Last10K.com

Maxim Integrated Products Inc (MXIM) SEC Filing 10-Q Quarterly report for the period ending Saturday, December 26, 2020

Maxim Integrated Products Inc

CIK: 743316 Ticker: MXIM

image0a281a.jpg

Press Release

Contact
Kathy Ta
Vice President, Investor Relations
(408) 601-5697

MAXIM INTEGRATED REPORTS RESULTS FOR THE SECOND QUARTER OF FISCAL 2021

Revenue: $628 million
Gross Margin: 66.3% GAAP (67.4% excluding special items)
EPS: $0.68 GAAP ($0.73 excluding special items)

SAN JOSE, CA – January 26, 2021 – Maxim Integrated Products, Inc. (NASDAQ:MXIM) reported net revenue of $628 million for its second quarter of fiscal 2021 ended December 26, 2020, a 1% increase from the $619 million revenue recorded in the prior quarter, and a 14% increase from the same quarter of last year.

“Our strong performance in the December quarter relative to the same quarter last year benefitted from robust demand from automotive, industrial and consumer customers. Automotive and Industrial reached a record revenue level and comprised 63 percent of Maxim’s total revenue. In addition, progress toward closure of our merger with Analog Devices is on track,” said Tunc Doluca, President and Chief Executive Officer.

Fiscal Year 2021 Second Quarter Results
Based on Generally Accepted Accounting Principles (GAAP), diluted earnings per share in the December quarter was $0.68. The results were affected by $15 million in pre-tax special items which primarily
1

The following information was filed by Maxim Integrated Products Inc (MXIM) on Tuesday, January 26, 2021 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 26, 2020
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 number 1-34192
mxim-20201226_g1.jpg
MAXIM INTEGRATED PRODUCTS, INC.

(Exact name of registrant as specified in its charter)
Delaware94-2896096
 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)

160 Rio Robles
San Jose, CA 95134
(Address of Principal Executive Offices including Zip Code)

(408) 601-1000
(Registrant’s Telephone Number, including Area Code)
Title of each class Trading SymbolName of each exchange on which registered
Common stock, $0.001 par valueMXIMThe 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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller” reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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 revisited 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). (Check one): Yes No

As of January 14, 2021, there were 268,041,067 shares of Common Stock, par value $.001 per share, of the registrant outstanding.






MAXIM INTEGRATED PRODUCTS, INC.

INDEX

PART I - FINANCIAL INFORMATIONPage
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of December 26, 2020 and June 27, 2020
Condensed Consolidated Statements of Income for the Three and Six Months Ended December 26, 2020 and December 28, 2019
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 26, 2020 and December 28, 2019
Condensed Consolidated Statements of Shareholders' Equity for the Three and Six Months Ended December 26, 2020 and December 28, 2019
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 26, 2020 and December 28, 2019
Notes to Condensed Consolidated Financial Statements
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 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
SIGNATURE

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)


MAXIM INTEGRATED PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

December 26,
2020
June 27,
2020
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents$1,796,961 $1,578,670 
Short-term investments8,879 35,536 
Total cash, cash equivalents and short-term investments1,805,840 1,614,206 
Accounts receivable, net of allowances of $619 and $645485,773 404,778 
Inventories261,476 259,626 
Other current assets36,004 39,219 
Total current assets2,589,093 2,317,829 
Property, plant and equipment, net541,013 550,406 
Intangible assets, net76,166 87,959 
Goodwill562,540 562,540 
Other assets114,058 110,569 
TOTAL ASSETS$3,882,870 $3,629,303 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$96,959 $91,982 
Price adjustment and other revenue reserves180,215 148,916 
Income taxes payable35,197 43,457 
Accrued salary and related expenses99,057 126,751 
Accrued expenses44,969 42,228 
Total current liabilities456,397 453,334 
Long-term debt994,741 994,022 
Income taxes payable362,214 385,072 
Other liabilities143,457 139,418 
Total liabilities1,956,809 1,971,846 
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock and capital in excess of par value43,231 266 
Retained earnings1,897,098 1,671,786 
Accumulated other comprehensive loss(14,268)(14,595)
Total stockholders’ equity1,926,061 1,657,457 
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY$3,882,870 $3,629,303 

See accompanying Notes to Condensed Consolidated Financial Statements.
3



MAXIM INTEGRATED PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


Three Months EndedSix Months Ended
December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
(in thousands, except per share data)
Net revenues$628,288 $551,070 $1,247,645 $1,084,110 
Cost of goods sold211,866 190,546 414,209 380,263 
Gross margin416,422 360,524 833,436 703,847 
Operating expenses:
Research and development114,802 111,914 230,268 220,903 
Selling, general and administrative80,153 76,071 163,107 152,186 
Intangible asset amortization943 756 1,862 1,512 
Severance and restructuring expenses3,327 2,728 12,140 4,162 
Other operating expenses (income), net3,532 (1)10,960 24 
Total operating expenses202,757 191,468 418,337 378,787 
Operating income213,665 169,056 415,099 325,060 
Interest and other income (expense), net(3,202)(17)(10,239)1,812 
Income before provision for income taxes210,463 169,039 404,860 326,872 
Income tax provision 26,518 22,989 51,401 40,666 
Net income $183,945 $146,050 $353,459 $286,206 
Earnings per share:
Basic$0.69 $0.54 $1.32 $1.06 
Diluted$0.68 $0.53 $1.31 $1.04 
Shares used in the calculation of earnings per share:
Basic267,299 270,330 267,131 270,859 
Diluted270,792 273,269 270,485 273,884 

See accompanying Notes to Condensed Consolidated Financial Statements.


4



MAXIM INTEGRATED PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months EndedSix Months Ended
December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
(in thousands)
Net income$183,945 $146,050 $353,459 $286,206 
Other comprehensive income (loss), net of tax:
Change in net unrealized gains and losses on available-for-sale securities, net of tax benefit (expense) of $7, $(3), $16 and $(17) respectively(35)— (115)118 
Change in net unrealized gains and losses on cash flow hedges, net of tax benefit (expense) of $(71), $(117), $(94) and $48 respectively343 610 406 (249)
Change in net unrealized gains and losses on post-retirement benefits, net of tax benefit (expense) of $14, $(20), $25 and $(42), respectively19 98 36 196 
Other comprehensive income (loss), net327 708 327 65 
Total comprehensive income $184,272 $146,758 $353,786 $286,271 

See accompanying Notes to Condensed Consolidated Financial Statements.

5



MAXIM INTEGRATED PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)


Three Months Ended December 26, 2020
 Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
Stockholders' Equity
SharesPar Value
(in thousands)
Balance, September 26, 2020267,304 $267 $12,194 $1,713,153 $(14,595)$1,711,019 
Net income— — — 183,945 — 183,945 
Other comprehensive income (loss), net— — — — 327 327 
Net issuance of restricted stock units and awards331 — (18,966)— — (18,966)
Stock options exercised— 176 — — 176 
Stock-based compensation — — 31,063 — — 31,063 
Common stock issued under Employee Stock Purchase Plan391 18,496 — — 18,497 
Balance, December 26, 2020268,032 $268 $42,963 $1,897,098 $(14,268)$1,926,061 

Six Months Ended December 26, 2020
 Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
Stockholders' Equity
SharesPar Value
(in thousands)
Balance, June 27, 2020266,797 $266 $— $1,671,786 $(14,595)$1,657,457 
Net income— — — 353,459 — 353,459 
Other comprehensive income (loss), net— — — — 327 327 
Repurchase of common stock (150)— (9,201)— — (9,201)
Net issuance of restricted stock units and awards894 — (35,984)— — (35,984)
Stock options exercised100 — 2,807 — — 2,807 
Stock-based compensation — — 66,845 — — 66,845 
Common stock issued under Employee Stock Purchase Plan391 18,496 — — 18,498 
Dividends paid, $0.48 per common share— — — (128,147)— (128,147)
Balance, December 26, 2020268,032 $268 $42,963 $1,897,098 $(14,268)$1,926,061 

6


Three Months Ended December 28, 2019
 Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
Stockholders' Equity
SharesPar Value
(in thousands)
Balance, September 28, 2019270,883 $271 $— $1,793,012 $(11,997)$1,781,286 
Net income— — — 146,050 — 146,050 
Other comprehensive income (loss), net— — — — 708 708 
Repurchase of common stock (1,862)(1)(36,321)(71,635)— (107,957)
Cumulative-effect adjustment for adoption of ASU 2016-02— — — (89)— (89)
Net issuance of restricted stock units270 — (7,623)— — (7,623)
Stock options exercised50 — 1,338 — — 1,338 
Stock-based compensation — — 24,071 — — 24,071 
Common stock issued under Employee Stock Purchase Plan402 — 18,535 — — 18,535 
Dividends paid, $0.48 per common share— — — (129,810)— (129,810)
Balance, December 28, 2019269,743 $270 $— $1,737,528 $(11,289)$1,726,509 
Six Months Ended December 28, 2019
 Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
Stockholders' Equity
SharesPar Value
(in thousands)
Balance, June 29, 2019271,852 $272 $— $1,856,358 $(11,354)$1,845,276 
Net income— — — 286,206 — 286,206 
Other comprehensive income (loss), net— — — — 65 65 
Repurchase of common stock (3,484)(2)(58,556)(142,951)— (201,509)
Cumulative-effect adjustment for adoption of ASU 2016-02— — — (2,053)— (2,053)
Net issuance of restricted stock units657 — (17,566)— — (17,566)
Stock options exercised316 — 8,820 — — 8,820 
Stock-based compensation — — 48,767 — — 48,767 
Common stock issued under Employee Stock Purchase Plan402 — 18,535 — — 18,535 
Dividends paid, $0.96 per common share— — — (260,032)— (260,032)
Balance, December 28, 2019269,743 $270 $— $1,737,528 $(11,289)$1,726,509 

See accompanying Notes to Condensed Consolidated Financial Statements.

7



MAXIM INTEGRATED PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 26,
2020
December 28,
2019
(in thousands)
Cash flows from operating activities:
Net income$353,459 $286,206 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation66,939 48,738 
Depreciation and amortization48,340 48,008 
Deferred taxes(2,885)(2,231)
Loss on disposal of property, plant and equipment227 489 
Other adjustments647 5,961 
Changes in assets and liabilities:
Accounts receivable(81,199)11,674 
Inventories(1,944)22,583 
Other assets(5,709)(55,820)
Accounts payable5,522 4,844 
Price adjustment and other revenue reserves31,503 4,747 
Income taxes payable(31,118)(31,133)
All other accrued liabilities(10,772)34,669 
Net cash provided by (used in) operating activities373,010 378,735 
Cash flows from investing activities:
Purchases of property, plant and equipment(29,213)(34,301)
Proceeds from sale of property, plant and equipment67 171 
Proceeds from sale of available-for-sale securities1,500 — 
Proceeds from maturity of available-for-sale securities25,025 78,067 
Purchases of investments in privately-held companies(110)— 
Proceeds from sale of investments in privately-held companies39 — 
Other investing activities— (68)
Net cash provided by (used in) investing activities(2,692)43,869 
Cash flows from financing activities:
Contingent consideration paid— (8,000)
Net issuance of restricted stock units and awards(35,984)(17,566)
Proceeds from stock options exercised2,807 8,820 
Issuance of common stock under employee stock purchase program18,498 18,535 
Repurchase of common stock(9,201)(201,509)
Dividends paid(128,147)(260,032)
Net cash provided by (used in) financing activities(152,027)(459,752)
Net increase (decrease) in cash, cash equivalents and restricted cash218,291 (37,148)
Cash, cash equivalents and restricted cash:
Beginning of period1,585,428 1,757,342 
End of period$1,803,719 $1,720,194 
Supplemental disclosures of cash flow information:
Cash paid, net, during the period for income taxes$81,464 $63,692 
Cash paid for interest$17,063 $17,063 
Noncash financing and investing activities:
Accounts payable related to property, plant and equipment purchases$11,041 $12,360 
Cash, cash equivalents and restricted cash:
Cash and cash equivalents$1,796,961 $1,720,194 
Restricted cash in Other assets6,758 — 
Total cash, cash equivalents and restricted cash$1,803,719 $1,720,194 

See accompanying Notes to Condensed Consolidated Financial Statements.
8


MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Maxim Integrated Products, Inc. and all of its majority-owned subsidiaries (collectively, the “Company” or “Maxim Integrated”) included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) have been condensed or omitted pursuant to applicable rules and regulations. In the opinion of management, all adjustments of a normal recurring nature which were considered necessary for fair statement have been included. The year-end condensed consolidated balance sheet data were derived from audited consolidated financial statements but do not include all disclosures required by GAAP. The results of operations for the six months ended December 26, 2020 are not necessarily indicative of the results to be expected for the entire year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 27, 2020.

The Company has a 52-to-53-week fiscal year that ends on the last Saturday in June. Accordingly, every fifth or sixth fiscal year will be a 53-week fiscal year. Fiscal years 2021 and 2020 are 52-week fiscal years.

Merger with Analog Devices

On July 13, 2020, the Company announced that it had entered into an Agreement and Plan of Merger, dated July 12, 2020 (as it may be amended from time to time, the “ADI Merger Agreement”) with Analog Devices, Inc., a Massachusetts corporation (“Analog Devices” or "ADI"), and Magneto Corp., a wholly-owned subsidiary of Analog Devices (“Acquisition Sub”), under which, subject to the satisfaction or (to the extent permissible) waiver of the conditions set forth therein, Acquisition Sub will merge with and into the Company, and the Company will survive the merger as a wholly-owned subsidiary of Analog Devices (the “ADI Merger”). Under the terms of the ADI Merger Agreement, at the effective time of the ADI Merger (the “Effective Time”), each share of common stock, par value $0.001 per share, of the Company (the “Company Common Stock”), issued and outstanding immediately prior to the Effective Time (other than treasury shares and any shares of Company Common Stock held by Analog Devices or Acquisition Sub) will be converted into the right to receive 0.6300 of a fully paid and non-assessable share of common stock, par value $0.16 2/3 per share, of Analog Devices (with cash being paid (without interest and less applicable withholding taxes) in lieu of any fraction of a share of Analog Devices common stock). Analog Devices shareholders will continue to own their existing Analog Devices shares, and the combined company will be named Analog Devices.

The ADI Merger has been approved by both the Company’s Board of Directors and the Board of Directors of Analog Devices. The completion of the ADI Merger is subject to customary closing conditions, including, among others, the required approvals of Maxim Integrated’s stockholders, the approval of ADI’s shareholders and the receipt of various regulatory approvals. Subject to the satisfaction or (to the extent permissible) waiver of such conditions, the transaction is expected to close in the summer of 2021. The Company cannot guarantee that the ADI Merger will be completed on a timely basis or at all or that, if completed, it will be completed on the terms set forth in the ADI Merger Agreement.

As of October 8, 2020, stockholder approval for the ADI Merger has been obtained from Maxim Integrated's stockholders and ADI's shareholders. In addition, the proposed transaction has received antitrust clearance from the United States Federal Trade Commission.


NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates relate to the useful lives and fair value of fixed assets, valuation allowance for deferred tax assets, reserves relating to uncertain tax positions, allowance for distributor credits, inventory valuation, reserves relating to litigation matters, assumptions about the fair value of reporting units and asset groups, accrued liabilities and
9


reserves, and the value of intangibles acquired associated with business combinations. The Company bases its estimates and judgments on its historical experience, knowledge of current conditions and its beliefs of what could occur in the future, given available information. Actual results may differ from those estimates, and such differences may be material to the financial statements.

The ongoing novel coronavirus ("COVID-19") pandemic and the mitigation efforts by governments to attempt to control its spread created uncertainties and disruptions in the economic and financial markets. The Company is not aware of events or circumstances that would require an update to its estimates, judgments, or adjustments to the carrying values of its assets or liabilities as of January 27, 2021, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as developments occur and as the Company obtains additional information. These future developments are highly uncertain, and the outcomes, unpredictable. Actual results may differ from those estimates, and such differences may be material to the financial statements.

Reclassification

Certain items in prior financial statements were reclassified to conform to the current year presentation.

(i) New Accounting Update Recently Adopted

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes resulted in earlier recognition of credit losses. We adopted ASU 2016-13 beginning in the first quarter of fiscal year 2021 using the modified retrospective approach. The effect on our consolidated financial statements and related disclosures was not material.


NOTE 3: BALANCE SHEET COMPONENTS

Inventories consist of:
December 26,
2020
June 27,
2020
(in thousands)
Raw materials$21,864 $18,287 
Work-in-process153,768 164,061 
Finished goods85,844 77,278 
Total inventories$261,476 $259,626 

Property, plant and equipment, net, consist of:
 December 26,
2020
June 27,
2020
(in thousands) 
Land$17,720 $17,720 
Buildings and building improvements314,833 312,999 
Machinery, equipment and software1,344,749 1,323,791 
Total1,677,302 1,654,510 
Less: accumulated depreciation(1,136,289)(1,104,104)
Total property, plant and equipment, net$541,013 $550,406 
10



Accrued salary and related expenses consist of:
December 26,
2020
June 27,
2020
(in thousands)
Accrued bonus$38,063 $66,662 
Accrued vacation37,666 33,992 
Accrued salaries 10,552 12,153 
ESPP withholding— 5,986 
Accrued fringe benefits4,588 4,077 
Other8,188 3,881 
Total accrued salary and related expenses$99,057 $126,751 


NOTE 4: DISAGGREGATION OF REVENUE

The following table summarizes net revenue disaggregated by end market. The Company classifies end market revenue by using estimates and assumptions based on historical experience and knowledge of current conditions, given available information.
Three Months EndedSix Months Ended
December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Revenue% of TotalRevenue% of TotalRevenue% of TotalRevenue% of Total
(in thousands, except percentages)(in thousands, except percentages)
Automotive$190,048 30 %$146,067 27 %$347,989 28 %$285,689 26 %
Communications and Data Center105,392 17 %118,819 22 %236,643 19 %214,845 20 %
Consumer127,851 20 %113,496 20 %261,870 21 %246,683 23 %
Industrial 204,997 33 %172,688 31 %401,143 32 %336,893 31 %
$628,288 $551,070 $1,247,645 $1,084,110 

The following table summarizes net revenue disaggregated by sales channel:
Three Months EndedSix Months Ended
December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Revenue% of TotalRevenue% of TotalRevenue% of TotalRevenue% of Total
(in thousands, except percentages)(in thousands, except percentages)
Distributors $327,397 52 %$281,319 51 %$651,949 52 %$547,905 51 %
Direct customers 300,891 48 %269,751 49 %595,696 48 %536,205 49 %
$628,288 $551,070 $1,247,645 $1,084,110 


NOTE 5: FAIR VALUE MEASUREMENTS

The FASB established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs that may be used to measure fair value are as follows:

Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities.
11


The Company’s Level 1 assets consist of money market funds.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

The Company’s Level 2 assets and liabilities consist of corporate debt securities and foreign currency forward contracts that are valued using quoted market prices or are determined using a yield curve model based on current market rates.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company's Level 3 assets and liabilities consist of acquisition-related contingent consideration liabilities.
Assets and liabilities measured at fair value on a recurring basis were as follows:
As of December 26, 2020As of June 27, 2020
Fair Value
Measurements Using
TotalFair Value
Measurements Using
Total
Level 1Level 2Level 3Level 1Level 2Level 3
(in thousands)
Assets
Cash and cash equivalents
    Money market funds$22,089 $— $— $22,089 $61,814 $— $— $61,814 
Short-term investments
    Corporate debt securities— 8,879 — 8,879 — 35,536 — 35,536 
Other current assets
Foreign currency forward contracts— 1,447 — 1,447 — 1,151 — 1,151 
Total assets$22,089 $10,326 $— $32,415 $61,814 $36,687 $— $98,501 
Liabilities
Accrued expenses
Foreign currency forward contracts$— $265 $— $265 $— $341 $— $341 
Contingent consideration— — 10,000 10,000 — — 10,000 10,000 
Other liabilities
Contingent consideration— — 4,165 4,165 — — 4,165 4,165 
Total Liabilities$— $265 $14,165 $14,430 $— $341 $14,165 $14,506 

During the six months ended December 26, 2020 and the year ended June 27, 2020, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.

There were no assets or liabilities measured at fair value on a non-recurring basis as of December 26, 2020 and June 27, 2020 other than impairments of long-lived assets.

As of December 26, 2020 and June 27, 2020, the fair value of private company investments amounted to $26.2 million and $20.6 million, respectively. The aggregate amount of unrealized gains (losses) recognized from these investments were $1.2 million and $(4.3) million, respectively, as of December 26, 2020 and June 27, 2020.

The Company recorded $4.9 million and $5.5 million of unrealized gains on private company investments during the three and six months ended December 26, 2020, respectively. Unrealized gains on private company investments was $0.6 million during the three and six months ended December 28, 2019. Unrealized gains (losses) on private company investments are recorded in Interest and other income (expense), net in the Company's Condensed Consolidated Statements of Income.

12


NOTE 6: FINANCIAL INSTRUMENTS

Short-term investments
Fair values were as follows:
December 26, 2020June 27, 2020
Amortized CostGross Unrealized GainGross Unrealized LossEstimated Fair ValueAmortized CostGross Unrealized GainGross Unrealized LossEstimated Fair Value
(in thousands)
Available-for-sale investments
Corporate debt securities$8,875 $$— $8,879 $35,417 $137 $(18)$35,536 
Total available-for-sale investments$8,875 $$— $8,879 $35,417 $137 $(18)$35,536 

In the six months ended December 26, 2020 and December 28, 2019, the Company did not recognize impairment charges on short-term investments. All available-for-sale investments have maturity dates between January 8, 2021 and March 12, 2021.

Derivative instruments and hedging activities

The Company incurs expenditures denominated in non-U.S. currencies, primarily the Philippine Peso and the Thai Baht associated with the Company's manufacturing activities in the Philippines and Thailand, respectively, and European Euro, Indian Rupee, Taiwan New Dollar, South Korean Won, Chinese Yuan, Japanese Yen, Singapore Dollar, and Canadian Dollar expenditures for sales offices and research and development activities undertaken outside of the U.S.

The Company has established a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. The Company does not use these foreign currency forward contracts for trading purposes.

Derivatives designated as cash flow hedging instruments

The Company designates certain forward contracts as hedging instruments pursuant to Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging (“ASC 815”). As of December 26, 2020 and June 27, 2020, the notional amounts of the forward contracts the Company held to purchase international currencies were $66.0 million and $61.6 million, respectively.

Derivatives not designated as hedging instruments

As of December 26, 2020 and June 27, 2020, the notional amounts of the forward contracts the Company held to purchase international currencies were $47.7 million and $32.3 million, respectively, and the notional amounts of forward contracts the Company held to sell international currencies were $11.3 million and $12.0 million, respectively.

The Company's foreign currency forward contract gains or losses included in the Condensed Consolidated Statements of Income were not material for the six months ended December 26, 2020 and December 28, 2019, respectively.

13


Effect of hedge accounting on the Condensed Consolidated Statements of Income

The following tables summarize the gains (losses) from hedging activities recognized in the Company's Condensed Consolidated Statements of Income:

Three Months Ended
December 26, 2020December 28, 2019
Net RevenueCost of Goods SoldOperating ExpensesNet RevenueCost of Goods SoldOperating Expenses
(in thousands)
Income and expenses line items in which the effects of cash flow hedges are recorded$628,288 $211,866 $202,757 $551,070 $190,546 $191,468 
Gain (loss) on cash flow hedges:
Foreign exchange contracts:
Gain (loss) reclassified from accumulated other comprehensive income into income$— $350 $698 $— $10 $(404)

Six Months Ended
December 26, 2020December 28, 2019
Net RevenueCost of Goods SoldOperating ExpensesNet RevenueCost of Goods SoldOperating Expenses
(in thousands)
Income and expenses line items in which the effects of cash flow hedges are recorded$1,247,645 $414,209 $418,337 $1,084,110 $380,263 $378,787 
Gain (loss) on cash flow hedges:
Foreign exchange contracts:
Gain (loss) reclassified from accumulated other comprehensive income into income$— $784 $1,368 $— $130 $(774)

Outstanding debt obligations

The following table summarizes the Company’s outstanding debt obligations:
December 26, 2020June 27, 2020
(in thousands)
3.375% fixed rate notes due March 2023$500,000 $500,000 
3.45% fixed rate notes due June 2027500,000 500,000 
Total outstanding debt1,000,000 1,000,000 
Less: Reduction for unamortized discount and debt issuance costs(5,259)(5,978)
Total long-term debt$994,741 $994,022 

On June 15, 2017, the Company completed a public offering of $500 million aggregate principal amount of the Company's 3.45% senior unsecured and unsubordinated notes due in June 2027 (“2027 Notes”), with an effective interest rate of 3.5%. Interest on the 2027 Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2017. The net proceeds of this offering were approximately $495.2 million, after issuing at a discount and deducting paid expenses.

14


On March 18, 2013, the Company completed a public offering of $500 million aggregate principal amount of the Company’s 3.375% senior unsecured and unsubordinated notes due in March 2023 (“2023 Notes”), with an effective interest rate of 3.5%. Interest on the 2023 Notes is payable semi-annually in arrears on March 15 and September 15 of each year. The net proceeds of this offering were approximately $490.0 million, after issuing at a discount and deducting paid expenses.

The debt indentures that govern the 2027 Notes and the 2023 Notes include covenants that limit the Company's ability to grant liens on its facilities and to enter into sale and leaseback transactions, which could limit the Company's ability to secure additional debt funding in the future. In circumstances involving a change of control of the Company followed by a downgrade of the rating of the 2027 Notes or the 2023 Notes, the Company would be required to make an offer to repurchase the affected notes at a purchase price equal to 101% of the aggregate principal amount of such notes, plus accrued and unpaid interest.

The Company accounts for all the notes above based on their amortized cost. The discount and expenses are being amortized to Interest and other income (expense), net in the Condensed Consolidated Statements of Income over the life of the notes. The interest expense is recorded in Interest and other income (expense), net in the Condensed Consolidated Statements of Income. Amortized discount and expenses, as well as interest expense associated with the notes, were $8.9 million and $8.9 million during the three months ended December 26, 2020 and December 28, 2019, respectively. Amortized discount and expenses, as well as interest expense associated with the notes, were $17.8 million and $17.8 million during the six months ended December 26, 2020 and December 28, 2019, respectively.

The estimated fair value of the Company’s outstanding debt obligations was approximately $1.1 billion as of December 26, 2020. The estimated fair value of the debt is based primarily on observable market inputs and is a Level 2 measurement.

The Company recorded interest expense of $9.4 million and $9.3 million during the three months ended December 26, 2020, and December 28, 2019, respectively. The Company recorded interest expense of $18.8 million and $18.6 million during the six months ended December 26, 2020, and December 28, 2019, respectively.

Other Financial Instruments
For the Company’s other financial instruments consisting of accounts receivable, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities.


NOTE 7: STOCK-BASED COMPENSATION

At December 26, 2020, the Company had one stock incentive plan, the Company's 1996 Stock Incentive Plan (the “1996 Plan”) and one employee stock purchase plan, the 2008 Employee Stock Purchase Plan (the “2008 ESPP”). The 1996 Plan was adopted by the Board of Directors to provide the grant of incentive stock options, non-statutory stock options, restricted stock units (“RSUs”), restricted stock awards ("RSAs") and market stock units (“MSUs”) to employees, directors, and consultants.

Pursuant to the 1996 Plan, the exercise price for incentive stock options and non-statutory stock options is determined to be the fair market value of the underlying shares on the date of grant. Options typically vest ratably over a four-year period measured from the date of grant. Options generally expire no later than seven years after the date of grant, subject to earlier termination upon an optionee's cessation of employment or service.

RSUs granted to employees typically vest ratably over a four-year period and are released or converted into shares of the Company's common stock upon vesting, subject to the employee's continued service to the Company over that period. RSUs granted from September 2017 to July 2020 will continue to vest post-employment at the Company for certain individuals satisfying specific eligibility requirements.

RSAs granted to employees typically vest over a four-year cliff period and are converted into shares of the Company's common stock upon vesting, subject to the employee's continued service to the Company over that period. RSAs have certain shareholder rights, such as voting rights, but are not eligible for dividends or dividend equivalents.

MSUs granted to employees typically vest over a four-year cliff period and are converted into shares of the Company's common stock upon vesting, subject to the employee's continued service to the Company over that period. The number of shares that are released at the end of the performance period can range from zero to a maximum cap depending on the Company's performance. MSUs granted in September 2017, September 2018, and September 2019 will continue to vest post-employment at the Company for certain individuals satisfying specific eligibility requirements.

15


The following tables show total stock-based compensation expense by type of award, and the resulting tax effect, included in the Condensed Consolidated Statements of Income for the three and six months ended December 26, 2020 and December 28, 2019, respectively:

Three Months EndedThree Months Ended
December 26, 2020December 28, 2019
Stock OptionsRestricted Stock Units and Other AwardsEmployee Stock Purchase PlanTotalStock OptionsRestricted Stock Units and Other AwardsEmployee Stock Purchase PlanTotal
(in thousands)
Cost of goods sold$13 $3,502 $585 $4,100 $$2,269 $699 $2,973 
Research and development10,880 1,048 11,931 9,918 1,514 11,436 
Selling, general and administrative73 14,559 546 15,178 55 8,753 849 9,657 
Pre-tax stock-based compensation expense$89 $28,941 $2,179 $31,209 $64 $20,940 $3,062 $24,066 
Less: income tax effect3,030 2,193 
Net stock-based compensation expense$28,179 $21,873 

Six Months EndedSix Months Ended
December 26, 2020December 28, 2019
Stock OptionsRestricted Stock Units and Other AwardsEmployee Stock Purchase PlanTotalStock OptionsRestricted Stock Units and Other AwardsEmployee Stock Purchase PlanTotal
(in thousands)
Cost of goods sold$24 $7,295 $1,449 $8,768 $14 $4,549 $1,368 $5,931 
Research and development23,147 3,155 26,308 19,403 2,909 22,320 
Selling, general and administrative148 30,042 1,673 31,863 122 18,706 1,659 20,487 
Pre-tax stock-based compensation expense$178 $60,484 $6,277 $66,939 $144 $42,658 $5,936 $48,738 
Less: income tax effect5,561 5,081 
Net stock-based compensation expense$61,378 $43,657 

The expense included in the Condensed Consolidated Statements of Income for RSUs and other awards include expenses related to MSUs of $2.5 million and $2.4 million for the three months ended December 26, 2020 and December 28, 2019, respectively, and $6.1 million and $6.8 million for the six months ended December 26, 2020 and December 28, 2019, respectively.

In connection with the proposed ADI Merger, on September 1, 2020, the Company’s Board of Directors granted RSAs to certain employees. For employees who made IRS Section 83(b) elections, Maxim accelerated a portion of the RSAs to satisfy tax withholding requirements. The Company recorded $0.7 million and $8.7 million of stock-based compensation expense related to the accelerated RSAs during the three and six months ended December 26, 2020, respectively. Additionally, in connection with the proposed ADI Merger, the Company modified equity awards held by certain executives by accelerating the vesting of 0.2 million outstanding RSU awards that otherwise would have vested at various dates through calendar year 2023. The Company recognized an additional $5.1 million of stock-based compensation expense related to these RSU modifications during the three and six months ended December 26, 2020.

16


Stock Options

The fair value of options granted to employees under the 1996 Plan is estimated on the date of grant using the Black-Scholes option valuation model.

There were no stock options granted in the six months ended December 26, 2020 and December 28, 2019.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of December 26, 2020 and related activity for the six months ended December 26, 2020:
Number of
Shares
Weighted Average Exercise PriceWeighted Average Remaining Contractual Term (in Years)
Aggregate Intrinsic Value(1)
Balance at June 27, 2020104,447 $28.76 
Options Granted— — 
Options Exercised(99,819)28.50 
Options Cancelled— — 
Balance at December 26, 20204,628 $34.20 0.4$242,414 
Exercisable, December 26, 20204,628 $34.20 0.4$242,414 
Vested and expected to vest, December 26, 20204,628 $34.20 0.4$242,414 

(1)Aggregate intrinsic value represents the difference between the exercise price and the closing price per share of the Company’s common stock on December 24, 2020, the last business day preceding the fiscal quarter-end, multiplied by the number of options outstanding, exercisable or vested and expected to vest as of December 26, 2020.

As of December 26, 2020, there was no unrecognized stock compensation from unvested stock options.

Restricted Stock Units and Restricted Stock Awards

The fair value of RSUs and RSAs under the Company’s 1996 Plan is estimated using 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. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis.

The weighted-average fair value of RSUs and RSAs granted was $69.32 and $56.21 per share for the six months ended December 26, 2020 and December 28, 2019, respectively.

The following table summarizes the outstanding and expected to vest RSUs and RSAs as of December 26, 2020 and related activity during the six months ended December 26, 2020:
Number of
Shares
Weighted Average
Remaining
Contractual Term
(in Years)
Aggregate Intrinsic
Value(1)
Balance at June 27, 20204,606,592 
Restricted stock units and restricted stock awards granted1,377,171 
Restricted stock units and restricted stock awards released(949,534)
Restricted stock units and restricted stock awards cancelled(246,848)
Balance at December 26, 20204,787,381 1.9$414,491,447 
Outstanding and expected to vest, December 26, 2020
3,928,669 1.6$340,144,241 

(1)Aggregate intrinsic value for RSUs and RSAs represents the closing price per share of the Company’s common stock on December 24, 2020, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs and RSAs outstanding or expected to vest as of December 26, 2020.
17


The Company withheld shares totaling $36.0 million in value as a result of employee withholding taxes based on the value of RSUs and RSAs on their vesting date for the six months ended December 26, 2020. Total payments for employees’ tax obligations to taxing authorities are reflected as financing activities within the Condensed Consolidated Statements of Cash Flows.

As of December 26, 2020, there was $183.3 million of unrecognized compensation expense related to 4.8 million unvested RSUs and RSAs, which is expected to be recognized over a weighted average period of approximately 1.9 years.

Market Stock Units (MSUs)

The Company grants MSUs to senior members of management in lieu of granting stock options. For MSUs granted prior to September 2017, the performance metrics of this program are based on relative performance of the Company’s stock price as compared to the Semiconductor Exchange Traded Fund index SPDR S&P (the “XSD”). For MSUs granted in September 2017, September 2018, and September 2019, the performance metrics for this program are based on the total shareholder return ("TSR") of the Company relative to the TSR of the other companies included in the XSD. The fair value of MSUs is estimated using a Monte Carlo simulation model on the date of grant. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis. Compensation expense is recognized based on the initial valuation and is not subsequently adjusted as a result of the Company’s performance relative to that of the XSD or the TSR of the companies included in the XSD, as applicable. Vesting for MSUs is contingent upon both service and market conditions and has a four-year vesting cliff period. MSUs granted in September 2017, September 2018, and September 2019 vest based upon annual performance and are subject to continued service through the end of the four-year period but will continue to vest post-employment at the Company for certain individuals satisfying specific eligibility requirements. Pursuant to the terms of the ADI Merger Agreement, the Company grants RSUs in lieu of MSUs (or RSAs in lieu of MSUs for any potential “disqualified individuals” within the meaning of Section 280G of the Internal Revenue Code, which RSAs will not be eligible for dividends or dividend equivalent rights) from the date of the ADI Merger Agreement through the date that the transaction closes.

No MSUs were granted during the six months ended December 26, 2020. The weighted-average fair value of MSUs granted was $54.70 per share for the six months ended December 28, 2019.

The following table summarizes the number of MSUs outstanding and expected to vest as of December 26, 2020 and their activity during the six months ended December 26, 2020:
Number of
Shares
Weighted Average
Remaining
Contractual Term
(in Years)
Aggregate Intrinsic
Value
(1)
Balance at June 27, 2020971,220 
Market stock units granted— 
Market stock units released— 
Market stock units cancelled(237,576)
Balance at December 26, 2020733,644 1.5$63,518,898 
Outstanding and expected to vest, December 26, 2020
1,062,016 1.1$91,949.385 

(1)Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on December 24, 2020, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of December 26, 2020.

As of December 26, 2020, there was $19.3 million of unrecognized compensation expense related to 0.7 million unvested MSUs, which is expected to be recognized over a weighted average period of approximately 1.5 years.

Employee Stock Purchase Plan

Employees are granted rights to acquire common stock under the 2008 ESPP.

The fair value of 2008 ESPP rights granted to employees has been estimated at the date of grant using the Black-Scholes option valuation model using the following assumptions for the offering periods:
18


Three Months EndedSix Months Ended
December 26, 2020December 28, 2019December 26, 2020December 28, 2019
Expected holding period (in years)0.5 years0.5 years0.5 years0.5 years
Risk-free interest rate0.2% - 1.6%1.6% - 2.7%0.2% - 1.6%1.6% - 2.7%
Expected stock price volatility29.2% - 55.2%28.4% - 31.3%29.2% - 55.2%28.4% - 31.3%
Dividend yield3.3% - 3.3%3.1% - 3.4%3.3% - 3.3%3.1% - 3.4%

As of December 26, 2020 and December 28, 2019, there was $0 and $10.1 million, respectively, of unrecognized compensation expense related to the 2008 ESPP. At the end of the current offering period in November 2020, the Company suspended the 2008 ESPP program pursuant to the terms of the ADI Merger Agreement.


NOTE 8: EARNINGS PER SHARE

Basic earnings per share are computed using the weighted average number of shares of common stock outstanding during the period. For purposes of computing basic earnings per share, the weighted average number of outstanding shares of common stock excludes unvested RSUs, RSAs and MSUs. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options, assumed release of unvested RSUs, RSAs and MSUs, and assumed issuance of common stock under the 2008 ESPP using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share:
Three Months EndedSix Months Ended
December 26, 2020December 28, 2019December 26, 2020December 28, 2019
(in thousands, except per share data)
Numerator for basic earnings per share and diluted earnings per share
Net income$183,945 $146,050 $353,459 $286,206 
Denominator for basic earnings per share267,299 270,330 267,131 270,859 
Effect of dilutive securities:
Stock options, ESPP, RSUs, RSAs and MSUs3,493 2,939 3,354 3,025 
Denominator for diluted earnings per share270,792 273,269 270,485 273,884 
Earnings per share
Basic$0.69 $0.54 $1.32 $1.06 
Diluted$0.68 $0.53 $1.31 $1.04 

For the three and six months ended December 26, 2020 and December 28, 2019 stock awards determined to be anti-dilutive were insignificant and were excluded from the computation of diluted earnings per share in all periods.

19


NOTE 9: SEGMENT INFORMATION

The Company designs, develops, manufactures and markets a broad range of linear and mixed signal integrated circuits. All of the Company's products are designed through a centralized R&D function, manufactured using centralized manufacturing (internal and external), and sold through a centralized sales force and shared wholesale distributors.

The Company currently has one operating segment and reportable segment. In accordance with ASC No. 280, 
Segment Reporting (“ASC 280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available that is evaluated regularly by the Company’s Chief Operating Decision Maker in deciding how to allocate resources and in assessing performance. The Chief Operating Decision Maker for the Company was assessed and determined to be the CEO. The CEO reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating and reportable segment.

Enterprise-wide information is provided in accordance with ASC 280. Geographical revenue information is based on customers’ ship-to location. Long-lived assets consist of property, plant and equipment. Property, plant and equipment information is based on the physical location of the assets at the end of each fiscal year.

Net revenues from unaffiliated customers by geographic region were as follows:
Three Months EndedSix Months Ended
December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
(in thousands)
United States$65,040 $58,909 $125,176 $114,707 
China252,388 217,099 498,193 414,398 
Rest of Asia185,922 163,563 384,386 333,478 
Europe111,800 98,254 211,305 194,194 
Rest of World13,138 13,245 28,585 27,333 
$628,288 $551,070 $1,247,645 $1,084,110 

Net long-lived assets by geographic region were as follows:
December 26,
2020
June 27,
2020
(in thousands)
United States$352,149 $362,093 
Philippines81,039 88,660 
Rest of World107,825 99,653 
$541,013 $550,406 


NOTE 10: COMPREHENSIVE INCOME (LOSS)

The changes in accumulated other comprehensive income (loss) by component and related tax effects in the six months ended December 26, 2020 and December 28, 2019 were as follows:
20


(in thousands)Unrealized Gains and (Losses) on Intercompany ReceivablesUnrealized Gains and (Losses) on Post-Retirement BenefitsCumulative Translation AdjustmentUnrealized Gains and (Losses) on Cash Flow HedgesUnrealized Gains and (Losses) on Available-For-Sale SecuritiesTotal
June 27, 2020$(6,280)$(7,988)$(1,136)$690 $119 $(14,595)
Other comprehensive income (loss) before reclassifications— — — 2,652 (131)2,521 
Amounts reclassified out of accumulated other comprehensive (income) loss — 11 — (2,152)— (2,141)
Tax effects— 25 — (94)16 (53)
Other comprehensive income (loss), net— 36 — 406 (115)327 
December 26, 2020$(6,280)$(7,952)$(1,136)$1,096 $$(14,268)

(in thousands)Unrealized Gains and (Losses) on Intercompany ReceivablesUnrealized Gains and (Losses) on Post-Retirement BenefitsCumulative Translation AdjustmentUnrealized Gains and (Losses) on Cash Flow HedgesUnrealized Gains and (Losses) on Available-For-Sale SecuritiesTotal
June 29, 2019$(6,280)$(4,322)$(1,136)$425 $(41)$(11,354)
Other comprehensive income (loss) before reclassifications— — — (941)135 (806)
Amounts reclassified out of accumulated other comprehensive (income) loss— 238 — 644 — 882 
Tax effects— (42)— 48 (17)(11)
Other comprehensive income (loss), net— 196 — (249)118 65 
December 28, 2019$(6,280)$(4,126)$(1,136)$176 $77 $(11,289)


NOTE 11: INCOME TAXES

In the three and six months ended December 26, 2020 the Company recorded an income tax provision of $26.5 million and $51.4 million, respectively, compared to $23.0 million and $40.7 million, for the three and six months ended December 28, 2019, respectively. The Company’s effective tax rate for the three and six months ended December 26, 2020 was 12.6% and 12.7%, respectively, compared to 13.6% and 12.4% for the three and six months ended December 28, 2019, respectively.

The Company’s federal statutory tax rate is 21%. The Company’s effective tax rate for the three and six months ended December 26, 2020 and December 28, 2019 was lower than the statutory rate primarily due to earnings of foreign subsidiaries, generated by the Company's international operations managed in Ireland, that were taxed at lower rates, partially offset by U.S. tax expense generated by Global Intangible Low-Taxed Income.

On June 18, 2019, the U.S. Treasury and Internal Revenue Service (“IRS”) released temporary regulations under Internal Revenue Code (“IRC”) Sections 245A and 954(c)(6) (the “Temporary Regulations”), which applied retroactively to intercompany dividends occurring after December 31, 2017. The Temporary Regulations limit the applicability of the foreign personal holding company income (“FPHCI”) look-through exception for certain intercompany dividends received by a controlled foreign corporation. Before application of the retroactive Temporary Regulations, the Company benefited in fiscal years 2018 and 2019 from the FPHCI look-through exception. On August 21, 2020, the U.S. Treasury and IRS released final regulations under IRC Sections 245A and 954(c)(6) (the “Final Regulations”), which generally apply to years ending on or after
21


June 14, 2019. The relevant sections of the Final Regulations are virtually the same as the Temporary Regulations. The Temporary Regulations apply to fiscal year 2018 and the Final Regulations apply to fiscal year 2019 intercompany dividends. The Company does not have any intercompany dividends after fiscal year 2019 that are impacted by relevant sections of the Temporary Regulations or Final Regulations.

The Company previously analyzed the relevant Temporary Regulations and concluded that they were not validly issued, a conclusion which the Company has determined is not altered by issuance of the Final Regulations. The Company has also analyzed the relevant Final Regulations and concluded that they were not validly issued. Therefore, the Company has not accounted for the effects of the Temporary Regulations or Final Regulations in its results of operations for any fiscal period. The Company believes it has strong arguments in favor of its position and that it has met the more likely than not recognition threshold that its position will be sustained. The Company intends to vigorously defend its position, however, due to the uncertainty involved in challenging and litigating the validity of regulations, there can be no assurance that a court of law will rule in favor of the Company. An unfavorable resolution of this issue could have a material adverse impact on the Company's results of operations and financial condition.

The Company’s federal corporate income tax returns are audited on a recurring basis by the IRS. In fiscal year 2020, the IRS commenced an audit of the Company’s federal corporate income tax returns for fiscal years 2015 through 2017, which is ongoing.


NOTE 12: COMMITMENTS AND CONTINGENCIES

Legal Proceedings
The Company is party or subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, including proceedings and claims that relate to intellectual property matters. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any of these matters, individually or in the aggregate, will result in losses that are materially in excess of amounts already recognized or reserved, if any.

Indemnification

The Company indemnifies certain customers, distributors, suppliers and subcontractors for attorney fees, damages and costs awarded against such parties in certain circumstances in which the Company's products are alleged to infringe third party intellectual property rights, including patents, registered trademarks or copyrights. The terms of the Company's indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to the Company's potential liability for indemnification relating to intellectual property infringement claims.

Pursuant to the Company's charter documents and separate written indemnification agreements, the Company has certain indemnification obligations to its current officers, employees and directors, as well as certain former officers and directors.

NOTE 13: COMMON STOCK REPURCHASES

On October 30, 2018, the Board of Directors of the Company authorized the repurchase of up to $1.5 billion of the Company’s common stock. The stock repurchase authorization does not have an expiration date and the pace of repurchase activity will depend on factors such as current stock price, levels of cash generated from operations, cash requirements, and other factors. All prior repurchase authorizations by the Company’s Board of Directors for the repurchase of common stock were cancelled and superseded by this repurchase authorization.

Pursuant to the terms of the ADI Merger Agreement, the Company suspended its repurchase program on July 13, 2020, the date the Company announced its planned merger with ADI. Prior to such announcement and during the fiscal year 2021, the Company repurchased approximately 149.8 thousand shares of its common stock for $9.2 million. As of December 26, 2020, the Company had remaining authorization of $0.7 billion for future share repurchases.

NOTE 14: LEASES

The Company's lease obligations consist of operating leases for domestic and international office facilities, data centers, and equipment. These leases expire at various dates through fiscal year 2031. For the three and six months ended December 26, 2020, the Company recorded operating lease expense of $2.5 million and $4.9 million, respectively. For the three and six
22


months ended December 28, 2019, the Company recorded operating lease expense of $2.9 million and $5.9 million, respectively.

Leases are included in the following Condensed Consolidated Balance Sheet lines:
December 26, 2020June 27, 2020
(in thousands)
Other assets$49,653 $54,610 
Accrued expenses $10,860 $10,445 
Other liabilities$44,224 $48,314 

Future minimum lease payments under non-cancelable operating leases as of December 26, 2020 are as follows:
Operating Lease Obligations
Fiscal Year
(in thousands)

Remainder of 2021$6,443 
202211,784 
20239,777 
20248,555 
20256,874 
Thereafter17,567 
Total61,000 
Less imputed interest5,916 
Total $55,084 

Future minimum lease payments under non-cancelable operating leases as of December 28, 2019 are as follows:
Operating Lease Obligations
Fiscal Year
(in thousands)

Remainder of 2020$5,969 
202111,818 
202210,847 
20239,599 
20248,202 
Thereafter21,904 
Total68,339 
Less imputed interest7,657 
Total $60,682 

Other information related to leases as of December 26, 2020 are as follows:
23


Six Months Ended
December 26, 2020December 28, 2019
Supplemental cash flow information:
Operating cash flows used for operating leases (in thousands)$6,094 $5,911 
Weighted-average remaining lease term - operating leases (in years)67
Weighted-average discount rate - operating leases3.29 %3.45 %

NOTE 15: GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company monitors the recoverability of goodwill recorded in connection with acquisitions, by reporting unit, annually, or more often if events or changes in circumstances indicate that the carrying amount may not be recoverable.

There were no changes to goodwill during the six months ended December 26, 2020.

No indicators or instances of impairment were identified during the six months and fiscal year ended December 26, 2020 and June 27, 2020, respectively.

Intangible Assets

Intangible assets consisted of the following:
December 26, 2020June 27, 2020
Original
Cost
Accumulated
Amortization
NetOriginal
Cost
Accumulated
Amortization
Net
(in thousands)
Intellectual property$525,816 $467,130 $58,686 $525,196 $458,418 $66,778 
Customer relationships118,335 110,038 8,297 118,335 108,603 9,732 
Trade name11,374 9,521 1,853 11,374 9,265 2,109 
Backlog170 170 — 170 25 145 
Patents2,500 2,500 — 2,500 2,500 — 
Total amortizable purchased intangible assets658,195 589,359 68,836 657,575 578,811 78,764 
In-process research & development (IPR&D)7,330 — 7,330 9,195 — 9,195 
Total purchased intangible assets$665,525 $589,359 $76,166 $666,770 $578,811 $87,959 

During the three months ended December 26, 2020, the Company placed in service and reclassified $0.6 million of IPR&D to intellectual property intangible assets and wrote-off $1.2 million of IPR&D due to impairment.

The following table presents the amortization expense of intangible assets and its presentation in the Condensed Consolidated Statements of Income:
Three Months EndedSix Months Ended
December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
(in thousands)
Cost of goods sold$4,349 $3,111 $8,711 $6,221 
Intangible asset amortization943 756 1,862 1,512 
Total intangible asset amortization expenses$5,292 $3,867 $10,573 $7,733 

24


The following table represents the estimated future amortization expense of intangible assets as of December 26, 2020:
Amount
Fiscal Year(in thousands)
Remainder of 2021$8,790 
202213,543 
202313,059 
202410,083 
20259,805 
Thereafter13,556 
Total intangible assets$68,836 

25


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Maxim Integrated Products, Inc. (“Maxim Integrated” or the “Company” and also referred to as “we,” “our” or “us”) disclaims any duty to and undertakes no obligation to update any forward-looking statement, whether as a result of new information relating to existing conditions, future events or otherwise, the uncertainties as to the timing of the completion of our pending merger with Analog Devices, Inc. and the ability of each party to complete the merger, and the effects of the ongoing novel coronavirus ("COVID-19") pandemic, or to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, including the impact of the COVID-19 pandemic and the responses to it, except as required by federal securities laws. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Readers should carefully review future reports and documents that the Company files with or furnishes to the SEC from time to time, such as its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, and any Current Reports on Form 8-K.

Overview of Business

Maxim Integrated Products, Inc. (“Maxim Integrated” or the “Company” and also referred to as “we,” “our” or “us”) designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits, for a large number of customers in diverse geographical locations. The analog market is fragmented and characterized by many diverse applications, a great number of product variations and, with respect to many circuit types, relatively long product life cycles. We are a global company with a wafer manufacturing facility in the U.S., test facilities in the Philippines and Thailand, and sales and circuit design offices around the world. We also utilize third parties for manufacturing and assembly of our products.

Recent Developments

On July 13, 2020, the Company announced that it had entered into an Agreement and Plan of Merger, dated July 12, 2020 (as it may be amended from time to time, the “ADI Merger Agreement”) with Analog Devices, Inc., a Massachusetts corporation (“Analog Devices” or "ADI"), and Magneto Corp., a wholly-owned subsidiary of Analog Devices (“Acquisition Sub”), under which, subject to the satisfaction or (to the extent permissible) waiver of the conditions set forth therein, Acquisition Sub will merge with and into the Company, and the Company will survive the merger as a wholly-owned subsidiary of Analog Devices (the “ADI Merger”). Under the terms of the ADI Merger Agreement, at the effective time of the ADI Merger (the “Effective Time”), each share of common stock, par value $0.001 per share, of the Company (the “Company Common Stock”), issued and outstanding immediately prior to the Effective Time (other than treasury shares and any shares of Company Common Stock held by Analog Devices or Acquisition Sub) will be converted into the right to receive 0.6300 of a fully paid and non-assessable share of common stock, par value $0.16 2/3 per share, of Analog Devices (with cash being paid (without interest and less applicable withholding taxes) in lieu of any fraction of a share of Analog Devices common stock). Analog Devices shareholders will continue to own their existing Analog Devices shares, and the combined company will be named Analog Devices.

The ADI Merger has been approved by both the Company’s Board of Directors and the Board of Directors of Analog Devices. The completion of the ADI Merger is subject to customary closing conditions, including, among others, the required approvals of Maxim Integrated’s stockholders, the approval of ADI’s shareholders and the receipt of various regulatory approvals. Subject to the satisfaction or (to the extent permissible) waiver of such conditions, the transaction is expected to close in the summer of 2021. The Company cannot guarantee that the ADI Merger will be completed on a timely basis or at all or that, if completed, it will be completed on the terms set forth in the ADI Merger Agreement.

As of October 8, 2020, stockholder approval for the ADI Merger has been obtained from Maxim Integrated's stockholders and ADI's shareholders. In addition, the proposed transaction has received antitrust clearance from the United States Federal Trade Commission.

The Linear and Mixed-Signal Analog Integrated Circuit Market

All electronic signals generally fall into one of two categories, linear or digital. Linear (or analog) signals represent real world phenomena, such as temperature, pressure, sound or speed, and are continuously variable over a wide range of values. Digital signals represent the “ones” and “zeros” of binary arithmetic and are either on or off.

Three general classes of semiconductor products arise from this distinction between linear and digital signals:
digital devices, such as memories and microprocessors that operate primarily in the digital domain;
26


linear devices, such as amplifiers, references, analog multiplexers and switches that operate primarily in the analog domain; and
mixed-signal devices such as data converter devices that combine linear and digital functions on the same integrated circuit and interface between the analog and digital domains.

Our strategy has been to target both the linear and mixed-signal markets, often collectively referred to as the analog market. However, some of our products are exclusively or principally digital. While our focus continues to be on the linear and mixed-signal market, our capabilities in the digital domain enable development of new mixed-signal and other products with highly sophisticated digital characteristics.

Our linear and mixed-signal products now serve four major end-markets: (i) Automotive, (ii) Communications and Data Center, (iii) Consumer and (iv) Industrial. These major end-markets and their corresponding markets are noted in the table below:

MAJOR END-MARKETMARKET
AUTOMOTIVEInfotainment
Powertrain
Body Electronics
Safety & Security
COMMUNICATIONS & DATA CENTERBase Stations
Data Center
Data Storage
Desktop Computers
Network & Datacom
Notebook Computers
Peripherals & Other Computer
Server
Telecom
Other Communications
CONSUMERSmartphones
Digital Cameras
Handheld Computers
Home Entertainment & Appliances
Wearables
Other Consumer
INDUSTRIALAutomatic Test Equipment
Control & Automation
Electrical Instrumentation
Financial Terminals
Medical
Security
USB Extension
Other Industrial




27


CRITICAL ACCOUNTING POLICIES

The methods, estimates, and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The Securities and Exchange Commission (“SEC”) has defined the most critical accounting policies as the ones that are most important to the presentation of our financial condition and results of operations, and that require us to make our most difficult and subjective accounting judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include valuation of inventories; accounting for income taxes; and assessment of litigation and contingencies. These policies and the estimates and judgments involved are discussed further in the Management’s Discussion and Analysis of Financial Condition in our Annual Report on Form 10-K for the fiscal year ended June 27, 2020. We have other significant accounting policies that either do not generally require estimates and judgments that are as difficult or subjective, or it is less likely that such accounting policies would have a material impact on our reported results of operations for a given period.

Except for the accounting policies and estimates outlined under Part I, Item 1. Financial Statements - Note 2, there have been no material changes during the six months ended December 26, 2020 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 27, 2020.

Impact of COVID-19 on Our Business
The ongoing COVID-19 pandemic has impacted and will continue to impact the Company’s operations, employees, customers, and suppliers, due to shelter-in-place orders, mandated quarantines, reduced facility operations, and travel bans and restrictions. While the operating results for the second quarter of fiscal year 2021 and thereafter may be impacted by COVID-19, the extent and form of such impact to our business is uncertain and cannot be estimated with any degree of certainty.

Employee Health and Safety
During the third and fourth quarters of fiscal year 2020 and the first and second quarters of fiscal year 2021, the Company's facilities and offices were either operating at reduced capacity or temporarily closed for non-essential operations. In an effort to protect the health and safety of our employees, we implemented safety measures such as work-from-home practices, travel restrictions, extensive cleaning protocols, and social distancing when engaging in essential activities.

Focus on Customers
We continue to work with our sales, supplier, and customer design and engineering teams to meet current demand. Teams meet remotely, through telephonic or video conferences and by leveraging available technology, to continue the design and engineering process that would normally take place at physical customer locations.

Manufacturing and Operations
We will continue to actively monitor this evolving situation and implement changes to protect employee health. In addition to our actions, we will continue to implement government-placed orders in all our locations. While COVID-19 related disruptions have impacted our manufacturing operations, we continue to leverage our manufacturing flexibility to reduce the negative effects of such disruptions.

Please refer to certain risk factors included in Item 1A in our Annual Report on Form 10-K for the fiscal year ended June 27, 2020 for discussions of the risks to our business from COVID-19.













28


RESULTS OF OPERATIONS

The following table sets forth certain Condensed Consolidated Statements of Income data expressed as a percentage of net revenues for the periods indicated:
Three Months EndedSix Months Ended
December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Net revenues100.0 %100.0 %100.0 %100.0 %
Cost of goods sold33.7 %34.6 %33.2 %35.1 %
Gross margin66.3 %65.4 %66.8 %64.9 %
Operating expenses:
Research and development18.3 %20.3 %18.5 %20.4 %
Selling, general and administrative12.8 %13.8 %13.1 %14.0 %
Intangible asset amortization0.2 %0.1 %0.1 %0.1 %
Severance and restructuring expenses0.5 %0.5 %1.0 %0.4 %
Other operating expenses (income), net0.6 %— %0.9 %— %
Total operating expenses32.3 %34.7 %33.5 %34.9 %
Operating income34.0 %30.7 %33.3 %30.0 %
Interest and other income (expense), net(0.5)%— %(0.8)%0.2 %
Income before provision for income taxes33.5 %30.7 %32.4 %30.2 %
Income tax provision (benefit)4.2 %4.2 %4.1 %3.8 %
Net income29.3 %26.5 %28.3 %26.4 %

The following table shows stock-based compensation included in the components of the Condensed Consolidated Statements of Income reported above as a percentage of net revenues for the periods indicated:

Three Months EndedSix Months Ended
December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Cost of goods sold0.7 %0.5 %0.7 %0.5 %
Research and development1.9 %2.1 %2.1 %2.1 %
Selling, general and administrative2.4 %1.8 %2.6 %1.9 %
5.0 %4.4 %5.4 %4.5 %

Net Revenues

Net revenues were $628.3 million and $551.1 million for the three months ended December 26, 2020 and December 28, 2019, respectively. Revenue from automotive products was up 30% driven by an increased demand for infotainment, safety and security, and powertrain products. Revenue from industrial products was up 19% driven by an increased demand for medical, and control and automation products. Revenue from consumer products was up 13% driven by an increased demand for handheld and other consumer products, partially offset by a decrease in wearable products.

Net revenues were $1.2 billion and $1.1 billion for the six months ended December 26, 2020 and December 28, 2019, respectively. Revenue from automotive products was up 22% driven by increased demand for powertrain, safety and security, and infotainment products. Revenue from industrial products was up 19% driven by increased demand for control and automation, automatic test equipment and medical products. Revenue from communications and data products was up 10% due to increased demand for notebook computers and data center products.

During each of the six months ended December 26, 2020 and December 28, 2019, approximately 90% of net revenues were derived from customers outside of the United States. While less than 2% of our sales are denominated in currencies other than U.S. dollars, we enter into foreign currency forward contracts to mitigate our risks on firm commitments and net monetary
29


assets denominated in foreign currencies. The impact of changes in foreign exchange rates on our revenue and results of operations for the six months ended December 26, 2020 and December 28, 2019 was immaterial.

Gross Margin