What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-21 compared with 2022-11-22 · 60 added, 69 removed, 313 unchanged (29% of the section changed)

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The following discussion includes results of operations and financial condition for the fiscal year ended October 28, 2023 (fiscal 2023) and the fiscal year ended October 29, 2022 (fiscal 2022) and year-over-year comparisons between fiscal 2023 and fiscal 2022.

For discussion on results of operations and financial condition for fiscal 2021 and the fiscal year ended October 31, 2020 (fiscal 2020) and year-over-year comparisons between fiscal 2021 and fiscal 2020, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for fiscal 2021 filed with the Securities and Exchange Commission on December 3, 2021.

For discussion on results of operations and financial condition for fiscal 2022 and the fiscal year ended October 30, 2021 (fiscal 2021) and year-over-year comparisons between fiscal 2022 and fiscal 2021, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for fiscal 2022 filed with the Securities and Exchange Commission on November 22, 2022.

Our fiscal year is the 52-week or 53-week period ending on the Saturday closest to the last day in October.

Fiscal 2023 and fiscal 2022 were 52-week fiscal periods.

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 may 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 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, including restrictions on our access to 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 ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows continues to largely depend on future developments, including the duration, scope and severity of the pandemic, any additional resurgences, variants and severity of variants and the ability to effectively and widely manufacture and distribute vaccines, which are not within our control and cannot be accurately predicted and are uncertain.

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.

Pursuant to the Agreement and Plan of Merger, dated as of July 12, 2020 (the Merger Agreement), Maxim stockholders received, for each outstanding share of Maxim common stock, 0.6300 of a share of the Company’s common stock as of the Acquisition Date, for total consideration of approximately $28.0 billion of our common stock.

The acquisition of Maxim is referred to as the Acquisition.

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

See Note 6, Acquisitions , of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Results of Operations

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(1) The su m of the individual percentages may not equal the total due to rounding.

Revenue increased across all end markets in fiscal 2022 as compared to fiscal 2021 primarily as a result of the Acquisition, which contributed approximately 65% of the increase in total revenue year over year, a broad-based increase in demand for our products across all end markets as well as inflationary price increases.

Revenue increased 2% in fiscal 2023 as compared to fiscal 2022 primarily as a result of broad-based demand for our products sold into the Industrial end market, namely aerospace and defense and instrumentation, as well as the Automotive end market, namely cabin electronics and battery management systems.

These increases were partially offset by a decrease in revenue in the Consumer end market primarily due to weakening market trends and a decrease in revenue in the Communications end market due to the timing of infrastructure deployment cycles.

Revenue by Sales Channel

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(1) The sum of the individual percentages may not equal the total due to rounding.

In all periods presented, the predominant countries comprising “Rest of North and South America” are Canada and Mexico;

the predominant countries comprising “Europe” are Germany, Sweden, and the Netherlands;

and the predominant countries comprising “Rest of Asia” are Taiwan, Malaysia, South Korea and Singapore.

Total revenue increased in fiscal 2022 as compared to fiscal 2021 due to the incremental impact of revenue from the Acquisition, broad-based, global demand in the semiconductor industry as well as inflationary price increases.

In all periods presented, the predominant regions comprising “Rest of North and South America” are Canada and Mexico;

the predominant regions comprising “Europe” are Germany, Sweden and the Netherlands;

and the predominant regions comprising “Rest of Asia” are Taiwan, Malaysia, South Korea and Singapore.

Total revenue increased in fiscal 2023 as compared to fiscal 2022 due to the revenue trends discussed above, partially offset by weaker customer demand in China and Rest of Asia primarily due to deteriorating macroeconomic conditions in those regions.

Fiscal Year 2023 over 2022

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Gross margin % 64.0 % 62.7 %

Gross margin percentage in fiscal 2022 increased by 90 basis points compared to fiscal 2021 primarily as a result of favorable product mix, synergies related to the Acquisition and higher utilization of our factories due to increased customer demand, partially offset by additional cost of goods sold related to the Acquisition.

This additional cost of goods sold related to the Acquisition consisted of amortization expense of intangible assets of $857.1 million in fiscal 2022 compared to $155.4 million in fiscal 2021, and nonrecurring fair value adjustments recorded to inventory of $271.4 million in fiscal 2022 compared to $331.1 million in fiscal 2021.

In addition, gross margin percentage in fiscal 2022 included price increases in revenue to offset inflationary cost increases.

Gross margin percentage in fiscal 2023 increased by 130 basis points compared to fiscal 2022.

Fiscal 2022 included $271.4 million of additional cost of goods sold that did not repeat in fiscal 2023 related to a nonrecurring fair value adjustment recorded to inventory.

This increase in gross margin percentage was partially offset by lower utilization of our factories due to decreasing customer demand during fiscal 2023.

Research and Development (R&D)

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R&D expenses as a % of revenue 13 % 14 %

R&D expenses increased in fiscal 2022 as compared to fiscal 2021 primarily as a result of the Acquisition.

R&D expenses decreased in fiscal 2023 as compared to fiscal 2022 primarily as a result of lower employee related variable compensation expenses, partially offset by higher salary and benefit expenses.

R&D expenses as a percentage of revenue will fluctuate from year-to-year depending on the amount of revenue and the success of new product development efforts, which we view as critical to our future growth.

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

SMG&A expenses increased in fiscal 2022 as compared to fiscal 2021, primarily as a result of the Acquisition as well as higher salary and benefit expenses and higher variable compensation expenses, partially offset by lower acquisition-related transaction costs.

SMG&A expenses increased in fiscal 2023 as compared to fiscal 2022, primarily as a result of higher employee related salary and benefit expenses and discretionary spending, partially offset by lower variable compensation expenses and acquisition-related transaction costs.

Amortization of Intangibles

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Amortization expenses as a % of revenue 8 % 8 %

Amortization expenses increased in fiscal 2022 as compared to fiscal 2021, primarily as a result of amortization expense of intangible assets recorded as part of the Acquisition.

Amortization expenses decreased in fiscal 2023 as compared to fiscal 2022, primarily as a result of a portion of our acquired intangible assets becoming fully amortized during fiscal 2023.

Special Charges, Net

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Special charges, net as a % of revenue 1 % 2 %

Special charges, net increased in fiscal 2022 as compared to fiscal 2021, primarily as a result of charges recorded as part of the integration of Maxim 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 in connection with the Acquisition and various other locations throughout the world.

Special charges, net decreased in fiscal 2023 as compared to fiscal 2022, primarily due to increased charges recorded in fiscal 2022 related to our Global Repositioning Actions offset by $160.7 million of charges recorded in fiscal 2023 primarily related to $114.0 million recorded for our plan committed to during the three months ended October 28, 2023, to reorganize our business (the Q4 2023 Plan).

The Q4 2023 Plan, consisting of voluntary and involuntary reductions-in-force, and other cost-savings initiatives, was commenced to adjust our cost structure and business activities to better align with weaker market demand and continued economic uncertainty in our end markets, as well as make certain strategic shifts in our workforce necessary to achieve our long-term vision.

See Note 5, Special Charges, Net , of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for more information.

Operating Income

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Operating income as a % of revenue 31.1 % 27.3 %

The increase in operating income in fiscal 2022 as compared to fiscal 2021 was primarily the result of a $3,007.5 million increase in gross margin, partially offset by a $475.8 million increase in amortization expenses, a $404.4 million increase in R&D expenses, a $350.8 million increase in SMG&A expenses and a $190.1 million increase in special charges, net as more fully described above under the headings Gross Margin, Amortization of Intangibles, Research and Development (R&D), Selling, Marketing, General and Administrative (SMG&A) and Special Charges, Net .

Nonoperating (Income) Expense

The increase in operating income in fiscal 2023 as compared to fiscal 2022 was primarily the result of a $344.7 million increase in gross margin, a $113.8 million decrease in special charges, net, a $53.0 million decrease in amortization expenses and a $40.3 million decrease in R&D expenses, partially offset by a $7.4 million increase in SMG&A expenses, as more fully described above under the headings Gross Margin, Special Charges, Net, Amortization of Intangibles, Research and Development (R&D) and Selling, Marketing, General and Administrative (SMG&A).

Nonoperating Expense (Income)

Fiscal Year 2023 over 2022

2023 2022 $ Change % Change

Total Nonoperating expense $ 179,951 $ 363,487 $ (183,536) (50) %

The year-over-year decrease in nonoperating expense in fiscal 2022 as compared to fiscal 2021 was primarily the result of a loss on the extinguishment of debt of $215.2 million related to debt transactions in the fourth quarter of fiscal 2021, partially offset by higher interest expense in fiscal 2022 related to our debt obligations and fewer gains on investments in fiscal 2022.

Nonoperating expense (income)

$ 215,109 $ 179,951 $ 35,158 20 %

The year-over-year increase in nonoperating expense in fiscal 2023 as compared to fiscal 2022 was primarily the result of

higher interest expense related to our debt obligations and lower net gains from other investments, partially offset by higher interest income.

Provision for (Benefit From) Income Taxes

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2023 2022 $ Change % Change

Provision for (benefit from) income taxes $ 350,188 $ (61,708) $ 411,896 n/a

Provision for (benefit from) income taxes $ 293,424 $ 350,188 $ (56,764) (16) %

Effective income tax rate 8.1 % 11.3 %

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

In fiscal 2021, we recorded a net deferred tax benefit of $188.8 million from deferred tax assets related to an intra-entity transfer of intangible assets.

Also, our provision for income taxes increased in fiscal 2022 as a result of higher income before taxes primarily related to the Acquisition.

For fiscal 2023 and fiscal 2022 our pretax income was primarily generated in Ireland at a tax rate of 12.5%.

Our effective tax rate for fiscal 2023 also included the effects of the mandatory capitalization and amortization of research and development expenses which began in fiscal 2023 under the Tax Cuts and Jobs Act of 2017.

The mandatory capitalization requirement decreased our effective tax rate primarily by increasing the foreign-derived intangible income deduction.

Our effective tax rate for fiscal 2023 was also impacted by a discrete income tax benefit recorded of $81.7 million resulting from the approval granted by the Joint Committee on Taxation of our federal corporate income tax relief claim which reduced the amount of transition tax owed under the Tax Cuts and Jobs Act of 2017.

See Note 12, Income Taxes , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion.

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Diluted EPS $ 6.55 $ 5.25 $ 1.30 25 %

The increase in net income in fiscal 2022 as compared to fiscal 2021 was a result of a $1,586.5 million increase in operating income and a $183.5 million decrease in nonoperating expense, partially offset by a $411.9 million increase in provision for income taxes, as more fully described above under the headings Operating Income, Nonoperating (Income) Expense, and Provision for (Benefit From) Income Taxes .

The increase in net income in fiscal 2023 as compared to fiscal 2022 was a result of a $544.4 million increase in operating income and a $56.8 million decrease in provision for income taxes, partially offset by a $35.2 million increase in nonoperating expense, as more fully described above under the headings Operating Income, Provision for (Benefit From) Income Taxes and Nonoperating (Income) Expense.

Liquidity and Capital Resources

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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 maintain these balances with counterparties with high credit ratings, and 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.

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Net cash provided by operating activities as a % of revenue 39 % 37 %

Net cash (used for) provided by investing activities $ (657,368) $ 2,143,525

Net cash used for investing activities

$ (1,266,385) $ (657,368)

Net cash used for financing activities $ (4,063,760) $ (4,290,720)

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Investing Activities

Investing cash flows generally consist of capital expenditures, cash used for acquisitions and proceeds from or purchases of investments.

The change in cash (used for) provided by investing activities during fiscal 2022 as compared to fiscal 2021 was primarily the result of cash received from the Acquisition during fiscal 2021, partially offset by an increase in cash used for capital expenditures during fiscal 2022.

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

The increase in cash used for investing activities during fiscal 2023 as compared to fiscal 2022 was primarily the result of an increase in cash used for capital expenditures.

Financing Activities

Financing cash flows consist primarily 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 change in cash used for financing activities during fiscal 2022 as compared to fiscal 2021 was primarily the result of a net decrease in debt in fiscal 2022 as compared to a net increase in debt in fiscal 2021, as well as higher dividend payments, partially offset by lower common stock repurchases.

Financing cash flows generally consist of payments of dividends to shareholders, 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 decrease in cash used for financing activities during fiscal 2023 as compared to fiscal 2022 was primarily the result of the net proceeds from the issuance of commercial paper notes during fiscal 2023 and lower debt repayments, partially offset by higher common stock repurchases.

Working Capital

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(1) We use the average of the current year and prior year 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 calculations above include the financial results of Maxim prospectively from the Acquisition Date.

The increase in accounts receivable for fiscal 2022 compared to fiscal 2021 was primarily the result of variations in the timing of collections and billings and increased revenue levels.

Cost of sales amounts used in the calculation of days cost of sales in inventory include accounting adjustments related to amortization of developed technology intangible assets acquired and depreciation related to the write-up of fixed assets to fair value as a result of the acquisition of Maxim.

The decrease in accounts receivable for fiscal 2023 compared to fiscal 2022 was primarily the result of variations in the timing of collections and billings and decreased revenue levels in the fourth quarter of fiscal 2023 as compared to the fourth quarter of fiscal 2022.

Inventory increased in fiscal 2023 as compared to fiscal 2022, 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 $2,442.7 million at October 29, 2022 from $2,770.3 million recorded at the end of fiscal 2021, primarily due to early termination of debt, partially offset by higher accounts payable and accruals.

Current liabilities increased to $3.2 billion at October 28, 2023 from $2.4 billion recorded at the end of fiscal 2022, primarily due to increases in commercial paper notes and current debt, partially offset by lower accrued liabilities.

Revolving Credit Facility

Our Third Amended and Restated Revolving Credit Agreement, dated as of June 23, 2021, with Bank of America N.A.

as administrative agent and the other banks identified therein as lenders (Revolving Credit Agreement) amended and restated our Second Amended and Restated Credit Agreement dated as of June 28, 2019 and provides for a five year unsecured revolving credit facility in an aggregate principal amount not to exceed $2.5 billion (subject to certain terms and conditions).

as administrative agent and the other banks identified therein as lenders, which was subsequently amended on December 20, 2022 and July 24, 2023 (as amended, 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).

We may borrow under this revolving credit facility in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes.

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See Note 13, Revolving Credit Facility , of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on our revolving credit facility.

As of October 29, 2022, we had approximately $6.5 billion of carrying value outstanding on our debt.

As of October 28, 2023, we had approximately $6.4 billion of carrying value outstanding on our senior notes.

The difference in the carrying value of the debt and the principal is due to the unamortized discount and issuance fees and other adjustments on these instruments.

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See Note 14, Debt of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on our outstanding debt.

Commercial Paper Program

During fiscal 2023, we established a commercial paper program under which we may issue short-term, unsecured commercial paper notes in amounts up to a maximum aggregate face amount of $2.5 billion outstanding at any time, with maturities of up to 397 days from the date of issuance.

As of October 28, 2023, we had $547.2 million of outstanding borrowings under the commercial paper program recorded in the Consolidated Balance Sheet.

We intend to use the net proceeds of the commercial paper program for general corporate purposes, including without limitation, repayment of indebtedness, stock repurchases, acquisitions, capital expenditures and working capital.

Stock Repurchase Program

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Capital Expenditures

Net additions to property, plant and equipment were $699.3 million in fiscal 2022 and were funded with a combination of cash on hand and cash generated from operations.

We expect capital expenditures for fiscal 2023 to be between 6% and 8% of revenue, which is above our historical levels primarily due to our plans to continue to expand internal manufacturing capacity.

Net additions to property, plant and equipment were $1.3 billion in fiscal 2023 as we invested to enhance our global resiliency.

We expect capital expenditures for fiscal 2024 to be between approximately $600.0 million and $800.0 million.

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.

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(1) Debt obligations are assumed to be held to maturity.

(2) Tax obligation relates to the one-time tax on deemed repatriated earnings under the Tax Cuts and Jobs Act of 2017 enacted in fiscal 2018.

(2) Tax obligation relates to the one-time tax on deemed repatriated earnings under the Tax Cuts and Jobs Act and includes a reduction resulting from the approval granted by the Joint Committee on Taxation of our federal corporate income tax relief claim which reduced the amount of transition tax owed.

(3) Certain of our operating lease obligations include escalation clauses.

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(4) We have supplier commitments for the purchase of materials and supplies in advance or with minimum purchase quantities.

As of October 29, 2022, our total liabilities associated with uncertain tax positions was $194.4 million, which are

included in non-current income taxes payable in our Consolidated Balance Sheets contained in Item 8 of this Annual Report on Form 10-K.

As of October 28, 2023, our total liabilities associated with uncertain tax positions was $186.2 million, which are included in non-current income taxes payable in our Consolidated Balance Sheets contained in Item 8 of this Annual Report on Form 10-K.

Due to the complexity associated with our tax uncertainties, we cannot make a reasonably reliable estimate of the period in which we expect to settle the non-current liabilities associated with these uncertain tax positions.

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Certain shipping terms require the goods to be through customs or be received by the customer before title passes.

In those instances, we defer the revenue recognized until title has passed.

In those instances, we defer the revenue recognized until title and control of the promised goods have passed to the customer.

Shipping costs are charged to selling, marketing, general and administrative expense as incurred.

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Fixed consideration primarily includes sales to direct customers and sales to distributors in which both the sale to the distributor and the sale to the end customer occur within the same reporting period.

Variable consideration includes sales in which the amount of consideration that we will receive is unknown as

of the end of a reporting period.

Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period.

The vast majority of such consideration are credits issued to the distributor due to price protection, but also include sales made to distributors under agreements that allow certain rights of return, referred to as stock rotation.

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Actual future operating results and the remaining economic lives of our long-lived assets could differ from the estimates used in assessing the recoverability of these assets.

These differences could result in impairment charges, which could have a material adverse impact on our results of operations.

These differences could

result in impairment charges, which could have a material adverse impact on our results of operations.

In addition, in certain instances, assets may not be impaired but their estimated useful lives may have decreased.

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In order to assess the reasonableness of the calculated reporting unit fair values, we reconcile the aggregate fair values of our reporting units determined, as described above, to our total company market capitalization, allowing for a reasonable control premium.

In fiscal 2022, we used a combination of the qualitative and quantitative methods of assessing goodwill for our reporting units.

In fiscal 2021, we used the quantitative method of assessing goodwill for all reporting units.

In fiscal 2023, we used the qualitative method of assessing goodwill for our reporting units.

In fiscal 2022, we used a combination of the qualitative and quantitative methods of assessing goodwill for all reporting units.

In all periods presented, we concluded the reporting units' fair values exceeded their carrying amounts as of the assessment dates and no risk of impairment existed.

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If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges which could be material.

In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense.

In addition, we have estimated the economic lives of certain acquired

assets and these lives are used to calculate depreciation and amortization expense.

If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.

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Stock-Based Compensation

Stock-based compensation expense associated with stock options and related awards is recognized in the Consolidated Statements of Income.

Determining the amount of stock-based compensation to be recorded requires us to develop estimates to be used in calculating the grant-date fair value of stock options, restricted stock units and market-based and/or performance-based restricted stock units.

We calculate the grant-date fair values of stock options using the Black-Scholes valuation model.

Stock-based compensation expense associated with stock related awards is recognized in the Consolidated Statements of Income.

Determining the amount of stock-based compensation to be recorded requires us to develop estimates to be used in calculating the grant-date fair value of restricted stock units and market-based and performance-based awards.

The grant-date fair value of restricted stock units with a service condition and restricted stock units with both service and performance conditions is calculated using the value of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting.

For restricted stock units with both service and performance conditions, this grant-date fair value is also impacted by the number of units that are expected to vest during the performance period and is adjusted through the related stock-based compensation expense at each reporting period based on the probability of achievement of that performance condition.

of achievement of that performance condition.

If we determine that an award is unlikely to vest, any previously recorded stock-based compensation expense is reversed in the period of that determination.

The grant date fair value of restricted stock units and performance-based stock options with both service and market conditions are calculated using the Monte Carlo simulation model to estimate the probability of satisfying the performance condition stipulated in the award grant, including the possibility that the market condition may not be satisfied.

The use of valuation models requires us to make estimates of key assumptions such as expected volatility, expected term, risk-free interest rate, expected dividend yield, forfeiture rate and others.

The estimate of these key assumptions is based on historical information and judgment regarding market factors and trends.

The use of valuation models requires us to make estimates of key assumptions which are based on historical information and judgment regarding market factors and trends.

We recognize the expense related to equity awards on a straight-line basis over the vesting period.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis