ANALOG DEVICES INC 10-Q

ITEM 1. Financial Statements ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except per share amounts) Three Months Ended Nine Months Ended July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021 Revenue $ 3,109,880 $ 1,758,853 $ 8,766,237 $ 4,978,718 Cost of sales 1,066,738 537,669 3,376,578 1,575,526 Gross margin 2,043,142 1,221,184 5,389,659 3,403,192 Operating expenses: Research and development 431,829 306,617 1,279,510 897,005 Selling, marketing, general and administrative 326,942 206,076 929,615 597,963 Amortization of intangibles 252,864 107,783 759,707 323,217 Special charges, net 138,201 ( 8,938 ) 244,603 ( 8,189 ) Total operating expenses 1,149,836 611,538 3,213,435 1,809,996 Operating income: 893,306 609,646 2,176,224 1,593,196 Nonoperating expense (income): Interest expense 51,189 44,659 152,701 130,204 Interest income ( 1,797 ) ( 300 ) ( 2,578 ) ( 799 ) Other, net ( 4,023 ) ( 6,991 ) ( 24,636 ) ( 21,090 ) Total nonoperating expense (income) 45,369 37,368 125,487 108,315 Income before income taxes 847,937 572,278 2,050,737 1,484,881 Provision for income taxes 98,952 68,967 238,402 170,146 Net income $ 748,985 $ 503,311 $ 1,812,335 $ 1,314,735 Shares used to compute earnings per common share – basic 517,011 368,476 521,557 368,834 Shares used to compute earnings per common share – diluted 520,550 371,849 525,652 372,457 Basic earnings per common share $ 1.45 $ 1.37 $ 3.47 $ 3.56 Diluted earnings per common share $ 1.44 $ 1.35 $ 3.45 $ 3.53 See accompanying notes. 1 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands) Three Months Ended Nine Months Ended July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021 Net income $ 748,985 $ 503,311 $ 1,812,335 $ 1,314,735 Foreign currency translation adjustments ( 9,028 ) ( 2,952 ) ( 31,500 ) 5,073 Change in fair value of derivative instruments designated as cash flow hedges (net of taxes of $ 854 , $ 10,657 , $ 1,103 and $ 6,452 , respectively) 2,239 ( 40,040 ) ( 471 ) 19,853 Changes in pension plans, net actuarial loss and foreign currency translation adjustments (net of taxes of $ 88 , $ 85 , $ 275 and $ 257 , respectively) 1,770 964 5,902 ( 408 ) Other comprehensive (loss) income ( 5,019 ) ( 42,028 ) ( 26,069 ) 24,518 Comprehensive income $ 743,966 $ 461,283 $ 1,786,266 $ 1,339,253 See accompanying notes. 2 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share amounts) July 30, 2022 October 30, 2021 ASSETS Current Assets Cash and cash equivalents $ 1,524,960 $ 1,977,964 Accounts receivable 1,742,646 1,459,056 Inventories 1,203,394 1,200,610 Prepaid expenses and other current assets 218,708 740,687 Total current assets 4,689,708 5,378,317 Non-current Assets Net property, plant and equipment 2,180,048 1,979,051 Goodwill 26,920,335 26,918,470 Intangible assets, net 13,764,444 15,267,170 Deferred tax assets 2,297,122 2,267,269 Other assets 494,513 511,794 Total non-current assets 45,656,462 46,943,754 TOTAL ASSETS $ 50,346,170 $ 52,322,071 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable $ 545,068 $ 443,434 Income taxes payable 445,726 332,685 Debt, current — 516,663 Accrued liabilities 1,450,407 1,477,530 Total current liabilities 2,441,201 2,770,312 Non-current Liabilities Long-term debt 6,252,839 6,253,212 Deferred income taxes 3,764,370 3,938,830 Income taxes payable 712,982 811,337 Other non-current liabilities 536,187 555,838 Total non-current liabilities 11,266,378 11,559,217 Shareholders’ Equity Preferred stock, $ 1.00 par value, 471,934 shares authorized, none outstanding — — Common stock, $ 0.16 2/3 par value, 1,200,000,000 shares authorized, 514,341,531 shares outstanding ( 525,330,672 on October 30, 2021) 85,725 87,554 Capital in excess of par value 28,590,056 30,574,237 Retained earnings 8,175,444 7,517,316 Accumulated other comprehensive loss ( 212,634 ) ( 186,565 ) Total shareholders’ equity 36,638,591 37,992,542 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 50,346,170 $ 52,322,071 See accompanying notes. 3 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (in thousands) Three Months Ended July 30, 2022 Capital in Accumulated Other Common Stock Excess of Retained Comprehensive Shares Amount Par Value Earnings Loss BALANCE, APRIL 30, 2022 519,806 $ 86,636 $ 29,400,284 $ 7,820,477 $ ( 207,615 ) Net income 748,985 Dividends declared and paid - $ 0.76 per share ( 394,018 ) Issuance of stock under stock plans and other 413 69 9,891 Stock-based compensation expense 84,874 Other comprehensive loss ( 5,019 ) Common stock repurchased ( 5,878 ) ( 980 ) ( 904,993 ) BALANCE, JULY 30, 2022 514,341 $ 85,725 $ 28,590,056 $ 8,175,444 $ ( 212,634 ) Nine Months Ended July 30, 2022 Capital in Accumulated Other Common Stock Excess of Retained Comprehensive Shares Amount Par Value Earnings Loss BALANCE, OCTOBER 30, 2021 525,331 $ 87,554 $ 30,574,237 $ 7,517,316 $ ( 186,565 ) Net income 1,812,335 Dividends declared and paid - $ 2.21 per share ( 1,154,207 ) Issuance of stock under stock plans and other 2,396 400 29,613 Stock-based compensation expense 242,809 Other comprehensive loss ( 26,069 ) Common stock repurchased ( 13,386 ) ( 2,229 ) ( 2,256,603 ) BALANCE, JULY 30, 2022 514,341 $ 85,725 $ 28,590,056 $ 8,175,444 $ ( 212,634 ) See accompanying notes. 