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Item 7. Management’s Discussion and Analysis

2021-12-03 compared with 2020-11-24 · 106 added, 149 removed, 309 unchanged (45% 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 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).

The following discussion includes a comparison of our Results of Operations and Liquidity and Capital Resources for the fiscal years ended October 30, 2021 (fiscal 2021), the fiscal year ended October 31, 2020 (fiscal 2020) and the fiscal year ended November 2, 2019 (fiscal 2019).

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

Fiscal 2020 and fiscal 2019 were 52-week fiscal periods, while fiscal 2018 was a 53-week period.

The additional week in fiscal 2018 was included in the first quarter ended February 3, 2018.

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

Fiscal 2021, fiscal 2020 and fiscal 2019 were 52-week fiscal periods.

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.

The pandemic caused by the novel strain of the coronavirus (COVID-19) and the numerous measures implemented by government authorities in response, 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, Malaysia, Thailand, 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.

The full extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations will depend on future developments, which are highly uncertain such as the continued duration and severity of the pandemic, the spread of more contagious variants of the virus, the adoption rate of vaccines, the actions to contain the virus or treat its impact, or how quickly and to what extent normal economic and operating conditions can resume.

Acquisition of Maxim Integrated Products, Inc.

On August 26, 2021 (Acquisition Date), we completed the acquisition of 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.

Pursuant to the Agreement and Plan of Merger, dated as of July 12, 2020 (the Merger Agreement), Maxim stockholders received, for each outstanding share of Maxim common stock, 0.6300 of a share of the Company’s common stock as of the Acquisition Date, for total consideration of approximately $28.0 billion of our common stock.

The acquisition of Maxim is referred to as the Acquisition.

The consolidated financial statements included in this Annual Report on Form 10-K include the financial results of Maxim prospectively from the Acquisition Date.

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

Results of Operations

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Diluted EPS $ 3.46 $ 3.28 $ 3.65 $ 0.18 5 % $ (0.37) (10) %

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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 , 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 evolve and improve, the categorization of products by end market can vary over time.

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.

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

Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within each end market.

2020 2019 2018 (1)

Fiscal 2021 Fiscal 2020

Revenue (1) Y/Y% Revenue % of

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Industrial $ 4,011,485 55 % 34 % $ 2,998,259 54 % (1) % $ 3,014,890 50 %

Communications 1,195,946 21 % (8) % 1,294,960 22 % 12 % 1,155,826 19 %

Automotive 1,248,635 17 % 60 % 778,297 14 % (16) % 929,671 16 %

Communications 1,198,461 16 % 1 % 1,191,169 21 % (8) % 1,294,233 22 %

Consumer 859,705 12 % 35 % 635,331 11 % (16) % 752,271 13 %

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

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.

(1) 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 increased across all end markets in fiscal 2021 as compared to fiscal 2020 primarily as a result of higher broad-based demand for our products sold into the Automotive, Consumer and Industrial end markets.

Revenue in the Communications end market was also slightly higher in fiscal 2021 compared to fiscal 2020 as the timing of infrastructure deployment cycles in certain regions offset higher demand.

Incremental revenue as a result of the Acquisition also contributed to higher revenue in each end market in fiscal 2021, as compared to fiscal 2020.

Revenue by Sales Channel

The following tables summarize revenue by sales channel.

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

2020 2019 2018 (1)

Fiscal 2021 Fiscal 2020

Revenue (1) Revenue % of

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

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.

(1) 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 sales channel has remained relatively consistent in fiscal 2020, fiscal 2019 and fiscal 2018.

The percentage of total revenue sold via each channel can fluctuate from time to time based on end customer demand.

In fiscal 2021, higher demand within our Automotive and Industrial end markets resulted in increased revenue through our distributor channel.

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 , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

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

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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.

Total revenue increased in fiscal 2021 as compared to fiscal 2020 due to broad-based, global demand in the semiconductor industry as well as the incremental impact of revenue from the Acquisition.

We saw increases across all end markets in territories, with the exception of sales into the Communication end market in China, which was impacted by infrastructure deployment cycles as noted above.

Fiscal Year 2021 over 2020 2020 over 2019

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Gross margin % 61.8 % 65.9 % 67.0 %

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

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.

Gross margin percentage in fiscal 2021 decreased by 410 basis points compared to fiscal 2020, primarily as a result of recording additional costs related to the Acquisition, including $331.1 million and $155.4 million of cost of goods sold related to the fair value adjustments recorded to inventory and amortization expense of intangible assets, respectively.

These increases in cost of sales as a result of the Acquisition were partially offset by the favorable impact of higher utilization of our factories due to increased customer demand.

Research and Development (R&D)

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R&D expenses as a % of revenue 18 % 19 % 19 %

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 increased in fiscal 2021 as compared to fiscal 2020 primarily as a result of higher R&D employee-related variable compensation expense, incremental R&D expenses incurred as a result of the Acquisition and higher salary and benefit expenses.

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 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.

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 13 % 12 % 11 %

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

SMG&A expenses increased in fiscal 2021 as compared to fiscal 2020, primarily as a result of higher costs due to acquisition-related transaction costs, incremental SMG&A expenses incurred as a result of the Acquisition and higher variable compensation expense and salary and benefit expenses.

Amortization of Intangibles

Fiscal Year 2021 over 2020 2020 over 2019

2021 2020 2019 $ Change % Change $ Change % Change

Amortization expenses $ 536,811 $ 429,455 $ 429,041 $ 107,356 25 % $ 414 — %

Amortization expenses as a % of revenue 7 % 8 % 7 %

Amortization expenses increased in fiscal 2021 as compared to fiscal 2020, primarily as a result of $105.8 million of amortization expense of intangible assets recorded as part of the Acquisition.

Special Charges, Net

We monitor global macroeconomic conditions on an ongoing basis and continue to assess opportunities for improved operational effectiveness and efficiency, as well as a better alignment of expenses with revenues.

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

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 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.

We recorded special charges as a result of our decision to consolidate certain wafer and test facility operations acquired as part of the acquisition of Linear.

The special charges include severance and fringe benefit costs, in accordance with the Company's ongoing benefit plan or statutory requirements at foreign locations and one-time termination benefits for the impacted employees and other exit costs.

These one-time termination benefits are being recognized over the future service period required for employees to earn these benefits.

In addition, as a result of management's plan to close certain wafer and test facility operations acquired as part of the acquisition of Linear Technology Corporation (Linear), the Company sold its facility in Singapore and ceased production at its Hillview manufacturing facility in Milpitas, California during fiscal 2021.

Repositioning Actions:

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

The special charges include severance and fringe benefit costs, in accordance with the Company's ongoing benefit plan or statutory requirements at foreign locations and the write-off of acquired intellectual property due to the Company's decision to discontinue certain product development strategies.

The other special charges of $83.4 million recognized during fiscal 2021 include severance and benefit costs as well as charges recorded from acceleration of equity awards in connection with the termination of a limited number of employees as part of the integration of the Acquisition.

Operating Income

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Operating income as a % of revenue 23.1 % 26.7 % 28.6 %

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

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 .

The increase in operating income in fiscal 2021 as compared to fiscal 2020 was primarily the result of a $834.5 million increase in gross margin, partially offset by a $255.5 million increase in SMG&A expenses, a $245.6 million increase in R&D expenses, a $107.4 million increase in amortization expenses and a $32.1 million increase in special charges, net as more fully described above under the headings Gross Margin, Selling, Marketing, General and Administrative (SMG&A), Research and Development (R&D), Amortization of Intangibles and Special Charges, Net .

Nonoperating (Income) Expense

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Total Nonoperating expense $ 363,487 $ 186,627 $ 224,880 $ 176,860 $ (38,253)

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

The year-over-year increase in nonoperating expense in fiscal 2021 as compared to fiscal 2020 was primarily the result of a loss on the extinguishment of debt related to debt transactions in the fourth quarter of fiscal 2021, partially offset by gains recorded on other investments and a decrease in interest expense related to our debt obligations in the period.

(Benefit From) Provision for Income Taxes

Fiscal Year 2021 over 2020 2020 over 2019

2021 2020 2019 $ Change % Change $ Change % Change

Provision for income taxes $ 90,856 $ 122,717 $ 148,334 $ (31,861) (26) % $ (25,617) (17) %

(Benefit from) provision for income taxes $ (61,708) $ 90,856 $ 122,717 $ (152,564) (168) % $ (31,861) (26) %

Effective income tax rate (4.6) % 6.9 % 8.3 %

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

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 2021 and fiscal 2020 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 provision for income taxes was

impacted by incremental profit related to the Acquisition.

Additionally, in fiscal 2021, we recorded a net deferred tax benefit of $188.8 million from deferred tax assets related to an intra-entity transfer of intangible assets.

For fiscal 2021 and fiscal 2020, our pretax income was primarily generated in Ireland at a tax rate of 12.5%.

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.

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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Diluted EPS $ 3.46 $ 3.28 $ 3.65 $ 0.18 5 % $ (0.37) (10) %

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

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 .

The increase in net income in fiscal 2021 as compared to fiscal 2020 was a result of a $194.0 million increase in operating income and a $152.6 million decrease in provision for income taxes resulting in a net income tax benefit, partially offset by a $176.9 million increase in nonoperating expense, as more fully described above under the headings Operating Income , (Benefit From) Provision for Income Taxes and Nonoperating (Income) Expense .

Liquidity and Capital Resources

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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.

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.

We believe that our existing sources of liquidity and cash expected to be generated from future operations, together with existing and anticipated available short- and 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.

2021 2020 2019

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Net cash provided by operating activities as a % of revenue 37 % 36 % 38 %

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

Net cash provided by (used for) investing activities $ 2,143,525 $ (180,523) $ (293,186)

Net cash used for financing activities $ (3,959,664) $ (1,420,608) $ (2,126,794)

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

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 2019 to fiscal 2020 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 2020 filed with the Securities and Exchange Commission on November 24, 2020.

The following changes contributed to the net change in cash and cash equivalents from fiscal 2020 to fiscal 2021.

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 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.

The increase in cash provided by operating activities during fiscal 2021 as compared to fiscal 2020 was primarily a result of higher net income and an increase from changes in working capital.

Net income in fiscal 2021 also included larger non-cash expenses from the Acquisition that were not included in fiscal 2020.

Investing Activities

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.

Investing cash flows generally consist of capital expenditures, cash used for acquisitions and proceeds from or purchases of investments.

The increase in cash provided by (used for) investing activities during fiscal 2021 as compared to fiscal 2020 was primarily the result of cash received from the Acquisition, partially offset by an increase 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 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.

The increase in cash used for financing activities during fiscal 2021 as compared to fiscal 2020 was primarily the result of an increase in common stock repurchases in connection with our accelerated share repurchase program and higher dividend payments, partially offset by a net increase in debt in fiscal 2021 as we terminated some debt and raised additional proceeds from debt compared to the net decrease in debt in 2020.

Working Capital

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(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 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.

Cost of sales amounts used in the calculation of days cost of sales in inventory for fiscal 2021 include Acquisition accounting adjustments related to the sale of acquired inventory written up to fair value, amortization of developed technology intangible assets acquired and depreciation related to the write-up of fixed assets to fair value.

The calculations above include the financial results of Maxim prospectively from the Acquisition Date.

The increase in accounts receivable for fiscal 2021 compared to fiscal 2020 was primarily the result of the Acquisition as well as normal variations in the timing of collections and billings.

Inventory in dollars increased in fiscal 2021 as compared to fiscal 2020, primarily as a result of the Acquisition as well as 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 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.

During the fourth quarter of fiscal 2021, the inventory values on the Consolidated Balance Sheet were also impacted by additional costs related to the Acquisition and the requirement to account for acquired inventory at fair-value.

Current liabilities increased to $2,770.3 million at October 30, 2021 from $1,365.0 million recorded at the end of fiscal 2020.

The increase was primarily due to the Acquisition, including $516.7 million of Maxim debt obligations classified as current and $584.9 million of accrued liabilities.

Revolving Credit Facility

On June 28, 2019, we entered into a second amended and restated revolving credit agreement with Bank of America N.A.

as administrative agent and the other banks identified therein as lenders (Revolving Credit Agreement), which further amended and restated our amended and restated revolving credit agreement dated as of September 23, 2016.

The Revolving Credit Agreement provides for a five year unsecured revolving credit facility in an aggregate principal amount of up to $1.25 billion, expiring on June 28, 2024.

Loans under the Revolving Credit Agreement can be Eurocurrency Rate Loans or Base Rate Loans at our option.

Each Eurocurrency Rate Loan will bear interest at a rate per annum equal to the Eurocurrency Rate plus a margin based on our debt ratings from time to time of between 0.690% and 1.375%.

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 0.375%.

In December 2018, we borrowed $75.0 million under the previous revolving credit facility and utilized the proceeds for the repayment of existing indebtedness and working capital requirements.

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

Our Third Amended and Restated Revolving Credit Agreement, dated as of June 23, 2021, with Bank of America N.A.

as administrative agent and the other banks identified therein as lenders (Revolving Credit Agreement) amended and restated our Second Amended and Restated Credit Agreement dated as of June 28, 2019 and provides for a five year unsecured revolving credit facility in an aggregate principal amount not to exceed $2.5 billion (subject to certain terms and conditions).

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.

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

In September 2021, we borrowed $400.0 million under this revolving credit facility and utilized the proceeds for the repayment of existing indebtedness and working capital requirements.

We repaid the $400.0 million plus interest in October 2021.

We may borrow under this revolving credit facility 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 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.

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 3.5 to 1.0.

As of October 30, 2021, we were in compliance 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 30, 2021, we had $6.8 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.

On November 4, 2021, we redeemed Maxim's 3.375% Senior Notes due 2023 in the aggregate principal amount of $500.0 million.

The difference in the carrying value of the debt and the principal is due to the unamortized discount and issuance fees and other adjustments on these instruments.

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

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As of October 30, 2021, 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.

See Note 14, Debt , and Note 15, Subsequent Events, 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

In September 2021, we entered into accelerated share repurchase agreements (ASR) with third party financial institutions to repurchase $2.5 billion of our common stock.

We paid $2.5 billion and received an initial delivery of 12.3 million shares of common stock, which represented approximately 80% of the notional amount of the ASR.

The final settlement of the transaction under the ASR is expected to occur in the first half of fiscal 2022.

Our common stock repurchase program has been in place since August 2004.

In the aggregate, our Board of Directors has authorized us to repurchase $8.2 billion of our common stock under the program.

Since inception, our Board of Directors has authorized us to repurchase $16.7 billion of our common stock under the program, which includes the $8.5 billion authorization approved by the Board of Directors on August 25, 2021.

Under the program, we may repurchase outstanding shares of our common stock from time to time in the open market and through privately negotiated transactions.

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.

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

As of October 30, 2021, $7.4 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 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.

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Net additions to property, plant and equipment were $343.7 million in fiscal 2021 and were funded with a combination of cash on hand and cash generated from operations.

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.

We expect capital expenditures for fiscal 2022 to be between 6% and 8% of revenue, which is above our historical levels primarily due to our plans to expand internal manufacturing capacity.

These capital expenditures will be funded with a combination of cash on hand and cash expected to be generated from future operations, together with existing and anticipated available short- and long-term financing.

Analog Devices Foundation

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Contractual Obligations

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

The table below summarizes our material contractual obligations in specified periods as of October 30, 2021:

Payment due by period

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Contractual obligations:

Transition tax (1)

$ 626,742 $ 59,690 $ 119,380 $ 261,143 $ 186,529

Operating leases ( 2)

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 (1)

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Interest payments associated with debt obligations 2,460,541 171,718 340,784 320,139 1,627,900

Deferred compensation plan (5)

Transition tax (2)

793,176 137,106 320,315 335,755 —

Pension funding (6)

Operating leases ( 3)

393,002 61,855 103,418 84,059 143,670

Inventory-related purchase commitments (4) 291,200 52,800 91,733 63,333 83,334

Total $ 10,714,784 $ 923,479 $ 1,356,250 $ 1,203,286 $ 7,231,769

_______________________________________

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

(2) 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.

This amount includes transition tax payable attributable to the Acquisition of $266.1 million.

(3) 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.

(5) These payments relate to obligations under our deferred compensation plan.

The deferred compensation plan allows certain members of management and other highly-compensated employees and non-employee directors to defer receipt of all or any portion of their compensation.

The amount in the “More than 5 Years” column of the table represents the remaining total balance under the deferred compensation plan to be paid to participants who have not terminated employment.

Since we cannot reasonably estimate the timing of withdrawals for participants who have not yet terminated employment, we have included the future obligation to these participants in the “More than 5 Years” column of the table.

(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 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 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.

(4) In connection with the Acquisition, we acquired a supplier commitment for the purchase of materials and supplies in advance or with minimum purchase quantities.

As of October 30, 2021, our total liabilities associated with uncertain tax positions was $170.5 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.

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The expected timing of payments and the amounts of the obligations discussed above are estimated based on current information available as of October 30, 2021.

Off-balance Sheet 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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Recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the providing entity expects to be entitled in exchange for those goods or services.

As a result of the adoption of new revenue accounting rules in the first quarter of fiscal 2019, we revised our revenue recognition policy.

We now recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products or services.

Under this rule, we recognize revenue when all of the following criteria are met:

(1) we have entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been determined, (4) the transaction price has been allocated to the performance obligations in the contract, and (5) the performance obligations have been satisfied.

We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products or services.

We recognize revenue when all of the following criteria are met:

contract, and (5) the performance obligations have been satisfied.

The majority of our shipping terms permit us to recognize revenue at point of shipment or delivery.

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Unsatisfied performance obligations primarily represent contracts for products with future delivery dates and with an original expected duration of one year or less.

As allowed under ASU 2014-09, we have opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year.

We generally warrant that our products will meet their published specifications, and that we will repair or replace defective products, for one year from the date title passes from us to the customer.

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If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.

Although we have recognized no material impairment adjustments related to our property, plant, and equipment and identified intangible assets during the past three fiscal years, except those made in conjunction with restructuring actions, deterioration in our business in the future could lead to such impairment adjustments in future periods.

Although we have recognized no material impairment

adjustments related to our property, plant, and equipment and identified intangible assets during the past three fiscal years, except those made in conjunction with restructuring actions, deterioration in our business in the future could lead to such impairment adjustments in future periods.

Evaluation of impairment of long-lived assets requires estimates of future operating results that are used in the preparation of the expected future undiscounted cash flows.

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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 test goodwill for impairment at the reporting unit level, which we determined is consistent with our identified operating segments, on an annual basis on the first day of the fourth quarter (on or about August 1) 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.

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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.

During fiscal 2021 and fiscal 2020, we elected to use the quantitative method of assessing goodwill for all 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.

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

We reevaluate these uncertain tax positions on a quarterly basis.

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We calculate the grant-date fair values of stock options using the Black-Scholes valuation model.

The grant-date fair value of restricted stock units with a service condition and restricted stock units with both service and performance conditions are calculated using the value of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting.

For restricted stock units with both service and performance conditions, this grant-date fair value is also impacted by the number of units that are expected to vest during the performance period and is adjusted through the related stock-based compensation expense at each reporting period based on the probability of achievement of that performance condition.

If we determine that an award is unlikely to vest, any previously recorded stock-based compensation expense is reversed in the period of that determination.

The grant date fair value of restricted stock units or performance-based stock options with both service and market conditions are calculated using the Monte Carlo simulation model to estimate the probability of satisfying the performance condition stipulated in the award grant, including the possibility that the market condition may not be satisfied.

The use of valuation models requires us to make estimates of key assumptions such as expected option term and stock price volatility to determine the fair value of a stock option.

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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