SEC Info - Analog Devices Inc. - ‘10-Q’ for 4/29/23

( i 72,136)

( i 119,613)

( i 6,403)

( i 198,152)

Other comprehensive income before reclassifications

i 1,635

i 20,324

i 50

i 22,009

Amounts reclassified out of other comprehensive income

i —

i 6,911

i 746

i 7,657

Tax effects

i —

( i 3,877)

i —

( i 3,877)

Other comprehensive income

i 1,635

i 23,358

i 796

i 25,789

( i 70,501)

( i 96,255)

( i 5,607)

( i 172,363)

i The amounts reclassified out of AOCI into the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Shareholders' Equity with presentation location during each period were as follows:

Three Months Ended

Six Months Ended

Comprehensive (Loss) Income Component

Location

Unrealized holding (gains) losses on derivatives:

Currency forwards

i 1,342

i 2,113

i 283

i 3,864

Cost of sales

i 570

i 1,373

i 123

i 2,583

Research and development

i 344

i 2,485

( i 953)

i 4,357

Selling, marketing, general and administrative

Interest rate derivatives

i 3,731

i 7,458

i 7,462

Interest expense

i 5,987

i 9,702

i 6,911

i 18,266

Total before tax

( i 701)

( i 1,485)

( i 1,503)

( i 2,786)

Tax

i 5,286

i 8,217

i 5,408

i 15,480

Net of tax

Amortization of pension components included in the computation of net periodic pension cost:

Actuarial losses

i 376

i 458

i 746

i 947

Net of tax

Total amounts reclassified out of AOCI, net of tax

i 5,662

i 8,675

i 6,154

i 16,427

Note 4 – i Earnings Per Share

i The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended

Six Months Ended

Net Income

i 977,656

i 783,273

i 1,939,130

i 1,063,350

Basic shares:

Weighted-average shares outstanding

i 504,715

i 522,370

i 505,918

i 523,831

Earnings per common share basic:

i 1.94

i 1.50

i 3.83

i 2.03

Diluted shares:

Weighted-average shares outstanding

i 504,715

i 522,370

i 505,918

i 523,831

Assumed exercise of common stock equivalents

i 4,010

i 3,894

i 4,037

i 4,372

Weighted-average common and common equivalent shares

i 508,725

i 526,264

i 509,955

i 528,203

Earnings per common share diluted:

i 1.92

i 1.49

i 3.80

i 2.01

Anti-dilutive shares related to:

Outstanding stock-based awards

i 387

i 738

i 354

i 461

Note 5 – i Special Charges, Net

i Liabilities related to special charges, net are included in Accrued liabilities and Other non-current liabilities in the Condensed Consolidated Balance Sheets. The activity is detailed below:

Accrued Special Charges

Global Repositioning Actions

Balance at October 29, 2022

i 52,070

Severance and benefit payments

( i 16,298)

Balance at January 28, 2023

i 35,772

Severance and benefit payments

( i 22,820)

Employee severance and benefit costs

i 23,136

Balance at April 29, 2023

i 36,088

Accrued liabilities

i 12,952

Other non-current liabilities

i 23,136

Note 6 – i Commitments and Contingencies

On March 17, 2022, Walter E. Ryan and Ryan Asset Management, LLC, purported stockholders of Maxim Integrated Products, Inc. (Maxim), filed a putative class action in the Court of Chancery of the State of Delaware (C.A. No. 2022—0255) against the Company and the former directors of Maxim. The complaint alleges breach of fiduciary duties by the individual defendants in connection with Maxim’s agreement, as part of the merger negotiations with the Company, to suspend Maxim dividends for up to four quarters prior to the closing of the Company's acquisition of Maxim. The complaint further alleges that the Company aided and abetted that alleged breach of fiduciary duties. The plaintiffs seek damages in an amount to be determined at trial, plaintiffs’ costs and disbursements, including reasonable attorneys’ and experts’ fees, costs and other expenses. On May 2, 2023, the Court of Chancery entered an order dismissing the action in its entirety and with prejudice. On May 9, 2023, plaintiffs filed a Motion for Reargument. The Company believes that it and the other defendants have meritorious arguments in response to the motion and defenses to the underlying allegations; however, the Company is currently unable to determine the ultimate outcome of this matter or determine an estimate, or a range of estimates, of potential losses, if any.

Note 7 – i Revenue

Revenue Trends by End Market

i The following table summarizes revenue by end market. The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the “ship to” customer information and the end customer product or application into which the Company’s product will be incorporated. As data systems for capturing and tracking this data and the Company's methodology evolves and improves, the categorization of products by end market can vary over time. When this occurs, the Company reclassifies revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of revenue within, each end market.

Three Months Ended

Revenue

% of Revenue*

Y/Y%

Revenue

% of Revenue*

Industrial

i 1,744,567

i 53

i 16

i 1,502,731

i 51

Automotive

i 784,775

i 24

i 633,255

i 21

Communications

i 453,530

i 14

( i 4)

i 474,722

i 16

Consumer

i 280,058

i 9

( i 22)

i 361,356

i 12

Total revenue

i 3,262,930

i 100

i 10

i 2,972,064

i 100

Six Months Ended

Revenue

% of Revenue*

Y/Y%

Revenue

% of Revenue*

Industrial

i 3,438,006

i 53

i 21

i 2,849,577

i 50

Automotive

i 1,498,178

i 23

i 27

i 1,183,985

i 21

Communications

i 941,735

i 14

i 6

i 887,663

i 16

Consumer

i 634,641

i 10

( i 14)

i 735,132

i 13

Total revenue

i 6,512,560

i 100

i 15

i 5,656,357

i 100

* The sum of the individual percentages may not equal the total due to rounding.

Revenue by Sales Channel

The following table summarizes revenue by channel. The Company sells its products globally through a direct sales force, third party distributors, independent sales representatives and via its website. Distributors are customers that buy products with the intention of reselling them. Direct customers are non-distributor customers and consist primarily of original equipment manufacturers. Other customers include the U.S. government, government prime contractors and certain commercial customers for which revenue is recorded over time.

Three Months Ended

Channel

Revenue

% of Revenue*

Revenue

% of Revenue*

Distributors

i 1,996,410

i 61

i 1,849,988

i 62

Direct customers

i 1,224,786

i 38

i 1,091,710

i 37

Other

i 41,734

i 1

i 30,366

i 1

Total revenue

i 3,262,930

i 100

i 2,972,064

i 100

Six Months Ended

Channel

Revenue

% of Revenue*

Revenue

% of Revenue*

Distributors

i 4,007,733

i 62

i 3,503,042

i 62

Direct customers

i 2,420,320

i 37

i 2,094,891

i 37

Other

i 84,507

i 1

i 58,424

i 1

Total revenue

i 6,512,560

i 100

i 5,656,357

i 100

* The sum of the individual percentages may not equal the total due to rounding.

Note 8 – i Fair Value

i 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 April 29, 2023 and October 29, 2022. 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 April 29, 2023 and October 29, 2022, the Company held $ i 661.3 million and $ i 1,016.0 million, respectively, of cash that was /

excluded from the tables below.

Fair Value measurement at

Reporting Date using:

Quoted Prices in Active Markets for Identical Assets

(Level 1)

Significant Other Observable Inputs

(Level 2)

Total

Assets

Cash equivalents:

Available-for-sale:

Government and institutional money market funds

i 516,265

i —

i 516,265

Other assets:

Deferred compensation plan investments

i 68,645

i —

i 68,645

Forward foreign currency exchange contracts

i —

i 8,541

Total assets measured at fair value

i 584,910

i 8,541

i 593,451

Liabilities

Interest rate derivatives (1)

i —

i 1,866

Total liabilities measured at fair value

i —

i 1,866

(1)The carrying value of the related debt was adjusted by an equal and offsetting amount. The fair value of interest rate derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivatives. See Note 9, Derivatives, in these Notes to Condensed Consolidated Financial Statements.

Fair Value measurement at

Reporting Date using:

Quoted Prices in Active Markets for Identical Assets

(Level 1)

Significant Other Observable Inputs

(Level 2)

Total

Assets

Cash equivalents:

Available-for-sale:

Government and institutional money market funds

i 454,545

i —

i 454,545

Other assets:

Deferred compensation plan investments

i 63,211

i —

i 63,211

Total assets measured at fair value

i 517,756

i —

i 517,756

Liabilities

Forward foreign currency exchange contracts

i —

i 16,984

Total liabilities measured at fair value

i —

i 16,984

In addition to the methods and assumptions used by the Company in estimating its fair value disclosure for financial instruments disclosed in Note 2j, Summary of Significant Accounting Policies, in the Company's Annual Report on Form 10-K for fiscal 2022, which was filed with the Securities and Exchange Commission on November 22, 2022, the following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments:

Interest rate derivative — The fair value of interest rate derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivatives.

Assets and Liabilities Not Recorded at Fair Value on a Recurring Basis

Commercial paper — The fair value of commercial paper is obtained from indicative market prices and are classified as Level 2 measurements according to the fair value hierarchy. As of April 29, 2023, the fair value of the commercial paper notes was $ i 254.2 million.

Debt — i The table below presents the estimated fair value of certain financial instruments not recorded at fair value on a

recurring basis. The fair values of the senior unsecured notes are obtained from broker prices and are classified as Level 1 measurements according to the fair value hierarchy.

Principal Amount Outstanding

Fair Value

Principal Amount Outstanding

Fair Value

2024 Notes, due October 2024

i 500,000

i 492,992

i 500,000

i 491,982

2025 Notes, due April 2025

i 400,000

i 389,004

i 400,000

i 383,378

2026 Notes, due December 2026

i 900,000

i 877,748

i 900,000

i 851,479

Maxim 2027 Notes, due June 2027

i —

i 59,788

i 54,771

2027 Notes, due June 2027

i 440,212

i 427,235

i 440,212

i 410,091

2028 Notes, due October 2028

i 750,000

i 661,084

i 750,000

i 621,093

2031 Notes, due October 2031

i 1,000,000

i 848,781

i 1,000,000

i 786,772

2032 Notes, due October 2032

i 300,000

i 293,269

i 300,000

i 278,359

2036 Notes, due December 2036

i 144,278

i 136,193

i 144,278

i 126,274

2041 Notes, due October 2041

i 750,000

i 573,996

i 750,000

i 513,709

2045 Notes, due December 2045

i 332,587

i 345,948

i 332,587

i 313,931

2051 Notes, due October 2051

i 1,000,000

i 723,063

i 1,000,000

i 640,766

Total debt

i 6,517,077

i 5,769,313

i 6,576,865

i 5,472,605

Note 9 – i Derivatives

Foreign Exchange Exposure Management — 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, Thai Baht, South Korean Won and Japanese Yen as of April 29, 2023 and October 29, 2022 were $ i 307.0 million and $ i 307.1 million, respectively. i The fair values of forward foreign currency derivative instruments designated as hedging instruments in the Company’s Condensed Consolidated Balance Sheets as of April 29, 2023 and October 29, 2022 were as follows:

Fair Value At

Balance Sheet Location

Forward foreign currency exchange contracts

Prepaid expenses and other current assets

i 6,022

i —

Forward foreign currency exchange contracts

Accrued liabilities

i —

i 18,050

As of April 29, 2023 and October 29, 2022, the total notional amounts of undesignated hedges related to forward foreign currency exchange contracts were $ i 413.6 million and $ i 246.4 million, respectively.

i The following table presents the gross amounts of the Company's forward foreign currency exchange contract derivative assets and liabilities and the net amounts recorded in the Company's Condensed Consolidated Balance Sheets:


	April 29, 2023		October 29, 2022
Gross amounts of recognized liabilities	$	( i 3,802)	$	( i 19,846)
Gross amount of recognized assets	i 12,343		i 2,862

Net assets (liabilities) presented in the Condensed Consolidated Balance Sheets	$	i 8,541	$	( i 16,984)

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 changes in interest rates. During fiscal 2023, the Company entered into interest rate swap transactions related to its outstanding $ i 1,000.0 million aggregate principal amount of i 2.1% senior unsecured notes (the 2031 Notes) where the Company swapped the notional amount of its $ i 1,000.0 million of fixed rate debt at i 2.1% into floating interest rate debt through April 1, 2031. The fair value of the swaps at inception was i zero and subsequent changes in the fair value of the interest rate swaps were reflected in the carrying value of the interest rate swaps on the balance sheet. The carrying value of the debt on the balance sheet was adjusted by an equal and offsetting amount. The interest rate swaps were designated and qualified as fair value hedges. The Company does not consider the risk of counterparty default to be significant. i The gain or loss on the hedged item attributable to the hedged benchmark interest rate risk and the offsetting gain or loss on the related interest rate swaps were recorded as follows: