NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended
October 29, 2016
,
October 31, 2015
and
November 1, 2014
(all tabular amounts in thousands except per share amounts)
|
|
1.
|
Description of Business
|
Analog Devices, Inc. (Analog Devices or the Company) is a world leader in the design, manufacture and marketing of a broad portfolio of solutions that leverage high-performance analog, mixed-signal and digital signal processing technology, including integrated circuits (ICs), algorithms, software, and subsystems. Since the Company's inception in 1965, it has focused on solving its customers’ toughest signal processing engineering challenges, playing a fundamental role in converting, conditioning, and processing real-world phenomena such as temperature, pressure, sound, light, speed, and motion into electrical signals to be used in a wide array of electronic devices. The Company combines sensors, data converters, amplifiers and linear products, radio frequency (RF) ICs, power management products, and signal processing products, into technology platforms that meet specific customer and market needs, leveraging its engineering investment across a broad base of markets and customers. As new generations of applications evolve, such as autonomous vehicles and the Internet of Things, new needs for Analog Devices’ high-performance analog signal processing and digital signal processing (DSP) products and technology are emerging.
2. Summary of Significant Accounting Policies
a.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its subsidiaries. Upon consolidation, all intercompany accounts and transactions are eliminated. Certain amounts reported in previous years have been reclassified to conform to the presentation for the fiscal year ended October 29, 2016 (
fiscal 2016
). As further discussed in Note 2t,
New Accounting Pronouncements
, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2015-03,
Simplifying the Presentation of Debt Issuance Costs
(ASU 2015-03)
,
in the first quarter of fiscal 2016. As shown in the table below, pursuant to the guidance in ASU 2015-03 the Company has reclassified unamortized debt issuance costs associated with its senior notes in the Condensed Consolidated Balance Sheet as of October 31, 2015 as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2015
as presented
|
|
Reclassifications
|
|
October 31, 2015
as adjusted
|
Other assets
|
$
|
43,962
|
|
|
$
|
(3,401
|
)
|
|
$
|
40,561
|
|
Total other assets
|
$
|
2,338,520
|
|
|
$
|
(3,401
|
)
|
|
$
|
2,335,119
|
|
Total assets
|
$
|
7,062,178
|
|
|
$
|
(3,401
|
)
|
|
$
|
7,058,777
|
|
Current debt
|
$
|
374,839
|
|
|
$
|
(245
|
)
|
|
$
|
374,594
|
|
Current liabilities
|
$
|
1,113,830
|
|
|
$
|
(245
|
)
|
|
$
|
1,113,585
|
|
Long-term debt
|
$
|
498,497
|
|
|
$
|
(3,156
|
)
|
|
$
|
495,341
|
|
Total non-current liabilities
|
$
|
875,389
|
|
|
$
|
(3,156
|
)
|
|
$
|
872,233
|
|
Total liabilities and shareholders equity
|
$
|
7,062,178
|
|
|
$
|
(3,401
|
)
|
|
$
|
7,058,777
|
|
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
2016
, the fiscal year ended October 31, 2015 (fiscal
2015
) and the fiscal year ended
November 1, 2014
(fiscal
2014
) were
52
-week periods.
On July 26, 2016, the Company entered into a definitive agreement (the Merger Agreement) to acquire Linear Technology Corporation (Linear), an independent manufacturer of high performance linear integrated circuits. The Company currently expects the transaction to be completed by the end of the Company's second quarter of fiscal 2017.
On July 22, 2014, the Company completed its acquisition of Hittite Microwave Corporation (Hittite), a company that designed and developed high performance integrated circuits, modules, subsystems and instrumentation for radio frequency, microwave and millimeterwave applications. The total consideration paid to acquire Hittite was approximately
$2.4 billion
, financed through a combination of existing cash on hand and a 90-day term loan facility of
$2.0 billion
. The acquisition of Hittite is referred to as the Hittite Acquisition. The Consolidated Financial Statements include the financial results of Hittite prospectively from July 22, 2014, the closing date of the Hittite Acquisition.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
See Note 6,
Acquisitions
, of these notes to Consolidated Financial Statements for further discussion related to the proposed acquisition of Linear and the acquisition of Hittite.
b. Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents are highly liquid investments with insignificant interest rate risk and maturities of ninety days or less at the time of acquisition. Cash, cash equivalents and short-term investments consist primarily of institutional money market funds, corporate obligations such as commercial paper and floating rate notes, bonds and bank time deposits.
The Company classifies its investments in readily marketable debt and equity securities as “held-to-maturity,” “available-for-sale” or “trading” at the time of purchase. There were no transfers between investment classifications in any of the fiscal years presented. Held-to-maturity securities, which are carried at amortized cost, include only those securities the Company has the positive intent and ability to hold to maturity. Securities such as bank time deposits, which by their nature are typically held to maturity, are classified as such. The Company’s other readily marketable cash equivalents and short-term investments are classified as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses, net of related tax, reported in accumulated other comprehensive (loss) income. Adjustments to the fair value of investments classified as available-for-sale are recorded as an increase or decrease in accumulated other comprehensive (loss) income, unless the adjustment is considered an other-than-temporary impairment, in which case the adjustment is recorded as a charge in the statement of income.
The Company’s deferred compensation plan investments are classified as trading. See Note 7, D
eferred Compensation Plan Investments,
of these Notes to Consolidated Financial Statements
for additional information on these investments. There were no cash equivalents or short-term investments classified as trading at
October 29, 2016
or
October 31, 2015
.
The Company periodically evaluates its investments for impairment. There were no other-than-temporary impairments of short-term investments in any of the fiscal years presented.
Realized gains or losses on investments are determined based on the specific identification basis and are recognized in nonoperating (income) expense. There were no material net realized gains or losses from the sales of available-for-sale investments during any of the fiscal periods presented.
Gross unrealized gains and losses on available-for-sale securities classified as short-term investments at
October 29, 2016
and
October 31, 2015
were as follows:
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|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Unrealized gains on securities classified as short-term investments
|
$
|
846
|
|
|
$
|
233
|
|
Unrealized losses on securities classified as short-term investments
|
(294
|
)
|
|
(584
|
)
|
Net unrealized gain (loss) on securities classified as short-term investments
|
$
|
552
|
|
|
$
|
(351
|
)
|
As of
October 29, 2016
, the Company held
100
investment securities,
25
of which were in an unrealized loss position with gross unrealized losses of
$0.3 million
and an aggregate fair value of
$729.6 million
. As of
October 31, 2015
, the Company held
76
investment securities,
23
of which were in an unrealized loss position with gross unrealized losses of
$0.6 million
and an aggregate fair value of
$823.4 million
. These unrealized losses were primarily related to corporate obligations that earn lower interest rates than current market rates. None of these investments have been in a loss position for more than twelve months. As the Company does not intend to sell these investments and it is unlikely that the Company will be required to sell the investments before recovery of their amortized basis, which will be at maturity, the Company does not consider those investments to be other-than-temporarily impaired at
October 29, 2016
and
October 31, 2015
.
The components of the Company’s cash and cash equivalents and short-term investments as of
October 29, 2016
and
October 31, 2015
were as follows:
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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2016
|
|
2015
|
Cash and cash equivalents:
|
|
|
|
|
|
Cash
|
$
|
67,877
|
|
|
$
|
72,638
|
|
Available-for-sale
|
693,255
|
|
|
807,935
|
|
Held-to-maturity
|
160,000
|
|
|
3,780
|
|
Total cash and cash equivalents
|
$
|
921,132
|
|
|
$
|
884,353
|
|
Short-term investments:
|
|
|
|
|
|
Available-for-sale
|
$
|
3,110,011
|
|
|
$
|
2,144,575
|
|
Held-to-maturity (less than one year to maturity)
|
24,650
|
|
|
—
|
|
Total short-term investments
|
$
|
3,134,661
|
|
|
$
|
2,144,575
|
|
See Note 2j,
Fair Value,
of these Notes to Consolidated Financial Statements for additional information on the Company’s cash equivalents and short-term investments.
|
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c.
|
Supplemental Cash Flow Statement Information
|
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|
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|
|
|
|
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|
|
|
|
2016
|
|
2015
|
|
2014
|
Cash paid during the fiscal year for:
|
|
|
|
|
|
|
|
|
Income taxes
|
$
|
77,918
|
|
|
$
|
142,931
|
|
|
$
|
73,067
|
|
Interest
|
$
|
41,701
|
|
|
$
|
25,625
|
|
|
$
|
27,931
|
|
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
October 29, 2016
and
October 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Raw materials
|
$
|
20,263
|
|
|
$
|
21,825
|
|
Work in process
|
232,196
|
|
|
261,520
|
|
Finished goods
|
124,096
|
|
|
128,969
|
|
Total inventories
|
$
|
376,555
|
|
|
$
|
412,314
|
|
|
|
e.
|
Property, Plant and Equipment
|
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
|
Up to 25 years
|
Machinery & equipment
|
3-8 years
|
Office equipment
|
3-8 years
|
Depreciation expense for property, plant and equipment was
$134.5 million
,
$130.1 million
and
$114.1 million
in fiscal
2016
,
2015
and
2014
, respectively.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. We have not recorded any material impairment charges related to our property, plant and equipment in fiscal
2016
, fiscal
2015
or fiscal
2014
.
|
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f.
|
Goodwill and Intangible Assets
|
Goodwill
The Company evaluates goodwill for impairment annually, as well as whenever events or changes in circumstances suggest that the carrying value of goodwill may not be recoverable. The Company tests goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis on the first day of the fourth quarter (on or about August 1) or more frequently if indicators of impairment exist. For the Company’s latest annual impairment assessment that occurred as of
July 31, 2016
, the Company identified its reporting units to be its
seven
operating segments. The performance of the test involves a two-step process. The first step of the quantitative impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company determines the fair value of its reporting units using a weighting of the income and market approaches. Under the income approach, the Company uses a discounted cash flow methodology which requires management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others. For the market approach, the Company uses the guideline public company method. Under this method the Company utilizes information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that are applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair values. In order to assess the reasonableness of the calculated reporting unit fair values, the Company reconciles the aggregate fair values of its reporting units determined, as described above, to its current market capitalization, allowing for a reasonable control premium. If the carrying amount of a reporting unit, calculated using the above approaches, exceeds the reporting unit’s fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that reporting unit. 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 28, 2017 (fiscal
2017
) unless indicators arise that would require the Company to reevaluate at an earlier date. The following table presents the changes in goodwill during fiscal
2016
and fiscal
2015
:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Balance at beginning of year
|
$
|
1,636,526
|
|
|
$
|
1,642,438
|
|
Acquisition of Hittite (Note 6) (1)
|
—
|
|
|
(1,105
|
)
|
Goodwill adjustment related to other acquisitions (2)
|
44,046
|
|
|
3,663
|
|
Foreign currency translation adjustment
|
(1,456
|
)
|
|
(8,470
|
)
|
Balance at end of year
|
$
|
1,679,116
|
|
|
$
|
1,636,526
|
|
(1) Amount in fiscal 2015 represents changes to goodwill as a result of finalizing the acquisition accounting related to the Hittite Acquisition.
(2) Represents goodwill related to other acquisitions that were not material to the Company on either an individual or aggregate basis.
Intangible Assets
The Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable. Recoverability of these assets is determined by comparison of their carrying value to the estimated future undiscounted cash flows the assets are expected to generate over their remaining estimated useful lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Indefinite-lived intangible assets are tested for impairment on an annual basis on the first day of the fourth quarter (on or about August 1) or more frequently if indicators of impairment exist. The impairment test involves a qualitative assessment on the indefinite-lived intangible assets to determine whether it is more likely-than not that the indefinite-lived intangible asset is impaired. If it is determined that the fair value of the indefinite-lived intangible asset is less than the carrying value, the Company would recognize into earnings the amount by which the carrying value of the assets exceeds the fair value. No impairment of intangible assets resulted from the impairment tests in any of the fiscal years presented.
Definite-lived intangible assets, are amortized on a straight-line basis over their estimated useful lives or on an accelerated method of amortization that is expected to reflect the estimated pattern of economic use. IPR&D assets are considered indefinite-lived intangible assets until completion or abandonment of the associated R&D efforts. Upon completion of the projects, the IPR&D assets will be amortized over their estimated useful lives.
As of
October 29, 2016
and
October 31, 2015
, the Company’s intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2016
|
|
October 31, 2015
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
Customer relationships
|
$
|
649,159
|
|
|
$
|
158,979
|
|
|
$
|
624,900
|
|
|
$
|
88,913
|
|
Technology-based
|
22,231
|
|
|
8,911
|
|
|
15,100
|
|
|
4,834
|
|
Trade-name
|
600
|
|
|
60
|
|
|
—
|
|
|
—
|
|
Backlog
|
200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
IPR&D (1)
|
46,175
|
|
|
1,047
|
|
|
37,264
|
|
|
—
|
|
Total (2) (3)
|
$
|
718,365
|
|
|
$
|
168,997
|
|
|
$
|
677,264
|
|
|
$
|
93,747
|
|
________
(1) Includes
$16.5 million
of IPR&D assets that have completed their R&D efforts and are being amortized over their estimated useful lives.
(2) Foreign intangible asset carrying amounts are affected by foreign currency translation.
(3) Increases in intangible assets relate to other acquisitions that were not material to the Company on either an individual or aggregate basis.
Amortization expense related to finite-lived intangible assets was
$75.3 million
,
$92.1 million
and
$27.9 million
in fiscal
2016
,
2015
and
2014
, respectively. The remaining amortization expense will be recognized over a weighted average life of approximately
3.5 years
.
