Basis of Presentation

9 Months Ended

Aug. 03, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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.