Maxim_Q3 '13 10-Q



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

FORM 10-Q
(Mark One)

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 30, 2013
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to ________.

Commission file number 1-34192
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 I. D. No.)

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

(408) 601-1000
(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES [x] NO [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [x] NO [ ]

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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [x]
Accelerated filer [ ]
Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (Check one):
YES [ ] NO [x]

As of April 19, 2013 there were 291,072,374 shares of Common Stock, par value $.001 per share, of the registrant outstanding.

 
 
 
 
 





MAXIM INTEGRATED PRODUCTS, INC.
INDEX

 
PART I - FINANCIAL INFORMATION
 
Page
 
 
 
Item 1. Financial Statements (Unaudited)
 
 
 
 
Condensed Consolidated Balance Sheets as of March 30, 2013 and June 30, 2012
 
 
 
 
Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 30, 2013 and March 31, 2012
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended March 30, 2013 and March 31, 2012
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 30, 2013 and March 31, 2012
 
 
 
 
Notes to Condensed Consolidated Financial Statements
 
 
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
 
 
Item 4. Controls and Procedures
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1. Legal Proceedings
 
 
 
 
Item 1A. Risk Factors
 
 
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
Item 3. Defaults Upon Senior Securities
 
 
 
 
 Item 4. Mine Safety Disclosures
 
 
 
 
Item 5. Other Information
 
 
 
 
Item 6. Exhibits
 
 
 
 
SIGNATURES
 








2



Part I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

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

 
March 30,
2013
 
June 30,
2012
 
(in thousands)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
1,547,980

 
$
881,060

Short-term investments
25,095

 
75,326

Total cash, cash equivalents and short-term investments
1,573,075

 
956,386

Accounts receivable, net
300,046

 
317,461

Inventories
268,018

 
242,162

Deferred tax assets
81,809

 
98,180

Other current assets
113,010

 
85,177

Total current assets
2,335,958

 
1,699,366

Property, plant and equipment, net
1,368,905

 
1,353,606

Intangible assets, net
165,591

 
208,913

Goodwill
422,004

 
423,073

Other assets
41,660

 
52,988

TOTAL ASSETS
$
4,334,118

 
$
3,737,946

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable
$
114,629

 
$
147,086

Income taxes payable
20,200

 
22,589

Accrued salary and related expenses
182,894

 
191,846

Accrued expenses
59,075

 
64,092

Current portion of long-term debt
304,314

 
303,496

Deferred revenue on shipments to distributors
25,851

 
26,280

Total current liabilities
706,963

 
755,389

Long-term debt
503,573

 
5,592

Income taxes payable
271,815

 
212,389

Deferred tax liabilities
213,138

 
198,502

Other liabilities
26,063

 
27,797

Total liabilities
1,721,552

 
1,199,669

 
 
 
 
Commitments and contingencies (Note 11)


 


 
 
 
 
Stockholders' equity:
 
 
 
Common stock and capital in excess of par value
292

 
293

Retained earnings
2,629,895

 
2,553,418

Accumulated other comprehensive loss
(17,621
)
 
(15,434
)
Total stockholders' equity
2,612,566

 
2,538,277

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
$
4,334,118

 
$
3,737,946


See accompanying Notes to Condensed Consolidated Financial Statements.

3



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


 
Three Months Ended
 
Nine Months Ended
 
March 30,
2013
 
March 31,
2012
 
March 30,
2013
 
March 31,
2012
 
(in thousands, except per share data)
 
 
 
 
 
 
 
 
Net revenues
$
604,884

 
$
571,212

 
$
1,833,265

 
$
1,798,573

Cost of goods sold
228,782

 
235,782

 
708,097

 
719,710

Gross margin
376,102

 
335,430

 
1,125,168

 
1,078,863

Operating expenses:
 
 
 
 
 
 
 
Research and development
134,138

 
136,075

 
402,810

 
418,372

Selling, general and administrative
81,954

 
78,011

 
242,199

 
241,293

Intangible asset amortization
3,903

 
4,029

 
11,855

 
12,688

Impairment of long-lived assets

 
7,712

 
24,929

 
7,712

Severance and restructuring expenses
151

 
228

 
2,387

 
6,767

Other operating expenses (income), net
1,678

 
(2,511
)
 
3,759

 
(6,745
)
Total operating expenses
221,824

 
223,544

 
687,939

 
680,087

Operating income
154,278

 
111,886

 
437,229

 
398,776

Interest and other income (expense), net
(2,669
)
 
(230
)
 
(11,209
)
 
(1,956
)
Income before provision for income taxes
151,609

 
111,656

 
426,020

 
396,820

Provision for income taxes
22,824

 
88,948

 
92,725

 
152,536

Income from continuing operations
128,785

 
22,708

 
333,295

 
244,284

Income from discontinued operations, net of tax
2,603

 
31,809

 
2,603

 
31,809

Net income
$
131,388

 
$
54,517

 
$
335,898

 
$
276,093

 
 
 
 
 
 
 
 
Earnings per share: basic
 
 
 
 
 
 
 
From continuing operations
$
0.44

 
$
0.08

 
$
1.14

 
$
0.83

From discontinued operations
0.01

 
0.11

 
0.01

 
0.11

Basic
$
0.45

 
$
0.19

 
$
1.15

 
$
0.94

 
 
 
 
 
 
 
 
Earnings per share: diluted
 
 
 
 
 
 
 
From continuing operations
$
0.43

 
$
0.07

 
$
1.11

 
$
0.81

From discontinued operations
0.01

 
0.11

 
0.01

 
0.11

Diluted
$
0.44

 
$
0.18

 
$
1.12

 
$
0.92

 
 
 
 
 
 
 
 
Shares used in the calculation of earnings per share:
 
 
 
 
 
 
 
Basic
292,888

 
292,276

 
292,048

 
292,829

Diluted
300,082

 
300,221

 
298,821

 
300,113

 
 
 
 
 
 
 
 
Dividends paid per share
$
0.24

 
$
0.22

 
$
0.72

 
$
0.66


See accompanying Notes to Condensed Consolidated Financial Statements.




4



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

 
Three Months Ended
 
Nine Months Ended
 
March 30,
2013
 
March 31,
2012
 
March 30,
2013
 
March 31,
2012
 
(in thousands)
Net income
$
131,388

 
$
54,517

 
$
335,898

 
$
276,093

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities, net of tax benefit (expense) of $37, $(6), $95 and $40, respectively
(64
)
 
11

 
(166
)
 
(69
)
Unrealized gains (losses) on cash flow hedges, net of tax benefit (expense) of $288, $(333), $70, and $(187), respectively
(631
)
 
581

 
(248
)
 
325

Tax effect of the unrealized exchange gain (loss) on long-term intercompany receivables
(1,885
)
 
(1,073
)
 
(3,433
)
 
416

Unrealized gains (losses) on post-retirement benefits, net of tax benefit (expense) of $(178), $155, $(346) and $85, respectively
405

 
250

 
1,659

 
371

Other comprehensive income (loss)
(2,175
)
 
(231
)
 
(2,188
)
 
1,043

Total comprehensive income
$
129,213

 
$
54,286

 
$
333,710

 
$
277,136


See accompanying Notes to Condensed Consolidated Financial Statements.


5



MAXIM INTEGRATED PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
 
March 30,
2013
 
March 31,
2012
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
335,898

 
$
276,093

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Stock-based compensation
64,955

 
68,977

Depreciation and amortization
155,945

 
157,542

Deferred taxes
28,185

 
29,535

In process research and development written-off
2,800

 
1,600

Tax benefit (shortfall) related to stock-based compensation
7,839

 
1,804

Impairment of long lived assets
24,929

 
7,712

Excess tax benefit from stock-based compensation
(16,131
)
 
(12,235
)
Loss (gain) from sale of property, plant and equipment
(2,536
)
 
(6,236
)
Loss (gain) on sale of discontinued operations
(3,285
)
 
(45,372
)
Loss (gain) from sale of investments in privately-held companies

 
(1,811
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
17,415

 
1,944

Inventories
(27,588
)
 
21,658

Other current assets
(18,401
)
 
(11,123
)
Accounts payable
(25,549
)
 
13,713

Income taxes payable
57,038

 
114,638

Deferred revenue on shipments to distributors
(429
)
 
(8,152
)
All other accrued liabilities
2,450

 
(43,659
)
Net cash provided by (used in) operating activities
603,535

 
566,628

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchase of property, plant and equipment
(167,750
)
 
(187,738
)
Proceeds from sale of property, plant and equipment
14,658

 
15,483

Acquisitions

 
(166,287
)
Proceeds from sale of discontinued operations

 
56,607

Purchases of available-for-sale securities

 
(25,108
)
Purchases of privately-held companies

 
(1,980
)
Proceeds from sale of investments in privately-held companies

 
3,225

Proceeds from maturity of available-for-sale securities
50,000

 

Net cash provided by (used in) investing activities
(103,092
)
 
(305,798
)
 
 
 
 
Cash flows from financing activities:
 
 
 
           Excess tax benefit from stock-based compensation
16,131

 
12,235

Contingent consideration paid
(7,476
)
 

Repayment of notes payable
(1,201
)
 
(20,406
)
Issuance of debt, net of issuance costs
491,145

 

Net issuance of restricted stock units

(21,586
)
 
(22,661
)
Proceeds from stock options exercised
65,293

 
36,559

Issuance of employee stock purchase plan
16,768

 
14,906

Repurchase of common stock
(181,914
)
 
(190,130
)
Dividends paid
(210,683
)
 
(193,323
)
Net cash provided by (used in) financing activities
166,477

 
(362,820
)
Net increase (decrease) in cash and cash equivalents
666,920

 
(101,990
)
Cash and cash equivalents:
 
 
 
Beginning of period
881,060

 
962,541

End of period
$
1,547,980

 
$
860,551

Supplemental disclosures of cash flow information:
 
 
 
Cash paid (refunded), net during the period for income taxes
$
13,115

 
$
31,153

Cash paid for interest
$
5,377

 
$
5,653

Noncash financing and investing activities:
 
 
 

6



Accounts payable related to property, plant and equipment purchases
$
19,171


$
23,701

Fair value of notes receivable assumed on sale of assets held for sale and discontinued operations
$
15,290

 
$

See accompanying Notes to Condensed Consolidated Financial Statements.

7



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


NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited condensed interim consolidated financial statements of Maxim Integrated Products, Inc. and all of its majority-owned subsidiaries (collectively, the "Company" or "Maxim Integrated") included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles of the United States of America ("GAAP") have been condensed or omitted pursuant to applicable rules and regulations. In the opinion of management, all adjustments considered necessary for fair presentation have been included. The year-end condensed consolidated balance sheet data were derived from audited consolidated financial statements but do not include all disclosures required by GAAP. The results of operations for the nine months ended March 30, 2013 are not necessarily indicative of the results to be expected for the entire year. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

The Company has a 52-to-53-week fiscal year that ends on the last Saturday in June. Accordingly, every fifth or sixth fiscal year will be a 53-week fiscal year. Fiscal year 2013 is a 52-week fiscal year and fiscal year 2012 was a 53-week fiscal year.

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS

(i) New Accounting Updates Recently Adopted
In the first quarter of fiscal year 2013, the Company adopted Accounting Standards Update ("ASU") No. 2011-05, Comprehensive Income (Topic 220)-Presentation of Comprehensive Income and ASU No. 2011-12, Comprehensive Income (Topic 220)-Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The adoption of these amended standards impacted the presentation of other comprehensive income, as the Company elected to present two separate but consecutive statements, but did not impact our financial position or results of operations.
(ii) Recent Accounting Updates Not Yet Effective
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220)- Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income to require reclassification adjustments from other comprehensive income to be presented either in the financial statements or in the notes to the financial statements. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 will be effective for our first quarter of fiscal year 2014.

NOTE 3: BALANCE SHEET COMPONENTS

Accounts receivable, net consist of:

 
March 30,
2013
 
June 30,
2012
Accounts Receivable:
(in thousands)
Accounts receivable
$
314,849

 
$
329,990

Returns and allowances
(14,803
)
 
(12,529
)
 
$
300,046

 
$
317,461











8



Inventories consist of:

 
March 30,
2013
 
June 30,
2012
Inventories:
(in thousands)
Raw materials
$
15,140

 
$
11,922

Work-in-process
181,626

 
149,603

Finished goods
71,252

 
80,637

 
$
268,018

 
$
242,162


Property, plant and equipment, net consist of:

 
March 30,
2013
 
June 30,
2012
Property, plant and equipment:
(in thousands) 
Land
$
62,093

 
$
65,007

Buildings and building improvements
360,079

 
348,727

Machinery and equipment
2,072,651

 
2,105,905

 
2,494,823

 
2,519,639

Less: accumulated depreciation and amortization                       
(1,125,918
)
 
(1,166,033
)
 
$
1,368,905

 
$
1,353,606


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 certificates of deposit, government agency securities and foreign currency forward contracts.
 
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 consist of contingent consideration liability related to certain acquisitions and assets held-for-sale and certain fixed assets impaired during the period.












