the Nasdaq Global Select Market under the symbol ADI. Other Information To obtain a free copy of the 2019 Annual Report on Form 10-K, Corporate Governance Guidelines, Code of Business Conduct and Ethics, or additional information, visit investor.analog.com or write to: Analog Devices, Inc. Investor Relations 804 Woburn Street Wilmington, MA 01887 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 11, 2020, at 125 Summer Street, Boston, MA. Analog Devices, the Analog Devices logo, and Ahead of What’s Possible are registered trademarks of Analog Devices, Inc. All other marks are trademarks of their respective owners. Through our development of cutting-edge innovations and our ability to solve the most difficult problems across a broad array of applica- tions, we generate significant cash flow and are deeply committed to delivering strong shareholder returns. In fiscal 2019, we generated nearly $2 billion of free cash flow 2 and delivered on our target of returning 100% of our free cash flow after debt repayments in the form of dividends and buybacks. 3. Capitalizing on Secular Trends As the data age rapidly evolves and the demand for edge computing rises, analog technology becomes even more relevant. Currently, a modest 10% of data is generated outside the cloud, and by 2025, this amount is expected to grow to 75%.4 We believe this trend uniquely positions ADI to capitalize in two ways. First, we will be a critical partner in the collection, curation, and communication of our cus- tomers’ edge data. Second, with more than 85% of our annual reve- nue coming from B2B markets, we are well-aligned with the markets driving this increase in data—let me provide you a few examples. In Wireless Communications, we are pushing the limits of 5G innovation with our market-leading microwave and integrated transceiver portfolio, adding algorithms and optimized power solutions to differentiate our portfolio. These enhancements enable customers to dramatically increase data density, while reducing their radio footprint and power. Importantly, 5G is more than just radio innovation—it requires a complete re-architecting of the core and wireline network to meet the 5G vision of gigabit speeds, low latency, and high reliability. This network expansion is expected to require a significant upgrade to the backhaul system, unlocking another new revenue opportunity. In Automotive, the center of value creation is pivoting from the internal combustion engine to the electric powertrain and passenger comfort and safety. Again, ADI plays an important role in enabling these advancements. In electric vehicles, our battery management solutions provide customers up to 20% more miles per charge vs. our competition and we are revolutionizing how monitoring and con- trolling batteries will be solved—and doing so wirelessly. In Level 3+ autonomous vehicles, our high-speed signal processing technology is necessary to deliver the ever-increasing levels of resolution and range required in active safety systems. In Industrial, the rise of Industry 4.0 and digital factories is increasing the need for more sophisticated sensing, measuring, and actuating solutions. This creates additional demand for our precision signal chain and power management franchises and expands our address- able market for our suite of connectivity and sensor solutions. Finally, in Healthcare, demographic and economic pressures, cou- pled with the availability of new sensing and diagnostic capabilities, are opening up a myriad of new opportunities for ADI. This includes mission-critical X-ray systems, where we are pushing performance to new levels with our photonic conversion solutions by reducing dosage intensity, while increasing image fidelity. And, wearable devices with our clinical-grade vital signs monitoring solutions are poised to enable hospital-grade patient monitoring at the home. Our Sustainable Future ADI has long been focused on responsible sustainability efforts, but I believe the time has arrived where we not only prioritize sustainability, but also environmental regeneration. To this end, ADI employees will increasingly bring their ingenuity and energy to trail- blazing new solutions that restore and replenish natural resources and ecosystems, reduce our carbon footprint and the environmental impact of our operations, as well as partner with our customers and suppliers to reduce the impact on our planet. To provide just one example, our innovative battery management solutions are at the heart of building more efficient electric vehi- cles, which helps to curtail tens of millions of tons of CO2 entering the atmosphere. Putting this into perspective, every million ton reduction of CO2 emissions is equivalent to the annual CO2 absorption by over one million acres of mature forest. As we look ahead, we believe we have a bigger role to play in engineering a sustainable future. We will be providing more on our strategy and commitments, which are aligned with the United Nations’ Sustain- able Development Goals, in our Sustainability Report this year. Looking Ahead Over our company’s 55-year history, ADI has navigated several important transitions because of our ability to successfully sense and adapt to technological, demographic, and economic changes. Our leading technology portfolio and customer relationships, business diversity, and focus on continuous improvement has created a strong business model with both a broad array of optionality and opportunity as well as long-term resilience. As the world becomes more digital, more autonomous, and more intelligent, I am confident in our ability to deliver stronger perfor- mance. This is due to the many thousands of talented people across our company who are passionate about creating industry-leading innovation and dedicated to the success of our customers each and every day. I have been with ADI for more than 30 years, and I can say unequiv- ocally that I have never been more excited about the prospects and opportunities that lie ahead. Sincerely, Vincent Roche President and Chief Executive Officer Analog Devices, Inc. 2019 Financial Performance $6.0B Revenue 40.6% Operating Margin* Consumer 13% Automotive 16% Communications 21% Industrial 50% 87% B 2 B $5.15 Earnings Per Share* $2.0B Free Cash Flow* Target to return 100% after debt payments 33% Free Cash Flow Margin* Top 10% of S&P 500 Capital Allocation Dividend Per Share Target Annual Increase 7% to 15% Debt Reduction 38% Dividends 35% $2.2B In Total $1.80 $1.92 $2.16 13% 7% 7% Share Repurchase 27% 2017 2018 2019 DIVIDEND INCREASE 148 PERCENT ADI Total Shareholder Return vs. S&P 500 Five-Year Performance** 67 PERCENT S&P ** Operating Margin, Earnings Per Share, Free Cash Flow, and Free Cash Flow Margins are presented on a non-GAAP basis. Please refer to Pages 106 and 107 of this 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 Return calculation is share price appreciation plus cumulative cash dividend payments and the effect of reinvesting those dividends into the security for the five years ended November 2, 2019. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended November 2, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-7819 Analog Devices, Inc. (Exact name of registrant as specified in its charter) Massachusetts (State or other jurisdiction of incorporation or organization) One Technology Way, Norwood, MA (Address of pri ff ncipal executive offices) ff 04-2348234 II (I.R.S. Employer Identifi cation No.) 02062-9106 (Zip Code) (781) 329-4700 (Registrant’s telephone number, including area code) ______________________________ __ Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock $0.16 2/3 par value per share ADI Nasdaq Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Title of Class Indicate by check mark if the registrant is a well-known seasoned issuer, as defined ff 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 fileff (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ such reports), and Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, ff an accelerated filer, ff a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer ☑ ☐ Accelerated filer Smaller reporting company Emerging growth company ☐ ☐ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) if the Exchange Act ☐ in Rule 12b-2 of the Act). Yes ☐ No ☑ Indicate by check mark whether the registrant is a shell company (as defined ff The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $31,890,000,000 based on the last reported sale of the Common Stock on The Nasdaq Global Select Market on May 3, 2019. 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 froff m this calculation because such persons or institutions may be deemed affiliates. This determination of affiliate status is not a conclusive determination for other purposes. As of November 2, 2019, there were 368,302,369 shares of Common Stock, $0.16 2/3 par value per share, outstanding. Documents Incorporated by Referen ff ce Document Description Form 10-K Part Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held March 11, 2020 III TABLE OF CONTENTS 1 2 2 10 19 20 21 21 22 23 Note about Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . 95 Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . 95 Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 49 50 51 52 53 91 92 92 94 95 23 25 26 43 45 48 Note About Forward-Looking Statements This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “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; expected cost savings; the effect of new accounting pronouncements; our ability to successfully integrate acquired businesses and technologies; 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 fiff ling of this report, except to the extent required by law. 1 ITEM 1. BUSINESS Company Overview PART I Analog Devices, Inc. (we, Analog Devices or the Company) is a leading global high-performance analog technology company. Since our inception in 1965, we have focused on solving our customers’ toughest signal processing engineering challenges and playing a fundamental role in efficiently 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 applications. We produce innovative products and technologies that accurately and securely sense, measure, connect, interpret and power, allowing our customers to intelligently bridge the physical and digital domains. We design, manufacture, and market a broad portfolio of solutions, including integrated circuits (ICs), algorithms, software, and subsystems that leverage high-performance analog, mixed-signal, and digital signal processing technologies. Our fusion of cutting-edge sensors, data converters, amplifiers and linear products, radio frequency (RF) ICs, power management products, and other signal processing products with deep industry expertise allows us to create robust technology platforms that meet a broad spectrum of customer and market needs. As new generations of applications evolve - such as autonomous vehicles, 5G networks, intelligent factories, and smart healthcare devices - the demand for Analog Devices’ high-performance analog signal processing and digital signal processing (DSP) products and technologies is increasing. We focus on key strategic markets such as industrial, automotive, consumer, and communications where our signal processing technology is often a critical differentiator in our customers’ products. Used by more than 125,000 end customers worldwide, our products are used in many different types of electronic applications including: • Factory and process automation systems • Instrumentation, test and measurement systems • Aerospace and defense applications • Semi-autonomous and autonomous vehicle safety systems • Automotive infotainment systems • Powertrains for gas and electric vehicles • Medical imaging equipment • Vital signs monitoring devices • Wireless infrastructure equipment • Networking and optical equipment • Portable consumer devices • Professional audio and video devices 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. 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. Acquisition of Linear Technology Corporation On March 10, 2017 (Acquisition Date), we completed the acquisition of Linear Technology Corporation (Linear), an independent manufacturer 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. Available Information We maintain a website with the address www.analog.com. We are not including the information ff contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (including exhibits), and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (SEC). We also make available on our website our 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, 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. 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. Principal Products We design, manufacture and market a broad line of high-performance ICs that incorporate analog, mixed-signal and digital signal processing technologies. Our ICs are designed to address a wide range of real-world signal processing applications. We sell our ICs to tens of thousands of end 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. 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. 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 facilitate decision making throughout our organization. Analog Products Our analog and mixed signal IC technology has been the foundation of our business for over five decades, and we are one of the world’s largest suppliers of high-performance analog ICs. Our analog signal processing ICs are primarily high- performance devices, offering higher dynamic range, greater bandwidth, and other enhanced features. We believe that the principal advantages these products have as compared to competitors’ products include higher accuracy, higher speed, lower cost per function, smaller size, lower power consumption and fewer components, resulting in improved performance and reliability. Our product portfolio includes several thousand analog ICs, many of which can have several hundred customers. Our analog ICs typically have long product lifeff cycles. Our analog IC customers include original equipment manufacturers (OEMs) and customers who build electronic subsystems for integration into larger systems. Converters — We are a leading supplier of data converter products. Data converters translate real-world analog signals into digital data and also translate digital data into analog signals. Data converters remain our largest and most diverse product family and an area where we are continuously innovating to enable our customers to redefine and differentiate their products. Our converter products combine sampling rates and accuracy with the low noise, power, price and small package size required by industrial, automotive, consumer, and communications electronics. Amplifiers/Radio Frequency (RF) and Microwave— We are also a leading supplier of high-performance amplifiers. Amplifiers are used to condition analog signals. High performance amplifiers emphasize the performance dimensions of speed and precision. Within this product portfolio we provide precision, instrumentation, high speed, intermediate frequency/RF/ microwave, broadband, and other amplifiers. Our analog product line also includes a broad portfolio of high performance RF and microwave 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 and microwave ICs support the high performance requirements of cellular infrastructure and a broad range of applications in our target markets, including instrumentation, aerospace and automotive. 3 Power Management & Reference ff — Power management and reference products, which include functions such as power conversion, driver monitoring, sequencing and energy management, provide efficient solutions for power management and conversion applications in the automotive, communications, industrial and high-end consumer markets. From portable consumer devices to automobiles to high end data centers, the performance and efficiency of modern electronic products is increasingly limited by their power supply systems. Our high performance power ICs include powerful performance, integration and software design simulation tools to provide fast and accurate power supply designs. Other Analog — Our analog technology portfolio is comprised of sensor and actuator products, including products based on MEMS technology. MEMS technology enables us to build extremely small sensors that incorporate an electromechanical structure and the supporting analog circuitry for conditioning signals obtained from the sensing element. Our MEMS product portfolio includes accelerometers used to sense acceleration, gyroscopes used to sense rotation, inertial measurement units used to sense multiple degrees of freedom combining multiple sensing types along multiple axes, and broadband switches suitable for radio and instrument systems. We offer other high performance sensors, from temperature to magnetic fields that are deployed in a variety of systems. In addition to sensor 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 fouff nd 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. a Digital Signal Processing and System Products Digital Signal Processing products (DSPs) are optimized for high-speed numeric calculations, which are essential for analog to digital signal conversion. Our instantaneous, or real-time, processing of digital data generated, in most cases, fromff 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. In many cases, DSPs are embedded with mixed signal functionality to provide System on Chip (SOC) integrated solutions, combining that analog and digital signal processing circuitry to provide a complete signal chain for demanding applications. Markets and Applications The breakdown of our November 2, 2019 (fiscal 2019) revenue by end market is set out in the table below. End Market Industrial Communications Automotive Consumer Percent of Fiscal 2019 Revenue 50% 21% 16% 13% The following describes some of the characteristics of, and customer products within, our major end markets: Industrial — Our industrial market includes the following sectors: Industrial Automation and Instrumentation — Our industrial automation applications generally require ICs that offer performance greater than that available from commodity-level ICs but generally do not have production volumes that warrant custom ICs. There is a trend towards development of products focused on particular sub-applications, which incorporate combinations of analog, mixed-signal, and DSP ICs to achieve the necessary functionality. Our instrumentation customers differentiate themselves by using the highest performance analog and mixed-signal ICs available. Our industrial and instrumentation market includes applications such as: • Process control systems • Connected motion and robotics • Environmental control systems • Oscilloscopes • Lab, chemical, and environmental analyzers • Weigh scales 4 Defense/Aerospace — The defense, commercial avionics and space markets all require high-performance ICs that meet rigorous environmental and reliability specifications. Many of our analog ICs can be supplied in versions that meet these standards. In addition, many products can be supplied to meet the standards required for broadcast satellites and other commercial space applications. Most of our products sold in this market are specially tested versions of products derived from our standard product offering. As end systems are becoming more complex, many of our customers in this market also look for us to provide higher levels of integration in order to minimize size, weight and power and to improve ease-of-use. As such, we also sell products in the form of SiPs (system in package), printed circuit board assemblies, modules, and subsystems. Customer products include: • Navigation systems • Space and satellite communications • Communication systems • Radar systems • Security devices • Electronic surveillance and countermeasures Energy Management — The desire to improve energy efficiency, conservation, reliability, and cleanliness is driving investments in electric vehicle charging infraff structure, renewable energy, power transmission and distribution systems, electric meters, and other innovative areas. The common characteristic behind these efforts is the addition of sensing, measurement, and communication technologies to electrical infrastructure. Our offerings include both standard and application-specific products and are used in applications such as: • Utility meters • Electric vehicle charging infrastructure • Substation relays and automation equipment • Wind turbines • Solar inverters • Building energy automation/control Healthcare — The healthcare market is calling for increased access to better and more affordable care. 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: • 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 Communications — The development of broadband, wireless and internet infrastructures around the world has created an important market forff 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 data, video, voice and machine-to- machine communications. In wireless and broadband communication applications, our products are incorporated into: • Cellular basestation equipment • Microwave backhaul systems • Optical and cable networking equipment for data center and service providers • Satellite and terrestrial broadband access equipment Automotive - We develop differentiated high performance signal processing solutions, which enable sophisticated transportation systems that span Infotainment, Electrification and Autonomous applications. Through collaboration with manufacturers worldwide, we have developed a broad portfolio of analog, digital, power and sensor ICs that address the emerging needs of this evolving industry. Our focus is on audio/video applications that lead to a more enriching in-cabina experience, electrification applications that improve vehicle range and reduce emissions, and mission-critical perception and navigation applications that enable vehicles to more clearly sense the external environment. 5 Specifically, we have developed products used in applications such as: Infotainment • • Car audio, voice processing and connectivity Video processing and connectivity Electrification • Hybrid electric / electric vehicles • Battery monitoring and management systems Autonomous, ADAS & Safety • High performance 24GHz & 77/79GHz RADAR systems • High resolution LIDAR systems • Inertial MEMS solutions for mission critical navigation, stability and safety systems Consumer — 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 functionalit y that enables best in class user experience. These products include: ff • Portable devices (smart phones, tablets and wearable devices) for media and vital signs motoring applications • Prosumer audio/video equipment See Note 4, Industry, Segment and Geographic a Information, 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. Patents and Other Intellectual Property Rights We seek to establish and maintain our proprietary rights in our technology and products through the use of patents, ff a for and obtain patents, copyrights, mask works, trademarks and trade secrets. We have a program to file applications copyrights, mask works and trademarks in the United States and in selected foreign countries where we believe filing for such protection is appropriate. We also seek to maintain our trade secrets and confidential information by nondisclosure policies and through the use of appropriate confidentiality agreements. We have obtained a substantial number of patents and trademarks in the United States and in other countries. As of November 2, 2019, we held approximately 3,490 U.S. patents and approximately 693 non-provisional pending U.S. patent applications with expiration dates ranging from 2019 through 2039. 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 forff significant inventions, if we determine other protection, such as maintaining the invention as a trade secret, to be more advantageous. We also have trademarks that are used in the conduct of our business to distinguish genuine Analog Devices products, and we maintain cooperative advertising programs to promote our brands and identify products containing genuine Analog Devices components. Sales Channels We sell our products globally through a direct sales force, third-party distributors, independent sales representatives and via our website. We have direct sales offices, sales representatives and/or distributors in over 50 countries outside North America. We support our worldwide sales efforts through our website and with extensive promotional programs that include 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 and distribute technical content such as data sheets, application guides and catalogs. We maintain a staff of field application engineers who aid customers in incorporating our products into their products. In addition, we offer a variety of web-based tools that ease product selection and aid in the design process for our customers. We derived approximately 57% of our fiscal 2019 revenue from sales made to distributors. We believe distributors provide a cost-effective means of reaching a broad range of customers while providing efficient logistics services. From time to time, we may add or terminate distributors in specific geographies, or move customers to a direct support or fulfillment model as we deem appropriate given our strategies, the level of distributor business activity and distributor performance and financial condition. 6 These distributors typically maintain an inventory of our products. Some of them also sell products that compete with our products, including those for which we are an alternate source. 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. Customers Our primary distributors are Arrow Electronics (Arrow) and Macnica, Inc. (Macnica). They, like our other distributors, are not end customers, but rather serve as a channel of sale to many end users of our products. Revenue from products sold to Arrow accounted for 30%, 28% and 14% of net revenues in fiscal 2019, 2018 and 2017, respectively. Revenue from products sold to Macnica accounted for 10% of net revenues in fiscal 2019 and less than 10% in other periods presented. In fiscal 2017, sales to Apple, Inc., one of our end customers, accounted for approximately 12% of net revenues. No other single end customer accounted for 10% or more of net revenues in fiscal years 2019, 2018 and 2017. International sales accounted for approximately 66%, 63% and 60% of our net revenues in fiscal years 2019, 2018 and 2017, respectively, and are based on the geographic location of the distributors or OEMs who purchased our products. See Note 4, Industry, Segment and Geographic Information, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information about our revenue by channel and end market. 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. dd Production and Raw Materials Monolithic IC components are manufactured in a sequence of semiconductor production steps that include wafer fabrication, wafer testing, dicing 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 laminates, ceramic and plastic used for packaging. 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, iCoupler®isolators and various sensors, are fabricated using specialized processes, which typically use substantially similar equipment as bipolar and CMOS processes. 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 half of our wafer requirements annually from third-party wafer fabrication foundries, such as Taiwan Semiconductor Manufacturing Company (TSMC) and others, typically where deep-submicron lithography capabilities and/or large manufacturing capacity is required. We operate an assembly and wafer sort facility in Penang, Malaysia, and test facilities in the Philippines and Singapore. We also make extensive use of third-party subcontractors for the assembly and testing of our products. Capital spending was approximately $275 million in fiscal 2019, compared with approximately $255 million in fiscal 2018 and $204 million in fiscal 2017. We expect capital expenditures for the fiscal year ending October 31, 2020 (fiscal 2020) to be slightly below 4% of fiscal 2020 revenue. 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. If any of our 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. 7 Backlog Backlog at the end of fiscal 2019 and fiscal 2018 was approximately $1.0 billion and $1.4 billion, respectively; however, as explained below, we believe that our backlog at any time should not be used as an indication of future revenue. 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 effecff t of increasing backlog and, in some instances, we may not have manufacturing capacity sufficient to fulfill customary in the semiconductor industry, we allow most orders to be canceled or deliveries to be delayed by customers without significant penalty. In addition, we 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. all orders. As is ff We typically do not have long-term sales contracts with our customers. In some of our markets where end-user demand may be particularly volatile and difficult to predict, some customers place orders that require us to manufacture product and have it available for shipment, even though the customer is unwilling to make a binding commitment to purchase all, or even any, of the product. In other instances, we manufacture product based on forecasts of customer demand. As a result, we may incur inventory and manufacturing costs in advance of anticipated sales and are subject to the risk of cancellation of orders leading to a sharp reduction of sales and backlog. Further, those orders or forecasts may be for products that meet the customer’s unique requirements so that those canceled orders would, in addition, result in an inventory of unsaleable products, resulting in potential inventory write-offs. As a result of lengthy manufacturing cycles for some of our products that are subject to these uncertainties, the amount of unsaleable product could be substantial. Government Contracts Less than 5% of our fiscal 2019, fiscal 2018, and 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 An element of our business strategy involves expansion through the acquisition of businesses, assets, products or technologies that allow us to complement our existing product offerings, expand our market coverage, increase our engineering workforce or enhance our technological capabilities. business. From time to time, we consider acquisitions that may strengthen our a 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 2019, fiscal 2018 and fiscal 2017 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. Competition We believe that competitive performance in the marketplace for signal processing products depends upon multiple factors, including technological innovation, strength of brand, diversity of product portfolio, product performance, technical support, delivery capabilities, customer service quality, reliability and price, with the relative importance of these factors varying among products, markets, and customers. 8 We compete with a number of semiconductor companies in markets that are highly competitive. Our competitors include but are not limited to: • Broadcom Inc. • Infineon Technologies AG • Maxim Integrated Products, Inc. • Microchip Technology Inc. • Monolithic Power Systems, Inc. • NXP Semiconductors N.V. • Texas Instruments Inc. We believe that our technical innovation emphasizing product performance and reliability, supported by our commitment to strong customer service and technical support, enables us to make a fundamental difference to our customers’ competitiveness in our chosen markets. Environment, Health and Safety We are committed to protecting the environment and the health and safety of our employees, customers and the public. We endeavor to adhere to applicable environmental, health and safety (EHS) regulatory and industry standards across all of our facilities, and to encourage pollution prevention, reduce our water and energy consumption, reduce waste generation, and strive towards continual improvement. We strive to achieve excellence in EHS management practices as an integral part of our total quality management system. Our EHS management systems in all of our facilities are certified to ISO 14001:2015 for environmental management, and all of our facilities conform to ISO 45001 for occupational health and safety. We are a member of the Responsible Business Alliance (RBA), which was formerly known as 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. 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 substance content in jurisdictions where we sell products, including the Restriction of Hazardous Substances (RoHS) directive in the European Union and China and the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) directive in the European Union. Contracts with many of our customers reflect these and additional EHS compliance standards. Compliance with these laws and regulations has not had a material impact on our capital expenditures, earnings, financial condition or competitive position. There can be no assurance, however, that current or future environmental laws and regulations will not impose costly requirements upon us. Any failure by us to comply with applicable environmental laws, regulations and contractual obligations could result in fines, suspension of production, the need to alter manufacturing processes and legal liability. Employees As of November 2, 2019, we employed approximately 16,400 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, 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. 9 ITEM 1A. RISK FACTORS Set forth below and elsewhere in this report and in other documents we file with the Securities and Exchange Commission (SEC) are descriptions of certain risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements in this report. Political and economic uncertainty as well as disruptions in global credit and financial markets could materially and adversely affect our business and results of operations. Continuing political and global macroeconomic uncertainty, including escalating trade disputes between the United States and China, the United Kingdom's pending withdrawal from the European Union, and uncertainty regarding the stability of global credit and financial markets may lead consumers and businesses to postpone or reduce 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. 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 macroeconomic conditions as well as the future stability of the global credit and financial markets could cause the value of the currency in the affecff global credit and financial markets may also adversely affect our ability to access external financing sources on acceptable terms. In addition, financial difficulties experienced by our suppliers, distributors or customers 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. ted markets to deteriorate, thus reducing the purchasing power of those customers. Significant disruption to We are exposed to business, economic, political, legal, regulatory and other risks through our significant worldwide operations, which could adversely affect our business, financial condition and results of operations. 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: • • • • • • • • • • • • • • • political, legal and economic changes, crises or instability and civil unrest in markets in which we do business, including potential macroeconomic weakness related to escalating trade disputes between the United States and China and the United Kingdom's pending withdrawal from the European Union; compliance requirements of U.S. customs and export regulations, including the Export Administration Regulations (EAR) and the International Traffic and Arms Regulations (ITAR); currency conversion risks and exchange rate and interest rate fluctuations, including the potential impact of the transition from LIBOR; trade policy, commercial, travel, export or taxation disputes or restrictions, government sanctions, import or export tariffs, changes to export classifications or other restrictions imposed by the U.S. government or by the governments of the countries in which we do business, particularly in China; complex, varying and changing government regulations and legal standards and requirements, particularly with respect to tax regulations, price protection, competition practices, export control regulations and restrictions, customs and tax requirements, immigration, anti-boycott regulations, data privacy, intellectual property, anti-corruption and environmental compliance, including 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; changes in immigration laws, regulations and procedures and enforcement practices of various government agencies; greater difficulty enforcing intellectual property rights and weaker laws protecting such rights; natural disasters or pandemics; transportation disruptions and delays and increases in labor and transportation costs; changes to foreign taxes, tariffs and freight rates; fluctuations in raw material costs and energy costs; greater difficulty in accounts receivable collections and longer collection periods; and costs associated with our foreign defined benefit pension plans. 