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 August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 Revenue $ 2,312,209 $ 3,076,495 $ 6,983,952 $ 9,589,055 Cost of sales 1,000,970 1,114,880 3,018,737 3,358,553 Gross margin 1,311,239 1,961,615 3,965,215 6,230,502 Operating expenses: Research and development 362,671 423,751 1,108,960 1,253,600 Selling, marketing, general and administrative 257,213 334,113 791,420 984,648 Amortization of intangibles 187,754 250,719 567,030 756,882 Special charges, net 12,282 23,539 34,399 46,675 Total operating expenses 819,920 1,032,122 2,501,809 3,041,805 Operating income: 491,319 929,493 1,463,406 3,188,697 Nonoperating expense (income): Interest expense 85,179 69,346 239,423 193,051 Interest income ( 26,432 ) ( 8,794 ) ( 50,870 ) ( 32,198 ) Other, net 9,581 ( 5,880 ) 13,841 ( 8,373 ) Total nonoperating expense (income) 68,328 54,672 202,394 152,480 Income before income taxes 422,991 874,821 1,261,012 3,036,217 Provision for (benefit from) income taxes 30,759 ( 2,198 ) 103,811 220,068 Net income $ 392,232 $ 877,019 $ 1,157,201 $ 2,816,149 Shares used to compute earnings per common share – basic 496,338 500,018 496,077 503,951 Shares used to compute earnings per common share – diluted 498,794 503,503 498,689 507,804 Basic earnings per common share $ 0.79 $ 1.75 $ 2.33 $ 5.59 Diluted earnings per common share $ 0.79 $ 1.74 $ 2.32 $ 5.55 See accompanying notes. 1 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands) Three Months Ended Nine Months Ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 Net income $ 392,232 $ 877,019 $ 1,157,201 $ 2,816,149 Foreign currency translation adjustments 198 ( 1,292 ) 847 343 Change in fair value of derivative instruments designated as cash flow hedges, net 7,426 2,379 16,752 25,737 Changes in pension plans, net ( 141 ) 422 985 1,218 Other comprehensive income 7,483 1,509 18,584 27,298 Comprehensive income $ 399,715 $ 878,528 $ 1,175,785 $ 2,843,447 See accompanying notes. 2 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share amounts) August 3, 2024 October 28, 2023 ASSETS Current Assets Cash and cash equivalents $ 2,106,032 $ 958,061 Short-term investments 439,667 — Accounts receivable 1,127,158 1,469,734 Inventories 1,427,936 1,642,214 Prepaid expenses and other current assets 342,143 314,013 Total current assets 5,442,936 4,384,022 Non-current Assets Net property, plant and equipment 3,395,748 3,219,157 Goodwill 26,909,775 26,913,134 Intangible assets, net 9,997,707 11,311,957 Deferred tax assets 2,105,430 2,223,272 Other assets 766,778 742,936 Total non-current assets 43,175,438 44,410,456 TOTAL ASSETS $ 48,618,374 $ 48,794,478 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable $ 424,735 $ 493,041 Income taxes payable 398,347 309,046 Debt, current 899,251 499,052 Commercial paper notes 547,443 547,224 Accrued liabilities 956,853 1,352,608 Total current liabilities 3,226,629 3,200,971 Non-current Liabilities Long-term debt 6,655,723 5,902,457 Deferred income taxes 2,743,015 3,127,852 Income taxes payable 266,150 417,076 Other non-current liabilities 536,748 581,000 Total non-current liabilities 10,201,636 10,028,385 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, 496,493,455 shares outstanding ( 496,261,678 on October 28, 2023) 82,750 82,712 Capital in excess of par value 25,101,781 25,313,914 Retained earnings 10,175,296 10,356,798 Accumulated other comprehensive loss ( 169,718 ) ( 188,302 ) Total shareholders’ equity 35,190,109 35,565,122 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 48,618,374 $ 48,794,478 See accompanying notes. 3 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (in thousands) Three Months Ended August 3, 2024 Capital in Accumulated Other Common Stock Excess of Retained Comprehensive Shares Amount Par Value Earnings Loss BALANCE, MAY 4, 2024 496,217 $ 82,704 $ 25,103,737 $ 10,239,549 $ ( 177,201 ) Net income 392,232 Dividends declared and paid - $ 0.92 per share ( 456,485 ) Issuance of stock under stock plans and other 827 138 51,881 Stock-based compensation expense 64,051 Other comprehensive income 7,483 Common stock repurchased ( 551 ) ( 92 ) ( 117,888 ) BALANCE, AUGUST 3, 2024 496,493 $ 82,750 $ 25,101,781 $ 10,175,296 $ ( 169,718 ) Nine Months Ended August 3, 2024 Capital in Accumulated Other Common Stock Excess of Retained Comprehensive Shares Amount Par Value Earnings Loss BALANCE, OCTOBER 28, 2023 496,262 $ 82,712 $ 25,313,914 $ 10,356,798 $ ( 188,302 ) Net income 1,157,201 Dividends declared and paid - $ 2.70 per share ( 1,338,703 ) Issuance of stock under stock plans and other 2,989 498 115,857 Stock-based compensation expense 192,262 Other comprehensive income 18,584 Common stock repurchased ( 2,758 ) ( 460 ) ( 520,252 ) BALANCE, AUGUST 3, 2024 496,493 $ 82,750 $ 25,101,781 $ 10,175,296 $ ( 169,718 ) See accompanying notes. 4 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (in thousands) Three Months Ended July 29, 2023 Capital in Accumulated Other Common Stock Excess of Retained Comprehensive Shares Amount Par Value Earnings Loss BALANCE, APRIL 29, 2023 501,418 $ 83,571 $ 26,262,226 $ 9,839,790 $ ( 172,363 ) Net income 877,019 Dividends declared and paid - $ 0.86 per share ( 430,456 ) Issuance of stock under stock plans and other 583 97 45,893 Stock-based compensation expense 82,970 Other comprehensive income 1,509 Common stock repurchased ( 3,687 ) ( 614 ) ( 685,896 ) BALANCE, JULY 29, 2023 498,314 $ 83,054 $ 25,705,193 $ 10,286,353 $ ( 170,854 ) Nine Months Ended July 29, 2023 Capital in Accumulated Other Common Stock Excess of Retained Comprehensive Shares Amount Par Value Earnings Loss BALANCE, OCTOBER 29, 2022 509,296 $ 84,880 $ 27,857,270 $ 8,721,325 $ ( 198,152 ) Net income 2,816,149 Dividends declared and paid - $ 2.48 per share ( 1,251,121 ) Issuance of stock under stock plans and other 2,963 494 112,508 Stock-based compensation expense 227,113 Other comprehensive income 27,298 Common stock repurchased ( 13,945 ) ( 2,320 ) ( 2,491,698 ) BALANCE, JULY 29, 2023 498,314 $ 83,054 $ 25,705,193 $ 10,286,353 $ ( 170,854 ) See accompanying notes. 5 ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended August 3, 2024 July 29, 2023 Cash flows from operating activities: Net income $ 1,157,201 $ 2,816,149 Adjustments to reconcile net income to net cash provided by operations: Depreciation 265,530 251,785 Amortization of intangibles 1,318,325 1,505,201 Stock-based compensation expense 192,262 227,113 Deferred income taxes ( 269,566 ) ( 431,393 ) Other 23,826 19,130 Changes in operating assets and liabilities 114,134 ( 757,645 ) Total adjustments 1,644,511 814,191 Net cash provided by operating activities 2,801,712 3,630,340 Cash flows from investing activities: Purchases of short-term investments ( 438,901 ) — Additions to property, plant and equipment ( 565,053 ) ( 785,070 ) Other 10,710 ( 2,254 ) Net cash used for investing activities ( 993,244 ) ( 787,324 ) Cash flows from financing activities: Proceeds from debt 1,087,856 — Early termination of debt — ( 65,688 ) Proceeds from commercial paper notes 7,709,492 2,646,509 Payments of commercial paper notes ( 7,709,273 ) ( 2,101,799 ) Repurchase of common stock ( 520,712 ) ( 2,494,018 ) Dividend payments to shareholders ( 1,338,703 ) ( 1,251,121 ) Proceeds from employee stock plans 116,355 113,002 Other ( 5,512 ) ( 11,227 ) Net cash used for financing activities ( 660,497 ) ( 3,164,342 ) Net increase (decrease) in cash and cash equivalents 1,147,971 ( 321,326 ) Cash and cash equivalents at beginning of period 958,061 1,470,572 Cash and cash equivalents at end of period $ 2,106,032 $ 1,149,246 See accompanying notes. 6 ANALOG DEVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED AUGUST 3, 2024 (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 28, 2023 (fiscal 2023) 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 November 2, 2024 (fiscal 2024) 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. Fiscal 2024 is a 53-week fiscal year and fiscal 2023 was a 52-week fiscal year. The additional week in fiscal 2024 was included in the first quarter ended February 3, 2024. Therefore, the first nine months of fiscal 2024 included an additional week of operations as compared to the first nine months of fiscal 2023. Note 2 – Shareholders' Equity As of August 3, 2024, the Company had repurchased a total of approximately 207.4 million shares of its common stock for approximately $ 14.9 billion under the Company's share repurchase program. As of August 3, 2024, an additional $ 1.7 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 as well as for the Company's employee stock purchase plan. 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 2024. Foreign currency translation adjustment Unrealized holding gains (losses) on derivatives Pension plans Total October 28, 2023 $ ( 72,544 ) $ ( 102,043 ) $ ( 13,715 ) $ ( 188,302 ) Other comprehensive income before reclassifications 847 14,378 ( 562 ) 14,663 Amounts reclassified out of other comprehensive income — 5,469 1,547 7,016 Tax effects — ( 3,095 ) — ( 3,095 ) Other comprehensive income 847 16,752 985 18,584 August 3, 2024 $ ( 71,697 ) $ ( 85,291 ) $ ( 12,730 ) $ ( 169,718 ) 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 August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 Location Unrealized holding (gains) losses on derivatives: Currency forwards $ ( 853 ) $ 650 $ ( 1,445 ) $ 933 Cost of sales ( 225 ) 560 ( 497 ) 683 Research and development ( 1,391 ) ( 400 ) ( 3,782 ) ( 1,353 ) Selling, marketing, general and administrative Interest rate derivatives 3,731 3,731 11,193 11,189 Interest expense 1,262 4,541 5,469 11,452 Total before tax ( 460 ) ( 1,084 ) ( 1,338 ) ( 2,587 ) Tax $ 802 $ 3,457 $ 4,131 $ 8,865 Net of tax Amortization of pension components included in the computation of net periodic pension cost: Actuarial losses $ 515 $ 393 $ 1,547 $ 1,139 Net of tax Total amounts reclassified out of AOCI, net of tax $ 1,317 $ 3,850 $ 5,678 $ 10,004 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 August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 Net income $ 392,232 $ 877,019 $ 1,157,201 $ 2,816,149 Basic shares: Weighted-average shares outstanding 496,338 500,018 496,077 503,951 Earnings per common share basic: $ 0.79 $ 1.75 $ 2.33 $ 5.59 Diluted shares: Weighted-average shares outstanding 496,338 500,018 496,077 503,951 Assumed exercise of common stock equivalents 2,456 3,485 2,612 3,853 Weighted-average common and common equivalent shares 498,794 503,503 498,689 507,804 Earnings per common share diluted: $ 0.79 $ 1.74 $ 2.32 $ 5.55 Anti-dilutive shares related to: Outstanding stock-based awards 3 211 94 306 8 Note 5 – Special Charges, Net Liabilities related to special charges, net are included in Accrued liabilities and Other non-current liabilities in the Condensed Consolidated Balance Sheets. The activity is detailed below: Accrued Special Charges Global Repositioning Actions Q4 2023 Plan Balance at October 28, 2023 $ 36,981 $ 110,446 Employee severance and benefit costs, net — 11,977 Severance and benefit payments ( 4,420 ) ( 87,013 ) Balance at February 3, 2024 $ 32,561 $ 35,410 Employee severance and benefit costs, net ( 5,106 ) 23,172 Severance and benefit payments ( 5,767 ) ( 40,559 ) Balance at May 4, 2024 $ 21,688 $ 18,023 Employee severance and benefit costs — 4,099 Severance and benefit payments ( 453 ) ( 14,592 ) Balance at August 3, 2024 $ 21,235 $ 7,530 Accrued liabilities $ 16,846 $ 7,530 Other non-current liabilities $ 4,389 $ — Note 6 – Commitments and Contingencies On March 17, 2022, Walter E. Ryan and Ryan Asset Management, LLC, purported stockholders of Maxim Integrated Products, Inc. (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 alleged breaches 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 Company's acquisition of Maxim. The complaint further alleged that the Company aided and abetted those alleged breaches of fiduciary duties. The plaintiffs sought damages in an amount to be determined at trial, plaintiffs’ costs and disbursements, including reasonable attorneys’ and experts’ fees, costs and other expenses. On May 2, 2023, the Court of Chancery entered an order dismissing the action in its entirety and with prejudice. On May 9, 2023, the plaintiffs filed a Motion for Reargument, which the Court of Chancery denied on May 30, 2023. On June 21, 2023, the plaintiffs filed a Notice of Appeal to the Delaware Supreme Court. On February 26, 2024, the Delaware Supreme Court issued an order affirming the dismissal of the action. Note 7 – Revenue Revenue Trends by End Market The following tables summarize 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 results within, each end market. 9 Three Months Ended August 3, 2024 July 29, 2023 Revenue % of Revenue* Y/Y% Revenue % of Revenue* Industrial $ 1,058,704 46 % ( 37 ) % $ 1,683,843 55 % Automotive 670,304 29 % ( 8 ) % 727,315 24 % Communications 266,599 12 % ( 26 ) % 358,520 12 % Consumer 316,602 14 % 3 % 306,817 10 % Total revenue $ 2,312,209 100 % ( 25 ) % $ 3,076,495 100 % Nine Months Ended August 3, 2024 July 29, 2023 Revenue % of Revenue* Y/Y% Revenue % of Revenue* Industrial $ 3,252,757 47 % ( 38 ) % $ 5,252,078 55 % Automotive 2,082,869 30 % ( 3 ) % 2,146,320 22 % Communications 811,150 12 % ( 36 ) % 1,273,265 13 % Consumer 837,176 12 % ( 9 ) % 917,392 10 % Total revenue $ 6,983,952 100 % ( 27 ) % $ 9,589,055 100 % * The sum of the individual percentages may not equal the total due to rounding. Revenue by Sales Channel The following tables summarize 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. Other customers include the U.S. government, government prime contractors and certain commercial customers for which revenue is recorded over time. Three Months Ended August 3, 2024 July 29, 2023 Channel Revenue % of Revenue* Revenue % of Revenue* Distributors $ 1,332,244 58 % $ 1,904,496 62 % Direct customers 940,317 41 % 1,126,796 37 % Other 39,648 2 % 45,203 1 % Total revenue $ 2,312,209 100 % $ 3,076,495 100 % Nine Months Ended August 3, 2024 July 29, 2023 Channel Revenue % of Revenue* Revenue % of Revenue* Distributors $ 4,115,836 59 % $ 5,912,229 62 % Direct customers 2,753,885 39 % 3,547,116 37 % Other 114,231 2 % 129,710 1 % Total revenue $ 6,983,952 100 % $ 9,589,055 100 % * The sum of the individual percentages may not equal the total due to rounding. Note 8 – Fair Value Assets and Liabilities Recorded at Fair Value on a Recurring Basis The tables below, set forth by level, present the Company’s financial assets and liabilities, excluding accrued interest components that were accounted for at fair value on a recurring basis as of August 3, 2024 and October 28, 2023. 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 August 3, 2024 and October 28, 2023, the Company held $ 1,018.8 million and $ 642.1 million, respectively, of cash that is 10 excluded from the tables below. August 3, 2024 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 $ 620,853 $ — $ 620,853 Corporate obligations (1) — 168,422 168,422 Bank obligations (1) — 298,000 298,000 Short-term investments: (2) Available-for-sale: Securities with one year or less to maturity: Corporate obligations (1) — 139,614 139,614 Bank obligations (1) — 300,053 300,053 Other assets: Forward foreign currency exchange contracts (3) — 7,514 7,514 Deferred compensation plan investments 97,586 — 97,586 Total assets measured at fair value $ 718,439 $ 913,603 $ 1,632,042 Liabilities Forward foreign currency exchange contracts (3) $ — $ 5,996 $ 5,996 Interest rate derivatives (4) — 15,905 15,905 Total liabilities measured at fair value $ — $ 21,901 $ 21,901 (1) The amortized cost of the Company's investments classified as available-for-sale as of August 3, 2024 was $ 914.6 million. (2) 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. (3) 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. (4) The carrying value of the related debt was adjusted by an equal and offsetting amount. The fair value of interest rate derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivatives. See Note 9, Derivatives, in these Notes to Condensed Consolidated Financial Statements. 11 October 28, 2023 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 $ 315,980 $ — $ 315,980 Other assets: Forward foreign currency exchange contracts (1) — 1,940 1,940 Deferred compensation plan investments 78,246 — 78,246 Total assets measured at fair value $ 394,226 $ 1,940 $ 396,166 Liabilities Forward foreign currency exchange contracts (1) $ — $ 13,515 $ 13,515 Interest rate derivatives (2) — 81,602 81,602 Total liabilities measured at fair value $ — $ 95,117 $ 95,117 (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. (2) The carrying value of the related debt was adjusted by an equal and offsetting amount. The fair value of interest rate derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivatives. See Note 9, Derivatives, in these Notes to Condensed Consolidated Financial Statements. Assets and Liabilities Not Recorded at Fair Value on a Recurring Basis The table below presents the estimated fair values of certain financial instruments not recorded at fair value on a recurring basis. Given the short tenure of the Company's commercial paper notes, the carrying value of the outstanding commercial paper notes approximates the fair values, and therefore, are excluded from the table below ($ 547.4 million and $ 547.2 million as of August 3, 2024 and October 28, 2023, respectively). 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. August 3, 2024 October 28, 2023 Principal Amount Outstanding Fair Value Principal Amount Outstanding Fair Value 2024 Notes, due October 2024 $ 500,000 $ 499,698 $ 500,000 $ 499,473 2025 Notes, due April 2025 400,000 394,533 400,000 385,231 2026 Notes, due December 2026 900,000 885,380 900,000 851,023 2027 Notes, due June 2027 440,212 431,739 440,212 408,595 2028 Notes, due October 2028 750,000 680,664 750,000 628,999 2031 Notes, due October 2031 1,000,000 856,266 1,000,000 773,404 2032 Notes, due October 2032 300,000 296,644 300,000 269,828 2034 Notes, due April 2034 550,000 570,226 — — 2036 Notes, due December 2036 144,278 135,720 144,278 118,554 2041 Notes, due October 2041 750,000 558,156 750,000 479,078 2045 Notes, due December 2045 332,587 338,550 332,587 292,248 2051 Notes, due October 2051 1,000,000 694,750 1,000,000 590,666 2054 Notes, due April 2054 550,000 566,002 — — Total senior unsecured notes $ 7,617,077 $ 6,908,328 $ 6,517,077 $ 5,297,099 12 Note 9 – Derivatives Foreign Exchange Exposure Management — 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 August 3, 2024 and October 28, 2023 were $ 262.6 million and $ 322.6 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 August 3, 2024 and October 28, 2023 were as follows: Fair Value At Balance Sheet Location August 3, 2024 October 28, 2023 Forward foreign currency exchange contracts Prepaid expenses and other current assets $ 2,488 $ 471 Forward foreign currency exchange contracts Accrued liabilities $ 2,667 $ 9,897 As of August 3, 2024 and October 28, 2023, the total notional amounts of undesignated hedges related to forward foreign currency exchange contracts were $ 167.1 million and $ 334.7 million, respectively. The fair values of undesignated hedges in the Company’s Condensed Consolidated Balance Sheets as of August 3, 2024 and October 28, 2023 were as follows: Fair Value At Balance Sheet Location August 3, 2024 October 28, 2023 Undesignated hedges related to forward foreign currency exchange contracts Prepaid expenses and other current assets $ 5,026 $ 1,469 Undesignated hedges related to forward foreign currency exchange contracts Accrued liabilities $ 3,329 $ 3,618 Interest Rate Exposure Management — The Company does not consider the risk of counterparty default to be significant. The gain or loss on the Company's interest rate swap transactions attributable to the hedged benchmark interest rate risk and the offsetting gain or loss on the related interest rate swaps were recorded as follows: August 3, 2024 Balance Sheet Location Loss on Swaps Gain on Note Accrued liabilities $ 15,905 $ — Long-term debt $ — $ 15,905 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, Accumulated Other Comprehensive (Loss) Income, in these Notes to Condensed Consolidated Financial Statements for further information. Note 10 – Inventories Inventories at August 3, 2024 and October 28, 2023 were as follows: August 3, 2024 October 28, 2023 Raw materials $ 109,307 $ 128,142 Work in process 1,021,612 1,125,819 Finished goods 297,017 388,253 Total inventories $ 1,427,936 $ 1,642,214 Note 11 – Debt Senior Notes Offering. On April 3, 2024, in an underwritten public offering, the Company issued $ 550.0 million aggregate principal amount of 5.050 % senior notes due April 1, 2034 (the 2034 Notes) with semi-annual fixed interest payments due on April 1 and October 1 of each year, commencing October 1, 2024. The net proceeds of the offering were $ 545.5 million, after discounts and issuance costs. Prior to January 1, 2034 (three months prior to the maturity date of the 2034 Notes), the Company may, at its option, redeem the 2034 Notes, in whole or in part, at any time and from time to time, at a redemption price equal to the greater of: (1) (a) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date (assuming the 2034 Notes matured on January 1, 2034) on a semi-annual basis at the applicable treasury rate plus 15 basis points less (b) interest accrued to the date of redemption, and (2) 100 % of the principal amount of the 2034 Notes to be redeemed, plus, in either case, accrued and unpaid interest thereon to the redemption date. On or after January 1, 2034, the Company may, at its option, redeem the 2034 Notes, in whole or in part, at any time and 13 from time to time, at a redemption price equal to 100 % of the principal amount of the 2034 Notes being redeemed plus accrued and unpaid interest thereon to the redemption date. The 2034 Notes are unsecured and rank equally in right of payment with all of the Company’s other existing and future unsecured senior indebtedness. On April 3, 2024, in an underwritten public offering, the Company issued $ 550.0 million aggregate principal amount of 5.300 % senior notes due April 1, 2054 (the 2054 Notes) with semi-annual fixed interest payments due on April 1 and October 1 of each year, commencing October 1, 2024. The net proceeds of the offering were $ 542.3 million, after discounts and issuance costs. Prior to October 1, 2053 (six months prior to the maturity date of the 2054 Notes), the Company may, at its option, redeem the 2054 Notes, in whole or in part, at any time and from time to time, at a redemption price equal to the greater of: (1) (a) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date (assuming the 2054 Notes matured on October 1, 2053) on a semi-annual basis at the applicable treasury rate plus 15 basis points less (b) interest accrued to the date of redemption, and (2) 100 % of the principal amount of the 2054 Notes to be redeemed, plus, in either case, accrued and unpaid interest thereon to the redemption date. On or after October 1, 2053, the Company may, at its option, redeem the 2054 Notes, in whole or in part, at any time and from time to time, at a redemption price equal to 100 % of the principal amount of the 2054 Notes being redeemed plus accrued and unpaid interest thereon to the redemption date. The 2054 Notes are unsecured and rank equally in right of payment with all of the Company’s other existing and future unsecured senior indebtedness. The 2034 Notes and the 2054 Notes were issued pursuant to a base indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented by a supplemental indenture, which contains certain covenants, events of default and other customary provisions. The covenants applicable to the 2034 Notes and the 2054 Notes limit the Company’s ability to incur, create, assume or guarantee any debt 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 its assets to, any other party. As of August 3, 2024, the Company was in compliance with these covenants. Note 12 – Income Taxes The Company’s effective tax rates for the three- and nine-month periods ended August 3, 2024 and July 29, 2023 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. The Company's effective tax rate also includes 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 decreases the Company's effective tax rate primarily by increasing the foreign-derived intangible income deduction. It is reasonably possible that the balance of gross unrealized tax benefits, including accrued interest and penalties, could decrease by as much as approximately $ 142.0 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 October 30, 2021, November 2, 2019 and November 3, 2018; a pre-acquisition IRS income tax audit for Maxim's fiscal years ended June 27, 2015 through August 26, 2021; and various U.S. state and local audits and international audits, including an Irish corporate tax audit for the fiscal year ended November 2, 2019. The Company's U.S. federal income 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 Acquired Contract Assets and Contract Liabilities In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract Liabilities . Under this guidance (ASC 805-20-30-28), the acquirer should determine what 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. The Company adopted ASU 2021-08 in the first quarter of fiscal 2024. Upon adoption, ASU 2021-08 did not have a material impact on the Company's financial position and results of operations. 14 Standards to be Implemented Segment Reporting In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which enhances the disclosure requirements for reportable segments. ASU 2023-07 requires segment disclosure to include significant segment expense categories and amounts, and qualitative detail of other segment items. Disclosure of multiple measures of segment profit and loss may also be reported. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact, if any, adoption will have on its financial position and results of operations. Income Taxes In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . ASU 2023-09 requires the disaggregation of information in existing income tax disclosures related to the effective tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact, if any, adoption will have on its financial position and results of operations. Note 14 – Subsequent Events On August 20, 2024, the Board of Directors of the Company declared a cash dividend of $ 0.92 per outstanding share of common stock. The dividend will be paid on September 17, 2024 to all shareholders of record at the close of business on September 3, 2024 and is expected to total approximately $ 456.8 million. 15