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Item 7. Management’s Discussion and Analysis

2020-11-24 compared with 2019-11-26 · 163 added, 225 removed, 295 unchanged (57% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (all tabular amounts in thousands except per share amounts)

The following discussion includes a comparison of our Results of Operations and Liquidity and Capital Resources for the fiscal year ended November 2, 2019 (fiscal 2019) and the fiscal year ended November 3, 2018 (fiscal 2018).

The following discussion includes a comparison of our Results of Operations and Liquidity and Capital Resources for the fiscal years ended October 31, 2020 (fiscal 2020), the fiscal year ended November 2, 2019 (fiscal 2019) and the fiscal year ended November 3, 2018 (fiscal 2018).

Our fiscal year is the 52-week or 53-week period ending on the Saturday closest to the last day in October.

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Therefore, fiscal 2018 included an additional week of operations as compared to fiscal 2020 and fiscal 2019.

Impact of COVID-19 on our Business

The pandemic caused by the novel strain of the coronavirus (COVID-19) has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders and shutdowns.

These measures have impacted and likely will continue to impact our workforce and operations, the operations of our customers and those of our respective vendors and suppliers.

We have significant operations worldwide, including in the United States, the Philippines, Ireland, Singapore, Malaysia, China and India.

Each of these countries has been affected by the pandemic and taken measures to try to contain it, resulting in disruptions at some of our manufacturing operations and facilities.

Since the beginning of the third quarter of fiscal 2020, our manufacturing operations and supply chain generally stabilized at normal levels, but that could change in the future given that the COVID-19 situation remains dynamic.

The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, modifying employee work locations and cancelling physical participation in meetings, events and conferences) and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, suppliers and shareholders.

While we are confident that our strategy and long-term contingency planning have positioned us well to weather the current uncertainty, we cannot at this time fully quantify or forecast the impact of COVID-19 on our business.

The degree to which COVID-19 impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain, and we cannot provide assurance as to the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, or how quickly and to what extent normal economic and operating conditions can resume.

Proposed Acquisition of Maxim Integrated Products, Inc.

On July 12, 2020, we entered into a definitive agreement (the Merger Agreement) to acquire Maxim Integrated Products, Inc.

(Maxim), an independent manufacturer of innovative analog and mixed-signal products and technologies.

Under the terms of the Merger Agreement, Maxim stockholders will receive, for each outstanding share of Maxim common stock, 0.630 of a share of our common stock.

The estimated merger consideration is approximately $23.0 billion based on the closing price of our common stock on November 20, 2020.

Following the recent approval of Maxim stockholders and our shareholders, as well as the expiration of the waiting-period applicable to U.S.

regulatory approval, the transaction is subject to customary closing conditions, including receipt of certain non-U.S.

regulatory approvals.

See Note 6, Acquisitions , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information.

Results of Operations

With the exception of items impacted by the adoption of ASU 2014-09 and resulting restatements, a discussion of changes in our results of operations from the fiscal year ended October 28, 2017 (fiscal 2017) to fiscal 2018 has been omitted from this Form 10-K, but may be found in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended November 3, 2018 filed with the Securities and Exchange Commission on November 27, 2018.

A discussion of changes in our results of operations from fiscal 2018 to fiscal 2019 has been omitted from this Form 10-K, but may be found in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for fiscal 2019 filed with the Securities and Exchange Commission on November 26, 2019.

Fiscal Year 2020 over 2019 2019 over 2018

2019 2018 (1)

$ Change % Change $ Change % Change

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(1) Balances have been restated to reflect the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09).

See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Acquisition of Linear Technology Corporation

On March 10, 2017 (Acquisition Date), we completed the acquisition of Linear Technology Corporation (Linear), a designer, manufacturer and marketer of high performance analog integrated circuits.

The total consideration paid to acquire Linear was approximately $15.8 billion, consisting of $11.1 billion in cash financed through existing cash on hand, net proceeds from bridge and term loan facilities and proceeds received from the issuance of senior unsecured notes, $4.6 billion from the issuance of our common stock and $0.1 billion of consideration related to the replacement of outstanding equity awards held by Linear employees.

The acquisition of Linear is referred to as the Acquisition.

The Consolidated Financial Statements included in this Annual Report on Form 10-K include the financial results of Linear prospectively from the Acquisition Date.

See Note 6, Acquisitions and Note 14, Debt, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information.

See Note 2a, Principles of Consolidation , of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Revenue Trends by End Market

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The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the "ship to" customer information and the end customer product or application into which our product will be incorporated.

As data systems for capturing and tracking this data and our methodology evolves and improves, the categorization of products by end market can vary over time.

As data systems for capturing and tracking this data and our methodology evolve and improve, the categorization of products by end market can vary over time.

When this occurs, we reclassify revenue by end market for prior periods.

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(1) Balances have been restated to reflect the adoption of ASU 2014-09.

See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

(2) The sum of the individual percentages may not equal the total due to rounding.

Industrial - Industrial end market revenues decreased in fiscal 2019, as compared to fiscal year 2018, primarily as a result of a decrease in demand for products sold into the automation and memory test sectors of this end market and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset by an increase in demand for products sold into the aerospace and defense sector of this end market.

Industrial end market revenue increased in fiscal 2018, as compared to fiscal 2017, primarily as a result of the Acquisition, which accounted for approximately $414.5 million of the increase, a broad-based increase in demand for our products in this end market and an additional week of operations in fiscal 2018 as compared to fiscal 2017.

Communications - Communications end market revenue increased in fiscal 2019, as compared to fiscal year 2018, as a result of an increase in demand for our products sold into the wireless sector of this end market, partially offset by one less week of operations in fiscal 2019 as compared to fiscal 2018.

Communications end market revenue increased in fiscal 2018, as compared to fiscal 2017, primarily as a result of the Acquisition, which accounted for approximately $43.5 million of the increase, a broad-based increase in demand for our products in this end market and an additional week of operations in fiscal 2018 as compared to fiscal 2017.

Automotive - Automotive end market revenue decreased in fiscal 2019, as compared to fiscal 2018, primarily as a result of a broad-based decrease in demand for our products and one less week of operations in fiscal 2019, as compared to fiscal 2018.

Automotive end market revenue increased in fiscal 2018, as compared to fiscal 2017, primarily as a result of the Acquisition, which accounted for approximately $92.6 million, a broad-based increase in demand for our products in this end market and an additional week of operations in fiscal 2018 as compared to fiscal 2017.

Consumer - Consumer end market revenues decreased in fiscal 2019, as compared to fiscal 2018, primarily as a result of decreased demand for products used in portable consumer applications and one less week of operations in fiscal 2019 as compared to the fiscal 2018.

Consumer end market revenue decreased in fiscal 2018, as compared to fiscal 2017, primarily as a result of a decreased demand for products used in portable consumer applications, partially offset by an increase in revenue due to the Acquisition and an additional week of operations in fiscal 2018 as compared to fiscal 2017.

See Note 2a, Principles of Consolidation , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

(2) The su m of the individual percentages may not equal the total due to rounding.

Revenue decreased across all end markets in fiscal 2020 as compared to fiscal 2019.

The revenue decreases in the Automotive end market were more pronounced as this market was impacted by lower vehicle sales and a global slowdown in production as many of our customers were required to suspend their operations in response to shelter in place orders from governments around the world in response to the COVID-19 pandemic.

The revenue decreases in the Consumer end market resulted from a broad-based decrease in demand for our products in this end market, including lower demand for products used in portable consumer applications.

The decline in the Communications end market was primarily the result of the timing of infrastructure deployment cycles and the ramp up of these cycles in certain regions during fiscal 2019.

The percentage decline in our Industrial end market was less than the overall percentage decline in total revenue as the broad-based weakness across many applications was offset by growth in the instrumentation test, healthcare and energy sectors of this end market.

Revenue by Sales Channel

The following tables summarize revenue by channel.

The following tables summarize revenue by sales channel.

We sell our products globally through a direct sales force, third party distributors, independent sales representatives and via our website.

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Other customers include the U.S.

government, government prime contractors and some commercial customers.

government, government prime contractors and certain commercial customers for which revenue is recorded over time.

2020 2019 2018 (1)

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(1) Balances have been restated to reflect the adoption of ASU 2014-09.

See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

See Note 2a, Principles of Consolidation , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

(2) The sum of the individual percentages may not equal the total due to rounding.

As indicated in the above table, the percentage of total revenue sold via each channel has remained relatively consistent in fiscal 2019, fiscal 2018 and fiscal 2017.

As indicated in the above table, the percentage of total revenue sold via each sales channel has remained relatively consistent in fiscal 2020, fiscal 2019 and fiscal 2018.

Revenue Trends by Geographic Region

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(1) Balances have been restated to reflect the adoption of ASU 2014-09.

See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

See Note 2a, Principles of Consolidation , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

(2) The sum of the individual percentages may not equal the total due to rounding.

In fiscal 2019, fiscal 2018 and fiscal 2017, the predominant countries comprising “Rest of North and South America” are Canada and Mexico;

the predominant countries comprising “Europe” are Germany, the Netherlands and Sweden;

and the predominant countries comprising “Rest of Asia” are South Korea and Taiwan.

The sales decrease in the United States year-over-year in fiscal 2019 was primarily a result a of a broad-based decrease in demand for our products and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset by an increase in demand for products sold into the aerospace and defense sectors of the Industrial end market.

The sales increase in the United States year-over-year in fiscal 2018 was primarily a result of the Acquisition, which accounted for approximately $255.3 million of the increase, contributing to an increase in demand for our products sold into the Industrial, Communications and Automotive end markets and an additional week of operations in fiscal 2018, as compared to fiscal 2017, partially offset by a decrease in demand for our products sold into the Consumer end market.

The sales decrease in Europe year-over-year in fiscal 2019 was primarily a result of a broad-based decrease in demand for our products and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset by an increase in demand for products sold into the Communications end market and aerospace and defense sectors of the Industrial end market.

The sales increase in Europe year-over-year in fiscal 2018 was primarily a result of the Acquisition, which accounted for

approximately $145.9 million of the increase, and contributing to an increase in demand for our products sold into the Industrial end market and an additional week of operations in fiscal 2018, as compared to fiscal 2017.

The sales decrease in Japan year-over-year in fiscal 2019 was primarily a result of a broad-based decrease in demand for our products and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset by an increase in demand for products sold into the Automotive end market.

The sales increase in Japan year-over-year in fiscal 2018 was a result of the Acquisition, which accounted for approximately $89.2 million of the increase.

The sales increase in China year-over-year in fiscal 2019 was primarily a result of an increase in demand for our products sold into the Communications end market, partially offset by decreased demand for products sold into the Consumer and Automotive end markets and one less week of operations in fiscal 2019 as compared to fiscal 2018.

The sales increase in China year-over-year in fiscal 2018 was primarily a result of the Acquisition, which accounted for approximately $93.1 million of the increase, contributing to a broad-based increase in demand for our products sold into all end markets and an additional week of operations in fiscal 2018 as compared to fiscal 2017.

Sales in the Rest of Asia year-over-year in fiscal 2019 remained relatively flat as increase in demand for our products sold into the Communications and Automotive end markets, were partially offset by decreased demand for products sold into the Industrial end market and one less week of operations in fiscal 2019 as compared to fiscal 2018.

The sales increase in the Rest of Asia year-over-year in fiscal 2018 was primarily a result of the Acquisition, which accounted for approximately $63.4 million of the increase, contributing to a broad-based increase in demand for our products sold into the Industrial, Communications and Automotive end markets and an additional week of operations in fiscal 2018 as compared to fiscal 2017.

In all periods presented, the predominant countries comprising “Rest of North and South America” are Canada and Mexico;

the predominant countries comprising “Europe” are Germany, Sweden, and the Netherlands;

and the predominant countries comprising “Rest of Asia” are Taiwan, Malaysia, South Korea and Singapore.

Total revenue decreased in fiscal 2020 as compared to fiscal 2019.

However, revenue in China increased in fiscal 2020 as compared to fiscal 2019 as a result of the region's relatively quick recovery from COVID-19 related shutdowns as compared to other regions, as well as increases in demand across our broad market customers and stable revenue in the Communications end market attributable to the 5G ramp up.

The sales decrease in the United States year-over-year in fiscal 2020 was most pronounced in the Consumer end market.

The sales decrease in Europe year-over-year in fiscal 2020 was primarily driven by products sold into the Automotive and Industrial end markets, while demand for products sold into the Communications end market was relatively flat.

The sales decrease in Japan year-over-year in fiscal 2020 was broad-based as all end markets decreased from fiscal 2019.

The sales decrease in Rest of Asia year-over-year in fiscal 2020 was primarily related to a decrease in our Communications revenue.

Fiscal Year 2020 over 2019 2019 over 2018

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(1) Balances have been restated to reflect the adoption of ASU 2014-09.

See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

Gross margin percentage in fiscal 2019 decreased by 130 basis points compared to fiscal 2018, primarily as a result of lower internal utilization of our wafer fabrication facilities and a write-down of inventory primarily associated with a customer within our Communications end market.

Gross margin percentage in fiscal 2018 increased by 790 basis points compared to fiscal 2017, primarily because fiscal 2017 included cost of sales adjustments of $358.7 million related to the sale of acquired Linear inventory written up to fair value.

Additionally, the increase in gross margin percentage in fiscal 2018, as compared to fiscal 2017 was a result of a mix shift in favor of higher margin products being sold resulting from the Acquisition and lower cost of sales resulting from favorable factory variances related to increased utilization at our manufacturing facilities.

The increase in gross margin percentage in fiscal 2018 was partially offset by increases in amortization expense of developed technology intangible assets and depreciation expense related to fixed assets as a result of a full year of expense for each related to the Acquisition.

See Note 2a, Principles of Consolidation , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

Gross margin percentage in fiscal 2020 decreased by 110 basis points compared to fiscal 2019, primarily as a result of lower internal utilization of our factories due to decreased customer demand and temporary shutdowns at some of our manufacturing locations in response to the COVID-19 pandemic, partially offset by a write-down of inventory in fiscal 2019, which did not repeat in fiscal 2020.

Research and Development (R&D)

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R&D expenses as a % of revenue 18.7 % 18.9 % 18.7 %

R&D expenses decreased in fiscal 2019 as compared to fiscal 2018 primarily as a result of decreases in variable compensation expense and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset by increases in operational spending and R&D employee and related benefit expenses.

R&D expenses decreased in fiscal 2020 as compared to fiscal 2019 primarily as a result of lower discretionary spending, partially in response to uncertainty associated with the COVID-19 pandemic, as well as lower R&D employee-related salary and benefit expenses and lower variable compensation expense.

R&D expenses as a percentage of revenue will fluctuate from year-to-year depending on the amount of revenue and the success of new product development efforts, which we view as critical to our future growth.

We have hundreds of R&D projects underway, none of which we believe are material on an individual basis.

We expect to continue the development of innovative technologies and processes for new products.

We believe that a continued commitment to R&D is essential to

maintain product leadership with our existing products as well as to provide innovative new product offerings, and therefore, we expect to continue to make significant R&D investments in the future.

We believe that a continued commitment to R&D is essential to maintain product leadership with our existing products as well as to provide innovative new product offerings, and therefore, we expect to continue to make significant R&D investments in the future.

Selling, Marketing, General and Administrative (SMG&A)

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SMG&A expenses as a % of revenue 11.8 % 10.8 % 11.2 %

SMG&A expenses decreased in fiscal 2019 as compared to fiscal 2018, primarily as a result of decreases in variable compensation expense, acquisition-related costs and one less week of operations in fiscal 2019 as compared to fiscal 2018, partially offset an increase in operational spending.

Amortization of Intangibles

Fiscal Year 2019 over 2018 2018 over 2017

2019 2018 2017 $ Change % Change $ Change % Change

Amortization expenses $ 429,041 $ 428,902 $ 297,351 $ 139 — % $ 131,551 44 %

Amortization expenses as a % of revenue 7.2 % 6.9 % 5.7 %

Amortization expenses was relatively flat in fiscal 2019 as compared to fiscal 2018 as we did not have any significant acquisitions of intangible assets in fiscal 2019.

Intangible assets are being amortized on a straight-line basis over their estimated useful lives.

SMG&A expenses increased in fiscal 2020 as compared to fiscal 2019, primarily as a result of a $40.0 million charitable contribution to the Analog Devices Foundation made in the first quarter of fiscal 2020 and $20.1 million in acquisition-related transaction costs in connection with the proposed acquisition of Maxim, partially offset by lower discretionary spending in response to uncertainty associated with the COVID-19 pandemic, lower SMG&A employee-related salary and benefit expense and lower variable compensation expense.

Special Charges

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As a result of these assessments, we have undertaken various restructuring actions over the past several years.

Repositioning Action:

During fiscal 2019, we recorded special charges of $88.1 million as a result of organizational initiatives to reposition our global workforce skill set to align with our long-term strategic plan.

Approximately $73.9 million of these actions was for severance and fringe benefit costs in accordance with either our ongoing benefit plan or statutory requirements.

The remaining $14.2 million related to the write-off of acquired intellectual property due to the Company’s decision to discontinue certain product development strategies.

Once fully implemented, the repositioning actions are expected to result in net annualized cash savings of approximately $48.0 million.

Repositioning Actions:

As a result of organizational initiatives to better align our global workforce with our long-term strategic plan, we recorded special charges of $49.4 million in fiscal 2020.

The repositioning actions taken in fiscal 2020 are not expected to result in any future net annualized savings as the reduction in salary and benefits from workforce reductions will be redeployed to other areas of the business as part of the reorganizational initiative.

Closure of Manufacturing Facilities:

As a result of our fiscal 2018 decision to consolidate certain wafer and test facility operations acquired as part of the Acquisition, we recorded special charges of $7.6 million during fiscal 2019, totaling $52.0 million on a cumulative basis through November 2, 2019.

Over the next one to three years, we plan to close our Hillview wafer fabrication facility located in Milpitas, California and our Singapore test facility.

We intend to transfer Hillview wafer fabrication production to our other internal facilities and to external foundries.

In addition, we are planning to transition testing operations currently handled in our Singapore facility to our facilities in Penang, Malaysia and the Philippines, in addition to our outsourced assembly and test partners.

The special charge recognized as a result of this action consists of severance and related benefit costs.

We expect that this action will result in estimated annual salary, variable compensation and employee benefit savings of approximately $60.0 million once fully implemented.

As a result of our decision to consolidate certain wafer and test facility operations acquired as part of the acquisition of Linear Technology Corporation (Linear), we recorded special charges of $2.9 million in fiscal 2020.

Once fully implemented, we expect that these actions will result in estimated annual salary, variable compensation and employee benefit savings of approximately $60.0 million.

Operating Income

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(1) Balances have been restated to reflect the adoption of ASU 2014-09.

See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

The decrease in operating income in fiscal 2019 as compared to fiscal 2018 was primarily the result of a $236.6 million decrease in gross margin and a $34.3 million increase in special charges, partially offset by a $47.4 million decrease in SMG&A expenses and a $34.7 million decrease in R&D expenses as more fully described above under the headings Gross Margin, Special Charges, Selling, Marketing, General and Administrative (SMG&A) and Research and Development (R&D).

The increase in operating income in fiscal 2018 as compared to fiscal 2017 was the result of a $1.1 billion increase in gross margin, partially offset by a $196.9 million increase in R&D expenses, a $131.6 million increase in amortization expense, an $11.8 million increase in special charges, and a $5.0 million increase in SMG&A expenses.

Nonoperating (Income) Expenses

See Note 2a, Principles of Consolidation , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

The decrease in operating income in fiscal 2020 as compared to fiscal 2019 was primarily the result of a $323.3 million decrease in gross margin and an $11.8 million increase in SMG&A expenses, partially offset by a $79.8 million decrease in R&D expenses and a $43.3 million decrease in special charges as more fully described above under the headings Gross Margin, Selling, Marketing, General and Administrative (SMG&A), Research and Development (R&D) and Special Charges .