10 Any of these risks, or any other risks related to international business operations, could materially adversely affect our business, financial condition and results of operations. Many of these risks are present within our business operations in China. For example, changes in U.S.-China relations, the political environment or international trade policies and relations could result in revisions to laws or regulations or their interpretation and enforcement, increased taxation, trade sanctions, the imposition of import or export duties and tariffs, restrictions on imports or exports, currency revaluations, or retaliatory actions, which has had and may continue to have an adverse effect on our business plans and operating results. In addition, our success in the Chinese markets may be adversely affected by China's continuously evolving policies, laws and regulations, including those relating to 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. At November 2, 2019, our principal source of liquidity was $648.3 million of cash and cash equivalents, of which approximately $295.7 million was held in the United States and the remaining balance was held outside the United States. As we intend to reinvest substantially all of our foreign earnings indefinitely, certain cash held outside the United States may not be available for repatriation as dividends to the United States in the future. We require a substantial amount of cash in the United States for operating requirements, stock repurchases, cash dividends and acquisitions. If we are unable to address our U.S. cash requirements through operations, borrowings under our current revolving credit facility, future debt or equity offerings or other sources of cash obtained at an acceptable cost, it may be 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. Our future revenue, gross margins, operating results, net income and earnings per share are difficult to predict and may materially fluctuate. Our future revenue, gross margins, operating results, net income and earnings per share are difficult to predict and may be materially affected by a number of factors, including: • • • • • • • • • • • • • • • • • • • the effects of adverse economic conditions in the markets in which we sell our products; changes in customer demand or order patterns 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; our ability to accurately forecast distributor demand for our products; our ability to accurately estimate future distributor pricing credits and/or stock rotation rights; our ability to effecff tively manage our cost structure in both the short term and over a longer duration; 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; the effects of issued, threatened or retaliatory government sanctions, trade barriers or economic restrictions, changes in law, regulations or other restrictions, including executive orders, changes in import and export regulations, export classifications or changes in duties and tariffs, particularly with respect to China; 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; a the ability of our third-party suppliers, subcontractors and manufacturers to supply us with sufficient quantities of raw materials, products and/or components; a decline in infrff astructure 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 worldwide, including health insurance, retirement plan and pension plan contributions and retirement benefits; 11 • • • • • • our ability to utilize our manufacturing facilities at efficff ient levels; potential significant litigation-related costs or product liability, warranty and/dd 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 labor, utilities, transportation and raw materials; the costs related to compliance with increasing worldwide government, environmental and social responsibility standards; new accounting pronouncements or changes in existing accounting standards and practices; and the effects of public health emergencies, natural disasters, widespread travel disruptions, security risks, terrorist activities, international conflicts and other events beyond our control. In addition, the semiconductor market has historically been cyclical and subject to significant economic upturns and downturns. Our business 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. Increases in our effective tax rate and exposure x to additional tax liabilities may adversely impact our results of operations. Our effective tax rate reflects the applicable tax rate in effect in the various tax jurisdictions around the world where our income is earned. Our effective tax rate for the fiscal year ended November 2, 2019 was below our U.S. federal statutory rate of 21%. It was also below our blended U.S. federal statutory tax rate of 23.4% for the fiscal year ended November 3, 2018. This is primarily due to 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 earnr ed and taxed; deferred taxes arising from basis differences in investments in foreign subsidiaries; any adverse resolution of ongoing tax audits or adverse rulings from taxing authorities worldwide, including our current transfer pricing appeal in Ireland; 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. The ability to extend such tax holiday beyond its expiration date cannot be assured. In addition, if we fail to meet certain conditions of the tax holiday, we may lose the benefit of the tax holiday 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. Compliance with the Tax Legislation may require the collection of information not regularly produced within the Company, and therefore necessitate the use of estimates in our Consolidated Financial Statements and the exercise of significant judgment in accounting for its provisions. As regulations and guidance evolve with respect to the Tax Legislation, and as more information is gathered and analyzed, our results may differ from previous estimates and may materially affecff Consolidated Financial Statements. t our We are also subject to laws and regulations in various jurisdictions that determine how much profit has been earnr ed and when it is subject to taxation in that jurisdiction. Changes in these laws and regulations, including those that align to or are associated with the Organization for Economic Cooperation and Development's Base Erosion and Profit Shifting (BEPS) Actions Plans, could impact the jurisdictions where we are deemed to earn income, which could in turn adversely affect our tax liability and results of operations. 12 We may be unable to adequately protect our proprietary intellectual property rights, which may limit our ability to compete effectively. Our future success depends, in part, on our ability to protect our intellectual property. We primarily rely on patent, mask work, copyright, trademark and trade secret laws, as well as nondisclosure agreements, information security practices, and other methods, to protect our proprietary information, technologies and processes. Despite our efforts to protect our intellectual property, it is possible that competitors or other unauthorized third parties may obtain or disclose our confidential information, reverse engineer or copy our technologies, products or processes, or otherwise misappropriate our intellectual property. Moreover, the laws of foreign countries in which we design, manufacture, market and sell our products may affordff effective protection of our intellectual property. little or no 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 prevent others from exploiting our proprietary technology. 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, we may not be able to effectively enforce our rights. If our patents and mask works do not adequately protect our technology, or if our registrations expire prior to end of life of our products, our competitors may be able to offer products similar to ours. Our competitors may also be able to develop similar technology independently or design around our patents. We generally enter into confidentiality agreements with our employees, consultants and strategic partners. We also try to control access to and distribution of our technologies, documentation and other proprietary information. Despite these efforts, internal or external parties may attempt to copy, disclose, obtain or use our products or technology without our authorization. Also, former employees may seek employment with our business partners, customers or competitors, and there can be no assurance that the confidential nature of our proprietary information will be maintained in the course of such future employment. A significant disruption in, or breach in security offf our information technology systems or certain of our products could materially and adversely affect our business or reputation. We rely on information technology systems throughout our company to keep financial records and customer data, process 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, network communications and email. Our information technology systems may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, telecommunication failures, employee malfeff asance, user errors, catastrophes or other unforeseen events. We also rely upon 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 affecff t our business. We may also be subject to security breaches of our information technology systems and certain of our products caused by 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, those third parties may nonetheless also be subject to security breaches or otherwise compromise the protection of such information. Security breaches of our information technology systems or those of our partners could result in the misappropriation or unauthorized disclosure of confidential and proprietary information employees, partners, customers, suppliers, or other third parties which could result in our suffering significant financial or reputational damage. belonging to us or to our ff Our customers typically do not make long-term product purchase commitments and incorrect forecasts or reductions, cancellations or delays in orders for our products could adversely affect our operating results. We typically do not have sales contracts with our customers that include long-term product purchase commitments. 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 non-binding forecasts of customer demands, which may fluctuate significantly on a quarterly or annual basis and at times may prove to be inaccurate. 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, if orders or forecasts for products that meet a customer’s unique requirements are canceled or unrealized we may be left with an inventory of unsaleable products, causing potential inventory write-offs, and hindering our ability to recover our costs. As a result of lengthy manufacturing 13 cycles for certain of the products that are subject to these uncertainties, the amount of unsaleable product could be substantial. Incorrect forecasts, or reductions, cancellations or delays in orders for our products could adversely affect our operating results. Our future success depends upon our ability to execute our business strategy, continue to innovate, improve our existing products, design, develop, produce and market new products, and identify and enter new markets. Our future success significantly depends on our ability to execute our business strategy, continue to innovate, improve our existing products and design, develop, produce and market innovative new products and system-level solutions. 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. Any inability to satisfy customer quality and reliability standards or comply with industry standards and technical requirements may adversely affect demand for our products and our results of operations. dd Our growth is also dependent on our ability to identify and penetrate new markets where we have limited experience yet require significant investments, resources and technological advancements in order to compete effectively and there can be no assurance that we will achieve success in these markets. 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 end-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. We may not be able to competem successfully in markets within the semiconductor industry in the future. We face intense competition in the semiconductor industry, and we expect this competition to increase in the future, 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, 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 both emerging companies selling specialized products in markets we serve and companies outside of the U.S., including entities associated with well-funded 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 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 developing and emerging markets, 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 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. has experienced significant consolidation over the d We rely on third-parties for supply of raw materials and parts, semiconductor wafer foundry services, assembly and test services, and transportation, among other things, and we generally cannot control their availability or conditions of supply or services. We rely, and plan to continue to rely, on third-party suppliers and service providers, including raw material and components suppliers, semiconductor wafer foundries, assembly and test contractors, and freight carriers (collectively, vendors) in manufacturing our products. This reliance involves several risks, including reduced control over availability, capacity utilization, delivery schedules, manufacturing yields, and costs. We currently source approximately half of our wafer requirements annually from third-party wafer foundries, including Taiwan Semiconductor Manufacturing Company (TSMC) and others. These foundries often provide wafer foundry services to our competitors and therefore periods of increased industry demand may result in capacity constraints. In addition, in certain instances, one of our vendors may be the sole source of highly specialized processing services or materials. If such vendor is unable or unwilling to manufacture and deliver components to us on the time schedule and of the quality or quantity that we require, we may be forced to seek to engage an additional or replacement vendor, which could result in additional expenses and delays in product development or shipment of product to our 14 customers. If additional or replacement vendors 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. t A prolonged disruption of our internal manufacturing operations could have a material adverse effect on our business, financial condition and results of operations. In addition to leveraging an outsourcing model forff 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, civil unrest 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 affect our business, financial condition and results of operations. a If we are unable to generate sufficient cash flow, we may not be able to service our debt obligations, payments on our outstanding indebtedness. i including making Our ability to make payments of principal and interest on our indebtedness when due depends upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our consolidated operations, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our outstanding debt, we may be required to, among other things: • • • • • • seek additional financing in the debt or equity markets; refinance or restructure all or a portion of our indebtedness; borrow under our revolving credit facility; divert funds that would otherwise be invested in growing our business operations; repatriate earnings as dividends from foreign locations with potential for negative tax consequences; or sell selected assets. 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 depend on the health of the debt capital markets. The markets for semiconductor products are cyclical, and increased production may lead to overcapacity and lower prices, and conversely, we may not be able to satisfy unexpected demand for our products. x 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 resources in anticipation of increased demand for our products, and that demand does not materialize at the pace at which we expect, or declines, or if we overbuild inventory in a period of decreased demand, our operating results may be adversely affected as a result of increased operating expenses, reduced margins, underutilization of capacity or asset impairment charges. These capacity expansions by us and other semiconductor manufacturers could also lead to overcapacity in our target markets which could lead to price erosion that would adversely impact our operating results. Conversely, during periods of rapid increases in demand, our available capacity may not be sufficient to satisfy the demand. In addition, we may not be able to expand our workforce and operations in a sufficiently timely manner, procure adequate resources and raw materials, 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. or procure excessive a Our semiconductor products are complex and we may be subject to warranty, indemnity and/or// could result in significant costs and damage to our reputation and adversely affect customer relationships, the market acceptance of our products and our operating results. product liabilitytt claims, which Semiconductor products are highly complex and may contain defects that affecff t their quality or performance. Failures in our products and services or in the products of our 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 that our products will meet their published specifications, and that we will repair or replace defective products, for one year from the date title passes from us to the customer. We invest significant resources in the 15 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 with product defects, including recalls, which may adversely impact our operating results. We may also be subject to customer intellectual property 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. Further, we sell to customers in industries such as automotive (including autonomous vehicles), aerospace, defense, and healthcare, where failure of the systems in which our products are integrated could cause damage to property or persons. We may be subject to product liability claims if our products, or the integration of our products, cause system failures. Any product liability claim, whether or not determined in our favor, could result in significant expense, divert the efforts of our technical and management personnel, and harm our business. In addition, if any of our products contain defects, or have reliability, quality or compatibility problems not capable of being resolved, our reputation may be damaged, which could make it more difficult for us to sell our products to customers and which could also adversely affect our operating results. 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. This instability could result in manufacturing delays and product shortages, which could have a material adverse effect on our operating results. We are occasionally involved in litigation, including claims regarding intellectual property rights,tt which could be costly to litigate and could require us to redesign products or pay significant royalties. The semiconductor industry is characterized by frequent claims and litigation involving patent and other intellectual property rights. Other companies or individuals have obtained patents covering a variety of semiconductor designs and processes, and we might be required to obtain licenses under some of these patents or be precluded from making and selling infringing products, if those patents are found to be valid and infringed by us. In the event a third party makes a valid intellectual property claim against us and a license is not available to us on commercially reasonable terms, or at all, we could be forced either to redesign or to stop production of products incorporating that intellectual property, and our operating results could be materially and adversely affected. Litigation may be necessary to enforce our patents or other of our intellectual property rights or to defend us against claims of infringement, and this litigation could be costly and divert the attention of our key personnel. We could also be subject to litigation or arbitration disputes arising under our contractual obligations, as well as customer 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, arbitration could have a material adverse effecff in which the dispute is resolved. and we may elect to self-insure with respect to certain matters. An adverse outcome in litigation or t on our financial position or on our operating results or cash flows in the period a If we are unable to recruit or retain our key personnel, our ability to execute our business strategy will be adversely affected. Our continued success depends to a significant extent upon the recruitment, retention and effective succession of our key personnel, including our leadership team, management and technical personnel, particularly our experienced engineers. The competition for these employees is intense. The loss of key personnel or the inability to attract, hire and retain key employees with critical technical skills to achieve our strategy, including as a result of changes to immigration policies, could also have a material adverse effect on our business. We do not maintain any key person life insurance policy on any of our officers or other employees. 16 To remain competitive, we may need to invest in or acquire other companies, purchase or license technology from third parties, or enter into other strategic transactions in order to introduce new productstt or enhance our existing products. An element of our business strategy involves expansion through the acquisitions of businesses, assets, products or technologies that allow us to complement our existing product offerings, diversify our product portfolio, expand our market coverage, increase our engineering workforce, expand our technical skill sets or enhance our technological capabilities. We may not be able to find businesses that have the technology or resources we need and, if we find such businesses, we may not be able to invest in, purchase or license the technology or resources on commercially favorable terms or at all. Acquisitions, investments and technology licenses are challenging to complete for a number of reasons, including difficulties in identifying potential targets, 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 and other regulatory 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. Acquisitions also involve a number of challenges and risks, including: diversion of management’s attention in connection with both negotiating the transaction and integrating the acquired assets and businesses; difficulty or delay integrating acquired technologies, operations, systems and infrff astructure, existing businesses; rr and personnel with our strain on managerial and operational resources as management tries to oversee larger or more complex operations; the future funding requirements for acquired companies, including research and development costs, employee compensation and benefits, and operating expenses, which may be significant; servicing significant debt that may be incurred in connection with acquisitions; 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 and businesses; difficulty realizing expected cost savings, operating synergies 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 our acquisitions, which may have an adverse effect on our business strategy, plans and operating results. We rely on supplies, services and manufacturing capacity located in geologically unstable areas, which could affect our ability to produce products. We, like many companies in the semiconductor industry, rely on supplies, services, internal manufacturing capacity, wafer fabrication foundries and other 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, availabilit 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 temporary or permanent loss of customers for affected products, which could have a material adverse effect on our results of operations and financial condition. y and cost of key raw materials, utilities and equipment, and availability of key services, a Our operating results are dependent on the performance of independent distributors. ii A significant portion of our sales are through independent global and regional distributors that are not under our control. Arrow Electronics is currently our largest distributor. These independent distributors generally represent product lines offered by several companies and thus could reduce their sales efforts for our products or they could terminate their representation of us. We generally do not require letters of credit from our distributors, including our largest distributor, and are not protected against accounts receivable default or declarations of bankruptcy by these distributors. Our inability to collect open accounts 17 receivable could adversely affect our operating results. Termination of a significant distributor 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 with the appropriate scale and resources, our operating results could be adversely affected. Effective November 4, 2018, all distributor sales are recognized upon shipment to the distributor under Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09). We are now required to estimate the effects of returns and allowances provided to distributors and record revenue at the time of sale to the distributor. estimates of such credits and rights are materially understated, it could cause subsequent adjustments that negatively impact our revenues and gross profits in a future period. If our We are subject to environmental, health and safetytt operating results. (EHS) regulations, which could increase our expenses and affect our Our industry is subject to EHS requirements, particularly those that control and restrict the sourcing, use, transportation, emission, discharge, storage and disposal of certain substances, 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 contract 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: • • • • • • 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. Restrictions in our revolving credit facility, term loan and outstanding debt instruments may limit our activities. Our current revolving credit facility, term loan and outstanding debt instruments impose, and future debt instruments to which we may become subject may impose, restrictions that limit our ability to engage in activities that could otherwise benefit our Company, including to undertake certain transactions, to create certain liens on our assets and to incur certain subsidiary indebtedness. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control such as changes in technology, government regulations and the level of competition in our markets. In addition, our revolving credit facility and term loan require 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 loan facility 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 and/odd r we may be restricted from further borrowing under our revolving credit facility. If we fail to comply with government contracting regulations, we could suffer a loss of revenue or incur price adjustments or other penalties. 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. 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 18 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. 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 affecff t our revenue. 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 affecff ted by factors including: • • • • • • • • • • • • 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, including with respect to trade, travel, export and taxation; 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 directors; and negative media publicity targeting us or our suppliers, customers or competitors. The stock market has historically experienced volatility, especially within the semiconductor industry, d that often has been unrelated to the performance of particular companies. These market flff uctuations may cause our stock price to fall regardless of our operating results. 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. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 19 ITEM 2. PROPERTIES Our corporate headquarters is located in Norwood, Massachusetts. Manufacturing and other operations are conducted in several locations worldwide. The following tables provide certain information about our significant general offices and manufacturing facilities: Properties Owned: Use Cavite, Philippines Wafer probe and testing, warehouse, engineering and administrative offices Wilmington, MA Limerick, Ireland Milpitas, CA Singapore (1) Malaysia (2) Chelmsford, MA Camas, WA Wafer fabrication, testing, engineering, marketing and administrative offices 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 Final assembly of certain module and subsystem-level products, testing, engineering and administrative offices Wafer fabrication Greensboro, NC Product testing, engineering and administrative offices Approximate qqq Total Sq. Ft. 873,000 sq. ft. 594,000 sq. ft. 491,000 sq. ft. 430,000 sq. ft. 384,000 sq. ft. 350,000 sq. ft. 174,000 sq. ft. 105,000 sq. ft. 99,000 sq. ft. (1) Leases on the land used for this facility expire in 2021 through 2022 with an option to extend each lease for an additional 30 years. (2) Leases on the land used for this facility expire in 2054 through 2057. Properties Leased: Norwood, MA Santa Clara, CA Bangalore, India Use Corporate headquarters, engineering, sales and marketing offices Engineering, sales, marketing and administrative offices Engineering Approximate Total Sq. Ft. qq Lease Termination ) ( ) ( (fiscal year) y y 130,000 sq. ft. 2022 445,000 sq. ft. 2030 175,000 sq. ft. 2027 Greensboro, NC Engineering and administrative offices 51,000 sq. ft. 2024 Shanghai, China Engineering and sales offices 59,000 sq. ft. 2021 Beijing, China Engineering and sales offices 58,000 sq. ft. 2021 Renewals 2, five-yr. periods 2, five-yr. periods 1, five-yr. period 1, five-yr. period 1, three-yr. period 3, one- to three-yr. periods In addition to the properties listed in the above a 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, office or sales facilities through lease renewals prior to expiration or through month-to-month occupancy, or in replacing them with equivalent facilities. For information concerning our obligations under all operating leases, see Note 9, Lease Commitments, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. 20 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, among other things, contractual matters, patents, trademarks, personal injury, environmental matters, product liability, litigation, we can give no assurance that we will prevail. We do not believe that any current legal matters will have a material adverse effect on our financial position, results of operations or cash flows. insurance coverage, employment or employee benefits. As to such claims and a ITEM 4. MINE SAFETY DISCLOSURES Not Applicable. 21 INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following table sets forth (i) the name, age and position of each of our executive officers as of November 26, 2019 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. Officer Vincent Roche Age 59 President and Chief Position(s) Executive Officer Prashanth Mahendra-Rajah 49 Senior Vice President, Finance and Chief Financial Officer Martin Cotter 54 Senior Vice President, Worldwide Sales and Digital Marketing Joseph (John) Hassett 61 Senior Vice President, Global Operations and Technology Gregory Henderson 51 Senior Vice President, Automotive, Communications and Aerospace and Defense Steve Pietkiewicz 60 Senior Vice President, Power Products Business Experience 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. Senior Vice President, Finance and Chief Financial Officer since September 2017; Chief Financial Officer of WABCO Holdings Inc., a supplier 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 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; Interim Senior Vice President, Industrial, Healthcare, and Consumer since June 2019; Vice President Assembly and Test Worldwide Manufacturing from 1994 to May 2015; and Director Assembly Operations Worldwide Manufacturing from 1990 to 1994. 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, 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, frff om 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. 22 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on The Nasdaq Global Select Market under the symbol ADI. 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. Issuer Purchases of Equity Securities The table below summarizes the activity related to stock repurchases for the three months ended November 2, 2019. Period August 4, 2019 through August 31, 2019 September 1, 2019 through September 28, 2019 September 29, 2019 through November 2, 2019 Total _______________________________________ Total Number of Shares Purchased (1) Average Price Paid Per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs 199,231 342,313 1,023,202 1,564,746 $ $ $ $ 109.00 113.39 109.32 110.17 194,849 338,534 949,531 1,482,914 $ $ $ $ 2,213,017,633 2,174,639,499 2,070,927,831 2,070,927,831 (1) (2) (3) Includes 81,832 shares withheld by us from employees to satisfy employee tax obligations upon vesting of restricted stock units/ awards granted to our employees under our equity compensation plans. 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. Shares repurchased pursuant to the stock repurchase program publicly announced on August 12, 2004. On August 21, 2018, the Board of Directors approved an increase to the current authorization for the stock repurchase program by an additional $2.0 billion to $8.2 billion in the aggregate. Under the repurchase program, we may repurchase outstanding shares of our common stock froff m 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 22, 2019 was 2,059. This number does not include shareholders for whom shares are held in a “nominee” or “street” name. On November 1, 2019, the last reported sales price of our common stock on The Nasdaq Global Select Market was $109.37 per share. 23 Comparative Stock Performance Graph The following graph compares cumulative total shareholder return on our common stock since November 1, 2014 with the cumulative total return of the Standard & Poor’s (S&P) 500 Index and the S&P Semiconductors Index. This graph assumes the investment of $100 on November 1, 2014 in our common stock, the S&P 500 Index and the S&P Semiconductors Index and assumes all dividends are reinvested. Measurement points are the last trading day for each respective fiscal year. (cid:7)(cid:22)(cid:19)(cid:19) (cid:7)(cid:21)(cid:24)(cid:19) (cid:7)(cid:21)(cid:19)(cid:19) (cid:7)(cid:20)(cid:24)(cid:19) (cid:1005)(cid:1004)(cid:1004)(cid:856)(cid:1004)(cid:1004) (cid:1005)(cid:1004)(cid:1004)(cid:856)(cid:1004)(cid:1004) (cid:1005)(cid:1004)(cid:1004)(cid:856)(cid:1004)(cid:1004) (cid:7)(cid:20)(cid:19)(cid:19) (cid:7)(cid:24)(cid:19) (cid:7)(cid:19) (cid:20)(cid:20)(cid:18)(cid:20)(cid:18)(cid:20)(cid:23) (cid:1006)(cid:1008)(cid:1011)(cid:856)(cid:1013)(cid:1012) (cid:1006)(cid:1007)(cid:1005)(cid:856)(cid:1008)(cid:1010) (cid:1005)(cid:1010)(cid:1010)(cid:856)(cid:1012)(cid:1005) (cid:1005)(cid:1013)(cid:1012)(cid:856)(cid:1009)(cid:1010) (cid:1005)(cid:1013)(cid:1007)(cid:856)(cid:1010)(cid:1005) (cid:1005)(cid:1012)(cid:1010)(cid:856)(cid:1004)(cid:1007) (cid:1005)(cid:1012)(cid:1011)(cid:856)(cid:1012)(cid:1011) (cid:1005)(cid:1006)(cid:1013)(cid:856)(cid:1004)(cid:1004) (cid:1005)(cid:1007)(cid:1009)(cid:856)(cid:1013)(cid:1007) (cid:1005)(cid:1008)(cid:1009)(cid:856)(cid:1013)(cid:1005) (cid:1005)(cid:1006)(cid:1008)(cid:856)(cid:1008)(cid:1005) (cid:1005)(cid:1007)(cid:1009)(cid:856)(cid:1006)(cid:1011) (cid:1005)(cid:1004)(cid:1009)(cid:856)(cid:1006)(cid:1004) (cid:1005)(cid:1004)(cid:1013)(cid:856)(cid:1013)(cid:1008) (cid:1005)(cid:1004)(cid:1009)(cid:856)(cid:1004)(cid:1011) (cid:20)(cid:19)(cid:18)(cid:22)(cid:20)(cid:18)(cid:20)(cid:24) (cid:20)(cid:19)(cid:18)(cid:21)(cid:28)(cid:18)(cid:20)(cid:25) (cid:20)(cid:19)(cid:18)(cid:21)(cid:27)(cid:18)(cid:20)(cid:26) (cid:20)(cid:20)(cid:18)(cid:22)(cid:18)(cid:20)(cid:27) (cid:20)(cid:20)(cid:18)(cid:21)(cid:18)(cid:20)(cid:28) (cid:36)(cid:81)(cid:68)(cid:79)(cid:82)(cid:74)(cid:3)(cid:39)(cid:72)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17) (cid:54)(cid:9)(cid:51)(cid:3)(cid:24)(cid:19)(cid:19) (cid:54)(cid:9)(cid:51)(cid:3)(cid:54)(cid:72)(cid:80)(cid:76)(cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86) 24 ITEM 6. SELECTED FINANCIAL DATA ff 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. 