UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ý
o
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-34192
MAXIM INTEGRATED PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-2896096
(I.R.S. Employer
Identification No.)
160 Rio Robles
San Jose, California 95134
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 601-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.001 par value
Name of each exchange on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý
No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o
No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý
No
o
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 ý
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large
Accelerated
Filer ý
Accelerated Filer o
Non-accelerated Filer o
(Do not check if a smaller reporting company)
Emerging growth company o
Smaller
Reporting
Company
o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
No ý
The aggregate market value of the voting stock held by non-affiliates of the Registrant based upon the closing price of the common stock on December 30, 2017 as reported by
The NASDAQ Global Select Market was $11,175,629,181 . Shares of voting stock held by executive officers, directors and holders of more than 5% of the outstanding voting
stock have been excluded from this calculation because such persons may be deemed to be affiliates. Exclusion of such shares should not be construed to indicate that any of
such persons possesses the power, direct or indirect, to control the Registrant, or that any such person is controlled by or under common control with the Registrant.
Number of shares outstanding of the Registrant's Common Stock, $0.001 par value, as of August 3, 2018 : 278,019,068 .
Documents Incorporated By Reference:
(1)
Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the Proxy Statement for Maxim Integrated Products, Inc.'s 2018 Annual Meeting of
Stockholders, to be filed subsequently.
1
MAXIM INTEGRATED PRODUCTS
Forward-Looking Statements
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
INDEX
Part I
Part II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Part III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Part IV
2
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Signatures
Item 16.
3
4
4
9
19
19
19
20
20
20
22
24
33
34
34
34
36
36
36
37
37
37
38
38
38
85
88
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on our current expectations
and could be affected by the uncertainties and risk factors described throughout this filing and particularly in Part I, Item I - Business, Part I, Item 1A - Risk
Factors and Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. These statements relate to, among other
things, sales, gross margins, operating expenses, capital expenditures and requirements, liquidity, asset dispositions, product development and R&D efforts,
potential growth opportunities, manufacturing plans, pending litigation, effective tax rates and tax reserves for uncertain tax positions, and are indicated by words
or phrases such as “anticipate,” “expect,” “outlook,” “foresee,” “forecast,” “estimate,” “believe,” “should,” “could,” “intend,” “potential,” “will,” “may,” “might,”
“plan,” “seek,” “predict,” “project” and variations of such words and similar words or expressions and the negatives of those terms. These statements involve
known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from expectations.
These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in
these statements will be achieved or will occur. For a discussion of some of the factors that could cause actual results to differ materially from our forward-looking
statements, see the discussion on “Risk Factors” that appears in Part I, Item 1A of this Annual Report and other risks and uncertainties detailed in this and our other
reports and filings with the Securities and Exchange Commission (“SEC”). Given these uncertainties, you should not place undue reliance on these forward-
looking statements. These forward-looking statements represent our beliefs and assumptions only as of the date of this Annual Report. We undertake no obligation
to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so except as required
by applicable laws.
3
ITEM 1. BUSINESS
Overview
PART I
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 diverse applications, numerous product variations and, with respect to many circuit types,
relatively long product life cycles. Our objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the
increasingly stringent quality and performance standards demanded by customers.
We are a Delaware corporation originally incorporated in California in 1983. The mailing address for our headquarters is 160 Rio Robles, San Jose, California
95134, and our telephone number is (408) 601-1000. Additional information about us is available on our website at www.maximintegrated.com. The contents of
our website are not incorporated into this Annual Report.
We have 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 year
2018 was a 53-week fiscal year. Fiscal years 2017 and 2016 were each 52-week fiscal years. Fiscal year 2019 will be a 52-week fiscal year.
We make available through our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy
statements and any amendments to those reports or statements filed or furnished pursuant to the Exchange Act, as soon as reasonably practicable after they are
electronically filed with or furnished to the SEC. We also use our Investor Relations website at investor.maximintegrated.com as a routine channel for distribution
of other important information, such as news releases, analyst presentations and financial information. We assume no obligation to update or revise any forward-
looking statements in this Annual Report, whether as a result of new information, future events or otherwise, unless we are required to do so by applicable laws. A
copy of this Annual Report is available without charge and can be accessed at our website at investor.maximintegrated.com.
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.
Our linear and mixed-signal products serve five major end-markets: (i) Automotive, (ii) Communications and Data Center, (iii) Computing, (iv) Consumer and (v)
Industrial. These major end-markets and their corresponding markets are noted in the table below:
4
MAJOR END-MARKET
MARKET
AUTOMOTIVE
COMMUNICATIONS & DATA CENTER
COMPUTING
CONSUMER
INDUSTRIAL
Infotainment
Powertrain
Body Electronics
Safety & Security
Base Stations
Data Center
Data Storage
Network & Datacom
Servers
Telecom
Other Communications
Desktop Computers
Notebook Computers
Peripherals & Other Computer
Smartphones
Digital Cameras
Handheld Computers
Home Entertainment & Appliances
Mobility & Fitness Wearables
Other Consumer
Automatic Test Equipment
Control & Automation
Electrical Instrumentation
Financial Terminals
Medical
Security
USB Extension
Other Industrial
Product Quality
We employ a system addressing quality and reliability of our products from initial design through wafer fabrication, assembly, testing and final shipment. We have
received ISO 9001, IATF16949 and ISO 14001 certifications for all wafer fabrication, assembly, final test and shipping facilities. Based on industry standard
requirements, we conduct reliability stress testing on the products we manufacture and sell. Through this testing, we can detect and accelerate the presence of
defects that may arise over the life of a product.
Manufacturing
We primarily utilize third party foundries as well as our own wafer fabrication facilities for the production of our wafers. The broad range of products demanded
by the analog integrated circuit market requires multiple manufacturing process technologies. As a result, many different process technologies are currently used
for wafer fabrication of our products. The majority of processed wafers are also subject to parametric and functional testing at either our facilities or third-party
vendors.
Historically, our internal wafer production occurred at one of our three owned wafer fabrication facilities at Beaverton, Oregon, San Jose, California and San
Antonio, Texas. During fiscal year 2016 , we completed the closure of our San Jose facility, as well as the sale of our San Antonio facility to TowerJazz Texas, Inc.
Production from both these sites was transferred to our other existing manufacturing locations and to our third-party service providers. The transfer of these
activities from internal wafer production to third party foundries is part of our manufacturing transformation initiative ("manufacturing transformation").
5
In fiscal year 2007, we entered into a supply agreement with Seiko Epson Corporation (“Epson”). In fiscal year 2010, we entered into a supply agreement with
Powerchip Technology Corporation (“Powerchip”) to provide 300mm wafer capacity. In fiscal year 2014, we entered into a supply agreement with UMC
Corporation (“UMC”). In fiscal year 2016, we entered into a supply agreement with TowerJazz Texas, Inc. (formerly known as TJ Texas, Inc.) ("TowerJazz"), an
indirect wholly-owned subsidiary of Tower Semiconductor Ltd. In fiscal year 2018, we ramped production at our most recently added partner foundry, Fujitsu Ltd.
("Fujitsu"). Epson and Fujitsu in Japan and UMC and Powerchip in Taiwan manufacture products for us under rights and licenses using our proprietary technology.
In fiscal years 2018 , 2017 and 2016 , wafers manufactured by our partner foundries and merchant foundries (e.g., Taiwan Semiconductor Company Limited)
represented 73% , 75% and 57% , respectively, of our total wafer manufacturing.
Once wafer manufacturing has been completed, wafers are sorted in order to determine which integrated circuits on each wafer are functional and which are
defective. We currently perform the majority of wafer sorting, final testing and shipping activities at two company-owned facilities, located in Cavite, the
Philippines and Chonburi Province, Thailand, although we also utilize independent subcontractors for some wafer sorting.
We process wafers for products that utilize chip scale packaging (“CSP”) also known as wafer level packaging (“WLP”). CSP, or WLP, enables integrated circuits
to be attached directly to a printed circuit board without the use of a traditional plastic package. Historically, we utilized internal manufacturing resources as well
as independent subcontractors to perform WLP manufacturing. In fiscal year 2016, we announced our intent to shut down our WLP manufacturing facility located
in Dallas, Texas and completed this shutdown in fiscal year 2017. The manufacturing operations of the Dallas manufacturing facility were transferred to our
Beaverton, Oregon factory and assembly subcontractors, which is also part of our manufacturing transformation. Currently, all WLP processes are done externally.
Integrated circuit assembly is performed by foreign assembly subcontractors, located in China, Japan, Malaysia, the Philippines, Taiwan, Thailand, Singapore and
South Korea, where wafers are separated into individual integrated circuits and assembled into a variety of packages.
After assembly has been completed, a majority of the assembled products are shipped to our facilities located in Cavite, the Philippines or Chonburi Province,
Thailand, where the packaged integrated circuits undergo final testing and preparation for customer shipment. In addition, we also utilize independent
subcontractors to perform final testing.
The majority of our finished products ship directly from either Cavite, the Philippines or Chonburi Province, Thailand to customers worldwide or to other
Company locations for sale to end-customers or distributors.
Customers, Sales and Marketing
We market our products worldwide through a direct-sales and applications organization and through our own and other unaffiliated distribution channels to a broad
range of customers in diverse industries. Our products typically require a sophisticated technical sales and marketing effort. Our sales organization is divided into
domestic and international regions. Distributors and direct customers generally buy on an individual purchase order basis, rather than pursuant to long-term
agreements.
Certain distributors have agreements with us which allow for certain sales price rebates or price adjustments on certain inventory if we change the price of those
products. Certain distributor agreements also permit distributors to exchange a portion of certain purchases on a periodic basis. As is customary in the
semiconductor industry, our distributors may also market other products that compete with our products.
We derived approximately 47% of our fiscal year 2018 revenue from sales made through distributors which includes distribution sales to Samsung and catalog
distributors. Our primary distributor is Avnet Electronics ("Avnet") which accounted for 25% , 22% and 19% of our revenues in fiscal years 2018 , 2017 and 2016 ,
respectively. Avnet, like our other distributors, is not an end customer, but rather serves as a channel of sale to many end users of our products. Sales to Samsung,
our largest single end customer (through direct sales and distributors), accounted for approximately 10% , 10% and 14% of net revenues in fiscal years 2018 , 2017
and 2016 , respectively. No single customer (other than Avnet and Samsung) nor single product accounted for 10% or more of net revenues in fiscal years 2018 ,
2017 and 2016 . Based on customers’ ship-to locations, international sales accounted for approximately 88% , 88% and 89% of our net revenues in fiscal years
2018 , 2017 and 2016 , respectively. See Note 11: “Segment Information” in the Notes to Consolidated Financial Statements in Part IV, Item 15(a) of this Annual
Report.
Seasonality
6
Our revenue is generally influenced on a quarterly basis by customer demand patterns and new product introductions. A large number of our products have been
incorporated into consumer electronic products, which are subject to seasonality and fluctuations in demand.
Foreign Operations
We conduct business in numerous countries outside of the United States (“U.S.”). Our international business is subject to numerous risks, including fluctuations in
foreign currency exchange rates and controls, import and export controls, and other laws, policies and regulations of foreign governments. Refer to our discussion
of risks related to our foreign operations as included in Item 1A, Risk Factors and our discussion of foreign income included in Item 7 under “Results of
Operations” included in this Annual Report. Refer to net revenues from unaffiliated customers by geographic region included in Note 11: “Segment Information”
in the Notes to Consolidated Financial Statements in Part IV, Item 15(a) of this Annual Report.
Backlog
At June 30, 2018 and June 24, 2017 , our current quarter backlog was approximately $441.1 million and $389.1 million , respectively. Our current quarter backlog
includes customer request dates to be filled 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 for predicting future revenues. All backlog numbers have
been adjusted for estimated future distribution ship and debit pricing adjustments.
Research and Development
We believe that research and development is critical to our future competitiveness. Objectives for the research and development function include:
•
•
•
•
•
new product definition and development of differentiated products;
design of products with performance differentiation that achieve high manufacturing yield and reliability;
development of, and access to, manufacturing processes and advanced packaging;
development of hardware, software, and algorithms to support the acceptance and design-in of our products in the end customer's system; and
development of high-integration products across multiple end markets.
Our research and development plans require engineering talent and tools for product definition, electronic design automation (“EDA”), circuit design, process
technologies, test development, test technology, packaging development, software development and applications support. Research and development expenses
were $450.9 million , $454.0 million and $467.2 million in fiscal years 2018 , 2017 and 2016 , respectively. See “Research and Development” under Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations, for more information.
Competition
The linear and mixed-signal analog integrated circuit industry is intensely competitive, and virtually all major semiconductor companies presently compete with, or
conceivably could compete with, some portion of our business.
We believe the principal elements of competition include:
•
•
•
•
•
•
•
•
•
•
•
technical innovation;
service and support;
time to market;
business, operational, marketing and financial strategy;
differentiated product performance and features;
quality and reliability;
product pricing and delivery capabilities;
customized design and applications;
business relationship with customers;
experience, skill and productivity of employees and management; and
manufacturing competence and inventory management.
7
Our principal competitors include, but are not limited to, ams AG, Analog Devices, Inc., Cirrus Logic, Inc., Integrated Device Technology, Inc., Monolithic Power
Systems, Inc., Semtech Corporation, Silicon Laboratories and Texas Instruments Inc. We expect increased competition in the future from other emerging and
established companies as well as through consolidation of our competitors within the semiconductor industry.
Patents, Licenses and Other Intellectual Property Rights
We rely upon both know-how and patents to develop and maintain our competitive position.
It is our policy to seek patent protection for significant inventions that may be patented, though we may elect, in certain cases, not to seek patent protection even
for significant inventions if other protection, such as maintaining the invention as a trade secret, is considered by us to be more advantageous. In addition, we have
registered certain of our mask sets under the Semiconductor Chip Protection Act of 1984, as amended. We hold a number of patents worldwide with expiration
dates ranging from calendar year 2018 to 2035. We have also registered several of our trademarks and copyrights in the United States and other countries.
Employees
As of June 30, 2018 , we employed 7,149 persons.
Environmental Regulations
Our compliance with foreign, federal, state and local laws and regulations that have been enacted to regulate the environment has not had a material adverse effect
on our capital expenditures, earnings, or competitive or financial position.
Executive Officers
For information regarding our current executive officers, see Part III, Item 10 of this Annual Report.
8
ITEM 1A. RISK FACTORS
The following risk factors and other information included in this Annual Report should be carefully considered. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also adversely affect our
business.
The sale of our products and our results of operations are dependent upon demand from the end markets of our customers, which is cyclical.
Our products are sold in the following major end-markets: (i) Automotive, (ii) Communications and Data Center, (iii) Computing, (iv) Consumer, and (v)
Industrial. The demand for our products is subject to the strength of these five major end-markets that we serve and to some extent the overall economic climate.
We often experience decreases and increases in demand for our products primarily due to the end-market demand of our customers. Our business and results of
operations may be adversely affected if demand for our products decreases or if we are unable to meet an increase in demand without significantly increasing the
lead-time for the delivery of our products. The semiconductor market historically has been cyclical with periods of increased demand and rapid growth followed by
periods of oversupply and subsequent contraction and subject to significant and often rapid increases and decreases in product demand. As a result, changes could
have adverse effects on our results of operation.
Incorrect forecasts, reductions, cancellations or delays in orders for our products and volatility in customer demand could adversely affect our results of
operations.
As is customary in the semiconductor industry, customer orders may be canceled in most cases without penalty to the customers. Some customers place orders that
require us to manufacture products and have them available for shipment, even though the customer may be unwilling to make a binding commitment to purchase
all, or even any, of the products. In other cases, we manufacture products based on forecasts of customer demands. As a result, we may incur inventory and
manufacturing costs in advance of anticipated sales and are subject to the risk of cancellations of orders, potentially leading to an initial inflation of backlog
followed by a sharp reduction. Because of the possibility of order cancellation, backlog should not be used as a measure of future revenues. Furthermore, canceled
or unrealized orders, especially for products meeting unique customer requirements, may also result in an inventory of unsaleable products, causing potential
inventory write-offs, some of which could be substantial and could have a material adverse effect on our gross margins and results of operations.
We may experience difficulties implementing our new global execution system, which may adversely affect our ability to effectively supply products to our
customers.
We are implementing a new global execution system (“GES”) as part of our efforts to integrate inventory movement with our financial reporting system. This
implementation is a major undertaking and requires significant employee time and financial resources. While we have invested significant resources in planning
and project management, implementation issues may arise. For example, we may experience staff turnover, which may delay the implementation of GES.
Additionally, unforeseen issues may arise, which could disrupt the implementation of GES. Any disruptions, delays or deficiencies in the design and the
implementation or operation of GES could disrupt or reduce our supply chain execution and operational efficiency which may lead to our inability to effectively
supply products to our customers. Our inability to successfully manage the implementation of GES could materially adversely affect our business, results of
operations and financial condition.
Our operating results may be adversely affected by our inability to timely develop new products through our research and development efforts. We may be
unsuccessful in developing and selling new products necessary to maintain or expand our business.
The marketplace for our products is constantly changing and we are required to make substantial ongoing investments in our research and development. The
semiconductor industry is characterized by rapid technological change, variations in manufacturing efficiencies of new products, and significant expenditures for
capital equipment and product development. New product introductions are a critical factor for maintaining or increasing future revenue growth and sustained or
increased profitability. However, they can present significant business challenges because product development commitments and expenditures must be made well
in advance of the related revenues. The success of a new product depends on a variety of factors including accurate forecasts of long-term market demand and
future technological developments, accurate anticipation of competitors' actions and offerings, timely and efficient completion of process design and development,
timely and efficient implementation of manufacturing and assembly processes, product performance, quality and reliability of the product, and effective marketing,
revenue and service.
9
The loss of, or substantial reduction in sales to, any of our large customers could have a material adverse effect on our business, financial condition, and
results of operations.
A reduction in demand or loss of one or more of our large customers may adversely affect our business. For example, sales to Samsung, our largest single end
customer (through direct sales and distributors), accounted for approximately 10% , 10% and 14% of net revenues in fiscal years 2018 , 2017 and 2016 ,
respectively. The delay, significant reduction in, or loss of, orders from any one or more of our large customers (including curtailments of purchases due to a
change in the design, manufacturing or sourcing policies or practices of these customers or the timing of customer inventory adjustments) or demands of price
concessions from any one or more of our large customers could have a material adverse effect on our net revenues and results of operations.
Our manufacturing operations may be interrupted or suffer yield problems.
The manufacture and design of integrated circuits is highly complex. We may experience a disruption in factory operations, manufacturing problems in achieving
acceptable yields, or product delivery delays in the future as a result of, among other things, outdated infrastructure, upgrading or expanding existing facilities,
equipment malfunctioning, construction delays, changing our process technologies, capacity constraints, or new technology qualification delays, particularly in our
internal fabrication facilities. For example, our internal fabrication facility at Beaverton, Oregon requires additional investment to, among other things, upgrade its
infrastructure and manufacturing equipment. In connection with the upgrading of our facilities, we may experience a disruption in factory operations, which could
result in damages to the facilities and stoppages to the operations of the facilities. Additionally, our internal fabrication facilities may be harmed or rendered
inoperable due to damages resulting from fire, natural disaster, unavailability of electric power or other causes, which may render it difficult or impossible for us to
manufacture our products for some period of time.
If our internal fabrication facilities become unavailable to us, it would be time consuming, difficult, and costly to arrange for new manufacturing facilities to supply
our products given the nature of our products. In addition, our third party's manufacturing facilities may not be available to us due to natural or man-made disasters,
labor unrest, political conditions or other causes. To the extent we experience disruptions at our wafer fabrication facilities or we do not achieve acceptable
manufacturing yields, our results of operations could be adversely affected.
Our dependence on subcontractors for assembly, test, freight, wafer fabrication and logistic services and certain manufacturing services may cause delays
beyond our control in delivering products to our customers.
We rely on subcontractors located in various parts of the world for assembly and CSP packaging services, freight and logistic services, wafer fabrication, and
sorting and testing services. For example, in connection with the sale of our semiconductor wafer fabrication facility in San Antonio, Texas to TowerJazz Texas,
Inc. (formerly known as TJ Texas, Inc.) ("TowerJazz"), an indirect wholly-owned subsidiary of Tower Semiconductor Ltd. (“Tower”), in the third quarter of fiscal
year 2016, we entered into a long-term supply agreement with TowerJazz, pursuant to which we procure from TowerJazz certain quantities of silicon wafers upon
which integrated circuits are made that are designed by us. None of the subcontractors we currently use are affiliated with us. Reliability problems experienced by
our subcontractors or the inability to promptly replace any subcontractor could cause serious problems in delivery and quality resulting in potential product liability
to us. Such problems could impair our ability to meet our revenue plan in the fiscal year period impacted by the disruption. Failure to meet the revenue plan may
materially adversely impact our results of operations.
Any disruptions in our sort, assembly, test, freight, and logistic operations or in the operations of our subcontractors, including, but not limited to, the inability or
unwillingness of any of our subcontractors to produce or timely deliver adequate supplies of processed wafers, integrated circuit packages, or tested products
conforming to our quality standards, or other required products or services could damage our reputation, relationships, and goodwill with customers. Furthermore,
finding alternate sources of supply or initiating internal wafer processing for these products may not be economically feasible.
If we fail to attract and retain qualified personnel, our business may be harmed.
Our success depends to a significant extent upon the continued service of our chief executive officer, our other executive officers, and key management and
technical personnel, particularly our experienced engineers and business unit managers, and on our ability to continue to attract, retain, and motivate qualified
personnel. The loss of the services of one or several of our executive officers could have a material adverse effect on our Company. In addition, we could be
materially adversely affected if the turnover rates for engineers and other key personnel increases significantly or we are unsuccessful in attracting, motivating and
retaining qualified personnel. Should we lose one or more engineers who are key to a project's completion during the course of a particular
10
project, the completion of such project may be delayed which could negatively affect customer relationships and goodwill and have a material adverse effect on
our results of operations.
Our critical information systems are subject to cyber-attacks, interruptions and failures.
We rely on several information technology systems to provide products and services, process orders, manage inventory, process shipments to customers, keep
financial, employee, and other records, and operate other critical functions. These information technology systems are subject to damage or interruption from a
number of potential sources. Security breaches, including cyber-attacks, phishing attacks or attempts to misappropriate or compromise confidential or proprietary
information or sabotage enterprise information technology systems, are becoming increasingly frequent and more sophisticated. We currently have, and are in the
process of developing several more, systems and procedures that include, among other things, ongoing internal risk assessments to identify vulnerabilities, an
internal group dedicated to reviewing cybersecurity threats, and the adoption of an information security policy. Because the techniques used to obtain unauthorized
access to or sabotage networks and systems change frequently, we may be unable to anticipate these techniques or to implement adequate protections. Despite our
efforts to mitigate risks associated with cybersecurity events, our information technology systems may be susceptible to adaptive persistent threats, catastrophic
cybersecurity attacks, damage, disruptions, or shutdowns due to power outages, hardware failures, computer malware and viruses, telecommunication failures, user
errors, or other events. Risks associated with these threats include, but are not limited to, loss of intellectual property, impairment of our ability to conduct our
operations, disruption of our customers’ operations, loss or damage to our customer data delivery systems, and increased costs to prevent, respond to or mitigate
catastrophic cybersecurity events. A prolonged systemic disruption in the information technology systems could result in the loss of sales and customers and
significant consequential costs, which could adversely affect our business. In addition, cybersecurity breaches of our information technology systems could result
in the misappropriation or unauthorized disclosure of confidential information belonging to us or to our customers, partners, suppliers, or employees which could
result in our suffering significant financial or reputational damage.
Our results of operations could be adversely affected by warranty claims and product liability.
We face an inherent risk of exposure to product liability suits in connection with reliability problems or other product defects that may affect our customers. Our
products are used by a variety of industries, including the automotive and medical industries. Failure of our products to perform to specifications, or other product
defects, could lead to substantial damage to both the end product in which our device has been placed and to the user of such end product. Although we take
measures to protect against product defects, if a product liability claim is brought against us, the cost of defending the claim could be significant and any adverse
determination could have a material adverse effect on our results of operations.
We may be unable to adequately protect our proprietary rights, which may impact our ability to compete effectively.
We rely upon know-how, trade secrets, and patents to develop and maintain our competitive position. There can be no assurance that others will not develop or
patent similar technology or reverse engineer our products or that the confidentiality agreements upon which we rely will be adequate to protect our interests.
Moreover, the laws of some foreign countries generally do not protect proprietary rights to the same extent as the United States, and we may encounter problems in
protecting our proprietary rights in those foreign countries. Periodically, we have been asked by certain prospective customers to provide them with broad licenses
to our intellectual property rights in connection with the sale of our products to them. Such licenses, if granted, may have a negative impact on the value of our
intellectual property portfolio. Other companies have obtained patents covering a variety of semiconductor designs and processes, and we could be required to
obtain licenses under some of these patents or be precluded from making and selling products that are alleged to be infringing, if such patents are valid and other
design and manufacturing solutions are not available. There can be no assurance that we would be able to obtain licenses, if required, upon commercially
reasonable terms or at all.
We may suffer losses and business interruption if our products infringe the intellectual property rights of others.
In the past, it has been common in the semiconductor industry for patent holders to offer licenses on reasonable terms and rates. Although the practice of offering
licenses appears to be generally continuing, in some situations, typically where the patent directly relates to a specific product or family of products, patent holders
have refused to grant licenses. In any of those cases, there can be no assurance that we would be able to obtain any necessary license on terms acceptable to us, if at
all, or that we would be able to re-engineer our products or processes in a cost-effective manner to avoid claims of infringement. Any litigation in such a situation
could involve an injunction to prevent the sales of a material portion of our products, the reduction or elimination of the value of related inventories and the
assessment of a substantial monetary award for damages related to past sales, all of which could have a material adverse effect on our results of operations and
financial condition.
11
We may experience losses related to intellectual property indemnity claims.
We provide intellectual property indemnification for certain customers, distributors, suppliers and subcontractors for attorney fees and damages and costs awarded
against these parties in certain circumstances in which our products are alleged to infringe third party intellectual property rights, including patents, registered
trademarks and copyrights. In certain cases, there are limits on and exceptions to our potential liability for indemnification relating to intellectual property
infringement claims. We cannot estimate the amount of potential future payments, if any, that we might be required to make as a result of these agreements. To
date, we have not been required to pay significant amounts for intellectual property indemnification claims. However, there can be no assurance that we will not
have significant financial exposure under those intellectual property indemnification obligations in the future.
Our independent distributors and sales representatives may underperform relative to our expectations, terminate their relationship with us or fail to make
payments on outstanding accounts receivable to us, which would adversely affect our financial results.
A portion of our sales is realized through independent electronics distributors that are not under our direct control. These independent sales organizations generally
represent product lines offered by several companies and thus could underperform for various reasons, including as a result of reducing their sales efforts applied to
our products, or terminate their distribution relationship with us. In fiscal 2018 , 47% of our revenues were generated from distributors, the largest of which was
Avnet, our primary world-wide distributor, which accounted for 25% of our revenues. We require certain foreign distributors to provide a letter of credit to us in an
amount up to the credit limit set for accounts receivable from such foreign distributors. The letter of credit provides for collection on accounts receivable from the
foreign distributor should the foreign distributor default on their accounts receivable to us. Where credit limits have been established above the amount of the letter
of credit, we are exposed for the difference. We do not require letters of credit from any of our domestic distributors and are not contractually protected against
accounts receivable default or bankruptcy by these distributors. The inability to collect open accounts receivable could adversely affect our results of operations
and financial condition. Termination of a significant distributor, whether at our or the distributor's initiative, or the general underperformance of a significant
distributor could be disruptive and harmful to our current business.
Shortage of raw materials or supply disruption of such raw materials could harm our business.
The semiconductor industry has experienced a large expansion of fabrication capacity and production worldwide over time. As a result of increasing demand from
semiconductor, solar and other manufacturers, availability of certain basic materials and supplies, and of subcontract services, has been limited from time to time
over the past several years, and could come into short supply again if overall industry demand exceeds the supply of these materials and services in the future.
We purchase materials and supplies from many suppliers, some of which are sole-sourced. If the availability of these materials and supplies is interrupted, we may
not be able to find suitable replacements. In addition, from time to time natural disasters can lead to a shortage of some materials due to disruption of the
manufacturer's production. We continually strive to maintain availability of all required materials, supplies and subcontract services. However, we do not have
long-term agreements providing for all of these materials, supplies and services, and shortages could occur as a result of capacity limitations or production
constraints on suppliers that could have a material adverse effect on our ability to achieve our production requirements.
We may be liable for additional production costs and lost revenues to certain customers with whom we have entered into customer supply agreements if we are
unable to meet certain product quantity and quality requirements.
We enter into contracts with certain customers whereby we commit to supply quantities of specified parts at a predetermined scheduled delivery date. The number
of such arrangements continues to increase as this practice becomes more commonplace. Should we be unable to supply the customer with the specific part at the
quantity and product quality desired and on the scheduled delivery date, the customer may incur additional production costs. In addition, the customer may lose
revenues due to a delay in receiving the parts necessary to have the end-product ready for sale to its customers or due to product quality issues. Under certain
customer supply agreements, we may be liable for direct additional production costs or lost revenues. If products are not shipped on time or are quality deficient,
we may be liable for penalties and resulting damages. Such liability, should it arise, and/or our inability to meet these commitments to our customers may have a
material adverse impact on our results of operations and financial condition and could damage our relationships with the affected customers, reputation and
goodwill.
If we fail to enter into future vendor managed inventory arrangements or fail to supply the specific product or quantity under such arrangements, the results of
our operations and financial condition may be materially adversely impacted.
12
We enter into arrangements with certain original equipment manufacturers (“OEMs”) and electronic manufacturing services (“EMS”) partners to consign
quantities of certain products within proximity of the OEMs and EMS partners' manufacturing location. The inventory is physically segregated at these locations
and we retain title and risk of loss related to this inventory until such time as the OEM or EMS partner pulls the inventory for use in its manufacturing
process. Once the inventory is pulled by the OEM or EMS partner, title and risk of loss pass to the customer, at which point we relieve inventory and recognize
revenue and the related cost of goods sold. The specific quantities to be consigned are based on a forecast provided by the OEM or EMS partner. Generally, the
arrangements with the OEMs and EMS partners provide for transfer of title and risk of loss once product has been consigned for a certain length of time.
We believe these arrangements will continue to grow in terms of number of customers and products and will increase in proportion to consolidated net
revenues. Should we be unable or unwilling to enter into such agreements as requested by OEMs or EMS partners, our results of operations may be materially
adversely impacted. In addition, should we be unable to supply the specific product in the quantity needed by the OEM or EMS partner as reflected in their
forecast, we may be liable for damages, including, but not limited to, lost revenues and increased production costs which could have a material adverse impact on
our results of operations and financial condition. Should we supply product in excess of the OEM or EMS partners' actual usage, any inventory not consumed may
become excess or obsolete, which would result in an inventory write off that could materially adversely affect our results of operations.
Our products may fail to meet new industry standards or requirements and the efforts to meet such industry standards or requirements could be costly.
Many of our products are based on industry standards that are continually evolving. Our ability to compete in the future will depend on our ability to identify and
ensure compliance with these evolving industry standards. The emergence of new industry standards could render our products incompatible with products
developed by major systems manufacturers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our
products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards or requirements, we could miss
opportunities to achieve crucial design wins which in turn could have a material adverse effect on our business, operations and financial results.
Our operating results may be adversely affected by increased competition and consolidation of competitors in our market.
The semiconductor industry has experienced significant consolidation in recent years. As a result, we experience intense competition from a number of companies,
some of which have significantly greater financial, manufacturing, and marketing resources than us, as well as greater technical resources and proprietary
intellectual property rights than us. The principal elements of competition include product performance, functional value, quality and reliability, technical service
and support, price, diversity of product line, and sale of integrated system solutions which combine the functionality of multiple chips on one chip for a price as
part of a complete system solution and delivery capabilities. We believe we compete favorably with respect to these factors, although we may be at a disadvantage
in comparison to companies with broader product lines, greater technical service and support capabilities and larger research and development budgets. We may be
unable to compete successfully in the future against existing or new competitors and our operating results may be adversely affected by increased competition or
our inability to timely develop new products to meet the needs of our customers.
Extensions in lead-time for delivery of products could adversely affect our future growth opportunities and results of operations.
Supply constraints, which may include limitations in manufacturing capacity, could impede our ability to grow revenues and meet increased customer demands for
our products. Our results of operations may be adversely affected if we fail to meet such increase in demand for our products without significantly increasing the
lead-time required for our delivery of such products. Any significant increase in the lead-time for delivery of products may negatively affect our customer
relationships, reputation as a dependable supplier of products and ability to obtain future design wins, while potentially increasing order cancellations, aged,
unsaleable or otherwise unrealized backlog, and the likelihood of our breach of supply agreement terms. Any of the foregoing factors could negatively affect our
future revenue growth and results of operations.
Our financial results may be adversely affected by increased tax rates and exposure to additional tax liabilities.
A number of factors may increase our future effective tax rates, including, but not limited to:
•
the jurisdictions in which profits are determined to be earned and taxed;
13
•
•
•
•
•
•
•
•
•
changes in our global structure that involve changes to investment in technology outside of the United States;
the resolution of issues arising from tax audits with various tax authorities and, in particular, the outcome of the Internal Revenue Service audit of our tax
returns for fiscal years 2009-2011 and fiscal years 2012-2014;
changes in the valuation of our deferred tax assets and liabilities;
adjustments to estimated taxes upon finalization of various tax returns;
increases in expenses not deductible for tax purposes, including impairments of goodwill in connection with acquisitions;
changes in available tax credits;
changes in share-based compensation;
changes in tax laws or the interpretation of such tax laws, including laws or rules enacted by countries in response to the Base Erosion and Profit Shifting
(“BEPS”) project conducted by the Organization for Economic Co-operation and Development (“OECD”); and
changes in generally accepted accounting principles.
We are subject to taxation in various countries and jurisdictions. Significant judgment is required to determine tax liabilities on a worldwide basis. Any significant
increase in our future effective tax rates could reduce net income for future periods and may have a material adverse impact on our results of operations.
We are subject to a variety of domestic and international laws and regulations that could impose substantial costs on us and may adversely affect our business.
We are subject to numerous U.S. and international laws, rules and regulations covering a wide variety of subject matters, including, but not limited to, data privacy
and protection, environment, safety and health, exports and imports, bribery and corruption, tax, labor and employment, competition, market access, and
intellectual property ownership and infringement. Compliance with these laws, rules and regulations may be onerous and expensive and could restrict our ability to
operate our business. If we fail to comply or if we become subject to enforcement activity, we could be subject to fines, penalties or other legal liability.
Furthermore, should these laws, rules and regulations be amended or expanded, or new ones enacted, we could incur materially greater compliance costs or
restrictions on our ability to operate our business.
Among other laws and regulations, we are subject to the General Data Protection Regulation effective in the European Union, U.S. Customs and Export
Regulations, including U.S. International Traffic and Arms Regulations and similar laws, which collectively control import, export and sale of technologies by
companies and various other aspects of the operation of our business, and the Foreign Corrupt Practices Act and similar anti-bribery laws, which prohibit
companies from making improper payments to government officials for the purposes of obtaining or retaining business.
While our Company’s policies and procedures mandate compliance with such laws and regulations, there can be no assurance that our employees and agents will
always act in strict compliance. If we fail to comply or if we become subject to enforcement activity, we could be subject to fines, penalties or other legal liability.
Furthermore, should these laws, rules and regulations be amended or expanded, or new ones enacted, we could incur materially greater compliance costs or
restrictions on our ability to operate our business, which could have a material adverse impact on our results of operations and financial condition.
Political conditions could materially affect our revenues and results of operations.
We are subject to the political and legal risks inherent in international operations. Exposure to political instabilities, different business policies and varying legal or
regulatory standards, including, but not limited to, international trade disputes, could result in the imposition of tariffs and trade restrictions or barriers, which
could impact economic activity and lead to a contraction of customer demand. International trade disputes could also result in various forms of protectionist trade
legislation and other protectionist measures that could limit the Company’s ability to operate its business and have a negative effect on end-market demand, which
could have a material adverse impact on our results of operations and financial condition. We have been impacted by these problems in the past, but none have
materially affected our results of operations. Problems in the future or not-yet-
14
materialized consequences of past problems could affect deliveries of our products to our customers, possibly resulting in substantially delayed or lost sales and/or
increased expenses that cannot be passed on to our customers.
Our operating results may be adversely affected by unfavorable economic and market conditions.
The global economic environment could subject us to increased credit risk should customers be unable to pay us, or delay paying us, for previously purchased
products. Accordingly, reserves for doubtful accounts and write-offs of accounts receivable may increase. In addition, weakness in the market for end users of our
products could harm the cash flow of certain of our distributors and resellers who could then delay paying their obligations to us or experience other financial
difficulties. This would further increase our credit risk exposure and potentially cause delays in our recognition of revenue on sales to these customers.
If economic or market conditions deteriorate globally, in the United States or in other key markets, our business, operating results, and financial condition may be
materially and adversely affected.
Our quarterly operating results may fluctuate, which could adversely impact our common stock price.
We believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indicators of future
performance. Our operating results have in the past been, and will continue to be, subject to quarterly fluctuations as a result of numerous factors, some of which
may contribute to more pronounced fluctuations in an uncertain global economic environment. These factors include, but are not limited to, the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Fluctuations in demand for our products and services;
Loss of a significant customer or significant customers electing to purchase from another supplier;
Reduced visibility into our customers' spending plans and associated revenue;
The level of price and competition in our product markets;
Our pricing practices, including our use of available information to maximize pricing potential;
The impact of the uncertain economic and credit environment on our customers, channel partners, and suppliers, including their ability to obtain financing
or to fund capital expenditures;
The overall movement toward industry consolidations among our customers and competitors;
Below industry-average growth of the non-consumer segments of our business;
Announcements and introductions of new products by our competitors;
Our ability to generate sufficient earnings and cash flow to pay dividends to our stockholders;
Deferrals of customer orders in anticipation of new products or product enhancements (introduced by us or our competitors);
Our ability to meet increases in customer orders in a timely manner;
Striking an appropriate balance between short-term execution and long-term innovation;
Our ability to develop, introduce, and market new products and enhancements and market acceptance of such new products and enhancements; and
Our levels of operating expenses.
Our stock price may be volatile.
The market price of our common stock may be volatile and subject to wide fluctuations. Fluctuations have occurred and may continue to occur in response to
various factors, many of which are beyond our control.
15
In addition, the market prices of securities of technology companies, including those in the semiconductor industry, generally have been and remain volatile. This
volatility has significantly affected the market prices of securities of many technology companies for reasons frequently unrelated to the operating performance of
the specific companies. If our actual operating results or future forecasted results do not meet the expectations of securities analysts or investors, who may derive
their expectations by extrapolating data from recent historical operating results, the market price of our common stock may decline. Accordingly, you may not be
able to resell shares of our common stock at a price equal to or higher than the price you paid for them.
Due to the nature of our compensation programs, some of our executive officers sell shares of our common stock each quarter or otherwise periodically, including
pursuant to trading plans established under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. Regardless of the reasons for such sales, analysts and
investors could view such actions in a negative light and the market price of our stock could be adversely affected as a result of such periodic sales.
Material impairments of our goodwill or intangible assets could adversely affect our results of operations.
Goodwill is reviewed for impairment annually or more frequently if certain impairment indicators arise or upon the disposition of a significant portion of a
reporting unit. The review compares the fair value for each reporting unit to its associated book value including goodwill. A decrease in the fair value associated
with a reporting unit resulting from, among other things, unfavorable changes in the estimated future discounted cash flow of the reporting unit, may require us to
recognize impairments of goodwill. Our intangible assets are amortized over their estimated useful lives, but they are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the future undiscounted cash flows expected to result
from the use of the intangible asset and its eventual disposition is less than the carrying amount of the asset, we would recognize an impairment loss to the extent
the carrying amount of the asset exceeds its fair value.
Our debt covenants may limit us from engaging in certain transactions or other activities.
We have entered into debt arrangements that contain certain covenants which may limit the manner in which we conduct our business. For example, the debt
indentures that govern our outstanding notes include covenants that, under certain circumstances, limit our ability to grant liens on our facilities and to enter into
sale and leaseback transactions, which could limit our 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 notes, we would be required to make an offer to repurchase the affected notes at a purchase price greater
than the aggregate principal amount of such notes, plus accrued and unpaid interest. Our ability to repurchase the notes in such events may be limited by our then-
available financial resources or by the terms of other agreements to which we are a party. Although we currently have the funds necessary to retire this debt, funds
might not be available to repay the notes when they become due in the future.
We also have access to a revolving credit facility with certain institutional lenders that contains certain covenants which may limit the manner in which we conduct
our business. For example, the credit agreement requires that we maintain a maximum debt to EBITDA (earnings before interest, taxes, depreciation, and
amortization) ratio and a minimum interest coverage ratio (EBITDA divided by interest expense). We have no outstanding borrowings under the credit facility. We
may use the proceeds of any future borrowing under the credit facility for general corporate purposes, or for future acquisitions or expansion of our business.
We are required to comply with the covenants set forth in our debt indentures and credit facility. If we breach any of the covenants and do not obtain a waiver from
the note holders or lenders, then, subject to cure periods, any outstanding indebtedness may be declared immediately due and payable.
Environmental, safety and health laws and regulations could force us to expend significant capital and incur substantial costs.
Various foreign and domestic federal, state, and local government agencies impose a variety of environmental, safety and health laws and regulations on the
storage, handling, use, discharge and disposal of certain chemicals, gases and other substances used or produced in the semiconductor manufacturing process.
Historically, compliance with these regulations has not had a material adverse effect on our capital expenditures, earnings, or competitive or financial position.
There can be no assurance, however, that interpretation and enforcement of current or future environmental, safety and health laws and regulations will not impose
costly requirements upon us. Any failure by us to adequately control the storage, handling, use, discharge or disposal of regulated substances could result in fines,
suspension of production, alteration of wafer fabrication processes and legal liability, which may materially adversely impact our financial condition, results of
operations or liquidity.
Business interruptions from natural disasters could harm our ability to produce products.
16
We operate our business in worldwide locations. Some of our facilities and those of our subcontractors are located in geologically unstable areas of the world and
are susceptible to damage from natural disasters. In the event of a natural disaster, we may suffer a disruption in our operations that could adversely affect our
results of operations.
Our financial condition, operations and liquidity may be materially adversely affected in the event of a catastrophic loss for which we are self-insured.
We are primarily self-insured with respect to many of our commercial risks and exposures. Based on management's assessment and judgment, we have determined
that it is generally more cost effective to self-insure these risks. The risks and exposures we self-insure include, but are not limited to, fire, property and casualty,
natural disasters, product defects, political risk, general liability, theft, counterfeits, patent infringement, certain employment practice matters and medical benefits
for many of our U.S. employees. Should there be catastrophic loss from events such as fires, explosions, earthquakes, or other natural disasters, among many other
risks, or adverse court or similar decisions in any area in which we are self-insured, our financial condition, results of operations, and liquidity may be materially
adversely affected.
We may pursue acquisitions and investments that could harm our operating results and may disrupt our business.
We have made and will continue to consider making strategic business investments, alliances, and acquisitions we consider necessary or desirable to gain access to
key technologies that we believe will complement our existing technical capability and support our business model objectives. Investments, alliances, and
acquisitions involve risks and uncertainties that may negatively impact our future financial performance and result in an impairment of goodwill. If integration of
our acquired businesses is not successful, we may not realize the potential benefits of an acquisition or suffer other adverse effects that we currently do not foresee.
We may also need to enter new markets in which we have no or limited experience and where competitors in such markets have stronger market positions.
We also invest in early-to-late stage private companies to further our strategic objectives and support key business initiatives. These strategic investments may not
perform as expected. We cannot provide assurance that these companies will operate in a manner that will increase or maintain the value of our investment. If these
private companies fail, we may not realize a return on our investments. Thus, all of our investments are subject to a risk of a partial or total loss of investment
capital.
Any of the foregoing, and other factors, could harm our ability to achieve anticipated levels of profitability from acquired businesses or to realize other anticipated
benefits of acquisitions. In addition, because acquisitions of high technology companies are inherently risky, no assurance can be given that our previous or future
acquisitions will be successful and will not adversely affect our business, operating results, or financial condition.
Exiting certain product lines or businesses, or restructuring our operations, may adversely affect certain customer relationships and produce results that differ
from our intended outcomes.
The nature of our business requires strategic changes from time to time, including restructuring our operations and divesting and consolidating certain product lines
and businesses. The sale of facilities, or the exiting of certain product lines or businesses, may adversely affect certain customer relationships, which may have a
material adverse effect on our business, financial condition, and results of operations. Additionally, our ability to timely shut down our facilities or otherwise exit
product lines and businesses, or to close or consolidate operations, depends on a number of factors, many of which are outside of our control. If we are unable to
shut down a facility or exit a product line or business in a timely manner, or to restructure our operations in a manner we deem to be advantageous, this could have
a material adverse effect on our business, financial condition, and results of operations. Even if the sale of a facility or divestment is successful, we may face
indemnity and other liability claims by the acquirer or other parties.
We may be materially adversely affected by currency fluctuations or changes in trade policies, including international trade disputes.
We conduct our manufacturing and other operations in various worldwide locations. A portion of our operating costs and expenses at foreign locations are paid in
local currencies. Many of the materials used in our products and much of the manufacturing process for our products are supplied by foreign companies or by our
foreign operations, such as our test operations in the Philippines and Thailand. Approximately 88% , 88% and 89% of our net revenues in fiscal years 2018 , 2017
and 2016 , respectively, were from international sales. Accordingly, both manufacturing and sales of our products may be adversely affected by political or
economic conditions abroad. In addition, various forms of protectionist trade legislation are routinely proposed in the United States and certain foreign countries.
International trade disputes and changes in trade policies could result in the imposition of tariffs and
17
trade restrictions, which could adversely affect our foreign manufacturing or marketing strategies and have a negative impact on end-market demand. Currency
exchange fluctuations could also decrease revenue and increase our operating costs, the cost of components manufactured abroad, and the cost of our products to
foreign customers, or decrease the costs of products produced by our foreign competitors.
Employee health benefit costs may negatively impact our profitability.
With a large number of employees participating in our health benefit plans, our expenses relating to employee health benefits are substantial. In past years, we have
experienced significant increases in certain of these costs, largely as a result of economic factors beyond our control, including, in particular, ongoing increases in
health care costs well in excess of the rate of inflation. While we have attempted to control these costs in recent years, there can be no assurance that we will be as
successful in controlling such costs in the future. Continued increases in health care costs, as well as changes in laws, regulations and assumptions used to calculate
health and benefit expenses, may adversely affect our business, financial position and results of operations.
Our certificate of incorporation contains certain anti-takeover provisions that may discourage, delay or prevent a hostile change in control of our Company.
Our certificate of incorporation permits our Board of Directors to authorize the issuance of up to 2,000,000 shares of preferred stock and to determine the rights,
preferences and privileges and restrictions applicable to such shares without any further vote or action by our stockholders. Any such issuance might discourage,
delay or prevent a hostile change in control of our Company, which may be considered beneficial to our stockholders.
18
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our worldwide headquarters is in San Jose, California. Manufacturing and other operations are conducted in several locations worldwide. The following table
provides certain information regarding our principal offices and manufacturing facilities at June 30, 2018 :
Principal Properties
Use(s)
Approximate
Floor Space
(sq. ft.)
Cavite, the Philippines
Manufacturing, engineering, administration, office space, customer service, shipping and other
489,000
San Jose, California
Corporate headquarters, office space, engineering, administration, customer services, shipping and
other
Beaverton, Oregon
Wafer fabrication, engineering, office space and administration
435,000
312,000
Chonburi Province, Thailand
Manufacturing, engineering, administration, office space, customer service, shipping and other
144,000
Dallas, Texas†
Corporate functions, engineering and lab
Chandler, Arizona
Office space, engineering and test
Bangalore, India†
Office space, engineering, administration and other
Colorado Springs, Colorado†
Office space, engineering, and administration
Dublin, Ireland†
Office space, administration and customer services
† Leased.
82,000
65,000
49,000
24,000
20,000
In addition to the property listed in the above table, we also lease sales, engineering, administration and manufacturing offices and other premises at various
locations in the United States and internationally under operating leases, none of which are material to our future cash flows. These leases expire at various dates
through 2030 . We anticipate no difficulty in retaining occupancy of any of our other manufacturing, office or sales facilities through lease renewals prior to
expiration or through month-to-month occupancy or in replacing them with equivalent facilities.
We expect these facilities to be adequate for our business purposes through at least the next 12 months.
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings
We are 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, we do 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.
Indemnifications
19
We indemnify certain customers, distributors, suppliers, and subcontractors for attorney fees, damages, and costs awarded against such parties in certain
circumstances in which our products are alleged to infringe third party intellectual property rights, including patents, registered trademarks, or copyrights. The
terms of our indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to our
potential liability for indemnification relating to intellectual property infringement claims.
Pursuant to our charter documents and separate written indemnification agreements, we have certain indemnification obligations to our current officers, employees,
and directors, as well as certain former officers and directors.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Our common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol MXIM. As of August 3, 2018 , there were approximately 643
stockholders of record of our common stock.
The following table sets forth the range of the high and low closing prices by quarter for fiscal years 2018 and 2017 :
Fiscal Year ended June 30, 2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year ended June 24, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
The following table sets forth the dividends paid per share for fiscal years 2018 and 2017 :
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Issuer Purchases of Equity Securities
The following table summarizes the activity related to stock repurchases for the three months ended June 30, 2018 :
20
High
$47.84
$55.33
$66.27
$61.56
High
$40.28
$39.47
$45.68
$49.41
2018
$0.36
$0.36
$0.42
$0.42
Fiscal Years
Low
$43.71
$46.70
$52.97
$53.78
Low
$32.82
$36.74
$37.89
$43.39
2017
$0.33
$0.33
$0.33
$0.33
Issuer Purchases 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
Maximum Amount
That May Yet Be
Purchased Under the
Plans or Programs
696 $
706 $
799 $
2,201 $
57.47
56.69
60.07
58.17
696 $
706 $
799 $
2,201 $
706,374
666,368
618,359
618,359
Apr. 1, 2018 - Apr. 28, 2018
Apr. 29, 2018 - May 26, 2018
May 27, 2018 - Jun. 30, 2018
Total
On July 20, 2017, the board of directors of the Company authorized the repurchase of up to $1.0 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 generation from
operations, cash requirements, and other factors.
During fiscal year 2018 , we repurchased approximately 7.5 million shares of our common stock for $408.0 million . As of June 30, 2018 , we had a remaining
authorization of $618.4 million 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 liquidity and general market and business conditions.
Stock Performance Graph
The line graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the NASDAQ Composite Stock
Index and the Philadelphia Semiconductor Index for the five years ended June 30, 2018 . The graph and table assume that $100 was invested on June 28, 2013 (the
last day of trading for the fiscal year ended June 29, 2013 ) in each of our common stock, the NASDAQ Composite Stock Index and the Philadelphia
Semiconductor Index, and that all dividends were reinvested. Cumulative total stockholder returns for our common stock, the NASDAQ Composite Stock Index
and the Philadelphia Semiconductor index are based on our fiscal year.
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any of our filings under the
Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. The returns shown are based on historical results and
are not intended to suggest or predict future performance.
21
Base Year
June 29,
2013
Fiscal Year Ended
June 28,
2014
June 27,
2015
June 25,
2016
June 24,
2017
June 30,
2018
Maxim Integrated Products, Inc.
NASDAQ Composite-Total Return
Philadelphia Semiconductor-Total Return
$
$
$
100.00 $
100.00 $
100.00 $
126.36 $
130.85 $
136.81 $
134.07 $
152.90 $
155.35 $
140.12 $
143.45 $
153.31 $
189.04 $
193.14 $
251.41 $
248.56
234.02
309.10
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is a summary of certain consolidated financial information with respect to the Company as of the dates and for the periods indicated. The following
selected financial data as of June 30, 2018 and June 24, 2017 and for the years ended June 30, 2018 , June 24, 2017 and June 25, 2016 are derived from and should
be read in conjunction with, and are qualified by reference to, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
and Item 8 - Financial Statements and Supplementary Data, and notes thereto included elsewhere in Part IV, Item 15(a) of this Annual Report. The following
selected financial data as of June 25, 2016 , June 27, 2015 , and June 28, 2014 and for the years ended June 27, 2015 and June 28, 2014 have been derived from our
consolidated financial statements not included herein. The historical results are not necessarily indicative of the results to be expected in any future period.
22
Consolidated Statements of Income
Data:
Net revenues
Cost of goods sold
Gross margin
Gross margin %
Operating income
% of net revenues
Net income
Earnings per share
Basic net income per share
Diluted net income per share
Shares used in the calculation of
earnings per share:
Basic
Diluted
$
$
$
$
$
$
Fiscal Year Ended
June 30,
2018
June 24,
2017
June 25,
2016
June 27,
2015
June 28,
2014
(in thousands, except percentages and per share data)
2,480,066
$
2,295,615
$
2,194,719
$
2,306,864
$
853,945
849,135
950,331
1,034,997
1,626,121
$
1,446,480
$
1,244,388
$
1,271,867
$
2,453,663
1,068,898
1,384,765
65.6%
63.0%
56.7%
55.1%
56.4%
833,448
$
694,777
$
313,849
$
237,280
$
422,291
33.6%
30.3%
14.3%
10.3%
17.2%
467,318
$
571,613
$
227,475
$
206,038
$
354,810
1.66
1.64
$
$
2.02
1.98
$
$
0.80
0.79
$
$
0.73
0.71
$
$
1.25
1.23
280,979
285,674
283,147
287,974
285,081
289,479
283,675
288,949
283,344
289,108
Dividends declared and paid per share
$
1.56
$
1.32
$
1.20
$
1.12
$
1.04
June 30,
2018
June 24,
2017
As of
June 25,
2016
(in thousands)
June 27,
2015
June 28,
2014
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments
Working capital
Total assets
$
$
$
Long-term debt, excluding current portion $
2,626,399
2,413,014
4,451,561
991,147
Total stockholders' equity
$
1,930,940
$
$
$
$
$
2,744,839
3,026,597
4,570,233
1,487,678
2,202,694
$
$
$
$
$
2,230,668
2,197,645
4,234,616
990,090
2,107,814
$
$
$
$
$
1,626,119
1,936,226
4,216,071
987,687
2,290,020
$
$
$
$
$
1,372,425
1,687,292
4,391,558
986,966
2,429,911
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and notes thereto included in Part IV, Item 15(a),
the risk factors included in Part I, Item 1A, and the “forward-looking statements” and other risks described herein and elsewhere in this Annual Report.
Overview
We are a global company with manufacturing facilities in the United States, the Philippines and Thailand, and sales offices and design centers throughout the
world. We design, develop, manufacture and market 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 diverse applications, a great number of product variations and,
with respect to many circuit types, relatively long product life cycles. The major end-markets in which we sell our products are the automotive, communications
and data center, computing, consumer and industrial markets. We are incorporated in the State of Delaware.
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 sold, selling, general and administrative expenses and income taxes. These policies and the
estimates and judgments involved are discussed further below. 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. Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in this Annual Report.
Revenue Recognition
We recognize revenue for sales to direct customers and sales to distributors upon shipment, provided that persuasive evidence of a sales arrangement exists, the
price is fixed or determinable, title and risk of loss has transferred, collectability of the resulting receivable is reasonably assured, there are no customer acceptance
requirements and we do not have any significant post-shipment obligations. We estimate returns for sales to direct customers and distributors based on historical
return rates applied against current period gross revenue. Specific customer returns and allowances are considered within this estimate.
Accounts receivable from direct customers and distributors are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon
shipment, at which point we have a legally enforceable right to collection under normal terms. Accounts receivable related to consigned inventory is recognized
when the customer takes title to such inventory from its consigned location, at which point inventory is relieved, title transfers, and we have a legally enforceable
right to collection under the terms of our agreement with the related customers.
We estimate potential future returns and sales allowances related to current period product revenue. Management analyzes historical returns, changes in customer
demand and acceptance of products when evaluating the adequacy of returns and sales allowances. Estimates made by us may differ from actual returns and sales
allowances. These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable. Historically, such differences have
not been material.
An allowance for distributor credits covering price adjustments is estimated based on our historical experience rates and also considering economic conditions and
contractual terms. To date, actual distributor claims activity has been materially consistent with the provisions we have made based on our historical experience
rates.
The Company had historically recognized a portion of revenue through certain distributors at the time the distributor resold the product to its end customer (also
referred to as the sell-through basis of revenue recognition) given the difficulty in estimating the ultimate price of these product shipments and amount of potential
returns. The Company continuously reassesses its ability to
24
reliably estimate the ultimate price of these products and the amount of potential returns and, over the past several years, has made investments in its systems and
updates to processes around its distribution channel to improve the quality of the information for preparing such estimates. As a result of this continuous
reassessment, the Company recognizes all revenue from distributors upon shipment to the distributor (also referred to as the sell-in basis of revenue recognition) as
of second quarter of fiscal year 2018.
Inventories
Inventories are stated at the lower of (i) standard cost, which approximates actual cost on a first-in-first-out basis, or (ii) net realizable value. Our standard cost
revision policy is to monitor manufacturing variances and revise standard costs on a quarterly basis. Because of the cyclical nature of the market, inventory levels,
obsolescence of technology, and product life cycles, we generally write-down inventories to net realizable value based on forecasted product demand. Actual
demand and market conditions may be lower than those projected by us. This difference could have a material adverse effect on our gross margin should inventory
write-downs beyond those initially recorded become necessary. Alternatively, should actual demand and market conditions be more favorable than those estimated
by us, gross margin could be favorably impacted as we release these reserves upon the ultimate product shipment. During fiscal years 2018 , 2017 and 2016 , we
had net inventory write-downs of $21.4 million , $19.0 million and $26.2 million , respectively. When the Company records a write-down on inventory, it
establishes a new, lower cost basis for that inventory, and subsequent changes in facts and circumstances will not result in the restoration or increase in that newly
established cost basis.
Long-Lived Assets
We evaluate the recoverability of property, plant and equipment in accordance with Accounting Standards Codification (“ASC”) No. 360, Property, Plant, and
Equipment (“ASC 360”). We perform periodic reviews to determine whether facts and circumstances exist that would indicate that the carrying amounts of
property, plant and equipment might not be fully recoverable. If facts and circumstances indicate that the carrying amount of property, plant and equipment might
not be fully recoverable, we compare projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining
useful lives against their respective carrying amounts. In the event that the projected undiscounted cash flows are not sufficient to recover the carrying value of the
assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets. Evaluation of
impairment of property, plant and equipment requires estimates in the forecast of future operating results that are used in the preparation of the expected future
undiscounted cash flows. Actual future operating results and the remaining economic lives of our property, plant and equipment could differ from our estimates
used in assessing the recoverability of these assets. These differences could result in impairment charges, which could have a material adverse impact on our results
of operations.
Intangible Assets and Goodwill
We account for intangible assets in accordance with ASC No. 350, Intangibles-Goodwill and Other (“ASC 350”). We review goodwill and purchased intangible
assets for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable, such as when
reductions in demand or significant economic slowdowns in the semiconductor industry are present.
Intangible asset reviews are performed when indicators exist that could indicate the carrying value may not be recoverable based on comparisons to undiscounted
expected future cash flows. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated
using: (i) quoted market prices or (ii) discounted expected future cash flows utilizing a discount rate consistent with the guidance provided in FASB Concepts
Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements. Impairment is based on the excess of the carrying amount over
the fair value of those assets.
25
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. In accordance with
ASC 350, the Company tests goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis or
more frequently if the Company believes indicators of impairment exist. As part of its analysis, the Company first performs a qualitative assessment to determine if
it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, as a result of the qualitative assessment, the Company determines
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company performs the quantitative goodwill
impairment test. This test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The
Company generally determines the fair value of the Company's reporting units using the income approach methodology of valuation that includes the discounted
cash flow method as well as the market approach which includes the guideline company method. If the carrying amount of a reporting unit exceeds the reporting
unit's fair value, the Company recognizes an impairment of goodwill measured as the amount by which a reporting unit’s carrying value exceeds its fair value with
the loss recognized not to exceed the total amount of goodwill allocated to the reporting unit.
Accounting for Income Taxes
We must make certain estimates and judgments in the calculation of income tax expense, determination of uncertain tax positions, and in the determination of
whether deferred tax assets are more likely than not to be realized. The calculation of our income tax expense and income tax liabilities involves dealing with
uncertainties in the application of complex tax laws and regulations.
ASC No. 740-10, Income Taxes (“ASC 740-10”), prescribes a recognition threshold and measurement framework for financial statement reporting and disclosure
of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, a tax position is recognized in the financial statements when it is more likely than
not, based on the technical merits, that the position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax
position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50% likelihood of being
realized upon settlement. Although we believe that our computation of tax benefits to be recognized and realized are reasonable, no assurance can be given that the
final outcome will not be different from what was reflected in our income tax provisions and accruals. Such differences could have a material impact on our net
income and operating results in the period in which such determination is made. See Note 16: “Income Taxes” in the Notes to Consolidated Financial Statements
included in Part IV, Item 15(a) of this Annual Report for further information related to ASC 740-10.
We evaluate our deferred tax asset balance and record a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be
realized. In the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount, an adjustment to the
deferred tax asset valuation allowance would be recorded. This adjustment would increase income in the period such determination was made. Likewise, should it
be determined that all or part of the net deferred tax asset would not be realized in the future, an adjustment to increase the deferred tax asset valuation allowance
would be charged to income in the period such determination is made. In assessing the need for a valuation allowance, historical levels of income, expectations and
risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered. Realization of our deferred tax
asset is dependent primarily upon future taxable income in the U.S. and certain foreign jurisdictions. Our judgments regarding future profitability may change due
to future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to the net deferred
tax asset and an accompanying reduction or increase in net income in the period in which such determinations are made.
Litigation and Contingencies
From time to time, we receive notices that our products or manufacturing processes may be infringing the patent or other intellectual property rights of others,
notices of stockholder litigation or other lawsuits or claims against us. We periodically assess each matter in order to determine if a contingent liability in
accordance with ASC No. 450, Contingencies (“ASC 450”), should be recorded. In making this determination, management may, depending on the nature of the
matter, consult with internal and external legal counsel and technical experts. We expense legal fees associated with consultations and defense of lawsuits as
incurred. Based on the information obtained, combined with management's judgment regarding all of the facts and circumstances of each matter, we determine
whether a contingent loss is probable and whether the amount of such loss can be estimated. Should a loss be probable and estimable, we record a contingent loss
in accordance with ASC 450. In determining the amount of a contingent loss, we take into consideration advice received from experts in the specific matter, the
current status of legal proceedings, settlement negotiations which may be ongoing, prior case history and other factors. Should the judgments and estimates made
by management be incorrect, we may need to record additional contingent losses that could materially adversely impact our results of operations. Alternatively, if
the judgments and estimates made by management are incorrect and a particular contingent loss does not occur, the contingent loss recorded would be reversed
thereby favorably impacting our results of operations.
Results of Operations
26
The following table sets forth certain Consolidated Statements of Income data expressed as a percentage of net revenues for the periods indicated:
Net revenues
Cost of goods sold
Gross margin
Operating expenses:
Research and development
Selling, general and administrative
Intangible asset amortization
Impairment of long-lived assets
Impairment of goodwill and intangible assets
Severance and restructuring expenses
Other operating expenses (income), net
Total operating expenses
Operating income
Interest and other income (expense), net
Income before provision for income taxes
Provision for income taxes
Net income
For the Year Ended
June 30,
2018
June 24,
2017
June 25,
2016
100.0 %
34.4 %
65.6 %
100.0 %
37.0 %
63.0 %
18.2 %
13.0 %
0.2 %
— %
— %
0.6 %
(0.1)%
32.0 %
33.6 %
(0.3)%
33.3 %
14.4 %
18.8 %
19.8 %
12.7 %
0.4 %
0.3 %
— %
0.5 %
(1.0)%
32.7 %
30.3 %
(0.7)%
29.6 %
4.7 %
24.9 %
100.0 %
43.3 %
56.7 %
21.3 %
13.2 %
0.6 %
7.3 %
1.3 %
1.1 %
(2.4)%
42.4 %
14.3 %
(1.3)%
13.0 %
2.6 %
10.4 %
The following table shows pre-tax stock-based compensation included in the components of the Consolidated Statements of Income reported above as a percentage
of net revenues for the periods indicated:
Cost of goods sold
Research and development
Selling, general and administrative
Net Revenues
For the Year Ended
June 30,
2018
June 24,
2017
June 25,
2016
0.4%
1.5%
1.3%
3.2%
0.4%
1.6%
1.1%
3.1%
0.4%
1.7%
1.1%
3.2%
We reported net revenues of $2,480.1 million , $2,295.6 million and $2,194.7 million in fiscal years 2018 , 2017 and 2016 , respectively. Our net revenues in fiscal
year 2018 increased by 8.0% compared to our net revenues in fiscal year 2017 . Revenue from automotive products was up 17% , primarily driven by increased
demand for infotainment, battery management system products for electric vehicles, and driver assistance products. Revenue from industrial products was up 13% ,
primarily due to higher sales of factory automation products and core industrial products. Revenue from consumer products was also up 5% . The increase in
revenue was also partially driven by the 53-week fiscal year 2018 compared to the 52-week fiscal year 2017.
27
Our net revenues in fiscal year 2017 increased by 4.6% compared to our net revenues in fiscal year 2016 . Revenue from automotive products was up 18% ,
primarily due to increased demand for infotainment products. Revenue from industrial products was up 4% , primarily driven by shipments of factory automation
products. Revenue from communications and data center products was up 3% , due to higher shipments of data center products. These increases were partially
offset by a decrease in revenue from consumer products of 2% , primarily due to lower shipments of smartphone products. Also, in the fourth quarter of fiscal 2017
the Company began recognizing revenue with a certain distributor (less its estimate of future price adjustments and returns) upon shipment to the distributor (also
referred to as the sell-in basis of revenue recognition). As a result of this change, the Company recognized an incremental $19.4 million of revenue during the
fourth quarter of fiscal 2017.
Approximately 88% , 88% and 89% of our net revenues in fiscal years 2018 , 2017 and 2016 , respectively, were derived from customers located outside the
United States, primarily in Asia and Europe. 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 net revenues and our results of operations for fiscal years 2018 , 2017 and 2016 were immaterial.
Gross Margin
Our gross margin as a percentage of net revenue was 65.6% in fiscal year 2018 compared to 63.0% in fiscal year 2017 . Our gross margin increased by 2.6
percentage points, partially driven by implementation of cost reduction initiatives and improved factory utilization (2.3 percentage point increase to gross margin),
and partially driven by lower intangible asset amortization and accelerated depreciation in fiscal year 2018 of $3.9 million (0.3 percentage point increase to gross
margin).
Our gross margin as a percentage of net revenue was 63.0% in fiscal year 2017 compared to 56.7% in fiscal year 2016 . Our gross margin increased by 6.3
percentage points, partially driven by lower accelerated depreciation and intangible asset amortization in fiscal year 2017 of $65.0 million (3.1 percentage point
increase to gross margin) and partially driven by improved factory utilization and cost reduction initiatives (3.2 percentage point increase to gross margin).
Research and Development
Research and development expenses were $450.9 million and $454.0 million for fiscal years 2018 and 2017 , respectively, which represented 18.2% and 19.8% of
net revenues, respectively. The $3.1 million decrease in research and development expenses was primarily due to our continued focused research and development
investment strategy.
Research and development expenses were $454.0 million and $467.2 million for fiscal years 2017 and 2016 , respectively, which represented 19.8% and 21.3% of
net revenues, respectively. The $13.2 million decrease in research and development expenses was primarily attributable to a decrease in salaries and related
expenses of $5.9 million as a result of headcount reductions related to restructuring programs and spending control efforts.
The level of research and development expenditures as a percentage of net revenues will vary from period to period depending, in part, on the level of net revenues
and on our success in recruiting the technical personnel needed for our new product introductions and process development. We view research and development
expenditures as critical to maintaining a high level of new product introductions, which in turn are critical to our plans for future growth.
Selling, General and Administrative
Selling, general and administrative expenses were $322.9 million and $291.5 million in fiscal years 2018 and 2017 , respectively, which represented 13.0% and
12.7% of net revenues, respectively. The $31.4 million increase in selling, general and administrative expenses was primarily attributable to an increase in salaries
and related expenses.
Selling, general and administrative expenses were $291.5 million and $288.9 million in fiscal years 2017 and 2016 , respectively, which represented 12.7% and
13.2% of net revenues, respectively. The $2.6 million increase in selling, general and administrative expenses was primarily attributable to an increase in salaries
and related expenses of $12.6 million driven by increased employee profit sharing bonus, partially offset by a decrease in legal expenses.
The level of selling, general and administrative expenditures as a percentage of net revenues will vary from period to period, depending on the level of net revenues
and our success in recruiting sales and administrative personnel needed to support our operations.
Impairment of Long-lived Assets
28
Impairment of long-lived assets was $0.9 million in fiscal year 2018 and $7.5 million in fiscal year 2017 , which represented less than 0.1% and 0.3% of net
revenues, respectively. The $6.6 million decrease was primarily due to impairments of certain investments in privately held companies in fiscal year 2017. The
Company uses various inputs to evaluate investments in privately held companies including valuations of recent financing events as well as other information
regarding the issuer's historical and forecasted performance. The Company reached its conclusion regarding the asset impairment due to changes, during the fiscal
year 2017, in the financial condition of certain investments in privately held companies which indicated an other than temporary impairment.
Impairment of long-lived assets was $7.5 million in fiscal year 2017 and $160.6 million in fiscal year 2016 , which represented 0.3% and 7.3% of net revenues,
respectively. The $153.1 million decrease was primarily due to the classification of our wafer manufacturing facility in San Antonio, Texas as held for sale in the
first quarter of fiscal year 2016 which was written down to fair value, less cost to sell, resulting in an impairment of $157.7 million .
For further details of the asset impairments, please refer to Note 10: “Impairment of long-lived assets” in our consolidated financial statements included in Part IV,
Item 15(a) to this Annual Report.
Impairment of Goodwill and Intangible Assets
There was no impairment of goodwill and intangible assets in fiscal year 2018 .
There was no impairment of goodwill and intangible assets in fiscal year 2017 and $27.6 million of impairment in fiscal year 2016 , which represented 1.3% of
fiscal year 2016 net revenues. This decrease was driven by a $27.6 million impairment during fiscal year 2016 of in-process research and development obtained in
previous acquisitions, primarily from the acquisition of Volterra.
For further details on impairments recorded of goodwill and intangible assets, please refer to Note 8: “Goodwill and intangible assets” in our consolidated financial
statements included in Part IV, Item 15(a) to this Annual Report.
Severance and Restructuring Expenses
Severance and restructuring expenses were $15.1 million in fiscal year 2018 and $12.5 million in fiscal year 2017 , which represented 0.6% and 0.5% of net
revenues, respectively. The $2.6 million increase was primarily due to employee enrollments in voluntary separation programs during fiscal year 2018.
Severance and restructuring expenses were $12.5 million in fiscal year 2017 and $24.5 million in fiscal year 2016 , which represented 0.5% and 1.1% of net
revenues, respectively. The $12.0 million decrease was primarily due to the timing of restructuring activities initiated by the Company associated with continued
reorganization of certain business units and functions and the closure of the Dallas wafer level packaging (“WLP”) manufacturing facilities.
For further details on our restructuring plans and charges recorded, please refer to Note 17: “Restructuring Activities” in our consolidated financial statements
included in Part IV, Item 15(a) to this Annual Report.
Other Operating Expenses (Income), Net
Other operating expenses (income), net were $(1.6) million and $(22.9) million in fiscal year 2018 and 2017 , respectively, which represented (0.1)% and (1.0)% of
net revenues, respectively. The net decrease in other operating income of $21.3 million was primarily driven by the gain of $26.6 million on the sale of micro-
electromechanical systems (MEMS) business line in the first quarter of fiscal year 2017.
Other operating expenses (income), net were $(22.9) million and $(50.4) million in fiscal year 2017 and 2016 , respectively, which represented (1.0)% and (2.4)%
of net revenues, respectively. The net decrease in other operating income of $27.5 million was primarily driven by the gain of $26.6 million on the sale of our
micro-electromechanical systems (MEMS) business line recorded in fiscal year 2017 compared to the gain of $58.9 million on the asset sale of our energy
metering business recorded in fiscal year 2016.
Interest and Other Income (Expense), Net
29
Interest and other income (expense), net was $(8.6) million in fiscal year 2018 and $(15.2) million in fiscal year 2017 , which represented (0.3)% and (0.7)% of net
revenues, respectively. The decrease in interest and other expense of $6.6 million was primarily attributable to increased interest income on cash equivalents and
short-term investments as well as net gains from derivatives hedging due to increased strength of the U.S. Dollar.
Interest and other income (expense), net was $(15.2) million in fiscal year 2017 and $(28.8) million in fiscal year 2016 , which represented (0.7)% and (1.3)% of
net revenues, respectively. The decrease in interest and other expense of $13.6 million was primarily attributable to increased interest income on cash equivalents
and short-term investments.
Provision for Income Taxes
Our annual income tax expense was $357.6 million , $108.0 million and $57.6 million in fiscal years 2018 , 2017 and 2016 , respectively. The effective tax rate
was 43.3% , 15.9% and 20.2% for fiscal years 2018 , 2017 and 2016 , respectively. Our federal statutory tax rate is 28.1% for fiscal year 2018 and 35.0% for fiscal
years 2017 and 2016 .
On December 22, 2017 legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”) was enacted. The primary impacts of the Act in fiscal year 2018
are taxation of accumulated unremitted earnings of our foreign subsidiaries (“Transition Tax”) and a reduction of our federal statutory tax rate from 35.0% to
28.1% (average of a 35.0% rate for the first half of fiscal year 2018 and a 21.0% rate for the second half of fiscal year 2018). The Act allows us to pay the
Transition Tax in eight annual interest-free installments beginning in September 2018, although for accounting purposes the Transition Tax was recorded in the
second quarter of fiscal year 2018. The Act has other provisions that will significantly impact us beginning in fiscal year 2019, including a further reduction of the
federal statutory tax rate to 21.0% and provisions that impact taxation of our international earnings.
Securities and Exchange Commission Staff Accounting Bulletin No. 118 allowed the use of provisional amounts (reasonable estimates) if accounting for the
income tax effects of the Act were not completed when our financial statements for the second quarter of fiscal year 2018 were issued. Provisional amounts must
be adjusted during the measurement period as accounting for income tax effects of the Act is completed. The measurement period began on December 22, 2017,
the enactment date of the Act, and lasts no longer than one year.
To compute the Transition Tax, we must calculate accumulated unremitted earnings of the Company’s foreign subsidiaries and the amount of foreign income taxes
paid on those earnings. The Company made a reasonable estimate of the Transition Tax and in the second quarter of fiscal year 2018 recorded a provisional
Transition Tax charge of $236.9 million , which consists of a $248.0 million Transition Tax liability less $11.1 million of deferred tax liabilities established in prior
years for U.S. tax on unremitted foreign earnings. No adjustment to the provisional Transition Tax charge has been made as of the end of fiscal year 2018 as the
Company continues to gather information and analyze available guidance to more precisely compute the Transition Tax.
Our fiscal year 2018 effective tax rate was higher than the statutory rate primarily due to a $236.9 million provisional charge for the Transition Tax, a $13.7 million
charge to remeasure deferred taxes at the enactment date of the Act to reflect the federal statutory rate reduction, and $17.1 million of interest accruals for
unrecognized tax benefits, partially offset by earnings of foreign subsidiaries, generated primarily by our international operations managed in Ireland, that were
taxed at lower rates, and $11.1 million of excess tax benefits generated by the settlement of share-based awards.
Our fiscal year 2017 effective tax rate was lower than the statutory tax rate primarily due to earnings of foreign subsidiaries, generated primarily by our
international operations managed in Ireland, that were taxed at lower rates, and $14.4 million of excess tax benefits generated by the settlement of share-based
awards, partially offset by stock-based compensation for which no tax benefit is expected and $14.3 million of interest accruals for unrecognized tax benefits.
Our fiscal year 2016 effective tax rate was lower than the statutory tax rate primarily due to earnings of foreign subsidiaries, generated primarily by our
international operations managed in Ireland, that were taxed at lower rates, partially offset by stock-based compensation for which no tax benefit is expected, $9.1
million of interest accruals for unrecognized tax benefits and $20.4 million of non-deductible goodwill included in the sale of the energy metering business.
We have various entities domiciled within and outside the United States. The following is a breakout of our U.S. and foreign income (loss) before income taxes:
30
June 30,
2018
For the Year Ended
June 24,
2017
(in thousands)
June 25,
2016
Domestic pre-tax income (loss)
Foreign pre-tax income (loss)
Total
$
$
149,056 $
675,829
824,885 $
154,628 $
524,961
679,589 $
(48,985)
334,039
285,054
A relative increase in earnings in lower tax jurisdictions, such as Ireland, may lower our consolidated effective tax rate, while a relative increase in earnings in
higher tax jurisdictions, such as the United States, may increase our consolidated effective tax rate.
In fiscal year 2018 the percentage of pre-tax income from our foreign operations increased, which was primarily due a fiscal year 2017 gain from the sale of the
Company’s micro-electromechanical systems (MEMS) business line that increased domestic pre-tax income. The impact of pre-tax income from foreign operations
reduced our effective tax rate by 16.7 percentage points in fiscal year 2018 as compared to 20.2 percentage points in fiscal year 2017 . The rate reduction for
foreign operations is the expected tax on foreign operations at the federal statutory tax rate less actual tax on foreign operations. The decreased fiscal year 2018 tax
rate benefit from foreign operations was primarily due to a reduction of the Company’s federal statutory tax rate from 35.0% to 28.1% .
In fiscal year 2017 the percentage of pre-tax income from our foreign operations declined versus fiscal year 2016 , which was primarily due to a $157.7 million
fiscal year 2016 impairment of long-lived assets associated with the Company's wafer manufacturing facility in San Antonio, Texas that reduced domestic pre-tax
income, partially offset by a $24.1 million fiscal year 2016 in-process research and development impairment charge realized by a foreign affiliate. The impact of
pre-tax income from foreign operations reduced our effective tax rate by 20.2 percentage points in fiscal year 2017 as compared to 21.7 percentage points in fiscal
year 2016. The decreased fiscal year 2017 tax rate benefit from foreign operations was primarily attributable to the relative decrease in fiscal year 2017 pre-tax
income from foreign operations.
Recently Issued Accounting Pronouncements
Refer to our discussion of recently issued accounting pronouncements as included in Part IV, Item 15. Exhibits and financial statement schedules, Note 2:
“Summary of Significant Accounting Policies”.
Financial Condition, Liquidity and Capital Resources
Financial Condition
Our primary source of liquidity is our cash flows from operating activities resulting from net income and management of working capital.
Cash flows were as follows:
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Operating Activities
June 30,
2018
For the Year Ended
June 24,
2017
(in thousands)
June 25,
2016
$
$
819,464 $
(710,066)
(812,035)
(702,637) $
773,657 $
(325,396)
(307,369)
140,892 $
721,885
62,722
(230,343)
554,264
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities.
31
Cash provided by operating activities was $819.5 million in fiscal year 2018 , an increase of $45.8 million compared with fiscal year 2017 . This increase was
primarily caused by an increase in income before provision for income taxes which resulted from higher revenue and improved gross margin.
Cash provided by operating activities was $773.7 million in fiscal year 2017 , an increase of $51.8 million compared with fiscal year 2016 . This increase was
primarily driven by an increase in net income of $344.1 million driven by improved gross margin. This increase was offset by lower non-cash adjustments of
$158.7 million of impairment of long-lived assets primarily related to the Company's wafer manufacturing facility in San Antonio, Texas in fiscal year 2016 and by
lower non-cash adjustments of $80.3 million of depreciation and amortization charges.
Investing Activities
Investing cash flows consist primarily of capital expenditures, net investment purchases and maturities and acquisitions.
Cash used in investing activities was $710.1 million in fiscal year 2018 , an increase of $384.7 million compared with fiscal year 2017 . The change was primarily
due to a $997.2 million increase in purchases of available-for-sale securities, partially offset by a $678.2 million increase in proceeds from maturity of available-
for-sale securities.
Cash used in investing activities was $325.4 million in fiscal year 2017 , an increase of $388.1 million compared with fiscal year 2016 . The change was primarily
due to a $350.2 million increase in purchases of available-for-sale securities.
Financing Activities
Financing cash flows consist primarily of new borrowings, repurchases of common stock, issuance and repayment of notes payables, payment of dividends to
stockholders, proceeds from stock option exercises and employee stock purchase plan and withholding tax payments associated with net share settlements of equity
awards.
Net cash used in financing activities was $812.0 million in fiscal year 2018 , an increase of $504.6 million compared with fiscal year 2017 . The Company issued
$500.0 million of long-term debt in fiscal year 2017 . Changes in cash used in fiscal year 2018 included a $156.2 million increase in repurchases of common stock,
and an increase of $64.1 million in dividend payments, partially offset by the repayment in fiscal year 2017 of $250.0 million of notes payable.
Net cash used in financing activities was $307.4 million in fiscal year 2017 , an increase of $77.0 million compared with fiscal year 2016 . This increase was due
primarily to the repayment in fiscal year 2017 of $250.0 million of notes payable and an increase of $31.9 million in dividend payments, partially offset by the
issuance of $500.0 million of long-term debt in fiscal year 2017 compared to $250.0 million of short-term debt issued in fiscal year 2016 .
Liquidity and Capital Resources
As of June 30, 2018 , our available funds consisted of $2.6 billion in cash, cash equivalents and short-term investments. 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, common
stock repurchases, debt repayments and dividend payments for at least the next twelve months.
Current portion of debt
On November 21, 2013, we completed a public offering of $500 million aggregate principal amount of the Company's 2.5% senior unsecured and unsubordinated
notes due on November 15, 2018 (“2018 Notes”).
Available Borrowing Resources
We have access to a $350 million senior unsecured revolving credit facility that expires on June 27, 2019 . As of June 30, 2018 , we had not borrowed any amounts
from this credit facility.
Contractual Obligations
The following table summarizes our significant contractual obligations at June 30, 2018 , and the effect such obligations are expected to have on our liquidity and
cash flows in future periods:
32
Contractual Obligations:
Operating lease obligations (1)
Outstanding debt obligations (2)
Interest payments associated with debt obligations (3)
Inventory related purchase obligations (4)
Transition Tax (5)
Total
Payment due by period
Total
Less than 1
year
1-3 years
3-5 years
(in thousands)
More than 5
years
$
55,780 $
10,090 $
14,378 $
12,101 $
1,500,000
500,000
—
500,000
237,647
500,058
247,961
38,986
68,250
63,328
78,797
129,381
85,371
19,837
39,674
39,674
$
2,541,446 $
647,710 $ 251,683 $ 700,474 $
19,211
500,000
67,083
206,509
148,776
941,579
(1) We lease some facilities under non-cancelable operating lease agreements that expire at various dates through 2030 .
(2) Outstanding debt represents amounts primarily due for our long-term notes.
(3) Interest payments calculated based on contractual payment requirements under the debt agreements.
(4) We order some materials and supplies in advance or with minimum purchase quantities. We are obligated to pay for the materials and supplies when received.
Additionally, in 2016 we entered into a long-term supply agreement with the semiconductor foundry TowerJazz to supply finished wafers on our existing processes
and products, which contains minimum purchase requirements.
(5) Provisional Transition Tax on accumulated unremitted earnings of foreign subsidiaries, paid interest free, over a period of eight years.
Purchase orders for the purchase of the majority of our raw materials and other goods and services are not included above. Our purchase orders generally allow for
cancellation without significant penalties. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities
or set prices that exceed our expected short-term requirements.
As of June 30, 2018 , our gross unrecognized income tax benefits were $591.5 million which excludes $61.9 million of accrued interest and penalties. At this time,
we are unable to make a reasonably reliable estimate of the timing of payments of these amounts, if any, in individual years due to uncertainties in the timing or
outcomes of either actual or anticipated tax audits. As a result, these amounts are not included in the table above.
Off-Balance-Sheet Arrangements
As of June 30, 2018 , we did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalents, short-term investments and notes payable. See Note 5:
“Financial Instruments” in the Notes to Consolidated Financial Statements included in this Annual Report. We do not use derivative financial instruments to hedge
the ongoing risk of interest rate volatility. At June 30, 2018 , we maintained a significant portfolio of money market fund investments, which are included in cash
and cash equivalents. These money market funds are generally invested only in U.S. government or agency securities and are all available on a daily basis. Our
short-term investments are in U.S. government, corporate and bank debt securities. Our long-term notes payable are all fixed rate securities and as such, we have
no financial statement risk associated with changes in interest rates related to these notes.
To assess the interest rate risk associated with our outstanding long-term debt portfolio, we performed sensitivity analysis for our long-term notes as of June 30,
2018 , using a modeling technique that measures the change in the fair values arising from a hypothetical 100 basis points increase in the levels of interest rates
across the entire yield curve, with all other variables held constant. The discount rates used were based on the market interest rates in effect at June 30, 2018 . The
sensitivity analysis indicated that a hypothetical 100 basis points increase in interest rates would result in a reduction in the fair values of our long-term notes of
$57.2 million .
Foreign Currency Risk
33
We generate less than 1.0% of our revenues in various global markets based on orders obtained in currencies other than the U.S. Dollar. We incur expenditures
denominated in non-U.S. currencies, primarily the Philippine Peso and the Thai Baht associated with our manufacturing activities in the Philippines and Thailand,
respectively, and expenditures for sales offices and research and development activities undertaken outside of the U.S. We are exposed to fluctuations in foreign
currency exchange rates primarily on orders, cash flows for expenditures and accounts receivable from sales in these foreign currencies. We have established risk
management strategies designed to reduce the impact of volatility of future cash flows caused by changes in the exchange rate for these currencies. These strategies
reduce, but do not entirely eliminate, the impact of currency exchange rate movements. We do not use derivative financial instruments for speculative or trading
purposes. We routinely hedge our exposure to certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency
exchange rate fluctuations. If a financial counterparty to any of our hedging arrangements experiences financial difficulties or is otherwise unable to honor the
terms of the foreign currency hedge, we may experience financial losses.
For derivative instruments that are designated and qualify as cash flow hedges under ASC No. 815, Derivatives and Hedging (“ASC 815”), the effective portion of
the gain or loss on the derivative is reported as a component of accumulated other comprehensive income or loss and reclassified into earnings into the same
financial statement line as the item being hedged, and in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the
derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized each period in interest and
other income (expense), net.
For derivative instruments that are not designated as hedging instruments under ASC 815, gains and losses are recognized each period in interest and other income
(expense), net. All derivatives are foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on
these derivatives largely offset the changes in the fair value of the assets or liabilities being hedged.
As of June 30, 2018 , we had outstanding foreign currency derivative contracts with a total notional amount of $93.3 million . If overall foreign currency exchange
rates appreciated (depreciated) uniformly by 10% against the U.S. dollar, our foreign currency derivative contracts outstanding as of June 30, 2018 would
experience an approximately $4.8 million gain (loss).
Foreign Exchange Contracts
The net unrealized gain or loss, if any, is potentially subject to market and credit risk as it represents appreciation (decline) of the hedge position against the spot
exchange rates. The net realized and unrealized gains or losses from hedging foreign currency denominated assets and liabilities were immaterial during the fiscal
years ended June 30, 2018 and June 24, 2017 .
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are set forth at the pages indicated in Part IV, Item 15(a) of this Annual Report and
incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. 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 Exchange Act as of June 30, 2018 . These disclosure controls and procedures
are designed to provide reasonable assurance 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 rules and forms, and that such information is accumulated and communicated to
our management, including our CEO and our CFO, to allow timely decisions regarding required disclosures. Based on the evaluation, our CEO and our CFO have
concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2018 .
Management's Annual Report on Internal Control over Financial Reporting
34
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, the Company's CEO and CFO and effected
by the Company's Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management, with the participation of
our CEO and our CFO, assessed the effectiveness of our internal control over financial reporting as of June 30, 2018 . Management's assessment of internal control
over financial reporting was conducted using the criteria in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Our management has concluded that, as of June 30, 2018 , our internal control over financial reporting was effective,
based on these criteria. PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of the Company's internal
control over financial reporting, as of June 30, 2018 , as stated within their report which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2018 that have materially affected or are reasonably likely
to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Internal Controls over Financial Reporting and Disclosure Controls and Procedures
A system of internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of 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.
35
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than as follows, the information required by this Item is incorporated by reference from the Company's Proxy Statement for the 2018 Annual Meeting of
Stockholders under the headings “Audit Committee and Audit Committee Financial Expert,” “Proposal No. 1 - Election of Directors” and “Section 16(a)
Beneficial Ownership Reporting Compliance.”
Executive Officers of the Registrant
The following is information regarding our executive officers, including their positions and ages as of July 14, 2018.
Name
Age
Position
Tunç Doluca
60 President and Chief Executive Officer
Bruce E. Kiddoo
57 Senior Vice President and Chief Financial Officer
Vivek Jain
58 Senior Vice President, Technology and Manufacturing Group
Edwin B. Medlin
61 Senior Vice President and General Counsel
Christopher J. Neil
52 Senior Vice President, New Ventures
Bryan J. Preeshl
56 Senior Vice President, Quality
David Loftus
57 Vice President, Worldwide Sales and Marketing
Sumeet Gagneja
48 Vice President and Chief Accounting Officer
Tunç Doluca has served as a director of Maxim Integrated as well as the President and Chief Executive Officer since January 2007. He joined Maxim Integrated in
October 1984 and served as Vice President from 1994 to 2004. He was promoted to Senior Vice President in 2004 and Group President in May 2005. Prior to
1994, he served in a number of integrated circuit development positions. Mr. Doluca holds a BSEE degree from Iowa State University and an MSEE degree from
the University of California, Santa Barbara.
Bruce E. Kiddoo joined Maxim Integrated in September 2007 as Vice President of Finance. On October 1, 2008, Mr. Kiddoo was appointed Chief Financial
Officer and Principal Accounting Officer of Maxim Integrated and was appointed Senior Vice President in September 2009. Prior to joining Maxim Integrated, Mr.
Kiddoo held various positions at Broadcom Corporation, a global semiconductor company, beginning in December 1999. Mr. Kiddoo served as Broadcom’s
Corporate Controller and Principal Accounting Officer from July 2002 and served as Vice President from January 2003. He also served as Broadcom’s Acting
Chief Financial Officer from September 2006 to March 2007. Mr. Kiddoo holds a BS degree in Applied Science from the United States Naval Academy and an
MBA degree from the College of William & Mary.
Vivek Jain joined Maxim Integrated in April 2007 as Vice President responsible for our wafer fabrication operations. In June 2009, Mr. Jain was promoted to
Senior Vice President with expanded responsibility for managing test and assembly operations in addition to wafer fabrication operations. Prior to joining Maxim
Integrated, Mr. Jain was with Intel Corporation as Plant Manager for Technology Development and Manufacturing Facility in Santa Clara, California from 2000.
Mr. Jain holds a BS degree in Chemical Engineering from the Indian Institute of Technology at New Delhi, an MS degree in Chemical Engineering from Penn
State University, and an MS degree in Electrical Engineering from Stanford University.
Edwin B. Medlin joined Maxim Integrated in November 1999 as Director and Associate General Counsel. He was promoted to Vice President and Senior Counsel
in April 2006, was appointed General Counsel in September 2010, and he was promoted to Senior Vice President and General Counsel in May 2015. Prior to
joining Maxim Integrated, he was with the law firm of Ropers, Majeski, Kohn and Bentley between 1987 and 1994 where he held various positions, including
director. Between 1994 and 1997, he held the positions of General Counsel, and later, General Manager, at Fox Factory, Inc., a privately held manufacturing
company. Between 1997 and 1999 he held the positions of General Counsel and later, Vice President of Global Sales and Marketing, at RockShox, Inc., a publicly
traded corporation. Mr. Medlin holds a degree in Economics from the University of California, Santa Barbara, and a Juris Doctorate from Santa Clara University.
36
Christopher J. Neil joined Maxim Integrated in September 1990, was promoted to Vice President in April 2006, was named Division Vice President in September
2009 and was promoted to Senior Vice President in September 2011. In May 2015, Mr. Neil was appointed to create and lead Maxim Ventures, the Company’s
venture arm. Prior to 2006, he held several engineering and executive management positions. Mr. Neil holds BSEE and MSEE degrees from the Massachusetts
Institute of Technology.
Bryan J. Preeshl joined Maxim Integrated in 1990 as a Senior Failure Analysis Engineer and held various senior management roles in the quality organization
before being promoted to Vice President of Quality in 2010 and Senior Vice President of Quality in 2016. Prior to joining Maxim Integrated, Mr. Preeshl held
numerous quality-related positions at National Semiconductor, ZyMOS, Monolithic Memories, and Advanced Micro Devices. Mr. Preeshl holds a degree in
Electronics Engineering Technology from the DeVry Institute of Technology in Phoenix, Arizona.
David Loftus joined Maxim Integrated as its Vice President of Worldwide Sales and Marketing in 2015. Immediately prior to joining Maxim Integrated, Mr.
Loftus led Worldwide Insights, a management consulting firm he founded in Atlanta. Earlier, he led the worldwide sales organizations for Cypress Semiconductor
and Intersil Corporation. Before his tenure at Intersil, Mr. Loftus spent 17 years with Xilinx, as Vice President and General Manager for its Spartan Products
Division and as Vice President and Managing Director for the Company's Asia Pacific operations. Mr. Loftus holds a degree in Electrical Engineering and a
Masters in Management from Georgia Institute of Technology.
Sumeet Gagneja joined Maxim Integrated in January 2011. Mr. Gagneja has served as Maxim Integrated’s Vice President and Chief Accounting Officer since
August 2017 and has served as Maxim Integrated’s Corporate Controller since August 2016. Prior to that, Mr. Gagneja served as Maxim Integrated’s Managing
Director of Internal Audit from November 2013 to August 2016, Maxim Integrated’s Managing Director of Finance from September 2013 to November 2013, and
Maxim Integrated’s Executive Director of Finance from January 2011 to August 2013. Prior to joining Maxim Integrated, Mr. Gagneja held various finance
positions at Broadcom Limited (previously Avago Technologies) and Intel Corporation. Mr. Gagneja received a B.S. in Mechanical Engineering from Punjab
Engineering College, a M.S. degree in Mechanical Engineering from Wayne State University, and a M.B.A. degree from the University of Michigan (Stephen M.
Ross) School of Business.
Code of Business Conduct and Ethics
We have a Code of Business Conduct and Ethics (the “Code of Ethics”), which applies to all directors and employees, including, but not limited to, our principal
executive officer and principal financial and accounting officer. The Code of Ethics is designed to promote: (i) honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest arising from personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure
in reports and documents that we are required to file with the SEC and in other public communications, (iii) compliance with applicable governmental laws, rules
and regulations, (iv) the prompt internal reporting of violations of the Code of Ethics to an appropriate person or group, and (v) accountability for adherence to the
Code of Ethics. A copy of the Code of Ethics is available on our website at http://www.maximintegrated.com/en/aboutus/maxim-corporate-policies.html . The
Company intends to satisfy the disclosure requirement regarding any amendment to, or a waiver from, a provision of the Code of Ethics for the Company's
principal executive officer, principal financial officer or principal accounting officer by posting such information on its website. The contents of our website are
not incorporated into this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2018 Annual Meeting of Stockholders under the
headings “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Executive Compensation.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2018 Annual Meeting of Stockholders under the
heading “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners, Directors and Management.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
37
The information required by this item is incorporated by reference from the Company’s Proxy Statement for the 2018 Annual Meeting of Stockholders under the
headings “Corporate Governance and Board of Directors Matters” and “Certain Relationships and Related Transactions.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2018 Annual Meeting of Stockholders under the
headings “Report of the Audit Committee of the Board of Directors” and “Independent Public Accountants.”
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following are filed as part of this Report:
PART IV
(1)
Financial Statements.
Consolidated Balance Sheets at June 30, 2018 and June 24, 2017
Consolidated Statements of Income for each of the three years in the period ended June 30, 2018
Consolidated Statements of Comprehensive Income for each of the three years in the period ended June 30, 2018
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 30, 2018
Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2018
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
(2)
Financial Statement Schedule.
The following financial statement schedule is filed as part of this Annual Report on Form 10-K and should be read in conjunction
with the financial statements.
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or because the required information is included in the consolidated
financial statements or notes thereto.
(3)
The Exhibits filed as a part of this Report are listed in the attached Index to Exhibits.
Page
39
39
40
41
42
43
44
78
80
81
(b) Exhibits .
See attached Index to Exhibits.
38
MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
Current assets:
Cash and cash equivalents
Short-term investments
Total cash, cash equivalents and short-term investments
Accounts receivable, net of allowances of $140,296 in 2018 and $46,575 in 2017
ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
$
$
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Other assets
TOTAL ASSETS
Current liabilities:
Accounts payable
Income taxes payable
Accrued salary and related expenses
Accrued expenses
Deferred margin on shipments to distributors
Current portion of debt
Total current liabilities
Long-term debt
Income taxes payable
Other liabilities
Total liabilities
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $0.001 par value
Authorized: 2,000 shares, issued and outstanding: none
Common stock, $0.001 par value
Authorized: 960,000 shares
Issued and outstanding: 278,664 in 2018 and 282,912 in 2017
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
June 30,
2018
June 24,
2017
(in thousands, except par value)
$
1,543,484 $
1,082,915
2,626,399
280,072
282,390
21,548
2,246,121
498,718
2,744,839
256,454
247,242
57,059
3,210,409
3,305,594
579,364
78,246
532,251
51,291
606,581
90,867
491,015
76,176
4,451,561 $
4,570,233
92,572 $
17,961
151,682
35,774
—
499,406
797,395
991,147
661,336
70,743
2,520,621
—
279
—
1,945,646
(14,985)
1,930,940
77,373
3,688
145,299
37,663
14,974
—
278,997
1,487,678
557,498
43,366
2,367,539
—
283
—
2,212,301
(9,890)
2,202,694
4,570,233
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
$
4,451,561 $
See accompanying Notes to Consolidated Financial Statements.
39
MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Net revenues
Cost of goods sold
Gross margin
Operating expenses:
Research and development
Selling, general and administrative
Intangible asset amortization
Impairment of long-lived assets
Impairment of goodwill and intangible assets
Severance and restructuring expenses
Other operating expenses (income), net
Total operating expenses
Operating income (loss)
Interest and other income (expense), net
Income (loss) before provision for income taxes
Income tax provision
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Shares used in the calculation of earnings (loss) per share:
Basic
Diluted
Dividends declared and paid per share
For the Years Ended
June 30,
2018
June 24,
2017
June 25,
2016
(in thousands, except per share data)
$
2,480,066 $
2,295,615 $
853,945
1,626,121
849,135
1,446,480
2,194,719
950,331
1,244,388
450,943
322,918
4,467
892
—
15,060
(1,607)
792,673
833,448
(8,563)
824,885
357,567
453,977
291,511
9,189
7,517
—
12,453
(22,944)
751,703
694,777
(15,188)
679,589
107,976
467,318 $
571,613 $
1.66 $
1.64 $
2.02 $
1.98 $
280,979
285,674
283,147
287,974
467,161
288,899
12,205
160,582
27,602
24,479
(50,389)
930,539
313,849
(28,795)
285,054
57,579
227,475
0.80
0.79
285,081
289,479
1.56 $
1.32 $
1.20
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
40
MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
June 30,
2018
For the Years Ended
June 24,
2017
(in thousands)
June 25,
2016
Net income (loss)
$
467,318 $
571,613 $
227,475
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 $184 in 2018, $0 in
2017, and $0 in 2016
Change in net unrealized gains and losses on cash flow
hedges, net of tax benefit
(expense) of $291 in 2018, $(137) in 2017, $202 in 2016
Change in net unrealized gains and losses on post-retirement
benefits, net of tax benefit
(expense) of $115 in 2018, $(2,988) in 2017, $(455) in 2016
Other comprehensive income (loss), net
Total comprehensive income (loss)
$
(2,436)
(1,723)
(1,401)
510
(1,258)
(5,095)
462,223 $
5,542
4,329
575,942 $
356
(545)
3,204
3,015
230,490
See accompanying Notes to Consolidated Financial Statements.
41
MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Shares
Par Value
Additional
Paid-In
Capital
Retained
Earnings
Accumulated Other
Comprehensive Loss
Total
Stockholders'
Equity
(in thousands)
Balance, June 27, 2015
Net income
Other comprehensive income (loss), net
Repurchase of common stock
Net issuance of restricted stock units
Stock options exercised
Stock-based compensation
Tax benefit (shortfall) on settlement of equity instruments
Common stock issued under Employee Stock Purchase Plan
Dividends paid, $1.20 per common share
Balance, June 25, 2016
Net income
Other comprehensive income (loss), net
Repurchase of common stock
Net issuance of restricted stock units
Stock options exercised
Stock-based compensation
Cumulative adjustment for adoption of ASU 2016-09
Common stock issued under Employee Stock Purchase Plan
Dividends paid, $1.32 per common share
Balance, June 24, 2017
Net income
Other comprehensive income (loss), net
Repurchase of common stock
Net issuance of restricted stock units
Stock options exercised
Stock-based compensation
Common stock issued under Employee Stock Purchase Plan
Dividends paid, $1.56 per common share
Balance, June 30, 2018
284,823 $
283 $
27,859 $ 2,279,112 $
(17,234)
$
2,290,020
—
—
(6,811)
1,416
3,200
—
—
1,281
—
—
—
(7)
2
4
—
—
2
—
—
—
227,475
—
(194,264)
(42,815)
(24,086)
79,604
69,539
7,375
33,973
—
—
—
—
—
—
(342,023)
—
3,015
—
—
—
—
—
—
—
227,475
3,015
(237,086)
(24,084)
79,608
69,539
7,375
33,975
(342,023)
283,909 $
284 $
— $ 2,121,749 $
(14,219)
$
2,107,814
—
—
(6,057)
1,275
2,741
—
—
1,044
—
—
—
(6)
1
3
—
—
1
—
—
—
571,613
—
(143,309)
(108,484)
(25,184)
63,000
71,225
—
34,268
—
—
—
1,394
—
—
(373,971)
—
4,329
—
—
—
—
—
—
—
571,613
4,329
(251,799)
(25,183)
63,003
71,225
1,394
34,269
(373,971)
282,912 $
283 $
— $ 2,212,301 $
(9,890)
$
2,202,694
—
—
(7,487)
1,241
1,090
—
908
—
—
—
(7)
1
1
—
1
—
—
—
467,318
—
(112,075)
(295,886)
(30,311)
28,008
78,058
36,320
—
—
—
—
—
(438,087)
—
(5,095)
—
—
—
—
—
—
467,318
(5,095)
(407,968)
(30,310)
28,009
78,058
36,321
(438,087)
278,664 $
279 $
— $ 1,945,646 $
(14,985)
$
1,930,940
See accompanying Notes to Consolidated Financial Statements.
42
MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
June 30,
2018
For the Years Ended
June 24,
2017
(in thousands)
June 25,
2016
$
467,318
$
571,613 $
227,475
Stock-based compensation
Depreciation and amortization
Deferred taxes
In process research and development written-off
Loss (gain) from sale of property, plant and equipment
Tax benefit (shortfall) on settlement of equity instruments
Excess tax benefit from stock-based compensation
Impairment of long-lived assets
Impairment of investments in privately-held companies
Loss (gain) on sale of business
Changes in assets and liabilities:
Accounts receivable
Inventories
Other current assets
Accounts payable
Income taxes payable
Deferred margin on shipments to distributors
All other accrued liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Proceeds from sale of property, plant, and equipment
Proceeds from sale of available-for-sale securities
Proceeds from maturity of available-for-sale securities
Proceeds from sale of business
Payment in connection with business acquisition, net of cash acquired
Purchases of available-for-sale securities
Purchases of privately-held companies' securities
Other investing activities
Net cash provided by (used in) investing activities
Cash flows from financing activities
Excess tax benefit from stock-based compensation
Repayment of notes payable
Issuance of debt
Debt issuance cost
Net issuance of restricted stock units
Proceeds from stock options exercised
Issuance of common stock under employee stock purchase program
Repurchase of common stock
Dividends paid
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents:
78,685
144,974
27,715
—
995
—
—
42
850
—
(19,714)
(32,776)
32,368
9,560
117,654
(14,974)
6,767
819,464
(65,782)
5,823
107,291
753,249
—
(57,773)
(1,447,354)
(5,520)
—
(710,066)
—
—
—
—
(30,310)
28,009
36,321
(407,968)
(438,087)
(812,035)
(702,637)
71,117
164,292
(7,895)
—
16,365
—
—
1,462
6,720
(26,620)
78
(21,215)
(3,547)
(6,205)
60,798
(23,805)
(29,501)
773,657
(51,421)
10,792
50,994
75,000
42,199
—
(450,135)
(2,825)
—
(325,396)
—
(250,000)
500,000
(3,688)
(25,183)
63,003
34,269
(251,799)
(373,971)
(307,369)
140,892
69,701
244,637
(48,138)
27,602
2,283
7,375
(9,550)
160,153
—
(58,944)
22,313
44,086
2,943
(3,676)
56,641
8,452
(31,468)
721,885
(69,369)
85,142
—
50,000
105,000
—
(99,948)
(10,483)
2,380
62,722
9,550
—
250,000
(283)
(24,084)
79,608
33,975
(237,086)
(342,023)
(230,343)
554,264
Beginning of year
End of year
Supplemental disclosures of cash flow information:
Cash paid (refunded), net during the year for income taxes
Cash paid for interest
Noncash financing and investing activities:
Accounts payable related to property, plant and equipment purchases
Common stock valued at $40.0 million received as consideration in sale of inventory, property, plant
and equipment for the Company's wafer manufacturing facility in San Antonio, Texas
2,246,121
1,543,484
$
2,105,229
2,246,121 $
1,550,965
2,105,229
189,100
46,625
$
$
76,243 $
29,375 $
8,833
$
— $
3,853 $
— $
43,898
29,381
2,810
40,000
$
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
43
NOTE 1: NATURE OF OPERATIONS
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maxim Integrated Products, Inc. (“Maxim Integrated”, the “Company,” “we,” “us” or “our”), incorporated in Delaware, 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 Company also provides a range of high-frequency process technologies and capabilities for use in custom designs. The analog market
is fragmented and characterized by diverse applications and a great number of product variations with varying product life cycles. Maxim Integrated is a global
company with a manufacturing facility in the United States, testing facilities in the Philippines and Thailand, and sales and circuit design offices throughout the
world. Integrated circuit assembly is performed by foreign assembly subcontractors, located in countries throughout Asia, where wafers are separated into
individual integrated circuits and assembled into a variety of packages. The major end-markets the Company's products are sold in are the automotive,
communications and data center, computing, consumer and industrial markets.
The Company has a 52-to-53-week fiscal year that ends on the last Saturday of June. Accordingly, every fifth or sixth year will be a 53-week fiscal year. Fiscal
year 2018 was a 53-week fiscal year (ended on June 30, 2018 ). Fiscal years 2017 and 2016 were each 52-week fiscal years (ended on June 24, 2017 , and June 25,
2016 , respectively).
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. Actual results may differ from those estimates, and such differences may be material to the financial statements.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries. Intercompany balances and transactions
have been eliminated in consolidation.
Cash Equivalents and Short-term Investments
The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less at the date of purchase to be cash
equivalents. Cash and cash equivalents consist of demand accounts, money market funds, U.S. Treasury securities, agency securities, corporate debt securities,
certificates of deposit, and commercial paper. Short-term investments consist primarily of U.S. treasury debt securities with original maturities beyond three
months at the date of purchase, agency securities, corporate debt securities, certificates of deposit, and commercial paper.
The Company's short-term investments are considered available-for-sale and classified as short-term as these investments generally consist of highly marketable
securities that are available to meet near-term cash requirements. Such securities are carried at fair market value based on market quotes and other observable
inputs. Unrealized gains and losses, net of tax, on securities in this category are reported as equity in the Consolidated Statement of Comprehensive Income.
Realized gains and losses on sales of investment securities are determined based on the specific identification method and are included in Interest and other income
(expense), net in the Consolidated Statements of Income.
44
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Instruments
The Company incurs expenditures denominated in non-U.S. currencies, primarily the Philippine Peso and the Thai Baht associated with the Company's
manufacturing activities in the Philippines and Thailand, respectively, and European Euro, Indian Rupee, Taiwan New Dollar, South Korean Won, Chinese Yuan,
Japanese Yen, Singapore Dollar, and Canadian Dollar expenditures for sales offices and research and development activities undertaken outside of the U.S. The
Company is exposed to fluctuations in foreign currency exchange rates for cash flows for expenditures and on orders and accounts receivable from sales in these
foreign currencies. The Company has established risk management strategies designed to reduce the impact of volatility of future cash flows caused by changes in
the exchange rate for these currencies. These strategies reduce, but do not entirely eliminate, the impact of currency exchange rates movements.
Currency forward contracts are used to offset the currency risk of non-U.S. dollar-denominated assets and liabilities. The Company typically enters into currency
forward contracts to hedge exposures associated with its expenditures denominated in European Euro, Philippine Peso and South Korean Won. The Company also
hedges smaller expense exposures in several other foreign currencies. The Company enters into currency forward contracts to hedge its accounts receivable and
backlog denominated in European Euro, Japanese Yen and British Pound. Changes in fair value of the underlying assets and liabilities are generally offset by the
changes in fair value of the related currency forward contract.
The Company uses currency forward contracts to hedge exposure to variability in anticipated non-U.S. dollar denominated cash flows. These contracts are
designated as cash flow hedges and recorded on the Consolidated Balance Sheets at their fair market value. The maturities of these instruments are generally less
than six months . For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is
reported as a component of accumulated other comprehensive income (loss) and reported within the Consolidated Statements of Comprehensive Income. These
amounts have been reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments that are
not designated as hedging instruments, gains and losses are recognized immediately in “Interest income (expense) and other, net” in the Consolidated Statements of
Income.
Fair Value of Financial Instruments
The Company measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.
Inventories
Inventories are stated at the lower of (i) standard cost, which approximates actual cost on a first-in-first-out basis, or (ii) net realizable value. The Company's
standard cost revision policy is to monitor manufacturing variances and revise standard costs on a quarterly basis. Because of the cyclical nature of the market,
inventory levels, obsolescence of technology, and product life cycles, the Company generally writes down inventories to net realizable value based on forecasted
product demand.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is primarily computed on the straight-line method over the estimated useful lives of the assets, which
range from 2 to 15 years for machinery, equipment and software and up to 40 years for buildings and building improvements. Leasehold improvements are
amortized over the lesser of their useful lives or the remaining term of the related lease. When assets are retired or otherwise disposed of, the cost and accumulated
depreciation or amortization is removed from the accounts and any resulting gain or loss is reflected in the Consolidated Statements of Income. The classification
is based mainly on whether the asset is operating or not.
The Company evaluates the recoverability of property, plant and equipment in accordance with Accounting Standards Codification (“ASC”) No. 360, Property,
Plant, and Equipment (“ASC 360”). The Company performs periodic reviews to determine whether facts and circumstances exist that would indicate that the
carrying amounts of property, plant and equipment are not recoverable and exceed their fair values. If facts and circumstances indicate that the carrying amounts of
property, plant and equipment might not be fully recoverable, projected undiscounted net cash flows associated with the related asset or group of assets over their
estimated remaining useful lives are compared against their respective carrying amounts. In the event that the projected undiscounted cash flows are not sufficient
to recover the carrying value of the assets, the assets are written down to their estimated fair values based on their expected discounted future cash flows
attributable to those assets. All long-lived assets classified as held for sale are reported at the lower of carrying amount or fair market value, less expected selling
costs.
45
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets and Goodwill
The Company accounts for intangible assets in accordance with ASC No. 350, Intangibles-Goodwill and Other (“ASC 350”). The Company reviews goodwill and
purchased intangible assets for impairment annually in the fourth fiscal quarter and whenever events or changes in circumstances indicate the carrying value of an
asset may not be recoverable, such as when reductions in demand or significant economic slowdowns in the semiconductor industry are present.
Intangible asset reviews are performed when indicators exist that could indicate the carrying value may not be recoverable based on comparisons to undiscounted
expected future cash flows. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated
using: (i) quoted market prices or (ii) discounted expected future cash flows utilizing a discount rate consistent with the guidance provided in FASB Concepts
Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements . Impairment is based on the excess of the carrying amount over
the fair value of those assets.
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. In accordance with
ASC 350, the Company tests goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis or
more frequently if the Company believes indicators of impairment exist. In accordance with ASC 350-20-35-3, the Company's performs a qualitative assessment to
determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, as a result of the qualitative assessment, the
Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company performs the
quantitative goodwill impairment test. This test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including
goodwill. The Company determines the fair value of the Company's reporting units using the income approach methodology of valuation that includes the
discounted cash flow method as well as the market approach which includes the guideline company method. If the carrying amount of a reporting unit exceeds the
reporting unit's fair value, the Company recognizes an impairment of goodwill measured as the amount by which a reporting unit’s carrying value exceeds its fair
value with the loss recognized not to exceed the total amount of goodwill allocated to the reporting unit.
Product Warranty
The Company generally warrants its products for one year from the date of shipment against defects in materials, workmanship and material non-conformance to
the Company’s specifications. The general warranty policy provides for the repair or replacement of defective products or a credit to the customer’s account. In
addition, the Company may consider its relationship with the customer when reviewing product claims. In limited circumstances and for strategic customers in
certain unique industries and applications, the Company's product warranty may extend for up to five years, and may also include financial responsibility, such as
the payment of monetary compensation to reimburse a customer for its financial losses above and beyond repairing or replacing the product or crediting the
customer’s account should the product not meet the Company’s specifications and losses and/or damages result from the defective product.
Accruals are based on specifically identified claims and on the estimated, undiscounted cost of incurred-but-not-reported claims. If there is a material increase in
the rate of customer claims compared with the Company's historical experience or if the Company's estimates of probable losses relating to specifically identified
warranty exposures require revision, the Company may record a charge against future cost of sales. The short-term and long-term portions of the product warranty
liability are included within the balance sheet captions Accrued expenses and Other liabilities, respectively, in the accompanying Consolidated Balance Sheets.
Retirement Benefits
The Company provides medical benefits to certain former and current employees pursuant to certain retirement agreements. The Company also provides retirement
benefits to Philippines employees and to certain other employees in other countries. These benefits to individuals are accounted for pursuant to a documented plan
under ASC No. 715, Compensation-Retirement Benefits (“ASC 715”) . Unrecognized actuarial gains and losses and prior service cost are amortized on a straight-
line basis over the remaining estimated service period of participants. The measurement date for the plan is fiscal year end.
46
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company accounts for income taxes using an asset and liability approach as prescribed in ASC No. 740-10, Income Taxes (“ASC 740-10”). The Company
records the amount of taxes payable or refundable for the current and prior years and deferred tax assets and liabilities for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns. A valuation allowance is recorded to reduce deferred tax assets when it is more
likely than not that a tax benefit will not be realized.
ASC 740-10 prescribes a recognition threshold and measurement framework for the financial statement reporting and disclosure of an income tax position taken or
expected to be taken on a tax return. Under ASC 740-10, a tax position is recognized in the financial statements when it is more likely than not, based on the
technical merits, that the position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets
the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50% likelihood of being realized upon settlement.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes in the Consolidated
Statements of Income.
The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws across multiple tax
jurisdictions. Although ASC 740-10 provides clarification on the accounting for uncertainty in income taxes recognized in the financial statements, the recognition
threshold and measurement framework will continue to require significant judgment by management. Resolution of these uncertainties in a manner inconsistent
with the Company's expectations could have a material impact on the Company's results of operations.
Revenue Recognition
The Company recognizes revenue for sales to direct customers and sales to distributors upon shipment, provided that persuasive evidence of a sales arrangement
exists, the price is fixed or determinable, title and risk of loss has transferred, collectability of the resulting receivable is reasonably assured, there are no customer
acceptance requirements and the Company does not have any significant post-shipment obligations. Estimated returns for sales to direct customers and distributors
are based on historical returns rates applied against current period gross revenues. Specific customer returns and allowances are considered within this estimate.
Accounts receivable from direct customers and distributors are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon
shipment, at which point the Company has a legally enforceable right to collection under normal terms. Accounts receivable related to consigned inventory is
recognized when the customer takes title to such inventory from its consigned location, at which point inventory is relieved, title transfers, and the Company has a
legally enforceable right to collection under the terms of the Company's agreement with the related customers.
The Company estimates potential future returns and sales allowances related to current period product revenue. Management analyzes historical returns, changes in
customer demand and acceptance of products when evaluating the adequacy of returns and sales allowances. Estimates made by the Company may differ from
actual returns and sales allowances. These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable.
Historically, such differences have not been material.
An allowance for distributor credits covering price adjustments is estimated based on our historical experience rates and also considering economic conditions and
contractual terms. To date, actual distributor claim activity has been materially consistent with the provisions we have made based on our historical experience
rates.
The Company had historically recognized a portion of revenue through certain distributors at the time the distributor resold the product to its end customer (also
referred to as the sell-through basis of revenue recognition) given the difficulty in estimating the ultimate price of these product shipments and amount of potential
returns. The Company continuously reassesses its ability to reliably estimate the ultimate price of these products and the amount of potential returns and, over the
past several years, has made investments in its systems and updates to processes around its distribution channel to improve the quality of the information for
preparing such estimates. As a result of this continuous reassessment, the Company recognizes all revenue from distributors upon shipment to the distributor (also
referred to as the sell-in basis of revenue recognition) as of second quarter of fiscal year 2018.
47
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Related Party Transactions
A member of the Company's board of directors is also a member of the board of directors of Flextronics International Ltd. During the fiscal years ended June 30,
2018 , June 24, 2017 , and June 25, 2016 , the Company sold approximately $61.6 million , $70.4 million , and $73.8 million , respectively, in products to
Flextronics International Ltd, a contract manufacturer, in the ordinary course of its business.
Research and Development Costs
Research and development costs are expensed as incurred. Such costs consist primarily of expenditures for labor and benefits, masks, prototype wafers and
depreciation.
Shipping Costs
Shipping costs billed to customers are included in net revenues and the related shipping costs are included in cost of goods sold in the Consolidated Statements of
Income.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date, based on the fair value of the awards ultimately expected to vest and is recognized as an expense, on
a straight-line basis, over the requisite service period. ASC No. 718, Compensation-Stock Compensation, allows forfeitures to be either expensed as incurred or
estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures or vesting differ from those estimates. The Company has elected to
estimate forfeitures at the time of grant and update if necessary. Such updates could have a material effect on the Company's operating results.
The Company uses the Monte Carlo simulation model to measure the fair value of its market stock units on the date of grant. The Company also estimates
forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis.
Restructuring
Post-employment benefits accrued for workforce reductions related to restructuring activities in the United States are accounted for under ASC No. 712,
Compensation-Nonretirement Postemployment Benefits . A liability for post-employment benefits is recorded when payment is probable, the amount is reasonably
estimable, and the obligation relates to rights that have vested or accumulated. In accordance with ASC No. 420, Exit or Disposal Cost Obligations , generally
costs associated with restructuring activities initiated outside the United States have been recognized when they are incurred.
The Company continually evaluates the adequacy of the remaining liabilities under its restructuring initiatives. Although the Company believes that these estimates
accurately reflect the costs of its restructuring plans, actual results may differ, thereby requiring the Company to record additional provisions or reverse a portion of
such provisions.
Foreign Currency Translation and Remeasurement
The U.S. dollar is the functional currency for the Company's foreign operations. Using the U.S. dollar as the functional currency, monetary assets and liabilities are
remeasured at the year-end exchange rates. Certain non-monetary assets and liabilities are remeasured using historical rates. Consolidated Statements of Income
are remeasured at the average exchange rates during the year. Foreign exchange gains and losses as recorded in the Consolidated Statements of Income for all
periods presented were not material.
Earnings Per Share
Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporate
the potentially dilutive incremental shares issuable upon the assumed exercise of stock options, the assumed vesting of outstanding restricted stock units and
market stock units, and the assumed issuance of common stock under the stock purchase plan. The number of incremental shares from the assumed issuance of
stock options is calculated by applying the treasury stock method.
Litigation and Contingencies
48
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From time to time, the Company receives notices that its products or manufacturing processes may be infringing the patent or other intellectual property rights of
others, notices of stockholder litigation or other lawsuits or claims against the Company. The Company periodically assesses each matter in order to determine if a
contingent liability in accordance with ASC No. 450, Contingencies ("ASC 450") should be recorded. In making this determination, management may, depending
on the nature of the matter, consult with internal and external legal counsel and technical experts. The Company expenses legal fees associated with consultations
and defense of lawsuits as incurred. Based on the information obtained, combined with management's judgment regarding all of the facts and circumstances of
each matter, the Company determines whether a contingent loss is probable and whether the amount of such loss can be estimated. Should a loss be probable and
estimable, the Company records a contingent loss in accordance with ASC No. 450. In determining the amount of a contingent loss, the Company takes into
consideration advice received from experts in the specific matter, current status of legal proceedings, settlement negotiations which may be ongoing, prior case
history and other factors. Should the judgments and estimates made by management be incorrect, the Company may need to record additional contingent losses
that could materially adversely impact its results of operations. Alternatively, if the judgments and estimates made by management are incorrect and a particular
contingent loss does not occur, the contingent loss recorded would be reversed thereby favorably impacting the Company's results of operations.
Pursuant to the Company's charter documents and separate written indemnification agreements, the Company has certain indemnification obligations to its current
officers and directors, as well as certain former officers and directors. The indemnification agreements provide, among other things, that the Company will
indemnify each of its directors and officers, under the circumstances and to the extent provided therein, for expenses, damages, judgments, fines, and settlements
each may be required to pay in actions or proceedings to which he or she may be made a party by reason of his or her position or positions as a director, officer or
other agent of the Company, and otherwise to the fullest extent permitted under Delaware law and the Company’s bylaws.
Concentration of Credit Risk
Due to the Company's credit evaluation and collection process, bad debt expenses have not been significant. Credit risk with respect to trade receivables is limited
because a large number of geographically diverse customers make up the Company's customer base, thus spreading the credit risk. The Company derived
approximately 47% of its fiscal year 2018 revenue from sales made through distributors which includes distribution sales to Samsung and catalog distributors. The
Company's primary distributor is Avnet Electronics (“Avnet”). Avnet, like the Company's other distributors, is not an end customer, but rather serves as a channel
of sale to many end users of the Company's products. Avnet accounted for 25% , 22% and 19% of revenues in fiscal years 2018 , 2017 and 2016 , respectively, and
22% and 22% of accounts receivable as of June 30, 2018 and June 24, 2017 , respectively. Sales to Samsung, the Company's largest single end customer (through
direct sales and distributors), accounted for approximately 10% , 10% and 14% of net revenues in fiscal years 2018 , 2017 and 2016 , respectively, and 12% and
11% of accounts receivable as of June 30, 2018 and June 24, 2017 , respectively. No other customer accounted for 10% or more of the Company's revenues in the
fiscal years 2018 , 2017 , and 2016 . No other customer accounted for 10% or more of the Company's accounts receivable as of June 30, 2018 and June 24, 2017 .
The Company maintains cash, cash equivalents, and short-term investments with various high credit quality financial institutions, limits the amount of credit
exposure to any one financial institution or instrument, and is exposed to credit risk in the event of default by these institutions to the extent of amounts recorded at
the balance sheet date. To date, the Company has not incurred losses related to these investments.
Recently Issued Accounting Pronouncements
(i) New Accounting Updates Recently Adopted
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) , which is intended to improve accounting for hedging activities by
expanding and refining hedge accounting for both nonfinancial and financial risk components and aligning the recognition and presentation of the effects of the
hedging instrument and the hedged item in the financial statements. The Company early-adopted ASU 2017-12 in the first quarter of fiscal year 2018. There was
no material change to the Company's consolidated financial statements as a result of this adoption. This adoption was on a prospective basis and therefore had no
impact on prior periods.
(ii) Recent Accounting Updates Not Yet Effective
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Non-employee Share-Based Payment
Accounting . This ASU largely aligns the accounting for share-based payment awards to employees and non-employees. Under the new guidance, both sets of
awards, for employees and non-employees, will essentially follow the same
49
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
model, with small discrepancies related to the term assumption when valuing non-employee awards. The new standard is effective beginning in the first quarter of
fiscal year 2019. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) . This standard provides guidance about the
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU 2018-
02 is effective for the Company in the first quarter of fiscal year 2019, with early adoption permitted, including adoption in any interim period for which financial
statements have not yet been issued. The Company does not believe the implementation of this standard will result in a material impact to its consolidated financial
statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting . The amendments in this
standard provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in
Topic 718. The amendments in this standard are effective beginning in the first quarter of fiscal year 2019, with early adoption permitted, including adoption in any
interim period for which financial statements have not yet been issued. The Company does not believe the implementation of this standard will result in a material
impact to its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and
Net Periodic Postretirement Benefit Cost , which requires employers that offer or maintain defined benefit plans to disaggregate the service component from the
other components of net benefit cost and provides guidance on presentation of the service component and the other components of net benefit cost in the statement
of operations. The new standard is effective beginning in the first quarter of fiscal year 2019. The Company is currently evaluating the potential impact of this
standard on its consolidated financial statements.
In February 2017, the FASB issued ASU 2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962);
Health and Welfare Benefit Plans (Topic 965) - Employee Benefit Plan Master Trust Reporting . This update provides guidance for reporting by an employee
benefit plan for its interest in a master trust. The guidance is effective beginning in the first quarter of fiscal year 2020 on a retrospective basis, with early
application permitted. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory . ASU 2016-16 requires that
entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs instead of when the asset is
sold. ASU No. 2016-16 is effective beginning in the first quarter of fiscal year 2019, with early adoption permitted. The Company does not believe the
implementation of this standard will result in a material impact to its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which supersedes the lease accounting requirements in Topic 840. ASU 2016-02 requires a
dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases
will result in the lessee recognizing a right-of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and
amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The guidance also requires qualitative
and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an
entity’s leasing activities, including significant judgments and changes in judgments. This guidance is effective beginning in the first quarter of fiscal year 2020 on
a modified retrospective approach. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and
Financial Liabilities , with further classifications made recently with the issuance of ASU 2018-03 and ASU 2018-04, which provides guidance for the recognition,
measurement, presentation, and disclosure of financial assets and liabilities. This ASU will be effective for the Company beginning in the first quarter of fiscal year
2019. The application of this ASU will be by means of a cumulative-effect adjustment to the balance sheet. The amendments related to equity securities without
readily determinable fair values (including disclosure requirements) will be applied prospectively to equity investments that exist as of the date of adoption. The
Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
50
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . This standard provides a single set of guidelines for revenue
recognition to be used across all industries and requires additional disclosures. ASU 2014-09 is effective for the Company in the first quarter of fiscal year 2019
using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU
2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain
additional disclosures as defined per ASU 2014-09. The Company has selected the modified retrospective transition method. The Company's assessment of the
impact of this standard is substantially complete and the Company currently expects no material impact to the timing of revenue recognition upon adoption. There
will be a material reclass of reserves from the allowance for accounts receivable to current liabilities as well as additional disclosure under this guidance, including
more information regarding estimates, judgments, and practical expedients used.
NOTE 3: BALANCE SHEET COMPONENTS
Inventories consist of:
Inventories:
Raw materials
Work-in-process
Finished goods
Property, plant and equipment, net, consist of:
Property, plant and equipment:
Land
Buildings and building improvements
Machinery, equipment and software
Less: accumulated depreciation and amortization
June 30,
2018
June 24,
2017
(in thousands)
16,251 $
173,859
92,280
282,390 $
11,779
151,614
83,849
247,242
$
$
June 30,
2018
June 24,
2017
(in thousands)
$
17,731 $
254,733
1,309,487
1,581,951
(1,002,587)
$
579,364 $
18,952
254,513
1,286,031
1,559,496
(952,915)
606,581
The Company recorded $94.4 million , $108.5 million and $177.2 million of depreciation expense in fiscal years 2018 , 2017 and 2016 , respectively. There was no
accelerated depreciation expense included in depreciation expense in fiscal year 2018 , $4.2 million and $54.6 million of accelerated depreciation expense in fiscal
years 2017 and 2016 , respectively, resulting from the change in estimated useful lives of certain long-lived assets included in restructuring plans.
Accrued salary and related expenses consist of:
51
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2018
June 24,
2017
(in thousands)
92,288 $
30,695
8,210
4,752
15,737
151,682 $
85,600
29,621
14,528
4,317
11,233
145,299
$
$
Accrued salary and related expenses:
Accrued bonus
Accrued vacation
Accrued salaries
Accrued fringe benefits
Other
NOTE 4: 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.
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 contingent consideration liabilities as of June 30, 2018 related to an acquisition. The Company did not hold
any Level 3 assets or liabilities as of June 24, 2017 .
Assets and liabilities measured at fair value on a recurring basis were as follows:
52
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2018
As of June 24, 2017
Fair Value
Measurements Using
Level 1
Level 2
Level 3
Fair Value
Measurements Using
Level 1
Level 2
Level 3
Total
Balance
Total
Balance
(in thousands)
$
— $
13,946 $
— $
13,946 $
— $
— $
— $
—
—
—
98,467
6,000
45,063
3,819
—
—
30,988
52,428
64,354
367,765
598,368
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,000
45,063
3,819
—
—
—
98,467
952,462
30,988
—
52,428
64,354
367,765
598,368
—
—
—
—
—
—
—
—
—
—
—
—
498,718
—
—
—
—
—
—
—
—
—
—
—
—
—
952,462
—
—
—
—
498,718
$
98,467 $
1,182,966 $
— $ 1,281,433 $ 952,462 $ 499,566 $
— $ 1,452,028
235
—
235
—
848
—
848
Assets
Cash and cash equivalents
Agency securities
Certificates of deposit
Commercial paper
Corporate debt securities
Money market funds
U.S. Treasury securities
Short term investments
Certificates of deposit
Commercial paper
Corporate debt securities
U.S. Treasury securities
Other current assets
Foreign currency forward contracts
Total Assets
Liabilities
Accrued expenses
Foreign currency forward contracts
Contingent consideration
Other liabilities
Contingent consideration
Total Liabilities
$
$
— $
—
—
— $
1,845 $
— $
1,845 $
—
8,000
8,000
—
8,000
8,000
1,845 $ 16,000 $
17,845 $
— $
—
—
— $
386 $
—
—
386 $
— $
—
—
— $
386
—
—
386
During the fiscal years ended June 30, 2018 and June 24, 2017 , 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 June 30, 2018 and June 24, 2017 other than impairments of Long-Lived
assets. For details, please refer to Note 10: “Impairment of long-lived assets”.
NOTE 5: FINANCIAL INSTRUMENTS
Short-term investments
Fair values were as follows:
53
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
June 24, 2017
Amortized Cost
Gross Unrealized
Gain
Gross
Unrealized
Loss
Estimated Fair
Value
Amortized
Cost
Gross Unrealized
Gain
(in thousands)
Gross
Unrealized
Loss
Estimated Fair
Value
Available-for-sale investments
Certificates of deposit
$
52,429 $
— $
(1) $
52,428 $
— $
— $
— $
64,354
369,734
600,068
—
39
10
—
(2,008)
(1,710)
64,354
367,765
—
—
598,368
499,952
—
—
—
—
—
—
—
—
(1,234)
498,718
Commercial paper
Corporate debt securities
U.S. Treasury securities
Total available-for-sale
investments
$
1,086,585 $
49 $
(3,719) $
1,082,915 $ 499,952 $
— $
(1,234) $
498,718
In the fiscal years ended June 30, 2018 and June 24, 2017 , the Company did not recognize any impairment charges on short-term investments. The U.S. Treasury
securities have maturity dates between July 15, 2018 and June 15, 2019.
Derivative instruments and hedging activities
In the first quarter of fiscal year 2018, the Company early-adopted ASU 2017-12, which is intended to improve accounting for hedging activities by expanding and
refining hedge accounting for both nonfinancial and financial risk components and aligning the recognition and presentation of the effects of the hedging
instrument and the hedged item in the financial statements. There was no material change to the Company's consolidated financial statements as a result of this
adoption. This adoption was on a prospective basis and therefore had no impact on prior periods.
The Company incurs expenditures denominated in non-U.S. currencies, primarily the Philippine Peso and the Thai Baht associated with the Company's
manufacturing activities in the Philippines and Thailand, respectively, and European Euro, Indian Rupee, Taiwan New Dollar, South Korean Won, Chinese Yuan,
Japanese Yen, Singapore Dollar, and Canadian Dollar expenditures for sales offices and research and development activities undertaken outside of the U.S.
The Company has established a program that exclusively 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 ASC No. 815, Derivatives and Hedging (“ASC 815”). As of June 30, 2018
and June 24, 2017 , respectively, the notional amounts of the forward contracts the Company held to purchase international currencies were $49.7 million and
$36.2 million , respectively, and the notional amounts of forward contracts the Company held to sell international currencies were $1.2 million and $0.2 million ,
respectively.
Derivatives not designated as hedging instruments
As of June 30, 2018 and June 24, 2017 , respectively, the notional amounts of the forward contracts the Company held to purchase international currencies were
$21.1 million and $44.5 million , respectively, and the notional amounts of forward contracts the Company held to sell international currencies were $21.3 million
and $21.6 million , respectively. The fair values of outstanding foreign currency forward contracts and gain (loss) included in the Consolidated Statements of
Income were not material for the fiscal years ended June 30, 2018 and June 24, 2017 .
Effect of hedge accounting on the Consolidated Statements of Income
The following table summarizes the gains and (losses) from hedging activities recognized in the Company's Consolidated Statements of Income:
54
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Revenue
June 30, 2018
Cost of Goods
Sold
(in thousands)
Operating
Expenses
Income and expenses line items in which the effects of cash flow hedges are recorded
$
2,480,066 $
853,945 $
792,673
Gain (loss) on cash flow hedges:
Foreign exchange contracts:
Gain (loss) reclassified from accumulated other comprehensive income into income
$
(54) $
(78) $
1,551
Outstanding debt obligations
The following table summarizes the Company's outstanding debt obligations:
3.450% fixed rate notes due June 2027
2.5% fixed rate notes due November 2018
3.375% fixed rate notes due March 2023
Total outstanding debt
Less: Current portion (included in “Current portion of debt”)
Less: Reduction for unamortized discount and debt issuance costs
Total long-term debt
June 30,
2018
June 24,
2017
(in thousands)
$
$
500,000 $
500,000
500,000
1,500,000
(499,406)
(9,447)
991,147 $
500,000
500,000
500,000
1,500,000
—
(12,322)
1,487,678
On June 15, 2017, the Company completed a public offering of $500 million aggregate principal amount of the Company's 3.450% 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.
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.
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, the 2023 Notes and the 2018 Notes, respectively, 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, the 2023 Notes or the 2018 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 Consolidated Statements of Income over the life of the notes. The interest expense is recorded in Interest and other income (expense), net in
the Consolidated Statements of Income. Amortized discount and expenses,
55
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as well as interest expense associated with the notes was $49.5 million , $31.7 million and $29.4 million during the years ended June 30, 2018 , June 24, 2017 , and
June 25, 2016 , respectively.
The estimated fair value of the Company's outstanding debt obligations was approximately $1,470 million as of June 30, 2018 . 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 $50.2 million , $34.3 million , and $32.7 million during the fiscal years ended June 30, 2018 , June 24, 2017 , and
June 25, 2016 , respectively.
Credit facilities
Revolving credit facility
The Company has access to a $350 million senior unsecured revolving credit facility with certain institutional lenders that expires on June 27, 2019 . The facility
fee is at a rate per annum that varies based on the Company's index debt rating and any advances under the credit agreement will accrue interest at a base rate plus
a margin based on the Company's index debt rating. The credit agreement requires the Company to comply with certain covenants, including a requirement that the
Company maintain a ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) of not more than 3 to 1 and a minimum interest
coverage ratio (EBITDA divided by interest expense) greater than 3.5 to 1 . As of June 30, 2018 , the Company had not borrowed any amounts from this credit
facility and was in compliance with all debt covenants.
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 6: STOCK-BASED COMPENSATION
At June 30, 2018 , 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. RSU 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 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. 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, 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; these MSUs vest based upon annual performance subject to continued service through the end of the four-year cliff period. MSUs
granted after August 2017 will continue to vest post-employment at the Company for certain individuals satisfying specific eligibility requirements.
The following tables show total stock-based compensation expense by type of award, and the resulting tax effect, included in the Consolidated Statements of
Income for fiscal years 2018 , 2017 and 2016 :
56
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended
June 30, 2018
Stock Options
Restricted Stock
Units and Other
Awards
Employee Stock Purchase
Plan
Total
212 $
518
700
1,430 $
(in thousands)
8,131 $
32,088
28,162
68,381 $
2,098 $
4,442
2,334
8,874 $
$
10,441
37,048
31,196
78,685
9,342
69,343
For the Year Ended
June 24, 2017
Stock Options
Restricted Stock
Units and Other
Awards
Employee Stock Purchase
Plan
Total
536 $
1,654
1,424
3,614 $
(in thousands)
6,630 $
29,504
22,713
58,847 $
1,928 $
4,514
2,214
8,656 $
$
9,094
35,672
26,351
71,117
12,934
58,183
For the Year Ended
June 25, 2016
Stock Options
Restricted Stock
Units and Other
Awards
Employee Stock Purchase
Plan
Total
837 $
3,469
3,043
7,349 $
(in thousands)
5,697 $
27,784
19,127
52,608 $
2,340 $
5,133
2,271
9,744 $
$
8,874
36,386
24,441
69,701
11,314
58,387
$
$
$
$
$
$
Cost of goods sold
Research and development
Selling, general and administrative
Pre-tax stock-based compensation expense
Less: income tax effect
Net stock-based compensation expense
Cost of goods sold
Research and development
Selling, general and administrative
Pre-tax stock-based compensation expense
Less: income tax effect
Net stock-based compensation expense
Cost of goods sold
Research and development
Selling, general and administrative
Pre-tax stock-based compensation expense
Less: income tax effect
Net stock-based compensation expense
The expenses included in the Consolidated Statements of Income related to Restricted Stock Units and Other Awards include expenses related to Market Stock
Units of $7.8 million , $3.6 million and $2.8 million for fiscal years 2018 , 2017 and 2016 , 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.
57
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company did not grant any stock options in fiscal years 2018 , 2017 or 2016 .
The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of June 30, 2018 and their activity during fiscal years
2018 , 2017 and 2016 :
Options
Number of Shares
Weighted Average
Exercise Price
Weighted Average
Remaining Contractual
Term (in years)
Aggregate
Intrinsic Value (1)
Balance at June 27, 2015
Options Granted
Options Exercised
Options Cancelled
Balance at June 25, 2016
Options Granted
Options Exercised
Options Cancelled
Balance at June 24, 2017
Options Granted
Options Exercised
Options Cancelled
Balance at June 30, 2018
Exercisable at June 30, 2018
Vested and expected to vest, June 30, 2018
10,173,016
—
(3,242,881)
(995,056)
5,935,079
—
(2,741,659)
(393,413)
2,800,007
—
(1,090,163)
(21,591)
$25.83
—
25.05
32.67
25.11
—
22.98
27.07
26.92
—
25.69
26.47
1,688,253
$27.72
1,686,694
1,688,227
$27.72
$27.72
1.8
1.8
1.8
$
$
$
55,152,145
55,103,599
55,151,345
(1)
Aggregate intrinsic value represents the difference between the exercise price and the closing price per share of the Company's common stock on June 29,
2018, the last business day preceding the fiscal year end, multiplied by the number of options outstanding, exercisable or vested and expected to vest as of
June 30, 2018 .
The following table summarizes information about stock options that were outstanding and exercisable at June 30, 2018 :
Range of Exercise Prices
$12.00 - $20.00
$20.01 - $30.00
$30.01 - $40.00
Number
Outstanding at
June 30, 2018
Outstanding Options
Weighted Average
Remaining
Contractual Term
(in years)
42,232
1,562,697
83,324
1,688,253
2.0
1.8
2.6
Weighted
Average
Exercise
Price
$19.47
$27.66
$32.99
Options Exercisable
Number
Exercisable at
June 30, 2018
42,232
1,561,696
82,766
1,686,694
Weighted
Average
Exercise
Price
$19.47
$27.66
$33.01
The total intrinsic value of options exercised during fiscal years 2018 , 2017 and 2016 were $30.7 million , $55.1 million and $39.8 million , respectively. As of
June 30, 2018 , there was less than $0.1 million of total unrecognized compensation costs related to 0.1 million unvested stock options expected to be recognized
over a weighted average period of approximately 0.1 years.
Restricted Stock Units and Other Awards
58
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of Restricted Stock Units (“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 $44.95 , $37.33 and $29.75 per share for fiscal years 2018 , 2017 and 2016 , respectively.
The following table summarizes outstanding and expected to vest RSUs and other awards as of June 30, 2018 and their activity during fiscal years 2018 , 2017 and
2016 :
Number of
Shares
Weighted Average
Remaining Contractual
Term
(in years)
Aggregate
Intrinsic
Value (1)
Balance at June 27, 2015
Restricted stock units and other awards granted
Restricted stock units and other awards released
Restricted stock units and other awards cancelled
Balance at June 25, 2016
Restricted stock units and other awards granted
Restricted stock units and other awards released
Restricted stock units and other awards cancelled
Balance at June 24, 2017
Restricted stock units and other awards granted
Restricted stock units and other awards released
Restricted stock units and other awards cancelled
Balance at June 30, 2018
Expected to vest at June 30, 2018
7,129,985
2,905,973
(2,049,430)
(1,365,715)
6,620,813
2,237,679
(1,876,050)
(1,040,319)
5,942,123
1,989,959
(1,794,029)
(613,621)
5,524,432
4,669,741
2.6 $
2.6 $
334,768,100
282,005,686
(1) Aggregate intrinsic value for RSUs and other awards represents the closing price per share of the Company's common stock on June 29, 2018, the last business
day preceding the fiscal year end, multiplied by the number of RSUs and other awards outstanding, or expected to vest as of June 30, 2018 .
The Company withheld shares totaling $30.3 million in value as a result of employee withholding taxes based on the value of the RSUs on their vesting date for the
fiscal year ended June 30, 2018 . The total payments for the employees' tax obligations to the taxing authorities are reflected as financing activities within the
Consolidated Statements of Cash Flows.
As of June 30, 2018 , there was $140.5 million of unrecognized compensation cost related to 5.5 million unvested RSUs and other awards, which is expected to be
recognized over a weighted average period of approximately 2.6 years.
59
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Market Stock Units
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, the performance metrics for this program are based on the total shareholder return ("TSR") of the
Company relative to the TSR of the other companies included in the XSD. The fair value of MSUs is estimated using a Monte Carlo simulation model on the date
of grant. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis. Compensation expense is recognized
based on the initial valuation and is not subsequently adjusted as a result of the Company’s performance relative to that of the XSD or the TSR of the companies
included in the XSD, as applicable. Vesting for MSUs is contingent upon both service and market conditions and has a four-year vesting cliff period. MSUs
granted in September 2017 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 $51.03 , $37.29 and $29.64 per share for the per share for fiscal years 2018 , 2017 and 2016 , respectively.
The following table summarizes the number of MSUs outstanding and expected to vest as of June 30, 2018 and their activity during fiscal years 2018 , 2017 and
2016 :
Number of
Shares
Weighted Average
Remaining Contractual
Term
(in years)
Aggregate
Intrinsic
Value (1)
Balance at June 27, 2015
Market stock units granted
Market stock units released
Market stock units cancelled
Balance at June 25, 2016
Market stock units granted
Market stock units released
Market stock units cancelled
Balance at June 24, 2017
Market stock units granted
Market stock units released
Market stock units cancelled
Balance at June 30, 2018
Expected to vest at June 30, 2018
414,840
361,684
—
(102,992)
673,532
308,432
—
(163,936)
818,028
292,336
—
(31,300)
1,079,064
663,497
2.6 $
2.7 $
65,164,675
40,068,559
(1) Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on June 29, 2018, the last business day preceding
the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of June 30, 2018 .
As of June 30, 2018 , there was $21.6 million of unrecognized compensation cost related to 1.1 million unvested MSUs, which is expected to be recognized over a
weighted average period of approximately 2.6 years.
At June 30, 2018 , the Company had 22.1 million shares of its common stock available for issuance to employees and other recipients under the 1996 Plan.
Employee Stock Purchase Plan
Employees are granted rights to acquire common stock under the 2008 ESPP.
60
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company issued 0.9 million shares of its common stock for total consideration of $36.3 million related to the 2008 ESPP during the fiscal year ended June 30,
2018 . As of June 30, 2018 , the Company had 7.2 million shares of its common stock reserved and available for future issuance under the 2008 ESPP.
The fair value of shares granted to employees under the 2008 ESPP in fiscal years 2018 , 2017 and 2016 has been estimated at the date of grant using the Black-
Scholes option valuation model using the following assumptions for the offering periods outstanding:
Expected holding period (in years)
Risk-free interest rate
Expected stock price volatility
Dividend yield
June 30,
2018
0.5
0.8% - 2.1%
19.1% - 32.7%
2.8% - 3.4%
ESPP For the Year Ended
June 24,
2017
0.5
0.5% - 1.1%
19.1% - 30.4%
3.0% - 3.6%
June 25,
2016
0.5
0.1% - 0.5%
21.8% - 33.1%
3.3% - 3.6%
As of June 30, 2018 , there was $5.8 million of unrecognized compensation expense related to the 2008 ESPP.
NOTE 7: EARNINGS PER SHARE
Basic earnings (loss) per share are computed using the weighted average number of shares of common stock outstanding during the period. For purposes of
computing basic earnings (loss) per share, the weighted average number of outstanding shares of common stock excludes unvested RSUs and other awards as well
as MSUs. Diluted earnings (loss) 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 (loss) per share:
For the Year Ended
June 30,
2018
June 24,
2017
June 25,
2016
(in thousands, except per share data)
Numerator for basic earnings (loss) per share and diluted earnings (loss) per share
Net income (loss)
$
467,318 $
571,613 $
227,475
Denominator for basic earnings (loss) per share
Effect of dilutive securities:
Stock options, ESPP, RSUs and MSUs
Denominator for diluted earnings (loss) per share
Earnings (loss) per share:
Basic
Diluted
280,979
283,147
285,081
4,695
285,674
4,827
287,974
4,398
289,479
$
$
1.66 $
1.64 $
2.02 $
1.98 $
0.80
0.79
For the fiscal years ended June 30, 2018 and June 24, 2017 , no stock options were excluded from the calculation of diluted earnings per share. Approximately 0.5
million stock options were excluded from the calculation of diluted earnings per share for the fiscal year ended June 25, 2016 . These options were excluded
because they were determined to be antidilutive.
NOTE 8: GOODWILL AND INTANGIBLE ASSETS
Goodwill
61
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Fiscal Year 2018
In fiscal year 2018 , the Company elected to perform a qualitative analysis to assess impairment of goodwill rather than to perform the quantitative goodwill
impairment test. The key qualitative factors considered in the assessment included the change in the industry and competitive environment, market capitalization,
and overall financial performance. Based on the results of this qualitative analysis, the Company determined that it was more likely than not that the fair value of
each reporting unit exceeded its carrying value, and therefore, the Company concluded that goodwill was not impaired in fiscal year 2018 .
Fiscal Year 2017
In fiscal year 2017 , the Company performed a qualitative analysis to assess impairment of goodwill during the fourth quarter and concluded that goodwill was not
impaired, as the fair value of each reporting unit exceeded its carrying value. No indicators or instances of impairment were identified during fiscal year 2017 .
Activity and goodwill balances for the fiscal years ended June 30, 2018 and June 24, 2017 were as follows:
Balance at June 25, 2016
Adjustments
Balance at June 24, 2017
Acquisitions
Adjustments
Balance at June 30, 2018
Goodwill
(in thousands)
490,648
367
491,015
41,889
(653)
532,251
$
$
During the fiscal year ended June 30, 2018 , the Company recorded $41.9 million of goodwill in connection with acquisitions. Please refer to Note 9:
"Acquisitions".
Intangible Assets
The useful lives of amortizing intangible assets are as follows:
Asset
Intellectual property
Customer relationships
Trade name
Patents
Intangible assets consisted of the following:
62
Life
1-10 years
3-10 years
1-4 years
5 years
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intellectual property
Customer relationships
Trade name
Patent
Total amortizable purchased intangible
assets
IPR&D
Original
Cost
June 30, 2018
Accumulated
Amortization
Net
Original
Cost
(in thousands)
June 24, 2017
Accumulated
Amortization
$
485,465 $
423,869 $
61,596 $
451,885 $
377,806 $
116,294
9,340
2,500
613,599
2,790
103,217
13,077
115,634
8,588
2,469
752
31
8,500
2,500
538,143
—
75,456
2,790
578,519
—
99,812
8,086
1,948
487,652
—
Net
74,079
15,822
414
552
90,867
—
Total purchased intangible assets
$
616,389 $
538,143 $
78,246 $
578,519 $
487,652 $
90,867
During the fiscal year ended June 30, 2018 , $5.8 million of IPR&D, that was acquired during the fiscal year, was completed and reclassified to amortizable
Intellectual Property. During the fiscal year ended June 24, 2017 , $31.6 million of IPR&D was completed and reclassified to amortizable Intellectual Property.
During the fiscal year ended June 25, 2016 , $20.3 million of purchased intangible assets, net, was included in the sale of the energy metering business line.
The following table presents the amortization expense of intangible assets and its presentation in the Consolidated Statements of Income:
June 30,
2018
For the Year Ended
June 24,
2017
(in thousands)
June 25,
2016
Cost of goods sold
Intangible asset amortization
Total intangible asset amortization expenses
$
$
46,063 $
4,467
50,530 $
46,484 $
9,189
55,673 $
The following table represents the estimated future amortization expense of intangible assets as of June 30, 2018 :
Fiscal Year
2019
2020
2021
2022
2023
Thereafter
Total intangible assets
NOTE 9: ACQUISITIONS
Amount
(in thousands)
$
$
55,031
12,205
67,236
24,180
14,523
12,823
7,144
6,660
10,126
75,456
On January 26, 2018, the Company acquired a privately-held corporation specializing in the development of high performance USB and video extension
technology. Total cash consideration paid in connection with this acquisition was $57.8 million , net of cash acquired. The Company also agreed to pay up to an
additional $16.0 million if the acquired business achieves certain financial milestones for the annual periods ending August 31, 2018 and August 31, 2019. The
acquired assets included $26.0 million of developed technology and $10.5 million of other intangible assets. The Company also recorded $41.9 million of goodwill
in connection with this acquisition. The goodwill is not deductible for tax purposes.
63
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no acquisitions completed during fiscal years 2016 and 2017.
NOTE 10: IMPAIRMENT OF LONG-LIVED ASSETS
Fiscal year 2018:
During the fiscal year ended June 30, 2018 , the Company recorded $0.9 million in impairment of long-lived assets in the Company's Consolidated Statements of
Income. The impairment was primarily associated with certain investments in privately held companies. The Company uses various inputs to evaluate investments
in privately held companies including valuations of recent financing events as well as other information regarding the issuer’s historical and forecasted
performance. The Company reached its conclusion regarding the asset impairment due to changes, during the fiscal year 2018, in the financial condition of certain
investments in privately held companies which indicated an other than temporary impairment.
Fiscal year 2017:
During the fiscal year ended June 24, 2017 , the Company recorded $7.5 million in impairment of long-lived assets in the Company's Consolidated Statements of
Income. The impairment was primarily associated with certain investments in privately held companies. The Company uses various inputs to evaluate investments
in privately held companies including valuations of recent financing events as well as other information regarding the issuer’s historical and forecasted
performance. The Company reached its conclusion regarding the asset impairment due to changes, during the fiscal year 2017, in the financial condition of certain
investments in privately held companies which indicated an other than temporary impairment.
Fiscal year 2016:
During the fiscal year ended June 25, 2016 , the Company recorded $160.6 million in impairment of long-lived assets in the Company's Consolidated Statements of
Income. The impairment was primarily associated with a $157.7 million impairment of long-lived assets associated with the Company's wafer manufacturing
facility in San Antonio, Texas which was classified as held for sale and written down to fair value, less cost to sell. The Company completed the sale of this facility
to TowerJazz during the third quarter of fiscal year 2016.
NOTE 11: 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, are manufactured using centralized manufacturing (internal and external) and sold through a centralized sales force
and shared wholesale distributors.
The Company currently has one operating segment. In accordance with ASC No. 280, Segment Reporting (“ASC 280”), the Company considers operating
segments to be components of the Company’s business for which separate financial information is available that is evaluated regularly by the Company’s Chief
Operating Decision Maker in deciding how to allocate resources and in assessing performance. The Chief Operating Decision Maker for the Company was
assessed and determined to be the CEO. The CEO reviews financial information presented on a consolidated basis for purposes of allocating resources and
evaluating financial performance. Accordingly, the Company has determined that it has a single operating and reportable segment.
Enterprise-wide information is provided in accordance with ASC 280. Geographical revenue information is based on customers’ ship-to location. Long-lived assets
consist of property, plant and equipment. Property, plant and equipment information is based on the physical location of the assets at the end of each fiscal year.
Net revenues from unaffiliated customers by geographic region were as follows:
64
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
United States
China
Rest of Asia
Europe
Rest of World
Net property, plant, and equipment by geographic region were as follows:
United States
Philippines
Rest of World
NOTE 12: COMMITMENTS AND CONTINGENCIES
Legal Proceedings
June 30,
2018
For the Year Ended
June 24,
2017
(in thousands)
June 25,
2016
$
306,453 $
286,732 $
885,319
786,814
440,658
60,822
843,371
718,540
390,488
56,484
246,969
837,345
676,116
377,938
56,351
$
2,480,066 $
2,295,615 $
2,194,719
Fiscal Year Ended
June 30,
2018
June 24,
2017
(in thousands)
$
$
361,432
$
120,657
97,275
579,364
$
374,775
128,241
103,565
606,581
The Company is party or subject to various other 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.
Commitments
The Company leases certain of its facilities under various operating leases that expire at various dates through June 2030 . The lease agreements generally include
renewal provisions and require the Company to pay property taxes, insurance, and maintenance costs.
Future annual minimum payments for all commitments are as follows:
Total
Fiscal year
2019
Fiscal year
2020
Payment due by period
Fiscal year
2021
(in thousands)
Fiscal year
2022
Fiscal year
2023
Thereafter
Operating lease
obligations (1)
Inventory related purchase
obligations (2)
Total
$
$
55,780 $
10,090 $
7,506 $
6,872 $
6,491 $
5,610 $
19,211
500,058
78,797
72,659
56,722
42,746
42,625
555,838 $
88,887 $
80,165 $
63,594 $
49,237 $
48,235 $
206,509
225,720
65
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The Company leases some facilities under non-cancelable operating lease agreements that expire at various dates through 2030 .
(2) The Company orders some materials and supplies in advance or with minimum purchase quantities. The Company is obligated to pay for the materials and
supplies when received. Additionally, in 2016 the Company entered into a long-term supply agreement with the semiconductor foundry TowerJazz to supply
finished wafers on existing Maxim processes and products which contains minimum purchase requirements.
Purchase orders for the purchase of the majority of the Company's raw materials and other goods and services are not included in the table. The Company's
purchase orders generally allow for cancellation without significant penalties. The Company does not have significant agreements for the purchase of raw materials
or other goods specifying minimum quantities or set prices that exceed its expected short-term requirements.
Rental expense amounted to approximately $10.2 million , $12.0 million , and $10.0 million in fiscal years 2018 , 2017 and 2016 , respectively.
Indemnification
The Company indemnifies certain customers, distributors, suppliers and subcontractors for attorney fees and 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: COMPREHENSIVE INCOME
The changes in accumulated other comprehensive loss by component and related tax effects in the fiscal years ended June 30, 2018 and June 24, 2017 were as
follows:
66
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unrealized gain
(loss) on
intercompany
receivables
Unrealized gain
(loss) on post-
retirement benefits
Cumulative
translation
adjustment
Unrealized gain
(loss) on cash flow
hedges
Unrealized gain
(loss) on available-
for-sale securities
Total
(in thousands)
June 25, 2016
$
(6,280)
$
(6,800) $
(1,136) $
(492) $
489 $
(14,219)
—
7,563
—
(1,412)
2,728
8,879
June 24, 2017
$
(6,280)
$
967
(2,988)
5,542
(1,258) $
—
—
—
(1,136) $
2,059
(137)
510
18 $
(4,451)
—
(1,723)
(1,234) $
(1,425)
(3,125)
4,329
(9,890)
—
(1,510)
—
(273)
(2,620)
(4,403)
Other comprehensive
income (loss) before
reclassifications
Amounts reclassified out of
accumulated other
comprehensive income
(loss)
Tax effects
Other comprehensive
income (loss)
Other comprehensive
income (loss) before
reclassifications
Amounts reclassified out of
accumulated other
comprehensive income
(loss)
Tax effects
Other comprehensive
income (loss)
—
—
—
—
—
—
137
115
(1,258)
(2,516) $
—
—
—
(1,136) $
(1,419)
291
(1,401)
(1,383) $
—
184
(1,282)
590
(2,436)
(5,095)
(3,670) $
(14,985)
June 30, 2018
$
(6,280)
$
Amounts reclassified out of Unrealized loss on post-retirement benefits were included in Selling, general and administrative in the Consolidated Statements of
Income. Amounts reclassified out of Unrealized loss on cash flow hedges were included in Net revenues, Cost of goods sold and Other operating expenses
(income), net in the Consolidated Statements of Income.
NOTE 14: COMMON STOCK REPURCHASES
On July 20, 2017, the board of directors of the Company authorized the repurchase of up to $1.0 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 generation from
operations, cash requirements, and other factors. The Company's prior repurchase authorization has been cancelled and superseded by this new repurchase
authorization.
During fiscal years 2018 , 2017 and 2016 , the Company repurchased approximately 7.5 million , 6.1 million and 6.8 million shares of its common stock for $408.0
million , $251.8 million and $237.1 million , respectively. As of June 30, 2018 , the Company had a remaining authorization of $618.4 million for future share
repurchases.
NOTE 15: INTEREST AND OTHER INCOME (EXPENSE)
Interest and other income (expense) was as follows:
67
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2018
For the Year Ended
June 24,
2017
(in thousands)
June 25,
2016
$
$
(50,215) $
38,292
3,360
(8,563) $
(34,274) $
11,568
7,518
(15,188) $
(32,676)
2,919
962
(28,795)
Interest and other income (expense):
Interest (expense)
Interest income
Other income (expense), net
Total
As discussed in Note 5, Interest expense consists primarily of interest expense associated with long-term notes. Interest expense associated with the notes was
$49.5 million , $31.7 million and $29.4 million during the years ended June 30, 2018 , June 24, 2017 and June 25, 2016 , respectively. Interest expense associated
with debt discounts and issuance fees was $2.9 million , $2.7 million and $1.9 million during the fiscal years ended June 30, 2018 , June 24, 2017 and June 25,
2016 , respectively. Interest income consists of interest earned on deposits and investments.
NOTE 16: INCOME TAXES
Pretax income (loss) is as follows:
June 30,
2018
For the Year Ended
June 24,
2017
(in thousands)
June 25,
2016
Domestic pre-tax income (loss)
Foreign pre-tax income (loss)
Total
$
$
149,056 $
675,829
824,885 $
154,628 $
524,961
679,589 $
(48,985)
334,039
285,054
The provision for income taxes consisted of the following:
June 30,
2018
For the Year Ended
June 24,
2017
(in thousands)
June 25,
2016
Federal
Current
Deferred
State
Current
Deferred
Foreign
Current
Deferred
$
318,288 $
25,769
107,303 $
(8,171)
117
1,325
11,450
618
(361)
(436)
8,930
711
Total provision for income taxes
$
357,567 $
107,976 $
A reconciliation of the Company's Federal statutory tax rate to the Company's effective tax rate is as follows:
68
98,810
(52,240)
1,808
(2,406)
10,278
1,329
57,579
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Federal statutory rate
State tax, net of federal benefit
General business credits
Effect of foreign operations
Stock-based compensation
Interest accrual for unrecognized tax benefits
Non-deductible goodwill
Provisional Transition Tax
Deferred tax remeasurement
Other
Effective tax rate
For the Year Ended
June 30,
2018
June 24,
2017
June 25,
2016
28.1 %
35.0 %
0.2
(0.8)
(16.7)
0.4
2.1
—
28.7
1.6
(0.3)
43.3 %
(0.2)
(1.3)
(20.2)
0.1
2.1
—
—
—
0.4
15.9 %
35.0 %
(0.6)
(2.8)
(21.7)
4.7
3.2
2.5
—
—
(0.1)
20.2 %
On December 22, 2017 legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted. The primary impact of the Act in fiscal year 2018
are taxation of accumulated unremitted earnings of our foreign subsidiaries ("Transition Tax") and a reduction of our federal statutory tax rate from 35.0% to
28.1% (average of a 35.0% rate for the first half of fiscal year 2018 and a 21.0% rate for the second half of fiscal year 2018). Securities and Exchange Commission
Staff Accounting Bulletin No. 118 allowed the use of provisional amounts (reasonable estimates) if accounting for the income tax effects of the Act have not been
completed. Provisional amounts must be adjusted within one year from the enactment date of the Act. To determine the amount of the Transition Tax, we must
calculate the accumulated unremitted earnings of the Company's foreign subsidiaries and the amount of foreign income tax paid on such earnings. The Company
made a reasonable estimate of the Transition Tax and in the second quarter of fiscal year 2018 recorded a provisional Transition Tax charge of $236.9 million ,
which consists of a $248.0 million Transition Tax liability less $11.1 million of deferred tax liabilities established in prior years for U.S. tax on unremitted foreign
earnings. No adjustment to the provisional Transition Tax charge has been made as of the end of fiscal year 2018 as the Company continues to analyze available
guidance to more precisely compute the Transition Tax. In the second quarter of fiscal year 2018 the Company recorded a $13.7 million charge to remeasure
deferred taxes as of the enactment date of the Act to reflect the federal statutory rate reduction.
The Act contains Global Intangible Low-Taxed Income (“GILTI”) rules, which first impact the Company in fiscal year 2019. Under the GILTI rules certain
income earned by the Company's foreign subsidiaries is subject to current U.S. taxation. The Company is continuing to evaluate this provision of the Act and the
application of ASC 740. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat future U.S. tax generated by the GILTI
rules as a current-period expense when incurred or to factor such amounts into the Company's measurement of its deferred taxes. The Company has not recorded
any amounts related to potential GILTI tax in its financial statements and will make an accounting policy election after it completes its evaluation of the GILTI
rules and the application of ASC 740.
As of June 30, 2018 , the Company's foreign subsidiaries have accumulated undistributed earnings of approximately $513.7 million that are intended to be
indefinitely reinvested outside the U.S. No deferred tax liability has been recognized for the repatriation of these earnings. The Act eliminated any additional
federal tax upon repatriation of accumulated foreign earnings; however, those earnings may still be subject to foreign withholding taxes if they are repatriated. At
June 30, 2018 the unrecognized deferred tax liability on indefinitely reinvested earnings was $25.5 million , which is primarily foreign withholding tax.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The components of the Company's deferred tax assets and liabilities are as follows:
69
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended
June 30,
2018
June 24,
2017
(in thousands)
Deferred tax assets:
Distributor related accruals and sales return and allowance accruals
$
3,855 $
Accrued compensation
Stock-based compensation
Net operating loss carryovers
Tax credit carryovers
Other reserves and accruals not currently deductible for tax purposes
Other
Total deferred tax assets
Deferred tax liabilities:
Fixed assets and intangible assets cost recovery, net
Unremitted earnings of foreign subsidiaries
Other
Total deferred tax liabilities
Net deferred tax assets /(liabilities) before valuation allowance
Valuation allowance
Net deferred tax assets/(liabilities)
8,361
10,071
40,989
90,968
29,903
4,707
10,746
36,630
14,919
45,743
71,231
50,126
5,179
188,854
234,574
(52,704)
(1,532)
(2,553)
(56,789)
132,065
(128,128)
$
3,937 $
(66,355)
(13,703)
(3,296)
(83,354)
151,220
(110,411)
40,809
The valuation allowance as of June 30, 2018 and June 24, 2017 primarily relates to certain state and foreign net operating loss carryforwards and certain state tax
credit carryforwards. The valuation allowance increased by $17.7 million in fiscal year 2018 .
As of June 30, 2018 , the Company has $18.7 million of federal net operating loss carryforwards expiring at various dates between fiscal years 2021 and 2033,
$37.9 million of state net operating loss carryforwards expiring at various dates through fiscal year 2033, $133.9 million of foreign net operating loss carryforwards
with no expiration date, $9.0 million of state tax credit carryforwards expiring at various dates through fiscal year 2033, and $106.1 million of state tax credit
carryforwards with no expiration date.
The Company classifies unrecognized tax benefits as (i) a current liability to the extent that payment is anticipated within one year; (ii) a non-current liability to the
extent that payment is not anticipated within one year; or (iii) as a reduction to deferred tax assets to the extent that the unrecognized tax benefit relates to deferred
tax assets such as operating loss or tax credit carryforwards or to the extent that operating loss or tax credit carryforwards would be able to offset the additional tax
liability generated by unrecognized tax benefits.
A reconciliation of the change in gross unrecognized tax benefits, excluding interest, penalties and the federal benefit for state unrecognized tax benefits, is as
follows:
70
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2018
For the Year Ended
June 24,
2017
(in thousands)
June 25,
2016
$
539,569 $
482,745 $
427,629
48,646
57,791
53,899
3,806
—
—
(563)
1,059
(1,410)
—
(616)
3,035
(205)
(943)
(670)
$
591,458 $
539,569 $
482,745
Balance as of beginning of year
Tax positions related to current year:
Addition
Tax positions related to prior year:
Addition
Reduction
Settlements
Lapses in statutes of limitations
Balance as of end of year
The total amount of gross unrecognized tax benefits as of June 30, 2018 that, if recognized, would affect the effective tax rate is $541.4 million . $50.1 million of
unrecognized tax benefits would be offset by an increase in the valuation allowance for deferred tax assets and thus would not affect the effective tax rate.
The Company reports interest and penalties related to unrecognized tax benefits as a component of income tax expense. The gross amount of interest and penalties
recognized in income tax expense during the fiscal years ended June 30, 2018 , June 24, 2017 , and June 25, 2016 was $27.8 million , $22.4 million and $14.7
million , respectively, and the total amount of interest and penalties accrued as of June 30, 2018 , June 24, 2017 , and June 25, 2016 was $61.9 million , $71.4
million , and $49.0 million , respectively.
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 recognized by the Company, including accrued interest and penalties, could decrease by up to $403.0 million within
the next twelve months due to the completion of federal tax audits, including any administrative appeals. The $403.0 million primarily relates to matters involving
federal taxation of cross-border transactions.
The Company’s federal corporate income tax returns are audited on a recurring basis by the Internal Revenue Service (“IRS”). The IRS concluded its field
examination of the Company’s federal corporate income tax returns for fiscal years 2009 through 2011 and issued an IRS Revenue Agent's Report in July 2016 that
included proposed adjustments for transfer pricing issues related to cost sharing and buy-in license payments for the use of intangible property by one of the
Company’s international subsidiaries. The Company disagreed with the proposed transfer pricing adjustments and related penalties, and in September 2016, the
Company filed a protest to challenge the proposed adjustments and request a conference with the Appeals Office of the IRS. In May 2018, a preliminary
understanding was reached with the IRS regarding the contested issues for the audit and post-audit years, which the Company expects may be finalized in fiscal
year 2019 with the execution of a closing agreement. In June 2018 the Company made advance payments for audit and post-audit year tax of $140.7 million and
interest of $37.4 million . These payments will reduce the accrual of interest on audit and post-audit year tax deficiencies that would be owed if the preliminary
understanding is finalized. The Company’s reserves for unrecognized tax benefits are sufficient to cover the audit and post-audit year tax deficiencies that would be
owed as a result of the preliminary understanding. 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. The Company expects that in fiscal year 2019 the IRS will commence an audit of the Company's federal
corporate income tax returns for fiscal years 2015 through 2017.
A summary of the fiscal tax years that remain subject to examination, as of June 30, 2018 , for the Company's major tax jurisdictions are as follows:
71
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
United States - Federal
United States - Various States
Ireland
Philippines
Singapore
United Kingdom
NOTE 17: RESTRUCTURING ACTIVITIES
Fiscal year 2018
2009
2009
2014
2015
2014
2012
-
-
-
-
-
-
Forward
Forward
Forward
Forward
Forward
Forward
During the fiscal year ended June 30, 2018 , the Company recorded $15.1 million in “Severance and restructuring expenses" in the Consolidated Statements of
Income related to various restructuring plans designed to reduce costs. These charges were primarily associated with continued reorganization of certain business
units and functions, which impacted multiple job classifications and locations, as well as employee enrollments in voluntary separation programs.
Fiscal year 2017
During the fiscal year ended June 24, 2017 , the Company recorded $12.5 million in “Severance and restructuring expenses" in the Consolidated Statements of
Income related to various restructuring plans designed to reduce costs. These charges were primarily associated with continued reorganization of certain business
units and functions and the closure of the Dallas wafer level packaging (“WLP”) manufacturing facilities. Multiple job classifications and locations were impacted
by these activities.
During the fiscal year ended June 24, 2017 , the Company completed the closure of its Dallas, Texas campus, including ceasing operations of its WLP
manufacturing facility. The Company recorded accelerated depreciation charges of $3.5 million in “Cost of goods sold” and $0.8 million in "Operating expenses"
in the Consolidated Statements of Income during the fiscal year ended June 24, 2017 in connection with this closure.
Fiscal year 2016
San Jose Fab Shutdown
In October 2014, the Company initiated a plan to shut down its San Jose wafer fabrication facility. The Company reached the decision that it was not economically
feasible to maintain this facility, which was used primarily for fab process development and low volume manufacturing, as the Company intended to utilize other
resources to complete such activities in the future. This plan included cash charges related to employee severance and non-cash charges related to accelerated
depreciation. This plan has been completed, and the shutdown took place in the second quarter of fiscal year 2016.
During the fiscal year ending June 25, 2016 , the Company recorded accelerated depreciation charges of $41.6 million in “Cost of goods sold” and $0.4 million in
“Severance and restructuring expenses” in the Consolidated Statements of Income. The sale of the San Jose wafer fabrication facility took place during the second
quarter of fiscal year 2016. The cumulative costs recorded in fiscal year 2015 and 2016 to complete this restructuring plan were $100.3 million .
Other Plans
During the fiscal year ending June 25, 2016 , the Company recorded $24.0 million in “Severance and restructuring expenses" in the Consolidated Statements of
Income related to various restructuring plans designed to reduce costs. These charges were associated with continued reorganization of certain business units and
functions and the planned closure of the Dallas wafer level packaging (“WLP”) manufacturing facilities. Multiple job classifications and locations were impacted
by these activities.
As part of the Dallas, Texas campus closure, including its WLP manufacturing facility in fiscal year 2017, the Company recorded accelerated depreciation charges
of $13.0 million in “Cost of goods sold” in the Consolidated Statements of Income during the fiscal year ended June 25, 2016 .
Future expected restructuring costs to be incurred with other plans was $4.7 million as of June 25, 2016 .
72
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructuring Accruals
The Company has accruals for severance and restructuring payments within Accrued salary and related expenses in the accompanying Consolidated Balance
Sheets. The following table summarizes changes in the accruals associated with these restructuring activities during the fiscal years ended June 30, 2018 and
June 24, 2017 :
Balance,
June 25,
2016
Charges
Fiscal 2017
Cash
Payments
Change in
Estimates
Balance,
June 24,
2017
(in thousands)
Charges
Fiscal 2018
Cash
Payments
Change in
Estimates
Balance,
June 30,
2018
Severance - All plans
(1)
Total
$
$
7,578 $
12,671 $
(19,506) $
(217) $
526 $
15,464 $
(12,617) $
(404) $
7,578
$
12,671
$
(19,506)
$
(217) $
526 $
15,464 $
(12,617) $
(404) $
2,969
2,969
(1) Charges and changes in estimates are included in Severance and restructuring expenses in the accompanying Consolidated Statements of Income.
Change in estimate:
Due to the above-mentioned restructuring activities, the Company recorded accelerated depreciation resulting from the change in estimated useful lives of certain
long-lived assets included in restructuring plans. In all periods that accelerated depreciation expense was recorded, this resulted in additional expense and therefore
impacted operating income (loss), net income (loss) and earnings per share as presented in the table below.
Operating income (loss), as reported
Operating income (loss), excluding accelerated depreciation expense
Effect of change in estimate
Net income (loss), as reported
Net income (loss), excluding accelerated depreciation expense
Effect of change in estimate
Basic earnings (loss) per share, as reported
Diluted earnings (loss) per share, as reported
Basic earnings (loss) per share, excluding accelerated depreciation expense
Diluted earnings (loss) per share, excluding accelerated depreciation expense
Effect of change in estimate - basic earnings (loss) per share
Effect of change in estimate - diluted earnings (loss) per share
$
$
$
$
$
$
$
$
$
$
NOTE 18: BENEFITS
Defined contribution plan
For the Years Ended
June 30,
2018
June 24,
2017
June 25,
2016
(in thousands, except per share data)
833,448 $
833,448
— $
467,318 $
467,318
— $
1.66 $
1.64 $
1.66 $
1.64 $
— $
— $
694,777 $
699,003
(4,226) $
571,613 $
575,547
(3,934) $
2.02 $
1.98 $
2.03 $
2.00 $
(0.01) $
(0.02) $
313,849
368,475
(54,626)
227,475
283,129
(55,654)
0.80
0.79
0.99
0.98
(0.19)
(0.19)
U.S. employees are automatically enrolled in the Maxim Integrated 401(k) plan when they meet eligibility requirements, unless they decline participation. Under
the terms of the plan, Maxim Integrated matches 100% of the employee contributions for the
73
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
first 3% of employee eligible compensation and an additional 50% match for the next 2% of employee eligible compensation, up to the IRS Annual Compensation
Limits. Total defined contribution expense was $12.6 million , $12.4 million and $13.0 million in fiscal years 2018 , 2017 and 2016 , respectively.
Non-U.S. Pension Benefits
The Company provides defined-benefit pension plans in certain countries. Consistent with the requirements of local law, the Company deposits funds for certain
plans with insurance companies, with third party trustees, or into government-managed accounts, and/or accrues for the unfunded portion of the obligation.
Maxim Integrated is enrolled in retirement plans for employees in the Philippines and certain other countries. These plans are non-contributory and defined benefit
types that provide retirement to employees equal to one-month salary for every year of credited service. The benefits are paid in a lump sum amount upon
retirement or separation from the Company. Total defined benefit liability was $11.2 million and $10.3 million as of June 30, 2018 and June 24, 2017 ,
respectively. Total accumulated other comprehensive income benefit related to this retirement plan was $1.0 million , $0.6 million and $1.1 million for the fiscal
years 2018 , 2017 , and 2016 , respectively.
U.S. Employees Post-Retirement Medical Expense & Funded Status Reconciliation
The Company provides post-retirement medical expenses to certain former employees of Dallas Semiconductor as a result of the Company's acquisition of Dallas
Semiconductor in 2001 as well as specific Maxim employees. A reconciliation of the funded status of these post-retirement benefits, is as follows:
74
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2018
Estimated Fiscal Year
2019 Expense
June 24,
2017
Fiscal Year 2018
Expense
(in thousands, except percentages)
$
$
$
$
$
Accumulated post-retirement benefit obligation (APBO):
Retirees and beneficiaries
Active participants
Funded status
Actuarial gain (loss)
Prior service cost
Amounts recognized in accumulated other comprehensive
income:
Net actuarial loss
Prior service cost
Total
Net periodic post-retirement benefit cost (income):
Interest cost
Amortization:
Prior service cost
Total net periodic post-retirement benefit cost
Employer contributions
Economic assumptions:
Discount rate
Medical trend
The following benefit payments are expected to be paid:
(18,023)
(1,367)
(19,390)
(1,279)
—
1,054
962
2,016
$
$
$
$
$
$
$
$
741
356
1,097
796
(15,983)
(2,110)
(18,093)
99
—
225
1,318
1,543
$
$
$
3.9%
7.5%-5.0%
3.8%
6.5%-5.0%
674
356
1,030
656
2019
2020
2021
2022
2023
Thereafter
Dallas Semiconductor Split-Dollar Life Insurance
75
Non-Pension Benefits
(in thousands)
796
811
882
938
946
15,017
19,390
$
$
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of the Company's acquisition of Dallas Semiconductor in 2001, the Company assumed responsibility associated with a split-dollar life insurance policy
held by a former Dallas Semiconductor director. The policy is owned by the individual with the Company retaining a limited collateral assignment.
The Company had $5.5 million and $5.3 million included in Other assets in the Consolidated Balance Sheets as of June 30, 2018 and June 24, 2017 , respectively,
associated with the limited collateral assignment to the policy. The Company had a $6.3 million and $6.2 million obligation included in Other Liabilities in the
Consolidated Balance Sheets as of June 30, 2018 and June 24, 2017 , respectively, related to the anticipated continued funding associated with the policy.
NOTE 19: QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal Year 2018
Net revenues (1)
Cost of goods sold
Gross margin
Gross margin %
Operating income (loss)
% of net revenues
Net income (loss) (2)
Earnings (loss) per share:
Basic
Diluted
Shares used in the calculation of earnings (loss) per share:
Basic
Diluted
Dividends declared and paid per share
Quarter Ended
6/30/2018
3/31/2018
12/30/2017
9/23/2017
(in thousands, except percentages and per share data)
633,154
214,486
$
648,599
224,653
$
622,637
212,961
$
418,668
$
423,946
$
409,676
$
575,676
201,845
373,831
66.1%
65.4%
65.8%
64.9%
222,395
$
224,838
$
201,048
$
185,166
35.1%
34.7%
32.3%
32.2%
194,172
$
193,627
$
(75,015)
$
154,533
0.70
0.68
$
$
0.69
0.68
$
$
(0.27)
(0.27)
$
$
0.55
0.54
279,304
283,934
280,850
285,881
281,560
281,560
282,170
286,437
0.42
$
0.42
$
0.36
$
0.36
$
$
$
$
$
$
$
(1) The fiscal quarter ended December 30, 2017 , includes an incremental $22.0 million of revenue from beginning to recognize revenue with a certain distributor
(less its estimate of future price adjustments and returns) upon shipment to the distributor (also referred to as the sell-in basis of revenue recognition).
(2) The fiscal quarter ended December 30, 2017 , includes a discrete provisional charge for the Transition Tax of $236.9 million associated with the Tax Cuts and
Jobs Act (the “Act”) enacted on December 22, 2017.
76
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year 2017
Net revenues (1)
Cost of goods sold
Gross margin
Gross margin %
Operating income (loss)
% of net revenues
Net income (loss) (2)
Earnings (loss) per share:
Basic
Diluted
Shares used in the calculation of earnings (loss) per share:
Basic
Diluted
Dividends declared and paid per share
6/24/2017
3/25/2017
12/24/2016
9/24/2016
Quarter Ended
(in thousands, except percentages and per share data)
602,005
$
581,216
$
550,998
$
208,339
214,312
210,820
393,666
$
366,904
$
340,178
$
561,396
215,664
345,732
65.4%
63.1%
61.7%
61.6%
199,378
$
174,252
$
149,074
$
172,073
33.1%
30.0%
27.1%
30.7%
163,309
$
140,213
$
130,477
$
137,614
0.58
0.57
$
$
0.50
0.49
$
$
0.46
0.45
$
$
0.49
0.48
282,747
287,494
282,903
287,882
283,294
288,106
283,633
288,574
0.33
$
0.33
$
0.33
$
0.33
$
$
$
$
$
$
$
(1) The fiscal quarter ended June 24, 2017 , includes an incremental $19.4 million of revenue from beginning to recognize revenue with a certain distributor (less
its estimate of future price adjustments and returns) upon shipment to the distributor (also referred to as the sell-in basis of revenue recognition).
(2) The fiscal quarter ended September 24, 2016 , includes a gain of $26.6 million associated with the sale of the Company's micro-electromechanical systems
(MEMS) business line.
77
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Maxim Integrated Products, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Maxim Integrated Products, Inc. and its subsidiaries as of June 30, 2018 and June 24, 2017 , and
the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the periods ended June 30, 2018 and June 24, 2017 ,
including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of June 30, 2018 , based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30,
2018 and June 24, 2017 , and the results of their operations and their cash flows for each of years ended June 30, 2018 and June 24, 2017 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of June 30, 2018 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for
its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
78
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are 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.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 17, 2018
We have served as the Company’s auditor since 2016 .
79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Maxim Integrated Products, Inc.
San Jose, California
We have audited the accompanying consolidated statements of income, comprehensive income, stockholders' equity, and cash flows of Maxim Integrated Products,
Inc. and subsidiaries (the "Company") for the year ended June 25, 2016 . Our audits also included the consolidated financial statement schedule for the year ended
June 25, 2016 listed in the Index at Item 15. These consolidated financial statements and the consolidated financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the consolidated financial statements and the consolidated financial statement schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the results of the Company’s operations and their cash flows for the
year ended June 25, 2016 , in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated
financial statement schedule for the year ended June 25, 2016, when considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
San Jose, California
August 12, 2016
80
MAXIM INTEGRATED PRODUCTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at
Beginning of
Period
Additions (Reductions) to
Allowances
Deductions
Balance at
End of
Period
Returns and allowances
Year ended June 30, 2018
Year ended June 24, 2017
Year ended June 25, 2016
$
$
$
46,575 $
31,461 $
17,412 $
81
(in thousands)
659,023 $
143,950 $
79,956 $
(565,483) $
(128,836) $
(65,907) $
140,115
46,575
31,461
Exhibit
Number
Description
Incorporated by
Reference From
Form
Incorporated by
Reference From
Exhibit Number
1.1
3.1
3.2
3.3
4.1
Underwriting Agreement, dated June 8, 2017, between Maxim Integrated Products, Inc.
and Merrill Lynch.
Restated Certificate of Incorporation of the Company.
Amendments to Restated Certificate of Incorporation of the Company.
Amended and Restated Bylaws.
Reference is made to Exhibits 3.1, 3.2, and 3.3.
8-K
10-K
10-K
10-K
10-Q
10-Q
8-K
10-Q
1.1
3.1
3.3
3.3
3.3
3.3
3.1
3.1
Date Filed
6/13/2017
9/26/1995
9/29/1997
9/24/1998
2/08/2000
2/09/2001
11/17/2015
1/27/2017
10.1 (A)
The Company's Forms of Indemnity Agreement.
10-K
10.8
9/8/2005
10.2 (A)
Amended and Restated 1996 Stock Incentive Plan, as amended and restated.
Proxy Statement Appendix B
9/30/2016
10.3 (A)
Assumption Agreement, dated April 11, 2001, relating to Dallas Semiconductor
Corporation Executives Retiree Medical Plan.
10-K
10.26
9/24/2001
10.4 (A)
Dallas Semiconductor Corporation Executives Retiree Medical Plan.
Form of Non-Statutory Option Agreement, as amended and restated, under the
Company's 1996 Stock Incentive Plan, for U.S. Option Optionees.
10-K
10-Q
10.28
10.30
9/24/2001
11/5/2009
Form of Restricted Stock Unit Agreement under the Company's 1996 Stock Incentive
Plan, for U.S. Holders.
10-Q
10.31
11/5/2009
Employment Agreement between the Company and Tunç Doluca dated as of September
30, 1993.
10-K
10.33
9/30/2008
Employment Letter Agreement between the Company and Bruce Kiddoo dated as of
August 6, 2007.
10-Q
10.40
9/30/2008
10.5 (A)
10.6 (A)
10.7 (A)
10.8 (A)
10.9 (A)
Form of Non-Statutory Option Agreement, as amended and restated, under the
Company's 1996 Stock Incentive Plan, for Non-U.S. Option Optionees.
10-Q
10.41
11/6/2008
10.10 (A)
Form of Restricted Stock Unit Agreement under the Company's 1996 Stock Incentive
Plan, for Non-U.S. Holders.
10-Q
10.42
11/6/2008
10.11 (A)
2008 Employee Stock Purchase Plan, as amended.
Proxy Statement Appendix A
9/30/2016
10.12 (A)
Amendment to Dallas Semiconductor Corporation Executives Retiree Medical Plan.
10-K
10.45
8/26/2009
82
Exhibit
Number
Description
10.13 (A)
Change In Control Employee Severance Plan for U.S. Based Employees.
10.14 (A)
Change In Control Employee Severance Plan for Non-U.S. Based Employees.
10.15 (A)
Equity Award Policy Acceleration Of Vesting In The Event of A Change In Control For
Employees Based Outside The U.S.
10.16
Credit Agreement, dated October 13, 2011, and amended on June 27, 2014, by and
among the Company, as borrower, JPMorgan Chase Bank, N.A. as Administrative
Agent, Bank of America, N.A., Wells Fargo Bank, National Association and Morgan
Stanley MUFG Loan Partners, LLC, as Co-Documentation Agents, and the lenders party
thereto (the “Credit Agreement”).
10.17
Underwriting Agreement, dated March 11, 2013, between the Company and J.P. Morgan
Securities LLC.
10.18
Underwriting Agreement, dated June 8, 2017, between the Company and Merrill Lynch.
10.19
10.20
10.21
10.22
Third Supplemental Indenture, dated as of November 21, 2013, between the Company
and Wells Fargo Bank, National Association, as trustee.
Indenture, dated June 10, 2010, between the Company and Wells Fargo Bank, National
Association, as trustee.
Second Supplemental Indenture, dated as of March 18, 2013, between the Company and
Wells Fargo Bank, National Association, as trustee.
Fourth Supplemental Indenture, dated as of June 15, 2017, between the Company and
Wells Fargo Bank, National Association, as trustee.
10.23 (A)
Form of Global Performance Share Agreement.
10.24 (A)
Form of Global Restricted Stock Unit Agreement.
10.25 (A)
Form of Global Employee Stock Purchase Plan Agreement.
10.26
Second Amendment to Credit Agreement, dated July 21, 2015.
10.27
Third Amendment to Credit Agreement, dated June 13, 2016.
Incorporated by
Reference From
Form
Incorporated by
Reference From
Exhibit Number
10-Q
10-Q
10-Q
10.4
10.5
10.6
Date Filed
10/20/2017
10/20/2017
10/20/2017
10-Q
10.52
10/26/2011
8-K
8-K
8-K
S-3
8-K
8-K
10-Q
10-Q
10-Q
10-K
10-K
1.1
1.1
4.1
4.4
4.1
4.1
10.1
10.2
10.3
10.23
10.25
3/14/2013
6/13/2017
11/21/2013
6/10/2010
3/21/2013
6/20/2017
10/20/2017
10/20/2017
10/20/2017
8/18/2015
8/12/2016
10.28 †
Supply Agreement between the Company and TowerJazz Texas, Inc. (formerly known as
TJ Texas, Inc.), a Delaware corporation and indirect wholly-owned subsidiary of Tower
Semiconductor Ltd., an Israeli corporation, executed as of November 18, 2015.
10-Q/A
10.1
5/10/2016
10.29
Credit Agreement by and between Maxim Holding Company Ltd. and The Bank of
Tokyo-Mitsubishi UFJ, Ltd., New York Branch, dated June 23, 2016.
8-K
10.1
6/24/2016
83
Exhibit
Number
10.30
Description
Incorporated by
Reference From
Form
Incorporated by
Reference From
Exhibit Number
Date Filed
Guaranty by Maxim Integrated Products, Inc. in favor of The Bank of Tokyo-Mitsubishi
UFJ, Ltd., New York Branch, dated June 23, 2016.
8-K
10.2
6/24/2016
12.1
Statement of Ratio of Income to Fixed Charges.
Filed herewith
16.1
21.1
23.1
23.2
Letter from Deloitte & Touche LLP to the SEC, dated November 28, 2016.
8-K
16.1
11/28/2016
Subsidiaries of the Company.
Filed herewith
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting
Firm.
Filed herewith
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
Filed herewith
24.1
Power of Attorney (contained in the signature page to this Form 10-K).
Filed herewith
31.1
31.2
32.1
32.2
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Filed herewith
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Filed herewith
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herewith
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herewith
_____________________
(A) Management contract or compensatory plan or arrangement.
† Portions of the exhibit (indicated by bracketed asterisks) have been omitted pursuant to an order granted by the Securities and Exchange Commission for
confidential treatment.
84
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURE
August 17, 2018
MAXIM INTEGRATED PRODUCTS, INC.
By:/s/ Sumeet Gagneja
Sumeet Gagneja
Vice President, Chief Accounting Officer
(Chief Accounting Officer and Duly Authorized Officer)
85
P OWER OF A TTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Tunç Doluca, Bruce E. Kiddoo
and Sumeet Gagneja, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Annual Report
on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be
done in connection therewith and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature
/s/ Tunç Doluca
Tunç Doluca
/s/ Bruce E. Kiddoo
Bruce E. Kiddoo
/s/ Sumeet Gagneja
Sumeet Gagneja
/s/ William P. Sullivan
William P. Sullivan
/s/ Tracy C. Accardi
Tracy C. Accardi
/s/ James R. Bergman
James R. Bergman
/s/ Joseph R. Bronson
Joseph R. Bronson
/s/ Robert E. Grady
Robert E. Grady
/s/ William D. Watkins
William D. Watkins
/s/ MaryAnn Wright
MaryAnn Wright
Title
Date
President, Director and Chief Executive Officer
August 17, 2018
(Principal Executive Officer)
Senior Vice President and Chief Financial Officer
August 17, 2018
(Principal Financial Officer)
Vice President and Chief Accounting Officer
August 17, 2018
(Principal Accounting Officer)
Director and Chairman of the Board
August 17, 2018
Director
Director
Director
Director
Director
Director
86
August 17, 2018
August 17, 2018
August 17, 2018
August 17, 2018
August 17, 2018
August 17, 2018
C ORPORATE D ATA AND S TOCKHOLDER I NFORMATION
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
San Jose, California
Registrar/Transfer Agent
Computershare
Canton, Massachusetts
Corporate Headquarters
160 Rio Robles
San Jose, California 95134
(408) 601-1000
Stock Listing
At August 3, 2018 , there were approximately 643 stockholders of record of the Company's common stock as reported by Computershare. Maxim Integrated
common stock is traded on the Nasdaq Global Select Market under the symbol “MXIM”.
87
ITEM 16. FORM 10-K SUMMARY
None.
88
EXHIBIT 12.1
MAXIM INTEGRATED PRODUCTS, INC.
Statement of Ratio of Income to Fixed Charges
(Dollar amounts in millions)
Income before provision for income taxes
Fixed Charges:
Interest portion of rental expense
Interest expense
Amortized premiums, discounts and capitalized
expenses related to the debt
Total fixed charges
$
$
$
June 30,
2018
June 24,
2017
Years ended
June 25,
2016
June 27,
2015
June 28,
2014
824.9 $
679.6 $
285.1 $
246.2 $
409.2
0.5 $
50.2
2.9
53.6 $
0.6 $
34.3
2.4
37.3 $
0.5 $
32.7
2.4
35.6 $
0.5 $
32.5
2.4
35.4 $
0.5
27
2.0
29.5
Ratio of income to fixed charges
16x
20x
9x
8x
15x
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Name of Subsidiary
Jurisdiction of Incorporation
Maxim Integrated Products UK Limited
United Kingdom
Maxim Integrated Products GmbH
Germany
Maxim Gesellschaft fur elektronische integrierte Baustine GmbH
Germany
Maxim France SARL
Maxim Integrated Products Netherlands B.V.
Maxim Integrated Products GmbH
Maxim Integrated Products (Ireland) Holdings Limited
Maxim Integrated Products International Limited
Maxim Integrated Products International Sales Limited
Maxim Japan Co., Ltd.
Maxim Integrated Products Korea Inc.
Maxim Philippines Operating Corporation
Maxim Philippines Holding Corporation
Maxim Philippines Land Corporation *
* This Subsidiary is 40% owned by the Registrant.
Maxim (I.P.) Enterprise Solutions Corporation
Maxim Integrated Products (Thailand) Co., Ltd.
MXIM Circuits Design Shanghai Limited
Maxim India Integrated Circuit Design Private Limited
Maxim Mikroelektronik Tasarim ve Gelistirme Ltd. Sti
France
Netherlands
Austria
Ireland
Ireland
Ireland
Japan
Korea
Philippines
Philippines
Philippines
Philippines
Thailand
China
India
Turkey
Name of Subsidiary
Jurisdiction of Incorporation
Maxim International Holding, Inc.
L&L Engineering, LLC
Maxim Technology Ltd.
Maxim Holding Company Ltd.
Maxim Semiconductor Corporation (Taiwan)
Maxim Integrated Products Asia Limited
Delaware
New Hampshire
Cayman Islands
Cayman Islands
Delaware
Hong Kong
Maxim Dallas (Shanghai) Semiconductor Trading Co. Ltd.
China
Mobilygen Corporation
Innova Card
Teridian Semiconductor Holdings Corp.
Teridian Semiconductor Intermediate Holding Corp.
Teridian Semiconductor Corporation
California
France
Delaware
Delaware
California
Phyworks Limited
United Kingdom
Maxim Integrated Products India Sales Private Limited
India
IPR Limited
Calvatec Limited
Genasic Design Systems Ltd.
Maxim Integrated GmbH
Metrixx Limited
Maxim Integrated Germany GmbH
Cambridge Analog Technologies, Inc.
TagArray, Inc.
Bedrock Automation Platforms, Inc.
Cayman Islands
United Kingdom
United Kingdom
Austria
United Kingdom
Germany
Delaware
Delaware
Delaware
Name of Subsidiary
Scintera Networks LLC
Volterra Semiconductor LLC
Volterra Asia Pte. Ltd.
Jurisdiction of Incorporation
Delaware
Delaware
Singapore
Volterra Global Marketing Ltd.
Cayman Islands
Volterra Semiconductor Technology (Shanghai) Co. Ltd.
Maxim Integrated Products International Sales Japan GK
Maxim Island Holdings Corporation
Icron Technologies Corporation
China
Japan
Canada
Canada
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No 333-213110) and Form S‑8 (Nos. 333-103163, 333-122559,
333-132888, 333-157416, 333-164640, 333-171824, 333-179249, 333-186214, 333-193731, 333-201862, 333-209093, 333-215790, and 333-222730) of Maxim
Integrated Products, Inc. of our report dated August 17, 2018 , relating to the consolidated financial statements, financial statement schedule and the effectiveness
of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 17, 2018
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.2
We consent to the incorporation by reference in Registration Statement Nos. 333-103163, 333-122559, 333-132888, 333-157416, 333-164640, 333-171824, 333-
179249, 333-186214, 333-193731, 333-201862, 333-209093, 333-215790 and 333-222730 on Form S-8, and Registration Statement No. 333-213110 on Form S-3
of our report dated August 12, 2016 , relating to the fiscal 2016 consolidated financial statements and consolidated financial statement schedule of Maxim
Integrated Products, Inc. and its subsidiaries (collectively the “Company”), appearing in this Annual Report on Form 10-K of Maxim Integrated Products, Inc. for
the year ended June 30, 2018 .
/s/ Deloitte & Touche LLP
San Jose, California
August 17, 2018
I, Tunc Doluca, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Maxim Integrated Products, Inc.;
Exhibit 31.1
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 17, 2018
/s/Tunc Doluca
Tunc Doluca
President and Chief Executive Officer
I, Bruce E Kiddoo, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Maxim Integrated Products, Inc.;
Exhibit 31.2
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 17, 2018
/s/Bruce E. Kiddoo
Bruce E. Kiddoo
Senior Vice President and Chief Financial Officer
Exhibit 32.1
CERTIFICATE OF CHIEF EXECUTIVE OFFICER
In connection with the periodic report of Maxim Integrated Products, Inc. (the "Company") on Form 10-K for the period ended June 30, 2018 as filed with the
Securities and Exchange Commission (the "Report"), I, Tunc Doluca, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for
purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the
dates and for the periods indicated.
This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission.
Date: August 17, 2018
By:
/s/Tunc Doluca
Tunc Doluca
President and Chief Executive Officer
This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act
of 1934, as amended.
Exhibit 32.2
CERTIFICATE OF CHIEF FINANCIAL OFFICER
In connection with the periodic report of Maxim Integrated Products, Inc. (the "Company") on Form 10-K for the period ended June 30, 2018 as filed with the
Securities and Exchange Commission (the "Report"), I, Bruce E. Kiddoo, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for
purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the
dates and for the periods indicated.
This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission.
Date: August 17, 2018
By:
/s/Bruce E. Kiddoo
Bruce E. Kiddoo
Senior Vice President and Chief Financial Officer
This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act
of 1934, as amended.