Analog Devices 10-Q 2022-07-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 30, 2022

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 1-7819

Analog Devices, Inc.

(Exact name of registrant as specified in its charter)

Massachusetts												04-2348234
(State or other jurisdiction of incorporation or organization)												(I.R.S. Employer Identification No.)
One Analog Way,			Wilmington,			MA						01887
(Address of principal executive offices)												(Zip Code)

(781) 935-5565

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock $0.16 2/3 par value per share			ADI			Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer						☑						Accelerated filer						☐
Non-accelerated filer						☐						Smaller reporting company						☐
												Emerging growth company						☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of July 30, 2022 there were 514,341,531 shares of common stock of the registrant, $0.16 2/3 par value per share, outstanding.

PART I - FINANCIAL INFORMATION

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share amounts)

			Three Months Ended												Nine Months Ended
			July 30, 2022						July 31, 2021						July 30, 2022						July 31, 2021
Revenue			$	3,109,880					$	1,758,853					$	8,766,237					$	4,978,718
Cost of sales			1,066,738						537,669						3,376,578						1,575,526
Gross margin			2,043,142						1,221,184						5,389,659						3,403,192
Operating expenses:
Research and development			431,829						306,617						1,279,510						897,005
Selling, marketing, general and administrative			326,942						206,076						929,615						597,963
Amortization of intangibles			252,864						107,783						759,707						323,217
Special charges, net			138,201						(8,938)						244,603						(8,189)
Total operating expenses			1,149,836						611,538						3,213,435						1,809,996
Operating income:			893,306						609,646						2,176,224						1,593,196
Nonoperating expense (income):
Interest expense			51,189						44,659						152,701						130,204
Interest income			(1,797)						(300)						(2,578)						(799)
Other, net			(4,023)						(6,991)						(24,636)						(21,090)
Total nonoperating expense (income)			45,369						37,368						125,487						108,315
Income before income taxes			847,937						572,278						2,050,737						1,484,881
Provision for income taxes			98,952						68,967						238,402						170,146
Net income			$	748,985					$	503,311					$	1,812,335					$	1,314,735
Shares used to compute earnings per common share – basic			517,011						368,476						521,557						368,834
Shares used to compute earnings per common share – diluted			520,550						371,849						525,652						372,457
Basic earnings per common share			$	1.45					$	1.37					$	3.47					$	3.56
Diluted earnings per common share			$	1.44					$	1.35					$	3.45					$	3.53

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

			Three Months Ended												Nine Months Ended
			July 30, 2022						July 31, 2021						July 30, 2022						July 31, 2021
Net income			$	748,985					$	503,311					$	1,812,335					$	1,314,735
Foreign currency translation adjustments			(9,028)						(2,952)						(31,500)						5,073
Change in fair value of derivative instruments designated as cash flow hedges (net of taxes of $854, $10,657, $1,103 and $6,452, respectively)			2,239						(40,040)						(471)						19,853
Changes in pension plans, net actuarial loss and foreign currency translation adjustments (net of taxes of $88, $85, $275 and $257, respectively)			1,770						964						5,902						(408)
Other comprehensive (loss) income			(5,019)						(42,028)						(26,069)						24,518
Comprehensive income			$	743,966					$	461,283					$	1,786,266					$	1,339,253

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share amounts)

			July 30, 2022						October 30, 2021
ASSETS
Current Assets
Cash and cash equivalents			$	1,524,960					$	1,977,964
Accounts receivable			1,742,646						1,459,056
Inventories			1,203,394						1,200,610
Prepaid expenses and other current assets			218,708						740,687
Total current assets			4,689,708						5,378,317
Non-current Assets
Net property, plant and equipment			2,180,048						1,979,051
Goodwill			26,920,335						26,918,470
Intangible assets, net			13,764,444						15,267,170
Deferred tax assets			2,297,122						2,267,269
Other assets			494,513						511,794
Total non-current assets			45,656,462						46,943,754
TOTAL ASSETS			$	50,346,170					$	52,322,071
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable			$	545,068					$	443,434
Income taxes payable			445,726						332,685
Debt, current			—						516,663
Accrued liabilities			1,450,407						1,477,530
Total current liabilities			2,441,201						2,770,312
Non-current Liabilities

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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.

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.

			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.

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.

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		%

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

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.

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.

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.

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.

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of July 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of July 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in Internal Control over Financial Reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended July 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our material pending legal proceedings see “Legal Proceedings” included in Part II, Item 1 of our Quarterly Report on Form 10-Q for the period ended April 30, 2022.

Set forth below and elsewhere in this report and in other documents we file with the Securities and Exchange Commission (SEC) are descriptions of certain risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements in this report. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also adversely affect our business. The risk factors set forth below restate and supersede the risk factors set forth in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended October 30, 2021.

Risks Related to our Acquisition of Maxim Integrated Products, Inc. (Maxim)

We will continue to incur substantial expenses related to the ongoing integration of Maxim.

In August 2021, we completed our acquisition of Maxim, which we refer to as the acquisition or the merger. We have incurred and expect to continue to incur a number of non-recurring costs associated with combining the operations of the two companies. These costs and expenses include fees paid to financial, legal and accounting advisors, facilities and systems consolidation costs, severance and other potential employment-related costs, including severance payments that may be made to certain Maxim employees, and other related charges.

The combined company has and will continue to incur restructuring and ongoing integration costs in connection with the merger. The costs related to restructuring are being expensed as a cost of the ongoing results of operations. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the merger and the ongoing integration of Maxim’s business. Although we expect that the elimination of duplicative costs, strategic benefits, and additional income, as well as the realization of other efficiencies related to the ongoing integration of the businesses, may offset incremental transaction, merger-related and restructuring costs over time, any net benefit may not be achieved in the near term or at all.

Combining our business with Maxim’s may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated benefits of the merger, which may adversely affect the combined company’s business results and negatively affect the value of the combined company’s common stock.

The success of the merger will depend on, among other things, the ability of the two companies to combine their businesses in a manner that facilitates growth opportunities and realizes expected cost savings. The combined company may encounter difficulties in integrating our and Maxim’s businesses and realizing the anticipated benefits of the merger. The combined company must achieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth. If the combined company is not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected.

The merger involves the combination of two companies which operated, until the completion of the merger, as independent public companies. There can be no assurances that the two businesses can be integrated successfully. It is possible that the ongoing integration process could result in the loss of key employees from both companies, the loss of customers, the disruption of ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall integration process that takes longer than originally anticipated. Management must devote attention and resources to continue integrating the combined company's business practices and operations. Potential difficulties the combined company may encounter as the integration process continues include the following:

• lost sales and customers as a result of certain of our and/or Maxim's customers deciding not to do business with the combined company, or deciding to decrease their amount of business in order to reduce their reliance on a single company;

• integrating personnel and operations from the two companies while maintaining focus on providing consistent, high-quality products and services, especially in the COVID-19 environment which has required employees to work remotely in some locations;

• potential unknown liabilities and unforeseen or increased costs and expenses; and

• performance shortfalls as a result of the diversion of management’s attention caused by integrating the companies’ operations.

Any of these factors could result in the combined company failing to realize the anticipated benefits of the acquisition, on the expected timeline or at all. An inability to realize the full extent of the anticipated benefits of the merger, as well as any delays encountered in the continuing integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of the common stock of the combined company.

In addition, the continuing integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. Actual growth and cost savings, if achieved, may be lower than what we expect and may take longer to achieve than anticipated. If we are not able to adequately address integration challenges, we may be unable to successfully integrate the two companies or realize the anticipated benefits of the ongoing integration.

Risks Related to our Global Operations

The extent to which the novel strain of the coronavirus (COVID-19) pandemic will adversely affect our business, financial condition and results of operations is uncertain.

The COVID-19 pandemic, and the numerous measures implemented by government authorities in response, have adversely impacted and are expected to continue to adversely 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, Thailand, Malaysia, 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, including restrictions on our access to facilities. It is uncertain what the full extent of the impact, and duration, of such measures and potential future measures may be and how such measures will affect our vendors and suppliers. Increased restrictions on or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit our capacity to meet customer demand and have a material adverse effect on our business, financial condition and results of operations.

The continuing spread of COVID-19 has caused us and continues to cause us to modify our business practices by, among other things, restricting employee travel, modifying employee work locations, and canceling physical participation in meetings, events and conferences. As a result of our changed workplace practices, some of our employees continue to work remotely. Any of these changes may adversely impact our business operations or customer relationships and result in further disruptions to our supply chain, manufacturing operations and facilities, and workplace. 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, and suppliers, which may cause even further disruption. Although these alterations to our business practices are intended to minimize the spread

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Exhibit No.						Description
10.1†#						Form of Executive Relative Total Shareholder Return Performance Restricted Stock Unit Agreement for Employees for usage under the Company's 2020 Equity Incentive Plan adopted June 6, 2022.
10.2†#						Form of Executive Financial Performance Restricted Stock Unit Agreement for Employees for usage under the Company's 2020 Equity Incentive Plan adopted June 6, 2022.
31.1†						Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
31.2†						Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
32.1†*						Certification Pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer).
32.2†*						Certification Pursuant to 18 U.S.C. Section 1350 (Chief Financial Officer).
101.INS						The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.**
101.SCH						Inline XBRL Schema Document.**
101.CAL						Inline XBRL Calculation Linkbase Document.**
101.LAB						Inline XBRL Labels Linkbase Document.**
101.PRE						Inline XBRL Presentation Linkbase Document.**
101.DEF						Inline XBRL Definition Linkbase Document.**
104						Cover page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).
†						Filed or furnished herewith.
#						Indicates management contract or compensatory plan, contract or agreement.
*						The certification furnished in each of Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates each by reference. Such certification will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.
**						Submitted electronically herewith.

Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the three- and nine-months ended July 30, 2022 and July 31, 2021, (ii) Condensed Consolidated Statements of Comprehensive Income for the three- and nine-months ended July 30, 2022 and July 31, 2021, (iii) Condensed Consolidated Balance Sheets at July 30, 2022 and October 30, 2021, (iv) Condensed Consolidated Statements of Shareholders' Equity for the three- and nine-months ended July 30, 2022 and July 31, 2021, (v) Condensed Consolidated Statements of Cash Flows for the nine months ended July 30, 2022 and July 31, 2021 and (vi) Notes to Condensed Consolidated Financial Statements for the three- and nine-months ended July 30, 2022.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			ANALOG DEVICES, INC.
Date: August 17, 2022			By:						/s/ Vincent Roche
									Vincent Roche
									Chief Executive Officer and Chair of the Board of Directors
									(Principal Executive Officer)
Date: August 17, 2022			By:						/s/ Prashanth Mahendra-Rajah
									Prashanth Mahendra-Rajah
									Executive Vice President, Finance and Chief Financial Officer
									(Principal Financial Officer)