What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-18 compared with 2022-02-16 · 89 added, 54 removed, 177 unchanged (45% of the section changed)

7 unchanged sentences

our anticipated growth and trends in our businesses;

the effects of business, economic, political, legal, and regulatory impacts or conflicts upon our global operations ;

changes in demand for semiconductors and the related changes in demand and supply for our products;

manufacturing delays, product availability, and supply chain disruptions;

our ability to recruit or retain our key personnel;

our future liquidity, capital needs and capital expenditures;

30 unchanged sentences

Three Months Ended

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

April 30, 2022 May 1, 2021 $ Change % Change

Revenue $ 2,972,064 $ 1,661,407 $ 1,310,657 79 %

3 unchanged sentences

Diluted EPS $ 1.49 $ 1.14 $ 0.35 31 %

Six Months Ended

April 30, 2022 May 1, 2021 $ Change % Change

Revenue $ 5,656,357 $ 3,219,865 $ 2,436,492 76 %

Gross margin % 59.2 % 67.8 %

Net income $ 1,063,350 $ 811,424 $ 251,926 31 %

Net income as a % of revenue 18.8 % 25.2 %

Diluted EPS $ 2.01 $ 2.18 $ (0.17) (8) %

Revenue Trends by End Market

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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

January 29, 2022 January 30, 2021

April 30, 2022 May 1, 2021

Revenue* Y/Y% Revenue % of

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Total revenue $ 2,972,064 100 % 79 % $ 1,661,407 100 %

Six Months Ended

April 30, 2022 May 1, 2021

Revenue* Y/Y% Revenue % of

Industrial $ 2,847,838 50 % 55 % $ 1,833,198 57 %

Communications 885,450 16 % 58 % 560,904 17 %

Automotive 1,184,927 21 % 134 % 505,748 16 %

Consumer 738,142 13 % 131 % 320,015 10 %

Total revenue $ 5,656,357 100 % 76 % $ 3,219,865 100 %

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

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 increased 79% and 76% in the three- and six-month periods ended April 30, 2022, respectively, as compared to the same periods of the prior fiscal year, with the Acquisition contributing approximately 70% of those increases.

From an end market perspective, revenue increased in the three- and six-month periods ended April 30, 2022, as compared to the same periods 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

January 29, 2022 January 30, 2021

April 30, 2022 May 1, 2021

Revenue % of Revenue* Revenue % of Revenue*

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Total revenue $ 2,972,064 100 % $ 1,661,407 100 %

Six Months Ended

April 30, 2022 May 1, 2021

Revenue % of Revenue* Revenue % of Revenue*

Distributors $ 3,503,042 62 % $ 2,039,314 63 %

Direct customers 2,094,891 37 % 1,136,011 35 %

Other 58,424 1 % 44,540 1 %

Total revenue $ 5,656,357 100 % $ 3,219,865 100 %

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

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

Three Months Ended Six Months Ended

April 30, 2022 May 1, 2021 $ Change % Change April 30, 2022 May 1, 2021 $ Change % Change

Gross margin $ 1,944,520 $ 1,136,637 $ 807,883 71 % $ 3,346,517 $ 2,182,008 $ 1,164,509 53 %

Gross margin % 65.4 % 68.4 % 59.2 % 67.8 %

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.

Gross margin percentage decreased by 300 and 860 basis points in the three- and six-month periods ended April 30, 2022, respectively, as compared to the same periods of the prior fiscal year.

In the three-month period ended April 30, 2022, this decrease was primarily as a result of additional cost of goods sold related to the Acquisition, including $214.2 million related to amortization expense of intangible assets.

In the six-month period ended April 30, 2022, this decrease was primarily as a result of additional cost of goods sold related to the Acquisition, including $428.5 million related to amortization expense of intangible assets and $271.4 million related to the nonrecurring fair value adjustment recorded to inventory.

The unfavorable impact of these increases in cost of sales on gross margin percent was 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

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

Three Months Ended Six Months Ended

April 30, 2022 May 1, 2021 $ Change % Change April 30, 2022 May 1, 2021 $ Change % Change

R&D expenses $ 420,901 $ 302,238 $ 118,663 39 % $ 847,681 $ 590,388 $ 257,293 44 %

R&D expenses as a % of revenue 14 % 18 % 15 % 18 %

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 increased in the three- and six-month periods ended April 30, 2022, as compared to the same periods of the prior fiscal year, primarily as a result of the Acquisition.

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

Three Months Ended

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

Three Months Ended Six Months Ended

April 30, 2022 May 1, 2021 $ Change % Change April 30, 2022 May 1, 2021 $ Change % Change

SMG&A expenses $ 305,308 $ 206,612 $ 98,696 48 % $ 602,673 $ 391,887 $ 210,786 54 %

SMG&A expenses as a % of revenue 10 % 12 % 11 % 12 %

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.

SMG&A expenses increased in the three- and six-month periods ended April 30, 2022, as compared to the same periods of the prior fiscal year, primarily as a result of the Acquisition as well as higher variable compensation expenses and salary and benefit expenses, partially offset by lower acquisition-related transaction costs.

Amortization of Intangibles

Three Months Ended

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

Three Months Ended Six Months Ended

April 30, 2022 May 1, 2021 $ Change % Change April 30, 2022 May 1, 2021 $ Change % Change

Amortization expenses $ 253,476 $ 107,786 $ 145,690 135 % $ 506,843 $ 215,434 $ 291,409 135 %

Amortization expenses as a % of revenue 9 % 6 % 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.

Amortization expenses increased in the three-and six-month periods ended April 30, 2022, as compared to the same periods 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

Three Months Ended Six Months Ended

April 30, 2022 May 1, 2021 $ Change % Change April 30, 2022 May 1, 2021 $ Change % Change

Special charges, net $ 46,674 $ 311 $ 46,363 14,908 % $ 106,402 $ 749 $ 105,653 14,106 %

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

Special charges, net increased in the three- and six-month periods ended April 30, 2022, as compared to the same periods of the prior fiscal year, primarily as a result of charges recorded as part of the integration of the Acquisition and continued organizational initiatives to better align our global workforce with our long-term strategic plan.

The charges were primarily for severance and benefit costs as well as charges recorded from the acceleration of equity awards in connection with the termination of certain employees in manufacturing, engineering and SMG&A roles at sites assumed related to the Acquisition and various locations throughout the world.

In the six-month period ended April 30, 2022, these charges were partially offset by a gain of $8.3 million recognized upon the sale of a business.

Operating Income

Three Months Ended

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

Three Months Ended Six Months Ended

April 30, 2022 May 1, 2021 $ Change % Change April 30, 2022 May 1, 2021 $ Change % Change

Operating income $ 918,161 $ 519,690 $ 398,471 77 % $ 1,282,918 $ 983,550 $ 299,368 30 %

Operating income as a % of revenue 30.9 % 31.3 % 22.7 % 30.5 %

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.

The year-over-year increase in operating income in the three-month period ended April 30, 2022 was primarily the result of an increase in revenue of $1,310.7 million, which contributed to an increase in gross margin of $807.9 million, offset by increases of $145.7 million in amortization expenses, $118.7 million in R&D expenses, $98.7 million in SMG&A expenses and $46.4 million in special charges, net, as described above under the headings Revenue Trends by End Market, Gross Margin, Amortization of Intangibles, Research and Development (R&D), Selling, Marketing, General and Administrative (SMG&A) and Special Charges, Net.

The year-over-year increase in operating income in the six-month period ended April 30, 2022 was primarily the result of an increase in revenue of $2,436.5 million, which contributed to an increase in gross margin of $1,164.5 million, offset by increases of $291.4 million in amortization expenses, $257.3 million in R&D expenses, $210.8 million in SMG&A expenses and $105.7 million in special charges, net, as described above under the headings Revenue Trends by End Market, Gross Margin, Amortization of Intangibles, Research and Development (R&D), Selling, Marketing, General and Administrative (SMG&A) and Special Charges, Net.

Nonoperating Expense (Income)

Three Months Ended

January 29, 2022 January 30, 2021 $ Change

Three Months Ended Six Months Ended

April 30, 2022 May 1, 2021 $ Change April 30, 2022 May 1, 2021 $ Change

Total nonoperating expense (income) $ 38,916 $ 43,705 $ (4,789) $ 80,118 $ 70,947 $ 9,171

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.

The year-over-year decrease in nonoperating expense (income) in the three-month period ended April 30, 2022 was primarily the result of gains recorded in other investments and a favorable impact of foreign currencies in the second quarter of fiscal 2022, partially offset by higher interest expense and amortization related to our debt obligations.

The year-over-year increase in nonoperating expense (income) in the six-month period ended April 30, 2022 was the result of higher interest expense and amortization related to our debt obligations, partially offset by a favorable impact of foreign currencies and higher gains from other investments.

Provision for Income Taxes

Three Months Ended

January 29, 2022 January 30, 2021 $ Change

Three Months Ended Six Months Ended

April 30, 2022 May 1, 2021 $ Change April 30, 2022 May 1, 2021 $ Change

Provision for income taxes $ 95,972 $ 53,080 $ 42,892 $ 139,450 $ 101,179 $ 38,271

Effective income tax rate 10.9 % 11.2 % 11.6 % 11.1 %

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

The effective tax rates for the three- and six-month periods ended April 30, 2022 and May 1, 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-month periods ended January 29, 2022 and January 30, 2021 was primarily generated in Ireland at a tax rate of 12.5%.

Our pretax income for the three- and six-month periods ended April 30, 2022 and May 1, 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

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

Three Months Ended Six Months Ended

April 30, 2022 May 1, 2021 $ Change % Change April 30, 2022 May 1, 2021 $ Change % Change

Net Income $ 783,273 $ 422,905 $ 360,368 85 % $ 1,063,350 $ 811,424 $ 251,926 31 %

1 unchanged sentence

Diluted EPS $ 1.49 $ 1.14 $ 2.01 $ 2.18

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.

Net income increased in the three-month period ended April 30, 2022, as compared to the same period of the prior fiscal year, as a result of a $398.5 million increase in operating income and a $4.8 million decrease in nonoperating expense (income), partially offset by a $42.9 million increase in provision for income taxes.

Net income increased in the six-month period ended April 30, 2022, as compared to the same period of the prior fiscal year, as a result of a $299.4 million increase in operating income, partially offset by a $38.3 million increase in provision for income taxes and a $9.2 million increase in nonoperating expense (income).

Liquidity and Capital Resources

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.

At April 30, 2022, our principal source of liquidity was $1,737.7 million of cash and cash equivalents, of which approximately $440.0 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 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

Six Months Ended

April 30, 2022 May 1, 2021

Net cash provided by operating activities $ 2,078,220 $ 1,164,303

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Net cash used for financing activities $ (2,085,454) $ (783,408)

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.

The following changes contributed to the net change in cash and cash equivalents in the six-month period ended April 30, 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 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.

The increase in cash provided by operating activities during the six-month period ended April 30, 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 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.

The increase in cash used for investing activities during the six-month period ended April 30, 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 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.

The increase in cash used for financing activities during the six-month period ended April 30, 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, more cash used for common stock repurchases and higher dividend payments to shareholders.

Working Capital

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

April 30, 2022 October 30, 2021 $ Change % Change

Accounts receivable $ 1,608,254 $ 1,459,056 $ 149,198 10 %

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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 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:

Current liabilities decreased to approximately $2,326.2 million at April 30, 2022 from approximately $2,770.3 million at the end of fiscal 2021 primarily due to early termination of debt.

As of April 30, 2022, our debt obligations consisted of the following:

Principal Amount Outstanding

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

As of April 30, 2022, we were in compliance with these covenants.

Revolving Credit Facility

3 unchanged sentences

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

As of April 30, 2022, we were in compliance with these covenants.

Stock Repurchase Program

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

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

As of April 30, 2022, an additional $6.6 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 $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.

Net additions to property, plant and equipment were $229.9 million in the first six 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.

On May 17, 2022, our Board of Directors declared a cash dividend of $0.76 per outstanding share of common stock.

The dividend will be paid on June 9, 2022 to all shareholders of record at the close of business on May 31, 2022 and is expected to total approximately $395.1 million.

We currently expect quarterly dividends to continue in future periods.

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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.

There have not been any other material changes during the six-month period ended April 30, 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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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.

There were no material changes in the three-month period ended April 30, 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 three-month period ended January 29, 2022 to the information provided under Item 7A.

There were no material changes in the six-month period ended April 30, 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