9



Assets and liabilities measured at fair value on a recurring basis were as follows:

 
As of March 30, 2013
 
As of June 30, 2012
 
Fair Value
 
 
 
Fair Value
 
 
 
Measurements Using
 
Total
 
Measurements Using
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Balance
 
Level 1
 
Level 2
 
Level 3
 
Balance
 
(in thousands)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds (1)
$
381,548

 
$

 
$

 
$
381,548

 
$
602,462

 
$

 
$

 
$
602,462

Certificates of deposit (1)

 
77

 

 
77

 

 
6,182

 

 
6,182

Government agency securities (2)

 
25,095

 

 
25,095

 

 
75,326

 

 
75,326

Foreign currency forward contracts (3)

 
206

 

 
206

 

 
642

 

 
642

Total Assets
$
381,548

 
$
25,378

 
$

 
$
406,926

 
$
602,462

 
$
82,150

 
$

 
$
684,612

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts (4)
$

 
$
1,007

 
$

 
$
1,007

 
$

 
$
507

 
$

 
$
507

Contingent Consideration (4)

 

 
13,487

 
13,487

 

 

 
17,737

 
17,737

Total Liabilities
$

 
$
1,007

 
$
13,487

 
$
14,494

 
$

 
$
507

 
$
17,737

 
$
18,244


(1) Included in Cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets.
(2) Included in Short-term investments in the accompanying Condensed Consolidated Balance Sheets.
(3) Included in Other current assets in the accompanying Condensed Consolidated Balance Sheets.
(4) Included in Accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

The tables below present reconciliations for liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended March 30, 2013 and for the year ended June 30, 2012:

Fair Value Measured and Recorded Using Significant Unobservable Inputs (Level 3)
 
 
 
 
 
 
 
March 30,
2013
 
June 30,
2012
Contingent Consideration
 
(in thousands)
Beginning balance
  
$
17,737

 
$
8,800

Total gains or losses (realized and unrealized):
 
 
 
 
Included in earnings
 
3,226

 
1,670

Additions
 

 
11,354

Payments
 
(7,476
)
 
(4,087
)
Ending balance
  
$
13,487

 
$
17,737

 
 
 
 
 
Changes in unrealized losses (gains) included in earnings related to liabilities still held as of period end
 
$
3,226

 
$
1,670


The valuation of contingent consideration is based on a probability weighted earnout model which relies primarily on estimates of milestone achievements and discount rates applicable for the period expected payout. The most significant unobservable input used in the determination of estimated fair value of contingent consideration is the estimates on the likelihood of milestone achievements, which directly correlates to the fair value recognized in the Condensed Consolidated Balance Sheets.

The fair value of this liability is estimated quarterly by management based on inputs received from the Company's engineering and finance personnel. The determination of the milestone achievement is performed by the Company's business units and reviewed by the accounting department. Potential valuation adjustments are made as the progress toward achieving milestones becomes determinable, with the impact of such adjustments being recorded through Other operating expenses (income), net. 


10



During the nine months ended March 30, 2013 and the year ended June 30, 2012, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.

Assets measured at fair value on a non-recurring basis were as follows:

As of March 30, 2013, none of the Company's assets and liabilities were measured at fair value on a nonrecurring
basis.

As of June 30, 2012, long-lived assets comprised of buildings held for sale were written down to their fair value, less cost to sell, of $19.7 million, resulting in an impairment loss of $22.4 million, which was included in earnings for the period. The impairment charge was measured using Level 3 inputs. The Company reached its conclusion regarding the asset impairment after conducting an evaluation of assets fair values. The fair value of the land and buildings was determined mainly after consideration of evidence such as appraisals and offers received. Please refer to Note 15: "Impairment of long-lived assets" of these Notes to Condensed Consolidated Financial Statements.

NOTE 5: FINANCIAL INSTRUMENTS

Short-term investments
Fair values were as follows:
 
March 30, 2013
 
June 30, 2012
 
Amortized Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Estimated
Fair Value
 
Amortized Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Estimated
Fair Value
 
(in thousands)
Available-for-sale investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government agency securities
$
25,037

 
$
58

 
$

 
$
25,095

 
$
75,007

 
$
319

 
$

 
$
75,326

Total available-for-sale investments
$
25,037

 
$
58

 
$

 
$
25,095

 
$
75,007

 
$
319

 
$

 
$
75,326


In the nine months ended March 30, 2013 and the year ended June 30, 2012, Maxim Integrated did not recognize any impairment charges on short-term investments.
The government agency securities outstanding are maturing on December 18, 2013.
Derivative instruments and hedging activities

Foreign Currency Risk

The Company generates revenues in various global markets based on orders obtained in non-U.S. currencies, primarily the Japanese Yen, the Euro and the British Pound. Maxim Integrated incurs expenditures denominated in non-U.S. currencies, principally the Philippine Peso and Thai Baht associated with the Company's manufacturing activities in the Philippines and Thailand, respectively, and expenditures for sales offices and research and development activities undertaken outside of the U.S. Maxim Integrated is exposed to fluctuations in foreign currency exchange rates primarily on orders and accounts receivable from sales in these foreign currencies and cash flows for expenditures in these foreign currencies. Maxim Integrated 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. Maxim Integrated does not use derivative financial instruments for speculative or trading purposes. The Company routinely hedges its exposures 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 the Company's hedging arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, the Company may experience financial losses.
 
For derivative instruments that are designated and qualify as cash flow hedges under Accounting Standards Codification ("ASC") No. 815-Derivatives and Hedging, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive 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

11



representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in interest and other income (expense), net.
 
For derivative instruments that are not designated as hedging instruments under ASC No. 815, gains and losses are recognized 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.

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets
Maxim Integrated estimates the fair value of derivatives primarily based on pricing models using current market rates and records all derivatives on the balance sheet at fair value. The gross notional and the recorded fair value of derivative financial instruments in the Condensed Consolidated Balance Sheets were as follows:

 
As of March 30, 2013
 
As of June 30, 2012
 
Gross Notional(1)
 
Other Current Assets
 
Accrued Expenses
 
Gross Notional (1)
 
Other Current Assets
 
Accrued Expenses
 
(in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
43,325

 
$
156

 
$
780

 
$
37,955

 
$
150

 
$
459

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
45,331

 
50

 
227

 
35,105

 
492

 
48

Total derivatives
$
88,656

 
$
206

 
$
1,007

 
$
73,060

 
$
642

 
$
507

(1) Represents the face amounts of contracts that were outstanding as of March 30, 2013 and June 30, 2012, as applicable.
Derivatives designated as hedging instruments

The following table provides the balances and changes in the accumulated other comprehensive loss (income) related to derivative instruments during the nine months ended March 30, 2013 and the year ended June 30, 2012.

 
 
March 30,
2013
 
June 30,
2012
 
 
(in thousands)
Beginning balance
  
$
309

 
$
(234
)
Gain (loss) reclassified to income
 
(605
)
 
653

Loss (gain) recorded in other comprehensive loss
  
919

 
(110
)
Ending balance
  
$
623

 
$
309


Maxim Integrated expects to reclassify an estimated net accumulated other comprehensive gain of $0.4 million, net of taxes, to earnings in the next twelve months along with the earnings effects of the related forecasted transactions in association with cash flow hedges.





12



The before-tax effect of cash flow derivative instruments for the three and nine months ended March 30, 2013 and March 31, 2012 was as follows:
 
 
Loss (Gain) Reclassified from Accumulated OCI into Income (Effective portion)
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
Location
 
March 30,
2013
 
March 31,
2012
 
March 30,
2013
 
March 31,
2012
 
 
 
 
(in thousands)
Cash Flow hedges:
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Net revenues
 
$

 
$
(52
)
 
$
(122
)
 
$
193

Foreign exchange contracts
 
Cost of goods sold
 
(257
)
 
44

 
952

 
171

Foreign exchange contracts
 
Operating expenses
 
235

 
(266
)
 
(225
)
 
(41
)
Total cash flow hedges
 
 
 
$
(22
)
 
$
(274
)
 
$
605

 
$
323

The before-tax effect of derivative instruments not designated as hedging instruments on the Condensed Consolidated Statements of Income for the three and nine months ended March 30, 2013 and March 31, 2012 was as follows:
 
Gain (Loss) Recognized in Income on Derivative Instrument
 
 
Three Months Ended
 
Nine Months Ended
 
Location
March 30,
2013
 
March 31,
2012
 
March 30,
2013
 
March 31,
2012
 
 
(in thousands)
Foreign exchange contracts
Interest and other income (expense), net
$
1,664

 
$
(199
)
 
$
984

 
$
779

Total
 
$
1,664

 
$
(199
)
 
$
984

 
$
779


Volume of Derivative Activity

Total net U.S. Dollar notional amounts for foreign currency forward contracts, presented by net currency purchase (sale), are as follows:

In United States Dollars
 
March 30,
2013
 
June 30,
2012
 
 
(in thousands)
Euro
 
$
7,319

 
$
(10,686
)
Japanese Yen
 
(8,904
)
 
(2,254
)
British Pound
 
(5,709
)
 
(575
)
Philippine Peso
 
17,143

 
15,443

Thai Baht
 
4,552

 
4,264

Other Currencies
 
2,109

 

Total                                                
 
$
16,510

 
$
6,192










13



Long-term debt
The following table summarizes the Company's long-term debt:
 
March 30,
2013
 
June 30,
2012
 
(in thousands)
3.45% fixed rate notes due June 2013
$
300,000

 
$
300,000

3.375% fixed rate notes due March 2023
500,000

 

SensorDynamics Debt (Denominated in Euro)
 
 
 
Term fixed rate notes (2.0%-2.5%) due up to September 2015
6,459

 
6,285

Amortizing fixed rate notes (1.5%-2.75%) due up to June 2014
226

 
1,127

Amortizing floating rate notes (EURIBOR plus 1.5%) due up to June 2014
1,202

 
1,676

Total
807,887

 
309,088

Less: Current portion
(304,314
)
 
(303,496
)
Total long-term debt
$
503,573

 
$
5,592


On March 18, 2013, the Company completed a public offering of $500 million aggregate principal amount of the Company's 3.38% senior unsecured and unsubordinated notes ("$500 million notes") due in 2023, with an effective interest rate of 3.51%. Interest on the $500 million notes will be payable semi-annually in arrears on March 15 and September 15 of each year, commencing September 15, 2013. The $500 million notes are governed by base and supplemental indentures dated June 10, 2010 and March 18, 2013, respectively, between the Company and Wells Fargo Bank, National Association, as trustee. The net proceeds of the offering were approximately $491 million, after issuing at a discount and deducting paid expenses, and are included in the financing activities in the Consolidated Statement of Cash Flows.

Prior to December 15, 2022 (three months prior to the maturity date), the Company may redeem all or a portion of the $500 million notes at its option at any time or from time to time at a redemption price equal to the greater of:
Principal amount plus accrued and unpaid interest; and
the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of interest accrued ) discounted to the redemption date on a semiannual basis at the Treasury Rate (as defined in the Indenture) plus 25 basis points, plus accrued and unpaid interest on the principal amount being redeemed to, but excluding, the redemption date.

On or after December 15, 2022 (three months prior to the maturity date), the Company may redeem all or a portion of the $500 million notes at its option at any time or from time to time at a redemption price equal to the principal amount plus accrued and unpaid interest on the principal amount being redeemed.

In conjunction with the SensorDynamics acquisition as discussed in Note 13: "Acquisitions" of these Notes to Condensed Consolidated Financial Statements, Maxim Integrated acquired certain fixed and floating rate notes as detailed in the table above.

On June 17, 2010, the Company completed a public offering of $300 million aggregate principal amount of the Company's 3.45% senior unsecured notes due on June 14, 2013 ("$300 million notes"), with an effective interest rate of 3.49%. Interest is payable semi-annually in arrears on June 14 and December 14 of each year. The $300 million notes are governed by base and supplemental indentures dated June 10, 2010 and June 17, 2010, respectively, between the Company and Wells Fargo Bank, National Association, as trustee.

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 over the life of the notes. Interest expense associated with the notes was $3.8 million and $3.0 million during the three months ended March 30, 2013 and March 31, 2012, respectively. Interest expense associated with the notes was $9.6 million and $10.1 million during the nine months ended March 30, 2013 and March 31, 2012, respectively. The interest expense is recorded in Interest and other income (expense), net in the Condensed Consolidated Statements of Income.

The estimated fair value of Maxim Integrated's debt was approximately $814 million at March 30, 2013. The estimated fair value of the debt is based primarily on quoted market prices.





14



Other Financial Instruments
For the balance of Maxim Integrated'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

The following table shows total stock-based compensation expense by type of award, and the resulting tax effect, included in the Condensed Consolidated Statements of Income for the three and nine months ended March 30, 2013 and March 31, 2012:

 
Three Months Ended
 
March 30, 2013
 
March 31, 2012
 
Stock Options
 
Restricted Stock Units
 
Employee Stock Purchase Plan
 
Total
 
Stock Options
 
Restricted Stock Units
 
Employee Stock Purchase Plan
 
Total
 
(in thousands)
Cost of goods sold
$
337

 
$
2,120

 
$
598

 
$
3,055

 
$
470

 
$
2,217

 
$
412

 
$
3,099

Research and development
1,440

 
7,116

 
1,480

 
10,036

 
1,742

 
8,203

 
1,602

 
11,547

Selling, general and administrative
1,157

 
4,764

 
601

 
6,522

 
1,836

 
5,072

 
484

 
7,392

Pre-tax stock-based compensation expense
$
2,934

 
$
14,000

 
$
2,679

 
$
19,613

 
4,048

 
$
15,492

 
$
2,498

 
$
22,038

Less: income tax effect
 
 
 
 
 
 
2,847

 
 
 
 
 
 
 
4,061

Net stock-based compensation expense


 

 


 
$
16,766

 

 

 

 
$
17,977


 
Nine Months Ended
 
March 30, 2013
 
March 31, 2012
 
Stock Options
 
Restricted Stock Units
 
Employee Stock Purchase Plan
 
Total
 
Stock Options
 
Restricted Stock Units
 
Employee Stock Purchase Plan
 
Total
 
(in thousands)
Cost of goods sold
$
1,212

 
$
6,863

 
$
1,651

 
$
9,726

 
$
1,552

 
$
7,181

 
$
1,315

 
$
10,048

Research and development
5,557

 
24,727

 
4,215

 
34,499

 
6,237

 
27,368

 
4,112

 
37,717

Selling, general and administrative
3,998

 
15,035

 
1,697

 
20,730

 
4,968

 
14,975

 
1,269

 
21,212

Pre-tax stock-based compensation expense
$
10,767

 
$
46,625

 
$
7,563

 
$
64,955

 
$
12,757

 
$
49,524

 
$
6,696

 
$
68,977

Less: income tax effect
 
 
 
 
 
 
11,617

 
 
 
 
 
 
 
15,329

Net stock-based compensation expense


 

 

 
$
53,338

 

 

 

 
$
53,648


Fair Value

The fair value of options granted to employees under the Company's Amended and Restated 1996 Stock Incentive Plan and rights to acquire common stock under the Company's 2008 Employee Stock Purchase Plan (the "ESPP") is estimated on the date of grant using the Black-Scholes option valuation model. The fair value of Restricted Stock Units ("RSUs") 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.

Expected volatilities are based on the historical volatilities from the Company's traded common stock over a period equal to the expected term. The Company is utilizing the simplified method to estimate expected holding periods. The risk-free interest rate is based on the U.S. Treasury yield. The Company determines the dividend yield by dividing the annualized dividends per share

15



by the prior quarter's average stock price. The result is analyzed by the Company to decide whether it represents expected future dividend yield. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis.

The fair value of share-based awards granted to employees has been estimated at the date of grant using the Black-Scholes option valuation model and the following weighted-average assumptions:

 
Stock Options
 
Three Months Ended
 
Nine Months Ended
 
March 30,
2013
 
March 31,
2012
 
March 30,
2013
 
March 31,
2012
Expected holding period (in years)
4.9

 
4.8

 
5.3

 
5.1

Risk-free interest rate
0.8
%
 
0.8
%
 
0.7
%
 
1.3
%
Expected stock price volatility
37.5
%
 
38.6
%
 
37.8
%
 
36.8
%
Dividend yield
3.4
%
 
3.5
%
 
3.3
%
 
3.2
%

 
ESPP
 
Three Months Ended
 
Nine Months Ended
 
March 30, 2013
 
March 31, 2012
 
March 30, 2013
 
March 31, 2012
Expected holding period (in years)
0.5

 
0.5

 
0.5

 
0.5

Risk-free interest rate
0.1
%
 
0.1
%
 
0.1
%
 
0.1
%
Expected stock price volatility
26.1
%
 
32.2
%
 
26.1
%
 
32.2
%
Dividend yield
3.6
%
 
3.8
%
 
3.6
%
 
3.8
%

The weighted-average fair value of stock options granted was $7.39 and $6.53 per share for the three months ended March 30, 2013 and March 31, 2012, respectively. The weighted-average fair value of RSUs granted was $29.48 and $25.38 per share for the three months ended March 30, 2013 and March 31, 2012, respectively.

The weighted-average fair value of stock options granted was $6.69 and $5.85 per share for the nine months ended March 30, 2013 and March 31, 2012, respectively. The weighted-average fair value of RSUs granted was $25.08 and $20.46 per share for the nine months ended March 30, 2013 and March 31, 2012, respectively.

Stock Options

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of March 30, 2013 and their activity for the nine months ended March 30, 2013:
 
Number of
Shares 
 
Weighted Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Term (in Years)
 
 
Aggregate
Intrinsic
Value (1) 
Balance at June 30, 2012
24,234,994

 
$
25.20

 
 
 
 
Options Granted
2,734,760

 
27.41

 
 
 
 
Options Exercised
(3,526,585
)
 
18.41

 
 
 
 
Options Cancelled
(2,787,116
)
 
35.09

 
 
 
 
Balance at March 30, 2013
20,656,053

 
$
25.83

 
3.6
 
$
161,335,027

Exercisable, March 30, 2013
10,465,420

 
$
29.79

 
2.0
 
$
61,145,026

Vested and expected to vest, March 30, 2013
19,374,026

 
$
25.97

 
3.4
 
$
151,092,550

 
(1)
Aggregate intrinsic value represents the difference between the exercise price and the closing price per share of the Company's common stock on March 29, 2013, the last business day preceding the fiscal quarter-end, multiplied by the number of options outstanding, exercisable or vested and expected to vest as of March 30, 2013.

16



As of March 30, 2013, there was $35.3 million of total unrecognized stock compensation cost related to 10.2 million unvested stock options, which is expected to be recognized over a weighted average period of approximately 2.8 years.

Restricted Stock Units

The following table summarizes outstanding and expected to vest RSUs as of March 30, 2013 and their activity during the nine months ended March 30, 2013:

 
Number of
Shares 
 
Weighted Average
Remaining
Contractual Term
(in Years)
 
 
Aggregate Intrinsic
Value (1) 
Balance at June 30, 2012
8,923,454

 
 
 
 
Restricted stock units granted
2,864,915

 
 
 
 
Restricted stock units released
(2,360,280
)
 
 
 
 
Restricted stock units cancelled
(739,441
)
 
 
 
 
Balance at March 30, 2013
8,688,648

 
2.7
 
$
276,614,866

Outstanding and expected to vest, March 30, 2013
7,805,947

 
2.7
 
$
246,589,880

(1)
Aggregate intrinsic value for RSUs represents the closing price per share of the Company's common stock on March 29, 2013, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of March 30, 2013.
The Company withheld shares totaling $7.9 million and $21.6 million in value as a result of employee withholding taxes based on the value of the RSUs on their vesting date for the three and nine months ended March 30, 2013, respectively. The total payments for the employees' tax obligations to the taxing authorities are reflected as financing activities within the Condensed Consolidated Statements of Cash Flows.

As of March 30, 2013, there was $127.6 million of unrecognized compensation expense related to 8.7 million unvested RSUs, which is expected to be recognized over a weighted average period of approximately 2.7 years.

Employee Stock Purchase Plan

As of March 30, 2013, there was $1.7 million of unrecognized compensation expense related to the ESPP.

NOTE 7: EARNINGS PER SHARE

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















17



The following table sets forth the computation of basic and diluted earnings per share.

 
Three Months Ended
 
Nine Months Ended
 
March 30,
2013
 
March 31,
2012
 
March 30,
2013
 
March 31,
2012
 
(in thousands, except per share data)
Numerator for basic earnings per share and diluted earnings per share
 
 
 
 
 
 
 
Income from continuing operations
$
128,785

 
$
22,708

 
$
333,295

 
$
244,284

Income from discontinued operations
2,603

 
31,809

 
2,603

 
31,809

Net income
$
131,388

 
$
54,517

 
$
335,898

 
$
276,093

 
 
 
 
 
 
 
 
Denominator for basic earnings per share
292,888

 
292,276

 
292,048

 
292,829

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, ESPP and RSUs
7,194

 
7,945

 
6,773

 
7,284

Denominator for diluted earnings per share
300,082

 
300,221

 
298,821

 
300,113

 
 
 
 
 
 
 
 
Earnings per share: basic
 
 
 
 
 
 
 
From continuing operations
$
0.44

 
$
0.08

 
$
1.14

 
$
0.83

From discontinued operations
0.01

 
0.11

 
0.01

 
0.11

Basic
$
0.45

 
$
0.19

 
$
1.15

 
$
0.94

 
 
 
 
 
 
 
 
Earnings per share: diluted
 
 
 
 
 
 
 
From continuing operations
$
0.43

 
$
0.07

 
$
1.11

 
$
0.81

From discontinued operations
0.01

 
0.11

 
0.01

 
0.11

Diluted
$
0.44

 
$
0.18

 
$
1.12

 
$
0.92

Approximately 9.0 million and 12.2 million stock options were excluded from the calculation of diluted earnings per share for the three months ended March 30, 2013 and March 31, 2012, respectively. Approximately 10.6 million and 14.1 million stock options were excluded from the calculation of diluted earnings per share for the nine months ended March 30, 2013 and March 31, 2012, respectively. These options were excluded because they were determined to be antidilutive. However, such options could be dilutive in the future and, under those circumstances, would be included in the calculation of diluted earnings per share.

NOTE 8: SEGMENT INFORMATION

The Company operates and tracks its results in one reportable segment. The Company designs, develops, manufactures and markets a broad range of linear and mixed signal integrated circuits. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by ASC No. 280, Segment Reporting ("ASC 280").

The Company has three operating segments which aggregate into one reportable segment. Under ASC 280, two or more operating segments may be aggregated into a single operating segment for financial reporting purposes if aggregation is consistent with the objective and basic principles of ASC 280, if the segments have similar economic characteristics, and if the segments are similar in each of the following areas:

the nature of products and services;
the nature of the production processes;
the type or class of customer for their products and services; and
the methods used to distribute their products or provide their services.

The Company meets each of the aggregation criteria for the following reasons:

the sale of analog and mixed signal integrated circuits is the primary source of revenue for each of the Company's three operating segments;

18



the integrated circuits sold by each of the Company's operating segments are manufactured using similar semiconductor manufacturing processes;
the integrated circuits marketed by each of the Company's operating segments are sold to the same types of customers; and
all of the Company's integrated circuits are sold through a centralized sales force and common wholesale distributors.

All of the Company's operating segments share similar long term financial performance as they have similar economic characteristics, including gross margins. The causes for variation among the Company's operating segments are the same and include factors such as (i) life cycle and price and cost fluctuations, (ii) number of competitors, (iii) product differentiation and (iv) size of market opportunity. Additionally, each operating segment is subject to the overall cyclical nature of the semiconductor industry. The number and composition of employees and the amounts and types of tools and materials required are similar for each operating segment. Finally, even though the Company periodically reorganizes the Company's operating segments based upon changes in customers, end-markets or products, acquisitions, long-term growth strategies, and the experience and bandwidth of the senior executives in charge, the common financial goals for each operating segment remain constant.

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

Net revenues from unaffiliated customers by geographic region were as follows:

 
 
Three Months Ended
 
Nine Months Ended
 
 
March 30,
2013
 
March 31,
2012
 
March 30,
2013
 
March 31,
2012
 
 
(in thousands)
United States
 
$
63,784

 
$
69,273

 
$
185,765

 
$
220,714

China
 
225,808

 
254,414

 
767,192

 
791,240

Korea
 
73,362

 
39,958

 
194,357

 
147,397

Vietnam
 
79,314

 
32,532

 
186,520

 
82,097

Rest of Asia
 
71,917

 
83,586

 
239,384

 
276,887

Europe
 
75,734

 
75,933

 
213,582

 
230,566

Rest of World
 
14,965

 
15,516

 
46,465

 
49,672

 
 
$
604,884

 
$
571,212

 
$
1,833,265

 
$
1,798,573


Net long-lived assets by geographic region were as follows:
 
March 30,
2013
 
June 30,
2012
 
(in thousands)
United States
$
1,044,700

 
$
957,982

Philippines
189,514

 
247,681

Thailand
79,366

 
99,308

Rest of World
55,325

 
48,635

 
$
1,368,905

 
$
1,353,606











19



NOTE 9: COMPREHENSIVE INCOME
 
The components of Accumulated Other Comprehensive Loss were as follows:
 
 
March 30,
2013
 
June 30,
2012
 
 
(in thousands)
Tax effect of the unrealized exchange loss on long-term intercompany receivables
 
$
(9,902
)
 
$
(6,469
)
Unrealized gain (loss) on post-retirement benefits
 
(5,784
)
 
(7,444
)
Cumulative translation adjustment
 
(1,527
)
 
(1,527
)
Unrealized gain (loss) on cash flow hedges
 
(444
)
 
(196
)
Unrealized gain (loss) on available-for-sale securities
 
36

 
202

Accumulated Other Comprehensive Loss
 
$
(17,621
)
 
$
(15,434
)

NOTE 10: INCOME TAXES

In the three and nine months ended March 30, 2013, the Company recorded an income tax provision of $22.8 million and $92.7 million, respectively, compared to an income tax provision of $88.9 million and $152.5 million in the three and nine months ended March 31, 2012, respectively. In addition, the Company recorded income tax that was netted against income from discontinued operations of $0.7 million for the three and nine months ended March 30, 2013 and $13.6 million for the three and nine months ended March 31, 2012.

The Company's federal statutory tax rate is 35%. The Company's income tax provision for the three and nine months ended March 30, 2013 was lower than the amount computed by applying the statutory tax rate primarily because the earnings of foreign subsidiaries were taxed at lower rates. The Company's income tax provision for the three and nine months ended March 30, 2013 included a $7.1 million benefit for research tax credits for the fiscal year 2012 and first two quarters of fiscal year 2013 that were generated by the retroactive extension of the federal research tax credit to January 1, 2012 by legislation that was signed into law on January 2, 2013. The Company's income tax provision for the nine months ended March 30, 2013 included a $21.4 million discrete tax charge for research and development expenses of a foreign subsidiary for which no tax benefit was available.

The Company's income tax provision for the three and nine months ended March 31, 2012 was higher than the amount computed by applying the statutory tax rate primarily because of a $56.0 million discrete tax charge for research and development expenses of a foreign subsidiary for which no tax benefit was available.
In fiscal year 2012 the U.S. Internal Revenue Service commenced an audit of the Company's federal corporate income tax returns for fiscal years 2009 through 2011, which is still ongoing.

NOTE 11: COMMITMENTS AND CONTINGENCIES

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.

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 and 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.
 




20



Legal fees associated with indemnification obligations, defense and other related costs
 
Pursuant to the Company's charter documents and separate written indemnification agreements, the Company has indemnification obligations to its current executive officers and directors, as well as certain former officers and directors. Pursuant to such obligations, the Company has incurred expenses related to legal fees and expenses advanced to certain former officers of the Company subject to civil charges by the SEC in connection with Maxim Integrated's historical stock option granting practices.  The Company expenses such amounts as incurred.

NOTE 12: COMMON STOCK REPURCHASES

In August 2011, the Board of Directors authorized the Company to repurchase up to $750 million of the Company's common stock from time to time at the discretion of the Company's management. This stock repurchase authorization has no expiration date. All prior authorizations by the Company's Board of Directors for the repurchase of common stock were canceled and superseded by this authorization.

During the nine months ended March 30, 2013, the Company repurchased approximately 6.4 million shares of its common stock for $181.9 million. As of March 30, 2013, the Company had remaining authorization to repurchase up to an additional $369.3 million of the Company's common stock. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company's common stock and general market and business conditions.

NOTE 13: ACQUISITIONS
 
Acquisitions completed through third quarter of fiscal year 2013

Maxim has not completed any acquisitions in the nine months ended March 30, 2013; however, Maxim paid $7.5 million in contingent consideration relating to certain acquisitions completed in prior years during the nine months ended March 30, 2013. Total contingent consideration that could still be paid out in the future related to acquisitions completed in prior years is $16.9 million.

Acquisitions completed during fiscal year 2012

The purchase price allocation for acquisitions completed in fiscal year 2012 is set forth in the table below, including work performed by third-party valuation specialists.

Pro forma results of operations for these acquisitions have not been presented because they are not material to Maxim Integrated's condensed consolidated income, either individually or in the aggregate. Revenue and earnings per share for the acquired businesses since the date of acquisition through March 30, 2013 were not provided as they are not material. Goodwill, which represents the excess of the purchase price over the net tangible and intangible assets acquired, is not expected to be deductible for tax purposes. Acquisition costs for fiscal year 2012 were not material.

Aggregate purchase price allocation for acquisitions made by Maxim Integrated during fiscal year 2012:

 
SensorDynamics
 
Other acquisitions
 
Total
 
 
 
(in thousands)
 
 
Tangible assets
$
18,692

 
$
1,159

 
$
19,851

Debt assumed
(29,078
)
 

 
(29,078
)
Other liabilities assumed
(37,559
)
 
(4,729
)
 
(42,288
)
Net liabilities assumed
(47,945
)
 
(3,570
)
 
(51,515
)
Amortizable intangible assets
20,900

 
17,840

 
38,740

In-process research and development ("IPR&D")
19,600

 

 
19,600

Goodwill (1)
130,594

 
38,392

 
168,986

 
 
 
 
 
 
Total purchase price
$
123,149

 
$
52,662

 
$
175,811

(1) Includes $11.4 million of contingent consideration relating to the other acquisitions discussed further below.


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The following table presents details of the Company's intangible assets acquired through business combinations completed during fiscal year 2012 (in thousands, except years):

 
Intellectual Property
 
Customer Relationships
 
Tradename
 
Total
 
Weighted Average Useful Life (in Years)
 
Amount
 
Weighted Average Useful Life (in Years)
 
Amount
 
Weighted Average Useful Life (in Years)
 
Amount
 
 
SensorDynamics
7.0
 
$
16,400

 
7.0
 
$
4,100

 
3.0
 
$
400

 
$
20,900

Other acquisitions
9.2
 
15,340

 
3.0
 
2,500

 
0.0
 

 
17,840

Total
 
 
$
31,740

 
 
 
$
6,600

 
 
 
$
400

 
$
38,740

Weighted Average (in Years)
8.1
 
 
 
5.5
 
 
 
3.0
 
 
 
 

SENSORDYNAMICS

On July 18, 2011, the Company acquired SensorDynamics, a semiconductor company that develops proprietary sensor and microelectromechanical solutions. SensorDynamics is based in Lebring, near Graz, Austria. The purpose of the acquisition was to allow Maxim Integrated to combine sensors with analog products. The total cash consideration associated with the acquisition was approximately $123.1 million.

OTHER ACQUISITIONS

The Company acquired three other companies during fiscal year 2012, which included a company that develops low power high performance analog circuits. The total cash consideration paid in these three acquisitions was approximately $41.3 million. Maxim Integrated also recorded $11.4 million, representing the fair value of contingent consideration that would be payable in the future should certain specified project milestones be met. The contingent consideration was calculated based on probabilities that were developed regarding the likelihood that the product development milestones would be met and when the contingent payments would occur. Based on these factors, a probability weighted earnout amount was calculated and discounted (at the cost of debt) to present value.

NOTE 14: GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company monitors the recoverability of goodwill recorded in connection with acquisitions, by reporting unit, annually, or more often if events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company performed the annual impairment analysis during the first quarter of fiscal year 2013 and concluded that goodwill was not impaired, as the fair value of each reporting unit exceeded its carrying value, including goodwill.

Activity and goodwill balances for the nine months ended March 30, 2013 were as follows:

 
Goodwill
 
(in thousands)
Balance at June 30, 2012
$
423,073

Adjustments
(990
)
Divestiture
(79
)
Balance at March 30, 2013
$
422,004









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Intangible Assets

The useful lives of amortizable intangible assets are as follows:
 
Asset
 
Life
Intellectual Property
 
5-10 years
Customer Relationships
 
3-10 years
Tradename
 
3 years
Backlog
 
1 year
  
Intangible assets consisted of the following:
 
 
March 30, 2013
 
June 30, 2012
 
Original
Cost 
 
Accumulated
Amortization 
 
Net
 
Original
Cost
 
Accumulated
Amortization
 
Net
 
(in thousands)
Intellectual property
$
231,912

 
$
131,486

 
$
100,426

 
$
227,912

 
$
102,501

 
$
125,411

Customer relationships
95,230

 
50,770

 
44,460

 
95,230

 
39,583

 
55,647

Backlog
6,400

 
6,400

 

 
6,400

 
6,400

 

Tradename
2,100

 
1,875

 
225

 
2,100

 
1,525

 
575

Total amortizable purchased intangible assets
335,642

 
190,531

 
145,111

 
331,642

 
150,009

 
181,633

IPR&D
20,480

 

 
20,480

 
27,280

 

 
27,280

Total purchased intangible assets
$
356,122

 
$
190,531

 
$
165,591

 
$
358,922

 
$
150,009

 
$
208,913


The following table presents the amortization expense of intangible assets and its presentation in the Condensed Consolidated Statements of Income:

 
Three Months Ended
 
Nine Months Ended
 
March 30,
2013
 
March 31,
2012
 
March 30,
2013
 
March 31,
2012
 
(in thousands)
Cost of goods sold
$
7,777

 
$
9,787

 
$
26,217

 
$
27,301

Intangible asset amortization
3,903

 
4,029

 
11,855

 
12,688

Total intangible asset amortization expenses
$
11,680

 
$
13,816

 
$
38,072

 
$
39,989

The following table represents the estimated future amortization expense of intangible assets as of March 30, 2013:
 
Fiscal Year
 
Amount
 
 
(in thousands)
Remaining three months of 2013
 
$
11,447

2014
 
43,759

2015
 
41,536

2016
 
28,244

2017
 
18,233

2018
 
1,455

Thereafter
 
437

Total intangible assets
 
$
145,111



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NOTE 15: IMPAIRMENT OF LONG-LIVED ASSETS

Fiscal year 2013:

During the second quarter of fiscal year 2013, the Company identified certain assets as excess primarily attributable to the transition to utilizing newer, more efficient manufacturing equipment. These assets included used fabrication tools and test manufacturing equipment. In connection with these circumstances, the Company recorded a charge for the write down of equipment to its estimated fair value. The total charge of $22.2 million was included in impairment of long-lived assets in the Company's Condensed Consolidated Statements of Income. The Company reached its conclusion regarding the asset impairment after conducting an evaluation of assets fair values. The fair value of the equipment was determined mainly after consideration of quoted market prices of similar equipment adjusted for equipment specifications and condition in addition to the current market demand and size.

During the first quarter of fiscal year 2013, the Company identified certain idle facilities as held for sale. In connection with these circumstances, the Company recorded a charge for the write-down of land and buildings to their estimated fair value, less cost to sell. The total charge of $2.7 million was included in impairment of long-lived assets in the Company's Condensed Consolidated Statements of Income. The Company reached its conclusion regarding the asset impairment after conducting an evaluation of assets fair values. The fair value of the land and buildings was determined mainly after consideration of evidence such as appraisals and offers received.

Fiscal year 2012:

During the fourth quarter of fiscal year 2012, the Company identified certain idle facilities as held for sale. In connection with these circumstances, the Company recorded a charge for the write-down of land and buildings to their estimated fair value, less cost to sell. The total charge of $22.4 million was included in impairment of long-lived assets in the Company's Consolidated Statements of Income. The Company reached its conclusion regarding the asset impairment after conducting an evaluation of assets fair values. The fair value of the land and buildings was determined mainly after consideration of evidence such as appraisals and offers received.

The Company has ceased depreciation and classified the above assets as held for sale based on its intentions to sell the assets and has included the lower of fair value less cost to sell and net book value of $24.0 million in other assets in the Condensed Consolidated Balance Sheet as of June 30, 2012.

NOTE 16: DISCONTINUED OPERATIONS

On December 31, 2012, the Company sold its video processing product line to GEO Semiconductor, Inc. ("GEO") for a total estimated consideration valued at $8.5 million.

In January 2012, the Company sold its clock synchronization business (the "Clocks Business") for a total sale price of approximately $44.0 million. No further proceeds from the sale are expected. The Clocks Business formed part of the Company's Comm Timing reporting unit.

In February 2012, the Company also sold certain future technologies, including die types that will result in future products, in the storage area. The total sale price for this transaction was approximately $15.0 million. No further proceeds from the sale are expected. The technologies and die types sold formed part of the Company's Storage reporting unit.

As a result of the fiscal year 2012 transactions, the Company recognized a gain on sale of discontinued operations of $31.8 million, net of income taxes. This gain reflects cash received, less transaction costs and the net carrying value of assets and liabilities transferred.

The Company has not disclosed and included in discontinued operations the impact of historical revenue, pre- or post- tax profit or loss related to discontinued operations for any of the prior periods presented as the impact was immaterial to the Company's condensed consolidated financial statements.








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Selected financial information related to discontinued operations follows:

 
March 30, 2013

 
March 31, 2012

 
(in thousands)
Gain on sale of discontinued operations
$
3,285

 
$
45,372

Income tax expense
(682
)
 
(13,563
)
Gain on discontinued operations, net of tax
$
2,603

 
$
31,809



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

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

Overview of Business

Maxim Integrated is incorporated in the state of Delaware. Maxim Integrated 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 geographically diverse customers. The Company also provides a range of high-frequency process technologies and capabilities that can be used in custom designs. The analog market is fragmented and characterized by many diverse applications, a great number of product variations and, with respect to many circuit types, relatively long product life cycles. The Company is a global company with wafer manufacturing facilities in the U.S., testing facilities in the Philippines and Thailand and sales and circuit design offices throughout the world. The major end-markets in which the Company's products are sold are the communications, computing, consumer and industrial markets.

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 condensed consolidated financial statements. The SEC has defined the most critical accounting policies as the ones that are most important to the portrayal 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 and related allowances, which impact the recording of revenues; valuation of inventories, which impacts costs of goods sold and gross margins; the assessment of recoverability of long-lived assets, which impacts write-offs of fixed assets, intangible assets, and goodwill; accounting for stock-based compensation, which impacts cost of goods sold, gross margins and operating expenses; accounting for income taxes, which impacts the income tax provision; and assessment of contingencies, which impacts charges recorded in cost of goods sold and operating expenses. We have other significant accounting policies that either do not generally require estimates and judgments that are as difficult or subjective, or are less likely to have a material impact on our reported results of operations for a given period.

There have been no material changes during the nine months ended March 30, 2013 to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012.



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