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MXIM Maxim Integrated Products




     
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 endedMarch 28, 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
maximlogoa19.jpg
MAXIM INTEGRATED PRODUCTS, INC.

(Exact name of registrant as specified in its charter)
Delaware 94-2896096
 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer I. D. 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 Symbol
Name 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 April 17, 2020, there were 266,625,382 shares of Common Stock, par value $.001 per share, of the registrant outstanding.
     






MAXIM INTEGRATED PRODUCTS, INC.

INDEX

PART I - FINANCIAL INFORMATION Page
   
Item 1. Financial Statements (Unaudited) 
   
Condensed Consolidated Balance Sheets as of March 28, 2020 and June 29, 2019 
   
Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 28, 2020 and March 30, 2019 
   
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended March 28, 2020 and March 30, 2019 
   
Condensed Consolidated Statements of Shareholders' Equity for the Three and Nine Months Ended March 28, 2020 and March 30, 2019 
   
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 28, 2020 and March 30, 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)

 March 28,
2020
 June 29,
2019
 (in thousands)
ASSETS
Current assets:   
Cash and cash equivalents$1,638,667
 $1,757,342
Short-term investments47,109
 140,990
Total cash, cash equivalents and short-term investments1,685,776
 1,898,332
Accounts receivable, net of allowances of $617 at March 28, 2020 and $148 at June 29, 2019378,273
 360,016
Inventories220,686
 246,512
Other current assets25,288
 34,640
Total current assets2,310,023
 2,539,500
Property, plant and equipment, net564,636
 577,722
Intangible assets, net44,642
 56,242
Goodwill532,251
 532,251
Other assets97,383
 38,267
TOTAL ASSETS$3,548,935
 $3,743,982
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:   
Accounts payable$83,519
 $84,335
Price adjustment and other revenue reserves111,235
 100,490
Income taxes payable39,809
 33,765
Accrued salary and related expenses122,220
 118,634
Accrued expenses31,143
 33,943
Total current liabilities387,926
 371,167
Long-term debt993,663
 992,584
Income taxes payable434,415
 469,418
Other liabilities112,988
 65,537
Total liabilities1,928,992
 1,898,706
    
Commitments and contingencies (Note 12)


 


    
Stockholders’ equity:   
Common stock and capital in excess of par value267
 272
Retained earnings1,632,325
 1,856,358
Accumulated other comprehensive loss(12,649) (11,354)
Total stockholders’ equity1,619,943
 1,845,276
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY$3,548,935
 $3,743,982

See accompanying Notes to Condensed Consolidated Financial Statements.

3



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


 Three Months Ended Nine Months Ended
 March 28,
2020
 March 30,
2019
 March 28,
2020
 March 30,
2019
 (in thousands, except per share data)
        
Net revenues$561,916
 $542,383
 $1,646,026
 $1,757,784
Cost of goods sold195,479
 201,552
 575,742
 613,669
Gross margin366,437
 340,831
 1,070,284
 1,144,115
Operating expenses:       
Research and development109,091
 107,075
 329,994
 330,086
Selling, general and administrative71,643
 74,116
 223,829
 233,487
Intangible asset amortization756
 756
 2,268
 2,285
Impairment of long-lived assets
 
 
 753
Severance and restructuring expenses523
 1,744
 4,685
 3,917
Other operating expenses (income), net1,077
 
 1,101
 60
Total operating expenses183,090
 183,691
 561,877
 570,588
Operating income183,347
 157,140
 508,407
 573,527
Interest and other income (expense), net(1,622) 3,318
 190
 3,244
Income before provision for income taxes181,725
 160,458
 508,597
 576,771
Income tax provision20,535
 29,845
 61,201
 116,843
Net income$161,190
 $130,613
 $447,396
 $459,928
        
Earnings per share:       
Basic$0.60
 $0.48
 $1.66
 $1.67
Diluted$0.59
 $0.47
 $1.64
 $1.64
        
Shares used in the calculation of earnings per share:       
Basic269,003
 273,221
 270,241
 275,831
Diluted271,579
 276,610
 273,187
 279,680

See accompanying Notes to Condensed Consolidated Financial Statements.



4



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

 Three Months Ended Nine Months Ended
 March 28,
2020
 March 30,
2019
 March 28,
2020
 March 30,
2019
 (in thousands)
Net income$161,190
 $130,613
 $447,396
 $459,928
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 $27, $97, $10 and $(131), respectively(376) 1,139
 (258) 3,116
Change in net unrealized gains and losses on cash flow hedges, net of tax benefit (expense) of $216, $69, $264 and $(241), respectively(1,083) (351) (1,332) 1,167
Change in net unrealized gains and losses on post-retirement benefits, net of tax benefit (expense) of $(20), $(23), $(62) and $(60), respectively99
 78
 295
 232
Other comprehensive income (loss), net(1,360) 866
 (1,295) 4,515
Total comprehensive income$159,830
 $131,479
 $446,101
 $464,443

See accompanying Notes to Condensed Consolidated Financial Statements.


5



MAXIM INTEGRATED PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months Ended
 March 28,
2020
 March 30,
2019
 (in thousands)
Cash flows from operating activities:   
Net income$447,396
 $459,928
Adjustments to reconcile net income to net cash provided by operating activities:   
Stock-based compensation72,141
 64,973
Depreciation and amortization72,149
 85,176
Deferred taxes(5,392) (12,161)
Loss (gain) on disposal of property, plant and equipment634
 3,324
Other adjustments9,226
 265
Changes in assets and liabilities:   
Accounts receivable(7,512) 5,475
Inventories25,891
 9,620
Other assets(60,530) (3,026)
Accounts payable2,189
 (10,971)
Income taxes payable(28,959) 53,662
Accrued salary and related expenses3,516
 (19,845)
Other liabilities57,777
 1,953
Net cash provided by (used in) operating activities588,526
 638,373
Cash flows from investing activities:   
Purchases of property, plant and equipment(51,369) (52,170)
Proceeds from sale of property, plant and equipment268
 34
Proceeds from sale of available-for-sale securities
 30,192
Proceeds from maturity of available-for-sale securities93,552
 1,027,083
Payment in connection with business acquisition, net of cash acquired
 (2,949)
Purchases of available-for-sale securities
 (214,587)
Purchases of private company investments(120) (1,676)
Proceeds from sale of private company investments173
 
Other investing activities(118) (540)
Net cash provided by (used in) investing activities42,386
 785,387
Cash flows from financing activities:   
Repayment of debt
 (500,000)
Contingent consideration paid(8,000) (9,052)
Net issuance of restricted stock units(29,136) (23,026)
Proceeds from stock options exercised16,630
 18,986
Issuance of common stock under employee stock purchase program18,535
 17,689
Repurchase of common stock(358,512) (437,047)
Dividends paid(389,104) (380,231)
Net cash provided by (used in) financing activities(749,587) (1,312,681)
Net increase (decrease) in cash and cash equivalents(118,675) 111,079
Cash and cash equivalents:   
Beginning of period$1,757,342
 $1,543,484
End of period$1,638,667
 $1,654,563
Supplemental disclosures of cash flow information:   
Cash paid, net, during the period for income taxes$84,948
 $74,385
Cash paid for interest$25,501
 $31,751
Noncash financing and investing activities:   
Accounts payable related to property, plant and equipment purchases$9,085
 $15,252

See accompanying Notes to Condensed Consolidated Financial Statements.

6



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


 Three Months Ended March 28, 2020
 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total
Stockholders' Equity
 Shares Par Value    
 (in thousands)
            
Balance, December 28, 2019269,743
 $270
 $
 $1,737,528
 $(11,289) $1,726,509
Net income
 
 
 161,190
 
 161,190
Other comprehensive income (loss), net
 
 
 
 (1,360) (1,360)
Repurchase of common stock (2,812) (3) (19,679) (137,321) 
 (157,003)
Net issuance of restricted stock units360
 
 (11,570) 
 
 (11,570)
Stock options exercised272
 
 7,810
 
 
 7,810
Stock-based compensation 
 
 23,439
 
 
 23,439
Dividends paid, $0.48 per common share
 
 
 (129,072) 
 (129,072)
Balance, March 28, 2020267,563
 $267
 $
 $1,632,325
 $(12,649) $1,619,943
            


 Nine Months Ended March 28, 2020
 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss 
Total
Stockholders' Equity
 Shares Par Value    
 (in thousands)
            
Balance, June 29, 2019271,852
 $272
 $
 $1,856,358
 $(11,354) $1,845,276
Net income
 
 
 447,396
 
 447,396
Other comprehensive income (loss), net
 
 
 
 (1,295) (1,295)
Repurchase of common stock (6,296) (5) (78,235) (280,272) 
 (358,512)
Cumulative-effect adjustment for adoption of ASU 2016-02
 
 
 (2,053) 
 (2,053)
Net issuance of restricted stock units1,017
 
 (29,136) 
 
 (29,136)
Stock options exercised588
 
 16,630
 
 
 16,630
Stock-based compensation 
 
 72,206
 
 
 72,206
Common stock issued under Employee Stock Purchase Plan402
 
 18,535
 
 
 18,535
Dividends paid, $1.44 per common share
 
 
 (389,104) 
 (389,104)
Balance, March 28, 2020267,563
 $267
 $
 $1,632,325
 $(12,649) $1,619,943
            


See accompanying Notes to Condensed Consolidated Financial Statements.







7



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


 Three Months Ended March 30, 2019
 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total
Stockholders' Equity
 Shares Par Value    
 (in thousands)
            
Balance, December 29, 2018274,326
 $279
 $
 $1,766,471
 $(11,336) $1,755,414
Net income
 
 
 130,613
 
 130,613
Other comprehensive income (loss), net
 
 
 
 866
 866
Repurchase of common stock (2,210) 
 (18,411) (98,580) 
 (116,991)
Net issuance of restricted stock units402
 
 (9,582) 
 
 (9,582)
Stock options exercised177
 
 5,143
 
 
 5,143
Stock-based compensation 
 
 22,850
 
 
 22,850
Dividends paid, $0.46 per common share
 
 
 (125,566) 
 (125,566)
Balance, March 30, 2019272,695
 $279
 $
 $1,672,938
 $(10,470) $1,662,747
            


 Nine Months Ended March 30, 2019
 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss 
Total
Stockholders' Equity
 Shares Par Value    
 (in thousands)
            
Balance, June 30, 2018278,664
 $279
 $
 $1,945,646
 $(14,985) $1,930,940
Net income
 
 
 459,928
 
 459,928
Other comprehensive income (loss), net
 
 
 
 4,515
 4,515
Repurchase of common stock (8,032) 
 (82,155) (354,892) 
 (437,047)
Cumulative-effect adjustment for adoption of ASU 2016-01


 
 2,487
 
 2,487
Net issuance of restricted stock units980
 
 (23,026) 
 
 (23,026)
Stock options exercised699
 
 18,986
 
 
 18,986
Stock-based compensation 
 
 65,035
 
 
 65,035
Modification of liability to equity instruments (1)

 
 3,471
 
 
 3,471
Common stock issued under Employee Stock Purchase Plan384
 
 17,689
 
 
 17,689
Dividends paid, $1.38 per common share
 
 
 (380,231) 
 (380,231)
Balance, March 30, 2019272,695


$279

$

$1,672,938

$(10,470) $1,662,747
            
________________
(1) In December 2018, $3.5 million was reclassified from accrued salaries to additional paid-in capital due to a settlement agreement relating to the expiration of stock options.


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 nine months ended March 28, 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 29, 2019.

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 2019 and 2020 are 52-week fiscal years.


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, allowances for doubtful accounts, customer returns and allowances, allowance for distributor credits, inventory valuation, reserves relating to litigation matters, assumptions about the fair value of reporting units, accrued liabilities and reserves, assumptions related to the calculation of stock-based compensation and the value of intangibles acquired and goodwill 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.

The recent 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 April 29, 2020, 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.

Recently Issued Accounting Pronouncements

(i) New Accounting Updates Recently Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-02 (ASU 2016-02), Leases (Topic 842). Topic 842 states that lessees will recognize a lease liability for the commitment to make lease payments and a right-of-use asset for the underlying asset, for the duration of the lease. The FASB also issued ASU 2018-10 and ASU 2018-11 which provide improvements to ASU 2016-02 and an additional transition method option, respectively. This transition method allows companies to apply the new lease accounting standard on adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. The Company adopted ASU 2016-02 in the first quarter of fiscal year 2020.

The Company adopted the new standard using the modified retrospective method and electing the optional transition method practical expedient. Under the optional transition method, the Company recognized a cumulative-effect adjustment to the consolidated balance sheet and did not adjust comparative prior period information.


9



The Company elected multiple practical expedients permitted:
the hindsight practical expedient, in which the Company elected to use hindsight up until the effective date in determining the lease term and assessing impairment of right-of-use assets;
the practical expedient package that allows the Company to carry forward its determination of whether a lease exists, the classification of a lease, and whether initial direct lease costs exist for purposes of transition to the new standard; and
the practical expedient to combine lease and non-lease components.

The Company also elected an accounting policy in which it will not apply the recognition requirements to leases with an initial term of 12 months or less.

Effective June 30, 2019, the first day of adoption, the Company recognized $61.0 million of operating lease right-of-use assets and $65.2 million of operating lease liabilities on its Consolidated Balance Sheet. The difference of $4.2 million was primarily due to deferred rent, partially offset by prepaid rent for leases that existed as of the date of adoption, which decreased the opening balance of lease right-of-use (ROU) assets.

Updated Lease Accounting Policy

The Company determines if an arrangement is, or contains, a lease at inception. ROU assets are recorded as other assets, short-term lease obligations are recorded as accrued expenses and long-term lease obligations are recorded as other liabilities on the Company's Consolidated Balance Sheet. The Company’s classes of assets include real estate leases, equipment leases, and vehicle leases.

Lease ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. When discount rates implicit in leases cannot be readily determined, the Company uses its incremental borrowing rate based on information available at commencement date in determining the present value of future payments.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. Lease expense is recognized on a straight-line basis over the lease term. The Company elected to combine lease and non-lease components for all asset classes. In addition, the Company does not apply the recognition requirements to leases with lease terms of 12 months or less.

NOTE 3: BALANCE SHEET COMPONENTS

Inventories consist of:
 March 28,
2020
 June 29,
2019
 (in thousands)
Raw materials$14,525
 $16,121
Work-in-process148,670
 160,273
Finished goods57,491
 70,118
Total inventories$220,686
 $246,512


Property, plant and equipment, net, consist of:
 March 28,
2020
 June 29,
2019
 (in thousands) 
Land$17,720
 $17,720
Buildings and building improvements314,323
 265,191
Machinery, equipment and software1,334,875
 1,367,606
Total1,666,918
 1,650,517
Less: accumulated depreciation(1,102,282) (1,072,795)
Total property, plant and equipment, net$564,636
 $577,722


10




Accrued salary and related expenses consist of:
 March 28,
2020
 June 29,
2019
 (in thousands)
Accrued vacation$28,449
 $30,250
Accrued bonus51,565
 71,466
Accrued salaries14,161
 8,329
Accrued fringe benefits5,262
 4,807
Other22,783
 3,782
Total accrued salary and related expenses$122,220
 $118,634


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 Ended Nine Months Ended
 March 28, 2020 March 30, 2019 March 28, 2020 March 30, 2019
 Revenue % of Total Revenue % of Total Revenue % of Total Revenue % of Total
 (in thousands, except percentages)
Automotive$157,336
 28% $151,867
 28% $444,535
 27% $448,717
 26%
Communications and Data Center134,860
 24% 103,053
 19% 368,394
 22% 352,518
 20%
Consumer101,145
 18% 124,748
 23% 339,289
 21% 422,829
 24%
Industrial168,575
 30% 162,715
 30% 493,808
 30% 533,720
 30%
 $561,916
   $542,383
   $1,646,026
   $1,757,784
  


The following table summarizes net revenue disaggregated by sales channel:
 Three Months Ended Nine Months Ended
 March 28, 2020 March 30, 2019 March 28, 2020 March 30, 2019
 Revenue % of Total Revenue % of Total Revenue % of Total Revenue % of Total
 (in thousands, except percentages)
Distributors$290,848
 52% $234,561
 43% $838,676
 51% $784,652
 45%
Direct customers271,068
 48% 307,822
 57% 807,350
 49% 973,132
 55%
 $561,916
   $542,383
   $1,646,026
   $1,757,784
  


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.
 
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.


11



The Company’s Level 2 assets and liabilities consist of U.S. Treasury securities, agency securities, corporate debt securities, certificates of deposit, commercial paper 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:
 March 28, 2020 June 29, 2019
 
Fair Value
 Measurements Using
 Total
Balance
 
Fair Value
 Measurements Using
 Total
Balance
 Level 1 Level 2 Level 3  Level 1 Level 2 Level 3 
 (in thousands)
Assets               
Cash and cash equivalents               
    Money market funds$245,470
 $
 $
 $245,470
 $186,819
 $
 $
 $186,819
Short-term investments      

       

    Certificates of deposit
 
 
 
 
 1,000
 
 1,000
    Corporate debt securities
 47,109
 
 47,109
 
 139,990
 
 139,990
Other current assets               
Foreign currency forward contracts
 580
 
 580
 
 651
 
 651
Total assets$245,470
 $47,689
 $
 $293,159
 $186,819
 $141,641
 $
 $328,460
                
Liabilities               
Accrued expenses               
Foreign currency forward contracts$
 $1,297
 $
 $1,297
 $
 $148
 $
 $148
Contingent consideration
 
 
 
 
 
 9,052
 9,052
Total Liabilities$
 $1,297
 $
 $1,297
 $
 $148
 $9,052
 $9,200


During the nine months ended March 28, 2020 and the year ended June 29, 2019, 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 March 28, 2020 and June 29, 2019 other than impairments of long-lived assets.

As of March 28, 2020 and June 29, 2019, the fair value of private company investments amounted to $20.5 million and $20.7 million, respectively. The aggregate amount of unrealized losses recognized from these investments were $3.4 million and $3.6 million, respectively, as of March 28, 2020 and June 29, 2019.

The Company recorded $(0.4) million and $0.5 million of unrealized gains (losses) on private company investments, during the three months ended March 28, 2020 and March 30, 2019, respectively. The Company recorded $0.2 million and $(0.2) million, of unrealized gains (losses) on private company investments during the nine months ended March 28, 2020 and March 30, 2019, respectively. 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:
 March 28, 2020 June 29, 2019
 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Estimated Fair Value Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Estimated Fair Value
 (in thousands)
Available-for-sale investments              
Certificates of deposit$
 $
 $
 $
 $1,000
 $
 $
 $1,000
Corporate debt securities47,408
 31
 (330) 47,109
 140,031
 68
 (109) 139,990
Total available-for-sale investments$47,408
 $31
 $(330) $47,109
 $141,031
 $68
 $(109) $140,990


In the three and nine months ended March 28, 2020 and March 30, 2019, the Company did not recognize any impairment charges on short-term investments. All available-for-sale investments have maturity dates between April 6, 2020 and March 12, 2021.

The Company invests in various financial instruments including corporate debt securities, commercial paper, and certificates of deposit which include instruments issued or managed by industrial, financial, and utility institutions and U.S. Treasury securities which include U.S. government Treasury bills and Treasury notes.

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 the European Euro, Indian Rupee, Japanese Yen, Taiwan New Dollar, South Korean Won, Chinese Yuan and Canadian Dollar, 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 March 28, 2020 and June 29, 2019, the notional amounts of the forward contracts the Company held to purchase international currencies were $41.4 million and $48.5 million, respectively. As of March 28, 2020 and June 29, 2019, the Company did not hold any forward contracts to sell international currencies.

Derivatives not designated as hedging instruments

As of March 28, 2020 and June 29, 2019, the notional amounts of the forward contracts the Company held to purchase international currencies were $39.7 million and $19.6 million, respectively, and the notional amounts of forward contracts the Company held to sell international currencies were $11.8 million and $21.1 million, respectively. The increase in forward contracts held to purchase international currencies from fiscal year 2019 to fiscal year 2020 was primarily due to the addition of operating lease liabilities, which were recorded on the Company’s Consolidated Balance Sheet upon adoption of the new lease accounting standard, Topic 842. The Company's foreign currency forward contract gains or losses included in the Condensed Consolidated Statements of Income were not material for the three and nine months ended March 28, 2020 and March 30, 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 EndedThree Months Ended
 March 28, 2020March 30, 2019
 Net Revenue Cost of Goods Sold Operating Expenses Net Revenue Cost of Goods Sold Operating Expenses
 (in thousands)
Income and expenses line items in which the effects of cash flow hedges are recorded$561,916
 $195,479
 $183,090
 $542,383
 $201,552
 $183,691
            
Gain (loss) on cash flow hedges:           
Foreign exchange contracts:           
Gain (loss) reclassified from accumulated other comprehensive income into income$
 $76
 $(94) $6
 $261
 $(79)


 Nine Months EndedNine Months Ended
 March 28, 2020March 30, 2019
 Net Revenue Cost of Goods Sold Operating Expenses Net Revenue Cost of Goods Sold Operating Expenses
 (in thousands)
Income and expenses line items in which the effects of cash flow hedges are recorded$1,646,026
 $575,742
 $561,877
 $1,757,784
 $613,669
 $570,588
            
Gain (loss) on cash flow hedges:           
Foreign exchange contracts:           
Gain (loss) reclassified from accumulated other comprehensive income into income$
 $206
 $(868) $50
 $(335) $(1,906)


Outstanding debt obligations

The following table summarizes the Company’s outstanding debt obligations:
 March 28, 2020 June 29, 2019
 (in thousands)
3.45% fixed rate notes due June 2027$500,000
 $500,000
3.375% fixed rate notes due March 2023500,000
 500,000
Total outstanding debt1,000,000
 1,000,000
Less: Reduction for unamortized discount and debt issuance costs(6,337) (7,416)
Total long-term debt$993,663
 $992,584


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 November 21, 2013, the Company completed a public offering of $500 million aggregate principal amount of the Company’s 2.5% coupon senior unsecured and unsubordinated notes due in November 2018 (“2018 Notes”), with an effective interest rate of 2.6%. Interest on the 2018 Notes is payable semi-annually in arrears on May 15 and November 15 of each year, commencing on May 15, 2014. The net proceeds of this offering were approximately $494.5 million, after issuing at a discount and deducting paid expenses. In November of 2018, the Company repaid the entire $500 million in principal and any outstanding interest, related to these outstanding notes.

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 March 28, 2020 and March 30, 2019, respectively. Amortized discount and expenses, as well as interest expense associated with the notes, were $26.7 million and $32.5 million, respectively, during the nine months ended March 28, 2020 and March 30, 2019.

The estimated fair value of the Company’s outstanding debt obligations was approximately $1.0 billion as of March 28, 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 $9.3 million and $9.3 million during the three months ended March 28, 2020, and March 30, 2019, respectively. The Company recorded interest expense of $27.9 million and $33.9 million during the nine months ended March 28, 2020, and March 30, 2019, respectively.

Other Financial Instruments
For the balance of the Company’s financial instruments, cash equivalents, 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 March 28, 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”), 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 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 after August 2017 will continue to vest post-employment at the Company for certain individuals satisfying specific eligibility requirements.

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 after August 2017 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 nine months ended March 28, 2020 and March 30, 2019, respectively:

 Three Months Ended Three Months Ended
 March 28, 2020 March 30, 2019
 Stock Options Restricted Stock Units Employee Stock Purchase Plan Total Stock Options Restricted Stock Units Employee Stock Purchase Plan Total
 (in thousands)
Cost of goods sold$10
 $2,363
 $726
 $3,099
 $8
 $1,951
 $654
 $2,613
Research and development4
 9,719
 1,628
 11,351
 5
 9,399
 1,658
 11,062
Selling, general and administrative72
 8,037
 844
 8,953
 64
 8,184
 897
 9,145
Pre-tax stock-based compensation expense$86
 $20,119
 $3,198
 $23,403
 $77
 $19,534
 $3,209
 $22,820
Less: income tax effect      1,969
       1,946
Net stock-based compensation expense     $21,434
       $20,874


Nine Months Ended Nine Months Ended

March 28, 2020
March 30, 2019

Stock Options
Restricted Stock Units
Employee Stock Purchase Plan
Total
Stock Options
Restricted Stock Units
Employee Stock Purchase Plan
Total

(in thousands)
Cost of goods sold$23

$6,912

$2,094

$9,029

$28

$5,597

$1,656

$7,281
Research and development12

29,122

4,537

33,671

27

26,783

3,948

30,758
Selling, general and administrative194

26,744

2,503

29,441

178

24,600

2,156

26,934
Pre-tax stock-based compensation expense$229

$62,778

$9,134

$72,141

$233

$56,980

$7,760

$64,973
Less: income tax effect





7,050







6,214
Net stock-based compensation expense





$65,091







$58,759



The expense included in the Condensed Consolidated Statements of Income for RSUs include expenses related to MSUs of $2.8 million and $3.0 million for the three months ended March 28, 2020 and March 30, 2019, respectively, and $9.6 million and $8.3 million for the nine months ended March 28, 2020 and March 30, 2019, respectively.

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 0 stock options granted in the three and nine months ended March 28, 2020 and March 30, 2019.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of March 28, 2020 and related activity for the nine months ended March 28, 2020:

16



 
Number of
Shares 
 Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in Years) 
Aggregate Intrinsic Value(1)
Balance at June 29, 2019777,413
 $28.30
    
Options Granted
 
    
Options Exercised(574,949) 27.42
    
Options Cancelled(16,575) 27.30
    
Balance at March 28, 2020185,889
 $28.21
 1.0 $3,596,648
Exercisable, March 28, 2020185,889
 $28.21
 1.0 $3,596,648
Vested and expected to vest, March 28, 2020185,889
 $28.21
 1.0 $3,596,648

(1)Aggregate intrinsic value represents the difference between the exercise price and the closing price per share of the Company’s common stock on March 27, 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 March 28, 2020.


As of March 28, 2020, there was 0 unrecognized stock compensation from unvested stock options.

Restricted Stock Units and Other Awards

The fair value of RSUs and other awards 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 other awards granted was $58.04 and $51.01 per share for the three months ended March 28, 2020 and March 30, 2019, respectively, and $49.55 and $54.04 per share for the nine months ended March 28, 2020 and March 30, 2019, respectively.

The following table summarizes the outstanding and expected to vest RSUs and other awards as of March 28, 2020 and related activity during the nine months ended March 28, 2020:
 
Number of
Shares 
 
Weighted Average
Remaining
Contractual Term
(in Years)
 
 
Aggregate Intrinsic
Value(1) 
Balance at June 29, 20194,918,306
    
Restricted stock units and other awards granted1,780,422
    
Restricted stock units and other awards released(1,337,151)    
Restricted stock units and other awards cancelled(386,970)    
Balance at March 28, 20204,974,607
 2.7 $236,592,309
Outstanding and expected to vest, March 28, 20204,176,812
 2.6 $198,649,169
(1)Aggregate intrinsic value for RSUs and other awards represents the closing price per share of the Company’s common stock on March 27, 2020, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of March 28, 2020.

The Company withheld shares totaling $11.6 million and $29.1 million in value as a result of employee withholding taxes based on the value of RSUs on their vesting date for the three and nine months ended March 28, 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 March 28, 2020, there was $165.8 million of unrecognized compensation expense related to 5.0 million unvested RSUs and other awards, which is expected to be recognized over a weighted average period of approximately 2.7 years.


17



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 and after, 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 after August 2017 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.

The weighted-average fair value of MSUs granted was $54.70 and $75.48 per share for the nine months ended March 28, 2020 and March 30, 2019, respectively.

The following table summarizes the number of MSUs outstanding and expected to vest as of March 28, 2020 and their activity during the nine months ended March 28, 2020:
 
Number of
Shares 
 
Weighted Average
Remaining
Contractual Term
(in Years)
 
 
Aggregate Intrinsic
Value
(1) 
Balance at June 29, 20191,048,532
    
Market stock units granted259,984
    
Market stock units released(183,974)    
Market stock units cancelled(150,970)    
Balance at March 28, 2020973,572
 2.6 $46,303,084
Outstanding and expected to vest, March 28, 2020338,860
 2.5 $16,116.163
(1)Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on March 27, 2020, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of March 28, 2020.


As of March 28, 2020, there was $29.0 million of unrecognized compensation expense related to 1.0 million unvested MSUs, which is expected to be recognized over a weighted average period of approximately 2.6 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 outstanding:
 Three Months Ended Nine Months Ended
 March 28, 2020 March 30, 2019 March 28, 2020 March 30, 2019
Expected holding period (in years)0.5 years 0.5 years 0.5 years 0.5 years
Risk-free interest rate1.6% - 2.3% 2.4% - 2.6% 1.6% - 2.7% 1.6% - 2.6%
Expected stock price volatility28.4% - 29.5% 27.5% - 28.9% 28.4% - 31.3% 19.6% - 32.7%
Dividend yield3.3% - 3.4% 2.8% - 3.1% 3.1% - 3.4% 2.8% - 3.1%


As of March 28, 2020 and March 30, 2019, there was $6.9 million and $5.3 million, respectively, of unrecognized compensation expense related to the 2008 ESPP.

NOTE 8: EARNINGS PER SHARE

18




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 and other awards as well as MSUs. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options, assumed release of unvested RSUs and other awards as well as 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 Ended Nine Months Ended
 March 28, 2020 March 30, 2019 March 28,
2020
 March 30,
2019
 (in thousands, except per share data)
Numerator for basic earnings per share and diluted earnings per share       
Net income$161,190
 $130,613
 $447,396
 $459,928
        
Denominator for basic earnings per share269,003
 273,221
 270,241
 275,831
Effect of dilutive securities:       
Stock options, ESPP, RSUs, and MSUs2,576
 3,389
 2,946
 3,849
Denominator for diluted earnings per share271,579
 276,610
 273,187
 279,680
        
Earnings per share       
Basic$0.60
 $0.48
 $1.66
 $1.67
Diluted$0.59
 $0.47
 $1.64
 $1.64


For the three and nine months ended March 28, 2020 and March 30, 2019 no stock awards were determined to be anti-dilutive. Securities which would have been anti-dilutive are insignificant and were excluded from the computation of diluted earnings per share in all periods.

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
1 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.


19





Net revenues from unaffiliated customers by geographic region were as follows:
 Three Months Ended Nine Months Ended
 March 28,
2020
 March 30,
2019
 March 28,
2020
 March 30,
2019
 (in thousands)
United States$61,681
 $63,970
 $176,388
 $200,944
China195,560
 183,753
 609,958
 611,768
Rest of Asia184,635
 176,396
 518,114
 583,616
Europe105,535
 104,124
 299,728
 316,155
Rest of World14,505
 14,140
 41,838
 45,301
 $561,916
 $542,383
 $1,646,026
 $1,757,784

Net long-lived assets by geographic region were as follows:
 March 28,
2020
 June 29,
2019
 (in thousands)
United States$368,813
 $379,308
Philippines96,013
 102,634
Rest of World99,810
 95,780
 $564,636
 $577,722


NOTE 10: COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) by component and related tax effects in the nine months ended March 28, 2020 and March 30, 2019 were as follows:
(in thousands)Unrealized Gains and (Losses) on Intercompany Receivables Unrealized Gains and (Losses) on Post-Retirement Benefits Cumulative Translation Adjustment Unrealized Gains and (Losses) on Cash Flow Hedges Unrealized Gains and (Losses) on Available-For-Sale Securities Total
June 29, 2019$(6,280) $(4,322) $(1,136) $425
 $(41) $(11,354)
Other comprehensive income (loss) before reclassifications
 
 
 (2,258) (268) (2,526)
Amounts reclassified out of accumulated other comprehensive (income) loss
 357
 
 662
 
 1,019
Tax effects
 (62) 
 264
 10
 212
Other comprehensive income (loss), net
 295
 
 (1,332) (258) (1,295)
March 28, 2020$(6,280) $(4,027) $(1,136) $(907) $(299) $(12,649)



20



(in thousands)Unrealized Gains and (Losses) on Intercompany Receivables Unrealized Gains and (Losses) on Post-Retirement Benefits Cumulative Translation Adjustment Unrealized Gains and (Losses) on Cash Flow Hedges Unrealized Gains and (Losses) on Available-For-Sale Securities Total
June 30, 2018$(6,280) $(2,516) $(1,136) $(1,383) $(3,670) $(14,985)
Other comprehensive income (loss) before reclassifications
 
 
 (783) 3,247
 2,464
Amounts reclassified out of accumulated other comprehensive (income) loss
 292
 
 2,191
 
 2,483
Tax effects
 (60) 
 (241) (131) (432)
Other comprehensive income (loss), net
 232
 
 1,167
 3,116
 4,515
March 30, 2019$(6,280) $(2,284) $(1,136) $(216) $(554) $(10,470)


NOTE 11: INCOME TAXES

In the three and nine months ended March 28, 2020 the Company recorded an income tax provision of $20.5 million and $61.2 million, respectively, compared to $29.8 million and $116.8 million for the three and nine months ended March 30, 2019, respectively. The Company’s effective tax rate for the three and nine months ended March 28, 2020 was 11.3% and 12.0%, respectively, compared to 18.6% and 20.3% for the three and nine months ended March 30, 2019, respectively.

On December 22, 2017 legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted. The Act included a one-time tax on accumulated unremitted earnings of the Company's foreign subsidiaries (“Transition Tax”). SEC Staff Accounting Bulletin No. 118 allowed the use of provisional amounts (reasonable estimates) if accounting for the income tax effects of the Act was not completed. Provisional amounts must be adjusted within a one-year measurement period from the enactment date of the Act. In the second quarter of fiscal year 2018, the Company recorded a discrete $236.9 million provisional Transition Tax charge. During the measurement period, the Company gathered additional information and analyzed available guidance to more precisely compute the amount of the Transition Tax. In the second quarter of fiscal year 2019, the Company completed this work and recorded a discrete $22.1 million measurement period adjustment for the Transition Tax, which increased the Company’s effective tax rate for the nine months ended March 30, 2019 by 3.8%. As of the end of the second quarter of fiscal year 2019, the accounting for income tax effects of the Act was completed.

The Company’s federal statutory tax rate is 21%. The Company’s effective tax rate for the three and nine months ended March 28, 2020 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 related to Global Intangible Low-Taxed Income (“GILTI”).

The Company’s effective tax rate for the three months ended March 30, 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 tax generated by the GILTI provisions, a $4.1 million discrete charge for differences between the Company's fiscal year 2018 tax returns and the tax provision originally recorded, and $5.7 million of discrete interest accruals for unrecognized tax benefits.

The Company’s effective tax rate for the nine months ended March 30, 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 a $21.0 million discrete charge for the Transition Tax, tax generated by the GILTI provisions, $15.1 million of discrete interest accruals for unrecognized tax benefits, and $4.8 million of discrete charges for differences between the Company's fiscal year 2018 tax returns and the tax provision originally recorded.

The Company engages in continuous discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. It is reasonably possible that the balance of gross unrecognized tax benefits, including accrued interest and penalties, could decrease up to $57.0 million within the next twelve months due to the completion of federal tax audits, including any administrative appeals. The $57.0 million primarily relates to matters involving federal taxation of cross-border transactions.

21



The Company’s federal corporate income tax returns are audited on a recurring basis by the Internal Revenue Service (“IRS”). In fiscal year 2017, the IRS commenced an audit of the Company’s federal corporate income tax returns for fiscal years 2012 through 2014, which is ongoing. 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.

During the nine months ended March 28, 2020, the Company repurchased approximately 6.3 million shares of its common stock for $358.5 million. As of March 28, 2020, the Company had remaining authorization of $0.8 billion for future share repurchases. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company’s common stock and general market and business conditions.

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 nine months ended March 28, 2020, the Company recorded operating lease expense of $2.3 million and $7.0 million, respectively.

Leases are included in the following Condensed Consolidated Balance Sheet lines:
  March 28, 2020
  (in thousands)
Other assets $54,355
   
Accrued expenses $10,233
Other liabilities $48,101


Future minimum lease payments under non-cancelable operating leases as of March 28, 2020 are as follows:

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  Operating Lease Obligations
Fiscal Year

 
(in thousands)

Remainder of 2020 $3,190
2021 11,805
2022 10,693
2023 9,444
2024 8,231
Thereafter 21,935
Total 65,298
Less imputed interest 7,102
Total $58,196


Future minimum lease payments under non-cancelable operating leases as of March 30, 2019, based on the previous lease standard, are as follows:
  
Operating Lease Obligations

Fiscal Year

 
(in thousands)

Remainder of 2019 $2,664
2020 9,544
2021 9,003
2022 8,433
2023 7,262
Thereafter 20,484
Total $57,390



Other information related to leases as of March 28, 2020 are as follows:
  Nine Months Ended
  March 28, 2020
Supplemental cash flow information  
Operating cash flows used for operating leases, in thousands $8,759
Weighted-average remaining lease term - operating leases, in years 7
Weighted-average discount rate - operating leases 3.43%


Since most of our operating leases do not provide an implicit interest rate, the Company used a portfolio approach to determine a collateralized incremental borrowing rate based on the information available at the commencement date to determine the lease liability.

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 nine months ended March 28, 2020.

No indicators or instances of impairment were identified during the nine months and fiscal year ended March 28, 2020 and June 29, 2019, respectively.


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Intangible Assets

Intangible assets consisted of the following:
 March 28, 2020 June 29, 2019
 
Original
Cost
 
Accumulated
Amortization
 Net 
Original
Cost
 
Accumulated
Amortization
 Net
 (in thousands)
Intellectual property$490,136
 $454,890
 $35,246
 $487,346
 $445,558
 $41,788
Customer relationships116,505
 107,916
 8,589
 116,505
 105,901
 10,604
Trade name9,974
 9,167
 807
 9,974
 8,914
 1,060
Patents2,500
 2,500
 
 2,500
 2,500
 
Total amortizable purchased intangible assets619,115
 574,473
 44,642
 616,325
 562,873
 53,452
In-process research & development (IPR&D)
 
 
 2,790
 
 2,790
Total purchased intangible assets$619,115
 $574,473
 $44,642
 $619,115
 $562,873
 $56,242


The following table presents the amortization expense of intangible assets and its presentation in the Condensed Consolidated Statements of Income:
 Three Months Ended Nine Months Ended
 March 28,
2020
 March 30,
2019
 March 28,
2020
 March 30,
2019
 (in thousands)
Cost of goods sold$3,111
 $5,368
 $9,332
 $19,151
Intangible asset amortization756
 756
 2,268
 2,285
Total intangible asset amortization expenses$3,867
 $6,124
 $11,600
 $21,436


The following table represents the estimated future amortization expense of intangible assets as of March 28, 2020:
  Amount
Fiscal Year (in thousands)
Remainder of 2020 $3,866
2021 13,767
2022 8,088
2023 7,604
2024 4,628
Thereafter 6,689
Total intangible assets $44,642



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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, including the impact of the recent coronavirus (COVID-19) pandemic and the responses to it, 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.

Impact of COVID-19

The recent coronavirus (COVID-19) pandemic and the mitigation efforts by governments to attempt to control its spread are impacting and will likely continue to impact our operations, customers, and suppliers for an indefinite period of time. While we have implemented safeguards and procedures to counter the impact of the COVID-19 pandemic, the full extent to which the COVID-19 pandemic has and will directly or indirectly impact us, including our business, financial condition, and results of operations, will depend on future developments that are highly uncertain and cannot be accurately predicted, including the further mitigation efforts taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, suppliers, and stockholders.

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;
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.

At the beginning of fiscal year 2020, we combined our Computing Major End-Market category with our Communications and Data Center Major End-Market category. Our former Computing Major End-Market category focused on Desktop Computers, Notebook Computers, and Peripherals and Other Computer markets.

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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-MARKET MARKET 
    
AUTOMOTIVEInfotainment 
 Powertrain 
 Body Electronics 
 Safety and 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 


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 revenue recognition, which impacts the recording of net revenues; valuation of inventories, which impacts costs of goods sold and gross margins; the assessment of recoverability of long-lived assets, which impacts impairment of long-lived assets; assessment of recoverability of intangible assets and goodwill, which impacts impairment of goodwill and intangible assets; accounting for income taxes, which impacts the income tax provision; and assessment of litigation and contingencies, which impacts charges recorded in cost of goods

26



sold, selling, general and administrative expenses and income taxes. 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 29, 2019. 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 nine months ended March 28, 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 29, 2019.


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RESULTS OF OPERATIONS

Impact of COVID-19 on Our Business
The 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 fourth quarter of fiscal year 2020 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 last month of the fiscal quarter, 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 rapidly-evolving situation and are working to adopt and implement government-placed orders, in addition to our own actions, in all our locations. While supply chain disruptions outside of our operations have impacted the way we conduct business, we continuously implement alternative procedures to counter the negative effects of such disruptions.
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 Ended Nine Months Ended
 March 28,
2020
 March 30,
2019
 March 28,
2020
 March 30,
2019
        
Net revenues100.0 % 100.0% 100.0% 100.0%
Cost of goods sold34.8 % 37.2% 35.0% 34.9%
Gross margin65.2 % 62.8% 65.0% 65.1%
Operating expenses:       
Research and development19.4 % 19.7% 20.0% 18.8%
Selling, general and administrative12.7 % 13.7% 13.6% 13.3%
Intangible asset amortization0.1 % 0.1% 0.1% 0.1%
Impairment of long-lived assets % % % %
Severance and restructuring expenses0.1 % 0.3% 0.3% 0.2%
Other operating expenses (income), net0.2 % % 0.1% %
Total operating expenses32.6 % 33.9% 34.1% 32.5%
Operating income32.6 % 29.0% 30.9% 32.6%
Interest and other income (expense), net(0.3)% 0.6% % 0.2%
Income before provision for income taxes32.3 % 29.6% 30.9% 32.8%
Income tax provision (benefit)3.7 % 5.5% 3.7% 6.6%
Net income28.7 % 24.1% 27.2% 26.2%

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:


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 Three Months Ended Nine Months Ended
 March 28,
2020
 March 30,
2019
 March 28,
2020
 March 30,
2019
Cost of goods sold0.6% 0.5% 0.5% 0.4%
Research and development2.0% 2.0% 2.0% 1.7%
Selling, general and administrative1.6% 1.7% 1.8% 1.5%
 4.2% 4.2% 4.3% 3.6%

Net Revenues

Net revenues were $561.9 million and $542.4 million for the three months ended March 28, 2020 and March 30, 2019, respectively.
Revenue from communications and data center products was up by 26% driven by an increased demand for base station and data center products. Revenue from consumer products was down by 18% primarily due to lower demand in smartphone products. These results include net revenues for the three months ended March 30, 2019 that align with our revised end-market categories.

Net revenues were $1.6 billion and $1.8 billion for the nine months ended March 28, 2020 and March 30, 2019, respectively. Revenue from consumer products was down by 20% primarily due to lower demand in smartphone products. Revenue from industrial products was down by 7% primarily due to lower demand in control and automation, and medical products. These results include net revenues for the nine months ended March 30, 2019 that align with our revised end-market categories.

During each of the three months ended March 28, 2020 and March 30, 2019, approximately 89% of net revenues were derived from customers outside of the United States. While less than 1.0% 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 assets denominated in foreign currencies. The impact of changes in foreign exchange rates on our revenue and results of operations for the three and nine months ended March 28, 2020 and March 30, 2019 was immaterial.

Gross Margin

Our gross margin percentages were 65.2% and 62.8% for the three months ended March 28, 2020 and March 30, 2019, respectively. Our gross margin increased by 2.4 percentage points, primarily due to lower inventory reserve requirements.

Our gross margin percentages were 65.0% and 65.1% for the nine months ended March 28, 2020 and March 30, 2019, respectively. Our gross margin decreased by 0.1 percentage point, remaining flat compared to the same period last year.

Research and Development

Research and development expenses were $109.1 million and $107.1 million for the three months ended March 28, 2020 and March 30, 2019, respectively, which represented 19.4% and 19.7% of net revenues for each respective period. The $2.0 million increase was primarily due to higher employee compensation expense.

Research and development expenses were $330.0 million and $330.1 million for the nine months ended March 28, 2020 and March 30, 2019, respectively, which represented 20.0% and 18.8% of net revenues for each respective period. Research and development expenses remained flat compared to the same period last year.

Selling, General and Administrative

Selling, general and administrative expenses were $71.6 million and $74.1 million for the three months ended March 28, 2020 and March 30, 2019, respectively, which represented 12.7% and 13.7% of net revenues for each respective period. The $2.5 million decrease was mainly due to lower depreciation expenses.

Selling, general and administrative expenses were $223.8 million and $233.5 million for the nine months ended March 28, 2020 and March 30, 2019, respectively, which represented 13.6% and 13.3% of net revenues for each respective period. The $9.7 million decrease was due to lower depreciation, professional fees, and travel expenses.

Provision for Income Taxes


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In the three and nine months ended March 28, 2020, the Company recorded an income tax provision of $20.5 million and $61.2 million, respectively, compared to $29.8 million and $116.8 million for the three and nine months ended March 30, 2019, respectively. The Company’s effective tax rate for the three and nine months ended March 28, 2020 was 11.3% and 12.0%, respectively, compared to 18.6% and 20.3% for the three and nine months ended March 30, 2019, respectively.
 
The Company’s federal statutory tax rate is 21%. The Company’s effective tax rate for the three and nine months ended March 28, 2020 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 related to Global Intangible Low-Taxed Income (“GILTI”).

The Company’s effective tax rate for the three months ended March 30, 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 tax generated by the GILTI provisions, a $4.1 million discrete charge for differences between the Company's fiscal year 2018 tax returns and the tax provision originally recorded, and $5.7 million of discrete interest accruals for unrecognized tax benefits.

The Company’s effective tax rate for the nine months ended March 30, 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 $21.0 million of discrete charges for the Transition Tax, tax generated by the GILTI provisions, $15.1 million of discrete interest accruals for unrecognized tax benefits, and $4.8 million of discrete charges for differences between the Company's fiscal year 2018 tax returns and the tax provision originally recorded.

BACKLOG

As of March 28, 2020 and June 29, 2019, our current quarter backlog was approximately $508.5 million and $391.3 million, respectively. In backlog, we include orders with customer request dates within the next three months. As is customary in the semiconductor industry, these orders may be canceled in most cases without penalty to customers. Accordingly, we believe that our backlog is not a reliable measure of future revenues. All backlog numbers have been adjusted for estimated future distribution ship and debit pricing adjustments.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
 
Financial Condition

Cash flows were as follows:
 Nine Months Ended
 March 28,
2020
 March 30,
2019
 (in thousands)
Net cash provided by (used in) operating activities$588,526
 $638,373
Net cash provided by (used in) investing activities42,386
 785,387
Net cash provided by (used in) financing activities(749,587) (1,312,681)
Net increase (decrease) in cash and cash equivalents$(118,675) $111,079
Operating activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities.

Cash provided by operating activities decreased by $49.8 million for the nine months ended March 28, 2020 compared with the nine months ended March 30, 2019 due mainly to lower net income and changes in working capital. Changes in working capital were driven by a decrease in income tax payable and an increase in accounts receivable, partially offset by a decrease in inventory and an increase in accrued expenses.

Investing activities

Investing cash flows consist primarily of net investment purchases and maturities, and capital expenditures.


30



Cash provided by investing activities decreased by $743.0 million for the nine months ended March 28, 2020 compared with the nine months ended March 30, 2019. The decrease was due to lower proceeds from maturity of available-for-sale securities partially offset by lower purchases of available-for-sale securities.

Financing activities

Financing cash flows consist primarily of payment of debt, dividends to stockholders, and repurchases of common stock.

Cash used in financing activities decreased by $563.1 million for the nine months ended March 28, 2020 compared with the nine months ended March 30, 2019. The decrease was due to a $500.0 million debt repayment we made in November 2018 and lower repurchases of common stock.

Liquidity and Capital Resources

Our primary source of liquidity is our cash flows from operating activities resulting from net income and management of working capital.

As of March 28, 2020, our available funds consisted of $1.7 billion in cash, cash equivalents and short-term investments.

On October 30, 2018, we were authorized to repurchase up to $1.5 billion of the Company's common stock. During the three and nine months ended March 28, 2020, we repurchased an aggregate of $157.0 million and $358.5 million of the Company's common stock, respectively.

During the three and nine months ended March 28, 2020, we paid cash dividends of $0.48 and $1.44 per common share totaling $129.1 million and $389.1 million, respectively.

We anticipate that the available funds and cash generated from operations will be sufficient to meet cash and working capital requirements, including the anticipated level of capital expenditures, debt repayments and dividend payments for at least the next twelve months.

Off-Balance-Sheet Arrangements

As of March 28, 2020, we did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s market risk has not changed materially from the interest rate and foreign currency risks disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2019.

The impact of inflation and changing prices on the Company’s net revenues and on operating income during the three and nine months ended March 28, 2020 and March 30, 2019 was not material.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer (“CEO”) and our chief financial officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of March 28, 2020. Our management, including the CEO and the CFO, has concluded that the Company’s disclosure controls and procedures were effective as of March 28, 2020. The purpose of these controls and procedures is to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, and that such information is accumulated and communicated to our management, including our CEO and our CFO, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 28, 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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Inherent Limitations on the Effectiveness of Internal Controls

A system of internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with GAAP, and no control system, no matter how well designed and operated, can provide absolute assurance. The design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of its inherent limitations, internal control over financial reporting may not prevent or detect financial statement errors and misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

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PART II. OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The information set forth above under Part I, Item 1, Note 12 “Commitments and Contingencies” to the Condensed Consolidated Financial Statements is incorporated herein by reference.

ITEM 1A: RISK FACTORS

The following risk factor is provided to update the risk factors previously disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2019.

The recent coronavirus (COVID-19) pandemic and the mitigation efforts by governments to attempt to control its spread have negatively impacted and could have a material adverse effect on our business, financial condition, and results of operations.

As a result of the recent coronavirus (COVID-19) pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, shelter-in-place orders, quarantines, and business limitations and shutdowns. The COVID-19 pandemic and resulting mitigation efforts have impacted and will likely continue to impact our business, results of operations, and financial condition for an indefinite period of time. While we are unable to accurately predict the full extent to which the COVID-19 pandemic and the mitigation efforts by governments to attempt to control its spread will have on our results from operations and financial condition due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our customers and suppliers for an indefinite period of time.

We operate our business in worldwide locations. The potential risks and effects of this pandemic and economic crisis, including potential global or regional recessions or depressions, that could have a material adverse effect on our business, financial condition, and results of operations include, but not limited to:

Adverse impact on our customers and supply channels;

Decrease in product demand and pricing as a result of this pandemic and unfavorable economic and market conditions;

Disruption in our global operations, including our internal and compliance processes;

Restrictions on our manufacturing, support operations or workforce, or similar limitations for our customers, vendors, and suppliers, could limit our ability to meet customer demand;

Potential increased credit risk if customers, distributors, and resellers are unable to pay us, or must delay paying their obligations to us;

Restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures could result in delays; and

Impact on our workforce/employees due to the ease with which the virus spreads and the current shelter-in-place orders.

The COVID-19 pandemic, and the various responses to it, may also have the effect of heightening many of the other risks disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2019, which is incorporated herein by reference.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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. This 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. The Company’s prior repurchase authorization was cancelled and superseded by this new repurchase authorization.

The following table summarizes the activity related to stock repurchases for the three months ended March 28, 2020:

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 Issuer Repurchases of Equity Securities
 (in thousands, except per share amounts)
 Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
Dec 29, 2019 - Jan 25, 2020499
 $61.68
 499
 $882,689
Jan 26, 2020 - Feb 22, 2020714
 62.82
 714
 837,842
Feb 23, 2020 - Mar 28, 20201,599
 50.90
 1,599
 756,470
Total for the quarter2,812
 $55.84
 2,812
 $756,470

In the three months ended March 28, 2020, the Company repurchased approximately 2.8 million shares of its common stock for approximately $157.0 million. As of March 28, 2020, the Company had remaining authorization of $0.8 billion for future share repurchases. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company’s common stock and general market and business conditions.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

None.


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ITEM 6: EXHIBITS

(a) Exhibits
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. (1)
101.SCH
Inline XBRL Taxonomy Extension Schema Document (1)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document (1)
104
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. (1)
(1) Filed or furnished herewith.

In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.









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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
April 29, 2020 MAXIM INTEGRATED PRODUCTS, INC.
   
  By:/s/ Brian C. White
  Brian C. White
  Senior Vice President, Chief Financial Officer

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