4 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (in thousands) Three Months Ended July 31, 2021 Capital in Accumulated Other Common Stock Excess of Retained Comprehensive Shares Amount Par Value Earnings Loss BALANCE, MAY 1, 2021 368,827 $ 61,472 $ 4,724,493 $ 7,564,054 $ ( 182,915 ) Net income 503,311 Dividends declared and paid - $ 0.69 per share ( 254,506 ) Issuance of stock under stock plans and other 396 66 11,610 Stock-based compensation expense 41,687 Other comprehensive loss ( 42,028 ) Common stock repurchased ( 1,009 ) ( 168 ) ( 163,113 ) BALANCE, JULY 31, 2021 368,214 $ 61,370 $ 4,614,677 $ 7,812,859 $ ( 224,943 ) Nine Months Ended July 31, 2021 Capital in Accumulated Other Common Stock Excess of Retained Comprehensive Shares Amount Par Value Earnings Loss BALANCE, OCTOBER 31, 2020 369,485 $ 61,582 $ 4,949,586 $ 7,236,238 $ ( 249,461 ) Net income 1,314,735 Dividends declared and paid - $ 2.00 per share ( 738,114 ) Issuance of stock under stock plans and other 2,040 340 55,008 Stock-based compensation expense 118,683 Other comprehensive income 24,518 Common stock repurchased ( 3,311 ) ( 552 ) ( 508,600 ) BALANCE, JULY 31, 2021 368,214 $ 61,370 $ 4,614,677 $ 7,812,859 $ ( 224,943 ) See accompanying notes. 5 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended July 30, 2022 July 31, 2021 Cash flows from operating activities: Net income $ 1,812,335 $ 1,314,735 Adjustments to reconcile net income to net cash provided by operations: Depreciation 212,635 158,937 Amortization of intangibles 1,512,250 436,734 Stock-based compensation expense 242,809 118,683 Non-cash impairment charge 91,953 — Gain on sale of property, plant, and equipment ( 4,352 ) ( 13,557 ) Cost of goods sold for inventory acquired 271,396 — Deferred income taxes ( 205,128 ) ( 72,578 ) Non-cash operating lease costs ( 17,958 ) 16,855 Other ( 7,061 ) ( 14,965 ) Changes in operating assets and liabilities ( 582,813 ) ( 150,499 ) Total adjustments 1,513,731 479,610 Net cash provided by operating activities 3,326,066 1,794,345 Cash flows from investing activities: Additions to property, plant and equipment ( 394,796 ) ( 212,899 ) Other 43,761 29,619 Net cash used for investing activities ( 351,035 ) ( 183,280 ) Cash flows from financing activities: Proceeds from revolver 400,000 — Payments on revolver ( 400,000 ) — Early termination of debt ( 519,116 ) — Dividend payments to shareholders ( 1,154,207 ) ( 738,114 ) Repurchase of common stock ( 1,758,832 ) ( 509,152 ) Proceeds from employee stock plans 30,013 55,348 Other ( 1,718 ) 1,952 Net cash used for financing activities ( 3,403,860 ) ( 1,189,966 ) Effect of exchange rate changes on cash ( 24,175 ) 3,742 Net (decrease) increase in cash and cash equivalents ( 453,004 ) 424,841 Cash and cash equivalents at beginning of period 1,977,964 1,055,860 Cash and cash equivalents at end of period $ 1,524,960 $ 1,480,701 See accompanying notes. 6 ANALOG DEVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED JULY 30, 2022 (UNAUDITED) (all tabular amounts in thousands except per share amounts and percentages) Note 1 – Basis of Presentation In the opinion of management, the information furnished in the accompanying condensed consolidated financial statements reflects all normal recurring adjustments that are necessary to fairly state the results for these interim periods and should be read in conjunction with Analog Devices, Inc.’s (the Company) Annual Report on Form 10-K for the fiscal year ended October 30, 2021 (fiscal 2021) and related notes. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for the fiscal year ending October 29, 2022 (fiscal 2022) or any future period. The Company has a 52-53 week fiscal year that ends on the Saturday closest to the last day in October. Certain amounts reported in previous periods have been reclassified to conform to the fiscal 2022 presentation. On August 26, 2021 (Acquisition Date), the Company completed the acquisition of Maxim Integrated Products, Inc. (Maxim), an independent manufacturer of innovative analog and mixed-signal products and technologies. 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 these Notes to Condensed Consolidated Financial Statements for additional information. Note 2 – Shareholders' Equity In fiscal 2021, the Company 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, the Company 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, the Company repurchased 14.4 million shares under the ASR at an average price per share of $ 173.77 . As of July 30, 2022, the Company had repurchased a total of approximately 184.3 million shares of its common stock for approximately $ 10.9 billion under the Company's share repurchase program. As of July 30, 2022, an additional $ 5.7 billion remains available for repurchase of shares under the current authorized program. The Company also repurchases shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options. Future repurchases of common stock will be dependent upon the Company's financial position, results of operations, outlook, liquidity and other factors deemed relevant by the Company. Note 3 – Accumulated Other Comprehensive (Loss) Income The following table provides the changes in accumulated other comprehensive (loss) income (AOCI) by component and the related tax effects during the first nine months of fiscal 2022. Foreign currency translation adjustment Unrealized holding gains (losses) on derivatives Pension plans Total October 30, 2021 $ ( 25,795 ) $ ( 123,754 ) $ ( 37,016 ) $ ( 186,565 ) Other comprehensive (loss) income before reclassifications ( 31,500 ) ( 27,471 ) 4,513 ( 54,458 ) Amounts reclassified out of other comprehensive income — 28,103 1,664 29,767 Tax effects — ( 1,103 ) ( 275 ) ( 1,378 ) Other comprehensive (loss) income ( 31,500 ) ( 471 ) 5,902 ( 26,069 ) July 30, 2022 $ ( 57,295 ) $ ( 124,225 ) $ ( 31,114 ) $ ( 212,634 ) The amounts reclassified out of AOCI into the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Shareholders' Equity with presentation location during each period were as follows: 7 Three Months Ended Nine Months Ended Comprehensive (Loss) Income Component July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021 Location Unrealized holding (gains) losses on derivatives Currency forwards $ 2,520 $ ( 351 ) $ 6,384 $ ( 3,700 ) Cost of sales 1,320 ( 283 ) 3,903 ( 2,138 ) Research and development 2,265 28 6,623 ( 1,796 ) Selling, marketing, general and administrative Interest rate derivatives 3,731 464 11,193 1,391 Interest expense 9,836 ( 142 ) 28,103 ( 6,243 ) Total before tax ( 423 ) ( 28 ) ( 3,209 ) 505 Tax $ 9,413 $ ( 170 ) $ 24,894 $ ( 5,738 ) Net of tax Amortization of pension components included in the computation of net periodic pension cost Actuarial losses 529 747 1,664 2,245 ( 88 ) ( 85 ) ( 275 ) ( 257 ) Tax $ 441 $ 662 $ 1,389 $ 1,988 Net of tax Total amounts reclassified out of AOCI, net of tax $ 9,854 $ 492 $ 26,283 $ ( 3,750 ) Note 4 – Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Nine Months Ended July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021 Net Income $ 748,985 $ 503,311 $ 1,812,335 $ 1,314,735 Basic shares: Weighted-average shares outstanding 517,011 368,476 521,557 368,834 Earnings per common share basic: $ 1.45 $ 1.37 $ 3.47 $ 3.56 Diluted shares: Weighted-average shares outstanding 517,011 368,476 521,557 368,834 Assumed exercise of common stock equivalents 3,539 3,373 4,095 3,623 Weighted-average common and common equivalent shares 520,550 371,849 525,652 372,457 Earnings per common share diluted: $ 1.44 $ 1.35 $ 3.45 $ 3.53 Anti-dilutive shares related to: Outstanding stock-based awards 755 645 559 502 8 Note 5 – Special Charges, Net Liabilities related to special charges, net are included in Accrued liabilities in the Condensed Consolidated Balance Sheets. The activity is detailed below: Accrued Special Charges Closure of Manufacturing Facilities Global Repositioning Actions Balance at October 30, 2021 $ 25,774 $ 21,065 Employee severance and benefit costs 75 44,411 Facility closure costs 6,513 — Severance and benefit payments ( 4,016 ) ( 25,776 ) Facility closure cost payments ( 6,513 ) — Effect of foreign currency on accrual — ( 54 ) Balance at January 29, 2022 $ 21,833 $ 39,646 Employee severance and benefit costs — 39,610 Facility closure costs 4,287 — Severance and benefit payments ( 14,026 ) ( 25,608 ) Facility closure cost payments ( 4,287 ) — Effect of foreign currency on accrual — ( 156 ) Balance at April 30, 2022 $ 7,807 $ 53,492 Employee severance and benefit costs — 49,712 Facility closure costs 888 — Severance and benefit payments ( 4,663 ) ( 44,638 ) Facility closure cost payments ( 1,303 ) — Effect of foreign currency on accrual — ( 35 ) Balance at July 30, 2022 $ 2,729 $ 58,531 Closure of Manufacturing Facilities The Company recorded net special charges of $ 63.4 million on a cumulative basis through July 30, 2022 as a result of its decision to consolidate certain wafer and test facility operations acquired as part of the acquisition of Linear Technology Corporation. During the third quarter of fiscal 2022, the Company completed the sale of its Hillview wafer fabrication facility and certain equipment located in Milpitas, California, which were previously classified as held for sale, for approximately $ 31.8 million, which resulted in a gain of $ 4.4 million. During fiscal 2021, the Company completed the sale of its facility and certain equipment in Singapore, which were previously classified as held for sale, for approximately $ 35.7 million, which resulted in a gain of $ 13.6 million. Global Repositioning Actions The Company recorded net special charges of $ 458.1 million on a cumulative basis through July 30, 2022, as part of the integration of the Acquisition and continued organizational initiatives to consolidate its footprint related to certain manufacturing, engineering, sales, marketing and administrative offices and to better align its global workforce with the Company's long-term strategic plan. 9 In connection with the Company’s decision during the third quarter of fiscal 2022 to transition its engineering, sales, marketing and administrative activities from its leased property in Santa Clara, California to its owned property in San Jose, California, the Company entered into a sublease agreement for a portion of the leased property and intends to sublease the remainder of this property. As a result of the sublease transaction, the Company recorded an impairment charge of $ 91.9 million in net special charges which represented the excess carrying value of the associated asset group over its estimated fair value. The Company estimated fair value using cash flows from the estimated net sublease rental income discounted at a market rate. The Company allocated $ 60.6 million, $ 28.1 million and $ 3.2 million of the impairment charge to right of use assets, leasehold improvements and office equipment, respectively. Special charges also included $ 145.2 million in the first nine months of fiscal 2022 primarily consisting of $ 153.5 million of 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 selling, marketing, general and administrative roles at sites assumed related to the Acquisition and various locations throughout the world. These charges were partially offset by a gain of $ 8.3 million recognized upon the sale of a business. Note 6 - Commitments and Contingencies On March 17, 2022, Walter E. Ryan and Ryan Asset Management, LLC, purported stockholders of Maxim, filed a putative class action in the Court of Chancery of the State of Delaware (C.A. No. 2022—0255) against the Company and the former directors of Maxim. The complaint alleges breach of fiduciary duties by the individual defendants in connection with Maxim’s agreement, as part of the merger negotiations with the Company, to suspend Maxim dividends for up to four quarters prior to the closing of the Acquisition. The complaint further alleges that the Company aided and abetted that alleged breach of fiduciary duties. The plaintiffs seek damages in an amount to be determined at trial, plaintiffs’ costs and disbursements, including reasonable attorneys’ and experts’ fees, costs and other expenses. The Company believes that it and the other defendants have meritorious defenses to these allegations; however, the Company is currently unable to determine the ultimate outcome of this matter or determine an estimate, or a range of estimates, of potential losses, if any. Note 7 – Revenue Revenue Trends by End Market The following table summarizes revenue by end market. 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 the Company’s product will be incorporated. As data systems for capturing and tracking this data and the Company's methodology evolves and improves, the categorization of products by end market can vary over time. When this occurs, the Company reclassifies revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of revenue within, each end market. 10 Three Months Ended July 30, 2022 July 31, 2021 Revenue % of Revenue* Y/Y% Revenue % of Revenue* Industrial $ 1,555,070 50 % 55 % $ 1,006,383 57 % Automotive 659,090 21 % 127 % 290,182 16 % Communications 490,732 16 % 69 % 290,391 17 % Consumer 404,988 13 % 136 % 171,897 10 % Total revenue $ 3,109,880 100 % 77 % $ 1,758,853 100 % Nine Months Ended July 30, 2022 July 31, 2021 Revenue % of Revenue* Y/Y% Revenue % of Revenue* Industrial $ 4,402,912 50 % 55 % $ 2,841,665 57 % Automotive 1,844,017 21 % 132 % 794,739 16 % Communications 1,376,182 16 % 62 % 850,153 17 % Consumer 1,143,126 13 % 132 % 492,161 10 % Total revenue $ 8,766,237 100 % 76 % $ 4,978,718 100 % * The sum of the individual percentages may not equal the total due to rounding. Revenue by Sales Channel The following table summarizes revenue by channel. The Company sells its products globally through a direct sales force, third party distributors, independent sales representatives and via its website. Distributors are customers that buy products with the intention of reselling them. Direct customers are non-distributor customers and consist primarily of original equipment manufacturers (OEMs). Other customers include the U.S. government, government prime contractors and certain commercial customers for which revenue is recorded over time. Three Months Ended July 30, 2022 July 31, 2021 Channel Revenue % of Revenue* Revenue % of Revenue* Distributors $ 1,922,982 62 % $ 1,123,301 64 % Direct customers 1,146,538 37 % 588,001 33 % Other 40,360 1 % 47,551 3 % Total revenue $ 3,109,880 100 % $ 1,758,853 100 % Nine Months Ended July 30, 2022 July 31, 2021 Channel Revenue % of Revenue* Revenue % of Revenue* Distributors $ 5,426,024 62 % $ 3,162,615 64 % Direct customers 3,241,429 37 % 1,724,012 35 % Other 98,784 1 % 92,091 2 % Total revenue $ 8,766,237 100 % $ 4,978,718 100 % * The sum of the individual percentages may not equal the total due to rounding. Note 8 – Fair Value The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). 11 Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. The tables below, set forth by level, presents the Company’s financial assets and liabilities, excluding accrued interest components that were accounted for at fair value on a recurring basis as of July 30, 2022 and October 30, 2021. The tables exclude cash on hand and assets and liabilities that are measured at historical cost or any basis other than fair value. As of July 30, 2022 and October 30, 2021, the Company held $ 951.9 million and $ 1,315.0 million, respectively, of cash that was excluded from the tables below. July 30, 2022 Fair Value measurement at Reporting Date using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Total Assets Cash equivalents: Available-for-sale: Government and institutional money market funds $ 573,019 $ — $ 573,019 Other assets: Deferred compensation plan investments 68,128 — 68,128 Total assets measured at fair value $ 641,147 $ — $ 641,147 Liabilities Forward foreign currency exchange contracts (1) $ — $ 23,677 $ 23,677 Total liabilities measured at fair value $ — $ 23,677 $ 23,677 (1) The Company has master netting arrangements by counterparty with respect to derivative contracts. See Note 9, Derivatives, in these Notes to Condensed Consolidated Financial Statements for more information related to the Company's master netting arrangements. October 30, 2021 Fair Value measurement at Reporting Date using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Total Assets Cash equivalents: Available-for-sale: Government and institutional money market funds $ 662,997 $ — $ 662,997 Other assets: Deferred compensation plan investments 71,301 — 71,301 Total assets measured at fair value $ 734,298 $ — $ 734,298 Liabilities Forward foreign currency exchange contracts (1) $ — $ 8,085 $ 8,085 Total liabilities measured at fair value $ — $ 8,085 $ 8,085 12 (1) The Company has master netting arrangements by counterparty with respect to derivative contracts. See Note 9, Derivatives, in these Notes to Condensed Consolidated Financial Statements for more information related to the Company's master netting arrangements. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash equivalents — These investments are adjusted to fair value based on quoted market prices or are determined using a yield curve model based on current market rates. Deferred compensation plan investments — The fair value of these mutual fund, money market fund and equity investments are based on quoted market prices. Forward foreign currency exchange contracts — The estimated fair value of forward foreign currency exchange contracts, which includes derivatives that are accounted for as cash flow hedges and those that are not designated as cash flow hedges, is based on the estimated amount the Company would receive if it sold these agreements at the reporting date taking into consideration current interest rates as well as the creditworthiness of the counterparty for assets and the Company’s creditworthiness for liabilities. The fair value of these instruments is based upon valuation models using current market information such as strike price, spot rate, maturity date and volatility. Assets amd Liabilities Not Recorded at Fair Value on a Recurring Basis Santa Clara, California leased property asset group — As a result of a sublease transaction involving a leased property in Santa Clara, California during the third quarter of 2022, the Company estimated the fair value of the sublease assets using discounted cash flows from the estimated net sublease rental income discounted at a market rate and recorded an impairment charge which represented the excess carrying value of the asset group associated with the Santa Clara, California leased property over its estimated fair value. These assets are considered a Level 2 fair value measurement. See Note 5, Special Charges, Net , in these Notes to Condensed Consolidated Financial Statements for additional information. Debt — The table below presents the estimated fair value of certain financial instruments not recorded at fair value on a recurring basis. The fair values of the senior unsecured notes are obtained from broker prices and are classified as Level 1 measurements according to the fair value hierarchy. July 30, 2022 October 30, 2021 Principal Amount Outstanding Fair Value Principal Amount Outstanding Fair Value Maxim 2023 Notes, due March 2023 $ — $ — $ 500,000 $ 520,236 2024 Notes, due October 2024 500,000 489,243 500,000 500,482 2025 Notes, due April 2025 400,000 395,881 400,000 423,265 2026 Notes, due December 2026 900,000 907,976 900,000 986,243 Maxim 2027 Notes, due June 2027 500,000 488,514 500,000 542,942 2028 Notes, due October 2028 750,000 678,323 750,000 743,109 2031 Notes, due October 2031 1,000,000 891,385 1,000,000 996,702 2036 Notes, due December 2036 144,278 150,517 144,278 176,960 2041 Notes, due October 2041 750,000 631,709 750,000 758,246 2045 Notes, due December 2045 332,587 376,689 332,587 469,592 2051 Notes, due October 2051 1,000,000 816,848 1,000,000 1,029,830 Total debt $ 6,276,865 $ 5,827,085 $ 6,776,865 $ 7,147,607 13 Note 9 – Derivatives Foreign Exchange Exposure Management — The Company enters into forward foreign currency exchange contracts to offset certain operational and balance sheet exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company’s operations, assets and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Euro; other significant exposures include the British Pound, Philippine Peso, Thai Baht, South Korean Won and the Japanese Yen. Derivative instruments are employed to eliminate or minimize certain foreign currency exposures that can be confidently identified and quantified. These foreign currency exchange contracts are entered into to support transactions made in the normal course of business, and accordingly, are not speculative in nature. The contracts are for periods consistent with the terms of the underlying transactions, generally one year or less. Hedges related to anticipated transactions are matched with the underlying exposures at inception and designated and documented as cash flow hedges. They are qualitatively evaluated for effectiveness on a quarterly basis. The gain or loss on the derivative is recorded as a component of AOCI in shareholders’ equity and is reclassified into earnings in the same line item on the Consolidated Statements of Income as the impact of the hedged transaction in the same period during which the hedged transaction affects earnings. The total notional amounts of forward foreign currency derivative instruments designated as hedging instruments of cash flow hedges denominated in Euros, British Pounds, Philippine Pesos, Thai Baht, South Korean Won and Japanese Yen as of July 30, 2022 and October 30, 2021 were $ 296.6 million and $ 343.6 million, respectively. The fair values of forward foreign currency derivative instruments designated as hedging instruments in the Company’s Condensed Consolidated Balance Sheets as of July 30, 2022 and October 30, 2021 were as follows: Fair Value At Balance Sheet Location July 30, 2022 October 30, 2021 Forward foreign currency exchange contracts Accrued liabilities $ 19,915 $ 7,113 As of July 30, 2022 and October 30, 2021, the total notional amounts of undesignated hedges related to forward foreign currency exchange contracts were $ 222.6 million and $ 120.0 million, respectively. The fair values of these hedging instruments in the Company’s Condensed Consolidated Balance Sheets were immaterial as of July 30, 2022 and October 30, 2021. The Company estimates $ 14.8 million, net of tax, of losses on forward foreign currency derivative instruments included in AOCI will be reclassified into earnings within the next twelve months. All of the Company’s derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's Condensed Consolidated Balance Sheets on a net basis. As of July 30, 2022 and October 30, 2021, none of the netting arrangements involved collateral. The following table presents the gross amounts of the Company's forward foreign currency exchange contract derivative assets and liabilities and the net amounts recorded in the Company's Condensed Consolidated Balance Sheets: July 30, 2022 October 30, 2021 Gross amounts of recognized liabilities $ ( 24,197 ) $ ( 8,404 ) Gross amount of recognized assets 520 319 Net liabilities offset and presented in the Condensed Consolidated Balance Sheets $ ( 23,677 ) $ ( 8,085 ) The market risk associated with the Company’s derivative instruments results from currency exchange rate or interest rate movements that are expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. The counterparties to the agreements relating to the Company’s derivative instruments consist of a number of major international financial institutions with high credit ratings. Based on the credit ratings of the Company’s counterparties as of July 30, 2022 and October 30, 2021, nonperformance is not perceived to be a material risk. Furthermore, none of the Company’s derivatives are subject to collateral or other security arrangements and none contain provisions that are dependent on the Company’s credit ratings from any credit rating agency. While the contract or notional amounts of derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of the Company’s exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the obligations of the Company to the counterparties. As a result of the above considerations, the Company does not consider the risk of counterparty default to be significant. For information on the unrealized holding gains (losses) on derivatives included in and reclassified out of AOCI into the Condensed Consolidated Statements of Income related to forward foreign currency exchange contracts, see Note 3, 14 Accumulated Other Comprehensive (Loss) Income, in these Notes to Condensed Consolidated Financial Statements for further information. Note 10 – Inventories Inventories at July 30, 2022 and October 30, 2021 were as follows: July 30, 2022 October 30, 2021 Raw materials $ 107,395 $ 71,639 Work in process 818,531 858,627 Finished goods 277,468 270,344 Total inventories $ 1,203,394 $ 1,200,610 Note 11 – Debt In conjunction with the Acquisition, the Company acquired $ 500.0 million aggregate principal amount of Maxim’s 3.375 % senior unsecured and unsubordinated notes due March 15, 2023 (the Maxim March 2023 Notes). On November 4, 2021, the Maxim March 2023 Notes were redeemed for cash at a redemption price equal to $1,038.23 for each $1,000 principal amount. On June 23, 2021, the Company entered into a Third Amended and Restated Credit Agreement (Revolving Credit Agreement) with Bank of America, N.A. as administrative agent and the other banks identified therein as lenders. The Revolving Credit Agreement 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 June 2022, the Company borrowed $ 400.0 million under this revolving credit facility and utilized the proceeds for working capital requirements. The Company repaid the $ 400.0 million plus interest in July 2022. As of July 30, 2022, the Company had no outstanding borrowings under this revolving credit facility but 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. Note 12 – Income Taxes The Company’s effective tax rates for the three- and nine-month periods ended July 30, 2022 and July 31, 2021 were below the U.S. statutory tax rate of 21.0 %, due to lower statutory tax rates applicable to the Company's operations in the foreign jurisdictions in which it earns income. During the first nine months of fiscal 2022, the Company increased acquisition related tax reserves by $ 15.6 million consisting of $ 12.3 million in tax and $ 3.3 million in accrued interest primarily relating to tax audits. It is reasonably possible that the balance of gross unrecognized tax benefits, including accrued interest and penalties, could decrease by as much as $ 148.0 million within the next twelve months due to the completion of tax audits, including any administrative appeals. The Company has numerous audits ongoing throughout the world including: an IRS income tax audit for the fiscal years ended November 3, 2018 and November 2, 2019; a pre-acquisition IRS income tax audit for Maxim's fiscal years ended June 27, 2015 through June 26, 2021; various U.S. state and local audits and various international audits. The Company's U.S. federal tax returns prior to the fiscal year ended November 3, 2018 are no longer subject to examination, except for the applicable Maxim pre-Acquisition fiscal years noted above. Note 13 – New Accounting Pronouncements Standards Implemented Reference Rate Reform In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional guidance for accounting for contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. The provisions of this standard are available for election through December 31, 2022. The Company adopted this standard in the first quarter of fiscal 2022 with no material impact on the Company's financial position and results of operations. Standards to Be Implemented Acquired Contract Assets and Contract Liabilities In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract Liabilities. Under the new guidance (ASC 805-20-30-28), the acquirer should determine what 15 contract assets and/or contract liabilities it would have recorded under ASC 606 (the revenue guidance) as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquiree. The recognition and measurement of those contract assets and contract liabilities will likely be comparable to what the acquiree has recorded on its books under ASC 606 as of the acquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ASU 2021-08 is effective for the Company in the first quarter of the fiscal year ended November 1, 2024. Early adoption is permitted, including in an interim period, for any period for which financial statements have not yet been issued. However, adoption in an interim period other than the first fiscal quarter requires an entity to apply the new guidance to all prior business combinations that have occurred since the beginning of the annual period in which the new guidance is adopted. The Company is currently evaluating the adoption date of ASU 2021-08 and the impact, if any, adoption will have on its financial position and results of operations. Note 14 – Acquisitions Maxim Integrated Products, Inc. On the Acquisition Date, the Company completed its acquisition of all of the voting interests of Maxim, an independent manufacturer of innovative analog and mixed-signal products and technologies. The total consideration paid to acquire Maxim, which consisted of cash, common stock of the Company and share-based compensation awards, was approximately $ 28.0 billion. The Company believes the combination creates an expanded suite of top-performing mixed-signal and power management technology offerings and complements the Company's legacy offerings. The results of operations of Maxim from the Acquisition Date are included in the Company’s Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statement of Shareholders’ Equity for the three- and nine-month periods ended July 30, 2022. In the nine-month period ended July 30, 2022, the Company recorded acquisition accounting adjustments of $ 15.3 million to goodwill comprised of $ 19.0 million to income tax payable and $ 1.6 million to accrued liabilities offset by decreases of $ 3.5 million to deferred income taxes and $ 1.8 million to other non-current liabilities. The Acquisition accounting is not complete and additional information relating to conditions that existed at the Acquisition Date may become known to the Company during the remainder of the measurement period. As of the filing date of this Quarterly Report on Form 10-Q, the Company is still in the process of valuing Maxim's assets, including fixed assets, intangible assets, and liabilities, including related income tax accounting. The following unaudited pro forma consolidated financial information for the three- and nine-month periods ended July 31, 2021 combines the results of the Company for the three- and nine-month periods ended July 31, 2021 and the unaudited results of Maxim for the corresponding period. The unaudited pro forma consolidated financial information assumes that the Acquisition, which closed on August 26, 2021, was completed on November 3, 2019 (the first day of fiscal 2020). The pro forma consolidated financial information has been calculated after applying the Company’s accounting policies and includes adjustments for amortization expense of acquired intangible assets, fair value adjustments for acquired inventory, property, plant and equipment and long-term debt and compensation expense for ongoing share-based compensation arrangements that were replaced in conjunction with the Acquisition, together with the consequential tax effects. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the operating results of the Company that would have been achieved had the Acquisition actually taken place on November 3, 2019. In addition, these results are not intended to be a projection of future results and do not reflect events that may occur after the Acquisition, including but not limited to revenue enhancements, cost savings or operating synergies that the combined Company may achieve as a result of the Acquisition. Pro Forma Three Months Ended (unaudited) Pro Forma Nine Months Ended (unaudited) July 31, 2021 July 31, 2021 Revenue $ 2,506,950 $ 7,005,648 Net income $ 485,904 $ 1,111,411 Basic net income per common share $ 0.90 $ 2.07 Diluted net income per common share $ 0.89 $ 2.04 Note 15 – Subsequent Events On August 16, 2022, the Board of Directors of the Company declared a cash dividend of $ 0.76 per outstanding share of common stock. The dividend will be paid on September 8, 2022 to all shareholders of record at the close of business on August 30, 2022 and is expected to total approximately $ 390.9 million. 16