Analog Devices Earnings 2019-08-03

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)



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

For the quarterly period ended August 3, 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 ☑ 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 August 3, 2019 there were 369,406,136 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						Nine Months Ended
	August 3, 2019			August 4, 2018 (2)			August 3, 2019			August 4, 2018 (2)
Revenue	$	1,480,143		$	1,558,189		$	4,547,846		$	4,688,561
Cost of sales (1)	482,332			497,631			1,476,287			1,483,930
Gross margin	997,811			1,060,558			3,071,559			3,204,631
Operating expenses:
Research and development (1)	280,102			291,642			853,330			869,711
Selling, marketing, general and administrative (1)	162,825			171,487			493,295			520,541
Amortization of intangibles	107,231			107,409			321,816			321,557
Special charges	927			1,069			30,871			59,476
	551,085			571,607			1,699,312			1,771,285
Operating income	446,726			488,951			1,372,247			1,433,346
Nonoperating expense (income):
Interest expense	59,871			61,665			178,300			194,487
Interest income	(2,625		)	(2,588		)	(8,241		)	(6,592		)
Other, net	(78		)	(632		)	4,287			(527		)
	57,168			58,445			174,346			187,368
Income before income taxes	389,558			430,506			1,197,901			1,245,978
Provision for income taxes	27,184			21,949			112,584			143,853
Net income	$	362,374		$	408,557		$	1,085,317		$	1,102,125
Shares used to compute earnings per common share – basic	369,533			371,315			369,160			370,211
Shares used to compute earnings per common share – diluted	373,077			375,815			372,967			374,880
Basic earnings per common share	$	0.98		$	1.10		$	2.93		$	2.97
Diluted earnings per common share	$	0.97		$	1.08		$	2.90		$	2.93
(1) Includes stock-based compensation expense as follows:
Cost of sales	$	5,247		$	5,734		$	15,720		$	13,775
Research and development	$	18,802		$	18,018		$	57,294		$	59,764
Selling, marketing, general and administrative	$	12,049		$	13,143		$	39,706		$	40,172

(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						Nine Months Ended
	August 3, 2019			August 4, 2018 (1)			August 3, 2019			August 4, 2018 (1)
Net income	$	362,374		$	408,557		$	1,085,317		$	1,102,125
Foreign currency translation adjustments	(4,021		)	(9,345		)	(4,133		)	(2,593		)
Change in fair value of available-for-sale securities	(5		)	2			10			5
Change in fair value of derivative instruments designated as cash flow hedges (net of taxes of $14,574, $847, $24,757 and $476, respectively)	(54,811		)	(4,378		)	(92,661		)	(2,641		)
Changes in pension plans including transition obligation, net actuarial loss and foreign currency translation adjustments (net of taxes of $60, $96, $186 and $298, respectively)	1,185			1,266			1,551			1,122
Other comprehensive loss	(57,652		)	(12,455		)	(95,233		)	(4,107		)
Comprehensive income	$	304,722		$	396,102		$	990,084		$	1,098,018

(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)

	August 3, 2019			November 3, 2018 (1)
ASSETS
Current Assets
Cash and cash equivalents	$	612,164		$	816,591
Accounts receivable	689,976			639,717
Inventories (2)	638,305			586,760
Prepaid expenses and other current assets	66,613			69,058
Total current assets	2,007,058			2,112,126
Property, Plant and Equipment, at Cost
Land and buildings	926,112			873,186
Machinery and equipment	2,594,832			2,478,032
Office equipment	84,487			76,233
Leasehold improvements	154,316			100,374
	3,759,747			3,527,825
Less accumulated depreciation and amortization	2,538,555			2,373,497
Net property, plant and equipment	1,221,192			1,154,328
Other Assets
Deferred compensation plan investments	45,778			39,853
Other investments	32,290			28,730
Goodwill	12,247,888			12,252,604
Intangible assets, net	4,346,377			4,778,192
Deferred tax assets	1,606,267			9,665
Other assets	59,800			62,868
Total other assets	18,338,400			17,171,912
	$	21,566,650		$	20,438,366
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	220,230		$	260,919
Income taxes payable	173,917			93,722
Debt, current	411,434			67,000
Accrued liabilities	678,099			630,107
Total current liabilities	1,483,680			1,051,748
Non-current liabilities
Long-term debt	5,278,643			6,265,674
Deferred income taxes	2,171,029			990,409
Deferred compensation plan liability	45,778			39,846
Income taxes payable	649,228			710,179
Other non-current liabilities	148,055			112,337
Total non-current liabilities	8,292,733			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, 369,406,136 shares outstanding (370,159,553 on November 3, 2018)	61,569			61,694
Capital in excess of par value	5,060,586			5,282,222
Retained earnings	6,821,755			5,982,697
Accumulated other comprehensive loss	(153,673		)	(58,440		)
Total shareholders’ equity	11,790,237			11,268,173
	$	21,566,650		$	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 $7,091 and $7,128 related to stock-based compensation at August 3, 2019 and November 3, 2018, respectively.

See accompanying notes.

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(in thousands)



	Three Months Ended August 3, 2019
						Capital in						Accumulated Other
	Common Stock					Excess of			Retained			Comprehensive
	Shares		Amount			Par Value			Earnings			(Loss) Income
BALANCE, MAY 4, 2019	369,761		$	61,628		$	5,117,202		$	6,659,449		$	(96,021	)
Net income									362,374
Dividends declared and paid - $0.54 per share									(200,068		)
Issuance of stock under stock plans and other	667		111			19,117
Stock-based compensation expense						36,098
Other comprehensive loss												(57,652		)
Common stock repurchased	(1,022	)	(170		)	(111,831		)
BALANCE, AUGUST 3, 2019	369,406		$	61,569		$	5,060,586		$	6,821,755		$	(153,673	)

	Nine Months Ended August 3, 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									1,085,317
Dividends declared and paid - $1.56 per share									(577,285		)
Issuance of stock under stock plans and other	3,807		635			105,500
Stock-based compensation expense						112,720
Other comprehensive loss												(95,233		)
Common stock repurchased	(4,561	)	(760		)	(439,856		)
BALANCE, AUGUST 3, 2019	369,406		$	61,569		$	5,060,586		$	6,821,755		$	(153,673	)


(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 August 4, 2018
						Capital in						Accumulated Other
	Common Stock					Excess of			Retained			Comprehensive
	Shares		Amount			Par Value			Earnings			(Loss) Income
BALANCE, MAY 5, 2018 (1)	370,897		$	61,817		$	5,362,608		$	5,527,591		$	(53,011	)
Net income									408,557
Dividends declared and paid - $0.48 per share									(178,890		)
Issuance of stock under stock plans and other	893		149			22,652
Stock-based compensation expense						36,895
Other comprehensive loss												(12,455		)
Common stock repurchased	(120	)	(20		)	(11,933		)
BALANCE, AUGUST 4, 2018	371,670		$	61,946		$	5,410,222		$	5,757,258		$	(65,466	)

	Nine Months Ended August 4, 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									1,102,125
Dividends declared and paid - $1.41 per share									(523,891		)
Issuance of stock under stock plans and other	3,468		578			87,780
Stock-based compensation expense						113,711
Other comprehensive loss												(4,107		)
Common stock repurchased	(434	)	(73		)	(41,788		)
BALANCE, AUGUST 4, 2018	371,670		$	61,946		$	5,410,222		$	5,757,258		$	(65,466	)


(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)



	Nine Months Ended
	August 3, 2019			August 4, 2018 (1)
Cash flows from operating activities:
Net income	$	1,085,317		$	1,102,125
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	179,041			169,651
Amortization of intangibles	427,046			428,222
Stock-based compensation expense	112,720			113,711
Non-cash portion of special charge	4,367			—
Deferred income taxes	(55,444		)	(711,484		)
Other non-cash activity	26,701			22,019
Changes in operating assets and liabilities	(184,552		)	603,676
Total adjustments	509,879			625,795
Net cash provided by operating activities	1,595,196			1,727,920
Cash flows from investing activities:
Additions to property, plant and equipment	(224,297		)	(168,872		)
Payments for acquisitions, net of cash acquired	—			(52,839		)
Changes in other assets	(5,132		)	(3,268		)
Net cash used for investing activities	(229,429		)	(224,979		)
Cash flows from financing activities:
Proceeds from debt	1,250,000			743,778
Early termination of debt	(1,250,000		)	—
Proceeds from revolver	75,000			—
Payments on revolver	(75,000		)	—
Debt repayments	(650,000		)	(2,050,000		)
Dividend payments to shareholders	(577,285		)	(523,891		)
Repurchase of common stock	(440,616		)	(41,861		)
Proceeds from employee stock plans	106,135			88,358
Changes in other financing activities	(7,918		)	6,320
Net cash used for financing activities	(1,569,684		)	(1,777,296		)
Effect of exchange rate changes on cash	(510		)	(908		)
Net decrease in cash and cash equivalents	(204,427		)	(275,263		)
Cash and cash equivalents at beginning of period	816,591			1,047,838
Cash and cash equivalents at end of period	$	612,164		$	772,575

See accompanying notes.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED AUGUST 3, 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 nine months of fiscal 2019 included one less week of operations as compared to the first nine 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 August 4, 2018
	As Reported			Impact of Adoption			As Adjusted
Revenue	$	1,572,679		$	(14,490	)	$	1,558,189
Cost of sales	502,033			(4,402		)	497,631
Gross margin	1,070,646			(10,088		)	1,060,558
Operating expenses:
Research and development	291,642			—			291,642
Selling, marketing, general and administrative	171,487			—			171,487
Amortization of intangibles	107,409			—			107,409
Special charges	1,069			—			1,069
	571,607			—			571,607
Operating income	499,039			(10,088		)	488,951
Nonoperating expense (income):
Interest expense	61,665			—			61,665
Interest income	(2,588		)	—			(2,588		)
Other, net	(632		)	—			(632		)
	58,445			—			58,445
Income before income taxes	440,594			(10,088		)	430,506
Provision for income taxes	26,130			(4,181		)	21,949
Net income	$	414,464		$	(5,907	)	$	408,557
Shares used to compute earnings per common share – basic	371,315			—			371,315
Shares used to compute earnings per common share – diluted	375,815			—			375,815
Basic earnings per common share (1)	$	1.11		$	(0.02	)	$	1.10
Diluted earnings per common share (1)	$	1.10		$	(0.02	)	$	1.08

(1) The sum of the per share amounts may not equal the total due to rounding.



Condensed Consolidated Statement of Income	Nine Months Ended August 4, 2018
	As Reported			Impact of Adoption		As Adjusted
Revenue	$	4,604,356		$	84,205	$	4,688,561
Cost of sales	1,464,708			19,222		1,483,930
Gross margin	3,139,648			64,983		3,204,631
Operating expenses:
Research and development	869,711			—		869,711
Selling, marketing, general and administrative	520,541			—		520,541
Amortization of intangibles	321,557			—		321,557
Special charges	59,476			—		59,476
	1,771,285			—		1,771,285
Operating income	1,368,363			64,983		1,433,346
Nonoperating expense (income):
Interest expense	194,487			—		194,487
Interest income	(6,592		)	—		(6,592		)
Other, net	(527		)	—		(527		)
	187,368			—		187,368
Income before income taxes	1,180,995			64,983		1,245,978
Provision for income taxes	118,528			25,325		143,853
Net income	$	1,062,467		$	39,658	$	1,102,125
Shares used to compute earnings per common share – basic	370,211			—		370,211
Shares used to compute earnings per common share – diluted	374,880			—		374,880
Basic earnings per common share	$	2.86		$	0.11	$	2.97
Diluted earnings per common share	$	2.82		$	0.11	$	2.93

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 selling, marketing, general and administrative expense 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 August 3, 2019 and changes during the three- and nine-month periods then ended is presented below:



Activity During The Three Months Ended August 3, 2019	Options Outstanding (in thousands)		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Options outstanding at May 4, 2019	5,822			$64.99
Options granted	14			$108.06
Options exercised	(360	)		$54.07
Options forfeited	(85	)		$85.29
Options outstanding at August 3, 2019	5,391			$65.51	6.1		$254,294
Options exercisable at August 3, 2019	3,117			$55.04	5.0		$179,685
Options vested or expected to vest at August 3, 2019 (1)	5,227			$64.90	6.1		$249,744


(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 Nine Months Ended August 3, 2019	Options Outstanding (in thousands)		Weighted- Average Exercise Price Per Share
Options outstanding at November 3, 2018	7,297			$58.42
Options granted	454			$107.11
Options exercised	(2,168	)		$

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$108.03	370	$39,945

10-Q	2019-08-03	Quarter: 2019-08-03
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	2019-08-21	Earnings, Exhibits
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

TSM	Taiwan Semiconductor Manufacturing	1,071,962
INTC	Intel	205,002
AMAT	Applied Materials	42,602
ASX	ASE Technology Holding	19,018
IPGP	IPG Photonics	6,267
JKS	Jinkosolar Holding	3,167
POWI	Power Integrations	2,585
OSIS	OSI Systems	1,902
FORM	Formfactor	1,253
LEDS	SemiLEDS	9

EX-31.1	q319exhibit311.htm
EX-31.2	q319exhibit312.htm
EX-32.1	q319exhibit321.htm
EX-32.2	q319exhibit322.htm