What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-12-03 compared with 2020-11-24 · 39 added, 40 removed, 70 unchanged (53% of the section changed)

5 unchanged sentences

In certain instances, we utilize interest rate derivatives to manage interest rate exposure on both outstanding debt as well as future issuances.

As of October 31, 2020 and November 2, 2019, for each 100 basis point decrease in the ten-year U.S.

Treasury rate, the fair value of our outstanding derivative instruments would change by approximately $102.0 million and $100.0 million, respectively.

Based on our marketable securities outstanding as of October 31, 2020 and November 2, 2019, our annual interest income would change by approximately $10.6 million and $6.5 million, respectively, for each 100 basis point increase in interest rates.

As of October 30, 2021, we had no outstanding interest rate derivative instruments.

As of October 31, 2020, for each 100 basis point decrease in the ten-year U.S.

Treasury rate, the fair value of our outstanding derivative instruments would have changed by approximately $102.0 million.

Based on our marketable securities outstanding as of October 30, 2021 and October 31, 2020, our annual interest income would change by approximately $19.7 million and $10.6 million, respectively, for each 100 basis point increase in interest rates.

To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of our investment portfolio assuming a 100 basis point parallel shift in the yield curve.

Based on investment positions as of October 31, 2020 and November 2, 2019, a hypothetical 100 basis point increase in interest rates across all maturities would not materially impact the fair market value of the portfolio in either period.

Based on investment positions as of October 30, 2021 and October 31, 2020, a hypothetical 100 basis point increase in interest rates across all maturities would not materially impact the fair market value of the portfolio in either period.

If significant, such losses would only be realized if we sold the investments prior to maturity.

2 unchanged sentences

Generally, the fair value of our notes will increase as interest rates fall and decrease as interest rates rise.

The fair values of our notes as of October 31, 2020 and November 2, 2019, assuming a hypothetical 100 basis point increase in market interest rates, are as follows:

October 31, 2020 November 2, 2019

The fair values of our notes as of October 30, 2021 and October 31, 2020, assuming a hypothetical 100 basis point increase in market interest rates, are as follows:

October 30, 2021 October 31, 2020

(thousands) Principal Amount Outstanding Fair Value Fair Value given an increase in interest rates of 100 basis points Principal Amount Outstanding Fair Value Fair Value given an increase in interest rates of 100 basis points

2020 Notes, due March 2020 $ — $ — $ — $ 300,000 $ 300,872 $ 299,793

2021 Notes, due January 2021 — — — 450,000 454,634 449,354

2021 Notes, due December 2021 $ — $ — $ — $ 400,000 $408,565 $ 404,170

2023 Notes, due June 2023 500,000 526,855 513,874 500,000 511,190 494,186

2023 Notes, due March 2023 500,000 520,236 513,273 — — —

Maxim 2023 Notes, due June 2023 — — — 500,000 526,855 513,874

2023 Notes, due December 2023 — — — 550,000 590,177 572,965

2024 Notes, due October 2024 500,000 500,482 486,201 — — —

2025 Notes, due April 2025 400,000 423,265 409,725 400,000 434,919 417,225

1 unchanged sentence

2026 Notes, due December 2026 900,000 986,243 941,160 900,000 1,017,505 962,821

Maxim 2027 Notes, due June 2027 500,000 542,942 515,866 — — —

2028 Notes, due October 2028 750,000 743,109 696,554 — — —

2031 Notes, due October 2031 1,000,000 996,702 912,196 — — —

2036 Notes, due December 2036 144,278 176,960 158,110 250,000 298,153 265,210

2041 Notes, due October 2041 750,000 758,246 652,754 — — —

2045 Notes, due December 2045 332,587 469,592 404,287 400,000 538,788 463,425

2051 Notes, due October 2051 1,000,000 1,029,830 848,513 — — —

Foreign Currency Exposure

3 unchanged sentences

Currently, our largest foreign currency exposure is the Euro, primarily because our European operations have the highest proportion of our local currency denominated expenses.

Relative to foreign currency exposures existing at October 31, 2020 and November 2, 2019, a 10% unfavorable movement in foreign currency exchange rates over the course of the year would result in approximately $18.5 million of losses and $12.1 million of losses, respectively, in changes in earnings or cash flows.

Relative to foreign currency exposures existing at October 30, 2021 and October 31, 2020, a 10% unfavorable movement in foreign currency exchange rates over the course of the year would result in approximately $39.5 million of losses and $18.5 million of losses, respectively, in changes in earnings or cash flows.

The market risk associated with our derivative instruments results from currency exchange rates that are expected to offset the market risk of the underlying transactions, assets and liabilities being hedged.

4 unchanged sentences

The following table illustrates the effect that a 10% unfavorable or favorable movement in foreign currency exchange rates, relative to the U.S.

dollar, would have on the fair value of our forward exchange contracts as of October 31, 2020 and November 2, 2019:

October 31, 2020 November 2, 2019

Fair value of forward exchange contracts assets $ 5,427 $ —

dollar, would have on the fair value of our forward exchange contracts as of October 30, 2021 and October 31, 2020:

October 30, 2021 October 31, 2020

Fair value of forward exchange contracts $ (8,085) $ 5,427

Fair value of forward exchange contracts after a 10% unfavorable movement in foreign currency exchange rates asset $ 26,673 $ 21,859

8 unchanged sentences

We have audited the accompanying consolidated balance sheets of Analog Devices, Inc.

(the Company) as of October 31, 2020 and November 2, 2019, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended October 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 31, 2020 and November 2, 2019, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2020, in conformity with U.S.

(the Company) as of October 30, 2021 and October 31, 2020, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended October 30, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 30, 2021 and October 31, 2020, and the results of its operations and its cash flows for each of the three years in the period ended October 30, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated November 24, 2020 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in the year ended October 31, 2020 due to the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842) , and the related amendments.

Adoption of ASU No.

As discussed in Note 12 to the consolidated financial statements, the Company changed its method of accounting for the income tax consequences of intra-entity transfers, other than inventory, in the year ended November 2, 2019 due to the adoption of ASU No.

2016-16, Income Taxes (Topic 740):

Intra-Entity Transfers of Assets Other Than Inventory .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 30, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated December 3, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

19 unchanged sentences

Changes in those assumptions can have a material effect on the amount of variable consideration recognized.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's process to calculate the variable consideration.

How We Addressed the Matter in Our Audit We obtained an understanding over the Company's process to calculate the variable consideration.

With the exception of the portion of the balance that related to Maxim Integrated Products, Inc., we also evaluated the design and tested the operating effectiveness of the relevant controls.

For example, we tested controls over the appropriateness of assumptions management used as well as controls over the completeness and accuracy of the data underlying estimates of expected price protection discounts and returns.

3 unchanged sentences

We also evaluated whether the Company appropriately considered new information that could significantly change the estimated future price protection discounts or returns.

Goodwill – Quantitative Impairment Assessment

Description of the Matter The Company’s consolidated goodwill balance was $12.3 billion as of October 31, 2020.

As described in Note 2 to the consolidated financial statements, the Company evaluates goodwill for impairment at the reporting unit level annually and performed a quantitative goodwill impairment assessment for each of its eight reporting units.

The quantitative impairment assessment involves the comparison of the fair value of each reporting unit to its respective carrying amount.

The Company used a weighting of the income and market approaches to determine the fair value of each reporting unit.

Auditing management's quantitative goodwill impairment test involved a high degree of auditor judgment due to the significant estimation required to determine the fair value of each reporting unit.

In particular, the fair value estimate for one of the eight reporting units was sensitive to significant assumptions, such as forecasted revenues, gross profit margins, operating income margins, long-term discount rate, perpetual growth rate, identification of comparable publicly traded companies and estimated valuation multiples, which led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions as outlined above, used in determining the fair value of this reporting unit.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's quantitative goodwill impairment assessment process.

For example, we tested controls over management's review of the valuation model and the significant assumptions used.

To test the estimated fair value of the reporting unit, our audit procedures included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis.

We tested significant assumptions by comparing them to current and forecasted industry and economic trends, analyst reports, and forecasted peer company information.

We evaluated management’s ability to accurately forecast by comparing actual results to historical forecasts.

We also performed sensitivity analyses of certain assumptions to evaluate changes in the fair value that would result from changes in the assumptions.

With the assistance of our valuation specialists, we evaluated the selection of the long-term discount rate and perpetual growth rate, including testing the underlying source information and the mathematical accuracy of the calculations by developing a range of independent estimates and comparing those to the rates selected by management.

We also involved our valuation specialists to evaluate the market approach, including evaluating the reasonableness of the selected comparable publicly traded companies and the resulting market multiples calculation.

Accounting for Acquisitions – Valuation of Identified Intangibles

Description of the Matter During 2021, the Company completed its acquisition of Maxim Integrated Products, Inc.

(Maxim) for total consideration of $27.9 billion, as disclosed in Note 6 to the consolidated financial statements.

The transaction was accounted for as a business combination.

Auditing the Company's accounting for its acquisition of Maxim was complex due to the significant estimation uncertainty in the Company’s determination of the fair value of identifiable intangible assets of $12.4 billion, which principally consisted of developed technology and customer relationships.

The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business.

The Company used discounted cash flow models to measure the developed technology and customer relationship intangible assets.

The significant assumptions used to estimate the fair value of the intangible assets included discount rates and certain assumptions that form the basis of the forecasted results (e.g., annual revenue growth rates, developed technology obsolescence rates and customer attrition rates).

These significant assumptions are forward looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's accounting for acquisitions process.

For example, we tested controls over the appropriateness of the valuation model, assumptions management used as well as controls over the completeness and accuracy of the data underlying the valuation of the developed technology and customer relationship intangible assets.

To test the estimated fair value of the developed technology and customer relationship intangible assets, our audit procedures included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data supporting the significant assumptions and estimates used by the Company in the valuation.

We tested significant assumptions through a combination of procedures, as applicable for each assumption, including comparing them to current and forecasted industry and economic trends, as well as to the historical results of the acquired business and other guideline companies within the same industry.

With the assistance of our valuation specialists, we evaluated the methodology used by the Company and significant assumptions included in the fair value estimates.

/s/ Ernst & Young LLP

1 unchanged sentence

Boston, Massachusetts

November 24, 2020

December 3, 2021

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 7A. Quantitative and Qualitative Disclosures About Market Risk