Company Quick10K Filing
Quick10K
Analog Devices
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
ADI 2019-05-04
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Revenue Recognition
Note 3 - Stock-Based Compensation and Shareholders' Equity
Note 4 - Accumulated Other Comprehensive Income (Loss)
Note 5 - Earnings per Share
Note 6 - Special Charges
Note 7 - Segment Information
Note 8 - Fair Value
Note 9 - Derivatives
Note 10 - Debt
Note 11 - Inventories
Note 12 - Income Taxes
Note 13 - New Accounting Pronouncements
Note 14 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
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

Analog Devices Earnings 2019-05-04

ADI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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
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 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.

1





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.



2



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.

3



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.

4



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.

5




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

(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.

6



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.

7



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



8



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.

9




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.


10



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.

11



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