The Company expects annual amortization expense for intangible assets as follows:
|
|
|
|
|
Fiscal Year
|
Amortization Expense
|
2017
|
$
|
79,794
|
|
2018
|
$
|
78,475
|
|
2019
|
$
|
75,286
|
|
2020
|
$
|
75,047
|
|
2021
|
$
|
74,627
|
|
Certain of the Company’s foreign subsidiaries have received grants from governmental agencies. These grants include capital, employment and research and development grants. Capital grants for the acquisition of property and equipment are netted against the related capital expenditures and amortized as a credit to depreciation expense over the estimated useful life of the related asset. Employment grants, which relate to employee hiring and training, and research and development grants are recognized in earnings in the period in which the related expenditures are incurred by the Company and the amounts were not material in fiscal
2016
,
2015
or
2014
.
|
|
h.
|
Translation of Foreign Currencies
|
The functional currency for the Company’s foreign sales and research and development operations is the applicable local currency. Gains and losses resulting from translation of these foreign currencies into U.S. dollars are recorded in accumulated
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
other comprehensive (loss) income. Transaction gains and losses and re-measurement of foreign currency denominated assets and liabilities are included in income currently, including those at the Company’s principal foreign manufacturing operations where the functional currency is the U.S. dollar. Foreign currency transaction gains or losses included in other expenses, net, were not material in fiscal
2016
,
2015
or
2014
.
|
|
i.
|
Derivative Instruments and Hedging Agreements
|
Foreign Exchange Exposure Management
— The Company enters into forward foreign currency exchange contracts to offset certain operational and balance sheet exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company’s operations, assets and liabilities that are denominated in currencies other
than the U.S. dollar, primarily the Euro; other significant exposures include the Philippine Peso, the Japanese Yen and the British Pound. These foreign currency exchange contracts are entered into to support transactions made in the normal course of business, and accordingly, are not speculative in nature. The contracts are for periods consistent with the terms of the underlying transactions, generally
one year or less
. Hedges related to anticipated transactions are designated and documented at the inception of the respective hedges as cash flow hedges and are evaluated for effectiveness monthly. Derivative instruments are employed to eliminate or minimize certain foreign currency exposures that can be confidently identified and quantified. As the terms of the contract and the underlying transaction are matched at inception, forward contract effectiveness is calculated by comparing the change in fair value of the contract to the change in the forward value of the anticipated transaction, with the effective portion of the gain or loss on the derivative reported as a component of accumulated other comprehensive (loss) income (OCI) in shareholders’ equity and reclassified into earnings in the same period during which the hedged transaction affects earnings. Any residual change in fair value of the instruments, or ineffectiveness, is recognized immediately in other (income) expense.
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
October 29, 2016
and
October 31, 2015
was
$179.5 million
and
$163.9 million
, respectively. The fair values of forward foreign currency derivative instruments designated as hedging instruments in the Company’s consolidated balance sheets as of
October 29, 2016
and
October 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value At
|
|
Balance Sheet Location
|
|
October 29, 2016
|
|
October 31, 2015
|
Forward foreign currency exchange contracts
|
Accrued liabilities
|
|
$
|
5,260
|
|
|
$
|
3,091
|
|
Additionally, the Company enters into forward foreign currency contracts that economically hedge the gains and losses generated by the re-measurement of certain recorded assets and liabilities in a non-functional currency. Changes in the fair value of these undesignated hedges are recognized in other (income) expense immediately as an offset to the changes in the fair value of the asset or liability being hedged. As of
October 29, 2016
and
October 31, 2015
, the total notional amount of these undesignated hedges was
$46.2 million
and
$57.9 million
, respectively. The fair value of these hedging instruments in the Company’s consolidated balance sheets as of
October 29, 2016
and
October 31, 2015
was
immaterial
.
The Company estimates that
$3.9 million
, net of tax, of forward foreign currency derivative instruments included in OCI will be reclassified into earnings within the next 12 months. There was
no material ineffectiveness
during the fiscal years ended
October 29, 2016
and
October 31, 2015
.
All of the Company’s derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's consolidated balance sheet on a net basis. As of
October 29, 2016
and
October 31, 2015
, 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 our consolidated balance sheet as of
October 29, 2016
and
October 31, 2015
:
|
|
|
|
|
|
|
|
|
|
October 29, 2016
|
|
October 31, 2015
|
Gross amount of recognized liabilities
|
$
|
(5,788
|
)
|
|
$
|
(3,896
|
)
|
Gross amounts of recognized assets offset in the consolidated balance sheet
|
557
|
|
|
813
|
|
Net liabilities presented in the consolidated balance sheet
|
$
|
(5,231
|
)
|
|
$
|
(3,083
|
)
|
Interest Rate Exposure Management
— The Company's current and future debt may be subject to interest rate risk. The Company utilizes interest rate derivatives to alter interest rate exposure in an attempt to reduce the effects of these changes.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On
October 28, 2014
, the Company entered into forward starting interest rate swap transactions to hedge its exposure to the variability in future cash flows due to changes in interest rates for the first $500 million of debt issuances that were expected to occur in the future. On December 1, 2015, these forward starting swaps were terminated resulting in a loss of
$33.4 million
. On December 14, 2015, the Company issued the 2025 Notes and 2045 Notes. The loss was recorded in OCI and will be reclassified out of OCI to interest expense on a straight line basis over the 10-year term of the 2025 Notes.
The market risk associated with the Company’s derivative instruments results from currency exchange rate or interest rate movements that are expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. The counterparties to the agreements relating to the Company’s derivative instruments consist of a number of major international financial institutions with high credit ratings. Based on the credit ratings of the Company’s counterparties as of
October 29, 2016
, nonperformance is not perceived to be a material risk. Furthermore, none of the Company’s derivatives are subject to collateral or other security arrangements and none contain provisions that are dependent on the Company’s credit ratings from any credit rating agency. While the contract or notional amounts of derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of the Company’s exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the obligations of the Company to the counterparties. As a result of the above considerations, the Company does not consider the risk of counterparty default to be significant.
The Company records the fair value of its derivative financial instruments in its consolidated financial statements in other current assets, other assets or accrued liabilities, depending on their net position, regardless of the purpose or intent for holding the derivative contract. Changes in the fair value of the derivative financial instruments are either recognized periodically in earnings or in shareholders’ equity as a component of OCI. Changes in the fair value of cash flow hedges are recorded in OCI and reclassified into earnings when the underlying contract matures. Changes in the fair values of derivatives not qualifying for hedge accounting or the ineffective portion of designated hedges are reported in earnings as they occur.
For information on the unrealized holding gains (losses) on derivatives included in and reclassified out of accumulated other comprehensive income into the consolidated statement of income related to forward foreign currency exchange contracts, see Note 2o,
Accumulated Other Comprehensive (Loss) Income
of these Notes to Consolidated Financial Statements.
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
October 29, 2016
and
October 31, 2015
. The tables exclude cash on hand and assets and liabilities that are measured at historical cost or any basis other than fair value. As of
October 29, 2016
and
October 31, 2015
, the Company held
$252.5 million
and
$76.4 million
, respectively, of cash and held-to-maturity investments that were excluded from the tables below.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2016
|
|
Fair Value measurement at
Reporting Date using:
|
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
Institutional money market funds
|
$
|
277,595
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
277,595
|
|
Corporate obligations (1)
|
—
|
|
|
415,660
|
|
|
—
|
|
|
415,660
|
|
Short - term investments:
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
Securities with one year or less to maturity:
|
|
|
|
|
|
|
|
Corporate obligations (1)
|
—
|
|
|
2,518,148
|
|
|
—
|
|
|
2,518,148
|
|
Floating rate notes, issued at par
|
—
|
|
|
29,989
|
|
|
—
|
|
|
29,989
|
|
Floating rate notes (1)
|
—
|
|
|
561,874
|
|
|
—
|
|
|
561,874
|
|
Other assets:
|
|
|
|
|
|
|
|
Deferred compensation investments
|
26,916
|
|
|
—
|
|
|
—
|
|
|
26,916
|
|
Total assets measured at fair value
|
$
|
304,511
|
|
|
$
|
3,525,671
|
|
|
$
|
—
|
|
|
$
|
3,830,182
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
7,555
|
|
|
7,555
|
|
Forward foreign currency exchange contracts (2)
|
—
|
|
|
5,231
|
|
|
—
|
|
|
5,231
|
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
5,231
|
|
|
$
|
7,555
|
|
|
$
|
12,786
|
|
|
|
(1)
|
The amortized cost of the Company’s investments classified as available-for-sale as of
October 29, 2016
was
$3.5 billion
.
|
|
|
(2)
|
The Company has 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.
|
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2015
|
|
Fair Value measurement at
Reporting Date using:
|
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
Institutional money market funds
|
$
|
198,853
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
198,853
|
|
Corporate obligations (1)
|
—
|
|
|
609,082
|
|
|
—
|
|
|
609,082
|
|
Short - term investments:
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
Securities with one year or less to maturity:
|
|
|
|
|
|
|
|
Corporate obligations (1)
|
—
|
|
|
1,899,374
|
|
|
—
|
|
|
1,899,374
|
|
Floating rate notes, issued at par
|
—
|
|
|
99,648
|
|
|
—
|
|
|
99,648
|
|
Floating rate notes (1)
|
—
|
|
|
145,553
|
|
|
—
|
|
|
145,553
|
|
Other assets:
|
|
|
|
|
|
|
|
Deferred compensation investments
|
24,124
|
|
|
—
|
|
|
—
|
|
|
24,124
|
|
Total assets measured at fair value
|
$
|
222,977
|
|
|
$
|
2,753,657
|
|
|
$
|
—
|
|
|
$
|
2,976,634
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
2,843
|
|
|
2,843
|
|
Forward foreign currency exchange contracts (2)
|
—
|
|
|
3,083
|
|
|
—
|
|
|
3,083
|
|
Interest rate swap agreements
|
—
|
|
|
32,737
|
|
|
—
|
|
|
32,737
|
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
35,820
|
|
|
$
|
2,843
|
|
|
$
|
38,663
|
|
|
|
(1)
|
The amortized cost of the Company’s investments classified as available-for-sale as of
October 31, 2015
was
$2.6 billion
.
|
|
|
(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 and short-term investments
— These investments are adjusted to fair value based on quoted market prices or are determined using a yield curve model based on current market rates.
Deferred compensation plan investments
— The fair value of these mutual fund, money market fund and equity investments are based on quoted market prices.
Forward foreign currency exchange contracts
— The estimated fair value of forward foreign currency exchange contracts, which includes derivatives that are accounted for as cash flow hedges and those that are not designated as cash flow hedges, is based on the estimated amount the Company would receive if it sold these agreements at the reporting date taking into consideration current interest rates as well as the creditworthiness of the counterparty for assets and the Company’s creditworthiness for liabilities. The fair value of these instruments is based upon valuation models using current market information such as strike price, spot rate, maturity date and volatility.
Interest rate swap agreements
— The fair value of interest rate swap agreements is based on the quoted market price for the same or similar financial instruments.
Contingent consideration
— The fair value of the contingent consideration was estimated utilizing the income approach and is based upon significant inputs not observable in the market. The income approach is based on two steps. The first step
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
involves a projection of the cash flows that is based on the Company’s estimates of the timing and probability of achieving the defined milestones. The second step involves converting the cash flows into a present value equivalent through discounting. The discount rate reflects the Baa costs of debt plus the relevant risk associated with the asset and the time value of money.
The fair value measurement of the contingent consideration encompasses the following significant unobservable inputs:
|
|
|
Unobservable Inputs
|
Range
|
Potential contingent consideration payments
|
$8,500
|
Discount rate
|
0% - 2%
|
Timing of cash flows
|
1 to 3 years
|
Probability of achievement
|
90% - 100%
|
Changes in the fair value of the contingent consideration are recognized in operating income in the period of the estimated fair value change. Significant increases or decreases in any of the inputs in isolation may result in a fluctuation in the fair value measurement.
The following table summarizes the change in the fair value of the contingent consideration measured using significant unobservable inputs (Level 3) from
November 1, 2014
to
October 29, 2016
:
|
|
|
|
|
|
Contingent
Consideration
|
Balance as of November 1, 2014
|
$
|
4,806
|
|
Payment made (1)
|
(2,000
|
)
|
Fair value adjustment (2)
|
(137
|
)
|
Effect of foreign currency
|
174
|
|
Balance as of October 31, 2015
|
$
|
2,843
|
|
Contingent consideration liability recorded
|
7,500
|
|
Payment made (1)
|
(1,489
|
)
|
Fair value adjustment (2)
|
(888
|
)
|
Effect of foreign currency
|
(411
|
)
|
Balance as of October 29, 2016
|
$
|
7,555
|
|
|
|
(1)
|
The payment is reflected in the statements of cash flows as cash used in financing activities related to the liability recognized at fair value as of the acquisition date and as cash provided by operating activities related to the fair value adjustments previously recognized in earnings.
|
|
|
(2)
|
Recorded in research and development expense in the consolidated statements of income.
|
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
On
April 4, 2011
, the Company issued the 2016 Notes with
semi-annual fixed interest payments due on April 15 and October 15 of each year, commencing
October 15, 2011
. In December 2015, the Company redeemed the 2016 Notes. The fair value of the 2016 Notes as of October 31, 2015 was
$378.6 million
, and was classified as a Level 1 measurement according to the fair value hierarchy.
On
June 3, 2013
, the Company issued the 2023 Notes with
semi-annual fixed interest payments due on June 1 and December 1 of each year, commencing December 1, 2013
. Based on quotes received from third-party banks, the fair value of the 2023 Notes as of
October 29, 2016
and
October 31, 2015
was
$501.3 million
and
$480.9 million
, respectively, and is classified as a Level 1 measurement according to the fair value hierarchy.
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 fair value of the 2025 Notes and 2045 Notes as of
October 29, 2016
was
$901.5 million
and
$425.1 million
, respectively, and are classified as a Level 1 measurements according to the fair value hierarchy.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates relate to the useful lives of fixed assets and identified intangible assets, allowances for doubtful accounts and customer returns, the net realizable value of inventory, potential reserves relating to litigation matters, accrued liabilities, accrued taxes, deferred tax valuation allowances, assumptions pertaining to share-based payments and other reserves. Actual results could differ from those estimates and such differences may be material to the financial statements.
|
|
l.
|
Concentrations of Risk
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments and trade accounts receivable.
The Company maintains cash, cash equivalents and short-term and long-term investments with high credit quality counterparties, continuously monitors the amount of credit exposure to any one issuer and diversifies its investments in order to minimize its credit risk.
The Company sells its products to distributors and original equipment manufacturers involved in a variety of industries including industrial process automation, instrumentation, defense/aerospace, automotive, communications, computers and computer peripherals and consumer electronics. The Company has adopted credit policies and standards to accommodate growth in these markets. The Company performs continuing credit evaluations of its customers’ financial condition and although the Company generally does not require collateral, the Company may require letters of credit from customers in certain circumstances. The Company provides reserves for estimated amounts of accounts receivable that may not be collected.
The Company's largest single customer represented approximately
12%
of fiscal
2016
and
13%
of fiscal 2015 revenue. No sales to an individual customer accounted for more than
10%
of fiscal
2014
revenue.
|
|
m.
|
Concentration of Other Risks
|
The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. The Company’s financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property in a rapidly evolving market and reliance on assembly and test subcontractors, third-party wafer fabricators and independent distributors. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns at various times. The Company is exposed to the risk of obsolescence of its inventory depending on the mix of future business. Additionally, a large portion of the Company’s purchases of external wafer and foundry services are from a limited number of suppliers, primarily Taiwan Semiconductor Manufacturing Company (TSMC). If TSMC or any of the Company’s other key suppliers are unable or unwilling to manufacture and deliver sufficient quantities of components, on the time schedule and of the quality that the Company requires, the Company may be forced to engage additional or replacement suppliers, which could result in significant expenses and disruptions or delays in manufacturing, product development and shipment of product to the Company’s customers. Although the Company has experienced shortages of components, materials and external foundry services from time to time, these items have generally been available to the Company as needed.
Revenue from product sales to customers is generally recognized when title passes, which is upon shipment in the U.S. and in certain foreign counties. Revenue from product sales to customers in other foreign countries is subsequent to product shipment. Title for these shipments to these other foreign countries ordinarily passes within a week of shipment. Accordingly, the Company defers the revenue recognized relating to these other foreign countries until title has passed. For multiple element arrangements, the Company allocates arrangement consideration among the elements based on the relative fair values of those elements as determined using vendor-specific objective evidence or third-party evidence. The Company uses its best estimate of selling price to allocate arrangement consideration between the deliverables in cases where neither vendor-specific objective evidence nor third-party evidence is available. A reserve for sales returns and allowances for customers is recorded based on historical experience or specific identification of an event necessitating a reserve.
Revenue from contracts with the United States government, government prime contractors and some commercial customers is generally recorded on a percentage of completion basis using either units delivered or costs incurred as the measurement basis for progress towards completion. The output measure is used to measure results directly and is generally the best measure of progress toward completion in circumstances in which a reliable measure of output can be established.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
In all regions of the world, the Company defers revenue and the related cost of sales on shipments to distributors until the distributors resell the products to their customers. As a result, the Company’s revenue fully reflects end customer purchases and is not impacted by distributor inventory levels. Sales to distributors are made under agreements that allow distributors to receive price-adjustment credits, as discussed below, and to return qualifying products for credit, as determined by the Company, in order to reduce the amounts of slow-moving, discontinued or obsolete product from their inventory. These agreements limit such returns to a certain percentage of the value of the Company’s shipments to that distributor during the prior quarter. In addition, distributors are allowed to return unsold products if the Company terminates the relationship with the distributor.
Distributors are granted price-adjustment credits for sales to their customers when the distributor’s standard cost (i.e., the Company’s sales price to the distributor) does not provide the distributor with an appropriate margin on its sales to its customers. As distributors negotiate selling prices with their customers, the final sales price agreed upon with the customer will be influenced by many factors, including the particular product being sold, the quantity ordered, the particular customer, the geographic location of the distributor and the competitive landscape. As a result, the distributor may request and receive a price-adjustment credit from the Company to allow the distributor to earn an appropriate margin on the transaction.
Distributors are also granted price-adjustment credits in the event of a price decrease subsequent to the date the product was shipped and billed to the distributor. Generally, the Company will provide a credit equal to the difference between the price paid by the distributor (less any prior credits on such products) and the new price for the product multiplied by the quantity of the specific product in the distributor’s inventory at the time of the price decrease.
Given the uncertainties associated with the levels of price-adjustment credits to be granted to distributors, the sales price to the distributor is not fixed or determinable until the distributor resells the products to their customers. Therefore, the Company defers revenue recognition from sales to distributors until the distributors have sold the products to their customers.
Generally, title to the inventory transfers to the distributor at the time of shipment or delivery to the distributor, and payment from the distributor is due in accordance with the Company’s standard payment terms. These payment terms are not contingent upon the distributors’ sale of the products to their customers. Upon title transfer to distributors, inventory is reduced for the cost of goods shipped, the margin (sales less cost of sales) is recorded as “deferred income on shipments to distributors, net” and an account receivable is recorded. Shipping costs are charged to cost of sales as incurred.
The deferred costs of sales to distributors have historically had very little risk of impairment due to the margins the Company earns on sales of its products and the relatively long life-cycle of the Company’s products. Product returns from distributors that are ultimately scrapped have historically been immaterial. In addition, price protection and price-adjustment credits granted to distributors historically have not exceeded the margins the Company earns on sales of its products. The Company continuously monitors the level and nature of product returns and is in frequent contact with the distributors to ensure reserves are established for all known material issues.
As of
October 29, 2016
and
October 31, 2015
, the Company had gross deferred revenue of
$432.3 million
and
$379.9 million
, respectively, and gross deferred cost of sales of
$80.8 million
and
$79.8 million
, respectively.
The Company generally offers a
twelve
-month warranty for its products. The Company’s warranty policy provides for replacement of defective products. Specific accruals are recorded for known product warranty issues. Product warranty expenses during fiscal
2016
,
2015
and
2014
were
not material
.
|
|
o.
|
Accumulated Other Comprehensive (Loss) Income
|
Other comprehensive (loss) income includes certain transactions that have generally been reported in the consolidated statement of shareholders’ equity. The components of accumulated other comprehensive loss at
October 29, 2016
and
October 31, 2015
consisted of the following, net of tax:
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
Unrealized holding gains on available for sale securities classified as short-term investments
|
|
Unrealized holding (losses) on available for sale securities classified as short-term investments
|
|
Unrealized holding Gains on Derivatives
|
|
Pension Plans
|
|
Total
|
October 31, 2015
|
$
|
(18,057
|
)
|
|
$
|
216
|
|
|
$
|
(544
|
)
|
|
$
|
(17,692
|
)
|
|
$
|
(14,774
|
)
|
|
$
|
(50,851
|
)
|
Other comprehensive income before reclassifications
|
(4,831
|
)
|
|
613
|
|
|
290
|
|
|
(5,532
|
)
|
|
(14,212
|
)
|
|
(23,672
|
)
|
Amounts reclassified out of other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
4,487
|
|
|
847
|
|
|
5,334
|
|
Tax effects
|
(1,175
|
)
|
|
(29
|
)
|
|
(27
|
)
|
|
(147
|
)
|
|
(3,247
|
)
|
|
(4,625
|
)
|
Other comprehensive income
|
(6,006
|
)
|
|
584
|
|
|
263
|
|
|
(1,192
|
)
|
|
(16,612
|
)
|
|
(22,963
|
)
|
October 29, 2016
|
$
|
(24,063
|
)
|
|
$
|
800
|
|
|
$
|
(281
|
)
|
|
$
|
(18,884
|
)
|
|
$
|
(31,386
|
)
|
|
$
|
(73,814
|
)
|
The amounts reclassified out of accumulated other comprehensive loss into the consolidated statement of income, with presentation location during each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Comprehensive Income Component
|
|
|
|
|
|
Location
|
Unrealized holding (losses) gains on derivatives
|
|
|
|
|
|
|
Currency forwards
|
|
$
|
2,059
|
|
|
$
|
9,235
|
|
|
Cost of sales
|
|
|
1,038
|
|
|
5,200
|
|
|
Research and development
|
|
|
(579
|
)
|
|
8,361
|
|
|
Selling, marketing, general and administrative
|
|
|
—
|
|
|
(1,466
|
)
|
|
(a)
|
|
|
—
|
|
|
(8,723
|
)
|
|
Other operating expense (b)
|
Treasury rate lock
|
|
(1,096
|
)
|
|
(1,096
|
)
|
|
Interest expense
|
Swap rate lock
|
|
3,065
|
|
|
—
|
|
|
Interest expense
|
|
|
4,487
|
|
|
11,511
|
|
|
Total before tax
|
|
|
(1,050
|
)
|
|
(1,064
|
)
|
|
Tax
|
|
|
$
|
3,437
|
|
|
$
|
10,447
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Amortization of pension components
|
|
|
|
|
|
|
Transition obligation
|
|
$
|
17
|
|
|
$
|
18
|
|
|
(c)
|
Prior service credit and curtailment recognition
|
|
—
|
|
|
(229
|
)
|
|
(c)
|
Actuarial losses and settlement recognition
|
|
830
|
|
|
7,378
|
|
|
(c)
|
|
|
847
|
|
|
7,167
|
|
|
|
Irish pension curtailment/settlement
|
|
—
|
|
|
231,151
|
|
|
Other operating expense (c)
|
|
|
847
|
|
|
238,318
|
|
|
Total before tax
|
|
|
(228
|
)
|
|
(28,875
|
)
|
|
Tax
|
|
|
$
|
619
|
|
|
$
|
209,443
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Total amounts reclassified out of accumulated other comprehensive income, net of tax
|
|
$
|
4,056
|
|
|
$
|
219,890
|
|
|
|
______________
a) The gain related to a fixed asset purchase was reclassified out of accumulated other comprehensive income (loss) to
fixed assets which will depreciate into earnings over its expected useful life.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
b) The gain on currency forwards related to the Irish pension plan settlement was reclassified out of accumulated other comprehensive income (loss) to other operating expense. See Note 13,
Retirement Plans,
of these Notes to Consolidated Financial Statements for further information
.
c) The amortization of pension components is included in the computation of net periodic pension cost. See Note 13,
Retirement Plans,
of these Notes to Consolidated Financial Statements for further information
.
Advertising costs are expensed as incurred. Advertising expense was approximately
$4.7 million
in fiscal
2016
,
$3.3 million
in fiscal
2015
and
$3.2 million
in fiscal
2014
.
Deferred tax assets and liabilities are determined based on the differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted income tax rates and laws that are expected to be in effect when the temporary differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. The calculation of the tax liabilities involves dealing with uncertainties in the application of complex tax regulations. If it is more likely than not that the tax position will not be sustained on audit, an uncertain tax position is reserved. The Company re-evaluates these uncertain tax positions on a quarterly basis. Prior to fiscal 2016, deferred tax assets and liabilities are separated into current and non-current amounts based on the classification of the related assets and liabilities for financial reporting purposes. See Note 14,
Income Taxes
, of these Notes to Consolidated Financial Statements for further information related to income taxes.
|
|
r.
|
Earnings Per Share of Common Stock
|
Basic earnings per share is computed based only on the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other potentially dilutive securities using the treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock options 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 years, related to the Company’s outstanding stock options could be dilutive in the future.
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net Income
|
$
|
861,664
|
|
|
$
|
696,878
|
|
|
$
|
629,320
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
308,736
|
|
|
312,660
|
|
|
313,195
|
|
Earnings per share basic
|
$
|
2.79
|
|
|
$
|
2.23
|
|
|
$
|
2.01
|
|
|
|
|
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
308,736
|
|
|
312,660
|
|
|
313,195
|
|
Assumed exercise of common stock equivalents
|
3,572
|
|
|
4,212
|
|
|
4,832
|
|
Weighted average common and common equivalent shares
|
312,308
|
|
|
316,872
|
|
|
318,027
|
|
Earnings per share diluted
|
$
|
2.76
|
|
|
$
|
2.20
|
|
|
$
|
1.98
|
|
Anti-dilutive shares related to:
|
|
|
|
|
|
|
|
|
Outstanding stock options
|
3,077
|
|
|
2,089
|
|
|
2,911
|
|
|
|
s.
|
Stock-Based Compensation
|
Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards ultimately expected to vest, and is recognized as an expense on a straight-line basis over the vesting period, which is generally
five years
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
for stock options and
three years
for restricted stock units. In addition to restricted stock units with a service condition, the Company grants restricted stock units with both a market condition and a service condition (market-based restricted stock units). The number of shares of the Company's common stock to be issued upon vesting of market-based restricted stock units will range from
0%
to
200%
of the target amount, based on the comparison of the Company's total shareholder return (TSR) to the median TSR of a specified peer group over a three-year period. TSR is a measure of stock price appreciation plus any dividends paid during the performance period. Determining the amount of stock-based compensation to be recorded for stock options and market-based restricted stock units requires the Company to develop estimates used in calculating the grant-date fair value of awards. The Company uses the Black-Scholes valuation model to calculate the grant-date fair value of stock option awards and the Monte Carlo simulation model to calculate the grant-date fair value of market-based restricted stock units. The use of these valuation models requires the Company to make estimates and assumptions, such as expected volatility, expected term, risk-free interest rate, expected dividend yield and forfeiture rates. The grant-date fair value of restricted stock units with 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 for additional information relating to stock-based compensation.
|
|
t.
|
New Accounting Pronouncements
|
Standards Implemented
Interest - Imputation of Interest
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03,
Simplifying the Presentation of Debt Issuance Costs
(ASU 2015-03), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15,
Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting
(ASU 2015-15). ASU 2015-15 provides additional guidance to ASU 2015-03, which did not address presentation or subsequent measurement of debt issuance costs associated with line-of-credit-arrangements. The Company elected to early adopt these updates as of January 30, 2016, and debt issuance costs related to a recognized debt liability are presented in the consolidated balance sheet as a direct deduction from the carrying amount of that debt liability. Debt issuance costs related to the Company's revolving credit facility continue to be presented as an asset and are being amortized ratably over the term of the revolving credit facility. The update was early adopted because management believes it provides a more meaningful presentation of its financial position. This change in accounting principle has been applied on a retrospective basis and the consolidated balance sheet as of October 31, 2015 has been adjusted to reflect the period specific effects of applying the new guidance. The retrospective application of this change in accounting principle on the consolidated balance sheet as of October 31, 2015 reclassified debt issuance costs of $3.4 million, which were previously presented as a long-term asset within other assets, as a reduction to the carrying value of the senior notes by the same amount. The adoption did not have an impact on the Company's condensed consolidated statement of operations in any period.
Income Taxes
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
(ASU 2015-17), which simplifies the presentation of deferred income taxes and requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The guidance in ASU 2015-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company elected to early adopt this update as of January 30, 2016 on a prospective basis. The adoption of ASU 2015-17 resulted in a reclassification of the Company's current deferred tax asset to the non-current deferred income taxes in the Company's condensed consolidated balance sheet as of January 30, 2016. The adoption did not have an impact on the Company's condensed consolidated statement of operations in any period. No prior periods were retrospectively adjusted.
Discontinued Operations
In April 2014, the FASB issued ASU 2014-08,
Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
(ASU 2014-08), which raises the threshold for disposals to qualify as discontinued operations. Under the new guidance, a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale, should be reported as discontinued operations. ASU 2014-08 also expands the disclosure requirements for discontinued operations and adds new disclosures for individually significant dispositions that do not qualify as discontinued operations. ASU 2014-08 was effective for the Company prospectively for fiscal years, and interim reporting periods within
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
those fiscal years, beginning with the Company's first quarter of fiscal year 2016. As of
October 29, 2016
, there have been no disposals or classifications as held for sale that would be subject to ASU 2014-08.
Standards to be Implemented
Income Taxes
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740).
ASU 2016-16 will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. ASU-2016-16 is effective for the Company in the first quarter of the fiscal year ending November 2, 2019 (fiscal 2019). The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of operations.
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. ASU 2016-15 provides guidance on several specific cash flow issues, including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. ASU-2016-15 is effective for the Company in the first quarter of fiscal 2019. The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its statement of cash flows.
