Analog Devices Earnings 2020-05-02

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

adi-20200502

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 2, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 1-7819

Analog Devices, Inc.

(Exact name of registrant as specified in its charter)

Massachusetts

04-2348234

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

One Technology Way,

Norwood,

02062-9106

(Address of principal executive offices)

(Zip Code)

(781) 329-4700

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock $0.16 2/3 par value per share	ADI	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of May 2, 2020 there were 368,424,615 shares of common stock of the registrant, $0.16 2/3 par value per share, outstanding.

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share amounts)


	Three Months Ended						Six Months Ended
	May 2, 2020		May 4, 2019		May 2, 2020		May 4, 2019
Revenue	$	1,317,060	$	1,526,602	$	2,620,625	$	3,067,703
Cost of sales	470,386		492,510		925,809		993,955
Gross margin	846,674		1,034,092		1,694,816		2,073,748
Operating expenses:
Research and development	252,413		285,846		509,486		573,228
Selling, marketing, general and administrative	141,775		163,128		341,055		330,470
Amortization of intangibles	107,146		107,261		214,371		214,585
Special charges	1,320		8,162		12,456		29,944
	502,654		564,397		1,077,368		1,148,227
Operating income	344,020		469,695		617,448		925,521
Nonoperating expense (income):
Interest expense	49,985		59,701		98,798		118,429
Interest income	(1,334)		(2,928)		(3,274)		(5,616)
Other, net	308		4,525		646		4,365
	48,959		61,298		96,170		117,178
Income before income taxes	295,061		408,397		521,278		808,343
Provision for income taxes	27,365		40,460		49,708		85,400
Net income	$	267,696	$	367,937	$	471,570	$	722,943

Shares used to compute earnings per common share – basic	368,217		369,246		368,229		368,974
Shares used to compute earnings per common share – diluted	371,305		373,342		371,784		372,912

Basic earnings per common share	$	0.73	$	0.99	$	1.28	$	1.95
Diluted earnings per common share	$	0.72	$	0.98	$	1.27	$	1.93

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)


	Three Months Ended						Six Months Ended
	May 2, 2020		May 4, 2019		May 2, 2020		May 4, 2019
Net income	$	267,696	$	367,937	$	471,570	$	722,943
Foreign currency translation adjustments	(6,862)		(3,428)		(7,060)		(112)
Change in fair value of available-for-sale securities	—		5		—		15
Change in fair value of derivative instruments designated as cash flow hedges (net of taxes of $19,604, $3,802, $25,066 and $10,183, respectively)	(69,386)		(14,912)		(81,411)		(37,850)
Changes in pension plans including transition obligation, net actuarial loss and foreign currency translation adjustments (net of taxes of $157, $63, $317 and $126, respectively)	1,393		335		1,647		366
Other comprehensive loss	(74,855)		(18,000)		(86,824)		(37,581)
Comprehensive income	$	192,841	$	349,937	$	384,746	$	685,362

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share amounts)


	May 2, 2020		November 2, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	784,937	$	648,322

Accounts receivable	588,244		635,136
Inventories	590,268		609,886



Prepaid expenses and other current assets	87,844		91,782
Total current assets	2,051,293		1,985,126
Property, Plant and Equipment, at Cost
Land and buildings	999,063		956,099
Machinery and equipment	2,633,237		2,609,493
Office equipment	84,625		85,490
Leasehold improvements	161,207		160,175
	3,878,132		3,811,257
Less accumulated depreciation and amortization	2,688,800		2,591,268
Net property, plant and equipment	1,189,332		1,219,989
Other Assets

Other investments	76,025		77,324
Goodwill	12,253,670		12,256,880
Intangible assets, net	3,928,902		4,217,224
Deferred tax assets	1,553,902		1,582,382

Other assets	297,814		53,716
Total other assets	18,110,313		18,187,526
	$	21,350,938	$	21,392,641
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	194,211	$	225,270


Income taxes payable	151,691		187,879
Debt, current	448,945		299,667

Accrued liabilities	787,155		795,816
Total current liabilities	1,582,002		1,508,632
Non-current liabilities
Long-term debt	5,142,223		5,192,252
Deferred income taxes	2,000,644		2,088,212

Income taxes payable	597,166		654,420

Other non-current liabilities	438,045		239,937
Total non-current liabilities	8,178,078		8,174,821
Commitments and contingencies	—		—
Shareholders’ Equity
Preferred stock, $1.00 par value, 471,934 shares authorized, none outstanding	—		—
Common stock, 0.16 2/3 par value, 1,200,000,000 shares authorized, 368,424,615 shares outstanding (368,302,369 on November 2, 2019)	61,405		61,385
Capital in excess of par value	4,861,013		4,936,349
Retained earnings	6,945,442		6,899,253
Accumulated other comprehensive loss	(277,002)		(187,799)
Total shareholders’ equity	11,590,858		11,709,188
	$	21,350,938	$	21,392,641

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(in thousands)


	Three Months Ended May 2, 2020
				Capital in				Accumulated Other
	Common Stock					Excess of		Retained		Comprehensive
	Shares	Amount		Par Value		Earnings		Loss








BALANCE, FEBRUARY 1, 2020	368,220	$	61,371	$	4,923,947	$	6,906,346	$	(202,147)

Net income						267,696
Dividends declared and paid - $0.62 per share						(228,600)

Issuance of stock under stock plans and other	1,347	224		14,560
Stock-based compensation expense				35,900
Other comprehensive loss								(74,855)
Common stock repurchased	(1,142)	(190)		(113,394)
BALANCE, MAY 2, 2020	368,425	$	61,405	$	4,861,013	$	6,945,442	$	(277,002)

	Six Months Ended May 2, 2020
				Capital in				Accumulated Other
	Common Stock					Excess of		Retained		Comprehensive
	Shares	Amount		Par Value		Earnings		Loss
BALANCE, NOVEMBER 2, 2019	368,302	$	61,385	$	4,936,349	$	6,899,253	$	(187,799)
Effect of Accounting Standards Update 2018-02						2,379		(2,379)
Net income						471,570
Dividends declared and paid - $1.16 per share						(427,760)
Issuance of stock as charitable contribution	336	56		39,944
Issuance of stock under stock plans and other	1,838	306		30,591
Stock-based compensation expense				73,401
Other comprehensive loss								(86,824)
Common stock repurchased	(2,051)	(342)		(219,272)
BALANCE, MAY 2, 2020	368,425	$	61,405	$	4,861,013	$	6,945,442	$	(277,002)

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(in thousands)


	Three Months Ended May 4, 2019
				Capital in				Accumulated Other
	Common Stock					Excess of		Retained		Comprehensive
	Shares	Amount		Par Value		Earnings		Loss







BALANCE, FEBRUARY 2, 2019	368,314	$	61,387	$	5,111,058	$	6,491,013	$	(78,021)

Net income						367,937
Dividends declared and paid - $0.54 per share						(199,501)
Issuance of stock under stock plans and other	2,369	395		67,283
Stock-based compensation expense				40,229
Other comprehensive loss								(18,000)
Common stock repurchased	(922)	(154)		(101,368)
BALANCE, MAY 4, 2019	369,761	$	61,628	$	5,117,202	$	6,659,449	$	(96,021)

	Six Months Ended May 4, 2019
				Capital in				Accumulated Other
	Common Stock					Excess of		Retained		Comprehensive
	Shares	Amount		Par Value		Earnings		Loss
BALANCE, NOVEMBER 3, 2018 (1)	370,160	$	61,694	$	5,282,222	$	5,982,697	$	(58,440)
Effect of Accounting Standards Update 2016-16						331,026
Net income						722,943
Dividends declared and paid - $1.02 per share						(377,217)
Issuance of stock under stock plans and other	3,140	524		86,383
Stock-based compensation expense				76,622
Other comprehensive loss								(37,581)
Common stock repurchased	(3,539)	(590)		(328,025)
BALANCE, MAY 4, 2019	369,761	$	61,628	$	5,117,202	$	6,659,449	$	(96,021)

(1) Balances have been restated to reflect the full retrospective adoption of Accounting Standards Update ASU 2014-09, Revenue from Contracts with Customers, adopted by the Company in fiscal 2019.

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Six Months Ended
	May 2, 2020		May 4, 2019
Cash flows from operating activities:
Net income	$	471,570	$	722,943
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	119,124		117,435
Amortization of intangibles	288,120		284,525

Stock-based compensation expense	73,401		76,622
Non-cash portion of special charge	—		4,367

Deferred income taxes	(35,390)		(21,843)
Non-cash contribution to charitable foundation	40,000		—
Other non-cash activity	3,801		18,429
Changes in operating assets and liabilities	(181,937)		(159,829)
Total adjustments	307,119		319,706
Net cash provided by operating activities	778,689		1,042,649
Cash flows from investing activities:



Additions to property, plant and equipment	(115,000)		(166,202)

Changes in other assets	(1,284)		(4,585)
Net cash used for investing activities	(116,284)		(170,787)
Cash flows from financing activities:

Proceeds from debt	395,646		—



Proceeds from revolver	350,000		75,000
Payments on revolver	(350,000)		(75,000)
Debt repayments	(300,000)		(350,000)
Dividend payments to shareholders	(427,760)		(377,217)
Repurchase of common stock	(219,614)		(328,615)
Proceeds from employee stock plans	30,897		86,907

Changes in other financing activities	(4,451)		(6,144)
Net cash used for financing activities	(525,282)		(975,069)
Effect of exchange rate changes on cash	(508)		217
Net increase (decrease) in cash and cash equivalents	136,615		(102,990)
Cash and cash equivalents at beginning of period	648,322		816,591
Cash and cash equivalents at end of period	$	784,937	$	713,601

See accompanying notes.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED MAY 2, 2020

(all tabular amounts in thousands except per share amounts and percentages)

Note 1 – Basis of Presentation

In the opinion of management, the information furnished in the accompanying condensed consolidated financial statements reflects all normal recurring adjustments that are necessary to fairly state the results for these interim periods and should be read in conjunction with Analog Devices, Inc.’s (the Company) Annual Report on Form 10-K for the fiscal year ended November 2, 2019 (fiscal 2019) and related notes. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2020 (fiscal 2020) or any future period.

The Company has a 52-53 week fiscal year that ends on the Saturday closest to the last day in October. Certain amounts reported in previous periods have been reclassified to conform to the fiscal 2020 presentation.

Note 2 – Leases

In the first quarter of fiscal 2020, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) (ASU 2016-02) using the modified retrospective approach. Results for fiscal 2020 are presented under ASU 2016-02, while prior period consolidated financial statements have not been adjusted and continue to be presented under the accounting standard in effect at that time. See Note 13, New Accounting Pronouncements of these Notes to Condensed Consolidated Financial Statements for further detail on the adoption of this standard, including the initial adoption values.

The Company enters into operating leases which primarily relate to certain facilities. The Company determines whether an arrangement is or contains a lease based on the unique facts and circumstances present at the inception of an arrangement. Lease assets represent the Company's right to use underlying assets for the lease term, and lease liabilities represent the obligation to make lease payments over the lease term. At lease commencement, leases are evaluated for classification, and assets and liabilities are recognized based on the present value of lease payments over the lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received, such as construction allowances from landlords and/or rent abatements subsequent to taking possession of the leased property. The Company has agreements with lease and non-lease components, which are accounted for as a single lease component. Non-lease components may include real estate taxes, insurance, maintenance, parking and other operating costs. If these costs are variable costs they are not included in the measurement of the right-of-use assets and lease liabilities, but are expensed when the event determining the amount of variable consideration to be paid occurs. The Company’s leases have remaining lease terms of less than one year to approximately twenty years, some of which may include options to extend the initial term of the lease. These options are included in determining the initial lease term at lease commencement only if the Company is reasonably certain to exercise the option. Lease costs are recognized on a straight-line basis as lease expense over the lease term. For leases with terms of twelve months or less the Company recognizes the related lease payments as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable.

The following table presents supplemental balance sheet information related to our operating leases:


	May 2, 2020
Assets
Operating lease right-of-use assets in Other assets	$	243,695
Liabilities
Operating lease liabilities in Accrued liabilities	$	36,660
Operating lease liabilities in Other non-current liabilities	$	279,566

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Details of the Company's operating leases are as follows:


	Three Months Ended			Six Months Ended
	May 2, 2020			May 2, 2020
Lease expense	$	11,445		$	22,136

Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows from operating leases	$	11,536		$	22,935
Lease assets obtained in exchange for new lease liabilities	$	20,895		$	25,730
Weighted average remaining lease term	9.3 years			9.3 years
Weighted average discount rate	3.3		%	3.3		%

The following table presents the maturities of our operating lease liabilities as of May 2, 2020:


Fiscal year	Operating Leases
Remainder of 2020	$	23,306
2021	44,536
2022	39,086
2023	35,726
2024	35,124
2025	33,038
Thereafter	158,091
Total future minimum operating lease payments	368,907
Less: imputed interest	(52,681)
Present value of operating lease liabilities	$	316,226

As of May 2, 2020, the Company has additional leases for office space and equipment, which have not yet commenced, of approximately $16.6 million. These leases will commence during fiscal 2020, with lease terms of 10 to 25 years.

Note 3 – Stock-Based Compensation and Shareholders' Equity

A summary of the Company’s stock option activity as of May 2, 2020 and changes during the six-month period 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 November 2, 2019	5,183	$65.97
Options granted	359	$94.41
Options exercised	(583)	$52.97
Options forfeited	(63)	$81.86

Options outstanding at May 2, 2020	4,896	$69.37	5.9	$169,549
Options exercisable at May 2, 2020	3,272	$60.59	4.9	$141,272
Options vested or expected to vest at May 2, 2020 (1)	4,770	$68.80	5.8	$167,821

(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.

During the six-month periods ended May 2, 2020 and May 4, 2019, 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) was $35.3 million and $99.7 million, respectively.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A summary of the Company’s restricted stock unit/award activity as of May 2, 2020 and changes during the six-month period then ended is presented below:


	Restricted Stock Units/Awards Outstanding (in thousands)	Weighted- Average Grant- Date Fair Value Per Share
Restricted stock units/awards outstanding at November 2, 2019	4,396	$87.18
Units/Awards granted	1,375	$86.69
Restrictions lapsed	(1,248)	$85.86
Forfeited	(155)	$87.17
Restricted stock units/awards outstanding at May 2, 2020	4,368

Price	112.37	EPS	3
Shares	368	P/E	34
MCap	41,378	P/FCF	19
Net Debt	4,839	EBIT	1,482
TEV	46,218	TEV/EBIT	31
TTM 2020-02-01, in MM, except price, ratios

10-Q	2020-05-02	Filed 2020-05-20
10-Q	2020-02-01	Filed 2020-02-19
10-K	2019-11-02	Filed 2019-11-26
10-Q	2019-08-03	Filed 2019-08-21
10-Q	2019-05-04	Filed 2019-05-22
10-Q	2019-02-02	Filed 2019-02-20
10-K	2018-11-03	Filed 2018-11-27
10-Q	2018-08-04	Filed 2018-08-22
10-Q	2018-05-05	Filed 2018-05-30
10-Q	2018-02-03	Filed 2018-02-28
10-K	2017-10-28	Filed 2017-11-22
10-Q	2017-07-29	Filed 2017-08-30
10-Q	2017-04-29	Filed 2017-05-31
10-Q	2017-01-28	Filed 2017-02-15
10-K	2016-10-29	Filed 2016-11-22
10-Q	2016-07-30	Filed 2016-08-17
10-Q	2016-04-30	Filed 2016-05-18
10-Q	2016-01-30	Filed 2016-02-17
10-K	2015-10-31	Filed 2015-11-24
10-Q	2015-08-01	Filed 2015-08-18
10-Q	2015-05-02	Filed 2015-05-19
10-Q	2015-01-31	Filed 2015-02-17
10-K	2014-11-01	Filed 2014-12-10
10-Q	2014-08-02	Filed 2014-08-26
10-Q	2014-05-03	Filed 2014-05-20
10-Q	2014-02-01	Filed 2014-02-18
10-Q	2013-08-03	Filed 2013-08-20
10-Q	2013-05-04	Filed 2013-05-21
10-Q	2013-02-02	Filed 2013-02-19
10-K	2012-11-03	Filed 2012-11-27
10-Q	2012-08-04	Filed 2012-08-21
10-Q	2012-05-05	Filed 2012-05-22
10-Q	2012-02-04	Filed 2012-02-22
10-K	2011-10-29	Filed 2011-11-22
10-Q	2011-07-30	Filed 2011-08-16
10-Q	2011-04-30	Filed 2011-05-17
10-Q	2011-01-29	Filed 2011-02-15
10-K	2010-10-30	Filed 2010-11-22
10-Q	2010-07-31	Filed 2010-08-17
10-Q	2010-05-01	Filed 2010-05-18
10-Q	2010-01-30	Filed 2010-02-17

8-K	2020-07-12	Regulation FD, Other Events, Exhibits
8-K	2020-07-12	Enter Agreement, Exhibits
8-K	2020-05-20
8-K	2020-04-08
8-K	2020-04-06
8-K	2020-03-26
8-K	2020-03-11
8-K	2020-02-18
8-K	2019-12-10
8-K	2019-12-05
8-K	2019-11-26
8-K	2019-11-25
8-K	2019-08-21
8-K	2019-06-28
8-K	2019-05-22
8-K	2019-03-13
8-K	2019-02-19
8-K	2019-01-28
8-K	2018-12-13
8-K	2018-11-20
8-K	2018-08-31
8-K	2018-08-21
8-K	2018-07-20
8-K	2018-06-13
8-K	2018-05-30
8-K	2018-03-14
8-K	2018-03-12
8-K	2018-03-08
8-K	2018-02-27
8-K	2018-01-30

EX-31.1	a2q20exhibit311.htm
EX-31.2	a2q20exhibit312.htm
EX-32.1	a2q20exhibit321.htm
EX-32.2	a2q20exhibit322.htm

ADI 10Q Quarterly Report

Analog Devices Earnings 2020-05-02