Analog Devices, Inc. (ADI)

Important disclosures appear on the last page of this report.

The Henry Fund

Henry B. Tippie School of Management

Ajay Kaushik Rajagopalan [[email protected]]

Analog Devices, Inc. (ADI) October 10, 2016

Information Technology – Semiconductors Stock Rating Buy

Investment Thesis Target Price $81-102 Analog devices, Inc. ranks third by revenue among the analog semiconductor manufacturers. Its acquisition of Linear technologies (LLTC) is expected to increase revenues from $3.43 billion to $5.26 billion. The accretive nature of this acquisition combined with the possibility of cost savings of up to 5% of ADI’s revenue is the driver for the buy recommendation. Drivers of Thesis

The diverse and complementary nature of the product mix from LLTC will increase the combined entity’s revenue by 49% in comparison to ADI’s revenues. The synergies from the acquisition of LLTC are expected to increase the operating margin by 5% or higher.

The end market demand drivers for the analog semiconductor industry are particularly positive with Internet of Things (IoT) expected to grow at 23% CAGR from 2015 to 2019. (11) The market for big data is expected to grow at 10% CAGR to reach $85 billion by 2026. (13) The semiconductor industry is strongly leveraged to this data growth paradigm.

Electric/Hybrid car revenues are expected to grow at 18% CAGR from 2012 to 2019. Battery management systems from ADI – LLTC will benefit from this growth.

Risks to Thesis

Though the acquisition of LLTC has been agreed upon and ratified by both the boards, any development that jeopardizes the acquisition will undercut the upside potential on ADI’s stock from 45% to 7-9%. This will change the recommendation from buy to hold.

Close to $7.3 billion in debt needs to be raised by Analog devices to complete the acquisition deal. A significant increase in the interest rates before the debt issuance will have an adverse impact on the cost of debt for ADI.

Henry Fund DCF $93.06 Henry Fund DDM $46.74 Relative Multiple $65.67 Price Data Current Price $64.35 52wk Range $47.24 – 66.91 Consensus 1yr Target $72/ “NA” Key Statistics Market Cap (B) $19.41 Shares Outstanding (M) $312.06 Institutional Ownership 86.41% Model Beta 1.41 & 1.82 Dividend Yield 2.71% Est. 5yr Growth 4.09% Price/Earnings (TTM) 29.15 Price/Earnings (FY1) 20.9/” NA” Price/Sales (TTM) 5.59 Price/Book (mrq) 3.81 Profitability Operating Margin 30.19% Profit Margin 19.49% Return on Assets (TTM) 8.65% Return on Equity (TTM) 13.17%

Earnings Estimates Year 2013 2014 2015 2016E 2017E 2018E

EPS $2.19 $2.01 $2.23 $2.67 $2.44 $3.63

growth 0.46% -8.22% 10.95% 19.64% -8.72% 49.06%

12 Month Performance Company Description

Analog devices, Inc. was started in 1965 and has since grown to be a leader in design and manufacture of a broad portfolio of solutions that leverage high performance analog, mixed signal, and digital signal processing technologies. It ranks third by revenue among its peers and has a strong product mix that cater to the industrial, consumer, automotive, and communication segment. ADI’s acquisition of LLTC will increase its market capitalization from $19 B to $30 B

20.9

13.2 13.3

18.2

13.0 13.3

0

5

10

15

20

25

P/E ROE (%) EV/EBITDA(X)

ADI Industry

-20%

-10%

0%

10%

20%

30%

40%

50%

O N D J F M A M J J A S

ADI LLTC S&P 500

Source : Yahoo Finance

Source: Sentieo Edge

Page 2

EXECUTIVE SUMMARY

Analog Devices, currently ranks third by revenue among the analog semiconductor manufacturers, is a designer and manufacturer of integrated circuits (ICs), systems, softwares, and solutions.

The semiconductor industry has seen increased consolidation activities that have helped in expanding volume and controlling costs. The Analog Devices (ADI) Linear Technologies (LLTC) deal is one such merger that is expected to increase the gross margin of ADI from 64% in 2016 to 68% 2018 and help in reducing the operating expenses from 36% of sales in 2016 to 34% of sales by 2019. The revenue of ADI is expected to see a slump in 2016 with a decline of -2.10% YoY as compared to 2015, but is expected to see a 49% jump in FY 2018 once the merger with LLTC is completed. The CAGR for revenue normalizing the effect of acquisition is expected to be 4.09% through 2020 and this robust revenue growth expectation is in line with the end market expansion potential. According to IC insights, the overall chip industry is expected to grow at 4.3% from 2014 to 2019. (7) Consumer and communications sector are expected to be the major drivers of revenue growth, while the bleak outlook for computers will be a major headwind.

This buy recommendation of this report is driven by the 45% upside suggested by the DCF model. This upside is mainly driven by the accretive acquisition of Linear Technologies. The acquisition deal is expected to be completed by August 2017 and the team expects that the market price of ADI will trend upwards through CY 2017. The merger deal has been unanimously ratified by the boards of ADI and LLTC. In the event the deal does not go through, the accretive revenue growth will not be possible and the upside potential in comparison to the intrinsic value of ADI will only be 9%. This unlikely, but probable event will force a change in recommendation from buy to a hold.

COMPANY DESCRIPTION

Analog devices, Inc. was started in 1965 has since grown to be a leader in the design and manufacture of a broad portfolio of solutions that leverage high performance analog, mixed signal, and digital signal processing technology. According to the 10K of Analog devices, its products are used by over 100,000 customers worldwide. (3) Linear technologies, the company that Analog devices

is acquiring for $14.8 billion, concentrates on high performance analog semiconductor markets. High performance analog circuits are characterized by higher efficiency of operations, higher precision, lower noise margins, low power operations, and higher linearity of operations. Linear technologies’ offerings in the high performance analog domain complements the offerings of ADI thereby minimizing the cannibalization of product sales post-acquisition and hence leading to a very accretive acquisition.

Revenue Decomposition

Analog devices, Inc. has 4 operating segments: Industrial, Automotive, Consumer, and Communications. Linear technologies Inc. has 6 operating segments: Industrial, Automotive, Consumer, Communications, Computer, and Military. The pre-acquisition and post-acquisition revenue breakdown by operating segments have been shown in the graphs below:

Source: ADI 10K (3)

43.56%

15.32%

21.25%

19.88%

Pre Merger Revenue decomposition - ADI (FY 15)

Industrial Automotive Consumer Communications

Page 3

Source: LLTC 10K (4)

The 2 charts above reflect the current state of affairs at Analog devices and Linear technologies. The chart below is the expected revenue mix post-acquisition.

Source: HF Estimates

While Analog devices caters to the military segment as part of its industrial segment, its contribution to revenue is insignificant enough to not merit a line item in its financial reporting. However, with the acquisition of Linear technologies Inc., the military offerings of the combined entity would become significant enough to merit a separate line item as its contribution to the net revenue would be 1.68%.

The last aspect that will be discussed in this section is the geographical mix of Analog devices’ revenue. It is important to understand this as the future growth for Analog devices will be driven to a great extent by increasing internet penetration around the globe. The charts below represent the current geographical distribution (FY 15) and the expected geographical distribution in FY 2020. As seen in the graph below, the contribution to sales from US and Canada is expected to decline from 42% in 2015 to 39% in 2020, with the contribution from Asia increasing during the forecast horizon. This is line with the market saturation expected in North America and the fact that the GDP growth in China and India will far outpace the world GDP during the forecast horizon.

Source: ADI 10K (3)

43%

20%

19%

9%

6%

3%

Pre Merger Revenue decomposition - LLTC (FY

15)

Industrial Automotive Communications

Computer Military Consumer

44.28%

18.49%

14.49%

19.30%

1.77%1.68%

Post Merger Revenue Decomposition - ADI (FY 18 E)

Industrial Automotive Consumer

Communications Computer (LLTC) Military (LLTC)

42.00%

27.00%

9.00%

15.00%

7.00%

FY 15 Geographical distribution (% of Revenue)

North America Europe Japan China Rest of Asia

Page 4


Industrial

The industrial segment constitutes the largest segment by revenue for Analog devices with over 43% of the revenue coming from products sold for industrial applications ranging from instrumentation process control systems to healthcare electronics. The demand for this segment is highly correlated to the global GDP forecasts and hence has been modelled to grow at 4.5% CAGR through 2020. No breakdown is given regarding the cost of sales incurred for the products that cater to the industrial segment. However, no change in the product mix is expected during the forecast except for the complementary product portfolio inherited from the acquisition of Linear technologies. The cost of sales post-acquisition is expected to be a weighted average of the individual costs of the product mix. The gross margins enjoyed by the premium products of Linear technologies are higher than gross margins enjoyed by Analog devices and this should translate to a lower cost of sales post-acquisition.

Automotive

The automotive offerings of Analog devices is expected to expand due to the acquisition of Linear technologies. Product offerings of LLTC such as precision voltage references and battery management systems will help Analog strengthen its offerings for the hybrid/autonomous

automotive segment. Automotive segments’ revenue share is expected to increase from 15.32% before acquisition to 18.49% post-acquisition.

The chart below encapsulates the growth expected across various categories of industries for the overall end markets of integrated chips (ICs).

Source: IC Insights (6)

The chart above represents the growth expected for both analog and digital chips. Since Analog devices and Linear technologies only cater to the analog and mixed signal market, the CAGR growth through 2020 has been modelled to grow at 5%. This is within the expected growth for the overall analog automotive market through 2019.

Source: IC Insights (7)

39.00%

25.00%

8.00%

17.00%

11.00%

FY 2020 (E) Geographical Distribution (% of Revenue)

North America Europe Japan China Rest of Asia

Page 5

Unlike digital semiconductor firms, analog semiconductor firms cannot offer complete product offerings as each firm specializes in a particular type of technology. The CAGR for automotive revenues have been capped at 5% due to the premium and exclusive nature of the offerings in the analog semiconductor sphere.

Consumer

A major portion of the revenue in the consumer segment is driven due to iPhone sales. Analog devices, Inc. produces media related analog/mixed signal ICs that are used in smartphones, tablets, and wearable devices.

Source: Statista (8)

The chart above suggests a 6.7% CAGR growth in smartphone shipments from 2016 to 2019. This positive outlook for the growth of smartphones is the driver of the 5% CAGR for consumer segment revenue. The management of Linear technologies has stated in its earlier earnings calls that it will not actively pursue the consumer segment. This is the reason for the drop in consumer segments contribution to revenue from 21.25% to 14.49% as the product mix inherited in the other segments are much larger than the Linear technologies’ offerings in the consumer segment.

Communications

The product offerings of Analog devices and Linear Technologies in the communications segment cater to the ICs for mobile phones, networking products, wireless radios, satellite systems, cellular base station equipment, and other data center equipment.

While the IC insights data suggests a 6.7% CAGR growth for communications segment from 2014-2019, the end markets that Analog devices and Linear technologies caters to is reaching saturation. This has driven the 2% revenue growth assumptions for the communications segment post-acquisition.

Computer (LLTC)

This revenue segment will be inherited due to the acquisition of Linear technologies.


The chart above represents a declining growth for PCs translating to a market growth rate of 0.5 – 1.0% through 2020. This is the driver for the 0.5% revenue CAGR for the computer segment post-acquisition.

Military (LLTC)

Military/Aerospace/Harsh Environment segment is another inheritance of the LLTC acquisition. The revenues of this segment have been modelled to grow at 3% post-

Page 6

acquisition through 2020. This is line with the expectation of a decrease in government military spending during the forecast horizon.

RECENT DEVELOPMENTS

Acquisition of Linear Technologies (LLTC)

Analog devices announced on July 26th 2016 that they have reached a definite agreement with Linear technologies under which Analog devices will acquire Linear technologies in cash and stock transaction. The combined enterprise is expected to have a market capitalization of USD 30 billion, which is a 1.57X increase over the current market capitalization of Analog devices. On the announcement of the acquisition, ADI’s stock went up marginally by 0.7%.

Source: Street Insider (10)

Under the acquisition agreement, Analog devices will pay $46 per outstanding share of Linear Technologies and 0.2321 share of Analog devices. This would approximately work out to $60 per share of LLTC, representing a premium of 30% over the trading price of LLTC before the announcement of the merger. Analog devices, Inc. is planning to issue 55-58 million new shares to cover the stock transaction.

Source: Street Insider (10)

ADI is planning to raise new debt to the tune of $7.3 billion that will take its debt to equity ratio from its current levels of 17% to 85%. The interest coverage ratio will decrease from 30X to 5X due to the issuance of new debt. This increase in leverage is a major aspect of this acquisition and this has been modelled in the DCF analysis to arrive at the stock price of the combined entity.

The management of Analog devices has stated that the stock repurchase plan will be curtailed or completely suspended to enable the acquisition.

