Company Quick10K Filing
Quick10K
Maxim Integrated Products
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$57.10 273 $15,560
10-Q 2019-03-30 Quarter: 2019-03-30
10-Q 2018-12-29 Quarter: 2018-12-29
10-Q 2018-09-29 Quarter: 2018-09-29
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-30 Quarter: 2017-12-30
10-Q 2017-09-23 Quarter: 2017-09-23
10-K 2017-06-24 Annual: 2017-06-24
10-Q 2017-03-25 Quarter: 2017-03-25
10-Q 2016-12-24 Quarter: 2016-12-24
10-Q 2016-09-24 Quarter: 2016-09-24
10-K 2016-06-25 Annual: 2016-06-25
10-Q 2016-03-26 Quarter: 2016-03-26
10-Q 2015-12-26 Quarter: 2015-12-26
10-Q 2015-09-26 Quarter: 2015-09-26
10-K 2015-06-27 Annual: 2015-06-27
10-Q 2015-03-28 Quarter: 2015-03-28
10-Q 2014-12-27 Quarter: 2014-12-27
10-Q 2014-09-27 Quarter: 2014-09-27
10-K 2014-06-28 Annual: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-Q 2013-12-28 Quarter: 2013-12-28
8-K 2019-06-28 Officers
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-01-29 Earnings, Exhibits
8-K 2019-01-10 Officers
8-K 2018-11-08 Shareholder Vote
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-09-04 Officers
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-01-25 Earnings, Exhibits
DE Deere 49,520
NUE Nucor 17,240
CF CF Industries 9,100
ALK Alaska Air Group 7,450
XRX Xerox 7,230
PFGC Performance Food Group 4,130
MBIN Merchants Bancorp 632
PTSI PAM Transportation Services 275
KMG KMG Chemicals 0
NXTM NxStage 0
MXIM 2019-03-30
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1: Basis of Presentation
Note 2: Summary of Significant Accounting Policies
Note 3: Balance Sheet Components
Note 4: Fair Value Measurements
Note 5: Financial Instruments
Note 6: Stock-Based Compensation
Note 7: Earnings per Share
Note 8: Segment Information
Note 9: Comprehensive Income (Loss)
Note 10: Income Taxes
Note 11: Commitments and Contingencies
Note 12: Common Stock Repurchases
Note 13: Acquisition
Note 14: Goodwill and Intangible Assets
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
EX-31.1 ex-311q319.htm
EX-31.2 ex-312q319.htm
EX-32.1 ex-321q319.htm
EX-32.2 ex-322q319.htm

Maxim Integrated Products Earnings 2019-03-30

MXIM 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 maximq31910-q.htm 10-Q Document



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

FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 30, 2019
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
maximlogoa07.jpg
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, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller” reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [x]
Accelerated filer [ ]
Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
Smaller reporting company [ ]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisited financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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

As of April 18, 2019 there were 272,425,069 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, 2019 and June 30, 2018
 
 
 
 
Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 30, 2019 and March 31, 2018
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended March 30, 2019 and March 31, 2018
 
 
 
 
Condensed Consolidated Statements of Shareholders' Equity for the Three and Nine Months Ended March 30, 2019 and March 31, 2018
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 30, 2019 and March 31, 2018
 
 
 
 
Notes to Condensed Consolidated Financial Statements
 
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
 
 
Item 4. Controls and Procedures
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1. Legal Proceedings
 
 
 
 
Item 1A. Risk Factors
 
 
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
Item 3. Defaults Upon Senior Securities
 
 
 
 
Item 4. Mine Safety Disclosures
 
 
 
 
Item 5. Other Information
 
 
 
 
Item 6. Exhibits
 
 
 
 
SIGNATURE
 

2



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

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

 
March 30,
2019
 
June 30,
2018
 
(in thousands)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
1,654,563

 
$
1,543,484

Short-term investments
243,864

 
1,082,915

Total cash, cash equivalents and short-term investments
1,898,427

 
2,626,399

Accounts receivable, net of allowances of $608 at March 30, 2019 and $140,296 at June 30, 2018
381,152

 
280,072

Inventories
272,832

 
282,390

Other current assets
24,358

 
21,548

Total current assets
2,576,769

 
3,210,409

Property, plant and equipment, net
571,955

 
579,364

Intangible assets, net
61,036

 
78,246

Goodwill
532,251

 
532,251

Other assets
61,843

 
51,291

TOTAL ASSETS
$
3,803,854

 
$
4,451,561

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
86,798

 
$
92,572

Price adjustment and other revenue reserves
106,011

 

Income taxes payable
44,179

 
17,961

Accrued salary and related expenses
128,365

 
151,682

Accrued expenses
33,644

 
35,774

Current portion of debt

 
499,406

Total current liabilities
398,997

 
797,395

Long-term debt
992,225

 
991,147

Income taxes payable
688,780

 
661,336

Other liabilities
61,105

 
70,743

Total liabilities
2,141,107

 
2,520,621

 
 