Nonoperating (Income) Expense

Fiscal Year 2020 over 2019 2019 over 2018

2020 2019 2018 $ Change $ Change

Interest expense $ 229,075 $ 253,589 $ 250,840 $ (24,514) $ 2,749

Interest income (10,229) (9,383) (30,333) (846) 20,950

Other, net 6,034 69 7,507 5,965 (7,438)

Total nonoperating expenses $ 224,880 $ 244,275 $ 228,014 $ (19,395) $ 16,261

The year-over-year decrease in nonoperating expense in fiscal 2019 was primarily the result of a decrease in interest expense including lower amortized finance fees, which were accelerated as a result of principal repayments related to our previously outstanding 3-year and 5-year term loans, partially offset by an increase in other, net expenses resulting from the impairment of investments during fiscal 2019.

See Note 14, Debt, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on debt issuances and commitments related to the Acquisition.

Total Nonoperating expense $ 186,627 $ 224,880 $ 244,275 $ (38,253) $ (19,395)

The year-over-year decrease in nonoperating expense in fiscal 2020 as compared to fiscal 2019 was primarily the result of a decrease in interest expense related to our debt obligations.

Provision for Income Taxes

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(1) Balances have been restated to reflect the adoption of ASU 2014-09.

See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

Our effective tax rate reflects the applicable tax rate in effect in the various tax jurisdictions around the world where our income is earned.

Our effective income tax rate can also be impacted each year by discrete factors or events.

The Tax Cuts and Jobs Act of 2017 (Tax Legislation), enacted on December 22, 2017, contains significant changes to U.S.

tax law, including lowering the U.S.

corporate income tax rate to 21.0%, implementing a territorial tax system, and imposing a one-time tax on deemed repatriated earnings of foreign subsidiaries.

We completed our accounting for the income tax effects of the Tax Legislation during fiscal 2019, in accordance with the U.S.

Securities and Exchange Commission Staff Accounting Bulletin No.

The tax rate for fiscal 2019 was below the U.S.

statutory tax rate of 21% partially due to lower statutory tax rates applicable to our operations in the foreign jurisdictions from which we earn income and tax incentives such as the foreign derived intangible income deduction and research and development tax credits.

These items are partially offset by the global intangible low-tax income (GILTI) tax.

See Note 2a, Principles of Consolidation , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

Our effective tax rates for fiscal 2020 and fiscal 2019 were below the U.S.

statutory rate of 21% due to lower statutory tax rates applicable to our operations in the foreign jurisdictions in which we earn income.

For fiscal 2020, our pretax income was primarily generated in Ireland at a tax rate of 12.5%.

For fiscal 2019, our pretax income was primarily generated in Ireland and Singapore, at tax rates ranging from 12.5% to 17% in these jurisdictions.

Our tax rate for fiscal 2020 was also impacted by discrete items, primarily related to $25.9 million of income tax benefits resulting from the resolution of the Internal Revenue Service audit of Linear’s pre-acquisition federal income tax returns for fiscal 2015 through fiscal 2017, as well as other income tax benefits recorded upon the filing of our fiscal 2019 federal income tax return and excess tax benefits from stock-based compensation payments of $16.2 million.

The tax rate for fiscal 2019 includes a $17.2 million tax benefit from a voluntary accounting policy change in the statutory statements of a foreign subsidiary, an $11.2 million tax benefit from an increase in tax credits upon filing our fiscal 2018 federal income tax return and excess tax benefits from stock-based compensation payments of $28.7 million.

Similarly, our tax rate for fiscal 2018 was below our then blended U.S.

federal statutory tax rate of 23.4%, primarily due to lower statutory tax rates applicable to our operations in the foreign jurisdictions in which we earn income and $25.6 million of tax benefit related to the release of uncertain tax positions due to lapses in statute of limitations.

In addition, our effective tax rate for fiscal 2018 includes a provisional estimate for a discrete tax benefit of $637.0 million from remeasuring our U.S.

deferred tax assets and liabilities at the lower 21.0% U.S.

federal statutory tax rate and a provisional estimate of $691.0 million for the discrete tax charge from the Tax Legislation’s one-time transition tax associated with our undistributed foreign earnings, which is comprised of a $755.0 million transitional tax less a deferred tax liability of $64.0 million that was recorded in prior years and excess tax benefits from stock-based compensation payments of $26.2 million.

jurisdictions accounted for approximately 75.9% of our total revenues for both fiscal 2019 and fiscal 2018.

This revenue generated outside of the U.S.

results in a material portion of our pretax income being taxed outside the U.S.

In fiscal 2019, this was primarily in Ireland and Singapore, at tax rates ranging from 12.5% to 17% and in fiscal 2018, this was primarily in Bermuda, Ireland and Singapore, at tax rates ranging from 0 to 33.3%.

The impact on our provision for income taxes on income earned in foreign jurisdictions being taxed at rates different than the U.S.

federal statutory rate was a benefit of approximately $242.9 million and a foreign effective tax rate of approximately 21.1% for fiscal 2019 as compared to a benefit of approximately $420.8 million and a foreign effective tax rate of approximately 5.2% for fiscal 2018.

Our foreign effective tax rates for both periods are inclusive of certain non-deductible expenses which can result in tax rates higher than the applicable statutory tax rates.

In addition, our effective income tax rate can be impacted each year by amounts for discrete factors or events and acquisition-related accounting adjustments.

See Note 12, Income Taxes , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion.

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(1) Balances have been restated to reflect the adoption of ASU 2014-09.

See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

The decrease in net income in fiscal 2019 as compared to fiscal 2018 was a result of a $189.0 million decrease in operating income, partially offset by a $25.6 million decrease in provision for income taxes and a $19.4 million decrease in nonoperating expense.

The increase in net income in fiscal 2018 as compared to fiscal 2017 was a result of a $736.8 million increase in operating income, partially offset by a $19.0 million increase in provision for income taxes and a $16.3 increase in nonoperating expense.

The impact of inflation and foreign currency exchange rate movement on our results of operations during the past three fiscal years has not been significant.

See Note 2a, Principles of Consolidation , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

The decrease in net income in fiscal 2020 as compared to fiscal 2019 was a result of a $212.4 million decrease in operating income, partially offset by a $38.3 million decrease in nonoperating expense and a $31.9 million decrease in provision for income taxes, as more fully described above under the headings Operating Income , Nonoperating (Income) Expense and Provision for Income Taxes .

Liquidity and Capital Resources

At November 2, 2019, our principal source of liquidity was $648.3 million of cash and cash equivalents, of which approximately $295.7 million was held in the United States.

The balance of our cash and cash equivalents was held outside the United States in various foreign subsidiaries.

As we intend to reinvest substantially all of our foreign earnings indefinitely, certain cash held outside the United States may not be available for repatriation as dividends to the United States in the future.

If such funds are needed for U.S.

operations, we would be required to accrue and pay foreign withholding and U.S.

state income taxes to the extent not already subject to taxation.

At October 31, 2020, our principal source of liquidity was $1,055.9 million of cash and cash equivalents, of which approximately $241.9 million was held in the United States and the balance of our cash and cash equivalents was held outside the United States in various foreign subsidiaries.

We manage our worldwide cash requirements by, among other things, reviewing available funds held by our foreign subsidiaries and the cost effectiveness by which those funds can be accessed in the United States.

We do not expect current regulatory restrictions or taxes on repatriation to have a material adverse effect on our overall liquidity, financial condition or results of operations.

Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds.

We maintain these balances with high credit quality counterparties, continually monitor the amount of credit exposure to any one issuer and diversify our investments in order to minimize our credit risk.

On the Acquisition Date, we entered into a 90-day Bridge Credit Agreement that provided for unsecured loans in an aggregate principal amount of up to $4.1 billion and borrowed under a term loan agreement consisting of a 3-year unsecured term loan in the principal amount of $2.5 billion, due March 10, 2020 and a 5-year unsecured term loan in the principal amount of $2.5 billion, due March 10, 2022.

During fiscal year 2019, we refinanced both term loans into one 3-year unsecured term loan in the principal amount of $1.25 billion, due March 10, 2022.

As of November 2, 2019, we have repaid $325 million of principal on the 3-year unsecured term loan.

See Note 13, Revolving Credit Facility and Note 14, Debt of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information.

We believe that our existing sources of liquidity and cash expected to be generated from future operations, together with existing and anticipated available long-term financing, will be sufficient to fund operations, capital expenditures, research and development efforts and dividend payments (if any) in the immediate future and for at least the next twelve months.

We believe that our existing sources of liquidity and cash expected to be generated from future operations, together with existing and anticipated available long-term financing, will be sufficient to fund operations, capital expenditures, research and development efforts, transaction costs associated with our proposed acquisition of Maxim and dividend payments (if any) in the immediate future and for at least the next twelve months.

2020 2019 2018 (1)

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Net cash used for investing activities $ (180,523) $ (293,186) $ (313,998)

Net cash (used for) provided by financing activities $ (2,126,794) $ (2,358,042) $ 5,586,805

Net cash used for financing activities $ (1,420,608) $ (2,126,794) $ (2,358,042)

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(1) Balances have been restated to reflect the adoption of ASU 2014-09.

See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

At November 2, 2019, cash and cash equivalents totaled $648.3 million.

The following changes contributed to the net change in cash and cash equivalents in fiscal 2019 and fiscal 2018.

A discussion of changes in our results of operations from fiscal 2017 to fiscal 2018 has been omitted from this Form 10-K, but may be found in “Item 7.

See Note 2a, Principles of Consolidation , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

The following changes contributed to the net change in cash and cash equivalents from fiscal 2019 to fiscal 2020.

A discussion of changes in our liquidity and capital resources from fiscal 2018 to fiscal 2019 has been omitted from this Form 10-K, but may be found in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for fiscal 2019 filed with the Securities and Exchange Commission on November 26, 2019.

Operating Activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.

The decrease in cash provided by operating activities during fiscal 2019, as compared to fiscal 2018, was primarily a result of changes in tax liabilities related to the one-time transition tax as a result of the Tax Legislation.

The decrease in cash provided by operating activities during fiscal 2020 as compared to fiscal 2019 was primarily a result of lower net income, adjusted for non-cash items, and a decrease from changes in working capital.

Investing Activities

Investing cash flows consist primarily of capital expenditures and cash used for acquisitions.

The decrease in cash used for investing activities during fiscal 2019, as compared to fiscal 2018, was primarily the result of decreased payments for acquisitions, partially offset by increased capital spending.

Investing cash flows generally consist of capital expenditures and cash used for acquisitions.

The decrease in cash used for investing activities during fiscal 2020 as compared to fiscal 2019 was primarily the result of a decrease in cash used for capital expenditures.

Financing Activities

Financing cash flows consist primarily of payments of dividends to stockholders, repurchases of common stock, issuance and repayment of debt, and proceeds from the sale of shares of common stock pursuant to employee equity incentive plans.

The decrease in cash used for financing activities during fiscal 2019, as compared to fiscal 2018, was primarily due to an increase in proceeds from debt related to the June 2019 term loan agreement and a decrease in debt repayments, partially offset by increases in stock repurchases and dividend payments.

The decrease in cash used for financing activities during fiscal 2020 as compared to fiscal 2019 was primarily the result of a net increase related to our debt instruments and a decrease in common stock repurchases, partially offset by an increase in dividend payments and a decrease in net proceeds from employee stock plans.

Working Capital

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(1) Balances have been restated to reflect the adoption of ASU 2014-09.

See Note 2a, Principles of Consolidation, in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

(1) We use the average of the current year and prior year ending net accounts receivable and ending inventory balance in our calculation of days sales outstanding and days cost of sales in inventory, respectively.

The decrease in accounts receivable for fiscal 2019 compared to fiscal 2018 was primarily the result of normal variations in the timing of collections and billings.

Inventory in dollars increased in fiscal 2019 as compared to fiscal 2018, primarily as a result of our efforts to balance manufacturing production, demand and inventory levels.

The increase in accounts receivable for fiscal 2020 compared to fiscal 2019 was primarily the result of normal variations in the timing of collections and billings.

Inventory in dollars decreased in fiscal 2020 as compared to fiscal 2019, primarily as a result of our efforts to balance manufacturing production, demand and inventory levels.

Our inventory levels are impacted by our need to support forecasted sales demand and variations between those forecasts and actual demand.

Current liabilities increased to $1.5 billion at November 2, 2019 from $1.1 billion recorded at the end of fiscal 2018.

The increase was primarily due to increases in the current portion of our debt and income taxes payable.

As of November 2, 2019, we had $5.5 billion of carrying value outstanding on our debt.

The difference in the carrying value of the debt and the principal is due to the unamortized discount and issuance fees on these instruments that will accrete to the face value over the term of the debt.

Our debt obligations consist of the following:

$500.0 Million Aggregate Principal Amount of 2.875% Senior Unsecured Notes (2023 Notes)

On June 3, 2013, we issued the 2023 Notes with semi-annual fixed interest payments due on June 1 and December 1 of each year, commencing December 1, 2013.

$850.0 Million Aggregate Principal Amount of 3.9% Senior Unsecured Notes (2025 Notes) and $400.0 Million Aggregate Principal Amount of 5.3% Senior Unsecured Notes (2045 Notes)

On December 14, 2015, we issued the 2025 Notes and the 2045 Notes with semi-annual fixed interest payments due on June 15 and December 15 of each year, commencing June 15, 2016.

$400 Million Aggregate Principal Amount of 2.5% Senior Unsecured Notes (2021 Notes), $550 Million Aggregate Principal Amount of 3.125% Senior Unsecured Notes (December 2023 Notes), $900 Million Aggregate Principal Amount of 3.5% Senior Unsecured Notes (2026 Notes) and $250 Million Aggregate Principal Amount of 4.5% Senior Unsecured Notes (2036 Notes)

On December 5, 2016, we issued the 2021 Notes, the December 2023 Notes, the 2026 Notes and the 2036 Notes with semi-annual fixed interest payments due on June 5 and December 5 of each year, commencing June 5, 2017.

$300.0 Million Aggregate Principal Amount of 2.85% Senior Unsecured Notes (2020 Notes) and $450.0 Million Aggregate Principal Amount of 2.95% Senior Unsecured Notes (January 2021 Notes)

On March 12, 2018, we issued the 2020 Notes with semi-annual fixed interest payments due on March 12 and September 12 of each year, commencing September 12, 2018, and the January 2021 Notes with semi-annual fixed interest payments due on January 12 and July 12 of each year, commencing July 12, 2018.

The indentures governing the 2020 Notes, 2021 Notes, January 2021 Notes, 2023 Notes, December 2023 Notes, 2025 Notes, 2026 Notes, 2036 Notes and 2045 Notes contain covenants that may limit our ability to:

incur, create, assume or guarantee any debt or borrowed money secured by a lien upon a principal property;

enter into sale and lease-back transactions with respect to a principal property;

and consolidate with or merge into, or transfer or lease all or substantially all of our assets to, any other party.

As of November 2, 2019, we were compliant with these covenants.

See Note 14, Debt, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on our outstanding debt.

$5.0 Billion Aggregate Principal Term Loans

On the Acquisition Date, we drew down on a 3-year unsecured term loan in the principal amount of $2.5 billion, due March 10, 2020 and a 5-year unsecured term loan in the principal amount of $2.5 billion, due March 10, 2022.

The term loans bore interest at a rate per annum equal to the Eurodollar Rate plus a margin based on our debt ratings from time to time of between 0.75% and 1.63% in the case of the 3-year unsecured term loan, and a margin of between 0.88% and 1.75% in the case of the 5-year unsecured term loan.

As of November 2, 2019, we have repaid the 3-year and 5-year unsecured term loans in full.

$1.25 Billion Principal Term Loan

On June 28, 2019, we entered into a term loan credit agreement with JPMorgan Chase Bank, N.A.

as administrative agent and the other banks identified therein as lenders, under which we borrowed unsecured term loans in the aggregate principal amount of $1.25 billion, maturing March 10, 2022, to refinance our then-outstanding 3-year and 5-year unsecured term loans.

Loans under the term loan credit agreement may be either Eurodollar Rate Loans or Base Rate Loans at our option.

Each Eurodollar Rate Loan will bear interest at a rate per annum equal to the Adjusted LIBO Rate plus a margin based on our debt ratings from time to time of between 0.625% and 1.500%.

Each Base Rate Loan will bear interest at a rate per annum equal to the Base Rate plus a margin based on our debt ratings from time to time of between 0.00% and 0.500%.

As of November 2, 2019, we have repaid $325.0 million of principal on the term loans.

Current liabilities decreased to $1,365.0 million at October 31, 2020 from $1,508.6 million recorded at the end of fiscal 2019.

The decrease was primarily due to decreases in the current portion our debt, partially offset by increases in accrued liabilities.

Revolving Credit Facility

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We repaid the $75.0 million plus interest of $0.2 million in January 2019.

As of November 2, 2019, we have no outstanding borrowings under the revolving credit facility, but we may borrow in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes.

In March 2020, we borrowed $350.0 million under this revolving credit facility and utilized the proceeds for the repayment of existing indebtedness and working capital requirements.

We repaid the $350.0 million plus interest of $0.6 million in April 2020.

As of October 31, 2020, we have no outstanding borrowings under the revolving credit facility, but we may borrow in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes.

The terms of the Revolving Credit Agreement impose restrictions on our ability to undertake certain transactions, to create certain liens on assets and to incur certain subsidiary indebtedness.

In addition, the Revolving Credit Agreement contains a consolidated leverage ratio covenant of total consolidated funded debt to consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) of not greater than 4.0 to 1.0.

The debt covenant will be reduced over time to 3.5 to 1.0, beginning in fiscal 2020 depending upon facts and circumstances.

As of November 2, 2019, we were compliant with these covenants.

In addition, the Revolving Credit Agreement requires us to maintain a consolidated leverage ratio of total consolidated funded debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) for a trailing twelve-month period of not greater than 3.5 to 1.0, assuming we do not undertake any significant acquisitions, mergers, and other fundamental changes.

Should such a change occur, we may be authorized to increase the covenant to 4.0 to 1.0.

As of October 31, 2020, we were compliant with these covenants.

See Note 13, Revolving Credit Facility , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on our revolving credit facility.

As of October 31, 2020, we had $5.1 billion of carrying value outstanding on our debt.

The indentures governing certain of our debt instruments contain covenants that may limit our ability to:

incur, create, assume or guarantee any debt or borrowed money secured by a lien upon a principal property;

enter into sale and lease-back transactions with respect to a principal property;

and consolidate with or merge into, or transfer or lease all or substantially all of our assets to, any other party.

As of October 31, 2020, we were compliant with these covenants.

See Note 14, Debt , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on our outstanding debt.

Stock Repurchase Program

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Unless terminated earlier by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized under the program.

In connection with the Acquisition, we temporarily suspended the share repurchase program.

On August 21, 2018, we reinstated the share repurchase program, and as of November 2, 2019, we had repurchased a total of approximately 154.4 million shares of its common stock for approximately $6.1 billion under this program.

An additional $2.1 billion remains available for repurchase of shares under the current authorized program.

As of October 31, 2020, an additional $1.9 billion remained available for repurchase under the current authorized program.

The repurchased shares are held as authorized but unissued shares of common stock.

We also, from time to time, repurchase shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options.

We also repurchase shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options.

In March 2020, we temporarily suspended our share repurchase program as a result of the global macroeconomic environment.

That suspension continued through the fourth quarter of fiscal 2020 given the planned acquisition of Maxim.

We reinstated the share repurchase program in November 2020 (which is part of the fiscal year ending October 30, 2021).

Future repurchases of common stock will be dependent upon our financial position, results of operations, outlook, liquidity, and other factors we deem relevant.

Capital Expenditures

Net additions to property, plant and equipment were $165.7 million in fiscal 2020 and were funded with a combination of cash on hand and cash generated from operations.

We expect capital expenditures for fiscal 2020 to be slightly below 4% of

fiscal 2020 revenue.

We expect capital expenditures for fiscal 2021 to be approximately 4% of fiscal 2021 revenue.

These capital expenditures will be funded with a combination of cash on hand and cash generated from operations.

Analog Devices Foundation

During the first quarter of fiscal 2020, we contributed 335,654 shares of our common stock to the Analog Devices Foundation.

As of the date of the contribution, the shares had a fair value of approximately $40.0 million.

This expense was recorded in SMG&A in the Consolidated Statement of Income.

On November 23, 2020, our Board of Directors declared a cash dividend of $0.62 per outstanding share of common stock.

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Contractual Obligations

The table below summarizes our contractual obligations and the amounts we owe under these contracts in specified periods as of November 2, 2019:

The table below summarizes our contractual obligations in specified periods as of October 31, 2020:

Payment due by period

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380,843 49,526 83,038 74,570 173,709

Other long-term liabilities (3) 69,921 37,131 31,333 87 1,370

Debt obligations (4)

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(1) The Tax Legislation, enacted on December 22, 2017, contains significant changes to U.S.

tax law, including lowering the U.S.

corporate income tax rate to 21.0%, implementing a territorial tax system, and imposing a one-time tax on deemed repatriated earnings of foreign subsidiaries that we elected to pay over a period of eight years that begins in fiscal 2019 on an interest free basis.

(1) Tax obligation relates to the one-time tax on deemed repatriated earnings under the Tax Cuts and Jobs Act of 2017 enacted in fiscal 2018.

See Note 12, Income Taxes , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion.

(2) Certain of our operating lease obligations include escalation clauses.

These escalating payment requirements are reflected in the table.

(3) Amounts primarily represent future fixed and non-cancellable cash payments associated with software technology and licenses, including the payments due within the next twelve months.

(4) Debt obligations are assumed to be held to maturity.

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(6) Our funding policy for our foreign defined benefit plans is consistent with the local requirements of each country.

The payment obligations in the table are estimates of our expected contributions to these plans for fiscal year 2019.

The payment obligations in the table are estimates of our expected contributions to these plans for the current fiscal year.

The actual future payments may differ from the amounts presented in the table and reasonable estimates of payments beyond one year are not practical because of potential future changes in variables, such as plan asset performance, interest rates and the rate of increase in compensation levels.

As of November 2, 2019, our total liabilities associated with uncertain tax positions was $27.7 million, which are included in non-current income taxes payable in our consolidated balance sheets contained in Item 8 of this Annual Report on Form 10-K.

Due to the complexity associated with our deferred taxes and tax uncertainties, we cannot make a reasonably reliable estimate of the period in which we expect to settle the non-current liabilities associated with these deferred taxes and uncertain tax positions.

Therefore, we have not included these deferred taxes and uncertain tax positions in the above contractual obligations table.

The expected timing of payments and the amounts of the obligations discussed above are estimated based on current information available as of November 2, 2019.

As of October 31, 2020, our net liability related to our defined benefit plans was $79.2 million.

See Note 11, Retirement Plans , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion.

As of October 31, 2020, our total liabilities associated with uncertain tax positions was $24.7 million, which are included in non-current income taxes payable in our Consolidated Balance Sheets contained in Item 8 of this Annual Report on Form 10-K.

Due to the complexity associated with our tax uncertainties, we cannot make a reasonably reliable estimate of the period in which we expect to settle the non-current liabilities associated with these uncertain tax positions.

Therefore, we have not included these uncertain tax positions in the above contractual obligations table.

The expected timing of payments and the amounts of the obligations discussed above are estimated based on current information available as of October 31, 2020.

Off-balance Sheet Arrangements

As of November 2, 2019, we had no off-balance sheet financing arrangements.

As of October 31, 2020, we had no off-balance sheet financing arrangements.

New Accounting Pronouncements

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See Note 2s, New Accounting Pronouncements, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for a description of recently issued and adopted accounting pronouncements, including the dates of adoption and impact on our historical financial condition and results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02).

ASU 2016-02 requires a lessee to recognize most leases on the balance sheet but recognize expenses on the income statement in a manner similar to historical practice.

The update states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying assets for the lease term.

Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease.

The FASB has issued amendments and updates to the new standard, including practical expedients to be used during adoption.

The Company adopted the standard in the first quarter of fiscal 2020 under the modified retrospective approach.

As a result of the adoption of ASU 2016-02, we changed our accounting policy for leases.

See Note 9, Leases , of the Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for details of the impact of this ASU on our financial statements.

Critical Accounting Policies and Estimates

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The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We base our estimates and judgments on historical experience, knowledge

of current conditions and beliefs of what could occur in the future based on available information.

We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future based on available information.

We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment.

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Contract Balances :

Accounts receivable represents our unconditional right to receive consideration from its customers.

Accounts receivable represents our unconditional right to receive consideration from our customers.

Payments are typically due within 30 to 45 days of invoicing and do not include a significant financing component.

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Long-Lived Assets

We review property, plant, and equipment and finite lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable.

We review property, plant, and equipment and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable.

Recoverability of these assets is determined by comparison of their carrying value to the estimated future undiscounted cash flows that the assets are expected to generate over their remaining estimated lives.

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In these situations, we amortize the remaining net book values over the revised useful lives.

We review indefinite-lived intangible assets for impairment annually, on the first day of the fourth quarter (on or about August 4) or more frequently if indicators of impairment exist.

We perform a qualitative assessment on our indefinite-lived intangible assets to determine whether it is more likely-than not that the indefinite-lived intangible asset is impaired.

If it is determined that the fair value of the indefinite-lived intangible asset is less than the carrying value, we would compare the fair value of the intangible asset with its carrying amount and recognize an impairment equal to any amount by which the carrying value of the assets exceeds the fair value.

Goodwill is subject to annual impairment tests or more frequently if indicators of potential impairment exist and suggest that the carrying value of goodwill may not be recoverable from estimated discounted future cash flows.

We test goodwill for impairment at the reporting unit level, which we determined to be the same level as our eight identified operating segments, on an annual basis in the fourth quarter (on or about August 4) or more frequently if we believe indicators of impairment exist.

Goodwill is subject to impairment tests annually or more frequently if events or changes in circumstances suggest that the carrying value of goodwill may not be recoverable, utilizing either the qualitative or quantitative method.

We test goodwill for impairment at the reporting unit level, which we determined is consistent with our eight identified operating segments, on an annual basis on the first day of the fourth quarter (on or about August 2) or more frequently if we believe indicators of impairment exist or we reorganize our operating segments or reporting units.

We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its net book value.

When using the qualitative method, we consider several factors, including the following:

– the amount by which the fair values of each reporting unit exceeded their carrying values as of the date of the most recent quantitative impairment analysis, which indicated there would need to be substantial negative developments in the markets in which these reporting units operate in order for there to be potential impairment;

– the carrying values of these reporting units as of the assessment date compared to their previously calculated fair values as of the date of the most recent quantitative impairment analysis;

– the current forecasts as compared to the forecasts included in the most recent quantitative impairment analysis;

– public information from competitors and other industry information to determine if there were any significant adverse trends in our competitors' businesses;

– changes in the value of major U.S.

stock indices that could suggest declines in overall market stability that could impact the valuation of our reporting units;

– changes in our market capitalization and overall enterprise valuation to determine if there were any significant decreases that could be an indication that the valuation of our reporting units had significantly decreased;

– whether there had been any significant increases to the weighted-average cost of capital rates for each reporting unit, which could materially lower our prior valuation conclusions under a discounted cash flow approach.

If we elect not to use this option, or we determine that it is more likely than not that the fair value of a reporting unit is less than its net book value, then we perform the quantitative goodwill impairment test.

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Under this method we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that are applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair values.

In order to assess the reasonableness of the calculated reporting unit fair values, we reconcile the aggregate fair values of our reporting units determined, as described above, to its current market capitalization, allowing for a reasonable control premium.

In fiscal 2017 and prior periods, we did not elect to use the qualitative option for assessing goodwill and instead proceeded directly to the quantitative goodwill impairment analysis.

In fiscal 2018, we used the qualitative method of assessing goodwill for all eight of our reporting units.

In our latest annual impairment evaluation that occurred as of August 4, 2019, we used the qualitative method of assessing goodwill for seven of our eight reporting units and the quantitative method for one reporting unit.

For each of the reporting units evaluated using the qualitative method, we determined that it was not more likely than not that the fair values were less than their net book values.

In making this determination, we considered several factors, including the following:

– the carrying values of these reporting units as of August 4, 2019 compared to the previously calculated fair values as of the date of the most recent quantitative impairment analysis;

– the current forecasts as compared to the forecasts included in the most recent quantitative impairment analysis;

– public information from competitors and other industry information to determine if there were any significant adverse trends in our competitors' businesses, such as significant declines in market capitalization or significant goodwill impairment charges that could be an indication that the goodwill of our reporting units was potentially impaired;

– changes in the value of major U.S.

stock indices that could suggest declines in overall market stability that could impact the valuation of our reporting units;

– whether there had been any significant increases to the weighted-average cost of capital (WACC) rates for each reporting unit, which could materially lower our prior valuation conclusions under a discounted cash flow approach.

For the reporting unit we assessed goodwill using the quantitative method, we calculated its fair value and compared it with its carrying value.

In calculating fair value, we used a weighting of the income and market approaches.

Under the income approach, we used a discounted cash flow methodology which required significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others.

For the market approach, we used the guideline public company method.

Under this method we utilized information from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit, to create valuation multiples that were applied to the operating performance of the reporting unit, in order to obtain its fair value.

As a result of this analysis, we concluded the reporting unit’s fair value exceeded its carrying amount as of the assessment date and no risk of impairment existed.

In order to assess the reasonableness of the calculated reporting unit fair values, we reconcile the aggregate fair values of our reporting units determined, as described above, to our total company market capitalization, allowing for a reasonable control premium.

In fiscal 2019, we used the qualitative method of assessing goodwill for seven of our eight reporting units and the quantitative method for one reporting unit.

During the second quarter of fiscal 2020, we performed a quantitative assessment of one of our reporting units due to the macroeconomic climate at that time.

In our latest annual impairment evaluation that occurred as of August 2, 2020, we elected to use the quantitative method of assessing goodwill for all eight of our reporting units.

In all periods presented, we concluded the reporting units' fair values exceeded their carrying amounts as of the assessment dates and no risk of impairment existed.

Business Combinations

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Accounting for Income Taxes

We must make certain estimates and judgments in determining income tax expense for financial statement purposes.

These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of the recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to these uncertain tax positions.

We assessed the likelihood of the realization of deferred tax assets and concluded that a valuation allowance is needed to reserve the amount of the deferred tax assets that may not be realized due to the uncertainty of the timing and amount of the realization of certain state credit carryovers.

In reaching our conclusion, we evaluated certain relevant criteria including the existence of deferred tax liabilities that can be used to realize deferred tax assets, the taxable income in prior carryback years in the impacted state jurisdictions that can be used to absorb net operating losses and taxable income in future years.

We make certain estimates and judgments in determining income tax expense for financial statement purposes.

These estimates and judgments occur in the calculation of income tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of the recognition of certain expenses for tax and financial statement purposes.

We assess the likelihood of the realization of deferred tax assets and record a corresponding valuation allowance as necessary if we determine those deferred tax assets may not be realized due to the uncertainty of the timing and amount to be realized of certain state and international tax credit carryovers.

In reaching our conclusion, we evaluate certain relevant criteria including the existence of deferred tax liabilities that can be used to realize deferred tax assets, the taxable income in prior carryback years in the impacted state and international jurisdictions that can be used to absorb net operating losses and taxable income in future years.

Our judgments regarding future profitability may change due to future market conditions, changes in U.S.

or international tax laws and other factors.

These changes, if any, may require material adjustments to these deferred tax assets, resulting in a reduction in net income or an increase in net loss in the period when such determinations are made, which in turn, may result in an increase or decrease to our tax provision in a subsequent period.

We account for uncertain tax positions by determining if it is “more likely than not” that a tax position will be sustained by the appropriate taxing authorities prior to recording any benefit in the financial statements.

These changes, if any, may require material adjustments to these deferred tax assets, which may result in an increase or decrease to our income tax provision in future periods.

We account for uncertain tax positions by first determining if it is “more likely than not” that a tax position will be sustained by the appropriate taxing authorities prior to recording any benefit in the financial statements.

An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained.

For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

For those tax positions where it is more likely than not that a tax position will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.

We classify interest and penalties related to uncertain tax positions within the provision for income taxes line of the Consolidated Statements of Income.

We reevaluate these uncertain tax positions on a quarterly basis.

This evaluation is based on factors including, but not limited to, changes in known facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity.

A change in these factors would result in the recognition of a tax benefit or an additional charge to the tax provision.

This evaluation is based on factors including, but not limited to, changes in known facts or circumstances, changes in tax law, effectively settled issues under audit, and new guidance on legislative interpretations.

A change in these factors could result in the recognition of an increase or decrease to our income tax provision, which could materially impact our consolidated financial position and results of operations.

In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain.

Some of these uncertainties arise as a consequence of cost reimbursement and royalty arrangements among related entities.

Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our historical income tax provisions and accruals.

In the event our assumptions are incorrect, the differences could have a material impact on our income tax provision and operating results in the period in which such determination is made.

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Significant changes during the year in enacted tax law could affect these estimates.

See Note 12, Income Taxes, of the of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion.

See Note 12, Income Taxes , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion.

Stock-Based Compensation

5 unchanged sentences

We recognize the expense related to equity awards on a straight-line basis over the vesting period.

See Note 3, Stock-Based Compensation and Shareholders' Equity, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for more information related to stock based compensation.

See Note 2r, Stock-based Compensation, and Note 3, Stock-Based Compensation and Shareholders' Equity , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for more information related to stock-based compensation.

Contingencies

4 unchanged sentences

If a loss is probable and reasonably estimable, we record a contingent loss.

In determining the amount of a contingent loss, we consider advice received from experts in the specific matter, current status of legal proceedings, settlement negotiations that may be ongoing, prior case

history and other factors.

If the judgments and estimates made by us are incorrect, we may need to record additional contingent losses that could materially adversely impact our results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis