The Company’s fiscal year is the 52-week or 53-week period ending on the Saturday closest to the last day in October. Fiscal 2019 and fiscal 2017 were 52-week fiscal periods, while fiscal 2018 was a 53-week period. The additional week in fiscal 2018 was included in the first quarter ended February 3, 2018. Therefore, fiscal 2018 included an additional week of operations as compared to fiscal 2019 and fiscal 2017.

On March 10, 2017 (Acquisition Date), the Company completed the acquisition of all of the voting interests of Linear Technology Corporation (Linear), an independent manufacturer of high performance analog integrated circuits. The total consideration paid to acquire Linear was approximately $15.8 billion, consisting of $11.1 billion in cash financed through existing cash on hand, net proceeds from bridge and term loan facilities and proceeds received from the issuance of senior unsecured notes, $4.6 billion from the issuance of the Company's common stock and $0.1 billion of consideration related to the replacement of outstanding equity awards held by Linear employees. The acquisition of Linear is referred to as the Acquisition. The Consolidated Financial Statements included in this Annual Report on Form 10-K include the financial results of Linear prospectively from the Acquisition Date. See Note 6, Acquisitions, of these Notes to Consolidated Financial Statements for further discussion related to the Acquisition.

As further discussed in Note 2n, Revenue Recognition, 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 2n, Revenue Recognition, in these Notes to

Consolidated Financial Statements for the details of the Company’s revenue recognition policies. The adoption of ASU 2014-09 impacted the Company’s consolidated statements of income and consolidated balance sheets but did not impact its 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 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 fiscal 2019, fiscal 2018 and fiscal 2017 periods presented in this Form 10-K reflect the impact of ASU 2014-09.

In addition, the Company adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost in the first quarter of fiscal 2019. Under this ASU, the service cost component of net periodic benefit cost is recorded in Cost of sales, Research and development, Selling, marketing, general and administrate expenses, while the remaining components are recorded to Other, net within the Company's consolidated statements of income. As such, the prior year amounts have been reclassified to provide comparable presentation in line with the guidance in ASU 2017-07 based on amounts previously disclosed for the various components of net periodic pension cost. See Note 11, Retirement Plans, in these Notes to Consolidated Financial Statements for more information on the adoption of ASU 2017-07.


	Year Ended November 3, 2018
Consolidated Statement of Income	As Reported		Impact of Adoption of ASU 2014-09		Impact of Adoption of ASU 2017-07		As Adjusted
Revenue	$	6,200,942	$	23,747	$	—	$	6,224,689
Cost of sales	1,967,640		6,950		(297)		1,974,293
Gross margin	4,233,302		16,797		297		4,250,396
Operating expenses:
Research and development	1,165,410		—		(363)		1,165,047
Selling, marketing, general and administrative	695,937		—		(397)		695,540
Amortization of intangibles	428,902		—		—		428,902
Special charges	61,318		—		—		61,318
	2,351,567		—		(760)		2,350,807
Operating income	1,881,735		16,797		1,057		1,899,589
Nonoperating expense (income):
Interest expense	253,589		—		—		253,589
Interest income	(9,383)		—		—		(9,383)
Other, net	(988)		—		1,057		69
	243,218		—		1,057		244,275
Income before income taxes	1,638,517		16,797		—		1,655,314
Provision for income taxes	143,085		5,249		—		148,334
Net income	$	1,495,432	$	11,548	$	—	$	1,506,980
Shares used to compute earnings per common share – basic	370,430		—		—		370,430
Shares used to compute earnings per common share – diluted	374,938		—		—		374,938
Basic earnings per common share	$	4.02	$	0.03	$	—	$	4.05
Diluted earnings per common share	$	3.97	$	0.03	$	—	$	4.00


	Year Ended October 28, 2017
Consolidated Statement of Income	As Reported		Impact of Adoption of ASU 2014-09		Impact of Adoption of ASU 2017-07		As Adjusted
Revenue	$	5,107,503	$	138,851	$	—	$	5,246,354
Cost of sales	2,045,907		32,589		(383)		2,078,113
Gross margin	3,061,596		106,262		383		3,168,241
Operating expenses:
Research and development	968,602		—		(469)		968,133
Selling, marketing, general and administrative	691,046		—		(513)		690,533
Amortization of intangibles	297,351		—		—		297,351
Special charges	49,463		—		—		49,463
	2,006,462		—		(982)		2,005,480
Operating income	1,055,134		106,262		1,365		1,162,761
Nonoperating expense (income):
Interest expense	250,840		—		—		250,840
Interest income	(30,333)		—		—		(30,333)
Other, net	6,142		—		1,365		7,507
	226,649		—		1,365		228,014
Income before income taxes	828,485		106,262		—		934,747
Provision for income taxes	101,226		28,142		—		129,368
Net income	$	727,259	$	78,120	$	—	$	805,379
Shares used to compute earnings per common share – basic	346,371		—		—		346,371
Shares used to compute earnings per common share – diluted	350,484		—		—		350,484
Basic earnings per common share	$	2.09	$	0.23	$	—	$	2.32
Diluted earnings per common share	$	2.07	$	0.22	$	—	$	2.29

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:

The Company classifies its investments in readily marketable debt and equity securities as “held-to-maturity,” “available-for-sale” or “trading” at the time of purchase. There were no transfers between investment classifications in any of the fiscal years presented. Held-to-maturity securities, which are carried at amortized cost, include only those securities the Company has the positive intent and ability to hold to maturity. Securities such as bank time deposits, which by their nature are typically held to maturity, are classified as such. The Company’s other readily marketable cash equivalents are classified as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses, net of related tax, reported in accumulated other comprehensive (loss) income (AOCI). Adjustments to the fair value of investments classified as available-for-sale are recorded as an increase or decrease in AOCI, unless the adjustment is considered an other-than-temporary impairment, in which case the adjustment is recorded as a charge in the consolidated statements of income.

Inventories are valued at the lower of cost (first-in, first-out method) or market. The valuation of inventory requires the Company to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The Company employs a variety of methodologies to determine the net realizable value of its inventory. While a portion of the calculation to record inventory at its net realizable value is based on the age of the inventory and lower of cost or market calculations, a key factor in estimating obsolete or excess inventory requires the Company to estimate the future demand for its products. If actual demand is less than the Company’s estimates, impairment charges, which are recorded to cost of sales, may need to be recorded in future periods. Inventory in excess of saleable amounts is not valued, and the remaining inventory is valued at the lower of cost or market.

Property, plant and equipment is recorded at cost, less allowances for depreciation. The straight-line method of depreciation is used for all classes of assets for financial statement purposes while both straight-line and accelerated methods are used for income tax purposes. Leasehold improvements are depreciated over the lesser of the term of the lease or the useful life of the asset. Repairs and maintenance charges are expensed as incurred. Depreciation is based on the following ranges of estimated useful lives:

The Company reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Recoverability of these assets is determined by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate over their remaining economic lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. If such assets are not impaired, but their useful lives have decreased, the remaining net book value is depreciated over the revised useful life. The Company has not recorded any material impairment charges related to our property, plant and equipment in fiscal 2019, fiscal 2018 or fiscal 2017.

The Company evaluates goodwill for impairment annually, utilizing either the qualitative or quantitative method, as well as whenever events or changes in circumstances suggest that the carrying value of goodwill may not be recoverable. The Company tests goodwill for impairment at the reporting unit level, which the Company has determined is consistent with our eight identified operating segments, on an annual basis on the first day of the fourth quarter (on or about August 4) or more frequently if indicators of impairment exist or the Company reorganizes its reporting units. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its net

In the Company's annual impairment evaluation that occurred for fiscal 2019, management used the qualitative method of assessing goodwill for seven of its eight reporting units and the quantitative method for one reporting unit. In fiscal 2018, the Company used the qualitative method for all eight of its identified reporting units. For each of the reporting units evaluated using the qualitative method in fiscal 2019 and fiscal 2018, the Company determined that it was not more likely than not that the fair values were less than their net book values. In making this determination, the Company considered several factors, including the following:

As a result of the quantitative goodwill impairment analysis performed in fiscal 2019 for one of the Company's reporting units, the Company concluded the reporting unit’s fair value exceeded its carrying amount as of the assessment date and no risk of impairment existed. The first step of the goodwill impairment test requires an entity to compare the fair value of a reporting unit with its carrying amount. The Company determined the fair value of its reporting unit using a weighting of the income and market approaches. Under the income approach, the Company used a discounted cash flow methodology which required management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, perpetual growth rates, and long-term discount rates, among others. For the market approach, the Company used the guideline public company method. Under this method the Company utilized information from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit, to estimate valuation multiples that are applied to the operating performance of the reporting unit, in order to estimate its fair value.

The Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable. If required, recoverability of these assets is determined by comparison of their carrying value to the estimated future undiscounted cash flows the assets are expected to generate over their remaining estimated useful lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying value of the assets exceeds their estimated fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.

In-process research and development (IPR&D) assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development (R&D) efforts. Upon completion of the projects, the IPR&D assets are reclassified to technology-based intangible assets and amortized over their estimated useful lives. During fiscal 2019, the company recorded $14.2 million of special charges related to the write-off of acquired intellectual property, classified as IPR&D, due to the Company's decision to discontinue certain product development strategies.


	November 2, 2019						November 3, 2018
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	4,696,562	$	1,284,256	$	4,697,716	$	867,207
Technology-based	1,145,283		385,618		1,114,080		243,350
Trade-name	73,417		28,164		74,031		17,846

IPR&D	—		—		20,768		—
Total (1) (2)	$	5,915,262	$	1,698,038	$	5,906,595	$	1,128,403

Amortization expense related to finite-lived intangible assets was $570.6 million, $570.5 million and $389.4 million in fiscal 2019, 2018 and 2017, respectively, and is recorded in Cost of sales and Amortization of intangibles on the consolidated statements of income. The remaining amortization expense will be recognized over a weighted average life of approximately 4.1 years.

Certain of the Company’s foreign subsidiaries have received grants from governmental agencies. These grants include capital, employment and research and development grants. Capital grants for the acquisition of property and equipment are netted against the related capital expenditures and amortized as a credit to depreciation expense over the estimated useful life of the related asset. Employment grants, which relate to employee hiring and training, and research and development grants are recognized in earnings in the period in which the related expenditures are incurred by the Company. The amounts recognized were not material in fiscal 2019, fiscal 2018 or fiscal 2017.

Foreign Exchange Exposure Management — The Company enters into forward foreign currency exchange contracts to offset certain operational and balance sheet exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company’s operations, assets and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Euro; other significant exposures include the British Pound, Philippine Peso and the Japanese Yen. Derivative instruments are employed to eliminate or minimize certain foreign currency exposures that can be confidently identified and quantified. These foreign currency exchange contracts are entered into to support transactions made in the normal course of business, and accordingly, are not speculative in nature. The contracts are for periods consistent with the terms of the underlying transactions, generally one year or less. Hedges related to anticipated transactions are matched with the underlying exposures at inception and designated and documented as cash flow hedges. They are qualitatively evaluated for effectiveness on a quarterly basis. The gain or loss on the derivatives are reported as a component of AOCI in shareholders’ equity and reclassified into earnings in the same line item on the consolidated statements of income as the impact of the hedged transaction in the same period during which the hedged transaction affects earnings.

The total notional amounts of forward foreign currency derivative instruments designated as hedging instruments of cash flow hedges denominated in Euros, British Pounds, Philippine Pesos and Japanese Yen as of November 2, 2019 and November 3, 2018 was $191.1 million and $194.4 million, respectively. The fair values of forward foreign currency derivative instruments designated as hedging instruments in the Company’s consolidated balance sheets as of November 2, 2019 and November 3, 2018 were as follows:

Additionally, the Company enters into forward foreign currency contracts that economically hedge the gains and losses generated by the re-measurement of certain recorded assets and liabilities in a non-functional currency. Changes in the fair value of these undesignated hedges are recognized in other (income) expense immediately as an offset to the changes in the fair value of the asset or liability being hedged. As of November 2, 2019 and November 3, 2018, the total notional amount of these undesignated hedges was $55.3 million and $40.6 million, respectively. The fair value of these hedging instruments in the Company’s consolidated balance sheets was immaterial as of November 2, 2019 and November 3, 2018.

All of the Company’s derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's consolidated balance sheets on a net basis. As of November 2, 2019 and November 3, 2018, none of the netting arrangements involved collateral. The following table presents the gross amounts of the Company's derivative assets and liabilities and the net amounts recorded in the Company's consolidated balance sheets as of November 2, 2019 and November 3, 2018:

Interest Rate Exposure Management — The Company's current and future debt may be subject to interest rate risk. The Company utilizes interest rate derivatives to alter interest rate exposure in an attempt to reduce the effects of the changes in interest rates. During fiscal 2019, the Company entered into an interest rate swap agreement which locked in the interest rate for up to $1 billion in future debt issuances. The interest rate swap was designated and qualified as a cash flow hedge. The fair value of this hedge was $138.8 million as of November 2, 2019 and is included within accrued liabilities in the Company's consolidated balance sheets.

counterparties to the agreements relating to the Company’s derivative instruments consist of a number of major international financial institutions with high credit ratings. Based on the credit ratings of the Company’s counterparties as of November 2, 2019 and November 3, 2018, nonperformance is not perceived to be a material risk. Furthermore, none of the Company’s derivatives are subject to collateral or other security arrangements and none contain provisions that are dependent on the Company’s credit ratings from any credit rating agency. While the contract or notional amounts of derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of the Company’s exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the obligations of the Company to the counterparties. As a result of the above considerations, the Company does not consider the risk of counterparty default to be significant.

The Company records the fair value of its derivative financial instruments in its consolidated financial statements in other current assets, other assets, accrued liabilities and other non-current liabilities, depending on their net position, regardless of the purpose or intent for holding the derivative contract. Changes in the fair value of the derivative financial instruments are either recognized periodically in earnings or in shareholders’ equity as a component of OCI. Changes in the fair value of cash flow hedges are recorded in OCI and reclassified into earnings in the same line item on the consolidated statements of income as the impact of the hedged transaction when the underlying contract matures. Changes in the fair values of derivatives not qualifying for hedge accounting are reported in earnings as they occur.

The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The tables below, set forth by level, presents the Company’s financial assets and liabilities, excluding accrued interest components, that were accounted for at fair value on a recurring basis as of November 2, 2019 and November 3, 2018. The tables exclude cash on hand and assets and liabilities that are measured at historical cost or any basis other than fair value. As of November 2, 2019 and November 3, 2018, the Company held $231.4 million and $217.6 million, respectively, of cash and held-to-maturity investments that were excluded from the tables below.


	November 2, 2019
	Fair Value measurement at Reporting Date using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total
Assets
Cash equivalents:
Available-for-sale:
Government and institutional money market funds	$	416,890	$	—	$	416,890









Other assets:

Deferred compensation investments	48,302		—		48,302

Total assets measured at fair value	$	465,192	$	—	$	465,192
Liabilities


Interest rate derivatives	—		138,798		138,798
Total liabilities measured at fair value	$	—	$	138,798	$	138,798


	November 3, 2018
	Fair Value measurement at Reporting Date using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total
Assets
Cash equivalents:
Available-for-sale:
Government and institutional money market funds	$	394,076	$	—	$	394,076
Corporate obligations (1)	—		204,886		204,886








Other assets:

Deferred compensation investments	41,001		—		41,001
Interest rate derivatives	—		1,436		1,436
Total assets measured at fair value	$	435,077	$	206,322	$	641,399
Liabilities

Forward foreign currency exchange contracts (2)	—		7,150		7,150

Total liabilities measured at fair value	$	—	$	7,150	$	7,150

Forward foreign currency exchange contracts — The estimated fair value of forward foreign currency exchange contracts, which includes derivatives that are accounted for as cash flow hedges and those that are not designated as cash flow hedges, is based on the estimated amount the Company would receive if it sold these agreements at the reporting date taking into consideration current interest rates as well as the creditworthiness of the counterparty for assets and the Company’s creditworthiness for liabilities. The fair value of these instruments is based upon valuation models using current market information such as strike price, spot rate, maturity date and volatility.

The table below presents the estimated fair value of certain financial instruments not recorded at fair value on a recurring basis. The carrying amounts of the term loan approximates fair value. The term loan is classified as Level 2 measurements according to the fair value hierarchy. The fair values of the senior unsecured notes debt are obtained from broker prices and are classified as Level 1 measurements according to the fair value hierarchy. See Note 14, Debt, of these Notes to Consolidated Financial Statements for further discussion related to outstanding debt.


	November 2, 2019						November 3, 2018
	Principal Amount Outstanding		Fair Value		Principal Amount Outstanding		Fair Value
3-Year term loan, due March 2022	$	925,000	$	925,000	$	—	$	—
3-Year term loan, due March 2020	—		—		425,000		425,000
5-Year term loan, due March 2022	—		—		1,350,000		1,350,000
2020 Notes, due March 2020	300,000		300,872		300,000		298,147
2021 Notes, due January 2021	450,000		454,634		450,000		444,568
2021 Notes, due December 2021	400,000		402,591		400,000		386,375
2023 Notes, due June 2023	500,000		511,190		500,000		479,189
2023 Notes, due December 2023	550,000		567,159		550,000		529,120
2025 Notes, due December 2025	850,000		914,567		850,000		829,611
2026 Notes, due December 2026	900,000		940,192		900,000		848,027
2036 Notes, due December 2036	250,000		270,891		250,000		232,627
2045 Notes, due December 2045	400,000		491,439		400,000		407,984
Total Debt	$	5,525,000	$	5,778,535	$	6,375,000	$	6,230,648

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates relate to the useful lives of fixed assets and identified intangible assets; allowances for doubtful accounts and customer returns; the net realizable value of inventory; potential reserves relating to litigation matters; accrued liabilities, including estimates of variable consideration related to distributor sales; accrued taxes; uncertain tax positions; deferred tax valuation allowances; assumptions pertaining to stock-based compensation payments and defined benefit plans; and fair value of acquired assets and liabilities, including inventory, property, plant and equipment, goodwill, and acquired intangibles; and other reserves. Actual results could differ from those estimates and such differences may be material to the financial statements.

The Company sells its products to distributors and original equipment manufacturers (OEMs) involved in a variety of industries including industrial process automation, instrumentation, defense/aerospace, automotive, communications, computers and computer peripherals and consumer electronics. The Company has adopted credit policies and standards to accommodate growth in these markets. The Company performs continuing credit evaluations of its customers’ financial condition and although the Company generally does not require collateral, the Company may require letters of credit from customers in certain circumstances. The Company provides reserves for estimated amounts of accounts receivable that may not be collected.

The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. The Company’s financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property in a rapidly evolving market and reliance on assembly and test subcontractors, third-party wafer fabricators and independent distributors. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns at various times. The Company is exposed to the risk of obsolescence of its inventory depending on the mix of future business. Additionally, a large portion of the Company’s purchases of external wafer and foundry services are from a limited number of suppliers, such as Taiwan Semiconductor Manufacturing Company (TSMC) and others. If these suppliers or any of the Company’s other key suppliers are unable or unwilling to manufacture and deliver sufficient quantities of components, on the time schedule and of the quality that the Company requires, the Company may be forced to engage additional or replacement suppliers, which could result in significant expenses and disruptions or delays in manufacturing, product development and shipment of product to the Company’s customers. Although the Company has experienced shortages of components, materials and external foundry services from time to time, these items have generally been available to the Company as needed.

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 new revenue accounting rules in 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 this rule, 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

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 credits issued to the distributor due to price protection and sales made to distributors under agreements that allow certain rights of return, referred to as stock rotation. 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. Stock rotation allows distributors limited levels of returns in order to reduce the amounts of slow-moving, discontinued or obsolete product from their inventory. A liability for distributor credits covering variable consideration is 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. For the years ended November 2, 2019 and November 3, 2018, sales to distributors were $3.4 billion in both periods, net of variable consideration for which the liability balances as of November 2, 2019 and November 3, 2018 were $227.0 million and $144.9 million, respectively.

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 consolidated balance sheets in any of the periods presented.


	Foreign currency translation adjustment		Unrealized holding gains (losses) on available for sale securities		Unrealized holding gains (losses) on derivatives		Pension plans		Total
November 3, 2018	$	(28,711)	$	(10)	$	(14,355)	$	(15,364)	$	(58,440)
Other comprehensive (loss) income before reclassifications	(1,365)		10		(140,728)		(31,082)		(173,165)
Amounts reclassified out of other comprehensive loss	—		—		9,185		1,004		10,189
Tax effects	—		—		27,883		5,734		33,617
Other comprehensive (loss) income	(1,365)		10		(103,660)		(24,344)		(129,359)
November 2, 2019	$	(30,076)	$	—	$	(118,015)	$	(39,708)	$	(187,799)



Comprehensive Income Component	2019		2018		Location
Unrealized holding gains (losses) on derivatives
Currency forwards	$	1,736	$	396	Cost of sales
	2,956		(462)		Research and development
	3,056		(317)		Selling, marketing, general and administrative



Interest rate derivatives	1,437		(1,324)		Interest expense
	9,185		(1,707)		Total before tax
	(1,518)		94		Tax
	$	7,667	$	(1,613)	Net of tax

Amortization of pension components
Transition obligation	$	—	$	10	(1)
Prior service credit and curtailment recognition	—		1		(1)
Actuarial losses and settlement recognition	1,004		1,621		(1)
	1,004		1,632		Total before tax


	(248)		(395)		Tax
	$	756	$	1,237	Net of tax

Total amounts reclassified out of AOCI, net of tax	$	8,423	$	(376)

Deferred tax assets and liabilities are determined based on the differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted income tax rates and laws that are expected to be in effect when the temporary differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. The calculation of the tax liabilities involves dealing with uncertainties in the application of complex tax regulations. If it is more likely than not that the tax position will not be sustained on audit, an uncertain tax position is recorded. The Company re-evaluates these uncertain tax positions on a quarterly basis. See Note 12, Income Taxes, of these Notes to Consolidated Financial Statements for further information related to income taxes.

Basic earnings per share is computed based only on the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other potentially dilutive securities using the treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock options and restricted stock units is computed using the average market price for the respective period. In addition, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of stock options that are in-the-money and restricted stock units. This results in the “assumed” buyback of additional shares, thereby reducing the dilutive impact of in-the-money stock options. Potential shares related to certain of the Company’s outstanding stock options and restricted stock units were excluded because they were anti-dilutive. Those potential shares, determined based on the weighted average exercise prices during the respective periods, could be dilutive in the future.

In connection with the Acquisition, the Company granted restricted stock awards to replace outstanding restricted stock awards of Linear employees. These restricted stock awards entitle recipients to voting and nonforfeitable dividend rights from the date of grant. These unvested stock-based compensation awards are considered participating securities and the two-class method is used for purposes of calculating earnings per share. Under the two-class method, a portion of net income is allocated to these participating securities and therefore is excluded from the calculation of earnings per share allocated to common stock, as shown in the table below. The difference between the income allocated to participating securities under the basic and diluted two-class methods is not material.


	2019		2018 (1)		2017 (1)
Net income	$	1,363,011	$	1,506,980	$	805,379
Less: income allocated to participating securities	3,229		5,909		2,243
Net income allocated to common shareholders	$	1,359,782	$	1,501,071	$	803,136

Basic shares:
Weighted-average shares outstanding	369,133		370,430		346,371
Earnings per common share basic	$	3.68	$	4.05	$	2.32

Diluted shares:
Weighted-average shares outstanding	369,133		370,430		346,371
Assumed exercise of common stock equivalents	3,738		4,508		4,113
Weighted-average common and common equivalent shares	372,871		374,938		350,484
Earnings per common share diluted	$	3.65	$	4.00	$	2.29
Anti-dilutive shares related to:
Outstanding stock options	826		1,649		1,527

Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards ultimately expected to vest and is recognized as an expense on a straight-line basis over the vesting period, which is generally four years for stock options and restricted stock units, or in annual installments of 25% on each of the first, second, third and fourth anniversaries of the date of grant. For grants issued prior to fiscal 2018, the vesting period was generally five years for stock options, or in annual installments of 20% on each of the first, second, third, fourth and fifth anniversaries of the date of grant and in one installment on the third anniversary of the date of grant for restricted stock units/awards. Determining the amount of stock-based compensation to be recorded for stock options requires the Company to develop estimates used in calculating the grant-date fair value of awards. The Company uses the Black-Scholes valuation model to calculate the grant-date fair value of stock option awards. The use of valuation models requires the Company to make estimates and assumptions, such as expected volatility, expected term, risk-free interest rate, expected dividend yield and forfeiture rates. The grant-date fair value of restricted stock units with only a service condition represents the value of the Company's common stock on the date of grant, reduced by the present value of dividends expected to be paid on the Company's common stock prior to vesting. See Note 3, Stock-Based Compensation and Shareholders' Equity, of these Notes to Consolidated Financial Statements for additional information relating to stock-based compensation.

In May 2014, the FASB issued ASU 2014-09, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB issued several amendments and updates to the new revenue standard, including guidance related to when an entity should recognize revenue gross as a principal or net as an agent and how an entity should identify performance obligations. The Company adopted ASU 2014-09 in the first quarter of fiscal 2019 using the full retrospective method and restated prior periods. As a result of the adoption of ASU 2014-09 the Company changed its accounting policy for revenue recognition. See Note 2a, Principles of Consolidation, and Note 2n, Revenue Recognition, in these Notes to Consolidated Financial Statements for details of the impact of ASU 2014-09 on the Company's financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) (ASU 2016-16). 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. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2016-16 in the first quarter of fiscal 2019 using the modified retrospective method with a cumulative-effect adjustment directly to retained earnings. The adoption of ASU 2016-16 resulted in a net cumulative-effect adjustment that resulted in an increase in retained earnings of $331.0 million, by recording new deferred tax assets from intra-entity transfers involving assets other than inventory, partially offset by a U.S. deferred tax liability related to GILTI. Adoption of the standard resulted in an increase in long-term deferred tax assets of $1.7 billion and an increase in long-term deferred tax liabilities of $1.3 billion.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). ASU 2018-02 allows for reclassification of stranded tax effects resulting from the Tax Legislation from AOCI to retained earnings. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. ASU 2018-02 is effective for the Company in the first quarter of the fiscal year ending October 31, 2020 (fiscal 2020). The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires a lessee to recognize most leases on the balance sheet but recognize expenses on the income statement in a manner similar to current practice. The update states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying assets for the lease term. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 (ASU 2018-01). ASU 2018-01 permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entity’s adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (Topic 842) (ASU 2018-11), which provides for an additional transition method that allows companies to apply the new lease standard at the adoption date, eliminating the requirement to apply the standard to the earliest period presented in the financial statements.

ASU 2016-02, ASU 2018-01 and ASU 2018-11 are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. ASU 2016-02 and ASU 2018-01 are effective for the Company in the first quarter of fiscal 2020. The Company is nearing completion in assessing all potential aspects of the standard on its Consolidated Financial Statements and related disclosures and expects that there will be an increase in assets and liabilities on the consolidated balance sheets at adoption due to the recognition of right-of-use assets and related lease liabilities, which the Company expects to be recorded using an incremental borrowing rate. The Company plans to adopt the standard using the transition method provided by ASC 2018-11, in which prior periods will not be adjusted, and also plans to apply the package of practical expedients permitted under the transition guidance to its lease portfolio. At November 2, 2019, the Company was contractually obligated to make future payments of approximately $0.4 billion under its operating lease obligations in existence as of that date, primarily related to long-term facility leases. The Company does not expect the adoption of ASU 2016-02, ASU 2018-01 and ASU 2018-11 to have a material impact on its results of operations. See Note 9, Lease

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14), which modifies the disclosure requirements for defined benefit pension plans and other post-retirement plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, with early adoption permitted. ASU 2018-14 is effective for the Company in the first quarter of the fiscal year ending October 30, 2021 (fiscal 2021). The Company is currently evaluating the adoption date. The adoption of ASU 2018-14 will modify the Company's disclosures for defined benefit plans and other post-retirement plans but is not expected to impact its financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief (ASU 2019-05). ASU 2019-05 allows an entity to irrevocably elect the fair value option for certain financial instruments. Once elected, an entity would recognize the difference between the carrying amount and the fair value of the financial instrument as part of the cumulative effect adjustments associated with the adoption of ASU 2016-13. ASU 2016-13 and ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. ASU 2016-13 and ASU 2019-05 are effective for the Company in the first quarter of fiscal 2021. The Company is currently evaluating the adoption date and the impact, if any, adoption will have on its financial position and results of operations.