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. 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 2019, 2017, 2016, and 2015 are 52-week fiscal years. Fiscal 2018 was a 53-week fiscal year. The additional week in fiscal 2018 was included in the first quarter ended February 3, 2018. Therefore, fiscal 2018 included an additional week of operations as compared to other periods presented. (thousands, except per share amounts) 2019 2018 (1) 2017 (1) 2016 2015 Statement of Income data: Revenue Net income Net income per common share Basic Diluted Dividends declared per common share Balance Sheet data: Total assets Debt $ 5,991,065 $ 6,224,689 $ 5,246,354 $ 3,421,409 $ 3,435,092 $ 1,363,011 $ 1,506,980 $ $ $ 3.68 3.65 2.10 $ $ $ 4.05 4.00 1.89 $ $ $ $ 805,379 2.32 2.29 1.77 $ $ $ $ 861,664 2.79 2.76 1.66 $ $ $ $ 696,878 2.23 2.20 1.57 $21,392,641 $ 5,491,919 $20,438,366 $ 6,332,674 $21,118,283 $ 7,851,084 $ 7,970,278 $ 1,732,177 $ 7,058,777 869,935 $ (1) Balances for fiscal 2018 and fiscal Revenue from Contracts with Customers (ASU 2014-09). See Note 2a, Principles of Consolidation, of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. Therefore, balances from fiscal 2016 and fiscal 2015 may not be comparable to other periods presented. 2017 have been restated to reflect the adoption of Accounting Standards Update (ASU) 2014-09, ff 25 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (all tabular amounts in thousands except per share amounts) The following discussion includes a comparison of our Results of Operations and Liquidity and Capital the fiscal year ended November 2, 2019 (fiscal 2019) and the fiscal year ended November 3, 2018 (fiscal 2018). Our fiscal year is the 52-week or 53-week period ending on the Saturday closest to the last day in October. Fiscal 2019 and fiscal 2017 were 52- week fiscal periods, while fiscal 2018 was a 53-week period. The additional week in fiscal 2018 was included in the first quarter ended February 3, 2018. Therefore, fiscal 2018 included an additional week of operations as compared to fiscal 2019 and fiscal 2017. Resources forff a Results of Operations With the exception of items impacted by the adoption of ASU 2014-09 and resulting restatements, a discussion of changes in our results of operations from the fiscal year ended October 28, 2017 (fiscal 2017) to fiscal 2018 has been omitted from this Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended November 3, 2018 filed with the Securities and Exchange Commission on November 27, 2018. Overview Fiscal Year 2019 over 2018 2018 over 2017 2019 2018 (1) 2017 (1) $ Change % Change $ Change % Change Revenue $ 5,991,065 $ 6,224,689 $ 5,246,354 $ (233,624) (4)% $ 978,335 19 % Gross margin % Net income Net income as a % of revenue Diluted EPS 67.0 % $ 1,363,011 22.8 % 3.65 $ 68.3 % $ 1,506,980 24.2 % 4.00 $ $ $ 60.4 % 805,379 15.4 % 2.29 _______________________________________ $ (143,969) (10)% $ 701,601 87 % $ (0.35) (9)% $ 1.71 75 % (1) Balances have been restated to reflect the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. 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 14, Debt, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information. 26 Revenue Trends by End Market The following table summarizes revenue by end market. The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the "ship to" customer information and the end customer product or application into which our product will be incorporated. As data systems for capturing and tracking this data and our methodology evolves and improves, the categorization of products by end market can vary over time. When this occurs, we reclassify revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within each end market. 2019 % of Total Product Revenue (2) 2018 (1) % of Total Product Revenue (2) Y/Y% Revenue 2017 (1) Y/Y% Revenue 50 % (4)% $ 3,129,569 1,151,359 21 % 12 % 50 % 35 % $ 2,324,686 908,594 18 % 27 % Revenue $ 3,003,927 1,284,087 933,143 16 % (8)% 1,009,927 16 % 33 % 758,115 Industrial Communications Automotive Consumer Total Revenue _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to 933,834 100 % (4)% $ 6,224,689 1,254,959 100 % 19 % $ 5,246,354 769,908 $ 5,991,065 13 % (18)% 15 % (26)% % of Total Product Revenue (2) 44 % 17 % 14 % 24 % 100 % Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. (2) The sum of the individual percentages may not equal the total duedd to rounding. Industrial - Industrial end market revenues decreased in fiscal 2019, as compared to fiscal year 2018, primarily as a result of a decrease in demand for products sold into the automation and memory test sectors of this end market and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset by an increase in demand for products sold into the aerospace and defense sector of this end market. Industrial end market revenue increased in fiscal 2018, as compared to fiscal 2017, primarily as a result of the Acquisition, which accounted for approximately $414.5 million of the increase, a broad-based increase in demand for our products in this end market and an additional week of operations in fiscal 2018 as compared to fiscal 2017. Communications - Communications end market revenue increased in fiscal 2019, as compared to fiscal year 2018, as a result of an increase in demand for our products sold into the wireless sector of this end market, partially offset by one less week of operations in fiscal 2019 as compared to fiscal 2018. Communications end market revenue increased in fiscal 2018, as compared to fiscal 2017, primarily as a result of the Acquisition, which accounted for approximately $43.5 million of the increase, a broad-based increase in demand for our products in this end market and an additional week of operations in fiscal 2018 as compared to fiscal 2017. Automotive - Automotive end market revenue decreased in fiscal 2019, as compared to fiscal 2018, primarily as a result of a broad-based decrease in demand for our products and one less week of operations in fiscal 2019, as compared to fiscal 2018. Automotive end market revenue increased in fiscal 2018, as compared to fiscal 2017, primarily as a result of the Acquisition, which accounted for approximately $92.6 million, a broad-based increase in demand for our products in this end market and an additional week of operations in fiscal 2018 as compared to fiscal 2017. ff Consumer - Consumer end market revenues decreased in fiscal 2019, as compared to fiscal 2018, primarily as a result of decreased demand for products used in portable consumer applications and one less week of operations in fiscal 2019 as compared to the fiscal 2018. Consumer end market revenue decreased in fiscal 2018, as compared to fiscal 2017, primarily as a result of a decreased demand for products used in portable consumer applications, partially offset by an increase in revenue due to the Acquisition and an additional week of operations in fiscal 2018 as compared to fiscal 2017. 27 Revenue by Sales Channel The following tables summarize revenue by channel. We sell our products globally through a direct sales force, third party distributors, independent sales representatives and via our website. Distributors are customers that buy products with the intention of reselling them. Direct customers are non-distributor customers and consist primarily of original equipment manufacturers (OEMs). Other customers include the U.S. government, government prime contractors and some commercial customers. Distributors Direct customers Other 2019 2018 (1) 2017 (1) % of Total Revenue (2) Revenue % of Total Revenue (2) Revenue Revenue $ 3,409,161 57 % $ 3,424,145 55 % $ 2,749,335 2,506,065 75,839 42 % 1 % 2,721,885 78,659 44 % 1 % 2,424,514 72,505 Total Revenue _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to 100 % $ 6,224,689 5,246,354 5,991,065 100 % $ $ % of Total Revenue (2) 52 % 46 % 1 % 100 % Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. (2) The sum of the individual percentages may not equal the total duedd to rounding. As indicated in the above table, the percentage of total revenue sold via each channel has remained relatively consistent in fiscal 2019, fiscal 2018 and fiscal 2017. Revenue Trends by Geographic Region e Revenue by geographic region, based upon the geographic a location of the distributors or OEMs who purchased the Company's products, for fiscal 2019, fiscal 2018 and fiscal 2017 was as follows: Fiscal Year 2019 over 2018 2018 over 2017 Change 2019 2018 (1) 2017 (1) $ Change % Change (2) % Change (2) $ Change United States Rest of North and South America Europe $2,020,886 55,059 1,374,673 $2,277,084 46,276 1,405,686 $2,110,545 $ (256,198) 8,783 (31,013) 48,620 1,164,725 (11)% $ 166,539 (2,344) 19 % 240,961 (2)% Japan China Rest of Asia 657,632 1,316,275 566,540 714,846 1,215,949 564,848 586,521 898,645 437,298 (57,214) 100,326 (8)% 8 % 1,692 — % 128,325 317,304 127,550 Total Revenue $5,991,065 $6,224,689 $5,246,354 $ (233,624) (4)% $ 978,335 _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. (2) The sum of the individual percentages may not equal the total duedd to rounding. 8 % (5)% 21 % 22 % 35 % 29 % 19 % In fiscal 2019, fiscal 2018 and fiscal 2017, the predominant countries comprising “Rest of North and South America” are Canada and Mexico; the predominant countries comprising “Europe” are Germany, the Netherlands and Sweden; and the predominant countries comprising “Rest of Asia” are South Korea and Taiwan. The sales decrease in the United States year-over-year in fiscal 2019 was primarily a result a of a broad-based decrease in demand for our products and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset by an increase in demand for products sold into the aerospace and defense sectors of the Industrial end market. The sales increase in the United States year-over-year in fiscal 2018 was primarily a result of the Acquisition, which accounted for approximately $255.3 million of the increase, contributing to an increase in demand for our products sold into the Industrial, Communications and Automotive end markets and an additional week of operations in fiscal 2018, as compared to fiscal 2017, partially offset by a decrease in demand for our products sold into the Consumer end market. The sales decrease in Europe year-over-year in fiscal 2019 was primarily a result of a broad-based decrease in demand for our products and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset by an increase in demand forff The sales increase in Europe year-over-year in fiscal 2018 was primarily a result of the Acquisition, which accounted for products sold into the Communications end market and aerospace and defense sectors of the Industrial end market. 28 approximately $145.9 million of the increase, and contributing to an increase in demand for our products sold into the Industrial end market and an additional week of operations in fiscal 2018, as compared to fiscal 2017. The sales decrease in Japan year-over-year in fiscal 2019 was primarily a result of a broad-based decrease in demand for our products and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset by an increase in demand for products sold into the Automotive end market. The sales increase in Japan year-over-year in fiscal 2018 was a result of the Acquisition, which accounted for approximately $89.2 million of the increase. The sales increase in China year-over-year in fiscal 2019 was primarily a result of an increase in demand for our products sold into the Communications end market, partially offset by decreased demand for products sold into the Consumer and Automotive end markets and one less week of operations in fiscal 2019 as compared to fiscal 2018. The sales increase in China year-over-year in fiscal 2018 was primarily a result of the Acquisition, which accounted for approximately $93.1 million of the increase, contributing to a broad-based increase in demand for our products sold into all end markets and an additional week of operations in fiscal 2018 as compared to fiscal 2017. Sales in the Rest of Asia year-over-year in fiscal 2019 remained relatively flat as increase in demand for our products sold into the Communications and Automotive end markets, were partially offset by decreased demand for products sold into the Industrial end market and one less week of operations in fiscal 2019 as compared to fiscal 2018. The sales increase in the Rest of Asia year-over-year in fiscal 2018 was primarily a result of the Acquisition, which accounted for approximately $63.4 million of the increase, contributing to a broad-based increase in demand for our products sold into the Industrial, Communications and Automotive end markets and an additional week of operations in fiscal 2018 as compared to fiscal 2017. ff Gross Margin Fiscal Year 2019 over 2018 2018 over 2017 2019 2018 (1) 2017 (1) $ Change % Change $ Change % Change Change Gross margin Gross margin % _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to $ 4,013,750 67.0 % $ 4,250,396 68.3 % $ 3,168,241 60.4 % (6)% $ 1,082,155 $ (236,646) 34 % Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. Gross margin percentage in fiscal 2019 decreased by 130 basis points compared to fiscal 2018, primarily as a result of lower internal utilization of our wafer fabrication facilities and a write-down of inventory primarily associated with a customer within our Communications end market. Gross margin percentage in fiscal 2018 increased by 790 basis points compared to fiscal 2017, primarily because fiscal 2017 included cost of sales adjustments of $358.7 million related to the sale of acquired Linear inventory written up to fair value. Additionally, the increase in gross margin percentage in fiscal 2018, as compared to fiscal 2017 was a result of a mix shift in favor of higher margin products being sold resulting from the Acquisition and lower cost of sales resulting from favorable factory variances related to increased utilization at our manufacturing facilities. The increase in gross margin percentage in fiscal 2018 was partially offset by increases in amortization expense of developed technology intangible assets ff and depreciation expense related to fixed assets as a result of a full year of expense for each related to the Acquisition. Research and Development (R&D) R&D expenses R&D expenses as a % of revenue Fiscal Year 2019 over 2018 2018 over 2017 2019 2018 2017 $ Change % Change $ Change % Change $ 1,130,348 $ 1,165,047 $ 968,133 $ (34,699) (3)% $ 196,914 20 % Change 18.9 % 18.7 % 18.5 % R&D expenses decreased in fiscal 2019 as compared to fiscal 2018 primarily as a result of decreases in variable compensation expense and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset by increases in operational spending and R&D employee and related benefit expenses. R&D expenses as a percentage of revenue will fluctuate from year-to-year depending on the amount of revenue and the success of new product development efforts, which we view as critical to our future growth. We have hundreds of R&D projects underway, none of which we believe are material on an individual basis. We expect to continue the development of innovative technologies and processes for new products. We believe that a continued commitment to R&D is essential to 29 maintain product leadership with our existing products as well as to provide innovative new product offerings, and therefore, we expect to continue to make significant R&D investments in the future. Selling, Marketing, General and Administrative (SMG&A)A Fiscal Year 2019 over 2018 2018 over 2017 2019 2018 2017 $ Change % gg Change $ Change % Change $ 648,094 $ 695,540 $ 690,533 $ (47,446) (7)% $ 5,007 1 % Change 10.8 % 11.2 % 13.2 % SMG&A expenses SMG&A expenses as a % of revenue SMG&A expenses decreased in fiscal 2019 as compared to fiscal 2018, primarily as a result of decreases in variable 2018, compensation expense, acquisition-related costs and one less week of operations in fiscal 2019 as compared to fiscal partially offset an increase in operational spending. ff Amortization of Intangibles Amortization expenses Amortization expenses as a % of revenue Fiscal Year 2019 over 2018 2018 over 2017 2019 2018 2017 $ Change % gg Change $ Change $ 429,041 $ 428,902 $ 297,351 $ 139 — % $ 131,551 % gg Change 44 % Change 7.2 % 6.9 % 5.7 % Amortization expenses was relatively flat in fiscal 2019 as compared to fiscal 2018 as we did not have any significant acquisitions of intangible assets in fiscal 2019. Intangible assets are being amortized on a straight-line basis over their estimated useful lives. Special Charges We monitor global macroeconomic conditions on an ongoing basis and continue to assess opportunities for improved operational effecff assessments, we have undertaken various restructuring actions over the past several years. tiveness and efficiency, as well as a better alignment of expenses with revenues. As a result of these Repositioning Action: During fiscal 2019, we recorded special charges of $88.1 million as a result of organizational initiatives to reposition our global workforce skill set to align with our long-term strategic plan. Approximately $73.9 million of these actions was for severance and fringe benefit costs in accordance with either our ongoing benefit plan or statutory requirements. The remaining $14.2 million related to the write-off of acquired intellectual property due to the Company’s decision to discontinue certain product development strategies. Once fully implemented, the repositioning actions are expected to result in net annualized cash savings of approximately $48.0 million. y Closure of manufacturing facilities: As a result of our fiscal 2018 decision to consolidate certain wafer and test facilit operations acquired as part of the Acquisition, we recorded special charges of $7.6 million during fiscal 2019, totaling $52.0 million on a cumulative basis through November 2, 2019. Over the next one to three years, we plan to close our Hillview wafer fabrication facility located in Milpitas, California and our Singapore a fabrication production to our other internal facilities and to external foundries. In addition, we are planning to transition testing operations currently handled in our Singapore facility to our facilities in Penang, Malaysia and the Philippines, in addition to our outsourced assembly and test partners. The special charge recognized as a result of this action consists of severance and related benefit costs. We expect that this action will result in estimated annual salary, variable compensation and employee benefit savings of approximately $60.0 million once fully implemented. test facility. We intend to transfer Hillview wafer ff 30 Operating Income Fiscal Year 2019 over 2018 2018 over 2017 2019 2018 (1) 2017 (1) $ Change % Change $ Change % Change Change Operating income $ 1,710,608 $ 1,899,589 $ 1,162,761 $ (188,981) (10)% $ 736,828 63 % Operating income as a % of revenue _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to 22.2 % 28.6 % 30.5 % Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. The decrease in operating income in fiscal ff 2019 as compared to fiscal 2018 was primarily the result of a $236.6 million decrease in gross margin and a $34.3 million increase in special charges, partially offset by a $47.4 million decrease in SMG&A expenses and a $34.7 million decrease in R&D expenses as more fully described above under the headings Gross Margin, Special Charges, Selling, Marketing, General and Administrative (SMG&A) and Research and Development (R&D). The increase in operating income in fiscal ff 2018 as compared to fiscal 2017 was the result of a $1.1 billion increase in gross margin, partially offset by a $196.9 million increase in R&D expenses, a $131.6 million increase in amortization expense, an $11.8 million increase in special charges, and a $5.0 million increase in SMG&A expenses. Nonoperating (Income) Expenses Fiscal Year 2019 over 2018 2018 over 2017 Interest expense Interest income Other, net $ $ 2019 229,075 (10,229) 6,034 $ 2018 253,589 (9,383) 69 $ 250,840 (30,333) 7,507 (24,514) $ (846) 5,965 2017 $ Change $ Change Total nonoperating expenses $ 224,880 $ 244,275 $ 228,014 $ (19,395) $ 2,749 20,950 (7,438) 16,261 The year-over-year decrease in nonoperating expense in fiscal 2019 was primarily the result of a decrease in interest expense including lower amortized finance fees, which were accelerated as a result of principal repayments related to our previously outstanding 3-year and 5-year term loans, partially offset by an increase in other, net expenses resulting from the impairment of investments during fiscal 2019. See Note 14, Debt, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on debt issuances and commitments related to the Acquisition. Provision for Income Taxes Fiscal Year 2019 over 2018 2018 over 2017 2019 2018 (1) 2017 (1) $ Change % Change $ Change % Change Change Provision for income taxes $ 122,717 $ 148,334 $ 129,368 $ (25,617) (17)% $ 18,966 15 % Effective income tax rate _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to 13.8 % 8.3 % 9.0 % Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. Our effective tax rate reflects the applicable tax rate in effect in the various tax jurisdictions around the world where our income is earned. Our effective income tax rate can also be impacted each year by discrete factors or events. The Tax Cuts and Jobs Act of 2017 (Tax Legislation), enacted on December 22, 2017, contains significant changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21.0%, implementing a territorial tax system, and imposing a one-time tax on deemed repatriated earnings of foreign subsidiaries. We completed our accounting for the income tax effects of the Tax Legislation during fiscal 2019, in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118. 31 The tax rate for fiscal 2019 was below the U.S. statutory tax rate of 21% partially due to lower statutory tax rates applicable to our operations in the foreign jurisdictions from which we earn income and tax incentives such as the foreign derived intangible income deduction and research and development tax credits. These items are partially offset by the global intangible low-tax income (GILTI) tax. The tax rate forff accounting policy change in the statutory statements of a foreign credits upon filing our fiscal 2018 federal income tax return and excess tax benefits from stock-based compensation payments of $28.7 million. fiscal 2019 includes a $17.2 million tax benefit from a voluntary ff subsidiary, an $11.2 million tax benefit from an increase in tax ff Similarly, our tax rate for fiscal 2018 was below our then blended U.S. federal statutory tax rate of 23.4%, primarily due to lower statutory tax rates applicable to our operations in the foreign jurisdictions in which we earn income and $25.6 million of tax benefit related to the release of uncertain tax positions due to lapses rate for fiscal s at the lower 21.0% U.S. federal statutory tax rate and a provisional estimate of $691.0 million deferred tax assets and liabilitie for the discrete tax charge from the Tax Legislation’s one-time transition tax associated with our undistributed foreign earnings, which is comprised of a $755.0 million transitional tax less a deferred tax liability of $64.0 million that was recorded in prior years and excess tax benefits from stock-based compensation payments of $26.2 million. a discrete tax benefit of $637.0 million from remeasuring our U.S. in statute of limitations. In addition, our effective tax 2018 includes a provisional estimate forff a a Non-U.S. jurisdictions accounted for approximately 75.9% of our total revenues for both fiscal 2019 and fiscal 2018. This ff revenue generated outside of the U.S. results in a material portion of our pretax income being taxed outside the U.S. In fiscal 2019, this was primarily in Ireland and Singapore, at tax rates ranging from 12.5% to 17% and in fiscal 2018, this was primarily in Bermuda, Ireland and Singapore, at tax rates ranging from 0 to 33.3%. The impact on our provision for income taxes on income earned in foreign approximately $242.9 million and a foreign of approximately $420.8 million and a foreign tax rates for both periods are inclusive of certain non-deductible expenses which can result in tax rates higher than the applicable statutory tax rates. factors or events and acquisition-related accounting adjustments. effective tax rate of approximately 21.1% for fiscal 2019 as compared to a benefit effective tax rate of approximately 5.2% for fiscal 2018. Our foreign effective jurisdictions being taxed at rates different than the U.S. federal statutory rate was a benefit of In addition, our effective income tax rate can be impacted each year by amounts for discrete ff ff See Note 12, Income Taxes, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion. Net Income Fiscal Year 2019 over 2018 2018 over 2017 2019 2018 (1) 2017 (1) $ Change % Change $ Change % Change Change Net income Net income, as a % of revenue Diluted EPS _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to $ 1,363,011 22.8 % 3.65 $ 1,506,980 24.2 % 4.00 805,379 15.4 % 2.29 $ (143,969) (10)% $ 701,601 (9)% $ (0.35) 1.71 $ $ $ $ $ 87 % 75 % Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. The decrease in net income in fiscal 2019 as compared to fiscal 2018 was a result of a $189.0 million decrease in operating income, partially offset by a $25.6 million decrease in provision for income taxes and a $19.4 million decrease in nonoperating expense. The increase in net income in fiscal 2018 as compared to fiscal 2017 was a result of a $736.8 million increase in operating income, partially offset by a $19.0 million increase in provision for income taxes and a $16.3 increase in nonoperating expense. 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. 32 Liquidity and Capital Resources At November 2, 2019, our principal source of liquidity was $648.3 million of cash and cash equivalents, of which approximately $295.7 million was held in the United States. The balance of our cash and cash equivalents was held outside the United States in various foreign subsidiaries. As we intend to reinvest substantially all of our foreign earnings indefinitely, certain cash held outside the United States may not be available for repatriation as dividends to the United States in the future. If such funds are needed for U.S. operations, we would be required to accrue and pay foreign withholding and U.S. state income taxes to the extent not already subject to taxation. 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. On the Acquisition Date, we entered into a 90-day Bridge Credit Agreement that provided forff 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. During fiscal year 2019, we refinanced both term loans into one 3-year unsecured term loan in the principal amount of $1.25 billion, due March 10, 2022. As of November 2, 2019, we have repaid $325 million of principal on the 3-year unsecured term loan. See Note 13, Revolving Credit Facility and Note 14, Debt of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information. We believe that our existing sources of liquidity and cash expected to be generated from future operations, together with existing and anticipated available long-term financing, will be sufficient to fund operations, capital expenditures, research and development efforff ts and dividend payments (if any) in the immediate future and for at least the next twelve months. 2019 Fiscal Year 2018 (1) 2017 (1) Net cash provided by operating activities Net cash provided by operating activities as a % of revenue Net cash used for investing activities Net cash (used for) provided by financing activities _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to 2,442,361 39.2 % (313,998) $ (2,358,042) $ 2,253,100 37.6 % (293,186) $ (2,126,794) $ $ $ $ $ $ 1,154,365 22.0 % (6,618,014) 5,586,805 Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. At November 2, 2019, cash and cash equivalents totaled $648.3 million. The following changes contributed to the net change in cash and cash equivalents in fiscal 2019 and fiscal 2018. A discussion of changes in our results of operations from fiscal 2017 to fiscal 2018 has been omitted from this Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended November 3, 2018 filed with the Securities and Exchange Commission on November 27, 2018. Operating Activities Cash provided by operating activities is net income adjusted d for certain non-cash items and changes in assets and liabilities. The decrease in cash provided by operating activities during fiscal 2019, as compared to fiscal result of changes in tax liabilities related to the one-time transition tax as a result of the Tax Legislation. ff 2018, was primarily a Investing Activities Investing cash flows ff consist primarily of capital expenditures and cash used for acquisitions. The decrease in cash used for investing activities during fiscal 2019, as compared to fiscal 2018, was primarily the result of decreased payments for acquisitions, partially offset by increased capital spending. Financing Activities Financing cash flows consist primarily of payments of dividends to stockholders, repurchases of common stock, issuance and repayment of debt, and proceeds from the sale of shares of common stock pursuant to employee equity incentive plans. The decrease in cash used for financing activities during fiscal 2019, as compared to fiscal increase in proceeds from debt related to the June 2019 term loan agreement and a decrease in debt repayments, partially offset by increases in stock repurchases and dividend payments. 2018, was primarily due to an ff 33 Working Capital Accounts receivable, net Days sales outstanding (1) (2) Inventory Fiscal Year 2019 2018 $ Change % Change $ 635,136 $ 639,717 39 39 $ 609,886 $ 586,760 $ $ (4,581) (1)% 23,126 4 % Days cost of sales in inventory (1) (2) _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to 110 105 Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. (2) 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. The decrease in accounts receivable for fiscal 2019 compared to fiscal 2018 was primarily the result of normal variations in the timing of collections and billings. Inventory in dollars increased in fiscal 2019 as compared to fiscal 2018, primarily as a result of our efforts to balance manufacturing production, demand and inventory levels. Our inventory levels are impacted by our need to support forecasted sales demand and variations between those forecasts and actual demand. Current liabilities increased to $1.5 billion at November 2, 2019 from $1.1 billion recorded at the end of fiscal 2018. The increase was primarily due to increases in the current portion of our debt and income taxes payable. Debt As of November 2, 2019, we had $5.5 billion of carrying value outstanding on our debt. The difference in the 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 Amount of 2.875% Senior Unsecured Notes (2023 Notes) 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 Aggregate Principal Amount of 5.3% Senior Unsecured Notes (2045 Notes) 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. $400 Million Aggregate Principal Amount of 2.5% Senior Unsecured Notes (2021 Notes), $550 Million Aggregate gg Principal Amount of 3.125% Senior Unsecured Notes (December 2023 Notes), $900 Million Aggregate Principal Amount of 3.5% Senior Unsecured Notes (2026 Notes) and $250 Million Aggregate Principal Amount of 4.5% Senior Unsecured Notes (2036 Notes) 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. $300.0 Million Aggregate Principal Amount of 2.85% Senior Unsecured Notes (2020 Notes) and $450.0 Million Aggregate Principal Amount of 2.95% Senior Unsecured Notes (January 2021 Notes) On March 12, 2018, we issued the 2020 Notes with semi-annual fixed ff interest payments due on March 12 and September 12 of each year, commencing September 12, 2018, and the January 2021 Notes with semi-annual fixed interest payments dued on January 12 and July 12 of each year, commencing July 12, 2018. The indentures governing the 2020 Notes, 2021 Notes, January 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 or borrowed money secured by a lien upon a principal property; enter into sale and lease-back transactions with respect to a principal property; and consolidate with or merge into, or transfer or lease all or substantially all of our assets to, any other party. As of November 2, 2019, we were compliant with these covenants. See Note 14, 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. 34 $5.0 Billion Aggregate Principal Term Loans 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. The term loans bore interest at a rate per annum equal to the Eurodollar Rate plus a margin based on our debt ratings from time to time of between 0.75% and 1.63% in the case of the 3-year unsecured term loan, and a margin of between 0.88% and 1.75% in the case of the 5-year unsecured term loan. As of November 2, 2019, we have repaid the 3-year and 5-year unsecured term loans in full. $1.25 Billion Principal Term Loan On June 28, 2019, we entered into a term loan credit agreement with JPMorgan Chase Bank, N.A. as administrative agent and the other banks identified therein as lenders, under which we borrowed unsecured term loans in the aggregate principal amount of $1.25 billion, maturing March 10, 2022, to refinance our then-outstanding 3-year and 5-year unsecured term loans. Loans under the term loan credit agreement may be either Eurodollar Rate Loans or Base Rate Loans at our option. Each Eurodollar Rate Loan will bear interest at a rate per annum equal to the Adjusted LIBO Rate plus a margin based on our debt ratings from time to time of between 0.625% and 1.500%. Each Base Rate Loan will bear interest at a rate per annum equal to the Base Rate plus a margin based on our debt ratings from time to time of between 0.00% and 0.500%. As of November 2, 2019, we have repaid $325.0 million of principal on the term loans. Revolving Credit Facility On June 28, 2019, we entered into a second amended and restated revolving credit agreement with Bank of America N.A. as administrative agent and the other banks identified therein as lenders (Revolving Credit Agreement), which further amended and restated our amended and restated revolving credit agreement dated as of September 23, 2016. The Revolving Credit Agreement provides for a five year unsecured revolving credit facility in an aggregate principal amount of up to $1.25 billion, expiring on June 28, 2024. Loans under the Revolving Credit Agreement can be Eurocurrency Rate Loans or Base Rate Loans at our option. Each Eurocurrency Rate Loan will bear interest at a rate per annum equal to the Eurocurrency Rate plus a margin based on our debt ratings from time to time of between 0.690% and 1.375%. Each Base Rate Loan will bear interest at a rate per annum equal to the Base Rate plus a margin based on our debt ratings from time to time of between 0.00% and 0.375%. In December 2018, we borrowed $75.0 million under the previous revolving credit facility and utilized the proceeds for the repayment of existing indebtedness and working capital in January 2019. requirements. We repaid the $75.0 million plus interest of $0.2 million a As of November 2, 2019, we have no outstanding borrowings under the revolving 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 Revolving Credit Agreement impose restrictions on our ability to undertake certain transactions, to create certain liens on assets and to incur certain subsidiary indebtedness. In addition, the Revolving Credit Agreement contains a consolidated leverage ratio covenant of total consolidated funded debt to consolidated earnr ings before interest, taxes, depreciation, and amortization (EBITDA) of not greater than 4.0 to 1.0. The debt covenant will be reduced over time to 3.5 to 1.0, beginning in fiff scal 2020 depending upon facts and circumstances. As of November 2, 2019, we were compliant with these covenants. See Note 13, Revolving Credit Facility, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on our revolving credit facility. Stock Repurchase Program Our common stock repurchase program has been in place since August 2004. In the aggregate, our Board of Directors has authorized us to repurchase $8.2 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 repurchased all shares authorized under the program. In connection with the Acquisition, we temporarily suspended the share repurchase program. On August 21, 2018, we reinstated the share repurchase program, and as of November 2, 2019, we had repurchased a total of approximately 154.4 million shares of its common stock for approximately $6.1 billion under this program. An additional $2.1 billion remains available for repurchase of shares under the current authorized program. The repurchased shares are held as authorized but unissued shares of common stock. We also, from time to time, repurchase shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options. Capital Expenditures Net additions to property, plant and equipment were $275.4 million in fiscal 2019 and were funded with a combination of cash on hand and cash generated from operations. We expect capital a expenditures for fiscal 2020 to be slightly below 4% of 35 fiscal 2020 revenue. These capital operations. a Dividends expenditures will be funded with a combination of cash on hand and cash generated from On November 25, 2019, our Board of Directors declared a cash dividend of $0.54 per outstanding share of common stock. The dividend will be paid on December 17, 2019 to all shareholders of record at the close of business on December 6, 2019 and is expected to total approximately $198.9 million. We currently expect quarterly dividends to continue in future periods, although they remain subject to determination and declaration by our Board of Directors. The payment of future dividends, if any, will be based on several factors, including our financial performance, outlook and liquidity. 36 Contractual Obligations The table below summarizes our contractual obligations and the amounts we owe under these contracts in specified periods as of November 2, 2019: (thousands) Contractual obligations: Transition tax (1) Operating leases (2) Debt obligations (3) Interest payments associated with debt obligations Deferred compensation plan (4) Pension funding (5) Payment due by period Less than More than Total 1 Year 1-3 Years 3-5 Years 5 Years $ 659,773 $ 33,032 $ 119,379 $ 171,608 $ 335,754 448,721 5,525,000 1,456,063 48,302 7,565 79,789 300,000 182,268 1,148 7,565 108,331 70,430 190,171 1,775,000 1,050,000 2,400,000 314,539 234,356 — — — — 724,900 47,154 — Total _______________________________________ (1) The Tax Legislation, enacted on December 22, 2017, contains significant changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21.0%, implementing a territorial tax system, and imposing a one-time tax on deemed repatriated earnings of foreign subsidiaries that we elected to pay over a period of eight years that begins in fiscal 2019 on an interest free basis. $ 8,145,424 $ 1,526,394 $ 2,317,249 $ 3,697,979 $ 603,802 (2) Certain of our operating lease obligations include escalation clauses. These escalating payment requirements are reflected in the table. (3) Debt obligations are assumed to be held to maturity. (4) 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. (5) 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 2019. 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. As of November 2, 2019, our total liabilities associated with uncertain tax positions was $27.7 million, which are included in non-current income taxes payable in our consolidated balance sheets 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 November 2, 2019. Off-balance Sheet Arrangements As of November 2, 2019, we had no off-balance sheet financing ff arrangements. New Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) and 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 2s, New Accounting Pronouncements, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for a description of recently issued and adopted accounting pronouncements, including the dates of adoption and impact on our historical financial condition and results of operations. Critical Accounting Policies and Estimates Management’s discussion and analysis of the financial condition and results of operations is based upon the Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. 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 liabilitie s. We base our estimates and judgments on historical experience, knowledge a 37 of current conditions and beliefs of what could occur in the future based on available information. We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements. We also have other policies that we consider key accounting policies; however, the application of these policies does not require us to make significant estimates or judgments that are difficult or subjective. Revenue Recognition Recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the providing entity expects to be entitled in exchange for those goods or services. As a result of the adoption of new revenue accounting rules in the fiff rst quarter of fiscal 2019, we revised our revenue recognition policy. We now recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products or services. Under this rule, we recognize revenue when all of the following criteria are met: (1) we have entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been determined, (4) the transaction price has been allocated to the performance obligations in the contract, and (5) the performance obligations have been satisfied. The majority of our shipping terms permit us to recognize revenue at point of shipment or delivery. Certain shipping terms require the goods to be through customs or be received by the customer before title passes. In those instances, we defer the revenue recognized until title has passed. Shipping costs are charged to selling, marketing, general and administrative expense as incurred. Sales taxes are excluded from revenue. Revenue from contracts with the United States government, government prime contractors and certain commercial customers is recorded over time using either units delivered or costs incurred as the measurement basis for progress toward completion. These measures are 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. Performance Obligations: Substantially all of our contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit (IC) products. Such sales represent a single performance obligation because the sale is of being distinct nor separable from the other promises in one type of good or includes multiple goods that are neither capablea the contract. This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates and with an original expected duration of one year or less. As allowed under ASU 2014-09, we have opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year. We generally warrant that our products will meet their published specifications, and that we will repair or replace defective products, for one year from the date title passes from us to the customer. Specific accruals are recorded for known product warranty issues. Transaction Price: The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration primarily includes sales to direct customers and sales to distributors in which both the sale to the distributor and the sale to the end customer occur within the same reporting period. Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such consideration primarily includes credits issued to the distributor due to price protection and sales made to distributors under agreements that allow certain rights of return, referred to as stock rotation. Price protection represents price discounts granted to certain distributors to allow the distributor to earn an appropriate margin on sales negotiated with certain customers and in the event of a price decrease subsequent to the date the product was shipped and billed to the distributor. Stock rotation allows distributors limited levels of returns in order to reduce the amounts of slow-moving, discontinued or obsolete product from their inventory. A liability for distributor credits covering variable consideration is made based on management's estimate of historical experience rates as well as considering economic conditions and contractual terms. To date, actual historical estimates. distributor claims activity has been materially consistent with the provisions we have made based on our t Contract Balances: Accounts receivable represents our unconditional right to receive consideration from its customers. Payments are typically due within 30 to 45 days of invoicing and do not include a significant financing component. To date, there have been no material impairment losses on accounts receivable. There were no material contract assets or contract liabilities recorded on the consolidated balance sheets in any of the periods presented. 38 Inventory Valuation We value inventories at the lower of cost (first-in, first-out method) or market. Because of the cyclical nature of the semiconductor industry, changes in inventory levels, obsolescence of technology, and product life cycles, we write down inventories to net realizable value. We employ a variety of methodologies to determine the net realizable value of inventory. While a portion of the calculation is determined via reference to the age of inventory and lower of cost or market calculations, an element of the calculation is subject to significant judgments made by us about future demand for our inventory. If actual demand for our products is less than our estimates, additional adjustments to existing inventories may need to be recorded in future periods. To date, our actual results have not been materially different than our estimates, and we do not expect them to be materially different in the future. ff t Long-Lived Assets rr rr We review property, plant, and equipment and finite lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable. Recoverability of these assets is 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, or a value determined by utilizing a discounted cash flow technique. Although we have recognized no material impairment adjustments related to our property, plant, and equipment and identified intangible assets during the past three fiscal years, except those made in conjunction with restructuring actions, deterioration in our business in the future could lead to such impairment adjustments in future periods. Evaluation of impairment of long-lived assets requires estimates of future operating results that are used in the preparation of the expected future undiscounted cash flows. Actual future operating results and the remaining economic lives of our long-lived assets could differ from the estimates used in assessing the recoverability of these assets. These differences could result in impairment charges, which could have a material adverse impact on our results of operations. In addition, in certain instances, assets may not be impaired but their estimated useful lives may have decreased. In these situations, we amortize the remaining net book values over the revised useful lives. We review indefinite-lived intangible assets for impairment annually, on the first day of the fourth ff quarter (on or about August 4) 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 faff ir value of the intangible asset with its carrying amount and recognize an impairment equal to any amount by which the carrying rr value of the assets exceeds the fair value. Goodwill Goodwill is subject to annual impairment tests or more frequently if indicators of potential impairment exist and suggest that the carrying value of goodwill may not be recoverable from estimated discounted future cash flows. We test goodwill for impairment at the reporting unit level, which we determined to be the same level as our eight identified operating segments, on an annual basis in the fourth quarter (on or about August 4) or more frequently if we believe indicators of impairment exist. We have the option to fiff rst assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its net book value. If we elect not to use this option, or we determine that it is more likely than not that the fair value of a reporting unit is less than its net book value, then we perform the quantitative goodwill impairment test. The quantitative 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 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 effects 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 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. value rr 39 In fiscal 2017 and prior periods, we did not elect to use the qualitative option for assessing goodwill and instead proceeded directly to the quantitative goodwill impairment analysis. In fiscal 2018, we used the qualitative method of assessing goodwill for all eight of our reporting units. In our latest annual impairment evaluation that occurred as of August 4, 2019, we used the qualitative method of assessing goodwill for seven of our eight reporting units and the quantitative method for one reporting unit. For each of the reporting units evaluated using the qualitative method, we determined that it was not more likely than not that the fair values were less than their net book values. In making this determination, we considered several factors, including the following: ff rr – – – – values as of the date of the most the amount by which the fair values of each reporting unit exceeded their carrying recent quantitative impairment analysis, which indicated there would need to be substantial negative developments in the markets in which these reporting units operate in order for there to be potential impairment; the carrying values of these reporting units as of August 4, 2019 compared to the previously calculated fair values as of the date of the most recent quantitative impairment analysis; the current forecasts as compared to the forecasts included in the most recent quantitative impairment analysis; public information from competitors and other industry information to determine if there were any significant adverse tion or significant goodwill trends in our competitors' businesses, such as significant declines in market capitaliza impairment charges that could be an indication that the goodwill of our reporting units was potentially impaired; changes in the value of major U.S. stock indices that could suggest declines in overall market stability that could impact the valuation of our reporting units; changes in our market capitalization and overall enterprise valuation to determine if there were any significant decreases that could be an indication that the valuation of our reporting units had significantly decreased; and – whether there had been any significant increases to the weighted-average cost of capital (WACC) rates for each – – a reporting unit, which could materially lower our prior valuation conclusions under a discounted cash flow approach. For the reporting unit we assessed goodwill using the quantitative method, we calculated its fair value and compared it with its carrying value. In calculating fair value, we used a weighting of the income and market approaches. Under the income approach, we used a discounted cash flow methodology which required 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 used the guideline public company method. Under this method we utilized information from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit, to create valuation multiples that were applied to the operating performance of the reporting unit, in order to obtain its fair value. As a result of this analysis, we concluded the reporting unit’s fair value exceeded its carrying amount as of the assessment date and no risk of impairment existed. Business Combinations 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. We record contingent consideration resulting from a business combination at its fair value on the acquisition date. We generally determine the fair value of the contingent consideration using the income approach methodology of valuation. Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value as an adjustment to operating expenses within the consolidated statements 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. 40 Accounting for Income Taxes We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of the recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to these uncertain tax positions. We assessed the likelihood of the realization of deferred tax assets and concluded that a valuation allowance is needed to reserve the amount of the deferred tax assets that may not be realized due to the uncertainty of the timing and amount of the realization of certain state credit carryovers. In reaching our conclusion, we evaluated certain relevant criteria including the existence of deferred tax liabilities that can be used to 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 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. market conditions, changes in U.S. or international tax laws and other factors. These ff We account for uncertain tax positions by determining if it is “more likely than not” that a tax position will be sustained by the appropriate taxing authorities prior to recording any benefit in the financial statements. An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in known facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. A change in these factors would result in the recognition of a tax benefit or an additional charge to the tax provision. In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement and royalty arrangements among related entities. Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our historical income tax provisions and accruals. In the event our assumptions are incorrect, the differences could have a material impact on our income tax provision and operating results in the period in which such determination is made. In addition to the faff ctors 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. See Note 12, Income Taxes, of the of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion. 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. We recognize the expense related to equity awards on a straight-line basis over the vesting period. See Note 3, Stock- Based Compensation and Shareholders' Equity, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for more information related to stock based compensation. ff Contingencies From time to time, in the ordinary course of business, various claims, charges and litigation are asserted or commenced a against us arising from, or related to, among other things, contractual matters, patents, trademarks, personal injury, environmental matters, product liability, insurance coverage, employment or employment benefits. We periodically assess each matter to determine if a contingent liability should be recorded. In making this determination, we may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. Based on the information we obtain, combined with our judgment regarding all the facts and circumstances of each matter, we determine whether it is probable that a contingent loss may be incurred and whether the amount of such loss can be reasonably estimated. If a loss is probable and reasonably estimable, we record a contingent loss. In determining the amount of a contingent loss, we consider advice received from experts in the specific matter, current status of legal proceedings, settlement negotiations that may be ongoing, prior case 41 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. 42 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Exposure x 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 or paid on our marketable securities and debt, as well as the fair value of our investments and debt. During fiscal 2019, we entered into a term loan credit agreement, under which we borrowed unsecured term loans in the aggregate principal amount of $1.25 billion, maturing March 10, 2022. Loans under the term loan agreement may be Eurodollar Rate Loans or Base Rate Loans at our option. Each Eurodollar Rate Loan will bear interest at a rate per annum equal to the Adjusted LIBO Rate plus a margin based on our debt ratings from time to time of between 0.625% and 1.500%. Each Base Rate Loan will bear interest at a rate per annum equal to the Base Rate plus a margin based on our debt ratings from time to time of between 0.000% and 0.500%. In fiscal 2019, we made principal payments on the term loans in the amount of $325.0 million. Based on the $925 million of floating rate debt outstanding as of November 2, 2019, our annual interest expense would change by approximately $9.3 million for each 100 basis point increase in interest rates. We utilize interest rate derivatives to manage interest rate exposure on both outstanding debt as well as future issuances. each 100 basis point decrease in the ten-year U.S. Treasury rate, the fair value of our outstanding As of November 2, 2019, forff rr derivative instruments would change by approximately $100 million. Based on our marketable securities outstanding as of November 2, 2019 and November 3, 2018, our annual interest income would change by approximately $6.5 million and $8.2 million, respectively, for each 100 basis point increase in interest rates. To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of our investment portfolio assuming a 100 basis point parallel shift in the yield curve. Based on investment positions as of November 2, 2019 and November 3, 2018, a hypothetical 100 basis point increase in interest rates across all maturities would not materially impact the fair market value of the portfolio in either period. If significant, such losses would only be realized if we sold the investments prior to maturity. r value As of November 2, 2019, we had $4.6 billion in principal amount of senior unsecured notes outstanding, with a faiff of $4.9 billion. The fair value of our notes is subject to interest rate risk, market risk, and other factors. Generally, the fair value and decrease as interest rates rise. The fair values of our notes as of November 2, of our notes will increase as interest rates fall 2019 and November 3, 2018, assuming a hypothetical 100 basis point increase in market interest rates, are as follows: ff 2, 2019 November 3, 2018 Principal Amount Outstanding Fair Value Fair Value given an increase in interest rates of 100 basis points Principal Amount Outstanding Fair Value Fair Value given an increase in interest rates of 100 basis points (thousands) 2020 Notes, due March 2020 2021 Notes, due January 2021 $ 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 $ $ $ 300,000 450,000 400,000 500,000 550,000 850,000 900,000 250,000 400,000 300,872 454,634 402,591 511,190 567,159 914,567 940,192 270,891 491,439 299,793 449,354 394,524 494,186 545,897 866,162 883,276 240,492 423,591 $ 300,000 450,000 400,000 500,000 550,000 850,000 900,000 250,000 400,000 $ 298,147 444,568 386,375 479,189 529,120 829,611 848,027 232,627 407,984 294,237 435,334 375,215 459,377 505,176 780,432 791,549 206,716 354,806 43 Foreign Currency Exposure As more fully described in Note 2i, Derivative and Hedging Agreements, 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 largest foreign currency exposure is the Euro, primarily because our European operations have the highest proportion of our local currency denominated expenses. Relative to foreign currency exposures existing at November 2, 2019 and November 3, 2018, a 10% unfavorable movement in foreign currency exchange rates over the course of the year would result in approximately $12.1 million of losses and $14.1 million of losses, respectively, in changes in earnings or cash flows. The market risk associated with our derivative instruments results from currency exchange rates that are expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. The counterparties to the agreements relating to our foreign exchange instruments consist of a number of majora institutions with high credit ratings. Based on the credit ratings of our counterparties as of November 2, 2019, we do not believe that there is significant risk of nonperformance by them. While the contract or notional amounts of derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of our exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed our obligations to the counterparties. international financial ff The following table illustrates the effect that a 10% unfavorable or favorable movement in foreign currency exchange rates, relative to the U.S. dollar, would have on the fair value of our forward exchange contracts as of November 2, 2019 and November 3, 2018: Fair value of forward exchange contracts liability Fair value of forward exchange contracts after a 10% unfavorable movement in forei currency exchange rates asset Fair value of forward exchange contracts after a 10% favorable movement in forei currency exchange rates liabilit gn y ff ff gn November 2, 2019 November 3, 2018 $ $ $ — $ (7,150) 20,810 $ 13,591 (19,269) $ (26,532) The calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, such changes typically affect the volume of sales or the foreign currency sales price as competitors’ products become more or less attractive. Our sensitivity analysis of the effecff in foreign currency exchange rates does not factor in a potential change in sales levels or local currency selling prices. ts of changes 44 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Analog Devices, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Analog Devices, Inc. (the Company) as of November 2, 2019 and November 3, 2018, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended November 2, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at November 2, 2019 and November 3, 2018, and the results of its operations and its cash flows for each of the three years in the period ended November 2, 2019, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of November 2, 2019, 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 26, 2019 expressed an unqualified opinion thereon. Adoption of ASU No. 2014-09 As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue in the year ended November 2, 2019 due to the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the related amendments. Adoption of ASU No. 2016-16 As discussed in Note 12 to the consolidated financial statements, the Company changed its method of accounting for the income tax consequences of intra-entity transfers, other than inventory, in the year ended November 2, 2019 due to the adoption of ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 45 Revenue Recognition – Measuring Variable Consideration Description of the Matter As described in Note 2 to the consolidated financial statements, the Company's sales contracts provide certain distributors with credits for price protection and rights of return, which results in variable consideration. During 2019, sales to distributors were $3.4 billion net of expected price protection discounts and rights of return for which the liability balance as of November 2, 2019 was $227.0 million. Auditing the Company's measurement of variable consideration under distributor contracts involved especially challenging judgment because the calculation involves subjective management assumptions about estimates of expected price protection discounts and returns. For example, estimated variable consideration included in the transaction price reflects management's evaluation of contractual terms, historical experience and assumptions about future economic conditions. Changes in those assumptions can have a material effect on the amount of variable consideration recognized. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's process to calculate the variable consideration. For example, we tested controls over the appropriateness of assumptions management used as well as controls over the completeness and accuracy of the data underlying estimates of expected price protection discounts and returns. Our audit procedures included, among others, inspecting contractual terms in distributor agreements and testing the underlying data used in management’s calculation for completeness and accuracy as well as evaluating the significant assumptions used in the estimation of variable consideration. We evaluated the Company’s methods and assumptions used in the estimates, which included comparing the assumptions to historical trends. We inspected and tested the results of the Company's retrospective review analysis of actual returns and price protection discounts claimed by distributors, evaluated the estimates made based on historical experience and performed sensitivity analyses of the Company’s significant assumptions to assess the impact on the variable consideration. We also evaluated whether the Company appropriately considered new information that could significantly change the estimated future price protection discounts or returns. Description of the Matter Goodwill – Quantitative Impairment Assessment The Company’s consolidated goodwill balance was $12.3 billion as of November 2, 2019. As described in Note 2 to the consolidated financial statements, the Company evaluates goodwill for impairment at the reporting unit level annually and performed a quantitative goodwill impairment assessment for one of its eight reporting units. The quantitative impairment assessment involves the comparison of the fair value of a reporting unit to its carrying amount. The Company used a weighting of the income and market approaches to determine the fair value of the reporting unit. Auditing management's quantitative goodwill impairment test involved a high degree of auditor judgment due to the significant estimation required to determine the fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions, such as forecasted revenues, gross profit margins, operating income margins, long-term discount rate, perpetual growth rate, identification of comparable publicly traded companies and estimated valuation multiples. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's quantitative goodwill impairment assessment process. For example, we tested controls over management's review of the valuation model and the significant assumptions used. To test the estimated fair value of the reporting unit, our audit procedures included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We tested significant assumptions by comparing to current and forecasted industry and economic trends, analyst reports, and forecasted peer company information. We evaluated management’s ability to accurately forecast by comparing actual results to historical forecasts. We also performed sensitivity analyses of certain assumptions to evaluate changes in the fair value that would result from changes in the assumptions. With the assistance of our valuation specialists, we evaluated the selection of the long-term discount rate and perpetual growth rate, including testing the underlying source information and the mathematical accuracy of the calculations by developing a range of independent estimates and comparing those to the rates selected by management. We also involved our valuation specialists to evaluate the market approach, including evaluating the reasonableness of the selected comparable publicly traded companies and the resulting market multiples calculation. 46 /s/ Ernst & Young LLP We have served as the Company’s auditor since 1967. Boston, Massachusetts November 26, 2019 47 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ANALOG DEVICES, INC. CONSOLIDATED STATEMENTS OF INCOME Years ended November 2, 2019, November 3, 2018 and October 28, 2017 (thousands, except per share amounts) 2019 2018 (1) 2017 (1) Revenue Revenue Costs and Expenses Cost of sales Gross margin Operating expenses: Research and development Selling, marketing, general and administrative Amortization of intangibles Special charges Operating income Nonoperating (income) expenses: Interest expense Interest income Other, net Earnings Income before income taxes Provision for income taxes Net income $ 5,991,065 $ 6,224,689 $ 5,246,354 1,977,315 4,013,750 1,974,293 4,250,396 1,130,348 1,165,047 648,094 429,041 95,659 2,303,142 1,710,608 229,075 (10,229) 6,034 224,880 695,540 428,902 61,318 2,350,807 1,899,589 253,589 (9,383) 69 244,275 1,485,728 122,717 1,655,314 148,334 $ 1,363,011 $ 1,506,980 $ 2,078,113 3,168,241 968,133 690,533 297,351 49,463 2,005,480 1,162,761 250,840 (30,333) 7,507 228,014 934,747 129,368 805,379 346,371 350,484 Shares used to compute earnings per common share — Basic Shares used to compute earnings per common share — Diluted 369,133 372,871 370,430 374,938 Basic earnings per common share Diluted earnings per common share $ $ 3.68 3.65 $ $ 4.05 4.00 $ $ 2.32 2.29 _______________________________________ (1) Balances have been restated to reflect the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. See accompanying Notes. 48 ANALOG DEVICES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended November 2, 2019, November 3, 2018 and October 28, 2017 (thousands) Net income 2019 2018 (1) 2017 (1) $ 1,363,011 $ 1,506,980 $ 805,379 Foreign currency translation adjustment (net of taxes of $0 in 2019, $0 in 2018 and $1,556 in 2017) Change in fair value of available-for-sale securities (net of taxes of $0 in 2019, $0 in 2018 and $35 in 2017) Change in unrecognized gains/losses on derivative instruments designated as cash flow hedges: Changes in fair value of derivatives (net of taxes of $29,401 in 2019, $416 in 2018 and $920 in 2017) Adjustment for realized gain/loss reclassified into earnings (net of taxes of $1,518 in 2019, $94 in 2018 and $1,326 in 2017) Total change in derivative instruments designated as cash flowff hedges, net of tax Changes in accumulated other comprehensive loss — pension plans: Change in actuarial loss/gain (net of taxes of $5,734 in 2019, $2,363 in 2018 and $355 in 2017) Change in prior service cost/income (net of taxes of $0 in 2019, $0 in 2018 and $61 in 2017) Total change in accumulated other comprehensive loss — pension plans, net of tax Other comprehensive (loss) income Comprehensive income (1,365) (6,222) 10 (10) (111,327) 7,667 (103,660) (24,344) — (24,344) (129,359) (1,863) (1,613) (3,476) 10 12,616 1 12,627 2,919 1,572 (517) 3,806 4,199 8,005 14 3,513 (132) 3,395 12,455 $ 1,233,652 $ 1,509,899 $ 817,834 Change in transition asset (net of taxes of $0 in 2019, $0 in 2018 and $1 in 2017) — _______________________________________ (1) Balances have been restated to reflect the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. See accompanying Notes. 49 ANALOG DEVICES, INC. CONSOLIDATED BALANCE SHEETS November 2, 2019 and November 3, 2018 except per share amounts) 2019 2018 (1) ASSETS Current Assets Cash and cash equivalents Accounts receivable less allowances of $8,387 ($2,284 in 2018) Inventories Prepaid expenses and other current assets Total current assets Property, Plant and Equipment, at Cost Land and buildings Machinery and equipment Office equipment Leasehold improvements Less accumulated depreciation and amortization Net property, plant and equipment Other Assets Deferred compensation plan investments Other investments Goodwill Intangible assets, net Deferred tax assets Other assets Total other assets LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable Income taxes payable Debt, current Accrued liabilities Total current liabilities Non-current Liabilities Long-term debt Deferred income taxes Deferred compensation plan liability Income taxes payable Other non-current liabilities Total non-current liabilities Commitments and contingencies (Note 10) 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, 368,302,369 shares outstanding (370,159,553 on November 3, 2018) Capital in excess of par value Retained earnings Accumulated other comprehensive loss Total shareholders’ equity _______________________________________ $ 648,322 $ 635,136 609,886 91,782 1,985,126 956,099 2,609,493 85,490 160,175 3,811,257 2,591,268 1,219,989 47,154 30,170 12,256,880 4,217,224 1,582,382 53,716 816,591 639,717 586,760 69,058 2,112,126 873,186 2,478,032 76,233 100,374 3,527,825 2,373,497 1,154,328 39,853 28,730 12,252,604 4,778,192 9,665 62,868 18,187,526 17,171,912 $ $ $ 21,392,641 ,, , ,, , $ 20,438,366 ,, , ,, , 225,270 $ 187,879 299,667 795,816 1,508,632 5,192,252 2,088,212 47,154 654,420 192,783 260,919 93,722 67,000 630,107 1,051,748 6,265,674 990,409 39,846 710,179 112,337 8,174,821 8,118,445 — — 61,385 4,936,349 6,899,253 61,694 5,282,222 5,982,697 (187,799) 11,709,188 21,392,641 , , , , $ (58,440) 11,268,173 20,438,366 , , , , (1) Balances have been restated to reflect the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. See accompanying Notes. 50 ANALOG DEVICES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Years ended November 2, 2019, November 3, 2018 and October 28, 2017 (thousands) Common Stock Shares Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive (Loss) Income BALANCE, OCTOBER 29, 2016 (1) 308,171 $ 51,363 $ 402,270 $ 4,975,764 $ (73,814) Activity in Fiscal 2017 Net Income — 2017 (1) Dividends declared and paid Issuance of stock under stock plans and other Issuance of stock in connection with acquisition 5,153 55,884 859 9,314 Tax benefit — equity based awards Stock-based compensation expense Replacement share-based awards issued in connection with acquisition Other comprehensive income Common stock repurchased Activity in Fiscal 2018 Net Income — 2018 (1) Dividends declared and paid Issuance of stock under stock plans and other 4,012 668 BALANCE, OCTOBER 28, 2017 (1) 368,636 61,441 5,250,519 5,179,024 (61,359) (572) (95) (46,438) 12,455 Tax benefit — equity based awards Stock-based compensation expense Other comprehensive income Common stock repurchased BALANCE, NOVEMBER 3, 2018 (1) 370,160 61,694 5,282,222 5,982,697 (58,440) (2,488) (415) (225,562) 2,919 Activity in Fiscal 2019 Effect of Accounting Standards Update 2016-16 Net Income — 2019 Dividends declared and paid Issuance of stock under stock plans and other 4,271 712 Stock-based compensation expense Other comprehensive loss Common stock repurchased (6,129) (1,021) (611,984) (129,359) BALANCE, NOVEMBER 2, 2019 368,302 $ 61,385 $ 4,936,349 $ 6,899,253 $ (187,799) _______________________________________ (1) Balances have been restated to reflect the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. See accompanying Notes. 51 805,379 (602,119) 132,439 4,584,341 40,189 104,188 33,530 1,506,980 (703,307) 98,359 7,741 151,165 331,026 1,363,011 (777,481) 115,811 150,300 ANALOG DEVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended November 2, 2019, November 3, 2018 and October 28, 2017 (thousands) Opperations Cash flows from opperatingg activities: 2019 2018 (1) 2017 (1) Net income Adjjd ustments to reconcile net income to net cash pprovided byy opperations: $ 1,,363,,011 $ 1,,506,,980 $ 805,,379 Deppreciation Amortization of intanggibles Cost of ggoods sold for inventoryyr acqquired Stock-based comppensation exppense Non-cash pportion of sppecial chargges Other non-cash activityy Deferred income taxes Changge in opperatingg assets and liabilities: Accounts receivable Inventories Preppaid exppenses and other current assets Deferred comppensation pplan investments Preppaid income tax Accounts ppayyable and accrued liabilities Deferred comppensation pplan liabilityy Income taxes ppayyable,, current Other liabilities Total adjjd ustments Net cash pprovided byy opperatingg activities Investingg Activities Cash flows from investingg: 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 pproppertyy,, pplant and eqquippment,, net Payyments for acqquisitions,, net of cash acqquired Changge in other assets Net cash used for investingg activities Financingg Activities Cash flows from financingg activities: Proceeds from debt Earlyy termination of debt Debt reppayyments Payyments on revolver Proceeds from revolver Proceeds from derivative instruments Payyments of deferred financingg fees Dividend ppayyments to shareholders Reppurchase of common stock Proceeds from empployyee stock pplans Changge in other financingg activities Net cash ((used for)) pprovided byy financingg activities Effect of exchangge rate changges on cash Net ((decrease)) increase in cash and cash eqquivalents Cash and cash eqquivalents at begginningg of yyear Cash and cash eqquivalents at end of yyear _______________________________________ 240,,677 570,,574 — 150,,300 14,,167 40,,907 ((91,,253)) 5,,890 ((42,,771)) ((9,,475)) ((7,,301)) ((2,,322)) ((6,,371)) 7,,308 74,,993 (55,234) 890,089 2,253,100 — — — ((275,,372)) ((11,,170)) (6,644) (293,186) 228,,525 570,,538 — 151,,165 — 36,,569 ((730,,376)) 45,,979 ((34,,636)) ((1,,721)) ((7,,484)) 133 ((18,,397)) 7,,484 ((8,,506)) 696,108 935,381 2,442,361 — — — ((254,,876)) ((52,,839)) (6,283) (313,998) 1,,250,,000 ((1,,250,,000)) ((850,,000)) ((75,,000)) 75,,000 — — ((777,,481)) ((613,,005)) 116,,523 (2,831) (2,126,794) (1,389) ((168,,269)) 816,591 ,, 648,,,322 743,,778 — ((2,,275,,000)) — — — — ((703,,307)) ((225,,977)) 99,,027 3,437 (2,358,042) (1,568) ((231,,247)) 1,047,838 ,, 816,,,591 $ $ $ 194,,666 389,,393 358,,718 104,,188 — ((10,,865)) ((810,,398)) ((65,,669)) ((47,,354)) ((1,,875)) ((7,,358)) 2,,679 85,,987 7,,358 132,,289 17,227 348,986 1,154,365 ((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 (2,288) 5,586,805 3,550 126,,706 921,132 , , 1,,,047,,,838 , , (1) Balances have been restated to reflect the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. See accompanying Notes. 52 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended November 2, 2019, November 3, 2018 and October 28, 2017 (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. 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 efficiently 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 applications. The Company produces innovative products and technologies that accurately and securely sense, measure, connect, interpret and power, allowing its customers to intelligently bridge the physical and digital domains. The Company designs, manufactures, and markets a broad portfolio of solutions, including integrated circuits (ICs), algorithms, software, and subsystems, that leverage high-performance analog, mixed-signal, and digital signal processing technologies. The Company's fusion of cutting-edge sensors, data converters, amplifiers and linear products, radio frequency (RF) ICs, power management products, and other signal processing products with deep industry expertise allows it to create robust technology platforms that meet a broad spectrum of customer and market needs. As new generations of applications evolve - such as autonomous vehicles, 5G networks, intelligent factories, and smart healthcare devices - the demand for Analog Devices’ high-performance analog signal processing and digital signal processing (DSP) products and technologies is increasing. 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 November 2, 2019 (fiscal 2019). 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 2019 and fiscal 2017 were 52-week fiscal periods, while fiscal 2018 was a 53-week period. The additional week in fiscal fiscal 2018 included an additional week of operations 2018 was included in the first quarter ended February 3, 2018. Therefore, as compared to fiscal 2019 and fiscal 2017. ff On March 10, 2017 (Acquisition Date), the Company completed the acquisition of all of the voting interests of Linear Technology Corporation (Linear), an independent manufacturer 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. See Note 6, Acquisitions, of these Notes to Consolidated Financial Statements for further discussion related to the Acquisition. As further discussed in Note 2n, Revenue Recognition, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09), in the first retrospective method, in which quarter of fiscal 2019. The two permitted transition methods under the new standard are the full case the standard would be applied to each prior reporting period presented and the cumulative effecff t of applying the standard would be recognized at the earliest period showing, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized as of the date of initial application. The Company adopted ASU 2014-09 using the full retrospective method and applied the practical expedient, in which the Company is not required to disclose the amount of consideration allocated to any remaining performance obligations or an explanation of when the Company expects to recognize that amount as revenue for all reporting periods presented before the date of the initial application. ff As a result of the adoption of ASU 2014-09, the Company changed its accounting policy for revenue recognition and recognizes revenue from product sales to its customers and distributors when title passes, which is generally upon shipment. Prior to the adoption of ASU 2014-09, revenue and the related cost of sales on shipments to certain distributors were deferred until the distributor resold the products to their end customers. See Note 2n, Revenue Recognition, in these Notes to 53 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Consolidated Financial Statements for the details of the Company’s revenue recognition policies. The adoption of ASU 2014-09 impacted the Company’s consolidated statements of income and consolidated balance sheets but did not impact its consolidated statements of cash flows, with the exceptions of net income and reclassifications within adjustments to reconcile net income to cash provided by operations, and did not impact the consolidated statement of shareholders' equity, with the exceptions of retained earnings and net income. As shown in the tables below, pursuant to the guidance in ASU 2014-09, the Company restated its historical financial results to be consistent with the standard. Accordingly, the amounts for fiscal 2019, fiscal 2018 and fiscal 2017 periods presented in this Form 10-K reflect the impact of ASU 2014-09. In addition, the Company adopted ASU 2017-07, Compensation - Retirement Benefitff s (tt Topic (( 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost in the first quarter of fiscal Under this ASU, the service cost component of net periodic benefit cost is recorded in Cost of sales, Research and development, Selling, marketing, general and administrate expenses, while the remaining components are recorded to Other, net within the Company's consolidated statements of income. As such, the prior year amounts have been reclassified to provide comparable presentation in line with the guidance in ASU 2017-07 based on amounts previously disclosed for the various components of net periodic pension cost. See Note 11, Retirement Plans, in these Notes to Consolidated Financial Statements for more information on the adoption of ASU 2017-07. 2019. ff The tables below reconcile the impact of ASU 2014-09 and ASU 2017-07 on the consolidated statements of income: Consolidated Statement of Income Revenue Cost of sales Gross margin Operating expenses: Research and development Selling, marketing, general and administrative Amortization of intangibles Special charges Operating income Nonoperating expense (income): Interest expense Interest income Other, net Income before income taxes Provision for income taxes Net income Shares used to compute earnings per common share – basic Shares used to compute earnings per common share – diluted Basic earnings per common share Diluted earnings per common share Year Ended November 3, 2018 Impact of Adoption of ASU 2014-09 Impact of Adoption of ASU 2017-07 As Reported As Adjusted $ 6,200,942 $ 23,747 $ — $ 6,224,689 1,967,640 4,233,302 1,165,410 695,937 428,902 61,318 2,351,567 1,881,735 253,589 (9,383) (988) 243,218 1,638,517 143,085 6,950 16,797 — — — — — 16,797 — — — — 16,797 5,249 (297) 297 (363) (397) — — (760) 1,057 — — 1,057 1,057 — — 1,974,293 4,250,396 1,165,047 695,540 428,902 61,318 2,350,807 1,899,589 253,589 (9,383) 69 244,275 1,655,314 148,334 $ 1,495,432 $ 11,548 $ — $ 1,506,980 370,430 374,938 $ $ 4.02 3.97 $ $ — — 0.03 0.03 $ $ — — — $ — $ 370,430 374,938 4.05 4.00 54 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Consolidated Statement of Income Revenue Cost of sales Gross margin Operating expenses: Research and development Selling, marketing, general and administrative Amortization of intangibles Special charges Operating income Nonoperating expense (income): Interest expense Interest income Other, net Income before income taxes Provision for income taxes Year Ended October 28, 2017 Impact of Adoption of ASU 2014-09 Impact of Adoption of ASU 2017-07 As Reported As Adjusted $ 5,107,503 $ 138,851 $ — $ 5,246,354 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 32,589 106,262 — — — — — 106,262 — — — — 106,262 28,142 (383) 383 (469) (513) — — ( 982) 1,365 — — 1,365 1,365 — — 2,078,113 3,168,241 968,133 690,533 297,351 49,463 2,005,480 1,162,761 250,840 (30,333) 7,507 228,014 934,747 1 29,368 Net income Shares used to compute earnings per common share – basic Shares used to compute earnings per common share – diluted Basic earnings per common share Diluted earnings per common share $ $ $ 727,259 $ 78,120 $ — $ 805,379 346,371 350,484 2.09 2.07 $ $ — — 0.23 0.22 $ $ — — — $ — $ 346,371 350,484 2.32 2.29 The impact on the Company's previously reported consolidated balance sheet line items is as follows: November 3, 2018 Impact of Adoption of ASU 2014-09 As Reported (11,413) $ (487,417) $ $ 133,027 $ 63,344 As Adjusted 9,665 — 630,107 990,409 279,633 $ 5,982,697 Deferred tax assets Deferred income on shipments to distributors, net Accrued liabilities Deferred income taxes Retained earnings $ $ $ $ $ 21,078 487,417 497,080 927,065 5,703,064 $ $ $ $ $ 55 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) In addition, in the first quarter of fiscal 2019, the Company adopted ASU 2016-16, Income Taxes (Topic 740) (ASU 2016-16) using the modified retrospective method with a cumulative-effect adjustment directly to retained earnings. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The adoption of ASU 2016-16 resulted in the following cumulative-effect increase in the Company's deferred tax assets, deferred tax liabilities and retained earnings as follows: Deferred tax assets Deferred income taxes Retained earnings November 4, 2018 Beginning Balance November 3, 2018 as Adjusted Impact of Adoption of ASU 2016-16 Balance November 4, 2018 $ $ $ 9,665 990,409 5,982,697 $ $ $ 1,655,129 1,324,103 331,026 $ $ $ 1,664,794 2,314,512 6,313,723 See Note 12, Income Taxes, in these Notes to Consolidated Financial Statements for more information ff on the adoption of ASU 2016-16. b. Cash and Cash Equivalents Cash and cash equivalents are highly liquid investments with insignificant interest rate risk and maturities t of ninety days or less at the time of acquisition. Cash and cash equivalents 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- 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 classifieff d as such. The Company’s other readily marketable cash equivalents are classified as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses, net of related tax, reported in accumulated other comprehensive (loss) income (AOCI). Adjustments to the fair value of investments classified as available- for-sale are recorded as an increase or decrease in AOCI, unless the adjustment is considered an other-than-temporary impairment, in which case the adjustment is recorded as a charge in the consolidated statements of income. a The Company’s deferred compensation plan investments are classified as trading. See Note 2j, Fair Value and Note 11, Retirement Plans, of these Notes to Consolidated Financial Statements for additional information on these investments. The Company periodically evaluates its investments for impairment. There were no other-than-temporary impairments of 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. The components of the Company’s cash and cash equivalents as of November 2, 2019 and November 3, 2018 were as follows: Cash and cash equivalents: Cash Available-for-sale y Held-to-maturit Total cash and cash equivalents 2019 2018 $ $ 152,432 416,890 9,000 7 648,322 $ $ 147,629 598,962 70,000 816,591 See Note 2j, Fair Value, of these Notes to Consolidated Financial Statements for additional information on the Company’s cash equivalents. 56 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) c. Supplemental Cash Flow Statement Information Cash paid during the fiscal year for: Income taxes Interest d. tt Inventories 2019 2018 2017 $ $ 205,762 216,143 $ $ 211,473 233,436 $ $ 868,492 183,117 Inventories are valued at the lower of cost (first-in, first-out method) or market. The valuation of inventory requires the Company to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The Company employs a variety of methodologies to determine the net realizable value of its inventory. While a portion of the calculation to record inventory at its net realizable value is based on the age of the inventory and lower of cost or market calculations, a key factor in estimating obsolete or excess inventory requires the Company to estimate the future demand for its products. If actual demand is less than the Company’s estimates, impairment charges, which are recorded to cost of sales, may need to be recorded in future periods. Inventory in excess of saleable amounts is not valued, and the remaining inventory is valued at the lower of cost or market. Inventories at November 2, 2019 and November 3, 2018 were as follows: Raw material s Work in process Finished goods Total inventories e. Property, Plant and Equipment 2019 2018 $ $ 35,447 $ 400,409 174,030 609,886 $ 30,511 375,908 180,341 586,760 Property, plant and equipment is recorded at cost, less allowances for depreciation. The straight-line method of depreciation is used for all classes of assets for financial statement purposes while both straight-line and accelerated methods are used for income tax purposes. Leasehold improvements are 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 Leasehold improvements Up to 30 years 3-10 years 3-10 years 7-20 years Depreciation expense for property, plant and equipment was $240.7 million, $228.5 million and $194.7 million in fiscal 2019, 2018 and 2017, respectively. The Company reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Recoverability of these assets is 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 2019, fiscal 2018 or fiscal 2017. f. Goodwill and Intangible Assets Goodwill The Company evaluates goodwill for impairment annually, utilizing either the qualitative or quantitative method, 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 the Company has determined is consistent with our eight identified operating segments, on an annual basis on the first day of the fourth quarter (on or about August 4) or more frequently if indicators of impairment exist or the Company reorganizes its reporting units. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its net 57 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) book value. If the Company elects not to use this option, or it determines that it is more likely than not that the fair value of a reporting unit is less than its net book value, then the Company performs the quantitative goodwill impairment test. In the Company's annual impairment evaluation that occurred for fiscal 2019, management used the qualitative method of assessing goodwill for seven of its eight reporting units and the quantitative method for one reporting unit. In fiscal 2018, the Company used the qualitative method for all eight of its identified reporting units. For each of the reporting units evaluated using the qualitative method in fiscal 2019 and fiscal 2018, the Company determined that it was not more likely than not that the fair values were less than their net book values. In making this determination, the Company considered several factors, including the following: – – – the amount by which the fair values of each reporting unit exceeded their carrying values as of the date of the most recent quantitative impairment analysis, which indicated there would need to be substantial negative developments in the markets in which these reporting units operate in order for there to be potential impairment; the carrying values of these reporting units as of the first day of the fourth quarter compared to the previously calculated fair values as of the date of the most recent quantitative impairment analysis; the Company's current forecasts as compared to the forecasts included in the most recent quantitative impairment analysis; public information from competitors and other industry information to determine if there were any significant adverse trends in our competitors' businesses, such as significant declines in market capitaliza tion or significant goodwill impairment charges that could be an indication that the goodwill of our reporting units was potentially impaired; changes in the value of major U.S. stock indices that could suggest declines in overall market stability that could impact the valuation of our reporting units; changes in our market capitalization and overall enterprise valuation to determine if there were any significant decreases that could be an indication that the valuation of our reporting units had significantly decreased; and – whether there had been any significant increases to the weighted-average cost of capital (WACC) rates for each – – – a reporting unit, which could materially lower our prior valuation conclusions under a discounted cash flow approach. As a result of the quantitative goodwill impairment analysis performed in fiscal 2019 for one of the Company's reporting units, the Company concluded the reporting unit’s fair value exceeded its carrying amount as of the assessment date and no risk of impairment existed. The first step of the goodwill impairment test requires an entity to compare the fair value of a reporting unit with its carrying amount. The Company determined the fair value of its reporting unit using a weighting of the income and market approaches. Under the income approach, the Company used a discounted cash flow methodology which required management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, perpetual growth rates, and long-term discount rates, among others. For the market approach, the Company used the guideline public company method. Under this method the Company utilized information from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit, to estimate valuation multiples that are applied to the operating performance of the reporting unit, in order to estimate its fair value. There was 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 October 31, 2020 (fiscal 2020) unless indicators arise that would require the Company to reevaluate at an earlier date. The following table presents the changes in goodwill during fiscal 2019 and fiscal 2018: Balance at begginningg of yyear Acquisition of Linear (Note 6) Goodwill adjustment related to other acquisitions (1) Foreign currency translation adjustment $ $ 12,252,604 — 6,702 (2,426) 2018 12,217,455 ,647 1 36,558 (3,056) Balance at end of year _______________________________________ (1) Represents goodwill related to other acquisitions that were not material to the Company on either an individual or aggregate basis. 12,256,880 $ $ 12,252,604 58 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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. If required, 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. 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. During fiscal 2019, the company recorded $$14.2 IPR&D, ddue to hthe Company's d i i acquired iint lelllect strategies. fof development l discontinue cert iain special hcharges r l decision to di lual property, elated to hthe d illimillion fof dproduct d lcla ifi d ssified as write-off ff i d i l i i i As of November 2, 2019 and November 3, 2018, the Company’s intangible assets consisted of the following: November 2, 2019 November 3, 2018 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Customer relationships $ 4,696,562 1,145,283 $ 1,284,256 385,618 $ 4,697,716 1,114,080 $ 867,207 243,350 Technology-based Trade-name IPR&D Total (1) (2) _______________________________________ (1) Foreign intangible asset carrying amounts are affected by foreign currency translation. (2) Increases in intangible assets primarily relate to acquisitions that were not material to the Company on either an individual or aggregate basis. 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. 73,417 — 5,915,262 28,164 — 1,698,038 74,031 20,768 5,906,595 17,846 — 1,128,403 $ $ $ $ Amortization expense related to finite-lived intangible assets was $570.6 million, $570.5 million and $389.4 million in fiscal 2019, 2018 and 2017, respectively, and is recorded in Cost of sales and Amortization of intangibles on the consolidated statements of income. The remaining amortization expense will be recognized over a weighted average life of approximately 4.1 years. The Company expects annual amortization expense for intangible assets as follows: Fiscal Year 2020 2021 2022 2023 2024 g. Grant Accountingn Amortization Expense 575,004 $ 574,404 $ 571,474 $ 548,276 $ 486,376 $ 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 earnir ngs in the period in which the related expenditures are incurred by the Company. The amounts recognized were not material in fiscal 2019, fiscal 2018 or fiscal 2017. h. Translation of Foreign Currencies The functional currency for the Company’s foreign sales and research and development operations is the applicable local currency. Gains and losses resulting from translation of these foreign currencies into U.S. dollars are recorded in AOCI. Transaction gains and losses and re-measurement of foreign currency denominated assets and liabilities are included in income 59 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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, net, were not material in fiscal 2019, 2018 or 2017. i. Derivative Instruments att nd Hedging Agreements Foreign Exchange Exposure Management — The Company enters into forward foreign currency exchange contracts to offset certain operational and balance sheet exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company’s operations, assets and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Euro; other significant exposures include the British Pound, Philippine Peso and the Japanese Yen. Derivative instruments are employed to eliminate or minimize certain foreign currency exposures that can be confidently identified and quantified. These foreign currency exchange contracts are entered into to support transactions made in the normal course of business, and accordingly, are not speculative in nature. The contracts are for periods consistent with the terms of the underlying transactions, generally one year or less. Hedges related to anticipated transactions are matched with the underlying exposures at inception and designated and documented as cash flow hedges. They are qualitatively evaluated for effectiveness on a quarterly basis. The gain or loss on the derivatives are reported as a component of AOCI in shareholders’ equity and reclassified into earnings in the same line item on the consolidated statements of income as the impact of the hedged transaction in the same period during which the hedged transaction affects earnings. The total notional amounts of forward foreign currency derivative instruments designated as hedging instruments of cash flow hedges denominated in Euros, British Pounds, Philippine Pesos and Japanese Yen as of November 2, 2019 and November 3, 2018 was $191.1 million and $194.4 million, respectively. The fair values of forff ward foreign currency derivative instruments designated as hedging instruments in the Company’s consolidated balance sheets as of November 2, 2019 and November 3, 2018 were as follows: Forward foreign currency exchange contracts Prepaid expenses and other current assets Forward foreign currency exchange contracts Accrued liabilities $ $ 65 $ — $ — 6,934 Balance Sheet Location November 2, 2019 November 3, 2018 Fair Value At Additionally, the Company enters into forward foreign currency contracts that economically hedge the gains and losses generated by the re-measurement of certain recorded assets and liabilities in a non-functional currency. Changes in the fair value of these undesignated hedges are recognized in other (income) expense immediately as an offset to the changes in the fair value of the asset or liability being hedged. As of November 2, 2019 and November 3, 2018, the total notional amount of these undesignated hedges was $55.3 million and $40.6 million, respectively. The fair value of these hedging instruments in the Company’s consolidated balance sheets was immaterial as of November 2, 2019 and November 3, 2018. a ff The Company estimates that settlements of forward foreign currency derivative instruments included in OCI that will be reclassified into earnings will be immaterial within the next 12 months. 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 sheets on a net basis. As of November 2, 2019 and November 3, 2018, 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 sheets as of November 2, 2019 and November 3, 2018: Gross amount of recognized liabilities Gross amounts of recognized assets offset in the consolidated balance sheets Net liabilities presented in the consolidated balance sheets November 2, 2019 November 3, 2018 $ $ (2,828) $ 2,828 — $ (8,054) 904 (7,150) Interest Rate Expos x ure Management — The Company's current and future debt may be subject to interest rate risk. The Company utilizes interest rate derivatives to alter interest rate exposure in an attempt to reduce the effects of the changes in interest rates. During fiscal 2019, the Company entered into an interest rate swap agreement which locked in the interest rate for up to $1 billion in future debt issuances. The interest rate swap was designated and qualified as a cash flow hedge. The fair value of this hedge was $138.8 million as of November 2, 2019 and is included within accrued liabilities in the Company's consolidated balance sheets. The market risk associated with the Company’s derivative instruments rr results from currency exchange rate or interest rate movements that are expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. The 60 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) t counterparties to the agreements relating to the Company’s derivative instruments consist of a number of major international financial institutions with high credit ratings. Based on the credit ratings of the Company’s counterparties as of November 2, 2019 and November 3, 2018, 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’ obligations under the contracts exceed the obligations of the Company to the counterparties. As a result of the above considerations, the Company does not consider the risk of counterparty default to be significant. The Company records the fair value of its derivative financial instruments in its consolidated financial statements in other current assets, other assets, accrued liabilities and other non-current 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 earnr ings or in shareholders’ equity as a component of OCI. Changes in the faff ir value of cash flow hedges are recorded in OCI and reclassified into earnings in the same line item on the consolidated statements of income as the impact of the hedged transaction when the underlying contract matures. Changes in the fair values of derivatives not qualifying for hedge accounting are reported in earnr ings as they occur. For information on the unrealized holding gains (losses) on derivatives included in and reclassified out of AOCI into the consolidated statements of income related to forward foreign currency exchange contracts, see Note 2o, Accumulated Other Comprehensive (Loss) Income of these Notes to Consolidated Financial Statements. j. Fair Value The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. The tables below, set forth by level, presents the Company’s financial assets and liabilities, excluding accrued interest components, that were accounted for at fair value on a recurring basis as of November 2, 2019 and November 3, 2018. The tables exclude cash on hand and assets and liabilities that are measured at historical cost or any basis other than fair value. As of November 2, 2019 and November 3, 2018, the Company held $231.4 million and $217.6 million, respectively, of cash and held-to-maturity investments that were excluded from the tables below. 61 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Assets Cash equivalents: Available-for-sale: Government and institutional money market funds Other assets: Deferred compensation investments Total assets measured at fair value Liabilities Interest rate derivatives Total liabilities measured at fair value Assets Cash equivalents: Available-for-sale: Government and institutional money market funds Corporate obligations (1) Other assets: Deferred compensation investments Interest rate derivatives Total assets measured at fair value Liabilities Forward foreign currency exchange contracts (2) Total liabilities measured at fair value $ $ $ $ $ $ November 2, 2019 Fair Value measurement at Reporting Date using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Total 416,890 $ — $ 416,890 48,302 465,192 $ — — $ 8,302 4 465,192 — — $ 1 38,798 138,798 $ 138,798 138,798 November 3, 2018 Fair Value measurement at Reporting Date using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Total 394,076 — 41,001 — 435,077 $ $ — $ 204,886 394,076 204,886 — 1,436 206,322 41,001 1,436 641,399 7,150 7,150 $ $ — — $ 7,150 7,150 _______________________________________ (1) The amortized cost of the Company’s investments classified as available-for-sale as of November 3, 2018 was $205.0 million. (2) The Company has master netting arrangements by counterparty with respect to derivative contracts. See Note 2i, Derivative Instruments and Hedging Agreements, of these Notes to Consolidated Financial Statements for more 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 — 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. 62 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Deferred compensation plan investments — The fair value of these mutual fund, money market fund and equity investments are based on quoted market prices. Interest rate derivatives — The fair value of interest rate derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivatives. 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. t Financial Instruments Not Recorded at Fair Value VV on a Recurring Basis 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 loan approximates 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 14, Debt, of these Notes to Consolidated Financial Statements for further fair value. The term loan is classified as Level 2 measurements discussion related to outstanding debt. a ff 3-Year term loan, due March 2022 3-Year term loan, due March 2020 5-Year term loan, due March 2022 2020 Notes, due March 2020 2021 Notes, due January 2021 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 Debt k. Use of Estimates November 2, 2019 November 3, 2018 Principal Amount Outstanding Fair Value Principal Amount Outstanding Fair Value $ 925,000 $ 925,000 $ — $ — — — 300,000 450,000 400,000 500,000 550,000 850,000 900,000 — — 300,872 454,634 402,591 511,190 567,159 914,567 940,192 425,000 1,350,000 300,000 450,000 400,000 500,000 550,000 850,000 900,000 425,000 1,350,000 298,147 444,568 386,375 479,189 529,120 829,611 848,027 250,000 400,000 5,525,000 $ 270,891 491,439 5,778,535 $ 250,000 400,000 6,375,000 $ 232,627 407,984 6,230,648 $ The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates relate to the useful lives of fixed assets and identified intangible assets; allowances for doubtful accounts and customer returns; the net realizable value of inventory; potential reserves relating to litigation matters; accrued liabilities, including estimates of variable consideration related to distributor sales; accrued taxes; uncertain tax positions; deferred tax valuation allowances; assumptions pertaining to stock-based compensation payments and defined benefit plans; and fair value of acquired assets and liabilities, including inventory, property, plant and equipment, goodwill, and acquired intangibles; and other reserves. Actual results could differ from those estimates and such differences may be material to the financial statements. a l. Concentrations tt of Riskii Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments and trade accounts receivable. The Company maintains cash and cash equivalents 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. 