What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-16 compared with 2021-08-18 · 96 added, 117 removed, 135 unchanged (61% of the section changed)

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In addition, any statements that refer to projections regarding our future financial performance;

the proposed acquisition of Maxim Integrated Products, Inc.;

our anticipated growth and trends in our businesses;

our future liquidity, capital needs and capital expenditures;

our development of technologies and research and development investments;

the impact of the COVID-19 pandemic on our business, financial condition and results of operations;

our future market position and expected competitive changes in the marketplace for our products;

our ability to pay dividends or repurchase stock;

our plans and ability to pay dividends or repurchase stock;

our ability to service our outstanding debt;

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the effect of new accounting pronouncements;

our ability to successfully integrate acquired businesses and technologies;

our ability to successfully integrate or realize the benefits or synergies expected of acquired businesses and technologies, including the acquired business, operations and employees of Maxim Integrated Products, Inc.;

and other characterizations of future events or circumstances are forward-looking statements.

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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, Singapore, Malaysia, China and India.

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.

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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.

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.

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 at the closing.

The estimated merger consideration is approximately $29.0 billion based on the closing price of our common stock on August 13, 2021.

The value of the merger consideration will fluctuate based upon changes in the price of our common stock and the number of shares of Maxim common stock, restricted stock awards and restricted stock unit awards outstanding on the closing date.

The transaction is subject to customary closing conditions, including receipt of regulatory approvals.

To date, required regulatory approvals have been obtained in all jurisdictions with the exception of China.

The Merger Agreement includes termination rights for us and Maxim.

We may be required to pay Maxim a regulatory termination fee of $830.0 million in cash if the Merger Agreement is terminated in certain circumstances involving the failure to obtain required regulatory approvals.

On October 8, 2020, the required shareholder approvals relating to the Merger Agreement were obtained from both our shareholders and Maxim's shareholders.

The acquisition of Maxim is referred to as the Acquisition.

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

See Note 14, Acquisitions , in the Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

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Three Months Ended

July 31, 2021 August 1, 2020 $ Change % Change

Revenue $ 1,758,853 $ 1,456,136 $ 302,717 21 %

Gross margin % 69.4 % 66.8 %

Net income $ 503,311 $ 362,665 $ 140,646 39 %

Net income as a % of revenue 28.6 % 24.9 %

Diluted EPS $ 1.35 $ 0.97 $ 0.38 39 %

Nine Months Ended

July 31, 2021 August 1, 2020 $ Change % Change

January 29, 2022 January 30, 2021 $ Change % Change

Revenue $ 2,684,293 $ 1,558,458 $ 1,125,835 72 %

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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.

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

Three Months Ended

July 31, 2021 August 1, 2020

January 29, 2022 January 30, 2021

Revenue* Y/Y% Revenue % of

Industrial $ 1,341,113 50 % 57 % $ 856,186 55 %

Communications 288,743 16 % (21) % 363,304 25 %

Automotive 552,671 21 % 124 % 246,504 16 %

Consumer 178,166 10 % 16 % 152,982 11 %

Total revenue $ 1,758,853 100 % 21 % $ 1,456,136 100 %

Nine Months Ended

July 31, 2021 August 1, 2020

Revenue* Y/Y% Revenue % of

Industrial $ 2,829,648 57 % 30 % $ 2,184,413 54 %

Communications 412,397 15 % 46 % 281,726 18 %

Automotive 793,443 16 % 45 % 548,002 13 %

Consumer 378,112 14 % 117 % 174,042 11 %

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* The sum of the individual percentages may not equal the total due to rounding.

Revenue increased in the three- and nine-month periods ended July 31, 2021, as compared to the same periods of the prior fiscal year, primarily as a result of higher broad-based demand for our products sold into the Industrial and Automotive end markets, and to a lesser extent, sold into the Consumer end market.

In addition, the increased revenue in the Automotive end market in both periods were impacted by an arrangement to license our intellectual property resulting in $24.1 million of revenue immediately recognized in the third quarter of fiscal 2021.

Revenue in the Communications end market decreased in the three- and nine-month periods ended July 31, 2021 due to the timing of infrastructure deployment cycles in certain regions.

Revenue increased 72% in the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, with the Acquisition contributing approximately 70% of that increase.

From an end market perspective, revenue increased in the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, primarily as a result of the Acquisition and higher demand for our products across all end markets.

Revenue by Sales Channel

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Three Months Ended

July 31, 2021 August 1, 2020

Revenue % of Revenue* Revenue % of Revenue*

Distributors $ 1,123,301 64 % $ 819,472 56 %

Direct customers 588,001 33 % 614,770 42 %

Other 47,551 3 % 21,894 2 %

Total revenue $ 1,758,853 100 % $ 1,456,136 100 %

Nine Months Ended

July 31, 2021 August 1, 2020

January 29, 2022 January 30, 2021

Revenue % of Revenue* Revenue % of Revenue*

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* The sum of the individual percentages may not equal the total due to rounding.

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

In the three- and nine-month periods ended July 31, 2021, higher demand within our Industrial end market resulted in increased revenue through our distributor channel.

In addition, an arrangement to license our intellectual property resulting in $24.1 million of revenue immediately recognized in the third quarter of fiscal 2021 contributed to an increase in the percent of total revenue from other channels.

Three Months Ended Nine Months Ended

July 31, 2021 August 1, 2020 $ Change % Change July 31, 2021 August 1, 2020 $ Change % Change

As indicated in the table above, the percentage of total revenue sold via each channel has remained relatively consistent in the periods presented, but can fluctuate from time to time based on end customer demand.

Three Months Ended

January 29, 2022 January 30, 2021 $ Change % Change

Gross margin $ 1,401,997 $ 1,045,371 $ 356,626 34 %

Gross margin % 52.2 % 67.1 %

Gross margin percentage increased by 260 and 300 basis points in the three- and nine-month periods ended July 31, 2021, respectively, as compared to the same periods of the prior fiscal year, primarily as a result of higher utilization of our factories due to increased customer demand as well as from the arrangement to license our intellectual property noted above.

Gross margin percentage decreased by 1,490 basis points in the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, primarily as a result of additional cost of goods sold related to the Acquisition, including $271.4 million related to the nonrecurring fair value adjustment recorded to inventory and $214.2 million related to amortization expense of intangible assets.

These increases in cost of sales as a result of the Acquisition were partially offset by favorable product mix, synergies related to the Acquisition and higher utilization of our factories due to increased customer demand.

Research and Development (R&D)

Three Months Ended Nine Months Ended

July 31, 2021 August 1, 2020 $ Change % Change July 31, 2021 August 1, 2020 $ Change % Change

Three Months Ended

January 29, 2022 January 30, 2021 $ Change % Change

R&D expenses $ 426,780 $ 288,150 $ 138,630 48 %

R&D expenses as a % of revenue 16 % 18 %

R&D expenses increased in the three- and nine-month periods ended July 31, 2021, as compared to the same periods of the prior fiscal year, primarily as a result of higher R&D employee-related variable compensation expense and salary and benefit expenses.

In the nine-month period ended July 31, 2021, those increases were partially offset by lower discretionary spending.

R&D expenses increased in the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, primarily as a result of the Acquisition and to a lesser extent higher salary and benefit expenses and variable compensation 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.

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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)

Three Months Ended Nine Months Ended

July 31, 2021 August 1, 2020 $ Change % Change July 31, 2021 August 1, 2020 $ Change % Change

Three Months Ended

January 29, 2022 January 30, 2021 $ Change % Change

SMG&A expenses $ 297,365 $ 185,275 $ 112,090 60 %

SMG&A expenses as a % of revenue 11 % 12 %

SMG&A expenses increased in the three-month period ended July 31, 2021, as compared to the same period of the prior fiscal year, primarily as a result of higher variable compensation expense, salary and benefit expenses and acquisition-related transaction costs in connection with the proposed acquisition of Maxim.

SMG&A expenses increased in the nine-month period ended July 31, 2021, as compared to the same period of the prior fiscal year, primarily as a result of higher acquisition-related transaction costs in connection with the proposed acquisition of Maxim, variable compensation expense and salary and benefit expenses, partially offset by a $40.0 million charitable contribution to the Analog Devices Foundation made in the first quarter of fiscal 2020.

SMG&A expenses increased in the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, primarily as a result of the Acquisition as well as higher salary and benefit expenses and variable compensation expenses.

Amortization of Intangibles

Three Months Ended

January 29, 2022 January 30, 2021 $ Change % Change

Amortization expenses $ 253,367 $ 107,648 $ 145,719 135 %

Amortization expenses as a % of revenue 9 % 7 %

Amortization expenses increased in the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, primarily as a result of amortization expense of intangible assets recorded as a result of the Acquisition.

Special Charges, Net

Three Months Ended

January 29, 2022 January 30, 2021 $ Change % Change

Special charges, net $ 59,728 $ 438 $ 59,290 13,537 %

Special charges, net as a % of revenue 2 % — %

Special charges, net increased in the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, primarily as a result of severance and benefit costs as well as charges recorded from the 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

Three Months Ended Nine Months Ended

July 31, 2021 August 1, 2020 $ Change % Change July 31, 2021 August 1, 2020 $ Change % Change

Three Months Ended

January 29, 2022 January 30, 2021 $ Change % Change

Operating income $ 364,757 $ 463,860 $ (99,103) (21) %

Operating income as a % of revenue 13.6 % 29.8 %

The year-over-year increase in operating income in the three-month period ended July 31, 2021 was primarily the result of an increase in revenue of $302.7 million, which contributed to an increase in gross margin of $248.6 million, and a decrease in special charges of $40.8 million, partially offset by increases of $52.3 million in SMG&A expenses and $45.8 million in R&D expenses, as described above under the headings Revenue Trends by End Market, Gross Margin, Selling, Marketing, General and Administrative (SMG&A) and Research and Development (R&D).

The year-over-year increase in operating income in the nine-month period ended July 31, 2021 was primarily the result of an increase in revenue of $902.0 million, which contributed to an increase in gross margin of $735.8 million, and a decrease in special charges of $52.5 million, partially offset by a $126.7 million increase in R&D expenses and a $103.2 million increase in SMG&A expenses, as described above under the headings Revenue Trends by End Market, Gross Margin, Research and Development (R&D) and Selling, Marketing, General and Administrative (SMG&A).

The year-over-year decrease in operating income in the three-month period ended January 29, 2022 was primarily the result of an increase in revenue of $1,125.8 million, which contributed to an increase in gross margin of $356.6 million, offset by increases of $145.7 million in amortization expenses, $138.6 million in R&D expenses, $112.1 million in SMG&A expenses and $59.3 million in special charges, net, as described above under the headings Revenue Trends by End Market, Gross Margin, Research and Development (R&D), Amortization of Intangibles, Selling, Marketing, General and Administrative (SMG&A) and Special Charges, Net.

Nonoperating Expense (Income)

Three Months Ended Nine Months Ended

July 31, 2021 August 1, 2020 $ Change July 31, 2021 August 1, 2020 $ Change

Three Months Ended

January 29, 2022 January 30, 2021 $ Change

Total nonoperating expense (income) $ 41,202 $ 27,242 $ 13,960

The year-over-year decrease in nonoperating expense (income) in the three- and nine-month periods ended July 31, 2021 was primarily the result of gains recorded on other investments.

The nine-month period was also impacted by a decrease in interest expense related to our debt obligations.

The year-over-year increase in nonoperating expense (income) in the three-month period ended January 29, 2022 was the result of higher interest expense related to our debt obligations and lower gains from other investments.

Provision for Income Taxes

Three Months Ended Nine Months Ended

July 31, 2021 August 1, 2020 $ Change July 31, 2021 August 1, 2020 $ Change

Three Months Ended

January 29, 2022 January 30, 2021 $ Change

Provision for income taxes $ 43,478 $ 48,099 $ (4,621)

Effective income tax rate 13.4 % 11.0 %

The effective tax rates for the three- and nine-month periods ended July 31, 2021 and August 1, 2020 were below the U.S.

The effective tax rates for the three-month periods ended January 29, 2022 and January 30, 2021 were below the U.S.

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

Our pretax income for the three- and nine-month periods ended July 31, 2021 and August 1, 2020 was primarily generated in Ireland at a tax rate of 12.5%.

The tax rates for the three- and nine-month periods ended August 1, 2020 were also impacted by discrete income tax benefits of $33.7 million recorded in the third quarter of fiscal 2020, comprised primarily of $25.9 million of income tax benefits resulting from the resolution of the Internal Revenue Service (IRS) audit of Linear’s pre-acquisition federal income tax returns for fiscal 2015 through fiscal 2017 and other income tax benefits recorded upon filing of our federal income tax return for fiscal 2019.

Our pretax income for the three-month periods ended January 29, 2022 and January 30, 2021 was primarily generated in Ireland at a tax rate of 12.5%.

See Note 12, Income Taxes , in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.

Three Months Ended Nine Months Ended

July 31, 2021 August 1, 2020 $ Change % Change July 31, 2021 August 1, 2020 $ Change % Change

Three Months Ended

January 29, 2022 January 30, 2021 $ Change % Change

Net Income $ 280,077 $ 388,519 $ (108,442) (28) %

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Diluted EPS $ 0.53 $ 1.04

Net income increased in the three-month period ended July 31, 2021, as compared to the same period of the prior fiscal year, as a result of a $190.5 million increase in operating income and an $8.7 million decrease in nonoperating expense (income), partially offset by a $58.6 million increase in provision for income taxes.

Net income increased in the nine-month period ended July 31, 2021, as compared to the same period of the prior fiscal year, as a result of a $556.6 million increase in operating income and a $34.0 million decrease in nonoperating expense (income), partially offset by a $110.1 million increase in provision for income taxes.

Net income decreased in the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, as a result of a $99.1 million decrease in operating income and a $14.0 million increase in nonoperating expense (income), partially offset by a $4.6 million decrease in provision for income taxes.

Liquidity and Capital Resources

At July 31, 2021, our principal source of liquidity was $1,480.7 million of cash and cash equivalents, of which approximately $701.4 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.

At January 29, 2022, our principal source of liquidity was $1,790.4 million of cash and cash equivalents, of which approximately $681.7 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.

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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 merger with Maxim and dividend payments (if any) in the immediate future and for at least the next twelve months.

Nine Months Ended

July 31, 2021 August 1, 2020

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.

Three Months Ended

January 29, 2022 January 30, 2021

Net cash provided by operating activities $ 856,413 $ 427,941

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Net cash used for financing activities $ (937,268) $ (363,823)

The following changes contributed to the net change in cash and cash equivalents in the nine-month period ended July 31, 2021 as compared to the same period in fiscal 2020.

The following changes contributed to the net change in cash and cash equivalents in the three-month period ended January 29, 2022 as compared to the same period in fiscal 2021.

Operating Activities

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

The increase in cash provided by operating activities during the nine-month period ended July 31, 2021, as compared to the same period of the prior fiscal year, was primarily the result of higher net income adjusted for non-cash items and changes in working capital.

The increase in cash provided by operating activities during the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, was primarily the result of an increase in net income adjusted for noncash amortization of intangibles and cost of goods sold for inventory acquired, offset by changes in working capital.

Investing Activities

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

The increase in cash used for investing activities during the nine-month period ended July 31, 2021, as compared to the same period of the prior fiscal year, was primarily the result of an increase in cash used for capital expenditures and cash payments for acquisitions, partially offset by proceeds from the sale of our Singapore facility and other investments.

The increase in cash used for investing activities during the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, was primarily the result of an increase in cash used for capital expenditures.

Financing Activities

Financing cash flows generally consist 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 increase in cash used for financing activities during the nine-month period ended July 31, 2021, as compared to the same period of the prior fiscal year, was primarily the result of increases in common stock repurchases and dividend payments to shareholders.

The comparable period of fiscal 2020 also included proceeds from our bond issuance as well as debt repayments, which did not repeat in fiscal 2021.

The increase in cash used for financing activities during the three-month period ended January 29, 2022, as compared to the same period of the prior fiscal year, was primarily the result of early termination of debt in the first quarter of fiscal 2022 and higher dividend payments to shareholders, partially offset by less cash used for common stock repurchases.

Working Capital

July 31, 2021 October 31, 2020 $ Change % Change

January 29, 2022 October 30, 2021 $ Change % Change

Accounts receivable $ 1,636,928 $ 1,459,056 $ 177,872 12 %

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Days cost of sales in inventory* 77 118

* We use the average of the current quarter and prior quarter ending accounts receivable and ending inventory balances in our calculation of days sales outstanding and days cost of sales in inventory, respectively.

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

Cost of sales amounts used in the calculation of days cost of sales in inventory 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 increase in accounts receivable in dollars was primarily the result of variations in the timing of collections and billings and increased revenue levels.

Inventory increased, primarily as a result of our efforts to balance manufacturing production, demand and inventory levels.

Inventory decreased primarily as a result of our October 30, 2021 balance including additional costs related to the Acquisition as a result of accounting for acquired inventory at fair-value.

Inventory levels also fluctuate due to 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 approximately $2,793.3 million at July 31, 2021 from approximately $1,365.0 million at the end of fiscal 2020.

The increase was primarily due to increases in the current portion of our debt of $1,324.7 million.

As of July 31, 2021, our debt obligations consisted of the following:

Current liabilities decreased to approximately $2,221.9 million at January 29, 2022 from approximately $2,770.3 million at the end of fiscal 2021 primarily due to early termination of debt.

As of January 29, 2022, our debt obligations consisted of the following:

Principal Amount Outstanding

3-Year term loan, due March 2022 $ 925,000

2.50% Senior unsecured notes, due December 2021 400,000

2.875% Senior unsecured notes, due June 2023 500,000

3.125% Senior unsecured notes, due December 2023 550,000

2.95% Senior unsecured notes, due April 2025 400,000

3.90% Senior unsecured notes, due December 2025 850,000

3.50% Senior unsecured notes, due December 2026 900,000

4.50% Senior unsecured notes, due December 2036 250,000

5.30% Senior unsecured notes, due December 2045 400,000

2024 Notes, due October 2024 $ 500,000

2025 Notes, due April 2025 400,000

2026 Notes, due December 2026 900,000

Maxim 2027 Notes, due June 2027 500,000

2028 Notes, due October 2028 750,000

2031 Notes, due October 2031 1,000,000

2036 Notes, due December 2036 144,278

2041 Notes, due October 2041 750,000

2045 Notes, due December 2045 332,587

2051 Notes, due October 2051 1,000,000

Total debt $ 6,276,865

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

As of July 31, 2021, we were in compliance with these covenants.

As of January 29, 2022, we were in compliance with these covenants.

Revolving Credit Facility

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) amends and restates our existing 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 (i) $1.25 billion or (ii) upon the completion of the acquisition by the Company of Maxim on or before January 12, 2022 (subject to certain terms and conditions), $2.5 billion.

Our Third Amended and Restated Revolving Credit Agreement, dated as of June 23, 2021, 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).

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.

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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 July 31, 2021, we were in compliance with these covenants.

As of January 29, 2022, we were in compliance with these covenants.

Stock Repurchase Program

In fiscal 2021, we entered into accelerated share repurchase agreements (ASR) with third party financial institutions, 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.

As of October 30, 2021, we recorded the remaining 20%, or $500.0 million, within Prepaid expenses and other current assets on the Consolidated Balance Sheet, which was utilized during the first quarter of fiscal 2022.

During the first quarter of fiscal 2022, the ASR was completed and an additional 2.1 million shares of common stock were received as final settlement of the ASR.

In total, we repurchased 14.4 million shares of our common stock under the ASR at an average price per share of $173.77.

In the aggregate, our Board of Directors has authorized us to repurchase $16.7 billion of our common stock under our common stock repurchase program.

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 July 31, 2021, an additional $1.4 billion remains available for repurchase under the current authorized program.

As of January 29, 2022, an additional $7.3 billion remains available for repurchase under the current authorized program.

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

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Capital Expenditures

Net additions to property, plant and equipment were $212.9 million in the first nine months of 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 between 4% and 5% of fiscal 2021 revenue.

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

On August 17, 2021, our Board of Directors declared a cash dividend of $0.69 per outstanding share of common stock.

The dividend will be paid on September 8, 2021 to all shareholders of record at the close of business on August 27, 2021 and is expected to total approximately $254.1 million.

Net additions to property, plant and equipment were $111.1 million in the first three months of fiscal 2022 and were 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.

On February 15, 2022, our Board of Directors declared a cash dividend of $0.76 per outstanding share of common stock.

The dividend will be paid on March 8, 2022 to all shareholders of record at the close of business on February 25, 2022 and is expected to total approximately $397.7 million.

We currently expect quarterly dividends to continue in future periods.

The payment of any future quarterly dividends, or a future increase in the quarterly dividend amount, will be at the discretion of the

Board and will be dependent upon our financial position, results of operations, outlook, liquidity, and other factors deemed relevant by the Board.

The payment of any future quarterly dividends, or a future increase in the quarterly dividend amount, will be at the discretion of the Board and will be dependent upon our financial position, results of operations, outlook, liquidity, and other factors deemed relevant by the Board.

Contractual Obligations

There have not been any material changes during the nine-month period ended July 31, 2021 to the amounts presented in the table summarizing our contractual obligations included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

In the first quarter of fiscal 2022, we repaid approximately $500.0 million of principal on notes that were contractually due in March 2023.

For additional information, see Note 11, Debt , in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

There have not been any other material changes during the three-month period ended January 29, 2022 to the amounts presented in the table summarizing our contractual obligations included in our Annual Report on Form 10-K for the fiscal year ended October 30, 2021.

New Accounting Pronouncements

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See Note 13, New Accounting Pronouncements, in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q 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.

Critical Accounting Policies and Estimates

Except for the accounting policies for credit losses and income taxes that were updated as a result of adopting ASU 2016-13 and ASU 2019-12, respectively, there were no other changes in the nine-month period ended July 31, 2021 to the information provided under the heading “Critical Accounting Policies and Estimates” in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

Critical Accounting Estimates

There were no material changes in the three-month period ended January 29, 2022 to the information provided under the heading “Critical Accounting Policies and Estimates” in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended October 30, 2021.

Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in the nine-month period ended July 31, 2021 to the information provided under Item 7A.

There were no material changes in the three-month period ended January 29, 2022 to the information provided under Item 7A.

“Quantitative and Qualitative Disclosures about Market Risk,” set forth in our Annual Report on Form 10-K for the fiscal year ended October 30, 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-Q

Item 2. Management’s Discussion and Analysis