Equity Method Investments
In March 2016, the FASB issued ASU 2016-07,
Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
(ASU 2016-07). ASU 2016-07 eliminates the requirement that when an investment, initially accounted for under a method other than the equity method of accounting, subsequently qualifies for use of the equity method, an investor must retrospectively apply the equity method in prior periods in which it held the investment. This requires an investor to determine the fair value of the investee’s underlying assets and liabilities retrospectively at each investment date and revise all prior periods as if the equity method had always been applied. The new guidance requires the investor to apply the equity method prospectively from the date the investment qualifies for the equity method. The investor will add the carrying value of the existing investment to the cost of the additional investment to determine the initial cost basis of the equity method investment. ASU 2016-07 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. ASU-2016-07 is effective for the Company in the first quarter of the fiscal year ending November 3, 2018 (fiscal 2018). The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of operations.
Derivatives and Hedging
In March 2016, the FASB issued ASU 2016-06,
Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments
(ASU 2016-06). ASU 2016-06 clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under ASU 2016-06 is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. ASU 2016-06 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. ASU 2016-06 is effective for the Company in the first quarter of the fiscal 2019. The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of operations.
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. ASU 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. ASU 2016-02 is effective for the Company in the first quarter of the fiscal year ending October 31, 2020 (fiscal 2020). The Company is currently evaluating the adoption date and the impact adoption will have on its financial position and results of operations.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 value at the amount expected to be collected on the financial asset. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. ASU 2016-13 is effective for the Company in the first quarter of fiscal 2020. The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of operations.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
(ASU 2016-01). ASU 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. ASU 2016-01 is effective in the first quarter of fiscal 2019. The Company is currently evaluating the adoption date and the impact adoption will have on its financial position and results of operations.
Business combinations
In September 2015, the FASB issued ASU 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
(ASU 2015-16). The update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The update also requires that the acquirer record, in the financial statements of the period in which adjustments to provisional amounts are determined, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The new standard is effective prospectively for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, with early adoption permitted. ASU 2015-16 is effective for the Company in the first quarter of fiscal 2017. The Company is currently evaluating the impact, if any, adoption will have on its financial position and results of operations.
Inventory
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) -
Simplifying the Measurement of Inventory
(ASU 2015-11)
,
which simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in first-out (LIFO) and the retail inventory method. The guidance in ASU 2015-11 is effective for fiscal years beginning after December 15, 2016 and early adoption is permitted. ASU 2015-11is effective for the Company in the first quarter of fiscal 2018. The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of operations.
Intangibles-Goodwill and other
In April 2015, the FASB issued ASU 2015-05,
Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40) - Customer's Accounting for Fees Paid in a Cloud Computing Arrangement
(ASU 2015-05), which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. Consequently, all software licenses within the scope of
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The guidance in ASU 2015-05 is effective for fiscal years beginning after December 15, 2015 and early adoption is permitted. ASU 2015-05 is effective for the Company in the first quarter of fiscal 2017. The Company is currently evaluating the impact, if any, adoption will have on its financial position and results of operations.
Compensation - Retirement Benefits
In April 2015, the FASB issued ASU 2015-04,
Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets
(ASU 2015-04)
,
which provides a practical expedient for entities with a fiscal year-end that does not coincide with a month-end, that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. Entities are required to disclose the accounting policy election and the date used to measure defined benefit plan assets and obligations. ASU 2015-04 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early application is permitted. Amendments should be applied prospectively. ASU 2015-04 is effective for the Company in the first quarter of fiscal 2017. The Company does not expect the adoption to have a material impact on the Company’s financial condition or results of operations.
Consolidation
In February 2015, the FASB issued ASU 2015-02,
Amendments to the Consolidation Analysis
(ASU 2015-02). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity may apply the amendments in this guidance using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively. ASU 2015-02 is effective for the Company in the first quarter of fiscal 2017. The Company does not expect the adoption to have a material impact on the Company’s financial condition or results of operations.
Presentation of Financial Statements
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements - Going Concern (Subtopic 205-40)
(ASU 2014-15), which provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The update requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the update (1) provides a definition of the term "substantial doubt", (2) requires an evaluation every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. ASU 2014-15 is effective for the Company for its annual period ending October 28, 2017. The Company does not expect the adoption to have a material impact on the Company's consolidated financial statements.
Stock Compensation
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (
ASU 2016-09). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those annual periods, beginning after December 15, 2016 and allows for prospective, retrospective or modified retrospective adoption, depending on the area covered in the update, with early adoption permitted. ASU 2016-09 is effective for the Company in the first quarter of fiscal 2018. The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of operations.
I
n June 2014, the FASB issued ASU 2014-12,
Accounting for Share-Based Payments When the Terms of
an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
(ASU 2014-12)
,
which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. ASU 2014-12 is effective for the Company in the first quarter of fiscal 2017.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company does not expect the adoption to have a material impact on the Company's financial condition or results of operations.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(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 has issued several amendments and updates to the new revenue standard, including guidance related to when an entity should recognize revenue gross as a principal or net as an agent and how an entity should identify performance obligations. As amended, ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, which is the Company's first quarter of fiscal 2019. Early adoption is permitted for all entities only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. As described in Note 2n,
Revenue Recognition
, of these Notes to the Consolidated Financial Statements, the Company defers revenue and the related cost of sales on shipments to distributors until the distributors resell the products to their customers. Upon adoption of ASU 2014-09, the Company will no longer be permitted to defer revenue until sale by the distributor to the end customer, but rather, will be required to estimate the effects of returns and allowances provided to distributors and record revenue at the time of sale to the distributor. The Company is continuing to evaluate the future impact and method of adoption of ASU 2014-09 and related amendments on its consolidated financial statements and related disclosures. The Company is considering early adoption of the new standard using the modified retrospective method in fiscal 2018. The Company's ability to early adopt the standard is dependent on system readiness and the completion of analysis necessary to meet the requirements under ASU 2014-09.
3. Stock-Based Compensation and Shareholders’ Equity
Equity Compensation Plans
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.
While the Company may grant to employees options that become exercisable at different times or within different periods, the Company has generally granted to employees options that vest over five years and become exercisable in annual installments of
20%
on each of the first, second, third, fourth and fifth anniversaries of the date of grant. The maximum contractual term of all options is
ten years
. In addition, the Company has granted to employees restricted stock units that generally vest in one installment on the third anniversary of the grant date.
As of
October 29, 2016
, a total of
14.8 million
common shares were available for future grant under the 2006 Plan and
29.2 million
common shares were reserved for issuance under the 2006 Plan and the Company's previous equity compensation plans.
Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards ultimately expected to vest, and is recognized as an expense on a straight-line basis over the vesting period, which is generally
five years
for stock options and
three years
for restricted stock units. Determining the amount of stock-based compensation to be recorded requires the Company to develop estimates used in calculating the grant-date fair value of stock options.
Hittite Replacement Awards
In connection with the Hittite Acquisition, the Company issued equity awards to certain Hittite employees in replacement of Hittite equity awards that were canceled at closing. The replacement awards consisted of approximately
0.7 million
restricted stock units with a weighted average grant date fair value of
$48.20
. The terms and intrinsic value of these awards were
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
substantially the same as the canceled Hittite awards. The fair value of the replaced awards associated with services rendered through the date of Acquisition was recognized as a component of the total estimated acquisition consideration, and the remaining fair value of the replaced awards associated with post Acquisition services is being recognized as an expense on a straight-line basis over the remaining vesting period.
Modification of Awards
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
2016
,
2015
and
2014
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 and the Monte Carlo simulation model to calculate the grant-date fair value of market-based restricted stock units. The use of these valuation models requires the Company to make estimates and assumptions, such as expected volatility, expected term, risk-free interest rate, expected dividend yield and forfeiture rates. The grant-date fair value of restricted stock units with 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.
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 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
2016
|
|
2015
|
|
2014
|
Options granted (in thousands)
|
1,814
|
|
|
1,954
|
|
|
2,240
|
|
Weighted-average exercise price
|
|
$55.19
|
|
|
|
$57.20
|
|
|
|
$51.52
|
|
Weighted-average grant-date fair value
|
|
$12.67
|
|
|
|
$10.38
|
|
|
|
$8.74
|
|
Assumptions:
|
|
|
|
|
|
Weighted-average expected volatility
|
34.0
|
%
|
|
25.9
|
%
|
|
24.9
|
%
|
Weighted-average expected term (in years)
|
5.1
|
|
|
5.3
|
|
|
5.3
|
|
Weighted-average risk-free interest rate
|
1.4
|
%
|
|
1.6
|
%
|
|
1.7
|
%
|
Weighted-average expected dividend yield
|
3.0
|
%
|
|
2.8
|
%
|
|
2.9
|
%
|
The Company utilizes the Monte Carlo simulation valuation model to value market-based restricted stock units. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the performance conditions stipulated in the award grant and calculates the fair market value for the market-based restricted stock units granted. The Monte Carlo simulation model also uses stock price volatility and other variables to estimate the probability of satisfying the performance conditions, including the possibility that the market condition may not be satisfied, and the resulting fair value of the award. Information pertaining to the Company's market-based restricted stock units and the related estimated assumptions used to calculate the fair value of market-based restricted stock units granted using the Monte Carlo simulation model is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Market-based Restricted Stock Units
|
2016
|
|
2015
|
|
2014
|
Units granted (in thousands)
|
102
|
|
|
75
|
|
|
86
|
|
Grant-date fair value
|
|
$58.95
|
|
|
|
$55.67
|
|
|
|
$50.79
|
|
Assumptions:
|
|
|
|
|
|
Historical stock price volatility
|
25.1
|
%
|
|
20.0
|
%
|
|
23.2
|
%
|
Risk-free interest rate
|
1.1
|
%
|
|
1.1
|
%
|
|
0.8
|
%
|
Expected dividend yield
|
3.0
|
%
|
|
2.8
|
%
|
|
2.8
|
%
|
Expected volatility
— The Company is responsible for estimating volatility and has considered a number of factors, including third-party estimates. The Company currently believes that the exclusive use of implied volatility results in the best estimate of the grant-date fair value of employee stock options because it reflects the market’s current expectations of future volatility. In evaluating the appropriateness of exclusively relying on implied volatility, the Company concluded that: (1) options in the Company’s common stock are actively traded with sufficient volume on several exchanges; (2) the market prices of both the traded options and the underlying shares are measured at a similar point in time to each other and on a date
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
close to the grant date of the employee share options; (3) the traded options have exercise prices that are both near-the-money and close to the exercise price of the employee share options; and (4) the remaining maturities of the traded options used to estimate volatility are at least
one
year. The Company utilizes historical volatility as an input variable of the Monte Carlo simulation to estimate the grant date fair value of market-based restricted stock units. The market performance measure of these awards is based upon the interaction of multiple peer companies. Given the Company is required to use consistent statistical properties in the Monte Carlo simulation and implied volatility is not available across the population, historical volatility must be used.
Expected term
— The Company uses historical employee exercise and option expiration data to estimate the expected term assumption for the Black-Scholes grant-date valuation. The Company believes that this historical data is currently the best estimate of the expected term of a new option, and that generally its employees exhibit similar exercise behavior.
Risk-free interest rate
— The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term assumption is used as the risk-free interest rate.
Expected dividend yield
— Expected dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors for the current quarter and dividing that result by the closing stock price on the date of grant. Until such time as the Company’s Board of Directors declares a cash dividend for an amount that is different from the current quarter’s cash dividend, the current dividend will be used in deriving this assumption. Cash dividends are not paid on options, restricted stock or restricted stock units.
Stock-Based Compensation Expense
The amount of stock-based compensation expense recognized during a period is based on the value of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock-based award. Based on an analysis of its historical forfeitures, the Company has applied an annual forfeiture rate of
4.7%
to all unvested stock-based awards as of
October 29, 2016
. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those options that vest.
Additional paid-in-capital (APIC) Pool
The APIC pool represents the excess tax benefits related to share-based compensation that are available to absorb future tax deficiencies. If the amount of future tax deficiencies is greater than the available APIC pool, the Company records the excess as income tax expense in its consolidated statements of income. For fiscal
2016
, fiscal
2015
and fiscal 2014, 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.
Stock-Based Compensation Activity
A summary of the activity under the Company’s stock option plans as of
October 29, 2016
and changes during the fiscal year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
(in thousands)
|
|
Weighted-
Average Exercise
Price Per Share
|
|
Weighted-
Average
Remaining
Contractual
Term in Years
|
|
Aggregate
Intrinsic
Value
|
Options outstanding at October 31, 2015
|
12,181
|
|
|
|
$41.60
|
|
|
|
|
|
Options granted
|
1,814
|
|
|
|
$55.19
|
|
|
|
|
|
Options exercised
|
(1,790
|
)
|
|
|
$34.43
|
|
|
|
|
|
Options forfeited
|
(482
|
)
|
|
|
$50.84
|
|
|
|
|
|
Options expired
|
(19
|
)
|
|
|
$40.42
|
|
|
|
|
|
Options outstanding at October 29, 2016
|
11,704
|
|
|
|
$44.43
|
|
|
6.0
|
|
|
$223,611
|
|
Options exercisable at October 29, 2016
|
6,577
|
|
|
|
$37.90
|
|
|
4.5
|
|
|
$168,549
|
|
Options vested or expected to vest at October 29, 2016 (1)
|
11,321
|
|
|
|
$44.09
|
|
|
6.0
|
|
|
$220,085
|
|
|
|
(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.
|
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
2016
,
2015
and
2014
was
$46.6 million
,
$99.2 million
and
$130.6 million
, respectively, and the total amount of proceeds received by the Company from exercise of these options during fiscal
2016
,
2015
and
2014
was
$61.5 million
,
$122.6 million
and
$200.1 million
, respectively.
A summary of the Company’s restricted stock unit award activity as of
October 29, 2016
and changes during the fiscal year then ended is presented below:
|
|
|
|
|
|
|
|
|
Restricted
Stock Units
Outstanding
(in thousands)
|
|
Weighted-
Average Grant-
Date Fair Value
Per Share
|
Restricted stock units outstanding at October 31, 2015
|
2,698
|
|
|
|
$47.59
|
|
Units granted
|
1,099
|
|
|
|
$51.59
|
|
Restrictions lapsed
|
(905
|
)
|
|
|
$44.30
|
|
Forfeited
|
(202
|
)
|
|
|
$50.34
|
|
Restricted stock units outstanding at October 29, 2016
|
2,690
|
|
|
|
$50.11
|
|
As of
October 29, 2016
, there was
$112.3 million
of total unrecognized compensation cost related to unvested share-based awards comprised of stock options and restricted stock units. That cost is expected to be recognized over a weighted-average period of
1.4
years. The total grant-date fair value of shares that vested during fiscal
2016
,
2015
and
2014
was approximately
$62.8 million
,
$65.6 million
and
$57.4 million
, respectively.
Common Stock Repurchases
The Company’s common stock repurchase program has been in place since
August 2004
. In the aggregate, the Board of Directors has authorized the Company to repurchase
$6.2 billion
of the Company’s common stock under the program. The Company may repurchase outstanding shares of its common stock from time to time in the open market and through privately negotiated transactions. Unless terminated earlier by resolution of the Company’s Board of Directors, the repurchase program will expire when the Company has repurchased all shares authorized under the program. As of
October 29, 2016
, the Company had repurchased a total of approximately
147.0 million
shares of its common stock for approximately
$5.4 billion
under this program. An additional
$792.5 million
remains available for repurchase of shares under the current authorized program. The repurchased shares are held as authorized but unissued shares of common stock. As a result of the Company's planned acquisition of Linear Technology Corporation, see Note 6,
Acquisitions,
of these Notes to Consolidated Financial Statements, the Company temporarily suspended the common stock repurchase plan in the third quarter of 2016.
The Company also, from time to time, repurchases shares in settlement of employee minimum tax withholding obligations due upon the vesting of restricted stock units or the exercise of stock options. The withholding amount is based on the employees minimum statutory withholding requirement. Any future common stock repurchases will be dependent upon several factors, including the Company's financial performance, outlook, liquidity and the amount of cash the Company has available in the United States.
Preferred Stock
The Company has
471,934
authorized shares of
$1.00
par value preferred stock,
none
of which is issued or outstanding. The Board of Directors is authorized to fix designations, relative rights, preferences and limitations on the preferred stock at the time of issuance.
|
|
4.
|
Industry, Segment and Geographic Information
|
The Company operates and tracks its results in
one
reportable segment based on the aggregation of
seven
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:
•
The primary source of revenue for each operating segment is the sale of integrated circuits.
•
The integrated circuits sold by each of the Company's operating segments are manufactured using similar semiconductor manufacturing processes and raw materials in either the Company’s own production facilities or by third-party wafer fabricators using proprietary processes.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
•
The Company sells its products to tens of thousands of customers worldwide. Many of these customers use products spanning all operating segments in a wide range of applications.
•
The integrated circuits marketed by each of the Company's operating segments are sold globally through a direct sales force, third-party distributors, independent sales representatives and via our website to the same types of customers.
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 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 evolve and improve, the categorization of products by end market can vary over time. When this occurs, the Company reclassifies revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Revenue
|
|
% of
Total
Product
Revenue
|
|
Revenue
|
|
% of
Total
Product
Revenue
|
|
Revenue
|
|
% of
Total
Product
Revenue*
|
Industrial
|
$
|
1,502,019
|
|
|
44
|
%
|
|
$
|
1,494,898
|
|
|
44
|
%
|
|
$
|
1,344,906
|
|
|
47
|
%
|
Automotive
|
540,940
|
|
|
16
|
%
|
|
525,893
|
|
|
15
|
%
|
|
525,123
|
|
|
18
|
%
|
Consumer
|
688,289
|
|
|
20
|
%
|
|
729,860
|
|
|
21
|
%
|
|
327,434
|
|
|
11
|
%
|
Communications
|
690,161
|
|
|
20
|
%
|
|
684,441
|
|
|
20
|
%
|
|
667,310
|
|
|
23
|
%
|
Total Revenue
|
$
|
3,421,409
|
|
|
100
|
%
|
|
$
|
3,435,092
|
|
|
100
|
%
|
|
$
|
2,864,773
|
|
|
100
|
%
|
________________
|
|
*
|
The sum of the individual percentages does not equal the total due to rounding.
|
Geographic Information
Revenue by geographic region is based upon the primary location of the Company's customers' design activity for its products. In fiscal years
2016
,
2015
and
2014
, the predominant countries comprising “Rest of North and South America” are Canada and Mexico; the predominant countries comprising “Europe” are Germany, Sweden, France and the United Kingdom;
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and the predominant countries comprising “Rest of Asia” are South Korea and Taiwan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Revenue
|
|
|
|
|
|
|
|
|
United States
|
$
|
1,299,629
|
|
|
$
|
1,325,279
|
|
|
$
|
821,554
|
|
Rest of North and South America
|
95,957
|
|
|
97,189
|
|
|
96,957
|
|
Europe
|
924,849
|
|
|
939,230
|
|
|
924,477
|
|
Japan
|
291,649
|
|
|
319,569
|
|
|
308,054
|
|
China
|
575,690
|
|
|
511,365
|
|
|
459,260
|
|
Rest of Asia
|
233,635
|
|
|
242,460
|
|
|
254,471
|
|
Subtotal all foreign countries
|
2,121,780
|
|
|
2,109,813
|
|
|
2,043,219
|
|
Total revenue
|
$
|
3,421,409
|
|
|
$
|
3,435,092
|
|
|
$
|
2,864,773
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
United States
|
$
|
236,625
|
|
|
$
|
253,417
|
|
|
$
|
255,473
|
|
Ireland
|
174,952
|
|
|
173,703
|
|
|
167,359
|
|
Philippines
|
194,587
|
|
|
195,662
|
|
|
180,586
|
|
All other countries
|
29,952
|
|
|
21,328
|
|
|
19,004
|
|
Subtotal all foreign countries
|
399,491
|
|
|
390,693
|
|
|
366,949
|
|
Total property, plant and equipment
|
$
|
636,116
|
|
|
$
|
644,110
|
|
|
$
|
622,422
|
|
The Company monitors global macroeconomic conditions on an ongoing basis and continues to assess opportunities for improved operational effectiveness and efficiency, as well as a better alignment of expenses with revenues. As a result of these assessments, the Company has undertaken various restructuring actions over the past several years. These actions are described below.
The following tables display the special charges taken for ongoing actions and a roll-forward from
November 2, 2013
to
October 29, 2016
of the employee separation and exit cost accruals established related to these actions.
|
|
|
|
|
Statement of Income
|
Reduction of
Operating
Costs Action
|
Workforce reductions
|
37,873
|
|
Facility closure costs
|
459
|
|
Non-cash impairment charge
|
433
|
|
Change in estimate
|
(1,443
|
)
|
Total Fiscal 2014 Charges
|
$
|
37,322
|
|
Workforce reductions
|
13,684
|
|
Total Fiscal 2016 Charges
|
$
|
13,684
|
|
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
Accrued Restructuring
|
Reduction of
Operating
Costs Action
|
Balance at November 2, 2013
|
$
|
19,955
|
|
Fiscal 2014 special charges
|
37,322
|
|
Severance payments
|
(16,790
|
)
|
Effect of foreign currency on accrual
|
16
|
|
Balance at November 1, 2014
|
$
|
40,503
|
|
Severance payments
|
(33,220
|
)
|
Facility closure costs
|
(459
|
)
|
Non-cash impairment charge
|
(433
|
)
|
Effect of foreign currency on accrual
|
(514
|
)
|
Balance at October 31, 2015
|
$
|
5,877
|
|
Fiscal 2016 special charges
|
13,684
|
|
Severance payments
|
(7,184
|
)
|
Effect of foreign currency on accrual
|
(3
|
)
|
Balance at October 29, 2016
|
$
|
12,374
|
|
Reduction of Operating Costs Actions
During fiscal 2014, the Company recorded special charges of approximately
$37.3 million
. These special charges included
$37.9 million
for severance and fringe benefit costs in accordance with the Company's ongoing benefit plan or statutory requirements at foreign locations for
341
manufacturing, engineering and SMG&A employees;
$0.5 million
for lease obligations costs for facilities that the Company ceased using during the fourth quarter of fiscal 2014; and
$0.4 million
for the impairment of assets that have no future use located at closed facilities. In addition, the Company reversed approximately $
1.4 million
of its severance accrual related to charges taken in fiscal 2013 primarily due to severance costs being lower than the Company's estimates. The Company has terminated the employment of all employees associated with this action.
During fiscal 2016, the Company recorded special charges of approximately
$13.7 million
for severance and fringe benefit costs in accordance with the Company's ongoing benefit plan for
123
manufacturing, engineering and SMG&A employees. As of
October 29, 2016
, the Company still employed
44
of the
123
employees included in these cost reduction actions. These employees must continue to be employed by the Company until their employment is terminated in order to receive the severance benefit.
Proposed Acquisition of Linear Technology Corporation
On July 26, 2016, the Company entered into the Merger Agreement to acquire Linear. Under the terms of the agreement, Linear stockholders will receive, 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. Based on the number of outstanding shares of Linear common stock as of July 26, 2016 and the Company's 5-day volume weighted average price as of July 21, 2016, the value of the total consideration to be paid by the Company is estimated to be approximately
$14.8 billion
, to be funded with the issuance of approximately
58.0 million
new shares of the Company’s common stock and approximately
$11.6 billion
of new short- and long-term indebtedness.
On October 18, 2016, Linear stockholders approved the Merger Agreement. As of October 29, 2016 the Company had received antitrust clearance in the United States and Germany. Subsequently, the Company also received antitrust clearances in Japan and Israel. The Company currently expects the transaction to be completed by the end of the second quarter of fiscal 2017, subject to receipt of the remaining required regulatory clearances and the satisfaction or waiver of the other conditions contained in the Merger Agreement. The Merger Agreement includes termination rights for both the Company and Linear. Under certain circumstances, including if the proposed merger is terminated due to a failure to obtain the required regulatory clearances, the Company may be required to pay Linear a termination fee of
$700.0 million
.
In connection with the planned acquisition, the Company has obtained bridge financing commitments and has entered into a term loan facility. See Note 16,
Debt,
of these Notes to Consolidated Financial Statements for further information on these financing commitments. These sources of financing together with the issuance of the new shares of the Company's
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
common stock are expected to be sufficient to finance the acquisition. As a result of the planned acquisition, the Company has temporarily suspended its share repurchase program. See Note 3,
Stock-Based Compensation and Shareholders' Equity
of these Notes to Consolidated Financial Statements for further information on the Company's stock repurchases. During fiscal 2016, the Company incurred approximately
$12.2 million
of transaction-related costs recorded within Selling, Marketing, General and Administrative expenses in the Company's Consolidated Statement of Income.
Hittite Microwave Corporation
On
July 22, 2014
, the Company completed its acquisition of Hittite, a company that designed and developed high performance integrated circuits, modules, subsystems and instrumentation for radio frequency, microwave and millimeterwave applications. The total consideration paid to acquire Hittite was approximately
$2.4 billion
, financed through a combination of existing cash on hand and a 90-day term loan facility of
$2.0 billion
. The Hittite Acquisition is expected to expand the Company’s technology position in high performance signal processing solutions and drive growth in key markets. The Company completed the Hittite Acquisition through a cash tender offer (the Offer) by BBAC Corp., a wholly-owned subsidiary of the Company, for all of the outstanding shares of common stock, par value
$0.01
per share, of Hittite at a purchase price of
$78.00
per share, net to the seller in cash, without interest, less any applicable withholding taxes. After completion of the Offer, BBAC Corp. merged with and into Hittite, with Hittite continuing as the surviving corporation and a wholly-owned subsidiary of the Company. The results of operations of Hittite from
July 22, 2014
(the Hittite Acquisition Date) are included in the Company’s consolidated statements of income for fiscal 2015 and fiscal 2014. The amount of revenue and earnings attributable to Hittite included in the Company's consolidated statements of income for fiscal 2014 was immaterial.
The Hittite Acquisition date fair value of the consideration transferred in the Hittite Acquisition consisted of the following:
|
|
|
|
|
(in thousands)
|
|
Cash consideration
|
$2,424,446
|
Fair value of replacement share-based awards
|
6,541
|
|
Total estimated purchase price
|
$
|
2,430,987
|
|
Hittite Replacement Awards
—
In connection with the Hittite Acquisition, the Company issued equity awards to certain Hittite employees in replacement of Hittite equity awards that were canceled at closing. The replacement awards consisted of approximately
0.7 million
restricted stock units with a weighted average grant date fair value of
$48.20
. The grant-date fair value of the restricted stock units represents the value of the Company’s common stock on the date of grant, reduced by the present value of dividends expected to be paid on the Company’s common stock prior to vesting. The terms and the intrinsic value of these awards were substantially the same as the canceled Hittite awards. The
$6.5 million
noted in the table above represents the portion of the fair value of the replacement awards associated with services rendered through the Hittite Acquisition Date and have been included as a component of the total estimated purchase price.
During fiscal 2015, the Company completed the acquisition accounting for the Hittite Acquisition. The following is a summary of the amounts recognized in the accounting for the Hittite Acquisition:
|
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
$
|
480,742
|
|
Marketable securities
|
28,008
|
|
Accounts receivable (a)
|
36,991
|
|
Inventories
|
115,377
|
|
Prepaid expenses and other assets
|
24,088
|
|
Property, plant and equipment
|
50,726
|
|
Deferred tax assets
|
2,242
|
|
Intangible assets (Note 2f)
|
666,400
|
|
Goodwill (Note 2f)
|
1,355,972
|
|
Total assets
|
$
|
2,760,546
|
|
Assumed liabilities
|
52,876
|
|
Deferred tax liabilities
|
276,683
|
|
Total estimated purchase price
|
$
|
2,430,987
|
|
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
____________
|
|
(a)
|
The fair value of accounts receivable was
$37.0 million
, with the gross contractual amount being
$37.3 million
, of which the Company estimates that
$0.3 million
is uncollectible.
|
Of the
$666.4 million
of acquired intangible assets,
$0.9 million
was recorded as in-process research and development (IPR&D) assets at estimated fair value on the Hittite Acquisition Date. The IPR&D assets acquired were capitalized until the technology was commercially available for their intended uses and are now being amortized over their estimated useful lives. The amortizable intangible assets acquired consisted of the following, which are being amortized on a straight-line basis over their estimated useful lives.
|
|
|
|
|
|
|
|
Fair Value
(in thousands)
|
|
Weighted Average Useful Lives
(in Years)
|
Technology-based
|
$
|
15,100
|
|
|
4
|
Backlog
|
25,500
|
|
|
1
|
Customer relationships
|
624,900
|
|
|
9
|
Total amortizable intangible assets
|
$
|
665,500
|
|
|
9
|
The goodwill recognized is attributable to synergies which are expected to enhance and expand the Company’s overall product portfolio and opportunities in new markets, future technologies that have yet to be determined and Hittite’s assembled workforce. Future technologies do not meet the criteria for recognition separately from goodwill because they are part of future development and growth of the business.
There were no significant contingencies assumed as part of the Hittite Acquisition.
The Company recognized
$50.9 million
of transaction-related costs, including legal, accounting, severance, debt financing, interest and other related fees, of which approximately
$9.7 million
and
$41.2 million
were expensed in fiscal 2015 and fiscal 2014, respectively. Approximately
$9.7 million
of these costs are included in the consolidated statements of income in operating expenses within SMG&A expenses for fiscal 2015. Approximately
$33.3 million
of these costs are included in the consolidated statements of income in operating expenses within SMG&A expenses for fiscal 2014, and approximately
$7.9 million
of these costs are included in the consolidated statements of income within nonoperating expenses for fiscal 2014.
The following unaudited pro forma consolidated financial information presents the Company's combined results of operations after giving effect to the Hittite Acquisition and assumes that the Hittite Acquisition, which closed on
July 22, 2014
, was completed on November 4, 2012 (the first day of the Company’s fiscal 2013). The pro forma consolidated financial information has been calculated after applying the Company’s accounting policies and includes adjustments for amortization expense of acquired intangible assets, transaction-related costs, a step-up in the value of acquired inventory and property, plant and equipment, and interest expense for the debt incurred to fund the Hittite 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 Hittite Acquisition actually taken place on November 4, 2012. In addition, these results are not intended to be a projection of future results and do not reflect events that may occur after the Hittite Acquisition, including but not limited to revenue enhancements, cost savings or operating synergies that the combined Company may achieve as a result of the Hittite Acquisition.
|
|
|
|
|
(thousands, except per share data)
|
|
|
2014
|
Revenue
|
$
|
3,075,468
|
|
Net income
|
$
|
778,049
|
|
Basic net income per common share
|
$
|
2.48
|
|
Diluted net income per common share
|
$
|
2.44
|
|
Other Acquisitions
The Company has not provided pro forma results of operations for any other acquisitions completed in fiscal years
2016
,
2015
or
2014
herein as they were not material to the Company on either an individual or an aggregate basis. The Company included the results of operations of each acquisition in its consolidated statement of income from the date of each acquisition.
|
|
7.
|
Deferred Compensation Plan Investments
|
Investments in The Analog Devices, Inc. Deferred Compensation Plan (the Deferred Compensation Plan) are classified as trading. The components of the investments as of
October 29, 2016
and
October 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Money market funds
|
$
|
3,129
|
|
|
$
|
3,659
|
|
Mutual funds
|
23,787
|
|
|
20,465
|
|
Total Deferred Compensation Plan investments
|
$
|
26,916
|
|
|
$
|
24,124
|
|
The fair values of these investments are based on published market quotes on
October 29, 2016
and
October 31, 2015
, respectively. Adjustments to the fair value of, and income pertaining to, Deferred Compensation Plan investments are recorded in operating expenses. Gross realized and unrealized gains and losses from trading securities were
not material
in fiscal
2016
, fiscal
2015
or fiscal
2014
.
The Company has recorded a corresponding liability for amounts owed to the Deferred Compensation Plan participants. See Note 10,
Deferred Compensation Plan Liability,
of these Notes to Consolidated Financial Statements for further information. These investments are specifically designated as available to the Company solely for the purpose of paying benefits under the Deferred Compensation Plan. However, in the event the Company became insolvent, the investments would be available to all unsecured general creditors.
Other investments consist of interests in venture capital funds and other long-term investments. Investments are accounted for using the equity or cost method of accounting, depending on the nature of the investment, as appropriate. Realized gains and losses from equity method investments are reflected in nonoperating (income) expense based upon the Company's ownership share of the investee's financial results. Realized gains or losses on cost-method investments are determined based on the specific identification basis and are recognized in nonoperating (income) expense.
During fiscal 2016, the Company recognized an other-than-temporary impairment of
$6.0 million
, recorded in the condensed consolidated statement of income in other, net, within non-operating (income) expense, related to a cost method investment that the Company determined was impaired. There were no other-than-temporary impairments recognized in any other of the fiscal periods presented.
There were no material net realized or unrealized gains or losses from other investments during fiscal 2016, fiscal
2015
and fiscal
2014
.
Accrued liabilities at
October 29, 2016
and
October 31, 2015
consisted of the following:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Accrued compensation and benefits
|
$
|
112,003
|
|
|
$
|
125,500
|
|
Interest rate swap (Note 2i)
|
—
|
|
|
32,737
|
|
Accrued interest (Note 16)
|
26,411
|
|
|
6,069
|
|
Special charges (Note 5)
|
12,374
|
|
|
5,877
|
|
Other
|
105,069
|
|
|
79,412
|
|
Total accrued liabilities
|
$
|
255,857
|
|
|
$
|
249,595
|
|
|
|
10.
|
Deferred Compensation Plan Liability
|
The deferred compensation plan liability relates to obligations due under the Deferred Compensation Plan. The Deferred Compensation Plan allows certain members of management and other highly-compensated employees and non-employee directors to defer receipt of all or any portion of their compensation. The balance represents Deferred Compensation Plan participant accumulated deferrals and earnings thereon since the inception of the Deferred Compensation Plan net of withdrawals. The Company’s liability under the Deferred Compensation Plan is an unsecured general obligation of the Company.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company leases certain facilities, equipment and software under various operating leases that expire at various dates through 2022
. The lease agreements frequently include renewal and escalation clauses and require the Company to pay taxes, insurance and maintenance costs. Total rental expense under operating leases was approximately
$58.5 million
in fiscal
2016
,
$51.8 million
in fiscal
2015
and
$51.0 million
in fiscal
2014
.
The following is a schedule of future minimum rental payments required under long-term operating leases at
October 29, 2016
:
|
|
|
|
|
|
|
|
Operating
|
Fiscal Years
|
|
Leases
|
2017
|
|
$
|
34,328
|
|
2018
|
|
25,301
|
|
2019
|
|
8,130
|
|
2020
|
|
7,033
|
|
2021
|
|
4,439
|
|
Later Years
|
|
3,394
|
|
Total
|
|
$
|
82,625
|
|
|
|
12.
|
Commitments and Contingencies
|
From time to time, in the ordinary course of the Company’s business, various claims, charges and litigation are asserted or commenced against the Company arising from, or related to, contractual matters, patents, trademarks, personal injury, environmental matters, product liability, insurance coverage and personnel and employment disputes. As to such claims and litigation, the Company can give no assurance that it will prevail. The Company does not believe that any current legal matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
The Company and its subsidiaries have various savings and retirement plans covering substantially all employees. The Company maintains a defined contribution plan for the benefit of its eligible U.S. employees. This plan provides for Company contributions of up to
5%
of each participant’s total eligible compensation. In addition, the Company contributes an amount equal to each participant’s pre-tax contribution, if any, up to a maximum of
3%
of each participant’s total eligible compensation. The total expense related to the defined contribution plan for U.S. employees was
$28.3 million
in fiscal
2016
,
$26.3 million
in fiscal
2015
and
$24.1 million
in fiscal
2014
. The Company also has various defined benefit pension and other retirement plans for certain non-U.S. employees that are consistent with local statutory requirements and practices. The total expense related to the various defined benefit pension and other retirement plans for certain non-U.S. employees, excluding settlement charges related to the Company's Irish defined benefit plan, was
$26.9 million
in fiscal
2016
,
$33.3 million
in fiscal
2015
and
$29.8 million
in fiscal
2014
.
Non-U.S. Plan Disclosures
During fiscal 2015, the Company converted the benefits provided to participants in the Company’s Irish defined benefits pension plan (the DB Plan) to benefits provided under the Company’s Irish defined contribution plan. As a result, in fiscal 2015 the Company recorded expenses of
$223.7 million
, including settlement charges, legal, accounting and other professional fees to settle the pension obligation. The assets related to the DB Plan were liquidated and used to purchase annuities for retirees and distributed to active and deferred members' accounts in the Company's Irish defined contribution plan in connection with the plan conversion. Accordingly, plan assets for the DB Plan were zero as of the end of fiscal 2015.
The Company’s funding policy for its foreign defined benefit pension plans is consistent with the local requirements of each country. The plans’ assets consist primarily of U.S. and non-U.S. equity securities, bonds, property and cash. The benefit obligations and related assets under these plans have been measured at
October 29, 2016
and
October 31, 2015
.
Components of Net Periodic Benefit Cost
Net annual periodic pension cost of non-U.S. plans is presented in the following table:
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Service cost
|
$
|
5,520
|
|
|
$
|
15,675
|
|
|
$
|
13,532
|
|
Interest cost
|
3,675
|
|
|
11,636
|
|
|
14,051
|
|
Expected return on plan assets
|
(3,764
|
)
|
|
(13,509
|
)
|
|
(13,615
|
)
|
Amortization of prior service cost
|
—
|
|
|
(229
|
)
|
|
(240
|
)
|
Amortization of transition obligation
|
17
|
|
|
18
|
|
|
19
|
|
Recognized actuarial loss
|
679
|
|
|
7,257
|
|
|
4,544
|
|
Subtotal
|
$
|
6,127
|
|
|
$
|
20,848
|
|
|
$
|
18,291
|
|
Curtailment impact
|
—
|
|
|
(4,463
|
)
|
|
—
|
|
Settlement impact
|
151
|
|
|
226,810
|
|
|
—
|
|
Net periodic pension cost
|
$
|
6,278
|
|
|
$
|
243,195
|
|
|
$
|
18,291
|
|
Benefit Obligations and Plan Assets
Obligation and asset data of the Company’s non-U.S. plans at each fiscal year end is presented in the following table:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Change in Benefit Obligation
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
106,533
|
|
|
$
|
455,205
|
|
Service cost
|
5,520
|
|
|
15,675
|
|
Interest cost
|
3,675
|
|
|
11,636
|
|
Participant contributions
|
—
|
|
|
1,895
|
|
Plan amendments
|
(142
|
)
|
|
—
|
|
Curtailment
|
—
|
|
|
(20,586
|
)
|
Settlement
|
(632
|
)
|
|
(412,136
|
)
|
Premiums paid
|
—
|
|
|
(332
|
)
|
Actuarial loss
|
30,223
|
|
|
114,767
|
|
Benefits paid
|
(1,701
|
)
|
|
(4,449
|
)
|
Exchange rate adjustment
|
(13,765
|
)
|
|
(55,142
|
)
|
Benefit obligation at end of year
|
$
|
129,711
|
|
|
$
|
106,533
|
|
Change in Plan Assets
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
70,365
|
|
|
$
|
269,371
|
|
Actual return on plan assets
|
9,002
|
|
|
24,283
|
|
Employer contributions
|
4,880
|
|
|
228,582
|
|
Participant contributions
|
—
|
|
|
1,895
|
|
Settlements
|
(632
|
)
|
|
(412,136
|
)
|
Premiums paid
|
—
|
|
|
(332
|
)
|
Benefits paid
|
(1,701
|
)
|
|
(4,449
|
)
|
Exchange rate adjustment
|
(12,091
|
)
|
|
(36,849
|
)
|
Fair value of plan assets at end of year
|
$
|
69,823
|
|
|
$
|
70,365
|
|
Reconciliation of Funded Status
|
|
|
|
|
|
Funded status
|
$
|
(59,888
|
)
|
|
$
|
(36,168
|
)
|
Amounts Recognized in the Balance Sheet
|
|
|
|
|
|
Non-current assets
|
$
|
—
|
|
|
$
|
3,246
|
|
Current liabilities
|
(606
|
)
|
|
(595
|
)
|
Non-current liabilities
|
(59,282
|
)
|
|
(38,819
|
)
|
Net amount recognized
|
$
|
(59,888
|
)
|
|
$
|
(36,168
|
)
|
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Reconciliation of Amounts Recognized in the Statement of Financial Position
|
|
|
|
|
|
Initial net obligation
|
$
|
(24
|
)
|
|
$
|
(44
|
)
|
Prior service credit
|
148
|
|
|
—
|
|
Net loss
|
(39,647
|
)
|
|
(19,620
|
)
|
Accumulated other comprehensive loss
|
(39,523
|
)
|
|
(19,664
|
)
|
Accumulated contributions (less than) in excess of net periodic benefit cost
|
(20,365
|
)
|
|
(16,504
|
)
|
Net amount recognized
|
$
|
(59,888
|
)
|
|
$
|
(36,168
|
)
|
Changes Recognized in Other Comprehensive Income
|
|
|
|
|
|
Changes in plan assets and benefit obligations recognized in other comprehensive income
|
|
|
|
|
|
Prior service cost
|
$
|
(142
|
)
|
|
$
|
—
|
|
Net loss arising during the year (includes curtailment gains not recognized as a component of net periodic cost)
|
$
|
24,985
|
|
|
$
|
83,610
|
|
Effect of exchange rates on amounts included in accumulated other comprehensive income (loss)
|
(4,137
|
)
|
|
(26,366
|
)
|
Amounts recognized as a component of net periodic benefit cost
|
|
|
|
|
|
Amortization, settlement or curtailment recognition of net transition obligation
|
(17
|
)
|
|
(18
|
)
|
Amortization or curtailment recognition of prior service credit (cost)
|
—
|
|
|
4,490
|
|
Amortization or settlement recognition of net loss
|
(830
|
)
|
|
(234,067
|
)
|
Total recognized in other comprehensive loss
|
$
|
19,859
|
|
|
$
|
(172,351
|
)
|
Total recognized in net periodic cost and other comprehensive loss
|
$
|
26,137
|
|
|
$
|
70,844
|
|
Estimated amounts that will be amortized from accumulated other comprehensive (loss) income over the next fiscal year
|
|
|
|
|
|
Initial net obligation
|
$
|
(14
|
)
|
|
$
|
(17
|
)
|
Prior service credit
|
10
|
|
|
—
|
|
Net loss
|
(1,808
|
)
|
|
(697
|
)
|
Total
|
$
|
(1,812
|
)
|
|
$
|
(714
|
)
|
The accumulated benefit obligation for non-U.S. pension plans was
$106.4 million
and
$88.5 million
at
October 29, 2016
and
October 31, 2015
, respectively.
