ANALOG DEVICES INC 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 30, 2021 (fiscal 2021). This Quarterly Report on Form 10-Q, including the following discussion, contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “could” and “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections regarding our future financial performance; 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; 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 plans to pay dividends or repurchase stock; servicing our outstanding debt; our expected tax rate; the effect of changes in or the application of new or revised tax laws; expected cost savings; the effect of new accounting pronouncements; our plans to 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.; our continued initiatives to consolidate our footprint related to our business units including our manufacturing, engineering, sales, marketing and administrative offices; and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified in Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements, including to reflect events or circumstances occurring after the date of the filing of this report, except to the extent required by law. Impact of COVID-19 on our Business The pandemic caused by the novel strain of the coronavirus (COVID-19) and the numerous measures implemented by government authorities in response, have impacted and likely will continue to impact our workforce and operations, the operations of our customers and those of our respective vendors and suppliers. We have significant operations worldwide, including in the United States, the Philippines, Ireland, Malaysia, Thailand, China and India. Each of these countries has been affected by the pandemic and taken measures to try to contain it, resulting in disruptions at some of our manufacturing operations and facilities. The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, modifying employee work locations and cancelling physical participation in meetings, events and conferences) and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, suppliers and shareholders. While we are confident that our strategy and long-term contingency planning have positioned us well to weather the current uncertainty, we cannot at this time fully quantify or forecast the impact of COVID-19 on our business. The 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. 17 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. 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. Results of Operations Overview (all tabular amounts in thousands except per share amounts and percentages) Three Months Ended July 30, 2022 July 31, 2021 $ Change % Change Revenue $ 3,109,880 $ 1,758,853 $ 1,351,027 77 % Gross margin % 65.7 % 69.4 % Net income $ 748,985 $ 503,311 $ 245,674 49 % Net income as a % of revenue 24.1 % 28.6 % Diluted EPS $ 1.44 $ 1.35 $ 0.09 7 % Nine Months Ended July 30, 2022 July 31, 2021 $ Change % Change Revenue $ 8,766,237 $ 4,978,718 $ 3,787,519 76 % Gross margin % 61.5 % 68.4 % Net income $ 1,812,335 $ 1,314,735 $ 497,600 38 % Net income as a % of revenue 20.7 % 26.4 % Diluted EPS $ 3.45 $ 3.53 $ (0.08) (2) % 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 our product will be incorporated. As data systems for capturing and tracking this data and our methodology evolves and improves, the categorization of products by end market can vary over time. When this occurs, we reclassify revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of revenue within, each end market. 18 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 % Communications 1,376,182 16 % 62 % 850,153 17 % Automotive 1,844,017 21 % 132 % 794,739 16 % 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 increased 77% and 76% in the three- and nine-month periods ended July 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 nine-month periods ended July 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 The following table summarizes revenue by sales channel. We sell our products globally through a direct sales force, third party distributors, independent sales representatives and via our website. 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 Revenue % of Revenue* Revenue % of Revenue* Channel 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 Revenue % of Revenue* Revenue % of Revenue* Channel 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. 19 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. Gross Margin Three Months Ended Nine Months Ended July 30, 2022 July 31, 2021 $ Change % Change July 30, 2022 July 31, 2021 $ Change % Change Gross margin $ 2,043,142 $ 1,221,184 $ 821,958 67 % $ 5,389,659 $ 3,403,192 $ 1,986,467 58 % Gross margin % 65.7 % 69.4 % 61.5 % 68.4 % Gross margin percentage decreased by 370 and 690 basis points in the three- and nine-month periods ended July 30, 2022, respectively, as compared to the same periods of the prior fiscal year. In the three-month period ended July 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 nine-month period ended July 30, 2022, this decrease was primarily as a result of additional cost of goods sold related to the Acquisition, including $642.8 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 Nine Months Ended July 30, 2022 July 31, 2021 $ Change % Change July 30, 2022 July 31, 2021 $ Change % Change R&D expenses $ 431,829 $ 306,617 $ 125,212 41 % $ 1,279,510 $ 897,005 $ 382,505 43 % R&D expenses as a % of revenue 14 % 17 % 15 % 18 % R&D expenses increased in the three- and nine-month periods ended July 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. We expect to continue the development of innovative technologies and processes for new products. We believe that a continued commitment to R&D is essential to maintain product leadership with our existing products as well as to provide innovative new product offerings. Selling, Marketing, General and Administrative (SMG&A) Three Months Ended Nine Months Ended July 30, 2022 July 31, 2021 $ Change % Change July 30, 2022 July 31, 2021 $ Change % Change SMG&A expenses $ 326,942 $ 206,076 $ 120,866 59 % $ 929,615 $ 597,963 $ 331,652 55 % SMG&A expenses as a % of revenue 11 % 12 % 11 % 12 % SMG&A expenses increased in the three- and nine-month periods ended July 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 Nine Months Ended July 30, 2022 July 31, 2021 $ Change % Change July 30, 2022 July 31, 2021 $ Change % Change Amortization expenses $ 252,864 $ 107,783 $ 145,081 135 % $ 759,707 $ 323,217 $ 436,490 135 % Amortization expenses as a % of revenue 8 % 6 % 9 % 6 % Amortization expenses increased in the three- and nine-month periods ended July 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. 20 Special Charges, Net Three Months Ended Nine Months Ended July 30, 2022 July 31, 2021 $ Change % Change July 30, 2022 July 31, 2021 $ Change % Change Special charges, net $ 138,201 $ (8,938) $ 147,139 n/a $ 244,603 $ (8,189) $ 252,792 n/a Special charges, net as a % of revenue 4 % (1) % 3 % — % Special charges, net increased in the three- and nine-month periods ended July 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. During the third quarter of fiscal 2022, we transitioned our engineering, sales, marketing and administrative activities from a leased property in Santa Clara, California to an owned property in San Jose, California. As a result, we entered into a sublease agreement for a portion of the leased property and recorded an impairment charge of $91.9 million in the third quarter of fiscal 2022 related to the associated asset group. The remaining charges were 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. Operating Income Three Months Ended Nine Months Ended July 30, 2022 July 31, 2021 $ Change % Change July 30, 2022 July 31, 2021 $ Change % Change Operating income $ 893,306 $ 609,646 $ 283,660 47 % $ 2,176,224 $ 1,593,196 $ 583,028 37 % Operating income as a % of revenue 28.7 % 34.7 % 24.8 % 32.0 % The year-over-year increase in operating income in the three-month period ended July 30, 2022 was primarily the result of an increase in revenue of $1,351.0 million, which contributed to an increase in gross margin of $822.0 million, offset by increases of $147.1 million in special charges, net, $145.1 million in amortization expenses, $125.2 million in R&D expenses and $120.9 million in SMG&A expenses, as described above under the headings Revenue Trends by End Market, Gross Margin, Special Charges, Net, Amortization of Intangibles, Research and Development (R&D) and Selling, Marketing, General and Administrative (SMG&A). The year-over-year increase in operating income in the nine-month period ended July 30, 2022 was primarily the result of an increase in revenue of $3,787.5 million, which contributed to an increase in gross margin of $1,986.5 million, offset by increases of $436.5 million in amortization expenses, $382.5 million in R&D expenses, $331.7 million in SMG&A expenses and $252.8 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 Nine Months Ended July 30, 2022 July 31, 2021 $ Change July 30, 2022 July 31, 2021 $ Change Total nonoperating expense (income) $ 45,369 $ 37,368 $ 8,001 $ 125,487 $ 108,315 $ 17,172 The year-over-year increase in nonoperating expense (income) in the three- and nine-month periods ended July 30, 2022 was the result of higher interest expense related to our debt obligations. Provision for Income Taxes Three Months Ended Nine Months Ended July 30, 2022 July 31, 2021 $ Change July 30, 2022 July 31, 2021 $ Change Provision for income taxes $ 98,952 $ 68,967 $ 29,985 $ 238,402 $ 170,146 $ 68,256 Effective income tax rate 11.7 % 12.1 % 11.6 % 11.5 % 21 The 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% 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 30, 2022 and July 31, 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. Net Income Three Months Ended Nine Months Ended July 30, 2022 July 31, 2021 $ Change % Change July 30, 2022 July 31, 2021 $ Change % Change Net Income $ 748,985 $ 503,311 $ 245,674 49 % $ 1,812,335 $ 1,314,735 $ 497,600 38 % Net Income as a % of revenue 24.1 % 28.6 % 20.7 % 26.4 % Diluted EPS $ 1.44 $ 1.35 $ 3.45 $ 3.53 Net income increased in the three-month period ended July 30, 2022, as compared to the same period of the prior fiscal year, as a result of a $283.7 million increase in operating income, partially offset by a $30.0 million increase in provision for income taxes and an $8.0 million increase in nonoperating expense (income). Net income increased in the nine-month period ended July 30, 2022, as compared to the same period of the prior fiscal year, as a result of a $583.0 million increase in operating income, partially offset by a $68.3 million increase in provision for income taxes and a $17.2 million increase in nonoperating expense (income). Liquidity and Capital Resources At July 30, 2022, our principal source of liquidity was $1,525.0 million of cash and cash equivalents, of which approximately $248.2 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. We do not expect current regulatory restrictions or taxes on repatriation to have a material adverse effect on our overall liquidity, financial condition or the results of operations. Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds. 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 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. Nine Months Ended July 30, 2022 July 31, 2021 Net cash provided by operating activities $ 3,326,066 $ 1,794,345 Net cash provided by operations as a % of revenue 38 % 36 % Net cash used for investing activities $ (351,035) $ (183,280) Net cash used for financing activities $ (3,403,860) $ (1,189,966) The following changes contributed to the net change in cash and cash equivalents in the nine-month period ended July 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 nine-month period ended July 30, 2022, as 22 compared to the same period of the prior fiscal year, was primarily the result of an increase in net income adjusted for noncash items 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 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 nine-month period ended July 30, 2022, as compared to the same period of the prior fiscal year, was primarily the result of more cash used for common stock repurchases, early termination of debt in the first quarter of fiscal 2022 and higher dividend payments to shareholders. Working Capital July 30, 2022 October 30, 2021 $ Change % Change Accounts receivable $ 1,742,646 $ 1,459,056 $ 283,590 19 % Days sales outstanding* 49 55 Inventory $ 1,203,394 $ 1,200,610 $ 2,784 — % Days cost of sales in inventory* 97 118 _______________________________________ * 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. Our inventory levels are impacted by our need to support forecasted sales demand and variations between those forecasts and actual demand. As of October 30, 2021 our inventory balance also included additional costs related to the Acquisition as a result of accounting for acquired inventory at fair-value. Current liabilities decreased to approximately $2,441.2 million at July 30, 2022 from approximately $2,770.3 million at the end of fiscal 2021 primarily due to early termination of debt partially offset by higher income taxes and accounts payable. 23 Debt As of July 30, 2022, our debt obligations consisted of the following: Principal Amount Outstanding 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 The indentures governing our outstanding notes contain covenants that may limit our ability to: incur, create, assume or guarantee any debt for borrowed money secured by a lien upon a principal property; enter into sale and lease-back transactions with respect to a principal property; and consolidate with or merge into, or transfer or lease all or substantially all of our assets to, any other party. As of July 30, 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, 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, we borrowed $400.0 million under this revolving credit facility and utilized the proceeds for working capital requirements. We repaid the $400.0 million plus interest in July 2022. We may borrow under this revolving credit facility in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes. The terms of the Revolving Credit Agreement impose restrictions on our ability to undertake certain transactions, to create certain liens on assets and to incur certain subsidiary indebtedness. In addition, the Revolving Credit Agreement 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 30, 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 30, 2022, an additional $5.7 billion remains available for repurchase under the current authorized program. The repurchased shares are held as authorized but unissued shares of common stock. We also repurchase shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options. Future repurchases of common stock will be dependent upon our financial position, results of operations, outlook, liquidity, and other factors we deem relevant. 24 Capital Expenditures Net additions to property, plant and equipment were $394.8 million in the first nine 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 approximately 6% 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. Dividends On August 16, 2022, our Board of Directors 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. 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. Contractual Obligations 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 nine-month period ended July 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 From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board that are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards will not have a material impact on our future financial condition and results of operations. 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 Estimates There were no material changes in the nine-month period ended July 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. 25 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes in the nine-month period ended July 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 .