Analog Devices Earnings 2019-05-04

ADI 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended May 4, 2019



¨	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 Technology Way, Norwood, MA		02062-9106
(Address of principal executive offices)		(Zip Code)

(781) 329-4700

(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 þ 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 þ 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	þ	Accelerated filer	¨

Non-accelerated filer	o	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 þ

As of May 4, 2019 there were 369,761,227 shares of common stock of the registrant, $0.16 2/3 par value per share, outstanding.

PART I - FINANCIAL INFORMATION

ITEM 1.
Financial Statements

ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	May 4, 2019			May 5, 2018 (2)			May 4, 2019			May 5, 2018 (2)
Revenue	$	1,526,602		$	1,563,502		$	3,067,703		$	3,130,372
Cost of sales (1)	492,510			491,112			993,955			986,299
Gross margin	1,034,092			1,072,390			2,073,748			2,144,073
Operating expenses:
Research and development (1)	285,846			289,472			573,228			578,069
Selling, marketing, general and administrative (1)	163,128			172,146			330,470			349,054
Amortization of intangibles	107,261			107,129			214,585			214,148
Special charges	8,162			1,089			29,944			58,407
	564,397			569,836			1,148,227			1,199,678
Operating income	469,695			502,554			925,521			944,395
Nonoperating expense (income):
Interest expense	59,701			64,792			118,429			132,822
Interest income	(2,928		)	(1,912		)	(5,616		)	(4,004		)
Other, net	4,525			(451		)	4,365			105
	61,298			62,429			117,178			128,923
Income before income taxes	408,397			440,125			808,343			815,472
Provision for income taxes	40,460			39,797			85,400			121,904
Net income	$	367,937		$	400,328		$	722,943		$	693,568
Shares used to compute earnings per common share – basic	369,246			370,384			368,974			369,685
Shares used to compute earnings per common share – diluted	373,342			374,778			372,912			374,430
Basic earnings per common share	$	0.99		$	1.08		$	1.95		$	1.87
Diluted earnings per common share	$	0.98		$	1.06		$	1.93		$	1.84
(1) Includes stock-based compensation expense as follows:
Cost of sales	$	5,389		$	3,820		$	10,473		$	8,041
Research and development	$	19,567		$	22,018		$	38,492		$	41,746
Selling, marketing, general and administrative	$	15,273		$	13,076		$	27,657		$	27,029

(2) Balances have been restated to reflect the full retrospective adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 1, Basis of Presentation, in the Notes to Condensed Consolidated Financial Statements.

See accompanying notes.

ANALOG DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands)

	Three Months Ended						Six Months Ended
	May 4, 2019			May 5, 2018 (1)			May 4, 2019			May 5, 2018 (1)
Net income	$	367,937		$	400,328		$	722,943		$	693,568
Foreign currency translation adjustments	(3,428		)	(3,419		)	(112		)	6,752
Change in fair value of available-for-sale securities	5			5			15			3
Change in fair value of derivative instruments designated as cash flow hedges (net of taxes of $3,802, $771, $10,183 and $1,323, respectively)	(14,912		)	(6,613		)	(37,850		)	1,737
Changes in pension plans including transition obligation, net actuarial loss and foreign currency translation adjustments (net of taxes of $63, $99, $126 and $202, respectively)	335			1,373			366			(144		)
Other comprehensive (loss) income	(18,000		)	(8,654		)	(37,581		)	8,348
Comprehensive income	$	349,937		$	391,674		$	685,362		$	701,916

(1) Balances have been restated to reflect the full retrospective adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 1, Basis of Presentation, in the Notes to Condensed Consolidated Financial Statements.

See accompanying notes.

ANALOG DEVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share amounts)

	May 4, 2019			November 3, 2018 (1)
ASSETS
Current Assets
Cash and cash equivalents	$	713,601		$	816,591
Accounts receivable	685,978			639,717
Inventories (2)	608,085			586,760
Prepaid income tax	2,935			3,196
Prepaid expenses and other current assets	69,890			65,862
Total current assets	2,080,489			2,112,126
Property, Plant and Equipment, at Cost
Land and buildings	903,378			873,186
Machinery and equipment	2,560,573			2,478,032
Office equipment	82,706			76,233
Leasehold improvements	147,253			100,374
	3,693,910			3,527,825
Less accumulated depreciation and amortization	2,482,443			2,373,497
Net property, plant and equipment	1,211,467			1,154,328
Other Assets
Deferred compensation plan investments	42,661			39,853
Other investments	31,616			28,730
Goodwill	12,250,370			12,252,604
Intangible assets, net	4,489,182			4,778,192
Deferred tax assets	1,610,109			9,665
Other assets	60,431			62,868
Total other assets	18,484,369			17,171,912
	$	21,776,325		$	20,438,366
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	208,243		$	260,919
Income taxes payable	124,356			93,722
Debt, current	374,165			67,000
Accrued liabilities	658,271			630,107
Total current liabilities	1,365,035			1,051,748
Non-current liabilities
Long-term debt	5,612,365			6,265,674
Deferred income taxes	2,228,822			990,409
Deferred compensation plan liability	42,661			39,846
Income taxes payable	647,714			710,179
Other non-current liabilities	137,470			112,337
Total non-current liabilities	8,669,032			8,118,445
Commitments and contingencies
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, 369,761,227 shares outstanding (370,159,553 on November 3, 2018)	61,628			61,694
Capital in excess of par value	5,117,202			5,282,222
Retained earnings	6,659,449			5,982,697
Accumulated other comprehensive loss	(96,021		)	(58,440		)
Total shareholders’ equity	11,742,258			11,268,173
	$	21,776,325		$	20,438,366


(1)	Balances have been restated to reflect the full retrospective adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 1, Basis of Presentation, in the Notes to Condensed Consolidated Financial Statements.


(2)	Includes $6,982 and $7,128 related to stock-based compensation at May 4, 2019 and November 3, 2018, respectively.

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(in thousands)



	Three Months Ended May 4, 2019
						Capital in						Accumulated Other
	Common Stock					Excess of			Retained			Comprehensive
	Shares		Amount			Par Value			Earnings			(Loss) Income
BALANCE, FEBRUARY 2, 2019	368,314		$	61,387		$	5,111,058		$	6,491,013		$	(78,021	)
Net income									367,937
Dividends declared and paid - $0.54 per share									(199,501		)
Issuance of stock under stock plans and other	2,369		395			67,283
Stock-based compensation expense						40,229
Other comprehensive loss												(18,000		)
Common stock repurchased	(922	)	(154		)	(101,368		)
BALANCE, MAY 4, 2019	369,761		$	61,628		$	5,117,202		$	6,659,449		$	(96,021	)

	Six Months Ended May 4, 2019
						Capital in						Accumulated Other
	Common Stock					Excess of			Retained			Comprehensive
	Shares		Amount			Par Value			Earnings			(Loss) Income
BALANCE, NOVEMBER 3, 2018 (1)	370,160		$	61,694		$	5,282,222		$	5,982,697		$	(58,440	)
Effect of Accounting Standards Update 2016-16 (see Note 1)									331,026
Net income									722,943
Dividends declared and paid - $1.02 per share									(377,217		)
Issuance of stock under stock plans and other	3,140		524			86,383
Stock-based compensation expense						76,622
Other comprehensive loss												(37,581		)
Common stock repurchased	(3,539	)	(590		)	(328,025		)
BALANCE, MAY 4, 2019	369,761		$	61,628		$	5,117,202		$	6,659,449		$	(96,021	)


(1)	Balances have been restated to reflect the full retrospective adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 1, Basis of Presentation, in the Notes to Condensed Consolidated Financial Statements.

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(in thousands)



	Three Months Ended May 5, 2018
						Capital in						Accumulated Other
	Common Stock					Excess of			Retained			Comprehensive
	Shares		Amount			Par Value			Earnings			(Loss) Income
BALANCE, FEBRUARY 3, 2018 (1)	369,804		$	61,635		$	5,318,109		$	5,305,545		$	(44,357	)
Net income									400,328
Dividends declared and paid - $0.48 per share									(178,282		)
Issuance of stock under stock plans and other	1,324		221			27,524
Stock-based compensation expense						38,914
Other comprehensive loss												(8,654		)
Common stock repurchased	(231	)	(39		)	(21,939		)
BALANCE, MAY 5, 2018	370,897		$	61,817		$	5,362,608		$	5,527,591		$	(53,011	)

	Six Months Ended May 5, 2018
						Capital in						Accumulated Other
	Common Stock					Excess of			Retained			Comprehensive
	Shares		Amount			Par Value			Earnings			(Loss) Income
BALANCE, OCTOBER 28, 2017 (1)	368,636		$	61,441		$	5,250,519		$	5,179,024		$	(61,359	)
Net income									693,568
Dividends declared and paid - $0.93 per share									(345,001		)
Issuance of stock under stock plans and other	2,575		429			65,128
Stock-based compensation expense						76,816
Other comprehensive income												8,348
Common stock repurchased	(314	)	(53		)	(29,855		)
BALANCE, MAY 5, 2018	370,897		$	61,817		$	5,362,608		$	5,527,591		$	(53,011	)


(1)	Balances have been restated to reflect the full retrospective adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). See Note 1, Basis of Presentation, in the Notes to Condensed Consolidated Financial Statements.

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



	Six Months Ended
	May 4, 2019			May 5, 2018 (1)
Cash flows from operating activities:
Net income	$	722,943		$	693,568
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	117,435			113,004
Amortization of intangibles	284,525			285,004
Stock-based compensation expense	76,622			76,816
Non-cash portion of special charge	4,367			—
Deferred income taxes	(21,843		)	(705,640		)
Other non-cash activity	18,429			10,104
Changes in operating assets and liabilities	(159,829		)	634,326
Total adjustments	319,706			413,614
Net cash provided by operating activities	1,042,649			1,107,182
Cash flows from investing activities:
Additions to property, plant and equipment	(166,202		)	(117,122		)
Payments for acquisitions, net of cash acquired	—			(52,339		)
Changes in other assets	(4,585		)	(1,029		)
Net cash used for investing activities	(170,787		)	(170,490		)
Cash flows from financing activities:
Proceeds from debt	—			743,778
Proceeds from revolver	75,000			—
Payments on revolver	(75,000		)	—
Debt repayments	(350,000		)	(1,620,000		)
Dividend payments to shareholders	(377,217		)	(345,001		)
Repurchase of common stock	(328,615		)	(29,908		)
Proceeds from employee stock plans	86,907			65,557
Contingent consideration payment	(4,000		)	(542		)
Changes in other financing activities	(2,144		)	7,945
Net cash used for financing activities	(975,069		)	(1,178,171		)
Effect of exchange rate changes on cash	217			158
Net decrease in cash and cash equivalents	(102,990		)	(241,321		)
Cash and cash equivalents at beginning of period	816,591			1,047,838
Cash and cash equivalents at end of period	$	713,601		$	806,517

See accompanying notes.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED MAY 4, 2019

(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 November 3, 2018 (fiscal 2018) 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, 2019 (fiscal 2019) 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 2019 is a 52-week fiscal year and fiscal 2018 was a 53-week fiscal year. The additional week in fiscal 2018 was included in the first quarter ended February 3, 2018. Therefore, the first six months of fiscal 2019 included one less week of operations as compared to the first six months of fiscal 2018. Certain amounts reported in previous periods have been reclassified to conform to the fiscal 2019 presentation.

As further discussed in Note 2, Revenue Recognition and Note 13, New Accounting Pronouncements, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09), in the first quarter of fiscal 2019. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period showing, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized as of the date of initial application. The Company adopted ASU 2014-09 using the full retrospective method and applied the practical expedient, in which the Company is not required to disclose the amount of consideration allocated to any remaining performance obligations or an explanation of when the Company expects to recognize that amount as revenue for all reporting periods presented before the date of the initial application.

As a result of the adoption of ASU 2014-09, the Company changed its accounting policy for revenue recognition and recognizes revenue from product sales to its customers and distributors when title passes, which is generally upon shipment. Prior to the adoption of ASU 2014-09, revenue and the related cost of sales on shipments to certain distributors were deferred until the distributor resold the products to their end customers. See Note 2, Revenue Recognition, in these Notes to Condensed Consolidated Financial Statements for the details of the Company’s revenue recognition policies. The adoption of ASU 2014-09 impacted the Company’s condensed consolidated statements of income and balance sheets but did not impact its condensed consolidated statements of cash flows, with the exceptions of net income and reclassifications within adjustments to reconcile net income to cash provided by operations, and did not impact the condensed consolidated statement of shareholders' equity, with the exceptions of retained earnings and net income. As shown in the tables below, pursuant to the guidance in ASU 2014-09, the Company restated its historical financial results to be consistent with the standard. Accordingly, the amounts for all periods presented in this Form 10-Q reflect the impact of ASU 2014-09.



Condensed Consolidated Statement of Income	Three Months Ended May 5, 2018
	As Reported			Impact of Adoption		As Adjusted
Revenue	$	1,513,053		$	50,449	$	1,563,502
Cost of sales	479,241			11,871		491,112
Gross margin	1,033,812			38,578		1,072,390
Operating expenses:
Research and development	289,472			—		289,472
Selling, marketing, general and administrative	172,146			—		172,146
Amortization of intangibles	107,129			—		107,129
Special charges	1,089			—		1,089
	569,836			—		569,836
Operating income	463,976			38,578		502,554
Nonoperating expense (income):
Interest expense	64,792			—		64,792
Interest income	(1,912		)	—		(1,912		)
Other, net	(451		)	—		(451		)
	62,429			—		62,429
Income before income taxes	401,547			38,578		440,125
Provision for income taxes	21,716			18,081		39,797
Net income	$	379,831		$	20,497	$	400,328
Shares used to compute earnings per common share – basic	370,384			—		370,384
Shares used to compute earnings per common share – diluted	374,778			—		374,778
Basic earnings per common share	$	1.02		$	0.06	$	1.08
Diluted earnings per common share	$	1.01		$	0.05	$	1.06



Condensed Consolidated Statement of Income	Six Months Ended May 5, 2018
	As Reported			Impact of Adoption		As Adjusted
Revenue	$	3,031,677		$	98,695	$	3,130,372
Cost of sales	962,675			23,624		986,299
Gross margin	2,069,002			75,071		2,144,073
Operating expenses:
Research and development	578,069			—		578,069
Selling, marketing, general and administrative	349,054			—		349,054
Amortization of intangibles	214,148			—		214,148
Special charges	58,407			—		58,407
	1,199,678			—		1,199,678
Operating income	869,324			75,071		944,395
Nonoperating expense (income):
Interest expense	132,822			—		132,822
Interest income	(4,004		)	—		(4,004		)
Other, net	105			—		105
	128,923			—		128,923
Income before income taxes	740,401			75,071		815,472
Provision for income taxes	92,398			29,506		121,904
Net income	$	648,003		$	45,565	$	693,568
Shares used to compute earnings per common share – basic	369,685			—		369,685
Shares used to compute earnings per common share – diluted	374,430			—		374,430
Basic earnings per common share	$	1.75		$	0.12	$	1.87
Diluted earnings per common share	$	1.72		$	0.12	$	1.84

The impact on the Company's previously reported condensed consolidated balance sheet line items is as follows:



	November 3, 2018
	As Reported		Impact of Adoption			As Adjusted
Deferred tax assets	$	21,078	$	(11,413	)	$	9,665
Deferred income on shipments to distributors, net	$	487,417	$	(487,417	)	$	—
Accrued liabilities	$	497,080	$	133,027		$	630,107
Deferred income taxes	$	927,065	$	63,344		$	990,409
Retained earnings	$	5,703,064	$	279,633		$	5,982,697

In addition, in the first quarter of fiscal 2019, the Company adopted ASU 2016-16, Income Taxes (Topic 740) (ASU 2016-16) using the modified retrospective method with a cumulative-effect adjustment directly to retained earnings. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The adoption of ASU 2016-16 resulted in the following cumulative-effect increase in the Company's deferred tax assets, deferred tax liabilities and retained earnings as follows:



	November 4, 2018
	Beginning Balance November 3, 2018 as Adjusted		Impact of Adoption of ASU 2016-16		Balance November 4, 2018
Deferred tax assets	$	9,665	$	1,655,129	$	1,664,794
Deferred income taxes	$	990,409	$	1,324,103	$	2,314,512
Retained earnings	$	5,982,697	$	331,026	$	6,313,723

See Note 13, New Accounting Pronouncements, and Note 12, Income Taxes, in these Notes to Condensed Consolidated Financial Statements for more information on the adoption of ASU 2016-16.

Note 2 – Revenue Recognition

Revenue Recognition Policy: In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to achieve a consistent application of revenue recognition, resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the providing entity expects to be entitled in exchange for those goods or services. As a result of the adoption of ASU 2014-09, at the beginning of the first quarter of fiscal 2019, the Company revised its revenue recognition policy. The Company now recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Under ASU 2014-09, the Company recognizes revenue when all of the following criteria are met: (1) the Company has entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been determined, (4) the transaction price has been allocated to the performance obligations in the contract, and (5) the performance obligations have been satisfied. The majority of the Company's shipping terms permit the Company to recognize revenue at point of shipment or delivery. Certain shipping terms require the goods to be through customs or be received by the customer before title passes. In those instances, the Company defers the revenue recognized until title has passed. Shipping costs are charged to cost of sales as incurred. Sales taxes are excluded from revenue.

Revenue from contracts with the United States government, government prime contractors and certain commercial customers is recorded over time using either units delivered or costs incurred as the measurement basis for progress toward completion. These measures are used to measure results directly and is generally the best measure of progress toward completion in circumstances in which a reliable measure of output can be established. Estimated revenue in excess of amounts billed is reported as unbilled receivables. Contract accounting requires judgment in estimating costs and assumptions related to technical issues and delivery schedule. Contract costs include material, subcontract costs, labor and an allocation of indirect costs. The estimation of costs at completion of a contract is subject to numerous variables involving contract costs and estimates as to the length of time to complete the contract. Changes in contract performance, estimated gross margin, including the impact of final contract settlements, and estimated losses are recognized in the period in which the changes or losses are determined.

Performance Obligations: Substantially all of the Company’s contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit (IC) products. Such sales represent a single performance obligation because the sale is one type of good or includes multiple goods that are neither capable of being distinct nor separable from the other promises in the contract. This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates and with an original expected duration of one year or less. As allowed under ASU 2014-09, the Company has opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year. The Company generally offers a twelve-month warranty for its products. The Company’s warranty policy provides for replacement of defective products. Specific accruals are recorded for known product warranty issues.

Transaction Price: The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer and may include fixed or variable amounts. 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 the Company will receive is unknown as of the end of a reporting period. Such consideration primarily includes sales made to distributors under agreements that allow certain rights of return, referred to as stock rotation, and credits issued to the distributor due to price protection. Stock rotation allows distributors limited levels of returns in order to reduce the amounts of slow-moving, discontinued or obsolete product from their inventory. Price protection represents price discounts granted to certain distributors to allow the distributor to earn an appropriate margin on sales negotiated with certain customers and in the event of a price decrease subsequent to the date the product was shipped and billed to the distributor. A refund liability for distributor credits covering variable consideration are made based on the Company's estimate of historical experience rates as well as considering economic conditions and contractual terms. To date, actual distributor claims activity has been materially consistent with the provisions the Company has made based on its historical estimates.

Contract Balances: Accounts receivable represents the Company’s unconditional right to receive consideration from its customers. Payments are typically due within 30 to 45 days of invoicing and do not include a significant financing component. To date, there have been no material impairment losses on accounts receivable. There were no material contract assets or contract liabilities recorded on the condensed consolidated balance sheet in any of the periods presented.

Note 3 – Stock-Based Compensation and Shareholders' Equity

A summary of the Company’s stock option activity as of May 4, 2019 and changes during the three- and six-month periods then ended is presented below:



Activity during the Three Months Ended May 4, 2019	Options Outstanding (in thousands)		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Options outstanding at February 2, 2019	6,741			$60.03
Options granted	413			$108.08
Options exercised	(1,294	)		$52.60
Options forfeited	(38	)		$75.43
Options outstanding at May 4, 2019	5,822			$64.99	6.3		$302,503
Options exercisable at May 4, 2019	3,443			$54.70	5.2		$214,319
Options vested or expected to vest at May 4, 2019 (1)	5,626			$64.30	6.2		$296,225


(1)	In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. The number of options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.



Activity during the Six Months Ended May 4, 2019	Options Outstanding (in thousands)		Weighted- Average Exercise Price Per Share
Options outstanding at November 3, 2018	7,297			$58.42
Options granted	439			$107.08
Options exercised	(1,806	)		$48.44
Options forfeited	(103	)		$72.06
Options expired	(5	)		$21.97
Options outstanding at May 4, 2019	5,822			$64.99

During the three- and six-month periods ended May 4, 2019, the total intrinsic value of options exercised (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the options) was $72.6 million and $99.7 million, respectively, and the total amount of proceeds received by the Company from the exercise of these options was $67.7 million and $86.9 million, respectively.

During the three- and six-month periods ended May 5, 2018, the total intrinsic value of options exercised (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the options) was $28.7 million and $82.5 million, respectively, and the total amount of proceeds received by the Company from the exercise of these options was $27.7 million and $65.6 million, respectively.

A summary of the Company’s restricted stock unit/award activity as of May 4, 2019 and changes during the three- and six-month periods then ended is presented below:



Activity during the Three Months Ended May 4, 2019	Restricted Stock Units/Awards Outstanding (in thousands)		Weighted- Average Grant- Date Fair Value Per Share
Restricted stock units/awards outstanding at February 2, 2019	4,985			$77.76
Units/Awards granted	1,144			$98.90
Restrictions lapsed	(1,074	)		$64.18
Forfeited	(77	)		$78.81
Restricted stock units/awards outstanding at May 4, 2019	4,978			$85.49

Activity during the Six Months Ended May 4, 2019	Restricted Stock Units/Awards Outstanding (in thousands)		Weighted- Average Grant- Date Fair Value Per Share
Restricted stock units/awards outstanding at November 3, 2018	5,289			$77.54
Units/Awards granted	1,200			$98.06
Restrictions lapsed	(1,331	)		$66.00
Forfeited	(180	)		$78.58
Restricted stock units/awards outstanding at May 4, 2019	4,978			$85.49

As of May 4, 2019, there was $395.6 million of total unrecognized compensation cost related to unvested stock-based awards comprised of stock options and restricted stock units/awards. That cost is expected to be recognized over a weighted-average period of 1.6 years. The total grant-date fair value of shares that vested during the three- and six-month periods ended May 4, 2019 was approximately $87.1 million and $106.4 million, respectively. The total grant-date fair value of shares that vested during the three- and six-month periods ended May 5, 2018 was approximately $64.1 million and $84.5 million, respectively.

Common Stock Repurchases

As of May 4, 2019, the Company had repurchased a total of approximately 152.0 million shares of its common stock for approximately $5.8 billion under the Company's share repurchase program. As of May 4, 2019, an additional $2.3 billion remains available for repurchase of shares under the current authorized program.

Note 4 – Accumulated Other Comprehensive Income (Loss)

The following table provides the changes in accumulated other comprehensive income (loss) (OCI) by component and the related tax effects during the first six months of fiscal 2019.

Foreign currency translation adjustment

Unrealized holding gains (losses) on available for sale securities

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$110.55	368	$40,720

10-Q	2019-05-04	Quarter: 2019-05-04
10-Q	2019-02-02	Quarter: 2019-02-02
10-K	2018-11-03	Annual: 2018-11-03
10-Q	2018-08-04	Quarter: 2018-08-04
10-Q	2018-05-05	Quarter: 2018-05-05
10-Q	2018-02-03	Quarter: 2018-02-03
10-K	2017-10-28	Annual: 2017-10-28
10-Q	2017-07-29	Quarter: 2017-07-29
10-Q	2017-04-29	Quarter: 2017-04-29
10-Q	2017-01-28	Quarter: 2017-01-28
10-K	2016-10-29	Annual: 2016-10-29
10-Q	2016-07-30	Quarter: 2016-07-30
10-Q	2016-04-30	Quarter: 2016-04-30
10-Q	2016-01-30	Quarter: 2016-01-30
10-K	2015-10-31	Annual: 2015-10-31
10-Q	2015-08-01	Quarter: 2015-08-01
10-Q	2015-05-02	Quarter: 2015-05-02
10-Q	2015-01-31	Quarter: 2015-01-31
10-K	2014-11-01	Annual: 2014-11-01
10-Q	2014-08-02	Quarter: 2014-08-02
10-Q	2014-05-03	Quarter: 2014-05-03
10-Q	2014-02-01	Quarter: 2014-02-01

8-K	2019-06-28	Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K	2019-05-22	Earnings, Exhibits
8-K	2019-03-13	Shareholder Vote
8-K	2019-02-19	Earnings, Other Events, Exhibits
8-K	2019-01-28	Officers
8-K	2018-12-13	Officers, Amend Bylaw, Exhibits
8-K	2018-11-20	Earnings, Exhibits
8-K	2018-08-31	Officers
8-K	2018-08-21	Earnings, Other Events, Exhibits
8-K	2018-07-20	Officers
8-K	2018-06-13	Officers, Exhibits
8-K	2018-03-14	Shareholder Vote
8-K	2018-03-12	Other Events, Exhibits
8-K	2018-03-08	Other Events, Exhibits
8-K	2018-01-30	Regulation FD, Other Events

AIG	American International Group	44,210
BJ	BJ's	3,730
TTEK	Tetra Tech	3,700
MGPI	MGP Ingredients	1,160
BGG	Briggs & Stratton	492
PRTK	Paratek Pharmaceuticals	180
ATIF	ATIF Holdings	165
EARS	Auris Medical Holding	9
SGLDF	Shoal Games	0
ENTB	Entest Group	0

EX-10.1	q219exhibit101-tsrprsu.htm
EX-10.2	q219exhibit102-finprsu.htm
EX-31.1	q219exhibit311.htm
EX-31.2	q219exhibit312.htm
EX-32.1	q219exhibit321.htm
EX-32.2	q219exhibit322.htm