Recent Earnings and Future Estimate

Source: Bloomberg, HF Estimates

76%

24%

Deal Breakup of the $14.8 billion acquisition

Cash Stock

70%

30%

Cash transaction breakup

New debt Cash from balance sheet

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

0

1

2

3

4

Revenue (in billions) EPS (GAAP)

Annual Estimates (FY16E)

Analysts Consensus Estimates FY 16 (Mean)

Henry Fund Forecast FY 16

Guidance

Surpirse History Revenue and EPS (%)

Page 7

Source: ADI 10K, Bloomberg

The DCF model forecasts reveal the revenue and EPS estimates to be in line with the consensus estimates of all 28 analysts covering Analog devices. Historical data trends reveal a healthy level of positive surprise history both for annual revenue and EPS. This would indicate that not only does ADI consistently exceed the consensus estimates, but also its own guidance. It would not be surprising if Analog devices were to exceed the revenue estimates suggested by the Henry Fund DCF model and a positive surprise this fiscal year will result in the stock prices going up. While clear estimates are available for FY16, no information is available with regards to the revenue potential and the EPS potential of the combined entity of Analog devices and Linear technologies.

INDUSTRY TRENDS

Internet of Things (IoT)


IoTs include every product that involves a sensor, a microprocessor, and a chip that ensures data collected can be transferred across devices. The IoT market forecasted to grow at 23% CAGR from 2015-2019 and this will translate to increased demand for analog semiconductor chips and ICs.

This strong leverage enjoyed by the analog semiconductor industry to the growth of the consumer discretionary electronics segment suggests a potential for strong future growth for both the analog semiconductor industry as well as the overall semiconductor industry.

Big Data Paradigm

Companies Levered to Big Data

Source: Credit Suisse (12)

Data Growth – A Self Perpetuating Dynamic

Source: Credit Suisse (12)

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

0

0.2

0.4

0.6

0.8

1

Revenue (in billions ) EPS (GAAP)

Quarterly results in 2016

Q1 16 (A) Q2 16 (A)

Q3 16 (A) Surprise History Q1

Surprise History Q2 Surprise History Q3

0.

500.

1,000.

1,500.

2,000.

bill

ion

s o

f d

olla

rs

Global IOT Market Size

Market Size (billions of dollars)

Page 8

The charts above demonstrate the business model that the semiconductor industry has established around Big Data. The semiconductor companies have a product portfolio that aid in data creation, data transmission, and data analytics. Sensors help in data collection and creation. This data can then be transferred using either using wireless techniques to electronic devices such as smartphones, tablets, PCs, or in some cases directly to the cloud. Once the data is collected and stored, computing resources need to be expended for data analytics. This shows how the semiconductor industry is linked to the Big Data growth. The analog semiconductor companies such as Analog devices and Linear Technologies will benefit from the 10% YoY growth expected in Big Data and Big Data applications through 2025. Analog semiconductor companies have chips and ICs that propel the equipments involved in data creation and data transmission.

Electric cars

Source: Statista

Analog devices through its acquisition of Linear technologies will be able to leverage the battery monitoring products that are needed for the electric cars. The analog converter chips that convert real world signals into digital signals will be another area where ADI can leverage its product portfolio. The 18% YoY growth expected from 2012 to 2019 for electric cars augurs well for the analog semiconductor industry.

Book to Bill ratio

Source: semi.org (13)

The book-to-bill ratio is an indication of the health of the semiconductor industry and can be used to predict whether the semiconductor industry is heading towards the trough or the peak of its cycle. The ratio represents the number of outstanding order to the available production capacity. A number lesser than 1 indicates overcapacity while a number greater than 1 indicates higher demand. As seen in the graph, the latest book to bill ratio of 1.03 indicates that demand is outpacing supply. Though 1.03 is barely above 1, it still indicates a positive outlook for the semiconductor industry going forward as it represents an improvement compared to the FY 15 levels of 0.96. In the semiconductor industry, the book to bill ratio is one of the most important industry trend to be tracked as it helps understand the demand vs supply balance.

MARKETS AND COMPETITION

The analog semiconductor industry is different from the digital semiconductor industry due to the specific nature of the problem that the analog chips solve. Digital semiconductor products, barring a few application specific ICs (ASICs) are commodity products. Analog companies on the other hand have specialty areas barring products for a few solutions. Converters, that is products that convert analog signals such as temperature, pressure, sound, light etc. to binary signals are often times products where one can find a level of commoditization. All other analog applications need specific expertise and hence the technology specialization of the analog semiconductor company determines the competition that exists in the industry. The technology expertise is patent protected and hence is not easily replicable. One of the most important and often underappreciated competition in the analog

0.00%

5.00%

10.00%

15.00%

20.00%

0

100

200

300

2012 2019E

YoY

Gro

wth

Rev

enu

e

Electric Cars Revenue Growth

Revenue from electric cars (USD billions) YoY Growth (%)

1.031.05

1.00

1.091.09

1.15

1.051.07

0.95

1.00

1.05

1.10

1.15

1.20

Dec-15 Jan-16 Mar-16 May-16 Jun-16 Aug-16 Oct-16

Book to Bill Ratio

Page 9

space is the competition for talented human capital. Analog design engineers require more than 10 years of real world application work experience before they become proficient. The competition for attracting quality engineering talent is very intense among the firms in the analog semiconductor industry. With longer design cycles and longer life cycle of analog products, the firms in the analog semiconductor are competing based on their technological expertise and the limited number of commodity products helps preserve the premium charged per analog product.

Peer Comparisons

Revenue and Price to Sales

The graph below represents the comparison between the peer firms in terms of total sales and P/S ratio. The exercise will help understand the revenue of the firm and the relative multiple that the market is associating for the products sold by each of these firms.

Source: Sentieo Equity Terminal (15)

The chart above represents the comparison between sales and the forward P/S ratios. Texas Instruments (TXN) is the largest company in the analog semiconductor space by sales followed by the Dutch based NXP semiconductors. Analog devices and Skyworks solutions come in third by sales. ADIs acquisition of LLTC will help increase ADIs sales from expected levels of $3.3 billion in 2016 to $5.2 billion

in 2018. According to recent news reports, Qualcomm Inc. is exploring the possibility of acquiring NXP semiconductors. The string of recent acquisitions in the semiconductor industry is leading to increased market consolidation and the blurring of lines between analog and digital semiconductor firms. Texas Instruments has a rich product portfolio encompassing both analog and digital products and Qualcomm’s acquisition of NXP would also result in a firm with dual product lines. ADIs acquisition of LLTC would however not lead to an increased presence in the digital semiconductor space as ADI and LLTC are inherently analog semiconductor companies.

The forward price-to-sales ratio is a good indication of whether market expects the firms to maintain the premium pricing of its products and safeguard its margins. The comparison reveals that ADI and TXN have a higher P/S ratio as compared to the industry median indicating a healthy gross margin line going into the future. LLTC has been disregarded for this analysis as the P/S ratio is skewed by the announcement of its acquisition, which resulted in the stock price appreciating by more 30% in a single trading day.

Margins – Gross and Operating

Since a major portion of the analog semiconductor product mix command a premium pricing, a comparison was done across the peer landscape to study the difference in gross margins and their translation into operating margins.


0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

0.000

2.000

4.000

6.000

8.000

10.000

12.000

14.000

Sales vs Fwd P/S (FY 15 )

Sales (B)

Industry Median P/S (FY +1 )

P/S (FY + 1)0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

FY 15 Gross and EBITDA Margins

Gross Margin (FY 15)

Median (Gross Margin)

Median ( EBITDA Margin)

EBITDA Margin (FY 15)

Page 10

As seen in the graph above, both Analog devices and linear technologies have gross margins that are above the median line. Analog devices’ acquisition of Linear technologies is expected to increase the gross margin further and this bodes well for the combined entity. The gross margin for the combined entity is expected to increase from 64% (present) to 68% after the acquisition.

EBITDA margins rather than EBIT margins have been used to compare the operational efficiency as EBITDA normalize for expenses directly related to operational leverage. It can be seen in the graph above that ADI’s EBITDA margins are about the median EBITDA margins of the peer firms while LLTC enjoys a superior EBITDA margin. The acquisition of LLTC by ADI is expected to drive cost savings due to synergies that would be as high as 5% of revenue or 150 million dollars.

Enterprise value/EBITDA vs Price/Earnings


EV/EBITDA is a ratio that is hinges around parameters that represent the intrinsic value of a firm while forward P/E

ratio represents the market sentiment about the firm’s earning prospects. By combining these two metrics, one can understand which firms are intrinsically overvalued and which firms are relatively overvalued. The graph above shows that both ADI and LLTC have a higher EV/EBITDA as well as a forward P/E than the industry median. Strictly from the graph above, NXP semiconductors seems be to be undervalued compared to its peers.

Debt/Equity and Interest Coverage

Unlike other companies in the technology space, the analog semiconductor companies are usually leveraged. Thus a comparison was done between leverage ratios and the (EBITDA – CapEx) / Interest Expense ratio.


As seen in the chart above, all firms other than Microchip and NXP semiconductors have debt to equity ratios much lower than the industry median. ADIs D/E is less than 10%, significantly lower than the industry median of 42%. This reflects in the significantly higher interest coverage ratio for ADI. To finance the LLTC acquisition, ADI will increase its leverage from its current levels 9.34% to more than 84%

0.00x

5.00x

10.00x

15.00x

20.00x

25.00x

30.00x

35.00x

EV/EBITDA vs Fwd P/E (FY 15)

EV/EBITDA (FY 15) Industry EV/EBITDA

Industry P/E (FY + 1) P/E (FY + 1)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

D/E vs Interest Coverage (FY 15)

FY-1 Total Debt/Equity

Median D/E

Median Interest Coverage

FY-1 (EBITDA-CapEx)/Interest Expenses

Page 11

which will result in its interest coverage falling from 30X to 5X. This is a trend that needs to be monitored closely as any adverse impact to ADIs sales at those high leverage levels will significantly impact the value of the firm.

ECONOMIC OUTLOOK

Economic drivers for the semiconductor industry, of which ADI and LLTC are a part of, are GDP growth (US, China & Global), unemployment rates, fed fund rates, and strength of the US dollar.

Source: Global Economic Prospects 2016, World Bank (1)

Going forward, the US GDP growth is expected to remain stable at around 2% and this should translate to a steady demand in consumer discretionary electronic products such as smartphones, tablets, PCs, and other electronic devices. GDP positively correlates to the disposable income available. Increased disposable income would lead to an increase in demand for discretionary electronic products and hence would translate to demand for semiconductor products. The forecasted decline in the Chinese GDP growth is a cause for concern with nearly 15% of the revenue dependent on the Chinese market. Any slowdown in the end market demand in China would be partially offset by the increasing demand from India. India’s GDP is expected to grow at 7-8% during the forecast period.

Near 0% interest rates have kept the cost of debt low for the semiconductor firms. Once the recent weakness in the economy passes, the fed fund rates are expected to move towards the 1.25% in the next couple of years. Even though this increase in the fed fund rates will not take the interest rate to the levels that were existing before the economic recession of 2008-2009, it is still expected to make the cost of capital dearer for the semiconductor

industries. This would eventually slow the frenetic pace of consolidation taking place in the industry and would dampen capex outflows. The increased leverage that ADI is faced with due to the debt fueled acquisition of LLTC will make it hard for ADI to raise any future debt. It will also discourage ADI from another acquisition of any significant size.

Unemployment rates have a negative correlation with semiconductor sales. Increasing employment increases the median disposable income and that correlates positively with spending on consumer discretionary electronics such as smartphones, tablets, PCs etc. The unemployment rate in the US has continued to decline and the Henry Fund team believes that unemployment will settle at 4.7% over the next 2 years.

Source: IBIS World (2)

The Per capita disposable income chart suggests that the disposable income available for discretionary spending will remain steady through 2021. Per capita disposable income is an important measure of customer’s willingness to pay and the steady levels indicate a similar spending outlook throughout the forecast horizon.

With 58% coming from international sales, the strengthening dollar negatively impacts the earnings of ADI. The revenue from foreign sales is expected to grow to 61% by 2020 and this makes tracking the strength of the dollar imperative. Drivers such as potential fed fund rate hikes, Chinese GDP slowdown, and the economic uncertainty in Europe will make the US dollar appreciate further and this would eat further into the earnings of Analog Devices. A strengthening US dollar however has the advantage of making foreign acquisitions cheaper. The

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

2013 2014 2015E 2016F 2017F 2018F

Real GDP Growth

US China Global

Page 12

model does not however assume any future acquisition other than the announced merger with LLTC.

After considering all the economic parameters, no alarming macro-economic trends were found and this indicates a steady growth scenario for analog semiconductor companies such as Analog Devices.

CATALYSTS FOR GROWTH

Innovation would be a major catalyst for growth for Analog devices. The automotive sector provides significant growth opportunity especially due to the increased demand for electric/hybrid cars. Though the acquisition of LLTC will help ADI position itself favourably to ride the automotive growth, the investments that ADI has made in R&D for automotive can help ADI carve out a bigger share in the automotive growth story.

IoT and Big data provide are the other major catalysts for growth. ADI and LLTC have a product portfolio that aid in data creation, data collection, and data transmission. The current product portfolio along with its investment in R&D can help ADI to leverage the 23% and 10% CAGR that these markets are going to witness in the next 5-10 years.

INVESTMENT POSITIVES

The accretive nature of the announced acquisition of LLTC is a major investment positive. Due to the diverse and complementary nature of the product mix from LLTC, the combined entities revenue will increase by 49% in comparison to ADI’s revenues and the synergies are expected to increase the operating margin by 5% or higher

The end market demand drivers for the analog semiconductor industry are particularly positive with Internet of Things (IoT) expected to grow at 23% CAGR from 2015 to 2019. (11) The market for big data is expected to grow at 10% CAGR to reach $85 billion by 2026. (13) The semiconductor industry is strongly leveraged to this data growth paradigm

Electric/Hybrid car revenues are expected to grow at 18% CAGR from 2012 to 2019. The battery management systems of ADI – LLTC combine will benefit from this growth

INVESTMENT NEGATIVES

Though the acquisition of LLTC has been agreed upon and ratified by both the boards, any development that jeopardizes the acquisition will undercut the upside potential on ADI’s stock from 45% to 7-9%. This is a major investment negative.

Close to $7.3 billion in debt needs to be raised by Analog devices to complete the acquisition deal. A significant increase in the fed funds rate before the debt issuance will have an adverse impact on the cost of debt for ADI. Moreover, change in interest rates can result in a credit rating downgrade for ADI. Any credit rating downgrade will make the investment a risky proposition and hence would constitute a major investment negative.

VALUATION

DCF-EP, DDM, and relative P/E analysis have been used to value Analog Devices. The impending merger of Analog Devices with Linear Technologies is best modelled by a discounted cash flow analysis and hence the price suggested by the DCF model will be considered as the true indication of the intrinsic value of a stock of ADI.


64.35

93.3

46.74

65.6772

0102030405060708090

100

CurrentStock Price

(as of10/6/2016)

DCF - StockPrice

DDM -Stock Price

Relative P/E- StockPrice

MedianAnalysts'Estimates

(noestimateavailable

forcombined

entity)

Price (in USD)

Price (in USD)

Page 13

Analog devices, Inc. has a 5-year long history of paying dividends


The chart above represents the historical and the forecasted payout ratio. The slump in dividend payout ratio seen from 2015 to 2016 is due to impending acquisition of Linear Technologies. Cash will constitute nearly 23% of the $14.8 billion acquisition and this will force Analog devices to restrain their dividend payouts. A major insight that can be derived from the DDM model is the theoretical P/E value of Analog Devices leading into its steady state. The continuing P/E multiple leading to the steady state turns out to be 12.42.

The continuing value P/E is lesser than the current expected forward P/E of 24.2. For a firm whose revenue is modelled to grow at 4.09% CAGR from 2016 to 2020 and with a long term growth rate of 1%, the P/E multiple of 12.42 represents a stock price that is relatively undervalued to its future earnings potential. No importance has been attached to the stock price derived from the DDM model due to the theoretical limitations of the DDM model not accounting for the complete residual income attributable to equity holders of a firm.

Source: ADI 10K (3) and HF Estimates

The chart above represents the modelled dividend payouts as well as the historical dividend payouts.

Analog devices, Inc. has a number of pure play competitors in the analog semiconductor devices space and the median forward 1year, 2year, and 3year P/E estimates have been used to arrive at the stock price of Analog devices. Using this approach, the stock price of ADI was computed to be $65.57 which is right in line with the current share price of Analog devices. While the relative P/E valuation method has the advantage of understanding the P/E multiple that the market is applying to the industry and the peers, the relative valuation approach is not a true indication of the intrinsic value of the stock as the firm specific drivers are not accounted for. The chart shown below indicates the firms that have been considered for the relative valuation approach. The price suggested by the relative valuation model will be considered subservient to the price suggested by the DCF valuation.

54.00%

56.00%

58.00%

60.00%

62.00%

64.00%

66.00%

68.00%

70.00%

72.00%

74.00%

2014 2015 2016E 2017E 2018E 2019E 2020E

Pay

ou

t R

atio

Payout Ratio

0.971.2

1.36 1.48 1.6 1.62 1.62

2.2 2.34 2.46

0

0.5

1

1.5

2

2.5

3

Dividend Payments per share(USD)

Dividend Payments (USD)

Page 14


Short-Term Revenue Growth Assumptions

The 5-year revenue growth assumptions for individual segments of Analog devices have been determined by studying the end market demand for each of these segments. Revenue from industrial, automotive, consumer, and communications constitute the major revenue segments of Analog devices. Post its acquisition of Linear Technologies, Analog devices will also cater to the computer industry. The demand drivers for each of these segments have been discussed in detail in the earlier sections of this report under company description section. The 5-year growth assumptions as well as the revenue forecasts for ADI have been shown in the graphs below:

Indus. Auto. Cons Comm. Comp (LLTC)

Military (LLTC)

2016* -0.2% 2.6% -12.1%

0.6%

2017* 5.0% 6.0% 6.0% 3.0%

2018* 48.7% 70.1% 12.2% 43.7%

2019* 4.5% 5.0% 5.0% 2.0% 0.5% 3.00%

2020* 4.5% 5.0% 5.0% 2.0% 0.5% 3.00%

Source: *HF Forecasts


The steep jumps seen in growth expectations and forecasted revenue for Analog devices in FY2018 is due to the combined reporting of revenues from both Analog devices and Linear technologies.

Costs and Margins

Cost of Goods sold as well as the operational fixed costs are the important assumptions that influence the intrinsic value of the stock derived using the DCF model.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

TXN NXPI MCHPMXIM CRUS ISIL SLAB SMTC ADI

P/E Trends - Relative Valuation

P/E 16 P/E 17 P/E 18 Median (P/E 16)

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

0

1000

2000

3000

4000

5000

6000

Forecasted Revenue

Revenue YoY Growth

Page 15

Source: LLTC 10K (4) and HF Estimates

Source: 10K (3) and HF Estimates

The chart above represents cost of goods sold as a percentage of sales and it can be seen that Analog devices has a much higher cost of sales as compared to the cost of sales of Linear Technologies. The major reason for the disparity in the cost of sales between Analog devices and Linear Technologies is the product portfolio mix of the both these companies. With very little product overlap between the two companies, the acquisition should result in increased gross margins for Analog devices. Considering the importance and the criticality of this assumption, a sensitivity analysis was performed on the cost of sales and the variations in the stock price studied.


As seen in the chart above, failure to the capitalize on the opportunity to expand the gross margins post-merger will significantly impact the stock price of Analog devices. The cost of sales post-merger is hence one of the most important metrics to be monitored during the forecast horizon.

Source: LLTC 10K (4) and HF Estimates

24% 24%

21% 21% 21% 21%

19%

20%

21%

22%

23%

24%

25%

2015 2016 2017E 2018E 2019E 2020E

COGS as % of Sales (LLTC)

COGS as % of Sales (LLTC)

36.11%

34.23%

36.11% 36.11%

31.78% 31.78% 31.78%

29.00%

30.00%

31.00%

32.00%

33.00%

34.00%

35.00%

36.00%

37.00%

2014 2015 2016E 2017E 2018E 2019E 2020E

COGS (% of Sales) - ADI

COGS (% of Sales) - ADI

y = -1.416x + 95.23R² = 0.9948

$70.00

$75.00

$80.00

$85.00

$90.00

$95.00

COGS/Sales vs DCF Stock Price (Post Merger)

DCF Stock Price

46%

44%

46% 46% 46%

45%

43%

44%

45%

46%

47%

2015 2016 2017E 2018E 2019E 2020E

Operating Margin (%)-LLTC

Operating Margin (%)-LLTC

Page 16

Source: ADI 10K (3) and HF Estimates

As seen in the charts above, the acquisition of Linear technologies will help Analog devices to expand its operating margins, driven mostly due to the expansion in the gross margin line. As operation expenses are mostly fixed costs, a sensitivity analysis was performed to check the impact of operation leverage on the DCF stock price.


Increased operational leverage, i.e. SG&A costs as a percentage of sales is a significant factor that influences the DCF stock price as shown by the graph above. This is another factor that needs to be monitored carefully post-

acquisition as a failure to leverage higher operating margins of Linear Technologies will pull the intrinsic value of the Analog Technologies stock downwards.

Research and Development expenses as a percentage of sales is another operating cost that has been modelled as a weighted average of the historical trends seen in Analog devices and Linear technologies. The weights used are based on the composition of ADI and LLTC in the combined entity (ADI: LLTC: 2:1). No sensitivity analysis has been performed on the R&D costs as oftentimes a positive correlation exists between R&D expenses and revenue growth, a correlation that can’t be modelled by simple sensitivity analysis.

Debt and Weighted Average Cost of Capital (WACC)

An important facet of the acquisition deal between Analog devices and Linear technologies is the $7.3 billion in debt that needs to be raised by Analog devices. This new debt issuance will finance approximately 49% of the deal. Analog devices, Inc. enjoys an investment grade credit rating of “BBB” and this is expected to continue through the forecast horizon. Any downward correction in the credit rating will increase the cost of borrowing for Analog devices and will impact the DCF share price. The increased leverage and the possibility of changes in cost of capital have been modelled in 2 ways. The current debt on Analog devices’ balance sheet is $873 million and this is expected to increase to $7.8 billion by the end of FY2017. Hence a variable WACC has been computed for across the forecast horizon depending on the expected capital structure during the fiscal year.

Period WACC

2016 9.08%

2017-CV 9.34%


A 2 dimensional sensitivity analysis was performed by varying the WACC post 2016 as well as the perpetuity growth assumption to capture the effect of credit rating downgrades as well as the impact of terminal value growth. A 10% WACC in a 0.5% terminal growth rate scenario will result in a stock price of $88. This reflects that the intrinsic value of the stock does not plummet alarmingly due to credit downgrades and sluggish growth outlook.

24.19%

27.69% 27.79%

33.90% 34.26% 34.31%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

2015 2016E 2017E 2018E 2019E 2020E

Operating Margin - ADI

Operating Margin - ADI

y = -1.5646x + 93.467R² = 0.9899

$70.00

$75.00

$80.00

$85.00

$90.00

$95.00

DC

F St

ock

Pri

ce

Operating Expenses / Sales

SG&A/Sales vs DCF Stock Price (post merger)

Page 17

Perpetuity Growth Assumption

Source: Statista, IMF (5)

The forecast for Global GDP suggests a 3.9% GDP growth in 2020. Considering that the analog semiconductor devices sector is a cyclical industry with periods of contraction and growth, a conservative growth terminal growth target of 1% has been used. Since the DCF model price is most sensitive to the perpetuity growth assumption, a sensitivity analysis was done by varying the CV growth of NOPLAT. In the unlikely event that the Linear technologies deal is called off and Analog devices faces a terminal growth of 0%, the stock price of ADI will be $48 as compared to its current market price of $64.35.

Valuation Summary

The stock price according to the DCF model is $93.06 and this represents a 45% premium over the current market price of Analog devices. The various sensitivity analysis performed have been described in the sections above and the analysis reveals a target price for Analog devices between $81-102. There are no available consensus estimates for the value of a stock of Analog devices that accounts for the acquisition of Linear Technologies as of the date this report was written. The consensus estimates of stand-alone entity of Analog devices indicates a 9% upside over the current market price of ADI. The 45% upside suggested by the DCF model for the combined entity of LLTC and ADI is the driver for the buy recommendation.

KEYS TO MONITOR

LLTC acquisition and its assimilation

The biggest driver of the buy recommendation is the accretive acquisition of Linear technologies. The acquisition synergies are expected to not only increase sales, but also increase the gross and operating margins. Any developments that adversely impact the acquisition or the assimilation needs to be monitored.

Interest rate hike or credit rating downgrade

Analog devices will increase its leverage from its current levels of 10% of Equity to almost 85% of Equity. With an investment grade rating of BBB, the cost of debt does leave a cushion of 5X in terms of interest coverage. Any downgrade in the credit rating or an interest rate hike would make the cost of debt dearer for ADI. This is another important trend that needs to be monitored.

REFERENCES

1. Word Bank Global GDP forecasts: http://pubdocs.worldbank.org/pubdocs/publicdoc/2016/1/88501452035054522/Global-Economic-Prospects-January-2016-Table1.pdf

2. Per Capita disposable income forecasts: https://www.ibisworld.com/gosample.aspx?cid=1&rtid=4

3. ADI 10-K 4. LLTC 10-K 5. Global GDP forecasts:

http://www.statista.com/statistics/273951/growth-of-the-global-gross-domestic-product-gdp/

6. IC Insights: http://electroiq.com/blog/2015/03/comparing-market-sizes-and-forecasted-growth-rates-for-systems-ics

7. IC Insights Analog IC growth: http://www.waysion.com/blogs/view/automotive-industry-s-demand-for-chip-show-the-strongest-growth/

8. Smartphone growth: http://www.statista.com.proxy.lib.uiowa.edu/statistics/263441/global-smartphone-shipments-forecast

9. PC Growth: http://www.statista.com.proxy.lib.uiowa.edu/statistics/272595/global-shipments-forecast-for-tablets-laptops-and-desktop-pcs

3.2

3.4

3.6

3.8

4

2016 2017 2018 2019

Forecasted Global GDP (%)

Forecasted Global GDP (%)

http://pubdocs.worldbank.org/pubdocs/publicdoc/2016/1/88501452035054522/Global-Economic-Prospects-January-2016-Table1.pdf





http://electroiq.com/blog/2015/03/comparing-market-sizes-and-forecasted-growth-rates-for-systems-ics/



http://www.waysion.com/blogs/view/automotive-industry-s-demand-for-chip-show-the-strongest-growth/



http://www.statista.com.proxy.lib.uiowa.edu/statistics/263441/global-smartphone-shipments-forecast

http://www.statista.com.proxy.lib.uiowa.edu/statistics/263441/global-smartphone-shipments-forecast

http://www.statista.com.proxy.lib.uiowa.edu/statistics/272595/global-shipments-forecast-for-tablets-laptops-and-desktop-pcs



Page 18

10. Street Insider: http://www.streetinsider.com/Corporate+News/Analog+Devices+(ADI)+to+Acquire+Linear+Technology+(LLTC)+for+~$60Share/11864486.html 11. IOT Growth: http://www.statista.com.proxy.lib.uiowa.edu/statistics/485136/global-internet-of-things-market-size/ 12. Credit Suisse Sector forecast for Semiconductors: “2016 Outlook - In Like a Lamb, Out Like a Lion” 13. Book to Bill ratio: http://www.semi.org/en/MarketInfo/Book-to-Bill 14. FactSet, Bloomberg, and Yahoo Finance 15. Sentieo Edge Equity Terminal

IMPORTANT DISCLAIMER

Henry Fund reports are created by student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management. These reports are intended to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.

http://www.streetinsider.com/Corporate+News/Analog+Devices+(ADI)+to+Acquire+Linear+Technology+(LLTC)+for+~$60Share/11864486.html



http://www.statista.com.proxy.lib.uiowa.edu/statistics/485136/global-internet-of-things-market-size/

http://www.statista.com.proxy.lib.uiowa.edu/statistics/485136/global-internet-of-things-market-size/

Ticker Symbol ADI

Current Share Price $64.35

Current Model Date 10/6/2016

Fiscal Year End Oct. 31

Scale Millions

Pre‐Tax Cost of Debt 4.50%

Beta 1.41

Risk‐Free Rate 2.28%

Equity Risk Premium 5% 1.02

CV Growth of NOPLAT 1.00%

CV Growth of EPS 3.00%

Operating Cash Assumption 2%

Marginal Tax Rate 10.00%

Marginal Tax Rate (Post Merger) 10.17%

WACC (2016) 9.08%

WACC (2017‐CV) 9.34%

Total Shares outstanding (FY15) 312.66

Total Shares outstanding (FY17) 366.62

Current Dividend Yield 2.61%

Dividend growth Rate 9%

DCF Share price $93.06

Upside potential 44.62%

Number of new shares Issued 55.62

Analog Devices

Key Assumptions of Valuation Model

Beta

93.06 0.9 0.95 0.97 1 1.05 1.1 1.15 1.2 1.277 1.3 1.41 1.5 1.8

4.00% 128.11 124.95 124.00 121.99 119.23 116.63 114.20 111.90 108.61 107.68 103.69 100.49 91.99

4.25% 124.57 121.46 120.54 118.56 115.86 113.32 110.94 108.69 105.49 104.58 100.69 97.58 89.33

4.50% 121.29 118.24 117.33 115.40 112.74 110.26 107.93 105.74 102.61 101.73 97.94 94.91 86.89

4.75% 118.24 115.24 114.35 112.46 109.86 107.43 105.16 103.02 99.96 99.10 95.40 92.46 84.66

Equity Risk 5.00% 115.40 112.46 111.59 109.73 107.19 104.81 102.58 100.49 97.51 96.67 93.06 90.19 82.60

Premium 5.25% 112.74 109.86 109.01 107.19 104.69 102.37 100.19 98.14 95.23 94.41 90.89 88.08 80.69

5.50% 110.26 107.43 106.59 104.81 102.37 100.09 97.95 95.95 93.10 92.30 88.86 86.13 78.91

5.75% 107.93 105.16 104.33 102.58 100.19 97.95 95.86 93.91 91.12 90.33 86.97 84.30 77.26

6.00% 105.74 103.02 102.21 100.49 98.14 95.95 93.91 91.99 89.26 88.49 85.21 82.60 75.72

6.25% 103.68 101.00 100.21 98.52 96.22 94.07 92.07 90.19 87.52 86.76 83.55 81.00 74.27

6.50% 101.73 99.10 98.32 96.67 94.41 92.30 90.33 88.49 85.87 85.14 81.99 79.49 72.91

6.75% 99.89 97.30 96.54 94.91 92.69 90.63 88.70 86.89 84.33 83.61 80.52 78.07 71.63

Beta

93.06 0.9 0.95 0.97 1 1.05 1.1 1.15 1.2 1.277 1.3 1.41 1.5 1.8

0.00% 106.86 104.58 103.90 102.45 100.43 98.53 96.74 95.04 92.60 91.90 88.90 86.48 79.95

0.50% 110.80 108.23 107.46 105.83 103.58 101.46 99.47 97.59 94.90 94.14 90.86 88.23 81.21

1.00% 115.40 112.46 111.59 109.73 107.19 104.81 102.58 100.49 97.51 96.67 93.06 90.19 82.60

1.50% 120.83 117.43 116.43 114.29 111.38 108.68 106.16 103.81 100.47 99.53 95.54 92.38 84.13

CV NOPLAT 2.00% 127.36 123.36 122.18 119.69 116.32 113.21 110.32 107.65 103.88 102.82 98.36 94.85 85.82

Growth 2.50% 135.35 130.55 129.14 126.19 122.21 118.57 115.23 112.14 107.83 106.63 101.59 97.67 87.72

3.00% 145.35 139.44 137.72 134.14 129.36 125.03 121.08 117.47 112.47 111.09 105.33 100.90 89.84

3.50% 158.22 150.73 148.57 144.11 138.22 132.95 128.19 123.89 117.99 116.38 109.71 104.64 92.24

4.00% 175.42 165.53 162.73 156.98 149.49 142.89 137.03 131.77 124.68 122.77 114.91 109.04 94.98

4.50% 199.56 185.80 181.98 174.21 164.31 155.75 148.28 141.70 132.96 130.62 121.18 114.26 98.12

5.00% 235.91 215.25 209.65 198.51 184.67 173.04 163.12 154.56 143.44 140.52 128.90 120.58 101.78

CV NOPLAT Growth

93.06 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%

6.50% 108.90 113.42 118.76 125.16 132.99 142.77 155.35 172.12 195.61 230.83 289.53

6.75% 106.47 110.61 115.48 121.27 128.28 136.94 147.91 162.25 181.81 210.06 254.46

7.00% 104.20 108.02 112.47 117.73 124.04 131.75 141.39 153.78 170.31 193.45 228.16

7.25% 102.10 105.62 109.70 114.49 120.20 127.11 135.64 146.45 160.58 179.86 207.70

7.42% 100.73 104.06 107.92 112.42 117.76 124.18 132.05 141.94 154.70 171.84 196.05

7.75% 98.29 101.31 104.78 108.80 113.52 119.15 125.95 134.36 145.01 158.94 177.93

WACC‐CV 7.83% 97.72 100.67 104.06 107.97 112.56 118.01 124.59 132.69 142.90 156.18 174.15

8.00% 96.56 99.37 102.58 106.28 110.60 115.71 121.84 129.32 138.69 150.72 166.77

8.25% 94.94 97.56 100.53 103.95 107.92 112.57 118.11 124.82 133.10 143.60 157.32

8.45% 93.71 96.19 98.99 102.21 105.92 110.25 115.38 121.54 129.09 138.55 150.75

8.75% 91.98 94.26 96.84 99.77 103.14 107.04 111.63 117.09 123.70 131.86 142.21

9.00% 90.62 92.75 95.16 97.89 101.00 104.60 108.80 113.75 119.70 126.98 136.06

9.34% 88.90 90.86 93.06 95.54 98.36 101.59 105.33 109.71 114.91 121.18 128.90

9.50% 88.11 90.00 92.11 94.48 97.16 100.23 103.78 107.91 112.80 118.66 125.83

9.75% 86.96 88.73 90.71 92.93 95.43 98.28 101.55 105.34 109.79 115.10 121.52

10.00% 85.86 87.53 89.39 91.47 93.80 96.45 99.48 102.97 107.04 111.86 117.63

$93.06

31.78% $93.06

32% $92.73

33% $91.25

Cost of Sales 34% $89.78

after merger 35% $88.30

36% $86.82

37% $85.34

38% $83.86

39% $82.38

40% $80.90

$93.06

13.83% $93.06

16% $89.85

17% $88.37

SG&A 18% $86.89

after merger 19% $85.41

20% $83.93

21% $82.45

22% $80.97

23% $79.53

24% $78.16

Analog DevicesRevenue DecompositionAll Figures in Millions

Fiscal Years Ending Oct. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Total Revenue 2633.69 2864.77 3435.09 3363.00 3529.23 5267.30 5482.55 5707.35

% of Total Revenue 100% 100% 100% 100% 100% 100% 100% 100%

Total Revenue Growth ‐2.50% 8.77% 19.91% ‐2.10% 4.94% 49.25% 4.09% 4.10%

Revenue Breakdown by Segments:

Industrial 1220.14 1343.26 1496.2 1494.00 1568.70 2332.14 2437.08 2546.75

Automotive 483.78 525.71 526.12 540.00 572.40 973.74 1022.43 1073.55

Consumer 401.37 327.22 729.97 642.00 680.52 763.35 801.52 841.59

Communications 528.41 668.58 682.81 687.00 707.61 1016.84 1037.18 1057.92

Computer (LLTC) NA NA NA NA NA 93.00 93.47 93.93

Military (LLTC) NA NA NA NA NA 88.23 90.88 93.60

% Industrial 46.33% 46.89% 43.56% 44.42% 44.45% 44.28% 44.45% 44.62%

% Automotive 18.37% 18.35% 15.32% 16.06% 16.22% 18.49% 18.65% 18.81%

% Consumer 15.24% 11.42% 21.25% 19.09% 19.28% 14.49% 14.62% 14.75%

% Communications 20.06% 23.34% 19.88% 20.43% 20.05% 19.30% 18.92% 18.54%

Computer(LLTC) NA NA NA NA NA 1.77% 1.70% 1.65%

Military(LLTC) NA NA NA NA NA 1.68% 1.66% 1.64%

Industrial Growth ‐1.63% 10.09% 11.39% ‐0.15% 5.00% 48.67% 4.50% 4.50%

Automotive Growth 4.36% 8.67% 0.08% 2.64% 6.00% 70.12% 5.00% 5.00%

Consumer Growth ‐14.17% ‐18.47% 123.08% ‐12.05% 6.00% 12.17% 5.00% 5.00%

Communications Growth ‐0.22% 26.53% 2.13% 0.61% 3.00% 43.70% 2.00% 2.00%

Computer Growth (LLTC) NA NA NA NA NA NA 0.50% 0.50%

Military Growth (LLTC) NA NA NA NA NA NA 3.00% 3.00%

Geographic Decomposition :

North America 35.00% 32.00% 42.00% 42.00% 41.00% 40.00% 39.00% 39.00%

Europe 32.00% 32.00% 27.00% 25.00% 25.00% 25.00% 25.00% 25.00%

Japan 11.00% 11.00% 9.00% 8.00% 8.00% 8.00% 8.00% 8.00%

China 13.00% 16.00% 15.00% 15.00% 15.00% 16.00% 17.00% 17.00%

Rest of Asia 9.00% 9.00% 7.00% 10.00% 11.00% 11.00% 11.00% 11.00%

Analog DevicesRevenue DecompositionAll Figures in Millions


Revenue 2633.69 2864.77 3435.09 3363.00 3529.23 5267.30 5482.55 5707.35

Cost of sales 941.28 1034.59 1175.83 1214.51 1274.55 1673.90 1742.31 1813.75

Gross margin 1692.41 1830.19 2259.26 2148.49 2254.68 3593.39 3740.24 3893.60

Research & development expenses 513.26 559.69 637.46 643.49 675.29 992.77 1033.34 1075.72

Selling, marketing, general & administrative expenses 396.23 454.68 478.97 500.58 525.32 728.35 758.12 789.20

Amortization of intangibles 0.00 26.02 88.32 73.21 73.21 86.65 70.63 70.63

Special charges 29.85 37.32 0.00 0.00 0.00 0.00 0.00 0.00

Other operating expenses 0.00 0.00 223.67 0.00 0.00 0.00 0.00 0.00

Total operating expenses 939.34 1077.70 1428.42 1217.27 1273.82 1807.78 1862.09 1935.55

Operating income 753.08 752.48 830.84 931.21 980.86 1785.62 1878.15 1958.05

Interest expense 27.10 34.78 27.03 39.33 22.45 351.17 351.17 351.17

Interest income 12.75 12.17 8.63 8.15 8.23 8.31 4.17 4.21

Other nonoperating income (expenses), net 76.60 -0.53 -2.32 24.18 25.38 37.88 39.42 41.04

Total nonoperating income (expenses) 62.25 -23.14 -20.73 ‐6.99 11.16 ‐304.98 ‐307.57 ‐305.91

Income from continuing operations before income taxes 815.32 729.35 810.11 924.22 992.02 1480.64 1570.58 1652.14

Total provision for (benefit from) income taxes 141.84 100.03 113.24 92.42 99.20 150.58 159.73 168.02

Net income (loss) 673.49 629.32 696.88 831.80 892.82 1330.06 1410.85 1484.12

Weighted average shares outstanding - basic 307.76 313.20 312.66 311.78 366.62 366.41 366.02 365.69

Year end shares outstanding 311.05 311.21 312.06 311.49 366.62 366.20 365.84 365.55

Net earnings (loss) per share - basic 2.19 2.01 2.23 2.67 2.44 3.63 3.85 4.06

Dividends declared & paid per share 1.32 1.45 1.57 1.62 1.62 2.20 2.34 2.46

Payout Ratio 60.27% 72.14% 70.40% 60.72% 66.52% 60.72% 60.72% 60.72%

EPS Growth 0.46% ‐8.22% 10.95% 19.64% ‐8.72% 49.06% 6.19% 5.29%

Analog DevicesBalance SheetAll Figures in Millions


Assets:

Cash 45.6 117.3 72.6 54.4 11235.5 51.6 537.0 1044.4

Institutional Money Market Funds 346.5 451.9 811.7 771.1 732.6 586.1 591.9 597.8

Cash & cash equivalents 392.1 569.2 884.4 825.6 11968.1 637.6 1128.9 1642.2

Short-term investments 4290.8 2297.2 2144.6 2166.0 2187.7 1098.0 1109.0 1120.1

Accounts receivable, gross 327.7 399.5 468.6 443.2 465.1 672.7 700.1 728.8

Less: allowances 2.6 2.9 2.1 2.0 2.1 4.3 4.5 4.7

Accounts receivable, net 325.1 396.6 466.5 441.2 463.0 668.3 695.6 724.2

Inventories 283.3 367.9 412.3 397.0 416.6 531.7 553.4 576.1

Deferred tax assets 136.3 128.9 129.2 112.3 120.5 95.3 99.2 103.2

Prepaid income tax 2.4 6.6 1.9 1.6 1.7 1.8 1.8 1.9

Prepaid expenses & other current assets 42.3 45.3 40.6 50.2 52.7 101.7 105.8 110.2

Total current assets 5472.4 3811.9 4079.5 3993.9 15210.3 3134.4 3693.8 4277.9

Property, plant & equipment, at cost 2292.9 2478.3 2602.1 2732.2 2868.8 4150.8 4374.5 4608.1

Less accumulated depreciation & amortization 1784.7 1855.9 1958.0 2063.6 2173.2 3152.2 3319.4 3494.0

Net property, plant & equipment 508.2 622.4 644.1 668.6 695.6 998.6 1055.1 1114.2

Deferred compensation plan investments 17.4 21.1 23.8 24.5 25.2 26.0 26.7 27.5

Other investments 3.8 13.4 17.5 18.2 18.9 19.3 19.7 20.1

Goodwill 284.1 1642.4 1636.5 1636.5 1636.5 14203.4 14203.4 14203.4

Intangible assets, gross 0.0 0.0 666.6 666.6 666.6 683.7 683.7 683.7

Less: total accumulated amortization 0.0 0.0 83.1 156.3 229.5 316.1 386.8 457.4

Intangible assets, net 28.6 671.4 583.5 510.3 437.1 367.6 296.9 226.3

Deferred tax assets 26.2 27.2 33.3 23.1 24.8 31.1 38.8 48.6

Other assets 41.1 49.8 44.0 50.0 52.4 78.3 81.5 84.8

Total assets 6381.8 6859.7 7062.2 6925.1 18100.9 18858.5 19415.9 20002.7

Liabilities:Accounts payable 120.0 139.0 174.2 170.6 179.0 199.7 207.8 216.3

Deferred income on shipments to distributors, net 247.4 278.4 300.1 308.4 323.6 362.3 377.1 392.5

Income taxes payable 45.5 62.8 15.1 12.3 13.2 14.5 15.4 16.2

Current portion of long-term debt 0.0 0.0 374.8 0.0 0.0 0.0 0.0 498.5

Accrued compensation & benefits 71.1 101.3 125.5 108.7 114.0 170.2 177.2 184.4

Interest rate swap 0.0 0.0 32.7 0.0 0.0 0.0 0.0 0.0

Accrued special charges 20.0 40.5 5.9 0.0 0.0 0.0 0.0 0.0

Other accrued liabilities 66.6 87.1 85.5 87.6 91.9 137.2 142.8 148.7

Total current liabilities 570.5 709.1 1113.8 687.6 721.8 883.9 920.3 1456.7

Long-term debt 872.2 872.8 498.5 498.5 7798.5 7798.5 7798.5 7300.0

Deferred income taxes 6.0 235.8 227.4 201.7 216.5 259.7 275.5 289.8

Deferred compensation plan liability 17.4 21.1 23.8 24.2 24.7 25.2 25.7 26.2

Other non-current liabilities 176.0 263.0 125.8 173.9 182.5 272.4 283.6 295.2

Total non-current liabilities 1071.7 1392.7 875.4 898.4 8222.3 8355.9 8383.3 7911.2

Total Liabilities 1642.2 2101.8 1989.2 1586.0 8944.1 9239.7 9303.6 9367.9

Shareholder's Equity:Common stock and additional paid in capital 763.7 694.9 686.5 626.0 4144.7 4084.2 4023.7 3963.2

Retained earnings 4056.4 4231.5 4437.3 4764.0 5062.9 5585.4 6139.5 6722.5

Accumulated other comprehensive income (loss) -80.5 -168.5 -50.9 ‐50.9 ‐50.9 ‐50.9 ‐50.9 ‐50.9

Total shareholders' equity 4739.6 4757.9 5073.0 5339.2 9156.8 9618.7 10112.4 10634.8

Total Liabilities and Shareholder's Equity 6381.8 6859.7 7062.2 6925.1 18100.9 18858.5 19415.9 20002.7

Analog DevicesCash Flow StatementAll Figures in Millions

Fiscal Years Ending Oct. 31 2016E 2017E 2018E 2019E 2020E

Cash Flow From Operations:Net Income 831.8 892.8 1330.1 1410.8 1484.1

Depreciation 105.6 109.6 979.0 167.2 174.6

Amortization 73.2 73.2 86.6 70.6 70.6

Changes: Accounts receivable, net 25.3 ‐21.8 ‐205.3 ‐27.3 ‐28.5

Inventories 15.3 ‐19.6 ‐115.1 ‐21.7 ‐22.7

Deferred tax assets 16.9 ‐8.2 25.3 ‐3.9 ‐4.1

Prepaid income tax 0.4 ‐0.1 ‐0.1 ‐0.1 ‐0.1

Prepaid expenses & other current assets ‐9.6 ‐2.5 ‐49.0 ‐4.2 ‐4.3

Deferred tax assets 10.1 ‐1.7 ‐6.2 ‐7.8 ‐9.7

Other assets ‐6.0 ‐2.5 ‐25.8 ‐3.2 ‐3.3

Accounts payable ‐3.7 8.4 20.6 8.2 8.5

Deferred income on shipments to distributors, net 8.3 15.2 38.6 14.8 15.5

Income taxes payable ‐2.8 0.9 1.3 0.9 0.8

Accrued compensation & benefits ‐16.8 5.4 56.2 7.0 7.3

Accrued special charges ‐5.9 0.0 0.0 0.0 0.0

Other accrued liabilities 2.1 4.3 45.3 5.6 5.9

Deferred income taxes ‐25.7 14.8 43.2 15.8 14.3

Other non-current liabilities 48.2 8.6 89.9 11.1 11.6

Cash Flow From Operations: 1066.9 1076.9 2314.6 1643.8 1720.4

Cash Flow From Investing :Institutional Money Market Funds 40.6 38.6 146.5 ‐5.9 ‐5.9

Short-term investments ‐21.4 ‐21.7 1089.7 ‐11.0 ‐11.1

Property, plant & equipment, at cost ‐130.1 ‐136.6 ‐1281.9 ‐223.7 ‐233.6

Goodwill 0.0 0.0 ‐12566.8 0.0 0.0

Deferred compensation plan investments ‐0.7 ‐0.7 ‐0.8 ‐0.8 ‐0.8

Other investments ‐0.7 ‐0.7 ‐0.4 ‐0.4 ‐0.4

Intangible assets, gross 0.0 0.0 ‐17.1 0.0 0.0

Deferred compensation plan liability 0.5 0.5 0.5 0.5 0.5

Cash Flow From Investing Activities ‐111.9 ‐120.7 ‐12630.4 ‐241.2 ‐251.3

Cash Flow From Financing :Current portion of long-term debt ‐374.8 0.0 0.0 0.0 498.5

Interest rate swap ‐32.7 0.0 0.0 0.0 0.0

Long-term debt 0.0 7300.0 0.0 0.0 ‐498.5

Common stock and additional paid in capital ‐60.5 3518.8 ‐60.5 ‐60.5 ‐60.5

Accumulated other comprehensive income (loss) 0.0 0.0 0.0 0.0 0.0

Dividends Paid ‐505.1 ‐593.9 ‐807.6 ‐856.7 ‐901.2

Cash Flow From Financing ‐973.2 10224.9 ‐868.2 ‐917.2 ‐961.7

Net Change in Cash ‐18.2 11181.1 ‐11183.9 485.4 507.4

Cash at the Beginning of the Year 72.6 54.4 11235.5 51.6 537.0

Cash at the End of the Year 54.4 11235.5 51.6 537.0 1044.4

Analog DevicesCash Flow StatementAll Figures in Millions

Fiscal Years Ending Oct. 31 2013 2014 2015

Net income (loss) 673.5 629.3 696.9Depreciation 110.2 114.1 130.1

Amortization of intangibles 0.2 27.9 92.1

Stock-based compensation expense 56.9 50.8 68.9

Loss (gain) on sale of business - - -

Loss (gain) on sale of investments - - -

Loss (gain) on sale of product line -85.4 - -

Loss on extinguishment of debt 10.2 - -

Non-cash portion of special charges - - -

Minority interest - - -

Purchased in-process research & development - - -

Other non-cash activity -0.2 4.4 7.0

Excess tax benefit - stock options -16.2 -22.2 -25.0

Deferred income taxes -17.7 -77.7 -52.2

Accounts receivable 12.4 -36.5 -71.2

Inventories 28.5 24.6 -35.6

Prepaid expenses & other current assets 4.7 -5.4 2.9

Investments - trading - - -

Deferred compensation plan investments 11.1 -3.7 -2.6

Prepaid income tax 6.1 10.5 4.5

Accounts payable, deferred income & accrued liabilities 17.5 58.4 56.6

Deferred compensation plan liability -11.1 3.7 2.6

Income tax payments related to gain on sale of businesses - - -

Income taxes payable 50.7 96.5 25.1

Other liabilities 61.0 -3.2 7.7

Total adjustments 238.9 242.3 210.9

Net cash flows from operating activities 912.3 871.6 907.8

Purchases of short-term available-for-sale investments -8540.3 -7485.2 -6084.0

Maturities of short-term available-for-sale investments 6970.9 7318.9 4985.0

Sales of short-term available-for-sale investments 650.7 2187.4 1251.2

Additions to property, plant & equipment, net -123.1 -177.9 -154.0

Net proceeds (expenditures) related to sale of businesses - - -

Proceeds related to sale of investments - - -

Proceeds from sale of property, plant & equipment - - -

Proceeds related to sale of product line 100.0 - -

Payments for acquisitions , net of cash acquired -2.5 -1945.9 -7.1

Decrease (increase) in other assets -5.7 -12.1 -8.3

Net cash flows from investing activities -949.9 -114.8 -17.1

Proceeds from debt 493.9 1995.4 -

Payment of senior unsecured notes -392.8 - -

Early termination of swap agreements - - -

Proceeds from derivative instruments 11.0 - -

Term loan repayments -60.1 -1995.4 -

Dividend payments to shareholders -406.0 -454.2 -491.1

Repurchase of common stock -60.5 -356.3 -227.0

Proceeds from employee stock plans 306.3 200.1 122.6

Contingent consideration payment -5.7 -3.6 -1.8

Increase in liability from stock repurchase - - -

Credit facility fees - - -

Change in other financing activities -2.8 15.2 0.5

Excess tax benefit - stock options 16.2 22.2 25.0

Net cash flows from financing activities -100.6 -576.6 -571.6

Effect of exchange rate changes on cash 1.4 -3.1 -4.0

Net increase (decrease) in cash & cash equivalents -136.7 177.1 315.1

Cash & cash equivalents at beginning of year 528.8 392.1 569.2

Cash & cash equivalents at end of year 392.1 569.2 884.4

Cash paid during the fiscal year for income taxes 36.9 73.1 142.9

Cash paid during the fiscal year for interest 29.4 27.9 25.6

Analog DevicesCommon Size Income StatementAll Figures in Millions


Revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of sales 35.74% 36.11% 34.23% 36.11% 36.11% 31.78% 31.78% 31.78%

Gross margin 64.26% 63.89% 65.77% 63.89% 63.89% 68.22% 68.22% 68.22%

Research & development expenses 19.49% 19.54% 18.56% 19.13% 19.13% 18.85% 18.85% 18.85%

Selling, marketing, general & administrative expenses 15.04% 15.87% 13.94% 14.88% 14.88% 13.83% 13.83% 13.83%

Amortization of intangibles 0.00% 0.91% 2.57% 2.18% 2.07% 1.65% 1.29% 1.24%

Special charges 1.13% 1.30% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Other operating expenses 0.00% 0.00% 6.51% 0.00% 0.00% 0.00% 0.00% 0.00%

Total operating expenses 35.67% 37.62% 41.58% 36.20% 36.09% 34.32% 33.96% 33.91%

Operating income 28.59% 26.27% 24.19% 27.69% 27.79% 33.90% 34.26% 34.31%

Interest expense 1.03% 1.21% 0.79% 1.17% 0.64% 6.67% 6.41% 6.15%

Interest income 0.48% 0.42% 0.25% 0.24% 0.23% 0.16% 0.08% 0.07%

Other nonoperating income (expenses), net 2.91% ‐0.02% ‐0.07% 0.72% 0.72% 0.72% 0.72% 0.72%

Total nonoperating income (expenses) 2.36% ‐0.81% ‐0.60% ‐0.21% 0.32% ‐5.79% ‐5.61% ‐5.36%

Income from continuing operations before income taxes 30.96% 25.46% 23.58% 27.48% 28.11% 28.11% 28.65% 28.95%

Provision for income taxes payable currently 6.06% 6.20% 4.82% 0.00% 0.00% 0.00% 0.00% 0.00%

Provision for deferred (prepaid) income taxes ‐0.67% ‐2.71% ‐1.52% 0.00% 0.00% 0.00% 0.00% 0.00%

Total provision for (benefit from) income taxes 5.39% 3.49% 3.30% 2.75% 2.81% 2.86% 2.91% 2.94%

Net income (loss) 25.57% 21.97% 20.29% 24.73% 25.30% 25.25% 25.73% 26.00%

Analog DevicesCommon Size Balance SheetAll Figures in Millions


Assets:

Cash 1.73% 4.10% 2.11% 1.62% 318.36% 0.98% 9.79% 18.30%

Institutional Money Market Funds 13.15% 15.77% 23.63% 22.93% 20.76% 11.13% 10.80% 10.47%

Cash & cash equivalents 14.89% 19.87% 25.74% 24.55% 339.11% 12.11% 20.59% 28.77%

Short-term investments 162.92% 80.19% 62.43% 64.41% 61.99% 20.85% 20.23% 19.63%

Accounts receivable, gross 12.44% 13.95% 13.64% 13.18% 13.18% 12.77% 12.77% 12.77%

Less: allowances 0.10% 0.10% 0.06% 0.06% 0.06% 0.08% 0.08% 0.08%

Accounts receivable, net 12.35% 13.84% 13.58% 13.12% 13.12% 12.69% 12.69% 12.69%

Inventories 10.76% 12.84% 12.00% 11.80% 11.80% 10.09% 10.09% 10.09%

Deferred tax assets 5.18% 4.50% 3.76% 3.34% 3.42% 1.81% 1.81% 1.81%

Prepaid income tax 0.09% 0.23% 0.06% 0.05% 0.05% 0.03% 0.03% 0.03%

Prepaid expenses & other current assets 1.61% 1.58% 1.18% 1.49% 1.49% 1.93% 1.93% 1.93%

Total current assets 207.79% 133.06% 118.76% 118.76% 430.98% 59.51% 67.37% 74.95%

Property, plant & equipment, at cost 87.06% 86.51% 75.75% 81.24% 81.29% 78.80% 79.79% 80.74%

Less accumulated depreciation & amortization 67.77% 64.78% 57.00% 61.36% 61.58% 59.84% 60.54% 61.22%

Net property, plant & equipment 19.30% 21.73% 18.75% 19.88% 19.71% 18.96% 19.25% 19.52%

Deferred compensation plan investments 0.66% 0.74% 0.69% 0.73% 0.71% 0.49% 0.49% 0.48%

Other investments 0.14% 0.47% 0.51% 0.54% 0.54% 0.37% 0.36% 0.35%

Goodwill 10.79% 57.33% 47.64% 48.66% 46.37% 269.65% 259.07% 248.86%

Intangible assets, gross 0.00% 0.00% 19.41% 19.82% 18.89% 12.98% 12.47% 11.98%

Less: total accumulated amortization 0.00% 0.00% 2.42% 4.65% 6.50% 6.00% 7.05% 8.01%

Intangible assets, net 1.08% 23.44% 16.99% 15.17% 12.39% 6.98% 5.42% 3.96%

Deferred tax assets 1.00% 0.95% 0.97% 0.69% 0.70% 0.59% 0.71% 0.85%

Other assets 1.56% 1.74% 1.28% 1.49% 1.49% 1.49% 1.49% 1.49%

Total assets 242.31% 239.45% 205.59% 205.92% 512.89% 358.03% 354.14% 350.47%

Liabilities:Accounts payable 4.56% 4.85% 5.07% 5.07% 5.07% 3.79% 3.79% 3.79%

Deferred income on shipments to distributors, net 9.39% 9.72% 8.74% 9.17% 9.17% 6.88% 6.88% 6.88%

Income taxes payable 1.73% 2.19% 0.44% 0.37% 0.37% 0.28% 0.28% 0.28%

Current portion of long-term debt 0.00% 0.00% 10.91% 0.00% 0.00% 0.00% 0.00% 8.73%

Accrued compensation & benefits 2.70% 3.54% 3.65% 3.23% 3.23% 3.23% 3.23% 3.23%

Interest rate swap 0.00% 0.00% 0.95% 0.00% 0.00% 0.00% 0.00% 0.00%

Accrued special charges 0.76% 1.41% 0.17% 0.00% 0.00% 0.00% 0.00% 0.00%

Other accrued liabilities 2.53% 3.04% 2.49% 2.61% 2.61% 2.61% 2.61% 2.61%

Total current liabilities 21.66% 24.75% 32.43% 20.44% 20.45% 16.78% 16.79% 25.52%

Long-term debt 33.12% 30.47% 14.51% 14.82% 220.97% 148.06% 142.24% 127.91%

Deferred income taxes 0.23% 8.23% 6.62% 6.00% 6.14% 4.93% 5.03% 5.08%

Deferred compensation plan liability 0.66% 0.74% 0.69% 0.72% 0.70% 0.48% 0.47% 0.46%

Other non-current liabilities 6.68% 9.18% 3.66% 5.17% 5.17% 5.17% 5.17% 5.17%

Total non-current liabilities 40.69% 48.62% 25.48% 26.71% 232.98% 158.64% 152.91% 138.61%

Total Liabilities 62.35% 73.37% 57.91% 47.16% 253.43% 175.42% 169.69% 164.14%

Shareholder's Equity:Common stock 1.97% 1.81% 1.51% 1.55% 1.73% 1.16% 1.11% 1.07%

Capital in excess of par value 27.03% 22.45% 18.47% 17.07% 115.71% 76.38% 72.28% 68.37%

Retained earnings 154.02% 147.71% 129.18% 141.66% 143.46% 106.04% 111.98% 117.79%

Accumulated other comprehensive income (loss) ‐3.06% ‐5.88% ‐1.48% ‐1.51% ‐1.44% ‐0.97% ‐0.93% ‐0.89%

Total shareholders' equity 179.96% 166.08% 147.68% 158.76% 259.46% 182.61% 184.45% 186.34%

Total Liabilities and Shareholder's Equity 242.31% 239.45% 205.59% 205.92% 512.89% 358.03% 354.14% 350.47%

Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013) Present Value of Operating Lease Obligations (2012)

Operating Operating Operating Operating

Fiscal Years Ending Oct. 31 Leases Fiscal Years Ending Oct. 31 Leases Fiscal Years Ending 0.0425 Leases Fiscal Years Ending 115.856687807705 Leases

2016 21.78 2015 22.78 2014 28.05 2013 29.56

2017 14.17 2016 11.14 2015 13.88 2014 18.15

2018 14.17 2017 11.14 2016 13.88 2015 18.15

2019 4.76 2018 3.39 2017 5.75 2016 5.37

2020 4.76 2019 3.39 2018 5.75 2017 5.37

Thereafter 6.21 Thereafter 0.45 Thereafter 1.75 Thereafter 12.44

Total Minimum Payments 65.86 Total Minimum Payments 52.293 Total Minimum Payments 69.071 Total Minimum Payments 89.028

Less: Interest 7 Less: Interest 5 Less: Interest 7 Less: Interest 10

PV of Minimum Payments 58.79 PV of Minimum Payments 47.67 PV of Minimum Payments 62.50 PV of Minimum Payments 78.89

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre‐Tax Cost of Debt 4.50% Pre‐Tax Cost of Debt 4.50% Pre‐Tax Cost of Debt 4.50% Pre‐Tax Cost of Debt 4.50%

Number Years Implied by Year 6 Payment 1.3 Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 2.3

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease

Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment

1 21.78 20.8 1 22.781 21.8 1 28.045 26.8 1 29.559 28.3

2 14.1745 13.0 2 11.139 10.2 2 13.883 12.7 2 18.1495 16.6

3 14.1745 12.4 3 11.139 9.8 3 13.883 12.2 3 18.1495 15.9

4 4.76 4.0 4 3.3905 2.8 4 5.7535 4.8 4 5.3665 4.5

5 4.76 3.8 5 3.3905 2.7 5 5.7535 4.6 5 5.3665 4.3

6 & beyond 4.76 4.7 6 & beyond 0.453 0.3 6 & beyond 1.753 1.3 6 & beyond 5.3665 9.3

PV of Minimum Payments 58.79 PV of Minimum Payments 47.67 PV of Minimum Payments 62.50 PV of Minimum Payments 78.89

Analog DevicesValue Driver EstimationAll Figures in Millions


Marginal Tax Rate Calculation:

Federal Statuatory rate 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00%

State income taxes, net of federal effect ‐0.26% ‐0.87% ‐0.55% ‐0.55% ‐0.55% ‐0.38% ‐0.38% ‐0.38%

Foreign rate differential ‐19.90% ‐24.59% ‐24.45% ‐24.45% ‐24.45% ‐24.45% ‐24.45% ‐24.45%

Marginal Tax Rate 14.84% 9.54% 10.00% 10.00% 10.00% 10.17% 10.17% 10.17%

EBITA Calculations:

Net Revenue 2633.69 2864.77 3435.09 3363.00 3529.23 5267.30 5482.55 5707.35

Less: Cost of sales 941.28 1034.59 1175.83 1214.51 1274.55 1673.90 1742.31 1813.75

Less: Research & development expenses 513.26 559.69 637.46 643.49 675.29 992.77 1033.34 1075.72

Less: Selling, marketing, general & administrative expenses 396.23 454.68 478.97 500.58 525.32 728.35 758.12 789.20

Less: Amortization of intangibles 0.00 26.02 88.32 73.21 73.21 86.65 70.63 70.63

Less: Other operating expenses 0.00 0.00 223.67 0.00 0.00 0.00 0.00 0.00

Add: Implied Interest on Operating Leases 3.55 2.81 2.15 2.65 2.78 2.92 3.06 3.22

EBITA 786.48 792.62 832.99 933.86 983.64 1788.54 1881.21 1961.27

Less Adjusted Income Taxes:

Provision for Income Taxes 141.84 100.03 113.24 92.42 99.20 150.58 159.73 168.02

Add Tax Shield on Special Charges 4.43 3.56 0.00 0.00 0.00 0.00 0.00 0.00

Add Tax Shield on Interest Expense 4.02 3.32 2.70 3.93 2.24 35.71 35.71 35.71

Add Tax Shield on Implied Interest on Operating Leases 0.53 0.27 0.21 0.26 0.28 0.30 0.31 0.33

Less Tax on Interest Income 1.89 1.16 0.86 0.81 0.82 0.85 0.42 0.43

Less Tax on other non operating income (expenses) 11.37 ‐0.05 ‐0.23 2.42 2.54 3.85 4.01 4.17

Adjusted income Taxes 137.56 106.06 115.52 93.39 98.36 181.89 191.32 199.46

Add Change in Deferred Taxes:

DT Liabilities 6.04 235.79 227.38 201.73 216.52 259.73 275.51 289.82

DT Assets 162.53 156.18 162.52 135.45 145.39 126.35 138.02 151.80

Net Changes to DT ‐156.49 79.61 64.86 66.27 71.13 133.39 137.49 138.02

Change in DT ‐23.75 236.10 ‐14.75 1.42 4.86 62.25 4.10 0.53

NOPLAT : EBITA ‐ Adjusted Taxes + Change in DT

NOPLAT 625.17 922.65 702.71 841.89 890.14 1668.90 1694.00 1762.34

Operating Current Assets:

Cash on Balance Sheet 45.64 117.34 72.64 54.42 11235.48 51.58 536.96 1044.37

Operating Cash Assumption (2% of Revenue) 52.67 57.30 68.70 67.26 70.58 105.35 109.65 114.15

Accounts receivable, net 325.14 396.61 466.53 441.24 463.05 668.34 695.65 724.17

Inventories 283.34 367.93 412.31 396.99 416.61 531.71 553.44 576.13

Prepaid income tax 2.39 6.63 1.94 1.58 1.70 1.77 1.84 1.92

Prepaid expenses & other current assets 42.34 45.32 40.60 50.21 52.70 101.66 105.81 110.15

Operating Current Assets 698.85 873.78 990.08 944.45 1004.64 1355.06 1466.39 1526.52

Operating Current Liabilities:

Accounts payable 119.99 138.97 174.25 170.59 179.02 199.66 207.82 216.34

Deferred income on shipments to distributors, net 247.43 278.44 300.09 308.40 323.64 362.27 377.07 392.53

Income taxes payable 45.49 62.77 15.06 12.29 13.20 14.51 15.39 16.19

Accrued compensation & benefits 71.09 101.31 125.50 108.67 114.05 170.21 177.17 184.43

Other accrued liabilities 66.55 87.07 85.48 87.61 91.94 137.21 142.82 148.68

Operating Current Liabilities 550.56 668.55 700.38 687.56 721.84 883.86 920.27 958.17

Other Operating Assets:

Net property, plant & equipment 508.17 622.42 644.11 668.60 695.58 998.56 1055.13 1114.17

Intangible assets, net 28.55 671.40 583.52 510.31 437.10 367.55 296.92 226.29

Other assets 41.08 49.79 43.96 49.98 52.45 78.28 81.48 84.82

PV of Operating Leases 62.50 47.67 58.79 61.73 64.82 68.06 71.46 75.03

Other Operating Assets 640.31 1391.28 1330.38 1290.62 1249.94 1512.44 1504.98 1500.30

Other Operating Liabilities:

Other non-current liabilities 176.02 263.05 125.76 173.94 182.54 272.44 283.57 295.20

Other Operating Liabilities 176.02 263.05 125.76 173.94 182.54 272.44 283.57 295.20

Invested Capital:

Invested Capital 612.58 1333.46 1494.32 1373.56 1350.20 1711.20 1767.54 1773.45

Return on Invested Capital:

NOPLAT 625.17 922.65 702.71 841.89 890.14 1668.90 1694.00 1762.34

Beginning Invested Capital 785.49 612.58 1333.46 1494.32 1373.56 1350.20 1711.20 1767.54

ROIC 79.59% 150.62% 52.70% 56.34% 64.81% 123.60% 98.99% 99.71%

Economic Profit: Begin IC * ( ROIC ‐WACC)

Beginning Invested Capital 785.49 612.58 1333.46 1494.32 1373.56 1350.20 1711.20 1767.54

ROIC 79.59% 150.62% 52.70% 56.34% 64.81% 123.60% 98.99% 99.71%

WACC 9.08% 9.08% 9.08% 9.08% 9.34% 9.34% 9.34% 9.34%

Economic Profit 553.87 867.05 581.67 706.25 761.89 1542.83 1534.22 1597.30

FCF: NOPLAT+Change in Invested Capital

NOPLAT 625.17 922.65 702.71 841.89 890.14 1668.90 1694.00 1762.34

Add: Beg Invested Capital 785.49 612.58 1333.46 1494.32 1373.56 1350.20 1711.20 1767.54

Less: Current Invested Capital 612.58 1333.46 1494.32 1373.56 1350.20 1711.20 1767.54 1773.45

FCF 798.08 201.78 541.85 962.65 913.50 1307.90 1637.66 1756.42

Analog DevicesWeighted Average Cost of Capital (WACC) Estimation

Marginal Tax Rate (2016 ‐ 2017) 10.00%

Marginal Tax Rate (2018 ‐ CV) 10.17%

Cost of equity Calculation

Risk Free Rate 2.28% (30 Yr Treasury Note)

+

Beta* 1.41

Market Risk Premium 5.00%

= Cost of Equity 9.31%

WACC Calculation (2016)

Shares outstanding 312.66

MV of shares 64.35

=Total MV of Equity [E] 20119.67

MV of ST Debt (ST) 374.84

MV of LT Debt (LT) 498.50

PV of Operating Leases (OL) 58.79

Cost of ST Debt 4.50% (Assuming Long Term Cost of Debt)

Cost of LT Debt 4.50%

Cost of Operating Leases 4.50% (Assuming Long Term Cost of Debt)

MV of equity 20119.67

+

MV of debt 932.13

= MV of the firm [V] 21051.80

Cost of Equity * 9.31%

(E/V) 95.57%

+

Cost of ST Debt 4.50%

(1‐Marginal tax Rate) 90.00%

(ST/V) 1.78%

+



(LT/V) 2.37%

+

Cost of Operating Leases 4.50%


(OL/V) 0.28%

= WACC 9.08%

WACC Calculation (2017‐CV)

Marginal Tax Rate (2016 ‐ 2017) 10.00%

Marginal Tax Rate (2018 ‐ CV) 10.17%

Cost of equity Calculation

Risk Free Rate 2.28%

+

Beta* 1.82

Market Risk Premium 5.00%

= Cost of Equity 11.40%

Shares outstanding 312.66

MV of shares 64.35

=Total MV of Equity [E] 20119.67

MV of ST Debt (ST) 0.00

MV of LT Debt (LT) 7798.50

PV of Operating Leases (OL) 64.82

Cost of ST Debt 4.50% (Assuming Long Term Cost of Debt)


Cost of Operating Leases 4.50% (Assuming Long Term Cost of Debt)

MV of equity 20119.67

+

MV of debt 7863.32

= MV of the firm [V] 27982.99

Cost of Equity * 11.40%

(E/V) 71.90%

+

Cost of ST Debt 4.50%


(ST/V) 0.00%

+



(LT/V) 27.87%

+

Cost of Operating Leases 4.50%


(OL/V) 0.23%

= WACC 9.34%

Analog DevicesDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs:

CV Growth 1.00%

CV ROIC 99.71%

WACC (2016) 9.08%

WACC (2017 ‐CV) 9.34%

Cost of Equity 9.31%


DCF Model

Discount period 1 2 3 4 5

NOPLAT 842 890 1669 1694 1762

Continuing Value 20926

Free Cash Flow 963 913 1308 1638 1756

Net FCF 963 913 1308 22564

(Discounting Factor) ^‐1 1.09 1.19 1.09 1.20

PV of free cash flows 883 766 1196 18875

Value of Operations (2016 ‐2017) discounted to 2015 1648

Value of Operations (2018 ‐CV) discounted to 2017 20071

Non Operating Assets (2017)

Excess Cash 11165

Institutional Money Market Funds 733

Short-term investments 11968

Deferred compensation plan investments 25

Other investments 19

Value of Non Operating Assets 23910

Non Operating Liabilities (2017)

PV of Operating Leases 65

Interest rate swap 0

Deferred compensation plan liability 25

Total Debt 7799

PV of employee stock options 26

Value of Non Operating Liabilities 7914

Equity Value with Value of Operations computed for 2016 ‐ 2017 1648

Shares outstanding 313

Intrinsic Share Price (FY 15 End) 5

Equity Value with Value of Operations computed for 2018 ‐ CV 36066




Net Intrinsic Share Price (FY 15 End) $88

Intrinsic Share Price (Today) $93


EP Model

Periods to discount 1 2 3 4 5

Economic Profit 706 762 1543 1534 1597

Continuing Value 19159

Net EP 706 762 1543 20693

(Discounting Factor) ^‐1 1.09 1.19 1.09 1.20

PV of Economic Profit 647 639 1411 17310

Initial Invested Capital (2015) 1494

Initial Invested Capital (2017) 1350

Value of Operations (2016 ‐2017) discounted to 2015 2781

Value of Operations (2018 ‐CV) discounted to 2017 20071

Non Operating Assets (2017)

Excess Cash 11165

Institutional Money Market Funds 733

Short-term investments 11968

Deferred compensation plan investments 25

Other investments 19

Value of Non Operating Assets 23910

Non Operating Liabilities (2017)

PV of Operating Leases 65

Interest rate swap 0

Deferred compensation plan liability 25

Total Debt 7799

PV of employee stock options 26

Value of Non Operating Liabilities 7914

Equity Value with Value of Operations computed for 2016 ‐ 2017 2781



Equity Value with Value of Operations computed for 2018 ‐ CV 36066




Net Intrinsic Share Price (FY 15 End) $91

Intrinsic Share Price (Today) $97


Analog DevicesDividend Discount Model (DDM) or Fundamental P/E Valuation Model


Period of Discount 1 2 3 4 4

EPS 2.67 2.44 3.63 3.85 4.06

Key Assumptions

CV growth 3.00%

CV ROE 13.96%

Cost of Equity 9.31%

Future Cash Flows

P/E Multiple (CV Year) 12.44

EPS (CV Year) 4.06

Future Stock Price 50.49

Dividends Per Share 1.62 1.62 2.20 2.34 2.46

Future Cash Flows 1.62 1.62 2.20 2.34 52.95

Discounted Cash Flows 1.48 1.36 1.69 1.64 37.09

Intrinsic Value (FY 15 end) 43.26$

Intrinsic Value Today 46.74$

Price Today $64.35

Analog DevicesRelative Valuation Models

EPS EPS EPSTicker Company Price 2016E 2017E 2018E P/E 16 P/E 17 P/E 18

TXN Texas Instruments $70.08 $3.06 $3.34 $3.58 22.9 21.0 19.6

NXPI NXP Semiconductors $101.78 $5.75 $7.43 $8.32 17.7 13.7 12.2

MCHP Microchip Technology Inc. $61.82 $2.68 $3.40 $3.82 23.1 18.2 16.2

MXIM Maxim Integrated Products Inc. $39.54 $1.63 $1.97 $2.20 24.3 20.1 18.0

CRUS Cirrus Logic Inc. $53.10 $2.40 $3.28 $3.78 22.1 16.2 14.0

ISIL Intersil Corporation $22.04 $0.69 $0.76 $0.84 31.9 29.0 26.2

SLAB Silicon Laboratories $58.79 $2.53 $2.65 $3.01 23.2 22.2 19.5 SMTC Semtech Corp $27.26 $0.86 $1.34 $1.59 31.7 20.3 17.1

Average 24.6 20.1 17.9

ADI Analog Devices $64.35 $2.67 $2.44 $3.63 24.1 26.4 17.7

Implied Value:

Relative P/E (EPS16) $ 65.67

Relative P/E (EPS17) 48.90$

Relative P/E (EPS18) 64.85$

Analog DevicesKey Management Ratios


Liquidity Ratios

Current Ratio (Current Assets/ Current Liabilities) 959.21% 537.60% 366.26% 580.88% 2107.16% 354.63% 401.38% 293.68%

Operating Cash Flow Ratio (Operating CF/ Current Liabilities) 159.92% 122.92% 81.50% 155.17% 149.19% 261.87% 178.63% 118.11%

Quick Ratio (Cash and other liquid assets) / current liabilities 877.82% 460.20% 313.82% 499.27% 2025.21% 271.99% 318.77% 239.35%

Activity or Asset‐Management Ratios

Asset Turnover Ratio (Sales/Total Assets) 0.41 0.42 0.49 0.49 0.19 0.28 0.28 0.29

Inventory Turnover Ratio (Sales/Total Inventory) 9.30 7.79 8.33 8.47 8.47 9.91 9.91 9.91

Receivables Turnover Ratio (Sales/Average Accounts Receivable) 7.92 7.94 7.96 7.41 7.81 9.31 8.04 8.04

Financial Leverage Ratios

Debt‐to‐Equity Ratio (Total Debt/Total Equity) 18.40% 18.34% 17.22% 9.34% 85.17% 81.08% 77.12% 73.33%

Equity Ratio (Total Equity/ Total Assets) 74.27% 69.36% 71.83% 77.10% 50.59% 51.00% 52.08% 53.17%

Interest Coverage (Operating Income) / (Interest Expense) 29.019 22.787 30.817 23.746 43.820 5.093 5.357 5.585

Profitability Ratios

Return on Assets (Net Income/Total Assets) 10.55% 9.17% 9.87% 12.01% 4.93% 7.05% 7.27% 7.42%

Return on Equity (Net Income/Shareholders Equity) 14.21% 13.23% 13.74% 15.58% 9.75% 13.83% 13.95% 13.96%

Gross Margin (Revenue‐COGS)/Revenue 64.26% 63.89% 65.77% 63.89% 63.89% 68.22% 68.22% 68.22%

EBIT Margin (EBIT/Sales) 28.59% 26.27% 24.19% 27.69% 27.79% 33.90% 34.26% 34.31%

Profit Margin (Net Income/Sales) 25.57% 21.97% 20.29% 24.73% 25.30% 25.25% 25.73% 26.00%

Payout Policy Ratios

69.31% 128.79% 103.01% 68.00% 73.30% 65.27% 65.01% 64.80%

Payout Ratio (Dividend Payout Ratio) 60.27% 72.14% 70.40% 60.72% 66.52% 60.72% 60.72% 60.72%

Total Payout Ratio (Dividends paid + Repurchases)/NI

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 1.95

Average Time to Maturity (years): 5.30

Expected Annual Number of Options Exercised: 0.37

Current Average Strike Price: 57.20$

Cost of Equity: 9.08%

Current Stock Price: $64.35

2016E 2017E 2018E 2019E 2020E

Increase in Shares Outstanding: 0.37 0.37 0.37 0.37 0.37

Average Strike Price: 57.20$ 57.20$ 57.20$ 57.20$ 57.20$

Increase in Common Stock Account: 21 21 21 21 21 (Assumes common stock and additional paid in capital are combined into one account).