Information relating to the Company’s non-U.S. plans with projected benefit obligations in excess of plan assets and accumulated benefit obligations in excess of plan assets at each fiscal year end is presented in the following table:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Plans with projected benefit obligations in excess of plan assets:
|
|
|
|
|
|
Projected benefit obligation
|
$
|
129,711
|
|
|
$
|
61,713
|
|
Fair value of plan assets
|
$
|
69,823
|
|
|
$
|
22,300
|
|
Plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
Projected benefit obligation
|
$
|
98,244
|
|
|
$
|
36,986
|
|
Accumulated benefit obligation
|
$
|
93,164
|
|
|
$
|
31,790
|
|
Fair value of plan assets
|
$
|
45,948
|
|
|
$
|
487
|
|
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 of October 29, 2016, the Company changed the method utilized to estimate the service cost and interest cost components of net periodic benefit cost for certain of its defined benefit pension plans. Prior to October 29, 2016, the Company estimated the service cost and interest cost components of net periodic benefit costs using a single weighted average discount rate. As of October 29, 2016, the Company will use a spot rate approach to estimate the service and interest cost components of net periodic benefit cost for certain of its defined benefit pension plans as the Company believes this approach calculates a better estimate. The change did not, and is not expected to, materially affect the Company's Consolidated Statement of Income.
The projected benefit obligation was determined using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Discount rate
|
2.92
|
%
|
|
3.64
|
%
|
Rate of increase in compensation levels
|
3.36
|
%
|
|
3.05
|
%
|
Net annual periodic pension cost was determined using the following weighted average assumptions:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Discount rate
|
3.64
|
%
|
|
2.95
|
%
|
Expected long-term return on plan assets
|
5.65
|
%
|
|
5.80
|
%
|
Rate of increase in compensation levels
|
3.05
|
%
|
|
2.77
|
%
|
The expected long-term rate of return on assets is a weighted-average of the long-term rates of return selected for the various countries where the Company has funded pension plans. The expected long-term rate of return on assets assumption is selected based on the facts and circumstances that exist as of the measurement date and the specific portfolio mix of plan assets. Management, in conjunction with its actuaries, reviewed anticipated future long-term performance of individual asset categories and considered the asset allocation strategy adopted by the Company and/or the trustees of the plans. While the review considered recent fund performance and historical returns, the assumption is primarily a long-term prospective rate.
The Company’s investment strategy is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, in order to maximize the return on assets, a majority of assets are invested in equities. Investments within each asset class are diversified to reduce the impact of losses in single investments. The use of derivative instruments is permitted where appropriate and necessary to achieve overall investment policy objectives and asset class targets.
The Company establishes strategic asset allocation percentage targets and appropriate benchmarks for each significant asset class to obtain a prudent balance between return and risk. The interaction between plan assets and benefit obligations is periodically studied by the Company and its actuaries to assist in the establishment of strategic asset allocation targets.
Fair value of plan assets
The following table presents plan assets measured at fair value on a recurring basis by investment categories as of
October 29, 2016
and
October 31, 2015
using the same three-level hierarchy described in Note 2j,
Fair Value,
of these Notes to Consolidated Financial Statements:
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2016
|
|
|
|
October 31, 2015
|
|
|
|
Fair Value Measurement at Reporting Date Using:
|
|
|
|
Fair Value Measurement at Reporting Date Using:
|
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
|
Total
|
Unit trust funds(1)
|
$
|
—
|
|
|
$
|
4,681
|
|
|
$
|
—
|
|
|
$
|
4,681
|
|
|
$
|
—
|
|
|
$
|
5,198
|
|
|
$
|
—
|
|
|
$
|
5,198
|
|
Equities(1)
|
—
|
|
|
30,510
|
|
|
74
|
|
|
30,584
|
|
|
—
|
|
|
30,196
|
|
|
77
|
|
|
30,273
|
|
Fixed income securities(2)
|
—
|
|
|
33,573
|
|
|
—
|
|
|
33,573
|
|
|
—
|
|
|
34,504
|
|
|
—
|
|
|
34,504
|
|
Cash and cash equivalents
|
985
|
|
|
—
|
|
|
—
|
|
|
985
|
|
|
390
|
|
|
—
|
|
|
—
|
|
|
390
|
|
Total assets measured at fair value
|
$
|
985
|
|
|
$
|
68,764
|
|
|
$
|
74
|
|
|
$
|
69,823
|
|
|
$
|
390
|
|
|
$
|
69,898
|
|
|
$
|
77
|
|
|
$
|
70,365
|
|
_______________________________________
|
|
(1)
|
The majority of the assets in these categories are invested in a mix of equities, including those from North America, Europe and Asia. The funds are valued using the net asset value method in which an average of the market prices for underlying investments is used to value the fund. Due to the nature of the underlying assets of these funds, changes in market conditions and the economic environment may significantly impact the net asset value of these investments and, consequently, the fair value of the investments. These investments are redeemable at net asset value to the extent provided in the documentation governing the investments. However, these redemption rights may be restricted in accordance with governing documents. Publicly traded securities are valued at the last trade or closing price reported in the active market in which the individual securities are traded. Level 3 securities are valued at book value per share based upon the financial statements of the investment.
|
|
|
(2)
|
The majority of the assets in this category are invested in funds primarily concentrated in non-U.S. debt instruments. The funds are valued using the net asset value method in which an average of the market prices for underlying investments is used to value the fund.
|
The table below presents a reconciliation of the plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for fiscal years
2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
Properties
|
|
Equities
|
Balance as of November 1, 2014
|
$
|
3,029
|
|
|
$
|
121
|
|
Purchases, sales, and settlements, net
|
(2,907
|
)
|
|
(37
|
)
|
Realized and unrealized return on plan assets
|
152
|
|
|
—
|
|
Exchange rate adjustment
|
(274
|
)
|
|
(7
|
)
|
Balance as of October 31, 2015
|
$
|
—
|
|
|
$
|
77
|
|
Exchange rate adjustment
|
—
|
|
|
(3
|
)
|
Balance as of October 29, 2016
|
$
|
—
|
|
|
$
|
74
|
|
Estimated future cash flows
Expected fiscal
2017
Company contributions and estimated future benefit payments are as follows:
|
|
|
|
|
Expected Company Contributions
|
|
|
2017
|
$
|
5,187
|
|
Expected Benefit Payments
|
|
|
2017
|
$
|
1,765
|
|
2018
|
$
|
1,798
|
|
2019
|
$
|
1,890
|
|
2020
|
$
|
2,253
|
|
2021
|
$
|
2,448
|
|
2022 through 2025
|
$
|
19,074
|
|
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
U.S. federal statutory tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Income tax provision reconciliation:
|
|
|
|
|
|
|
|
|
Tax at statutory rate:
|
$
|
334,922
|
|
|
$
|
283,540
|
|
|
$
|
255,271
|
|
Net foreign income subject to lower tax rate
|
(264,157
|
)
|
|
(198,061
|
)
|
|
(179,329
|
)
|
State income taxes, net of federal benefit
|
(10,821
|
)
|
|
(4,425
|
)
|
|
(6,361
|
)
|
Valuation allowance
|
13,658
|
|
|
4,875
|
|
|
2,846
|
|
Federal research and development tax credits
|
(16,237
|
)
|
|
(8,232
|
)
|
|
(1,165
|
)
|
Change in uncertain tax positions
|
4,797
|
|
|
2,449
|
|
|
719
|
|
Amortization of purchased intangibles
|
35,641
|
|
|
38,973
|
|
|
8,126
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
15,656
|
|
Other, net
|
(2,546
|
)
|
|
(5,883
|
)
|
|
4,262
|
|
Total income tax provision
|
$
|
95,257
|
|
|
$
|
113,236
|
|
|
$
|
100,025
|
|
For financial reporting purposes, income before income taxes includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Pretax income:
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
2,642
|
|
|
$
|
110,710
|
|
|
$
|
127,084
|
|
Foreign
|
954,279
|
|
|
699,404
|
|
|
602,261
|
|
Income before income taxes
|
$
|
956,921
|
|
|
$
|
810,114
|
|
|
$
|
729,345
|
|
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
|
|
|
Federal tax
|
$
|
27,790
|
|
|
$
|
65,942
|
|
|
$
|
128,591
|
|
State
|
1,409
|
|
|
695
|
|
|
316
|
|
Foreign
|
57,934
|
|
|
98,813
|
|
|
48,829
|
|
Total current
|
$
|
87,133
|
|
|
$
|
165,450
|
|
|
$
|
177,736
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
325
|
|
|
$
|
(27,933
|
)
|
|
$
|
(74,263
|
)
|
State
|
2,820
|
|
|
541
|
|
|
(1,113
|
)
|
Foreign
|
4,979
|
|
|
(24,822
|
)
|
|
(2,335
|
)
|
Total deferred
|
$
|
8,124
|
|
|
$
|
(52,214
|
)
|
|
$
|
(77,711
|
)
|
The Company continues to intend to reinvest certain of its foreign earnings indefinitely. Accordingly, no U.S. income taxes have been provided for approximately
$5.1 billion
of unremitted earnings of international subsidiaries. As of
October 29, 2016
, the amount of unrecognized deferred tax liability on these earnings was
$1.4 billion
.
The significant components of the Company’s deferred tax assets and liabilities for the fiscal years ended
October 29, 2016
and
October 31, 2015
are as follows:
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
|
Inventory reserves
|
$
|
22,527
|
|
|
$
|
24,009
|
|
Deferred income on shipments to distributors
|
49,455
|
|
|
40,842
|
|
Reserves for compensation and benefits
|
48,062
|
|
|
45,515
|
|
Tax credit carryovers
|
68,669
|
|
|
64,838
|
|
Stock-based compensation
|
56,345
|
|
|
68,530
|
|
Depreciation
|
3,078
|
|
|
1,840
|
|
Acquisition-related costs
|
19,312
|
|
|
6,327
|
|
Other
|
47,482
|
|
|
36,711
|
|
Total gross deferred tax assets
|
314,930
|
|
|
288,612
|
|
Valuation allowance
|
(67,094
|
)
|
|
(52,675
|
)
|
Total deferred tax assets
|
247,836
|
|
|
235,937
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Depreciation
|
(59,218
|
)
|
|
(50,389
|
)
|
Undistributed earnings of foreign subsidiaries
|
(60,986
|
)
|
|
(29,471
|
)
|
Acquisition-related intangibles
|
(199,035
|
)
|
|
(217,961
|
)
|
Other
|
(2,523
|
)
|
|
(2,971
|
)
|
Total gross deferred tax liabilities
|
(321,762
|
)
|
|
(300,792
|
)
|
Net deferred tax liabilities
|
$
|
(73,926
|
)
|
|
$
|
(64,855
|
)
|
The valuation allowances of
$67.1 million
and
$52.7 million
at
October 29, 2016
and
October 31, 2015
, respectively, are valuation allowances primarily for the Company’s state credit carryover. The Company believes that it is more-likely-than-not that these credit carryovers will not be realized and as a result has recorded a full valuation allowance as of October 29, 2016. The state credit carryover of
$67.9 million
will begin to expire in 2016.
As of
October 29, 2016
, the Company has foreign tax credit carryforwards of
$0.7 million
to offset future passive income. If not used, these carryforwards will expire between 2019 and 2023.
The Company has provided for potential tax liabilities due in the various jurisdictions in which the Company operates. Judgment is required in determining the worldwide income tax expense provision. In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement arrangements among related entities. Although the Company believes its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in the historical income tax provisions and accruals. Such differences could have a material impact on the Company’s income tax provision and operating results in the period in which such determination is made.
As of
October 29, 2016
and
October 31, 2015
, the Company had a liability of
$75.6 million
and
$75.3 million
, respectively, for unrealized tax benefits, all of which, if settled in the Company’s favor, would lower the Company’s effective tax rate in the period recorded. As of
October 29, 2016
and
October 31, 2015
, the Company had a liability of approximately
$20.1 million
and
$16.1 million
, respectively, for interest and penalties. The Company includes interest and penalties related to unrecognized tax benefits within the provision for taxes in the consolidated statements of income. The total liability as of
October 29, 2016
and
October 31, 2015
of
$81.7 million
and
$81.0 million
, respectively, for uncertain tax positions is classified as non-current, and is included in other non-current liabilities, because the Company believes that the ultimate payment or settlement of these liabilities may not occur within the next twelve months. The consolidated statements of income for fiscal year
2016
, fiscal
2015
and fiscal
2014
include
$4.0 million
,
$4.1 million
and
$1.9 million
, respectively, of interest and penalties related to these uncertain tax positions. Over the next fiscal year, the Company anticipates the liability to be reduced by
$1.6 million
for the possible expiration of an income tax statute of limitations.
The following table summarizes the changes in the total amounts of unrealized tax benefits for fiscal
2014
through fiscal
2016
:
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
Unrealized Tax Benefits
|
Balance, November 2, 2013
|
$
|
68,139
|
|
Additions for tax positions related to current year
|
214
|
|
Reductions for tax positions related to prior years
|
(1,321
|
)
|
Reductions due to lapse of applicable statute of limitations
|
(1,568
|
)
|
Balance, November 1, 2014
|
$
|
65,464
|
|
Additions for tax positions related to current year
|
524
|
|
Additions for tax positions related to prior years
|
9,799
|
|
Reductions for tax positions related to prior years
|
(2,745
|
)
|
Reductions due to lapse of applicable statute of limitations
|
(1,260
|
)
|
Balance, October 31, 2015
|
$
|
71,782
|
|
Additions for tax positions related to current year
|
2,539
|
|
Reductions for tax positions related to prior years
|
(4,475
|
)
|
Reductions due to lapse of applicable statute of limitations
|
(1,311
|
)
|
Balance, October 29, 2016
|
$
|
68,535
|
|
The Company has filed a petition with the U.S. Tax Court for one open matter for fiscal years 2006 and 2007 that pertains to Section 965 of the Internal Revenue Code related to the beneficial tax treatment of dividends paid from foreign owned companies under The American Jobs Creation Act. The potential liability for this adjustment is
$36.5 million
. On September 18, 2013, in a matter not involving the Company, the U.S. Tax Court held that accounts receivable created under Rev. Proc. 99-32 may constitute indebtedness for purposes of Section 965 (b)(3) of the Internal Revenue Code and that the IRS was not precluded from reducing the beneficial dividend received deduction because of the increase in related-party indebtedness (BMC Software Inc. v Commissioner, 141 T.C. No. 5 2013). After analyzing the Tax Court’s decision, the Company has determined that its tax position with respect to the Section 965(b)(3) no longer meets the more likely than not standard of recognition for accounting purposes. Accordingly, the Company recorded a
$36.5 million
reserve for this matter in the fourth quarter of 2013.
All of the Company's U.S. federal tax returns prior to fiscal 2013 are no longer subject to examination.
All of the Company's Ireland tax returns prior to fiscal 2012 are no longer subject to examination.
|
|
15.
|
Revolving Credit Facility
|
On December 19, 2012, the Company entered into a five-year, $500.0 million senior unsecured revolving credit facility with certain institutional lenders (the Credit Agreement). On
July 10, 2015
, the Company amended and restated the Credit Agreement. On September 23, 2016, the Company subsequently amended and restated the Credit Agreement. The Credit Agreement expires on July 10, 2020 and provides that the Company may borrow up to
$750.0 million
. Subject to closing the acquisition of Linear and the satisfaction of certain other conditions, the aggregate amount of commitments under the facility will increase to
$1.0 billion
from
$750.0 million
and the maximum covenant level will be temporarily revised. To date, the Company has not borrowed under this credit facility but the Company may borrow in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes. Revolving loans under the Credit Agreement (other than swing line loans) bear interest, at the Company's option, at either a rate equal to (a) the Eurodollar Rate (as defined in the Credit Agreement) plus a margin based on the Company's debt rating or (b) the Base Rate (defined as the highest of (i) the Bank of America prime rate, (ii) the Federal Funds Rate (as defined in the Credit Agreement) plus .50% or (iii) one month Eurodollar Rate plus a margin based on the Company's debt rating. The terms of the facility impose restrictions on the Company’s ability to undertake certain transactions, to create certain liens on assets and to incur certain subsidiary indebtedness. In addition, the Credit Agreement contains a consolidated leverage ratio covenant of total consolidated funded debt to
consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) of not greater than 3.0 to 1.0
. As of
October 29, 2016
, the Company was
compliant with these covenants
.
On
April 4, 2011
, the Company issued
$375.0 million
aggregate principal amount of
3.0%
senior unsecured notes due
April 15, 2016
(the 2016 Notes) with
semi-annual fixed interest payments due on April 15 and October 15 of each year,
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
commencing October 15, 2011
. The net proceeds of the offering were
$370.5 million
, after issuing at a discount and deducting expenses, underwriting fees and commissions. On
December 18, 2015
, the Company redeemed the 2016 Notes. The redemption price was
100.79%
of the principal amount for the 2016 Notes. In accordance with the applicable guidance, the Company concluded that the debt transaction qualified as a debt extinguishment and recognized a net loss of approximately
$3.3 million
recorded in the consolidated statement of income in other, net, within non-operating (income) expense. This loss was comprised of the make-whole premium of
$3.0 million
paid to holders of the 2016 Notes in accordance with the terms of the notes and approximately
$0.3 million
of debt issuance and discount costs that remained to be amortized. The write-off of the debt issuance costs and discount are reflected in the Company’s consolidated statement of cash flows within operating activities, and the make-whole premium is reflected within financing activities.
On
June 3, 2013
, the Company issued
$500.0 million
aggregate principal amount of
2.875%
senior unsecured notes due
June 1, 2023
(the 2023 Notes) with
semi-annual fixed interest payments due on June 1 and December 1 of each year, commencing December 1, 2013
. Prior to issuing the 2023 Notes, on
April 24, 2013
, the Company entered into a treasury rate lock agreement with Bank of America. This agreement allowed the Company to lock a 10-year US Treasury rate of
1.7845%
through
June 14, 2013
for its anticipated issuance of the 2023 Notes. Upon issuing the 2023 Notes, the Company simultaneously terminated the treasury rate lock agreement resulting in a gain of approximately
$11.0 million
. This gain will be amortized into interest expense over the 10-year term of the 2023 Notes. The sale of the 2023 Notes was made pursuant to the terms of an underwriting agreement, dated as of
May 22, 2013
, among the Company and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC, as the representatives of the several underwriters named therein. The net proceeds of the offering were
$493.9 million
, after discount and issuance costs. Debt discount and issuance costs will be amortized through interest expense over the term of the 2023 Notes. The indenture governing the 2023 Notes contains covenants that may limit the Company's ability to: incur, create, assume or guarantee any debt for borrowed money secured by a lien upon a principal property; enter into sale and lease-back transactions with respect to a principal property; and consolidate with or merge into, or transfer or lease all or substantially all of its assets to, any other party. As of
October 29, 2016
, 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 July 22, 2014, the Company entered into a 90-day term loan facility in an aggregate principal amount of
$2.0 billion
with Credit Suisse AG, as Administrative Agent, and each lender from time to time party thereto (the Term Loan Agreement) to finance the Hittite Acquisition. On
August 29, 2014
the outstanding principal balance due under the Term Loan Agreement was repaid.
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 sale of the 2025 Notes and 2045 Notes was made pursuant to the terms of an underwriting agreement, dated as of
December 3, 2015
among the Company and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Credit Suisse Securities (USA) LLC, as the representatives of the several underwriters named therein. The net proceeds of the offering were
$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
October 29, 2016
, 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. In connection with the proposed acquisition, the Company announced that it had obtained a 364-day senior unsecured bridge facility in an aggregate principal amount of up to
$7.5 billion
(364-day Bridge) and it had obtained a 90-day senior unsecured bridge facility in an aggregate principal amount of up to
$4.1 billion
. The bridge financing commitments expire on April 26, 2017, but may be extended until October 26, 2017 under certain conditions. As discussed below,
$5.0 billion
of the bridge financing has been terminated. The Company expects to incur fees for the bridge financing commitments of approximately
$37.8 million
, of which
$28.7 million
was recorded as debt issuance costs in the third quarter of fiscal 2016 and will be amortized into interest expense over the term of the bridge financing commitments. As a result of entering into the Term Loan Agreement,
$13.7 million
of unamortized bridge fees were accelerated and amortized into interest expense in the fourth quarter of fiscal 2016.
ANALOG DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 (Term Loan Agreement) with the Company as the borrower and JP Morgan Chase Bank, N.A. as administrative agent and other banks identified therein as lenders. The Term Loan Agreement replaces
$5.0 billion
of the 364-Bridge. The closing date and availability of the initial borrowings under the Term Loan Agreement are conditioned upon the consummation of the acquisition of Linear. The commitments are automatically terminated on the earlier of the making of the loans to the Company on the closing date of the acquisition of Linear or October 26, 2017. The Company has agreed to pay a ticking fee based on the Company’s debt rating from time to time, accruing beginning 60 days following the effectiveness of the Term Loan Agreement and continuing until the earlier of the termination of the commitments or the closing date of the acquisition of Linear.
In addition, the Company expects to incur approximately
$4.0 million
in customary fees, including ticking fees, related to the future financing arrangements as well as its revolving credit facility, of which approximately
$0.7 million
was recorded as debt issuance costs in fiscal 2016 and will be amortized into interest expense over the term of the associated financing arrangements. Additional fees will be incurred when the bridge financing commitments are drawn and in connection with the Term Loan Agreement.
The Company’s debt consisted of the following as of
October 29, 2016
and
October 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2016
|
|
October 31, 2015
|
|
Principal
|
|
Unamortized discount and debt issuance costs
|
|
Principal
|
|
Unamortized discount and debt issuance costs
|
2016 Notes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
375,000
|
|
|
$
|
406
|
|
2023 Notes
|
500,000
|
|
|
4,047
|
|
|
500,000
|
|
|
4,659
|
|
2025 Notes
|
850,000
|
|
|
8,034
|
|
|
—
|
|
|
—
|
|
2045 Notes
|
400,000
|
|
|
5,742
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
1,750,000
|
|
|
$
|
17,823
|
|
|
$
|
875,000
|
|
|
$
|
5,065
|
|
Debt, current
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
375,000
|
|
|
$
|
406
|
|
Long-term debt
|
$
|
1,750,000
|
|
|
$
|
17,823
|
|
|
$
|
500,000
|
|
|
$
|
4,659
|
|
The Company’s principal payments related to its debt obligations are as follows:
$500.0 million
in fiscal 2023,
$850.0 million
in fiscal 2025 and
$400.0 million
in fiscal 2045.
On
November 21, 2016
, the Board of Directors of the Company declared a cash dividend of
$0.42
per outstanding share of common stock. The dividend will be paid on
December 13, 2016
to all shareholders of record at the close of business on
December 2, 2016
.
ANALOG DEVICES, INC.
SUPPLEMENTARY FINANCIAL INFORMATION
(Unaudited) (thousands, except per share amounts and as noted)
The Company’s fiscal year is the
52
-week or
53
-week period ending on the Saturday closest to the last day in October. The Company's interim periods operates on a 4-4-5 fiscal calendar, where each fiscal quarter is comprised of two 4-week periods and one 5-week period, with each week ending on a Saturday. The Company's fiscal year quarterly financial information for fiscal
2016
and fiscal
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4Q16
|
|
3Q16
|
|
2Q16
|
|
1Q16
|
|
4Q15
|
|
3Q15
|
|
2Q15
|
|
1Q15
|
Revenue
|
|
1,003,623
|
|
|
869,591
|
|
|
778,766
|
|
|
769,429
|
|
|
978,722
|
|
|
863,365
|
|
|
821,019
|
|
|
771,986
|
|
Cost of sales
|
|
336,936
|
|
|
297,301
|
|
|
267,863
|
|
|
292,136
|
|
|
336,926
|
|
|
294,328
|
|
|
276,197
|
|
|
268,379
|
|
Gross margin
|
|
666,687
|
|
|
572,290
|
|
|
510,903
|
|
|
477,293
|
|
|
641,796
|
|
|
569,037
|
|
|
544,822
|
|
|
503,607
|
|
% of Revenue
|
|
66.4
|
%
|
|
65.8
|
%
|
|
65.6
|
%
|
|
62.0
|
%
|
|
65.6
|
%
|
|
65.9
|
%
|
|
66.4
|
%
|
|
65.2
|
%
|
Research and development
|
|
172,926
|
|
|
163,227
|
|
|
160,235
|
|
|
157,428
|
|
|
170,736
|
|
|
160,784
|
|
|
154,233
|
|
|
151,706
|
|
Selling, marketing, general and administrative
|
|
118,881
|
|
|
122,909
|
|
|
112,186
|
|
|
107,462
|
|
|
121,400
|
|
|
120,030
|
|
|
117,371
|
|
|
120,171
|
|
Special charges
|
|
—
|
|
|
—
|
|
|
13,684
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other operating expense (a)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
223,672
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of intangibles
|
|
17,899
|
|
|
17,447
|
|
|
17,419
|
|
|
17,358
|
|
|
17,358
|
|
|
22,954
|
|
|
24,210
|
|
|
23,796
|
|
Total operating expenses
|
|
309,706
|
|
|
303,583
|
|
|
303,524
|
|
|
282,248
|
|
|
533,166
|
|
|
303,768
|
|
|
295,814
|
|
|
295,673
|
|
Operating income
|
|
356,981
|
|
|
268,707
|
|
|
207,379
|
|
|
195,045
|
|
|
108,630
|
|
|
265,269
|
|
|
249,008
|
|
|
207,934
|
|
% of Revenue
|
|
36
|
%
|
|
31
|
%
|
|
27
|
%
|
|
25
|
%
|
|
11
|
%
|
|
31
|
%
|
|
30
|
%
|
|
27
|
%
|
Nonoperating (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (b)
|
|
38,764
|
|
|
18,476
|
|
|
18,455
|
|
|
13,062
|
|
|
6,739
|
|
|
6,755
|
|
|
6,880
|
|
|
6,656
|
|
Interest income
|
|
(7,114
|
)
|
|
(5,665
|
)
|
|
(5,243
|
)
|
|
(3,199
|
)
|
|
(2,343
|
)
|
|
(2,229
|
)
|
|
(2,009
|
)
|
|
(2,044
|
)
|
Other, net
|
|
1,897
|
|
|
(504
|
)
|
|
(743
|
)
|
|
3,005
|
|
|
(443
|
)
|
|
1,265
|
|
|
(1,052
|
)
|
|
2,552
|
|
Total nonoperating (income) expense
|
|
33,547
|
|
|
12,307
|
|
|
12,469
|
|
|
12,868
|
|
|
3,953
|
|
|
5,791
|
|
|
3,819
|
|
|
7,164
|
|
Income before income taxes
|
|
323,434
|
|
|
256,400
|
|
|
194,910
|
|
|
182,177
|
|
|
104,677
|
|
|
259,478
|
|
|
245,189
|
|
|
200,770
|
|
% of Revenue
|
|
32
|
%
|
|
29
|
%
|
|
25
|
%
|
|
24
|
%
|
|
11
|
%
|
|
30
|
%
|
|
30
|
%
|
|
26
|
%
|
Provision for income taxes (c)
|
|
27,277
|
|
|
25,970
|
|
|
24,337
|
|
|
17,673
|
|
|
8,372
|
|
|
43,000
|
|
|
39,851
|
|
|
22,013
|
|
Net income
|
|
296,157
|
|
|
230,430
|
|
|
170,573
|
|
|
164,504
|
|
|
96,305
|
|
|
216,478
|
|
|
205,338
|
|
|
178,757
|
|
% of Revenue
|
|
30
|
%
|
|
26
|
%
|
|
22
|
%
|
|
21
|
%
|
|
10
|
%
|
|
25
|
%
|
|
25
|
%
|
|
23
|
%
|
Basic earnings per share
|
|
0.96
|
|
|
0.75
|
|
|
0.55
|
|
|
0.53
|
|
|
0.31
|
|
|
0.69
|
|
|
0.66
|
|
|
0.57
|
|
Diluted earnings per share
|
|
0.95
|
|
|
0.74
|
|
|
0.55
|
|
|
0.52
|
|
|
0.30
|
|
|
0.68
|
|
|
0.65
|
|
|
0.57
|
|
Shares used to compute earnings per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
307,854
|
|
|
307,135
|
|
|
308,790
|
|
|
311,166
|
|
|
312,829
|
|
|
313,877
|
|
|
312,660
|
|
|
311,274
|
|
Diluted
|
|
311,633
|
|
|
310,558
|
|
|
312,250
|
|
|
314,793
|
|
|
316,571
|
|
|
318,187
|
|
|
317,047
|
|
|
315,684
|
|
Dividends declared per share
|
|
0.42
|
|
|
0.42
|
|
|
0.42
|
|
|
0.40
|
|
|
0.40
|
|
|
0.40
|
|
|
0.40
|
|
|
0.37
|
|
a) The Company converted the benefits provided to participants in the Company’s Irish defined benefits pension plan to benefits provided under the Company’s Irish defined contribution plan. As a result, the Company recorded expenses of $
223.7 million
, including settlement charges, legal, accounting and other professional fees to settle the pension obligation.
b) Interest expense in the fourth quarter of fiscal 2016 includes $13.7 million related to accelerated amortization of fees associated with the bridge financing commitments related to the proposed Linear acquisition.
c) Provision for income taxes in the fourth quarter of fiscal 2015 includes a benefit of
$13.0 million
for the reversal of certain prior period tax liabilities and in the first quarter of fiscal 2015 includes a tax benefit of
$7.0 million
from the reinstatement of the U.S. federal research and development tax credit in December 2014 retroactive to January 1, 2014 and a tax benefit of
$3.8 million
as a result of an acquisition accounting adjustment.