63 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company sells its products to distributors and original equipment manufacturers (OEMs) involved in a variety of d process automation, instrumentation, defense/aerospace, automotive, communications, computers industries including industrial 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. Our largest customer (through distributors and direct sales to OEMs), accounted for approximately 30%, 28%, and 14% of net revenues in fiscal 2019, fiscal 2018 and fiscal 2017, respectively. Our next largest customer accounted for approximately 10% of net revenues in fiscal 2019, less than 10% of net revenues in fiscal 2018, and 12% of net revenues in fiscal 2017. m. Concentration of Other Risks The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. The Company’s financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property in a rapidly evolving market and reliance on assembly and test subcontractors, third-party wafer fabricators and independent distributors. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns at various times. The Company is exposed to the risk of obsolescence of its inventory depending on the mix of future business. Additionally, a large portion of the Company’s purchases of external wafer and foundry services are from a limited number of suppliers, such as Taiwan Semiconductor Manufacturing Company (TSMC) and others. If these suppliers or any of the Company’s other key suppliers are unable or unwilling to manufacture and deliver sufficient quantities of components, on the time schedule and of the quality that the Company requires, the Company may be forced to engage additional or replacement suppliers, which could result in significant expenses and disruptions or delays in manufacturing, product development and shipment of product to the Company’s customers. Although the Company has experienced shortages of components, materials and external foundry services from time to time, these items have generally been available to the Company as needed. n. Revenue Recognitionii Recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the providing entity expects to be entitled in exchange for those goods or services. As a result of the adoption of new revenue accounting rules in the fiff rst quarter of fiscal 2019, the Company revised its revenue recognition policy. The Company now recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Under this rule, the Company recognizes revenue when all of the following criteria are met: (1) the Company has entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been determined, (4) the transaction price has been allocated to the performance obligations in the contract, and (5) the performance obligations have been satisfied. The majority of the Company's shipping terms permit the Company to recognize revenue at point of shipment or delivery. Certain shipping terms require the goods to be through customs or be received by the customer before title passes. In those instances, the Company defers the revenue recognized until title has passed. Shipping costs are charged to selling, marketing, general and administrative expense as incurred. Sales taxes are excluded from revenue. Revenue from contracts with the United States government, government prime contractors and certain commercial customers is recorded over time using either units delivered or costs incurred as the measurement basis for progress toward completion. These measures are 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. Performance Obligations: Substantially all of the Company’s contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit (IC) products. Such sales represent a single performance obligation because the sale is one type of good or includes multiple goods that are neither capablea other promises in the contract. This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates and with an original expected duration of one year or less. As allowed under ASU 2014-09, the Company has opted to not disclose the amount of unsatisfied performance obligations as these contracts have original of being distinct nor separable from the 64 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) expected durations of less than one year. The Company generally offers a twelve-month warranty for its products. The Company’s warranty policy provides for replacement of defective products. Specific accruals are recorded forff warranty issues. known product Transaction Price: The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration primarily includes sales to direct customers and sales to distributors in which both the sale to the distributor and the sale to the end customer occur within the same reporting period. Variable consideration includes sales in which the amount of consideration that the Company will receive is unknown as of the end of a reporting period. Such consideration primarily includes credits issued to the distributor due to price protection and sales made to distributors under agreements that allow certain rights of return, referred to as stock rotation. Price protection represents price discounts granted to certain distributors to allow the distributor to earn an appropriate margin on sales negotiated with certain customers and in the event of a price decrease subsequent to the date the product was shipped and billed to the distributor. Stock rotation allows distributors limited levels of returns in order to reduce the amounts of slow-moving, discontinued or obsolete product from their inventory. A liability for distributor credits covering variable consideration is made based on the Company's estimate of historical experience rates as well as considering economic conditions and contractual terms. To date, actual distributor claims activity has been materially consistent with the provisions the Company has made based on its historical estimates. For the years ended November 2, 2019 and November 3, 2018, sales to distributors were $3.4 billion in both periods, net of variable consideration for which the liability balances as of November 2, 2019 and November 3, 2018 were $227.0 million and $144.9 million, respectively. Contract Balances: Accounts receivable represents the Company’s unconditional right to receive consideration from its customers. Payments are typically due within 30 to 45 days of invoicing and do not include a significant financing component. To date, there have been no material impairment losses on accounts receivable. There were no material contract assets or contract liabilities recorded on the consolidated balance sheets in any of the periods presented. The Company generally warrants that products will meet their published specifications and that the Company will repair or replace defective products for twelve-months from the date title passes to the customer. Specific accruals are recorded for known product warranty issues. Product warranty expenses during fiscal 2019, fiscal 2018 and fiscal 2017 were not material. o. Accumulated Other CompCC rehensive (Loss) Income Accumulated other comprehensive (loss) income (AOCI) includes certain transactions that have generally been reported in the consolidated statement of shareholders’ equity. The components of AOCI at November 2, 2019 and November 3, 2018 consisted of the following, net of tax: November 3, 2018 Other comprehensive (loss) income before reclassifications Amounts reclassified out of other comprehensive loss Tax effects Other comprehensive (loss) income November 2, 2019 Foreign currency translation adjustment (28,711) $ Unrealized holding gains (losses) on available for sale securities $ Unrealized holding gains (losses) on derivatives (10) $ (14,355) $ Pension plans (15,364) $ Total (58,440) (1,365) — — (1,365) ) ( (30,076) ) ( $ $ 10 (140,728) (31,082) (173,165) — — 10 — $ (118,015) $ 9,185 27,883 (103,660) ) ( ) ( 1,004 5,734 (24,344) ) ( ) ( (39,708) $ 10,189 33,617 (129,359) ) ( ) ( (187,799) 65 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The amounts reclassified out of AOCI into the consolidated statements of income, with presentation location during each period were as follows: Income Component 2019 2018 Location Unrealized holding gains (losses) on derivatives Currency forwards $ 1,736 $ 396 Cost of sales Interest rate derivatives Amortization of pension components Transition obligation Prior service credit and curtailment recognition Actuarial losses and settlement recognition 2,956 3,056 1,437 9,185 (462) Research and development Selling, marketing, general and administrative (317) (1,324) Interest expense (1,707) Total before tax (1,518) 94 Tax 7,667 $ (1,613) Net of tax — $ — 1,004 1,004 (248) 756 $ (1) (1) (1) 10 1 1,621 1,632 Total before tax (395) Tax 1,237 Net of tax $ $ $ Total amounts reclassified out of AOCI, net of tax _______________________________________ (1) The amortization of pension components is included in the computation of net periodic pension cost. See Note 11, Retirement Plans, of 8,423 (376) $ $ these Notes to Consolidated Financial Statements for further information. p. Income Taxes Deferredr tax assets and liabilities are determined based on the differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted income tax rates and laws that are expected to be in effect when the temporary differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some or s involves dealing with uncertainties in the all of the deferred tax assets will not be realized. The calculation of the tax liabilitie 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 12, Income Taxes, of these Notes to Consolidated Financial Statements for further information related to income taxes. a q. Earnings Per Share of Common Stock Basic earnings per share is computed based only on the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other potentially dilutive securities using the treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock options 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. 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 fromff 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. 66 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 2019 2018 (1) 2017 (1) 1,363,011 3,229 1,359,782 $ $ 1,506,980 5,909 1,501,071 $ $ 805,379 2,243 803,136 369,133 370,430 3.68 $ 4.05 $ 346,371 2.32 $ $ $ 369,133 3,738 372,871 370,430 4,508 374,938 $ 3.65 $ 4.00 $ 346,371 4,113 350,484 2.29 826 1,649 1,527 _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. r. Stock-Based Compensation Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards ultimately expected to vest and is recognized as an expense on a straight-line basis over the vesting period, which is generally four years for stock options and restricted stock units, or in annual installments of 25% on each of the first, second, third and fourth anniversaries of the date of grant. For grants issued prior to fiscal 2018, the vesting period was 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 in one installment on the third anniversary of the date of grant for restricted stock units/awards. Determining the amount of stock-based compensation to be recorded for stock options 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. The use of valuation models requires the Company to make estimates and assumptions, such as expected volatility, expected term, risk-free interest rate, expected dividend yield and forfeiture rates. The grant-date fair restricted stock units with only a service 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. See Note 3, Stock-Based Compensation and Shareholders' Equity, of these Notes to Consolidated Financial Statements forff information relating to stock-based compensation. additional value of ff s. New Accounting Pronouncements Standards Implemented Revenue Recognition In May 2014, the FASB issued ASU 2014-09, which supersedes nearly all existing revenue recognition guidance under 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 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. The Company adopted ASU 2014-09 in the first quarter of fiscal 2019 using the full retrospective method and restated prior periods. As a result of the adoption of ASU 2014-09 the Company changed its accounting policy for revenue recognition. See Note 2a, Principles of Consolidation, and Note 2n, Revenue Recognition, in these Notes to Consolidated Financial Statements forff details of the impact of ASU 2014-09 on the Company's financial statements. 67 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Income Taxes In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) (ASU 2016-16). ASU 2016-16 requires 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. The Company adopted ASU 2016-16 in the first quarter of fiscal 2019 using the modified retrospective method with a cumulative-effect adjustment directly to retained earnr ings. The adoption of ASU 2016-16 resulted in a net cumulative-effect adjustment that resulted in an increase in retained earnings of $331.0 million, by recording new deferred tax assets from intra- entity transfers involving assets other than inventory, partially offset by a U.S. deferred tax liability related to GILTI. Adoption of the standard resulted in an increase in long-term deferred tax assets of $1.7 billion and an increase in long-term deferred tax liabilities of $1.3 billion. Other The following standards were adopted during the first quarter of fiscal 2019 and did not have a material impact on the Company's financial position and results of operations: • • • • • ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assetstt and Financial Liabilities. ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition ASU 2017-07, Improving the Presentation of Net Period Pension Cost and Net Period Postretirement Benefit Cost. ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. of a Business. ff Standards to Be Implemented Comprehensive Income In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting e Comprehensive Income (Topic 220): ff Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). ASU 2018-02 allows for reclassification of stranded tax effects resulting from the Tax Legislation from AOCI to retained earnr ings. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. ASU 2018-02 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. Leases In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (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. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 (ASU 2018-01). ASU 2018-01 permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entity’s adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (Topic 842) (ASU 2018-11), which provides for an additional transition method that allows companies to apply the new lease standard at the adoption date, eliminating the requirement to apply the standard to the earliest period presented in the financial statements. ASU 2016-02, ASU 2018-01 and ASU 2018-11 are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. ASU 2016-02 and ASU 2018-01 are effective for the Company in the first quarter of fiscal 2020. The Company is nearing completion in assessing all potential aspects of the standard on its Consolidated Financial Statements and related disclosures and expects that there will be an increase in assets and liabilities on the consolidated balance sheets at adoption due to the recognition of right-of-use assets and related lease liabilities, which the Company expects to be recorded using an incremental borrowing rate. The Company plans to adopt the standard using the transition method provided by ASC 2018-11, in which prior periods will not be adjusted, and also plans to apply the package of practical expedients permitted under the transition guidance to its lease portfolio. At November 2, 2019, the Company was contractually obligated to make future payments of approximately $0.4 billion under its operating lease obligations in existence as of that date, primarily related to long-term facility leases. The Company does not expect the adoption of ASU 2016-02, ASU 2018-01 and ASU 2018-11 to have a material impact on its results of operations. See Note 9, Lease 68 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Commitments, in these Notes to Consolidated Financial Statements for information regarding our leases under Accounting Standard Codification Topic 840, Leases. Retirement Benefits In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefe iff ts-Defie ned Benefit Plans-General (Topic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14), which modifies the disclosure requirements for defined benefit pension plans and other post-retirement plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, with early adoption permitted. ASU 2018-14 is effective for the Company in the first quarter of the fiscal year ending October 30, 2021 (fiscal 2021). The Company is currently evaluating the adoption date. The adoption of ASU 2018-14 will modify the Company's disclosures for defined benefit plans and other post-retirement plans but is not expected to impact its financial position or results of operations. Financial Instruments In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit 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 amount expected to be collected on the financial asset. In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief (ASU 2019-05). ASU 2019-05 allows an entity to irrevocably elect the fair value option for certain financial instruments. Once elected, an entity would recognize the difference between the carrying amount and the fair value of the financial instrument as part of the cumulative effecff of ASU 2016-13. ASU 2016-13 and ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, and forff interim periods within those fiscal years. ASU 2016-13 and ASU 2019-05 are effective for the Company in the fiff rst quarter of fiscal 2021. The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of operations. t adjustments associated with the adoption value at the rr rr 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. In connection with the Acquisition, the Company assumed the Linear Technology Corporation Amended and Restated 2005 Equity Incentive Plan (the 2005 Plan) and the Linear Technology Corporation Amended and Restated 2010 Equity Incentive Plan (now referred to as the Analog Devices, Inc. Amended and Restated 2010 Equity Incentive Plan) (the 2010 Plan). The Company will not grant further equity awards under the 2005 Plan but may grant stock options and other stock and stock-based awards under the 2010 Plan. While the Company may grant options to employees that become exercisable at different times or within different periods, the Company generally grants to employees options that vest over four years and become exercisable in annual installments of 25% on each of the first, second, third and fourth anniversaries of the date of grant. For grants issued prior to fiscal 2018 the options granted to employees generally vested over five years and became 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 grants to employees restricted stock units that generally vest over four years in annual installments of 25% on each of the first, second, third and fourth anniversaries of the date of grant. For grants issued prior to fiscal 2018 restricted stock units generally vested in one installment on the third anniversary of the date of grant. 69 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of November 2, 2019, a total of 10.2 million and 1.4 million common shares were available for future grant under the 2006 Plan and 2010 Plan, respectively, and 21.2 million common shares were reserved for issuance under the 2006 Plan, 2010 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. 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. ff Linear Replacement Awards p 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 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 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. value of $82.20. The terms and intrinsic value of these replacement awards are ff Modification of Awards f 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 2019, fiscal 2018 and fiscal 2017 did not result in significant incremental compensation costs, either individually or in the aggregate. Grant-Date Fair Value The Company uses the Black-Scholes valuation model to calculate the grant-date fair value of stock option awards. The use of valuation models requires the Company to make estimates and assumptions, such as expected volatility, expected term, risk-free interest rate, expected dividend yield and forfeiture rates. The grant-date fair value of restricted stock units with a service 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. 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 2018, fiscal 2017 and fiscal 2016 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 Weighted-average expected dividend yield 2019 2018 2017 454 $107.11 $23.29 26.4 % 5.0 2.4 % 2.0 % 603 $90.98 $20.82 27.7 % 5.0 2.6 % 2.1 % 1,480 $82.99 $17.12 26.4 % 5.1 2.1 % 2.2 % Expected volatility — The Company is responsible for estimating volatility and has considered a number of factors, ff 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. 70 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Expected term — The Company uses historical employee exercise and option expiration data to estimate the expected term assumption for the Black-Scholes grant-date valuation. The Company believes that this historical data is currently the best estimate of the expected term of a new option, and that generally its employees exhibit similar exercise behavior. Risk-free interest rate — The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term assumption is used as the risk-free interest rate. Expected dividend yield — Expected dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors for the current quarter and dividing that result by the closing stock price on the date of grant. Until such time as the Company’s Board of Directors declares a cash dividend for an amount that is different from the current quarter’s cash dividend, the current dividend will be used in deriving this assumption. Cash dividends are not paid on options, restricted stock or restricted stock units. 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 x The amount of stock-based compensation expense recognized during a period is based on the value of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock-based award. Based on an analysis of its historical forfeitures, the Company has applied an annual forfeiture rate of 5.0% to all unvested stock-based awards as of November 2, 2019. 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 awards that vest. ff Total stock-based compensation expense recognized is as follows: Cost of sales Research and development Selling, marketing, general and administrative Special charges Total stock-based compensation expense 2019 2018 2017 $ $ 20,628 $ 75,305 51,829 2,538 150,300 $ 18,733 $ 81,444 50,988 — 151,165 $ 12,569 51,258 40,361 — 104,188 As of November 2, 2019 and November 3, 2018, the Company capitalized $6.8 million and $7.1 million, respectively, of stock-based compensation in inventory. ) Additional paid-in-capital (APIC)PP p p ( Pool The Company adopted ASU 2016-09 during fiscal 2018. ASU 2016-09 eliminated the APIC pool and requires that excess tax benefits and tax deficiencies be recorded in the income statement when awards are settled. As a result of this adoption the Company recorded total excess tax benefits of $28.7 million and $26.2 million in fiscal 2019 and fiscal 2018, respectively, from its stock-based compensation payments within income tax expense in its consolidated statements of income. For fiscal 2017, the APIC pool represented the excess tax benefits related to stock-based compensation that were available to absorb future tax deficiencies. If the amount of future tax deficiencies was greater than the available APIC pool, the Company recorded the excess as income tax expense in its consolidated statements of income. For fiscal 2017, the Company had a sufficient APIC pool to cover any tax deficiencies recorded and as a result, these deficiencies did not affect its results of operations. 71 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) y Stock-Based Compensation Activity p A summary of the activity under the Company’s stock option plans as of November 2, 2019 and changes during the fiscal year then ended is presented below: Options outstanding at November 3, 2018 Options granted Options exercised Options forfeited Options expired Options outstanding at November 2, 2019 Options exercisable at November 2, 2019 Options Outstanding (in thousands) Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Term in Years Aggregate Intrinsic Value 7,297 454 (2,364) (198) (6) 5,183 2,933 5,046 $58.42 $107.11 $49.67 $78.05 $21.97 $65.97 $55.23 $65.42 5.9 4.7 5.9 $224,945 $158,789 $221,766 Options vested or expected to vest at November 2, 2019 (1) _______________________________________ (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 the employee to exercise the options) during fiscal 2019, fiscal 2018 and fiscal 2017 was $132.3 million, $123.8 million and $144.6 million, respectively, and the total amount of proceeds received by the Company from exercise of these options during fiscal 2019, fiscal 2018 and fiscal 2017 was $116.5 million, $99.0 million and $133.3 million, respectively. A summary of the Company’s restricted stock unit award activity as of November 2, 2019 and changes during the fiscal year then ended is presented below: Restricted stock units/awards outstanding at November 3, 2018 Units/Awards granted Restrictions lapsed Forfeited Restricted stock units/awards outstanding at November 2, 2019 Stock Units/ Awards Outstanding (in thousands) Weighted- Average Grant- Date Fair Value Per Share 5,289 1,317 (1,896) (314) 4,396 $77.54 $98.82 $69.38 $80.44 $87.18 As of November 2, 2019, there was $318.3 million of total unrecognized compensation cost related to unvested stock- based awards comprised of stock options and restricted stock units. That cost is expected to be recognized over a weighted- average period of 1.4 years. The total grant-date fair value of shares that vested during fiscal 2019, fiscal 2018 and fiscal 2017 was approximately $150.6 million, $136.1 million and $114.8 million, respectively. Common Stock Repurchases p The Company’s share repurchase program has been in place since August 2004. In the aggregate, the Board of Directors has authorized the Company to repurchase $8.2 billion of the Company’s common stock under the program, which includes the $2.0 billion authorization approved by the Board of Directors on August 21, 2018. 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. In connection with the Acquisition, the Company temporarily suspended the share repurchase program. On August 21, 2018, the Company reinstated the share repurchase program and, as of November 2, 2019, the Company had repurchased a total of approximately 154.4 million shares of its common stock for approximately $6.1 billion under this program. An additional $2.1 billion remains available for repurchase of shares under the current authorized program. The repurchased shares are held as authorized but unissued shares of common stock. 72 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company also, from time to time, repurchases shares in settlement of employee 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. Preferred Stock f The Company has 471,934 authorized shares of $1.00 par value preferred stock, none of which is issued or outstanding. The Board of Directors is authorized to fix designations, relative rights, preferences and limitations on the preferred stock at the time of issuance. 4. Industry, Segment and Geographic Information The Company operates and tracks its results in one reportable segment based on the aggregation of eight operating segments. The Company designs, develops, manufactures and markets a broad range of integrated circuits (ICs). The Chief Executive Officer has been identified as the Company's Chief Operating Decision Maker. The Company has determined that all 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: a • The primary source of revenue for each operating segment is the sale of ICs. • The ICs 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 ICs 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. 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. Additionally, each operating segment is subject to the overall cyclical nature 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. Revenue Trends by End Market The following table summarizes revenue by end market. The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the "ship to" customer information and the end customer product or application into which the Company’s product will be incorporated. As data systems for capturing and tracking this data and the Company's methodology evolves and improves, the categorization of products by end market can vary over time. When this occurs, the Company reclassifies revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within each end market. 73 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 2019 2018 (1) 2017 (1) % of Total Revenue (2) % of Total Revenue (2) Revenue % of Total Revenue (2) Revenue Revenue Industrial Communications Automotive Consumer $ 3,003,927 50 % $ 3,129,569 50 % $ 2,324,686 1,284,087 933,143 769,908 21 % 16 % 13 % 1,151,359 1,009,927 933,834 18 % 16 % 15 % 908,594 758,115 1,254,959 Total Revenue _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to 5,991,065 5,246,354 6,224,689 100 % $ 100 % $ $ Consolidated Financial Statements. 44 % 17 % 14 % 24 % 100 % (2) The sum of the individual percentages may not equal the total duedd to rounding. Revenue by Sales Channel The following tables summarize revenue by channel. The Company sells its products globally through a direct sales force, third party distributors, independent sales representatives and via its website. Distributors are customers that buy products with the intention of reselling them. Direct customers are non-distributor customers and consist primarily of original equipment manufacturers (OEMs). Other customers include the U.S. government, government prime contractors and some commercial customers. 2019 2018 (1) 2017 (1) % of Total Revenue (2) Revenue % of Total Revenue (2) Revenue % of Total Revenue (2) Revenue Distributors $ 3,409,161 57 % $ 3,424,145 55 % $ 2,749,335 Direct customers Other Total Revenue _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to 42 % 1 % 100 % $ 2,721,885 78,659 6,224,689 2,424,514 72,505 5,246,354 2,506,065 75,839 5,991,065 44 % 1 % 100 % $ $ Consolidated Financial Statements. 52 % 46 % 1 % 100 % (2) The sum of the individual percentages may not equal the total duedd to rounding. Geographic Information Geographic revenue information ff for fiscal 2019, fiscal 2018 and fiscal 2017 reflects the geographic location of the distributors or OEMs who purchased the Company's products. This may differ from the geographic customers. In all periods presented, the predominant countries comprising “Rest of North and South America” are Canada and Mexico; the predominant countries comprising “Europe” are Germany, Sweden, and the Netherlands; and the predominant countries comprising “Rest of Asia” are Taiwan, Malaysia, South Korea and Singapore. location of the end a 74 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Revenue (1) United States Rest of North and South America Europe Japan China Rest of Asia Subtotal all foreign countries Total revenue Property, plant and equipment United States Ireland Philippines Singapore Malaysia All other countries Subtotal all foreign countries Total property, plant and equipment 2019 2018 2017 $ 2,020,886 $ 2,277,084 $ 2,110,545 55,059 1,374,673 657,632 1,316,275 566,540 3,970,179 5,991,065 592,591 184,791 247,823 88,385 56,292 50,107 627,398 1,219,989 $ $ $ 46,276 1,405,686 714,846 1,215,949 564,848 3,947,605 6,224,689 505,646 202,611 260,355 80,383 57,514 47,819 648,682 1,154,328 $ $ $ 48,620 1,164,725 586,521 898,645 437,298 3,135,809 5,246,354 504,968 188,728 228,629 77,015 71,756 36,208 602,336 1,107,304 $ $ $ _______________________________________ (1) Balances for fiscal 2018 and fiscal 2017 have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. 5. Special Charges The Company monitors global macroeconomic conditions on an ongoing basis and continues to assess opportunities for improved operational effectiveness and efficiency, as well as a better alignment of expenses with revenues. As a result of these assessments, the Company has undertaken various restructuring actions over the past several years. These actions are described below. The following table displays a roll-forward from October 29, 2016 to November 2, 2019 of the employee separation and exit cost accruals established related to these actions. Accrued Restructuring Balance at October 29, 2016 Fiscal 2017 special charges Severance payments Effect of foreign currency on accrual Balance at October 28, 2017 Fiscal 2018 special charges Severance payments Effect of foreign currency on accrual Balance at November 3, 2018 Fiscal 2019 special charges Severance payments Non-cash impairment charge Non-cash accelerated stock based compensation Effect of foreign currency on accrual Balance at November 2, 2019 Current - accrued liabilities Other non-current liabilities Closure of Manufacturing Facilities Reduction of Operating Costs Action Early Retirement Action Repositioning Action $ $ $ $ $ $ — $ — — — — $ $ 44,452 — (1,478) 42,974 7,556 — — — (129) 50,401 $ — $ 50,401 $ 75 $ $ $ 12,374 8,126 (15,764) 401 5,137 16,866 (16,785) 37 5,255 — (4,320) — — 5 940 940 $ $ — $ — $ 41,337 (9,126) — 32,211 $ — (22,314) — 9,897 $ — (5,314) — — — 4,583 $ 4,583 $ — $ — — — — — — — — — 88,103 (12,487) (14,167) (2,538) (16) 58,895 58,895 — ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Closure of Manufacturing Facilities The Company recorded special charges of $52.0 million on a cumulative basis through November 2, 2019 as a result of its decision to consolidate certain wafer and test facility operations acquired as part of the acquisition of Linear Technology Corporation (Linear). Over the next one to three years, the Company plans to close its Hillview wafer fabrication facility located in Milpitas, California and its Singapore test facility. The Company intends to transfer Hillview wafer fabrication production to its other internal facilities and to external foundries. In addition, the Company is planning to transition testing operations currently handled in its Singapore facility to its facilities in Penang, Malaysia and the Philippines, in addition to its outsourced assembly and test partners. The special charges include severance and fringe benefit costs, in accordance with the Company's ongoing benefit plan or statutory requirements at foreign locations and one-time termination benefits for approximately 1,100 manufacturing, engineering and SMG&A employees. These one-time termination benefits are being recognized over the future continue to be employed by the Company until their employment is terminated by the Company in order to receive the severance benefits. service period required for employees to earn these benefits. Employees included in this action must ff Reduction of Operating Costs Actions During fiscal 2018, the Company recorded special charges of approximately $16.9 million for severance and fringe benefit costs in accordance with the Company's ongoing benefit plan or statutory requirements at foreign locations for 126 manufacturing, engineering and SMG&A employees. 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. The Company terminated the employment of all employees associated with this action. Early Retirement Action During fiscal 2017, the Company initiated an early retirement action. 