Change in Treasury Stock 61 61 61 61 61

Expected Price of Repurchased Shares: 64.35$ 70.19$ 76.56$ 83.51$ 91.09$

Number of Shares Repurchased: 1 1 1 1 1

Shares Outstanding (beginning of the year) 312 311 311 311 310

Plus: Shares Issued Through ESOP 0.37 0.37 0.37 0.37 0.37

Less: Shares Repurchased in Treasury 0.94 0.86 0.79 0.72 0.66

Shares Outstanding (end of the year) 311 311 311 310 310

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol ADI

Current Stock Price $64.35

Risk Free Rate 2.28%

Current Dividend Yield 2.61%

Annualized St. Dev. of Stock Returns 21.96%

Average Average B‐S Value

Range of Number Exercise Remaining Option of Options

Outstanding Options of Shares Price Life (yrs) Price Granted

Range 1 2 57.20 5.30 13.53$ 26$

Total 2 57.20$ 5.30 19.13$ 26$

Linear Technologies Pro‐Forma Income Statement Forecast

Income Statement 2012 2013 2014 2015 2016 2017 2018 2019 2020

Sales 1,266.62 1,282.24 1,388.39 1,475.14 1,423.94 1,561.62 1,605.81 1,776.79 1,852.89

Cost of Goods Sold (COGS) incl. D&A 312.54 324.12 338.58 355.73 343.80 333.10 341.33 381.08 395.64

Depreciation & Amortization Expense 55.93 55.37 51.26 54.10 51.41 49.50 52.09 54.23 58.32

Gross Income 954.08 958.12 1,049.81 1,119.41 1,080.14 1,179.02 1,212.39 1,341.48 1,398.93

Research & Development 224.47 233.58 250.43 266.76 276.46 285.00 293.06 324.26 338.15

Other SG&A 147.58 151.38 159.64 169.95 170.12 183.49 188.68 208.77 217.71

EBIT (Operating Income) 582.04 573.15 639.73 682.70 633.55 710.54 730.64 808.44 843.06

Nonoperating Income ‐ Net 4.59 4.07 2.71 2.69 5.90 5.90 5.90 5.90 5.90

Interest Expense 47.52 48.34 41.17 0.00 0.00 0.00 0.00 0.00 0.00

Pretax Income 535.91 528.88 601.27 685.39 639.45 716.43 736.54 814.34 848.96

Income Taxes 137.80 121.96 141.31 164.43 145.10 162.57 167.13 184.79 192.64

Consolidated Net Income 398.11 406.93 459.96 520.96 494.35 553.86 569.40 629.55 656.32

Net Income 398.11 406.93 459.96 520.96 494.35 553.86 569.40 629.55 656.32

Net Income available to Common 398.11 406.93 459.96 520.96 494.35 553.86 569.40 629.55 656.32

EPS (recurring) 1.71 1.71 1.90 2.12 2.02 2.31 2.38 2.63 2.74

Total Shares Outstanding 230.03 233.03 239.10 239.75 239.65

Dividends per Share 0.99 1.03 1.07 1.17 1.26

Payout Ratio 58.24 60.23 56.32 55.19 62.38

EBITDA 637.97 628.52 690.99 736.80 684.96

EBIT 582.04 573.15 639.73 682.70 633.55

Depreciation & Amortization Expense 55.93 55.37 51.26 54.10 51.41

Linear Technologies Pro‐Forma Balance Sheet Forecast

Balance Sheet 2012 2013 2014 2015 2016 2017 2018 2019 2020

Assets

Cash & Short‐Term Investments 1,203.06 1,524.74 1,012.79 1,202.72 1,448.28 1,471.60 1,578.07 1,646.30 1,734.88

Cash Only 79.28 87.39 157.32 195.68 263.68 523.92 819.93 1,039.79 1,249.67

Total Short Term Investments 1,123.78 1,437.36 855.46 1,007.04 1,184.59 947.67 758.14 606.51 485.21

Short‐Term Receivables 153.09 145.27 173.34 179.26 157.46 194.80 200.31 221.64 231.13

Inventories 79.66 87.23 91.31 99.86 97.25 104.63 107.59 119.05 124.14

Other Current Assets 69.60 36.65 87.28 102.91 51.74 57.78 59.42 65.74 68.56

Total Current Assets 1,505.41 1,793.89 1,364.71 1,584.75 1,754.73 1,828.80 1,945.39 2,052.73 2,158.71

Net Property, Plant & Equipment 320.22 288.47 277.08 287.74 285.87 289.49 285.17 320.98 356.51

Property, Plant & Equipment ‐ Gross 907.30 921.27 953.75 1,010.26 1,054.52 1,106.28 1,152.85 1,241.69 1,334.34

Accumulated Depreciation 587.08 632.81 676.67 722.52 768.65 816.79 867.68 920.71 977.83

Net Goodwill 2.19 2.19 2.19 2.19 2.19 2.19 2.19 2.19 2.19

Intangible,Gross 17.10 17.10 17.10 17.10 17.10

Accumulated Amortization 11.60 13.30 14.50 15.70 16.90

Net Other Intangibles 19.77 13.80 11.60 9.40 7.20 3.80 2.60 1.40 0.20

Deferred Tax Assets 0.00 0.00 0.00 0.00 49.05 0.00 0.00 0.00 0.00

Deferred Charges 3.48 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Tangible Other Assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total Assets 1,851.07 2,098.34 1,655.58 1,884.08 2,099.03 2,124.28 2,235.35 2,377.29 2,517.61

Liabilities & Shareholders' Equity

ST Debt & Curr. Portion LT Debt 0.00 826.63 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Accounts Payable 11.46 10.26 28.22 17.61 17.47 19.22 19.76 21.87 22.81

Income Tax Payable 13.55 48.31 41.73 5.82 3.34 0.00 0.00 0.00 0.00

Other Current Liabilities 145.58 140.68 145.16 159.49 159.16 169.169 173.957 192.48 200.723

Total Current Liabilities 170.58 1,025.88 215.12 182.92 179.97 188.39 193.72 214.35 223.53

Long‐Term Debt 805.60 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Deferred Tax Liabilities 97.82 48.03 68.00 85.61 117.43 117.43 117.43 117.43 117.43

Other Liabilities 40.56 42.53 41.10 37.62 42.45 42.45 42.45 42.45 42.45

Total Liabilities 1,114.56 1,116.43 324.21 306.15 339.85 348.27 353.61 374.23 383.41

Common Equity 736.51 981.91 1,331.37 1,577.93 1,759.18 1,776.01 1,881.74 2,003.06 2,134.19

Total Shareholders' Equity 736.51 981.91 1,331.37 1,577.93 1,759.18 1,776.01 1,881.74 2,003.06 2,134.19

Total Equity 736.51 981.91 1,331.37 1,577.93 1,759.18 1,776.01 1,881.74 2,003.06 2,134.19

Total Liabilities & Shareholders' Equity 1,851.07 2,098.34 1,655.58 1,884.08 2,099.03 2,124.28 2,235.35 2,377.29 2,517.61

Linear Technologies Common Size Income Statement

Income Statement 2012 2013 2014 2015 2016 2017 2018 2019 2020

Sales 100% 100% 100% 100% 100% 100% 100% 100% 100%

Cost of Goods Sold (COGS) incl. D&A 25% 25% 24% 24% 24% 21% 21% 21% 21%

Depreciation & Amortization Expense 4% 4% 4% 4% 4% 3% 3% 3% 3%

Gross Income 75% 75% 76% 76% 76% 76% 75% 75% 75%

Research & Development 18% 18% 18% 18% 19% 18% 18% 18% 18%

Other SG&A 12% 12% 11% 12% 12% 12% 12% 12% 12%

EBIT (Operating Income) 46% 45% 46% 46% 44% 46% 46% 46% 45%

Nonoperating Income ‐ Net 0% 0% 0% 0% 0% 0% 0% 0% 0%

Interest Expense 4% 4% 3% 0% 0% 0% 0% 0% 0%

Pretax Income 42% 41% 43% 46% 45% 46% 46% 46% 46%

Income Taxes 11% 10% 10% 11% 10% 10% 10% 10% 10%

Consolidated Net Income 31% 32% 33% 35% 35% 35% 35% 35% 35%

Net Income 31% 32% 33% 35% 35% 35% 35% 35% 35%

Linear Technologies Common Size Balance Sheet

Assets 2012 2013 2014 2015 2016 2017 2018 2019 2020

Cash & Short‐Term Investments 94.98% 118.91% 72.95% 81.53% 101.71% 33.55% 51.06% 58.52% 67.44%

Cash Only 6.26% 6.82% 11.33% 13.27% 18.52% 33.55% 51.06% 58.52% 67.44%

Total Short Term Investments 88.72% 112.10% 61.62% 68.27% 83.19% 60.69% 47.21% 34.14% 26.19%

Short‐Term Receivables 12.09% 11.33% 12.49% 12.15% 11.06% 12.47% 12.47% 12.47% 12.47%

Accounts Receivables, Net 12.09% 11.33% 12.49% 12.15% 11.06% 0.00% 0.00% 0.00% 0.00%

Accounts Receivables, Gross 12.25% 11.48% 12.60% 12.26% 11.17% 0.00% 0.00% 0.00% 0.00%

Bad Debt/Doubtful Accounts ‐0.16% ‐0.15% ‐0.12% ‐0.11% ‐0.12% 0.00% 0.00% 0.00% 0.00%

Inventories 6.29% 6.80% 6.58% 6.77% 6.83% 6.70% 6.70% 6.70% 6.70%

Finished Goods 1.47% 1.43% 1.30% 1.53% 1.49% 0.00% 0.00% 0.00% 0.00%

Work in Progress 4.14% 4.64% 4.52% 4.51% 4.65% 0.00% 0.00% 0.00% 0.00%

Raw Materials 0.68% 0.73% 0.76% 0.72% 0.70% 0.00% 0.00% 0.00% 0.00%

Other Current Assets 5.49% 2.86% 6.29% 6.98% 3.63% 3.70% 3.70% 3.70% 3.70%

Total Current Assets 118.85% 139.90% 98.29% 107.43% 123.23% 117.11% 121.15% 115.53% 116.51%

Net Property, Plant & Equipment 25.28% 22.50% 19.96% 19.51% 20.08% 18.54% 17.76% 18.07% 19.24%

Property, Plant & Equipment ‐ Gross 71.63% 71.85% 68.69% 68.49% 74.06% 70.84% 71.79% 69.88% 72.01%

Accumulated Depreciation 46.35% 49.35% 48.74% 48.98% 53.98% 52.30% 54.03% 51.82% 52.77%

Net Goodwill 0.17% 0.17% 0.16% 0.15% 0.15% 0.14% 0.14% 0.12% 0.12%

Net Other Intangibles 1.56% 1.08% 0.84% 0.64% 0.51% 0.24% 0.16% 0.08% 0.01%

Deferred Tax Assets 0.00% 0.00% 0.00% 0.00% 3.44% 0.00% 0.00% 0.00% 0.00%

Deferred Charges 0.27% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Tangible Other Assets 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Total Assets 146.14% 163.65% 119.24% 127.72% 147.41% 136.03% 139.20% 133.80% 135.87%

Liabilities & Shareholders' Equity

ST Debt & Curr. Portion LT Debt 0.00% 64.47% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Accounts Payable 0.90% 0.80% 2.03% 1.19% 1.23% 1.23% 1.23% 1.23% 1.23%

Income Tax Payable 1.07% 3.77% 3.01% 0.39% 0.23% 0.00% 0.00% 0.00% 0.00%

Other Current Liabilities 11.49% 10.97% 10.46% 10.81% 11.18% 10.83% 10.83% 10.83% 10.83%

Accrued Payroll 6.16% 6.06% 6.36% 6.68% 6.54% 0.00% 0.00% 0.00% 0.00%

Miscellaneous Current Liabilities 5.34% 4.91% 4.09% 4.13% 4.63% 0.00% 0.00% 0.00% 0.00%

Total Current Liabilities 13.47% 80.01% 15.49% 12.40% 12.64% 12.06% 12.06% 12.06% 12.06%

Long‐Term Debt 63.60% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Deferred Tax Liabilities 7.72% 3.75% 4.90% 5.80% 8.25% 7.52% 7.31% 6.61% 6.34%

Other Liabilities 3.20% 3.32% 2.96% 2.55% 2.98% 2.72% 2.64% 2.39% 2.29%

Other Liabilities (excl. Deferred Income) 3.20% 3.32% 2.96% 2.55% 2.98% 0.00% 0.00% 0.00% 0.00%

Total Liabilities 87.99% 87.07% 23.35% 20.75% 23.87% 22.30% 22.02% 21.06% 20.69%

Common Equity 58.15% 76.58% 95.89% 106.97% 123.54% 113.73% 117.18% 112.73% 115.18%

Common Stock Par/Carry Value 0.02% 0.02% 0.02% 0.02% 0.02% 0.00% 0.00% 0.00% 0.00%

Additional Paid‐In Capital/Capital Surplus 125.36% 135.43% 140.29% 139.12% 150.07% 0.00% 0.00% 0.00% 0.00%

Retained Earnings ‐67.24% ‐58.85% ‐44.44% ‐32.21% ‐26.63% 0.00% 0.00% 0.00% 0.00%

Unrealized Gain/Loss Marketable Securities 0.01% ‐0.02% 0.03% 0.04% 0.09% 0.00% 0.00% 0.00% 0.00%

Total Shareholders' Equity 58.15% 76.58% 95.89% 106.97% 123.54% 113.73% 117.18% 112.73% 115.18%

Total Equity 58.15% 76.58% 95.89% 106.97% 123.54% 113.73% 117.18% 112.73% 115.18%

Total Liabilities & Shareholders' Equity 146.14% 163.65% 119.24% 127.72% 147.41% 136.03% 139.20% 133.80% 135.87%

Documents

Analog Devices, Inc. (ADI)