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 Company terminated the employment of all employees associated with this action. RRepositioning Action special hcharges fof $$88.1 recorded d d skill set to lialign i hwith hthe Company's llong-term kfworkforce kill benefit costs iin acc dordance illimillion, as a i l l fiscal 2019, hthe Company iDuring fi i i illimillion fof hthe lplan or statutory l reposition hthe Company's l b l global $$73.9 benefit benefit employees. As fof (SMG&A) ) ( hThese i employees must l receiive hthe severance b benefits. hThe fi pproperty ddue to hthe Company's d i i continue to bbe empll i i b total hcharges were ffor severance f l requirements ffor 464 dand f ifringe b i manufacturing, engii November 2, 2019, hthe Company ilstilll doyed bby hthe Company remaining $$14.2 i discontinue decision to di i llselliing, fi neering i employed 307 fof hthe 464 l their emplloyment iis i until h i il lrela dted to hthe illimillion fof hthe hcharges development stra l dproduct d dand d certain i l invol iwrite ff -off tegies. i l i i fof marketing, ge k i iatives to organizational i iiniti i result l l strategic lplan. Approximately i i ongoing i hwith ieithher thhe Company's i l neral admi i dand d i iaction. incl d duded iin hithis employees i dorder to l d il untarily termi inated iin llectual l acquired iintell i d i nistrative fof l 6. Acquisitions Linear Technology 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. The results of operations of Linear from the Acquisition Date are included in the Company’s consolidated statements of income, consolidated balance sheets, consolidated statements 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. 76 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Acquisition Date fair value of the consideration transferred in the Acquisition consisted of the following: Cash consideration (1) Issuance of common stock (2) Fair value of replacement stock-based and cash awards (3) $ 11,092,047 4,593,655 70,954 Total estimated purchase consideration _______________________________________ (1) 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 (as defined in Note 14, 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. 15,756,656 $ (2) 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 (3) $82.20 (the closing price of the Company's common stock on The Nasdaq Global Select Market on the acquisition Date). 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. During fiscal 2018, the Company completed the acquisition accounting for the Acquisition. The following is a summary of the amounts recognized in accounting for the Acquisition: Cash and cash equivalents Marketable securities Accounts receivable (1) Inventories Prepaid expenses and other assets Property, plant and equipment Intangible assets (Note 2f) Goodwill (Note 2f) Total assets Assumed liabilities Deferred tax liabilities $ 1,466,445 100,246 143,542 461,695 14,782 462,285 5,157,300 10,533,919 18,340,214 190,925 2,392,633 15,756,656 Total estimated purchase consideration _______________________________________ (1) The fair value of accounts receivable was $143.5 million, with the gross contractual amount being $145.2 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 Fair Value 1,046,100 72,200 4,039,000 5,157,300 $ $ Weighted Average Useful Lives (in Years) 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 did 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 contingent obligations assumed as part of the Acquisition. The Company recognized $47.5 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 within SMG&A expenses. 77 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following unaudited pro forma consolidated financial information combines the unaudited results of the Company for ff has been calculated after applying the Company’s accounting policies and includes 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 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 stock-based compensation arrangements replaced and interest expense for the debt incurred to fund the Acquisition, together with the consequential tax effects. These 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. Revenue Pro Forma Twelve Months Ended October 28, 2017 (1) $ 5,832,412 Net income Basic net income per common share Diluted net income per common share _______________________________________ (1) Balances have been restated to reflect the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with 1,133,097 3.07 3.03 $ $ $ Customers (ASU 2014-09). See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. Other Acquisitions The Company has not provided pro forma results of operations for any other acquisitions completed in fiscal 2019, fiscal 2018 or fiscal 2017 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 statements of income fromff acquisition. the date of each 7. Other Investments Other investments consist of interests in venture capital funds and other long-term investments. Investments are accounted for using the equity method of accounting or cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Realized gains and losses are reflected in nonoperating (income) expense based upon the Company's ownership share of the investee's financial results. The Company recognized other-than-temporary impairments of $6.6 million and $5.0 million in fiscal 2019 and fiscal 2017, respectively. These charges were recorded in the consolidated statements of income in other, net, within non-operating (income) expense. There were no other-than-temporary impairments recognized in fiscal 2018. There were no material net realized or unrealized gains or losses from other investments during fiscal 2019, fiscal 2018 and fiscal 2017. 8. Accrued Liabilities Accrued liabilities at November 2, 2019 and November 3, 2018 consisted of the following: 2019 2018 (1) Distributor price adjustments and other revenue reserves $ 227,020 $ Accrued compensation and benefits Interest rate swap Accrued interest Accrued restructuring Other Total accrued liabilities 168,471 138,798 61,255 64,418 135,854 $ 795,816 $ 144,887 254,932 — 64,974 15,152 150,162 630,107 _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. 78 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 9. Lease Commitments The Company leases certain land, 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 $92.3 million in fiscal taxes, insurance and maintenance costs. Total rental expense under operating leases was approximately 2019, $84.9 million in fiscal 2018 and $58.8 million in fiscal 2017. a The following is a schedule of future ff minimum rental payments required under long-term operating leases at November 2, 2019: Fiscal Years 2020 2021 2022 2023 2024 Later Years Total Operating Leases 79,789 67,993 40,338 37,673 32,757 190,171 448,721 $ $ 10. 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, among other things, contractual matters, patents, trademarks, personal injury, environmental matters, product liability, insurance coverage, employment or employment benefits. As to such claims and litigation, the Company can give no assurance that it will prevail. The Company does not believe that any current legal matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. 11. Retirement Plans The Company and its subsidiaries have various savings and retirement plans covering substantially all employees. Defined Contribution Plans The Company maintains a defined contribution plan for the benefit of its eligible U.S. employees. This plan provides for Company contributions of up to 5% of each participant’s total eligible compensation. In addition, the Company contributes an amount equal to each participant’s pre-tax contribution, if any, up to a maximum of 3% of each participant’s total eligible compensation. The total expense related to the defined contribution plans for U.S. employees was $47.7 million in fiscal 2019, $41.4 million in fiscal 2018 and $35.8 million in fiscal 2017. Non-Qualified Deferred Compensation Plan The Deferred Compensation Plan (DCP) 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 DCP was established to provide participants with the opportunity to defer receiving all or a portion of their compensation, which includes salary, bonus, commissions and director fees. Under the DCP, the Company provides all participants (other than non-employee directors) with Company contributions equal to 8% of eligible deferred contributions. The DCP is a non-qualified plan that is maintained in a rabbi trust. The fair value of the investments held in the rabbi trust are presented separately as deferred compensation plan investments, with the current portion of the investment included in prepaid expenses and other current assets in the consolidated balance sheets. See Note 2j, Fair Value, for further information on these investments. The deferred compensation obligation represents DCP participant accumulated deferrals and earnings thereon since the inception of the DCP net of withdrawals. The deferred compensation obligation is presented separately as deferred compensation plan liability, with the current portion of the obligation in accrued liabilities in the consolidated balance sheets. The Company’s liability under the DCP is an unsecured general obligation of the Company. 79 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Defined Benefit Pension Plans 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 was $35.8 million in fiscal 2019, $36.3 million in fiscal 2018 and $33.0 million in fiscal 2017. The Company’s funding policy forff 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 November 2, 2019 for fiscal 2019 and November 3, 2018 for fiscal 2018. Components of Net Periodic Benefit Cost Net annual periodic pension cost of non-U.S. plans for fiscal 2019, fiscal 2018 and fiscal 2017 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 t Net periodic pension cos 2019 2018 2017 $ $ 5,578 4,079 (5,279) 3 — 1,000 5,381 $ $ 6,891 3,984 (4,559) 1 10 1,621 7,948 $ $ 6,688 3,581 (4,086) (9) 14 1,865 8,053 80 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company adopted ASU 2017-07 the first quarter of fiscal 2019. The service cost component of net periodic benefit cost above is recorded in Cost of sales, Research and development, Selling, marketing, general and administrate expenses within the consolidated statements of income, while the remaining components are recorded to Other, net. The prior year amounts have been reclassified to provide comparable presentation in line with the guidance in ASU 2017-07 based on amounts previously disclosed for the various components of net periodic pension cost. Benefit Obligations i and Plan Assets Obligation and asset data of the Company’s non-U.S. plans at November 2, 2019 and November 3, 2018 is presented in the following table: Change in Benefit Obligation Benefit obligation at beginning of year Service cost Interest cost Actuarial loss (gain) Benefits paid Exchange rate adjustment Benefit obligation at end of year Change in Plan Assets Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid Exchange rate adjustment Fair value of plan assets at end of year Reconciliation of Funded Status Funded status Amounts Recognized in the Balance Sheet Non-current assets Current liabilities Non-current liabilities Net amount recognized 2019 2018 $ 123,538 $ 139,516 5,578 4,079 38,210 (3,053) 1,296 169,648 84,655 12,389 4,177 (3,053) 1,771 99,939 $ $ $ 6,891 3,984 (20,406) (4,301) (2,146) 123,538 79,616 (2,626) 13,793 (4,301) (1,827) 84,655 (69,709) $ (38,883) — $ (846) (68,863) (69,709) $ 6,569 (767) (44,685) (38,883) $ $ $ $ $ $ 81 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Reconciliation of Amounts Recognized in the Statement of Financial Position 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 (Loss) Changes in plan assets and benefit obligations recognized in other comprehensive income (loss) Net loss (gain) arising during the year Effect of exchange rates on amounts included in AOCI Amounts recognized as a component of net periodic benefit cost Amortization, settlement or curtailment recognition of net transition obligation Amortization or curtailment recognition of prior service credit (cost) Amortization or settlement recognition of net loss Total recognized in other comprehensive loss Total recognized in net periodic cost and other comprehensive loss Estimated amounts that will be amortized from AOCI over the next fiscal year Prior service credit Net loss Total 2019 2018 (44) (50,878) (50,922) (18,787) (69,709) $ (44) (20,800) (20,844) (18,039) (38,883) 31,100 $ (13,220) (18) (138) — — (1,004) 30,078 35,459 $ $ (2) (2,581) (2,583) $ (10) (1) (1,621) (14,990) (7,042) (2) (1,015) (1,017) $ $ $ $ $ The accumulated benefit obligation for non-U.S. pension plans was $138.1 million and $105.8 million at November 2, 2019 and November 3, 2018, 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 November 2, 2019 and November 3, 2018 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 2019 2018 $ $ $ $ $ 169,648 99,939 61,019 54,318 1,305 $ $ $ $ $ 46,626 1,174 46,626 41,701 1,174 82 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Assumptions The range of assumptions used for the non-U.S. defined benefit plans reflects the different economic environments within the various countries as well as the differences in the attributes of the participants. The projected benefit obligation was determined using the following weighted-average assumptions: Discount rate Rate of increase in compensation levels 2019 2018 2.45 % 3.38 % .53 % 3 3.26 % Net annual periodic pension cost was determined using the following weighted average assumptions: Discount rate Expected long-term return on plan assets s Rate of increase in compensation level 2019 2018 3.53 6.16 % % .26 3 % 3 .02 % .54 % 5 .18 % 3 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 conjun nction with its actuaries, reviewed anticipated future long-term performance of individualdd asset categories and considered the asset allocation strategy adopted by the Company and/or the trustees of the plans. While the review considered recent fund performance and historical returns, the assumption is primarily a long-term prospective rate. The Company’s investment strategy is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, in order to maximize the return on assets, a majority of assets are invested in equities. Investments within each asset class are diversified to reduce the impact of losses in single investments. The use of derivative instruments is permitted where appropriate and necessary to achieve overall investment policy objectives and asset class targets. The Company establishes strategic asset allocation percentage targets and appropriate benchmarks for each significant asset class to obtain a prudent balance between return and risk. The interaction between plan assets and benefit obligations is periodically studied by the Company and its actuarie s to assist in the establishment of strategic asset allocation targets. t Fair value of plan ff assets The following table presents plan assets measured at fair value on a recurring basis by investment categories as of November 2, 2019 and November 3, 2018 using the same three-level hierarchy described in Note 2j, Fair Value, of these Notes to Consolidated Financial Statements: November 2, 2019 Fair Value Measurement at Reporting Date Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) November 3, 2018 Fair Value Measurement at Reporting Date Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Total $ — $ 4,736 $ 4,736 $ — $ 2,549 $ 6,114 — 1,626 39,189 8,274 4 — 45,303 48,274 1,626 3,437 — 1,136 35,221 2,312 4 — Total 2,549 38,658 42,312 ,136 1 Unit trust funds(1) Equities(1) Fixed income securities(2) Cash and cash equivalents Total assets measured at fair value $ _______________________________________ 7,740 $ 92,199 $ 99,939 $ 4,573 $ 80,082 $ 84,655 (1) The majority of the assets in these categories are invested in a mix of equities, including those from North America, Europe and Asia. underlying investments is used to The funds are valued using the net asset value method in which an average of the market prices forff value the fund. Due to the nature of the underlying assets of these funds, changes in market conditions and the economic environment may significantly impact the net asset value of these investments and, consequently, the fair value of the investments. These investments are redeemable at net asset value to the extent provided in the documentation governing the investments. However, these redemption rights may be restricted in accordance with governing documents. Publicly traded securities are valued at the last trade or closing price reported in the active market in which the individual securities are traded. (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. 83 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Estimated future cash flows Expected fiscal 2020 Company contributions and estimated future benefit payments are as follows: Expected Company Contributions 2020 Expected Benefit Payments 2021 2022 2023 2024 2024 2025 through 2028 12. Income Taxes $ $ $ $ $ $ $ 7,565 3,027 2,316 2,899 3,363 3,363 25,159 The Tax Cuts and Jobs Act of 2017 (Tax Legislation), enacted on December 22, 2017, contains significant changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21.0%, implementing a territorial tax system, and imposing a one-time tax on deemed repatriated earnings of foreign subsidiaries. As a result, the Tax Legislation reduced the U.S. statutory tax rate from 35.0% to 21.0%, effective January 1, 2018, which results in a blended statutory income tax rate for the Company of 23.4% for fiscal 2018. The Company's effective tax rate reflects the applicable tax rate in effect in the various tax jurisdictions around the world where the Company's income is earned. The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense for fiscal 2019, fiscal 2018 and fiscal 2017 is as follows: 2019 2018 (1) 2017 (1) 21.0 % 23.4 % 35.0 % 312,003 $ 387,343 $ 327,161 (242,893) (31,265) 34,069 (50,769) 7,233 111,547 — (7,500) 19,782 (28,677) (420,756) 4,428 2,232 (33,602) (32,945) 213,198 — 56,608 — (26,237) (395,800) (7,239) (7,778) (16,475) (51,088) 159,466 109,040 — — — (813) 122,717 (1,935) 148,334 12,081 129,368 U.S. federal statutory tax rate Income tax provision reconciliation: Tax at statutory rate: Net foreign income subject to lower tax rate State income taxes, net of federal benefit Valuation allowance Federal research and development tax credits Change in uncertain tax positions Amortization of purchased intangibles Acquisition and integration costs Taxes attributable to the Tax Cuts and Jobs Act of 2017 U.S. effects of international operations Windfalls (under ASU 2016-09) Other, net Consolidated Financial Statements. 84 Total income tax provision _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to $ $ $ ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Income before income taxes for fiscal 2019, fiscal 2018 and fiscal 2017 includes the following components: Domestic Foreign 2019 2018 (1) 2017 (1) $ 484,876 $ 615,238 $ 161,248 1,000,852 1,485,728 1,040,076 1,655,314 773,499 934,747 Income before income taxes _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to $ $ $ Consolidated Financial Statements. The components of the provision for income taxes for fiscal 2019, fiscal 2018 and fiscal 2017 are as follows: Current: Federal tax State Foreign Total current Deferred: Federal State Foreign Total deferre d Provision for income tax 2019 2018 (1) 2017 (1) 74,049 $ 824,848 $ 2 139,919 213,970 $ 6,043 47,819 878,710 $ 868,051 8,594 63,121 939,766 (158,472) $ (3,627) 70,846 (91,253) $ (738,163) $ 1,092 6,695 (730,376) $ (780,310) (23,982) (6,106) (810,398) 122,717 $ 148,334 $ 129,368 $ $ $ $ $ _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. In fiscal 2018, the Company recorded a $637.0 million tax benefit for the re-measurement of deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21.0%. In addition, in fiscal 2018, the Company recorded a provisional tax expense amount for the one-time transition tax of $691.0 million, which is comprised of the $755.0 million transition tax liability years. In the first quarter of fiscal 2019, the Company completed its accounting for the income tax effects of the Tax Legislation, in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 and adjusted its provisional net charge by recording an additional tax benefit of $7.5 million for a change to its estimate for the transition tax due to the finalization of the aggregate foreign cash positions. less a deferred tax liability of $64.0 million that was recorded in prior a Additionally, the Tax Legislation subjects a U.S. shareholder to tax on global intangible low-taxed income (GILTI). Under U.S. GAAP, an accounting policy election can be made to either treat taxes due on the GILTI inclusion as a current period expense or to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years. The Company elected the deferral method and recorded the corresponding GILTI deferred tax assets and liabilities on its consolidated balance sheets. The Company carries other outside basis differences in its subsidiaries, primarily arising from purchase accounting adjustments and undistributed earnings that are considered indefinitely reinvested. As of November 2, 2019, the Company has not recognized deferred income tax on $22.8 billion of outside basis differences because of its intent and ability to indefinitely reinvest these basis differences. These basis differences could be reversed through a sale of the subsidiaries or the receipt of dividends from the subsidiaries, as well as various other events, none of which are considered probable at this time. Determination of the amount of unrecognized deferred income tax liability related to these outside basis differences is not practicable. The Company adopted ASU 2016-16 in the first quarter of fiscal 2019 using the modified retrospective method with a The adoption of ASU 2016-16 resulted in a net cumulative-effect cumulative-effect adjustment directly to retained earnings. adjustment that resulted in an increase in retained earnings of $331.0 million, by recording new deferred tax assets from intra- entity transfers involving assets other than inventory, partially offset by a U.S. deferred tax liability related to GILTI. Adoption of the standard resulted in an increase in long-term deferred tax assets of $1.7 billion and an increase in long-term deferred tax liabilities of $1.3 billion. r 85 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The significant components of the Company’s deferred tax assets and liabilities for fiscal 2019 and fiscal 2018 are as follows: Deferred tax assets: Inventory reserves Reserves for compensation and benefits Tax credit carryovers Stock-based compensation Net operating losses Intra-entity transfer of intangible assets Other Total gross deferred tax assets Valuation allowance Total deferred tax assets Deferred tax liabilities: Depreciation Deferred GILTI tax liabilities Acquisition-related intangible Other Total gross deferred tax liabilities Net deferred tax liabilities a 2019 2018 (1) $ 21,081 $ 53,090 133,485 63,589 5,299 1,567,536 70,974 1,915,054 (116,349) 1,798,705 (38,464) (1,254,029) (1,012,042) — (2,304,535) $ (505,830) $ 22,184 39,185 112,851 53,105 5,997 — 36,898 270,220 (82,280) 187,940 (37,023) — (1,129,747) ( 1,914) (1,168,684) (980,744) _______________________________________ (1) Balances have been restated to reflect the adoption of ASU 2014-09. See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements. The valuation allowances of $116.3 million and $82.3 million at November 2, 2019 and November 3, 2018, respectively, are valuation allowances primarily for the Company’s state credit carryforwards. 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 partial valuation allowance. The state credit carryover of $133.5 million will begin to expire in 2020. As of November 2, 2019 and November 3, 2018, the Company had gross unrealized tax benefits of $34.3 million and $13.3 million, respectively, which if settled in the Company's favor, would lower the Company's effective tax rate in the period recorded. Liabilities for uncertain tax benefits are classified as non-current because the Company believes that the ultimate payment or settlement of these liabilitie November 3, 2018, the Company had a liability of approximately $4.7 million and $3.5 million, respectively, for interest and penalties, which is included within the provision for taxes in the consolidated statements of income. The consolidated statements of income for fiscal year 2019, fiscal 2018 and fiscal 2017 include $1.5 million, $7.3 million and $12.3 million, respectively, of interest and penalties related to these uncertain tax positions. s may not occur within the next twelve months. As of November 2, 2019 and a 86 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table summarizes the changes in the total amounts of unrealized tax benefits for fiscal 2017 through fiscal 2019: Unrealized Tax Benefits 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 a of applicable statute of limitations Balance, October 28, 2017 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 a Balance, November 3, 2018 Additions for tax positions related to current year Additions for tax positions related to prior years Reductions due to lapse Balance, November 2, 2019 a of applicable statute of limitations $ $ $ $ 68,535 1,742 12,332 (43,186) (1,566) 37,857 1,334 (295) (25,640) 13,256 3,398 18,613 (924) 34,343 In fiscal 2017 the Company released a reserve of $50.5 million, which was comprised of the $41.7 million in accrued tax and $8.8 million of accrued net interest dued 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. to favorable settlement with the U.S. Tax Court. The settled issue pertained to In fiscal 2018, the Company released reserves of $18.1 million relating to certain international transfer pricing matters, $4.2 million relating to worthless stock deductions and $3.3 million relating to other releases in fiscal year 2013 due to the lapse of the statute of limitations. With accrued interest of $9.9 million, the released reserves totaled $35.5 million. In fiscal 2019, the Company has reflected an unrealized tax benefit related to a refund claim of $11.4 million on a recently filed amended tax return that is currently being reviewed by the Joint Committee on Taxation. The Company has numerous audits ongoing at any time throughout the world including: an Internal Revenue Service income tax audit for Linear’s pre-acquisition fiscal years 2015, 2016, and 2017; various U.S. state and local tax audits; and international audits, including the transfer pricing audit in Ireland discussed below. Except for the Linear pre-acquisition audit years, the Company’s U.S. federal tax returns prior to fiscal year ended October 29, 2016 are no longer subject to examination. The Company’s Ireland tax returns prior to fiscal year ended November 2, 2013 are no longer subject to examination. During the fourth quarter of fiscal 2018, the Company’s Irish tax resident subsidiary received an assessment for fiscal 2013 of approximately €43.0 million, or $48.0 million (as of November 2, 2019), from the Irish Revenue Commissioners (Irish Revenue). This assessment excludes any penalties and interest. The assessment claims that the Company’s Irish entity failed to conform to 2010 OECD Transfer Pricing Guidelines. The Company strongly disagrees with the assessment and maintains that its transfer pricing is appropriate. Therefore, the Company has not recorded any additional tax liability related to fiscal 2013 or any other periods. The Company intends to vigorously defend its originally filed tax return position and is currently preparing for an appeal with the Irish Tax Appeals Commission, which is the normal process for the resolution of differences between Irish Revenue and taxpayers. If Irish Revenue were ultimately to prevail with respect to its assessment for fiscal 2013, such assessment and any potential impact related to years subsequent to 2013 could have a material unfavorable impact on the Company's income tax expense and net earnings in future periods. During the first quarter of fiscal 2019, Irish Revenue commenced transfer pricing audits of the fiscal years ended November 1, 2014; October 31, 2015; October 29, 2016; and October 28, 2017. During the fourth quarter of fiscal 2019, the Company received confirmation from Irish Revenue that the audit relating to the period ended November 1, 2014 was complete and that no further tax assessment arose in respect of that period. The audits related to fiscal 2015, fiscal 2016 and fiscal 2017 are on-going. The Company has a partial tax holiday in Malaysia whereby the local statutory rate is significantly reduced, if certain conditions are met. The tax holiday for Malaysia is effective through July 2025. A partial tax holiday in Singapore was a terminated in September 2018 through negotiations with the Economic Development Board. The impact of the Singapore and 87 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Malaysia tax holidays increased net income by approximately $14.9 million, $27.7 million and $27.4 million in fiscal 2019, fiscal 2018 and fiscal 2017, respectively, resulting in increases in basic and diluted net income per common share by $0.04, $0.07 and $0.08 in fiscal 2019, fiscal 2018 and fiscal 2017, respectively. 13. Revolving Credit Facility On June 28, 2019, the Company entered into a second amended and restated revolving credit agreement with certain institutional lenders that expires on June 28, 2024. The agreement for such revolving credit facility (Revolving Credit Agreement), which further amended and restated our amended and restated revolving credit agreement dated as of September 23, 2016, provides for a five year unsecured revolving credit facility in an aggregate principal amount of up to $1.25 billion. As of November 2, 2019. the Company had no outstanding borrowings under this revolving credit facility but may borrow in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes. Loans under the Revolving Credit Agreement can be Eurocurrency Rate Loans or Base Rate Loans at the Company's option. Each Eurocurrency Loan will bear interest at a rate per annum equal to the Eurocurrency Rate plus a margin based on the Company's debt ratings from time to time of between 0.690% and 1.375%. Each Base Rate Loan will bear interest at a rate per annum equal to the Base Rate plus a margin based on our debt ratings from time to time of between 0.000% and 0.375%. The Revolving 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 greater than 4.0 to 1.0. The debt covenant will be reduced over time to 3.5 to 1.0, beginning in fiscal 2020 depending on facts and circumstances. As of November 2, 2019, the Company was compliant with these covenants. 14. 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 $493.9 million, 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 November 2, 2019, 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. 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 $1.2 billion, after discount and issuance costs. Debt 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 November 2, 2019, 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. 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 formff 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, 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. Total feff es 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 88 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) quarter of fiscal 2017, the Company repaid all of the $4.1 billion of outstanding loans under the Bridge Credit Agreement. Total 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 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 (2016 Term Loan Agreement). On the Acquisition Date, the Company borrowed under the 2016 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. The 5-year term loan required 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 could be made at any time without penalty. The term loans bore 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 2016 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 amortized them to expense pro-rata over the term of the instrument, accelerating proportionally with any prepayment. During fiscal 2017, fiscal 2018 and fiscal 2019, the Company made various payments on both the 3-year and 5- year term loans. During fiscal 2019, the Company repaid these 3-year and 5-year term loans in full. 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 $2.1 billion, after discount and issuance costs. Debt discount and issuance costs will be amortized through interest expense over the term of the Notes. The Notes were issued pursuant to an indenture, supplemented by a supplemental indenture, and the indenture and supplemental indenture contain certain covenants, events of default and other customary provisions. As of November 2, 2019, 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. as t On March 12, 2018, in an underwritten public offering,, the Company issued $300.0 million aggregate principal amount of 2.850% senior unsecured notes due March 12, 2020 (the 2020 Notes) and $450.0 million aggregate principal amount of 2.950% senior unsecured notes due January 12, 2021 (the January 2021 Notes and, together with the 2020 Notes, the 2018 Note Offerings). Interest on the 2020 Notes is payable on March 12 and September 12 of each year, beginning on September 12, 2018. Interest on the January 2021 Notes is payable on January 12 and July 12 of each year, beginning on July 12, 2018. The net proceeds of the offering were $743.8 million, after discount and issuance costs, which were used to repay a portion of the Company’s outstanding 5-year term loan. Debt discount and issuance costs will be amortized through interest expense over the term of the 2018 Note Offerings. At any time prior to the applicable maturity date of the 2018 Note Offerings, the Company may, at its option, redeem some or all of the applicable series of the 2018 Note Offerings by paying a make-whole premium, plus accrued and unpaid interest, if any, to the date of redemption. The 2018 Note Offerings are unsecured and rank equally in right of payment with all of the Company’s other unsecured senior indebtedness. The 2018 Note Offerings 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 November 2, 2019, the Company was in compliance with these covenants. a On June 28, 2019, the Company entered into a term loan credit agreement (Term Loan Agreement) with the Company as the borrower and JPMorgan Chase Bank, N.A. as administrative agent and the other banks identified therein as lenders, under which the Company borrowed unsecured term loans in the aggregate principal amount of $1.25 billion, maturing on March 10, 2022. Loans under the term loan credit agreement bear interest, at the Company’s option, at either a rate equal to (a) the Adjusted LIBO Rate (as defined in the Term Loan Agreement) plus a margin based on the Company’s debt rating or (b) the Base Rate (defined as the highest of (i) the prime rate, (ii) the NYFRB Rate (as defined in the Term Loan Agreement) plus 0.50%, and (iii) one month Adjusted LIBO Rate plus 1.00%) plus a margin based on the Company’s debt rating. The Term Loan Agreement contains customary representations and warranties, affirmative and negative covenants and events of default applicable to the Company and its subsidiaries. The events of default include, among others, nonpayment of principal, interest, fees or other amounts, failure to perform certain covenants, cross-defaults to certain other indebtedness, insolvency or bankruptcy, customary ERISA defaults or the occurrence of a change of control. The negative covenants include limitations on 89 ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) liens, indebtedness of non-guarantor subsidiaries and mergers and other fundamental changes, among others. The Term Loan Agreement also requires the Company to maintain a consolidated leverage ratio of total consolidated funded debt to consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization) for a trailing twelve-month period of not greater than 4.0 to 1.0. The covenant will be reduced to 3.5 to 1.0 beginning in fiscal year 2020, assuming the Company does not undertake any significant acquisitions, mergers, and other fundamental changes. Should such a change occur, the Company may be authorized to increase the covenant back to 4.0 to 1.0. As of November 2, 2019, the Company was compliant with these covenants. In fiscal 2019, the Company made principal payments on the term loans in the amount of $325.0 million. These amounts were not contractually dued under the terms of the term loan credit agreement. The Company’s debt consisted of the following as of November 2, 2019 and November 3, 2018: November 2, 2019 November 3, 2018 Principal Unamortized discount and debt issuance costs Principal Unamortized discount and debt issuance costs 3-Year term loan, due March 2022 3-Year term loan, due March 2020 5-Year term loan, due March 2022 2020 Notes, due March 2020 2021 Notes, due January 2021 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 $ 925,000 $ — $ — $ — — — 450,000 400,000 500,000 550,000 850,000 900,000 250,000 400,000 — — — 1,819 1,918 2,200 3,619 5,382 9,086 3,576 5,148 358,000 1,350,000 300,000 450,000 400,000 500,000 550,000 850,000 900,000 250,000 400,000 Total Long-Term Debt 2020 Notes, due March 2020 3-Year term loan, due March 2020, current Total Current Debt Total Debt $ $ $ 5,225,000 300,000 — 300,000 5,525,000 $ $ $ 32,748 333 — 333 33,081 $ $ $ 6,308,000 — 67,000 67,000 6,375,000 $ $ $ — 318 1,503 1,273 3,344 2,830 2,813 4,499 6,262 10,361 3,778 5,345 42,326 — — — 42,326 15. Subsequent Events On November 25, 2019, the Board of Directors of the Company declared a cash dividend of $0.54 per outstanding share of common stock. The dividend will be paid on December 17, 2019 to all shareholders of record at the close of business on December 6, 2019. 90 ANALOG DEVICES, INC. SUPPLEMENTARY FINANCIAL INFORMATION (Unaudited) (thousands, except per share amounts) 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 2019 is a 52-week fiscal year. Fiscal 2018 was a 53-week fiscal year. The Company's interim periods operate 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 additional week in fiscal 2018 was included in the first quarter ended February 3, 2018. Therefore, fiscal 2018 included an additional week of operations as compared to fiscal 2019. Revenue Cost of sales Gross margin % of Revenue Research and development Selling, marketing, general and administrative Special charges (2) Amortization of intangibles Total operating expenses Operating income % of Revenue Nonoperating (income) expenses: Interest expense Interest income Other, net Total nonoperating (income) expense Income before income taxes % of Revenue 4Q19 3Q19 2Q19 1Q19 4Q18 (1) 3Q18 (1) 2Q18 (1) 1Q18 (1) $ 1,443,219 $ 1,480,143 $1,526,602 $1,541,101 $ 1,536,128 $1,558,189 $1,563,502 $1,566,870 501,028 942,191 482,332 492,510 501,445 490,585 497,557 491,038 495,113 997,811 1,034,092 1,039,656 1,045,543 1,060,632 1,072,464 1,071,757 65.3 % 7.4 6 % 7.7 6 % 7.5 6 % 8.1 6 % 8.1 6 % 8.6 % 6 68.4 % 277,018 280,102 285,846 287,382 295,609 291,551 289,381 288,506 154,799 162,825 163,128 167,342 175,296 171,388 172,047 176,809 64,788 107,225 603,830 338,361 927 107,231 551,085 446,726 8,162 107,261 564,397 469,695 21,782 107,324 583,830 455,826 1,842 107,345 580,092 465,451 1,069 107,409 571,417 489,215 1,089 107,129 569,646 502,818 57,318 107,019 629,652 442,105 23 % 0 % 3 31 % 0 % 3 30 % 1 % 3 32 % 28 % 50,775 (1,988) 1,747 59,871 59,701 58,728 59,102 61,665 64,792 68,030 (2,625) (2,928) (2,688) (2,791) (2,588) (1,912) (2,092) (78) 4,525 (160) (196) (368) (187) 820 50,534 57,168 61,298 55,880 56,115 58,709 62,693 66,758 287,827 389,558 408,397 399,946 409,336 430,506 440,125 375,347 Provision for income taxes (3) 10,133 27,184 40,460 44,940 20 % 6 % 2 27 % 6 % 2 27 % 4,481 8 % 2 28 % 24 % 21,949 39,797 82,107 Net income % of Revenue $ 277,694 $ 362,374 $ 367,937 $ 355,006 $ 404,855 $ 408,557 $ 400,328 $ 293,240 19 % 4 % 2 24 % 3 % 2 26 % 6 % 2 26 % 19 % Net income allocable to common shares (4) Basic earnings per common share Diluted earnings per common share $ $ $ 277,182 0.75 0.74 $ $ $ 361,562 $ 367,029 $ 353,969 0.98 0.97 $ $ 0.99 0.98 $ $ 0.96 0.95 $ $ $ 403,511 $ 407,031 $ 398,796 $ 291,997 1.09 1.08 $ $ 1.10 1.08 $ $ 1.08 1.06 $ $ 0.79 0.78 Shares used to compute earnings per share (in thousands): Basic Diluted 369,051 372,584 369,533 373,077 369,246 373,342 368,703 372,506 371,074 375,116 371,315 375,815 370,384 374,778 369,093 374,189 Dividends declared per share 0.54 _______________________________________ (1) Balances have been restated to reflect the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with 0.48 0.48 0.54 0.54 0.48 0.48 $ $ $ $ $ $ $ $ 0.45 Customers (ASU 2014-09). See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. (2) Represents charges recorded for various restructuring actions. See Note 5, Special Charges, of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. (3) See Note 12, Income Taxes, of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. (4) Under the two-class method, earnings per share is calculated using net earnings allocable to common shares, which is derived by reducing net income by the income allocable to participating securities. 91 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive tiveness of Analog’s disclosure controls and procedures as of Officer and Chief Financial Officer, evaluated the effecff November 2, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of November 2, 2019, our Chief Executive Officer and Chief Financial tive at the reasonable assurance level. Officer concluded that, as of such date, our disclosure controls and procedures were effecff (b) Management’s Report on Internal Control Over Financial Reporting. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: • • • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of November 2, 2019. 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. Based on this assessment, our management concluded that, as of November 2, 2019, our internal control over financial reporting is effective based on those criteria. Our independent registered public accounting firm that audited the financial statements included in this annual report has issued an attestation report on our internal control over financial reporting. This report appears below. 92 (c) Attestation Report of the Registered Public Accounting Firm REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Analog Devices, Inc. Opinion on Internal Control over Financial Reporting We have audited Analog Devices, Inc.’s internal control over financial reporting as of November 2, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Analog Devices, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of November 2, 2019, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Analog Devices, Inc. as of November 2, 2019 and November 3, 2018, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended November 2, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated November 26, 2019 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Boston, Massachusetts November 26, 2019 93 (d) Changes in Internal Controls over Financial Reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the fiscal quarter ended November 2, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION Not applicable. 94 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE PART 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 2020 proxy statement to be filed with the U.S. Securities and Exchange Commission (the SEC) within 120 days after November 2, 2019 and is incorporated herein by reference. Information required by this item relating to our executive officers is contained under the caption 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 2020 proxy statement to be filed with the SEC within 120 days after November 2, 2019 and is incorporated herein by reference. “EXECUTIVE OFFICERS OF THE REGISTRANT” in Part I a a We have adopted a written code of business conduct and ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and have posted it in the Corporate Governance section of our website which is located at www.analog.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. . To the extent permitted by Nasdaq and SEC g During fiscal 2019, we made no material change to the procedures by which shareholders may recommend nominees to our Board of Directors, as described in our 2019 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 2020 proxy statement to be filed with the SEC within 120 days after November 2, 2019 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information required by this item is contained under the captions “Corporate Governance — Director Compensation” and “Information About Executive Compensation” in our 2020 proxy statement to be filed with the SEC within 120 days after November 2, 2019 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information required by this item relating to security ownership of certain beneficial owners and management is a contained under the caption “Security Ownership of Certain Beneficial Owners and Management” in our 2020 proxy statement to be filed with the SEC within 120 days after November 2, 2019 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 2020 proxy statement to be filed with the SEC within 120 days after November 2, 2019 and is incorporated herein by reference. a ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 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 2020 proxy statement to be filed with the SEC within 120 days after November 2, 2019 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 2020 proxy statement to be filed with the SEC within 120 days after November 2, 2019 and is incorporated herein by reference. ITEM 14. PRINCIPAL 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 2020 proxy statement to be filed with the SEC within 120 days after November 2, 2019 and is incorporated herein by reference. 95 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following are filed as part of this Annual Report on Form 10-K: 1. Financial Statements The following consolidated financial statements are included in Item 8 of this Annual Report on Form 10-K: — Consolidated Statements of Income for the years ended November 2, 2019, November 3, 2018 and October 28, 2017 — Consolidated Statements of Comprehensive Income for the years ended November 2, 2019, November 3, 2018 and October 28, 2017 — Consolidated Balance Sheets as of November 2, 2019 and November 3, 2018 — Consolidated Statements of Shareholders’ Equity forff the years ended November 2, 2019, November 3, 2018 and October 28, 2017 — Consolidated Statements of Cash Flows for the years ended November 2, 2019, November 3, 2018 and October 28, 2017 2. Financial Statement Schedules Schedule II — Valuation and Qualifying Accounts All other schedules have been omitted since the required information is not present, or not present in amounts sufficient to require submission of the schedule or because the information required is included in the Consolidated Financial Statements or the Notes thereto. 3. Exhibits Exhibit No. 2.1 3.1 3.2 3.3 4.1 4.2 4.3 4.4 4.5 Description Agreement and Plan of Merger, dated as of July 26, 2016, by and among Analog Devices, Inc., Linear Technology Corporation and Agreement and Plan of Merger, dated as of July 26, 2016, by and among Analog Devices, Inc., Linear Technology Corporation and Tahoe Acquisition Corp. Acquisition Corp., filedff as exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 1-7819) as filed with the Commission on July 29, 2016 and incorporated herein by reference. Restated Articles of Organization of Analog Devices, Inc., as amended, filedff 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., filedff Current Report on Form 8-K (File No. 1-7819) as filed with the Commission on December 8, 2008 and incorporated herein by reference. as exhibit 3.1 to the Company's Amended and Restated By-Laws of Analog Devices, Inc., filedff 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 17, 2018 and incorporated herein by reference. Indenture, dated as of June 3, 2013, by and between Analog Devices, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, filedff as exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 1-7819) as filed with the Commission on June 3, 2013 and incorporated herein by reference. Supplemental Indenture, dated as of June 3, 2013, by and between Analog Devices, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, filed (File No. 1-7819) as filed with the Commission on June 3, 2013 and incorporated herein by reference. as exhibit 4.2 to the Company's Current Report on Form 8-K ff Supplemental Indenture, dated December 14, 2015, between Analog Devices, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, filedff No. 1-7819) as filed with the Commission on December 14, 2015 and incorporated herein by reference. as exhibit 4.2 to the Company's Current Report on Form 8-K (File Supplemental Indenture, dated December 5, 2016, between Analog Devices, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, filedff No. 1-7819) as filed with the Commission on December 5, 2016 and incorporated herein by reference. as exhibit 4.2 to the Company's Current Report on Form 8-K (File Supplemental Indenture, dated March 12, 2018, between Analog Devices, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, filedff No. 1-7819) as filed with the Commission on March 12, 2018 and incorporated herein by reference. as exhibit 4.2 to the Company's Current Report on Form 8-K (File †4.6 Description of Registrant's Securities. 96 Exhibit No. *10.1 *10.2 *10.3 *10.4 Description Analog Devices, Inc. Amended and Restated Deferred Compensation Plan, filed 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. as exhibit 10.1 to the ff First Amendment to the Analog Devices, Inc. Amended and Restated Deferred Compensation Plan, filedff 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. as Second Amendment to the Analog Devices, Inc. Amended and Restated Deferred Compensation Plan, filedff 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, filedff 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. as †*10.5 Fourth Amendment to the Analog Devices, Inc. Amended and Restated Deferred Compensation Plan. *10.6 *10.7 *10.8 *10.9 *10.10 *10.11 *10.12 *10.13 *10.14 *10.15 *10.16 *10.17 Trust Agreement for Deferred Compensation Plan dated as of October 1, 2003 between Analog Devices, Inc. and Fidelity Management Trust Company, filedff 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. as exhibit 10.28 to the Company's Annual Report on Form 10-K First Amendment to Trust Agreement for Deferred Compensation Plan between Analog Devices, Inc. and as exhibit 10.3 to the Company's Annual Fidelity Management Trust Company dated as of January 1, 2005, filedff Report on Form 10-K for the fiscal year ended October 28, 2006 (File No. 1-7819) as filed with the Commission on November 20, 2006 and incorporated herein by reference. Second Amendment to Trust Agreement for Deferred Compensation Plan between Analog Devices, Inc. and as exhibit 10.41 to the Company's Fidelity Management Trust Company dated as of December 10, 2007, filedff 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., filedff 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. as exhibit 10.1 to the Linear Technology Corporation Amended and Restated 2005 Equity Incentive Plan, filedff as Exhibit 4.1 to the Post-Effective Amendment No. 1 on Form S-8 to the Company's Registration Statement on Form S-4 (File No. 333-213454) as filed with the Commission on March 15, 2017 and incorporated herein by reference. as Exhibit 4.2 to the Post- Analog Devices, Inc. Amended and Restated 2010 Equity Incentive Plan, filedff Effective Amendment No. 1 on Form S-8 to the Company's Registration Statement on Form S-4 (File No. 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, filedff Form 10-Q for the fiscal quarter ended February 2, 2019 (File No. 1-7819) as filed with the Commission on February 20, 2019 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, filedff 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. as exhibit 10.1 to the Company's Quarterly Report on Form of Global Restricted Stock Unit Agreement for Employees for usage under the Company's Amended and Restated 2006 Stock Incentive Plan, filedff as exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended February 2, 2019 (File No. 1-7819) as filed with the Commission on February 20, 2019 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, filedff Form 10-Q for the fiscal quarter ended February 3, 2018 (File No. 1-7819) as filed with the Commission on February 28, 2018 and incorporated herein by reference. as exhibit 10.7 to the Company's Quarterly Report on Form of Relative TSR Performance Restricted Stock Unit Agreement for Employees for usage under the Company's Amended and Restated 2006 Stock Incentive Plan, filedff as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 2019 (File No. 1-7819) as filed with the Commission on May 22, 2019 and incorporated herein by reference. Form of Financial Key Metric Performance Restricted Stock Unit Agreement for Employees for usage under the Company's Amended and Restated 2006 Stock Incentive Plan, filedff as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 2019 (File No. 1-7819) as filed with the Commission on May 22, 2019 and incorporated herein by reference. 97 Exhibit No. *10.18 *10.19 *10.20 *10.21 †*10.22 *10.22 *10.23 *10.24 *10.25 *10.26 *10.27 *10.28 Description Form of Restricted Stock Unit Agreement for Directors for usage under the Company's Amended and Restated 2006 Stock Incentive Plan, filedff as exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended February 2, 2019 (File No. 1-7819) as filed with the Commission on February 20, 2019 and incorporated herein by reference. Form of Analog Devices, Inc. Equity Award Conversion Notice to Linear employees, filedff 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. 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, filedff 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. Amended and Restated 2019 Executive Performance Incentive Plan, filedff Quarterly Report on Form 10-Q for the fiscal quarter ended February 2, 2019 (File No. 1-7819) as filed with the Commission on February 20, 2019 and incorporated herein by reference. as exhibit 10.4 to the Company's 2020 Executive Performance Incentive Plan. Form of Employee Retention Agreement, filedff 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. as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q Employee Change in Control Severance Policy of Analog Devices, Inc., as amended, filed 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. as exhibit 10.20 to the ff Senior Management Change in Control Severance Policy of Analog Devices, Inc., as amended, filedff 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, filed as exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended October 28, 2017 (File No. 1-7819) as filed with the Commission on November 22, 2017 and incorporated herein by reference. as exhibit Form of Indemnification Agreement for Directors and Officers, filedff 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. as exhibit 10.30 to the Company's Annual Credit Agreement, dated as of June 28, 2019, among Analog Devices, Inc., as Borrower, JPMorgan Chase Bank, N.A. as Administrative Agent and each lender from time to time party thereto, filedff Company's Current Report on Form 8-K (File No. 1-7819) as filed with the Commission on July 1, 2019 and incorporated herein by reference. Second Amendment and Restated Agreement, dated as of June 28, 2019, 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, filedff 1-7819) as filed with the Commission on July 1, 2019 and incorporated herein by reference. as exhibit 10.2 to the Company's Current Report on Form 8-K (File No. as exhibit 10.1 to the 98 Exhibit No. †21 †23 †31.1 †31.2 †32.1 †32.2 101. INS Description Subsidiaries of the Company. Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). Certification Pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer). Certification Pursuant to 18 U.S.C. Section 1350 (Chief Financial Officer). The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.** 101. SCH Inline XBRL Schema Document.** 101. CAL Inline XBRL Calculation Linkbase Document.** 101. LAB Inline XBRL Labels Linkbase Document.** 101. PRE Inline XBRL Presentation Linkbase Document.** 101. DEF 104 Inline XBRL Definition Linkbase Document** Cover page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). _______________________________________ † * ** 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. Submitted electronically herewith. Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Income for the years ended November 2, 2019, November 3, 2018 and October 28, 2017, (ii) Consolidated Balance Sheets as of November 2, 2019 and November 3, 2018, (iii) Consolidated Statements of Shareholders’ Equity for the years ended November 2, 2019, November 3, 2018 and October 28, 2017, (iv) Consolidated Statements of Comprehensive Income for the years ended November 2, 2019, November 3, 2018 and October 28, 2017, (v) Consolidated Statements of Cash Flows for the years ended November 2, 2019, November 3, 2018 and October 28, 2017, (vi) Notes to Consolidated Financial Statements for the years ended November 2, 2019, November 3, 2018 and October 28, 2017. 99 ANALOG DEVICES, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED NOVEMBER 2, 2019 FINANCIAL STATEMENT SCHEDULE 100 ANALOG DEVICES, INC. SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS Years ended November 2, 2019, November 3, 2018 and October 28, 2017 Description Accounts Receivable Reserves and Allowances: Year ended October 28, 2017 Year ended November 3, 2018 Year ended November 2, 2019 Valuation Reserve for Deferred Tax Asset: Year ended October 28, 2017 Year ended November 3, 2018 Year ended November 2, 2019 (dollar amounts in thousands) Balance at Beginning of Period Additions (Reductions) Charged to Income Statement Other Deductions Balance at End of Period $ $ $ $ $ $ 5,117 7,213 2,284 67,094 53,787 82,280 $ $ $ $ $ $ 12,284 2,313 13,979 $ $ $ — $ — $ — $ 10,188 7,242 7,876 $ $ $ 7,213 2,284 8,387 (7,778) $ 30,254 34,069 $ $ — $ 5,529 $ (1,761) $ — $ — $ — $ 53,787 82,280 116,349 101 ITEM 16. FORM 10-K SUMMARY None. 102 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES ANALOG DEVICES, INC. By: /s/ Vincent Roche Vincent Roche President and Chief Executive Officer (Principal Executive Officer) Date: November 26, 2019 103 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. a Name Title Date /s/ Ray Stata Ray Stata /s/ Vincent Roche Vincent Roche Chairman of the Board November 26, 2019 President and Chief Executive Officer and Director (Principal Executive Officer) November 26, 2019 /s/ Prashanth Mahendra-Rajah Prashanth Mahendra-Rajah Senior Vice President, Finance and Chief Financial Officer (Principal Financial Officer) November 26, 2019 /s/ Michael Sondel Michael Sondel /s/ James A. Champy James A. Champy /s/ Anantha P. Chandrakasan Anantha P. Chandrakasan /s/ Bruce R. Evans Bruce R. Evans /s/ Edward H. Frank Edward H. Frank /s/ Karen Golz Karen Golz /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 Chief Accounting Officer (Principal Accounting Officer) November 26, 2019 Director November 26, 2019 Director November 26, 2019 Director November 26, 2019 Director November 26, 2019 Director November 26, 2019 Director November 26, 2019 Director November 26, 2019 Director November 26, 2019 Director November 26, 2019 104 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; our capital allocation framework and target returns to our shareholders; expected market and macro trends; expected market share gains; expected customer demand and order rates for our products; expected customer engagement levels; and the expected benefits and synergies of acquisitions, 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: political and economic uncertainty as well as 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; the effects of issued, threatened or retaliatory government sanctions, trade barriers or economic restrictions, changes in law, regulations or other restrictions; higher than expected costs associated with or relating to the integration of acquired businesses; changes in our effective tax rate; the risk that Analog Devices will be unable to retain and hire key personnel; 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. 105 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. ANALOG DEVICES, INC. RECONCILIATION OF GAAP TO NON-GAAP RESULTS (Unaudited) (In thousands, except per share amounts) FY19 Nov 2, 2019 Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,013,750 Gross margin percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67.0% 175,266 Adjusted gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,189,016 Adjusted gross margin percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.9% Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,303,142 Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring related expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.4% (451,511) (95,659) Adjusted operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,755,972 Adjusted operating expenses percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.3% Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,710,608 Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring related expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.6% 626,777 95,659 Adjusted operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,433,044 Adjusted operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.6% Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Acquisition related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring related expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax on non discrete tax items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from prior period tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax on certain inventory intra-entity transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax from state tax valuation allowance adjustment . . . . . . . . . . . . . . . . . . . . . . . . Income tax from prior period tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax on voluntary accounting policy change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax from one time transitional tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax from deferred tax recalibration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted diluted EPS (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.65 1.68 0.26 (0.28) (0.02) (0.04) 0.04 (0.03) (0.05) (0.02) (0.04) 5.15 (1) The sum of the individual per share amounts may not equal the total due to rounding. 106 ANALOG DEVICES, INC. RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW (Unaudited) (In thousands) Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,991,065 Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,253,100 % of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38% Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (275,372) Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,977,728 % of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33% FY19 Nov 2, 2019 107 Notes Notes Notes Dear Fellow Shareholders, We are living in a time of astonishing innovation in the Third Wave of Information and Communications Technology (ICT), as we refer to it at ADI. This wave is characterized by ubiquitous sensing, hyper-scale and edge computing, and pervasive connectivity. These technology modalities enable the generation of vast amounts of data that allow us to glean actionable intelligence about the world. As one of the very broadest high-performance analog solutions providers, we play a critical role at the nuanced intersection of the physical and digital domains, by providing the building blocks to sense, measure, interpret, connect, and power the edge. Essentially, ADI is where the data is born. This era of extraordinary technological change will continue to improve quality of life globally through continuous advancements in areas such as seamless and efficient automation, more sophisticated communications networks, universal and affordable healthcare, environmental integrity, and much more. Through our research and development (R&D) investments and strategic acquisitions, ADI is better equipped than ever to solve our customers’ toughest engineering challenges from sensor to cloud, from DC to 100 gigahertz, and from nanowatts to kilowatts. And as analog engineering challenges become more complex, our customers are telling us that they want us to provide more complete solutions. This provides ADI with new, attractive opportunities to deliver profitable growth in the years ahead. Solid Financial Results for Fiscal 2019 In fiscal 2019, we delivered revenue of approximately $6 billion amidst challenging macroeconomic conditions and trade uncertain- ty. Our business-to-business (B2B) markets, comprised of industrial, automotive, and communications, achieved modest year-over-year growth and outperformed the semiconductor industry again. We delivered industry-leading adjusted gross margins of approximately 70%, adjusted operating margins of more than 40%, and adjusted diluted earnings per share of $5.15.1 Notably, we generated strong cash flow as evidenced by our 33% free cash flow margin, which places us in the top 10% of the S&P 500.2 The strength of our innovations and customer engagements, the diversity of our franchise, and our operational discipline have enabled us to consistently deliver strong returns. Over the last five years, ADI has generated a total shareholder return of 148%, or more than double the S&P 500 return.3 1 The non-GAAP financial measures included in this letter to shareholders exclude certain items. Please refer to Page 106 of this Annual Report for additional information regarding these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures. Fiscal 2018 was a 53-week year, and for purposes of year-over-year revenue comparisons for fiscal 2019, we normalized our fiscal 2018 result to a 52-week year. 2 Free cash flow is defined as cash provided by (used in) operating activities, less capital expenditures. Please refer to Page 107 of this Annual Report for a reconciliation of free cash flow to net cash provided by operating activities. 3 Total Shareholder Return calculation is share price appreciation plus cumulative cash dividend payments and the effect of reinvesting those dividends into the security for the five years ended November 2, 2019. 4 Link: https://gartner.com/smarterwithgartner/what-edge-computing-means-for-infrastructure-and- operations-leaders/ Our Fiscal 2020 Priorities As we enter fiscal 2020, I would like to describe the three primary priorities on which we are focused to continue driving ADI’s long-term success. 1. Deepening Customer-Centricity ADI possesses among the broadest product portfolios, applications expertise, and manufacturing capabilities in high-performance power management and precision and high-speed signal process- ing technologies, which helps our customers bridge the intersection between the physical and digital worlds. Throughout the year, we saw robust customer engagement driven by a couple of factors. First, our customers are facing a scarcity of available analog engineering talent and they are increasingly turning to us for that expertise. Second, our customers are encountering more complex challenges in the Third Wave of ICT with digital systems increasingly relying on real-world data to create actionable intelligence. As a result, we see our customers partnering with us more deeply to gain the full benefit of our technology capabilities and product innovations with relationships starting earlier and lasting longer. As a testament to that, our opportunity pipeline value achieved record levels in fiscal 2019. 2. Efficient Use of Capital At ADI, we have an intense focus on creating and delivering best-in-class value for our customers and doing so is our first call on capital. Our success is underpinned by our philosophy that superior innovation drives superior results and we understand that R&D enables our virtuous cycle of innovation-driven success. This is why we invested more than $1 billion in R&D during fiscal 2019. We choose our investment areas judiciously—focusing on what we believe are the most attractive opportunities across our business, particularly in our B2B markets. Also, given the growing demand for analog technology and the evolving needs of our customers, we have acquired two companies to increase the scale and the scope of our offerings over the past five years. With the acquisition of Hittite in 2014, ADI became the market leader in high-performance RF and our portfolio now spans the entire frequency spectrum from DC to 100 gigahertz. Since this acquisition, ADI has more than doubled the revenue from this portfolio, and in fiscal 2019, our RF revenue increased more than 30% year-over-year led by growth in industrial and wireless communications. The acquisition of Linear Technology (LTC) in 2017 added high- performance power management and additional precision signal processing to our portfolio, expanding our offerings to deliver more complete solutions. Our new power management design wins across 5G infrastructure, data center, and automotive are moving to production this year, and we expect a more meaningful revenue ramp in fiscal 2021. This puts us on a path to double LTC’s historical revenue growth rate in the years ahead. Board of Directors Ray Stata Chairman of the Board Analog Devices, Inc. Bruce R. Evans Chairman of the Board and Senior Advisor Summit Partners Vincent Roche President and Chief Executive Officer Analog Devices, Inc. James A. Champy Former Vice President of the Dell/Perot Systems business unit of Dell, Inc. Edward H. Frank, Ph.D. Co-founder and former Chief Executive Officer Cloud Parity Karen M. Golz Former Partner Ernst & Young Anantha P. Chandrakasan, Ph.D. Dean of the MIT School of Engineering and Vannevar Bush Professor of Electrical Engineering and Computer Science Mark M. Little, Ph.D. Former Senior Vice President, GE Global Research and Chief Technology Officer GE Neil Novich Former Chairman, President and Chief Executive Officer Ryerson Inc. Kenton J. Sicchitano Former Global Managing Partner PricewaterhouseCoopers LLP Lisa T. Su, Ph.D. President and Chief Executive Officer Advanced Micro Devices, Inc. Susie Wee, Ph.D. Senior Vice President and General Manager of DevNet and CX Ecosystem Success Group Cisco Systems, Inc. Leadership Team Vincent Roche President and Chief Executive Officer Martin Cotter Senior Vice President, Worldwide Sales and Digital Marketing Joseph (John) Hassett Senior Vice President, Industrial and Consumer Greg Henderson Senior Vice President, Automotive, Communications, and Aerospace & Defense Stephan Lattari Senior Vice President, Global Operations and Technology Daniel Leibholz Senior Vice President and Chief Technology Officer Prashanth Mahendra-Rajah Senior Vice President, Finance and Chief Financial Officer Patrick O’Doherty Senior Vice President, Digital Healthcare Steve Pietkiewicz Senior Vice President, Power Products Margaret Seif Chief People Officer and Senior Vice President of Communications Larry Weiss Senior Vice President, General Counsel and Secretary Independent Registered Public Accounting Firm Ernst & Young LLP 200 Clarendon Street Boston, MA 02116 Transfer Agent Computershare P.O. Box 505000 Louisville, KY 40233 (877) 282-1168 (U.S.) (781) 575-2715 (Outside U.S.) http://www.computershare.com/investor Shareholder Inquiries Shareholders of record should contact Computer- share with inquiries about their holdings, dividends, transfers of ownership, address changes or account consolidations. Stock Trading Analog Devices’ common stock trades on the Nasdaq Global Select Market under the symbol ADI. Other Information To obtain a free copy of the 2019 Annual Report on Form 10-K, Corporate Governance Guidelines, Code of Business Conduct and Ethics, or additional information, visit investor.analog.com or write to: Analog Devices, Inc. Investor Relations 804 Woburn Street Wilmington, MA 01887 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 11, 2020, at 125 Summer Street, Boston, MA. Analog Devices, the Analog Devices logo, and Ahead of What’s Possible 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 l A n a o g D e v i c e s 2 0 1 9 A n n u a l R e p o r t 2019 ANNUAL REPORT