 
 
Commitments and contingencies (Note 11)


 


 
 
 
 
Stockholders’ equity:
 
 
 
Common stock and capital in excess of par value
279

 
279

Retained earnings
1,672,938

 
1,945,646

Accumulated other comprehensive loss
(10,470
)
 
(14,985
)
Total stockholders’ equity
1,662,747

 
1,930,940

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY
$
3,803,854

 
$
4,451,561


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,
2019
 
March 31,
2018
 
March 30,
2019
 
March 31,
2018
 
(in thousands, except per share data)
 
 
 
 
 
 
 
 
Net revenues
$
542,383

 
$
648,599

 
$
1,757,784

 
$
1,846,913

Cost of goods sold
201,552

 
224,653

 
613,669

 
639,460

Gross margin
340,831

 
423,946

 
1,144,115

 
1,207,453

Operating expenses:
 
 
 
 
 
 
 
Research and development
107,075

 
114,390

 
330,086

 
338,886

Selling, general and administrative
74,116

 
81,304

 
233,487

 
240,308

Intangible asset amortization
756

 
876

 
2,285

 
3,623

Impairment of long-lived assets

 

 
753

 
892

Severance and restructuring expenses
1,744

 
2,272

 
3,917

 
14,227

Other operating expenses (income), net

 
266

 
60

 
(1,535
)
Total operating expenses
183,691

 
199,108

 
570,588

 
596,401

Operating income
157,140

 
224,838

 
573,527

 
611,052

Interest and other income (expense), net
3,318

 
(2,534
)
 
3,244

 
(9,868
)
Income before provision for income taxes
160,458

 
222,304

 
576,771

 
601,184

Income tax provision (benefit)
29,845

 
28,677

 
116,843

 
328,038

Net income
$
130,613

 
$
193,627

 
$
459,928

 
$
273,146

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.48

 
$
0.69

 
$
1.67

 
$
0.97

Diluted
$
0.47

 
$
0.68

 
$
1.64

 
$
0.95

 
 
 
 
 
 
 
 
Shares used in the calculation of earnings per share:
 
 
 
 
 
 
 
Basic
273,221

 
280,850

 
275,831

 
281,525

Diluted
276,610

 
285,881

 
279,680

 
286,221


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,
2019
 
March 31,
2018
 
March 30,
2019
 
March 31,
2018
 
(in thousands)
Net income
$
130,613

 
$
193,627

 
$
459,928

 
$
273,146

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 $97, $274, ($131), and $274, respectively
1,139

 
(1,213
)
 
3,116

 
(3,433
)
Change in net unrealized gains and losses on cash flow hedges, net of tax benefit (expense) of $69, $6, $(241), and $(45), respectively
(351
)
 
(217
)
 
1,167

 
133

Change in net unrealized gains and losses on post-retirement benefits, net of tax benefit (expense) of $(23), $(4), $(60), and $(168), respectively
78

 
18

 
232

 
(14
)
Other comprehensive income (loss), net
866

 
(1,412
)
 
4,515

 
(3,314
)
Total comprehensive income
$
131,479

 
$
192,215

 
$
464,443

 
$
269,832


See accompanying Notes to Condensed Consolidated Financial Statements.


5



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

 
Three Months Ended March 30, 2019
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total
Stockholders' Equity
 
Shares
 
Par Value
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 29, 2018
274,326

 
$
279

 
$

 
$
1,766,471

 
$
(11,336
)
 
$
1,755,414

Net income

 

 

 
130,613

 

 
130,613

Other comprehensive income, net

 

 

 

 
866

 
866

Repurchase of common stock 
(2,210
)
 

 
(18,411
)
 
(98,580
)
 

 
(116,991
)
Net issuance of restricted stock units
402

 

 
(9,582
)
 

 

 
(9,582
)
Stock options exercised
177

 

 
5,143

 

 

 
5,143

Stock-based compensation 

 

 
22,850

 

 

 
22,850

Common stock issued under Employee Stock Purchase Plan

 

 

 

 

 

Dividends paid, $0.46 per common share

 

 

 
(125,566
)
 

 
(125,566
)
Balance, March 30, 2019
272,695

 
$
279

 
$

 
$
1,672,938

 
$
(10,470
)
 
$
1,662,747

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended March 30, 2019
 
Common Stock
 
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total
Stockholders' Equity
 
Shares
 
Par Value
 
 
 
 
 
(in thousands)
Balance, June 30, 2018
278,664

 
$
279

 
$

 
$
1,945,646

 
$
(14,985
)
 
$
1,930,940

Net income

 

 

 
459,928

 

 
459,928

Other comprehensive income, net

 

 

 

 
4,515

 
4,515

Repurchase of common stock 
(8,032
)
 

 
(82,155
)
 
(354,892
)
 

 
(437,047
)
Cumulative effect adjustment for adoption of ASU 2016-01

 

 

 
2,487

 

 
2,487

Net issuance of restricted stock units
980

 

 
(23,026
)
 

 

 
(23,026
)
Stock options exercised
699

 

 
18,986

 

 

 
18,986

Stock-based compensation 

 

 
65,035

 

 

 
65,035

Modification of liability to equity instruments (1)

 

 
3,471

 

 

 
3,471

Common stock issued under Employee Stock Purchase Plan
384

 

 
17,689

 

 

 
17,689

Dividends paid, $1.38 per common share

 

 

 
(380,231
)
 

 
(380,231
)
Balance, March 30, 2019
272,695

 
$
279

 
$

 
$
1,672,938

 
$
(10,470
)
 
$
1,662,747

_____________________________

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

See accompanying Notes to Condensed Consolidated Financial Statements.







6



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

 
Three Months Ended March 31, 2018
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total
Stockholders' Equity
 
Shares
 
Par Value
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 30, 2017
281,438

 
$
283

 
$

 
$
1,997,207

 
$
(11,792
)
 
$
1,985,698

Net income

 

 

 
193,627

 

 
193,627

Other comprehensive income, net

 

 

 

 
(1,412
)
 
(1,412
)
Repurchase of common stock 
(2,140
)
 
(2
)
 
(18,659
)
 
(109,039
)
 

 
(127,700
)
Net issuance of restricted stock units
387

 
1

 
(9,642
)
 

 

 
(9,641
)
Stock options exercised
294

 
1

 
7,714

 

 

 
7,715

Stock-based compensation 

 

 
20,587

 

 

 
20,587

Common stock issued under Employee Stock Purchase Plan


 

 

 

 

 

Dividends paid, $0.42 per common share

 

 

 
(117,883
)
 

 
(117,883
)
Balance, March 31, 2018
279,979

 
$
283

 
$

 
$
1,963,912

 
$
(13,204
)
 
$
1,950,991

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended March 31, 2018
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total
Stockholders' Equity
 
Shares
 
Par Value
 
 
 
 
 
(in thousands)
Balance, June 24, 2017
282,912

 
$
283

 
$

 
$
2,212,301

 
$
(9,890
)
 
$
2,202,694

Net income

 

 

 
273,146

 

 
273,146

Other comprehensive (loss), net

 

 

 

 
(3,314
)
 
(3,314
)
Repurchase of common stock 
(5,286
)
 
(3
)
 
(79,174
)
 
(200,769
)
 

 
(279,946
)
Net issuance of restricted stock units
906

 
1

 
(21,162
)
 

 

 
(21,161
)
Stock options exercised
1,031

 
2

 
26,382

 

 

 
26,384

Stock-based compensation 

 

 
58,979

 

 

 
58,979

Common stock issued under Employee Stock Purchase Plan
416

 

 
14,975

 

 

 
14,975

Dividends paid, $1.14 per common share

 

 

 
(320,766
)
 

 
(320,766
)
Balance, March 31, 2018
279,979


$
283


$


$
1,963,912


$
(13,204
)

$
1,950,991



See accompanying Notes to Consolidated Financial Statements.


7



MAXIM INTEGRATED PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
 
March 30,
2019
 
March 31,
2018
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
459,928

 
$
273,146

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Stock-based compensation
64,973

 
58,932

Depreciation and amortization
85,176

 
109,768

Deferred taxes
(12,161
)
 
6,257

Loss (gain) on disposal of property, plant and equipment
3,324

 
572

Impairment of investments in privately-held companies
265

 
850

Other adjustments

 
42

Changes in assets and liabilities:
 
 
 
Accounts receivable
5,475

 
(60,194
)
Inventories
9,620

 
(23,326
)
Other current assets
(3,026
)
 
31,703

Accounts payable
(10,971
)
 
3,429

Income taxes payable
53,662

 
280,664

Deferred margin on shipments to distributors

 
(14,974
)
Accrued salary and related expenses
(19,845
)
 
1,826

All other accrued liabilities
1,953

 
4,110

Net cash provided by (used in) operating activities
638,373

 
672,805

Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(52,170
)
 
(53,664
)
Proceeds from sale of property, plant and equipment
34

 
5,761

Proceeds from sale of available-for-sale securities
30,192

 
100,004

Proceeds from maturity of available-for-sale securities
1,027,083

 
422,500

Payment in connection with business acquisition, net of cash acquired
(2,949
)
 
(57,773
)
Purchases of available-for-sale securities
(214,587
)
 
(1,122,291
)
Purchases of privately-held companies' securities
(1,676
)
 
(3,356
)
Other investing activities
(540
)
 

Net cash provided by (used in) investing activities
785,387

 
(708,819
)
Cash flows from financing activities:
 
 
 
Repayment of debt
(500,000
)
 

Contingent consideration paid
(9,052
)
 

Net issuance of restricted stock units
(23,026
)
 
(21,162
)
Proceeds from stock options exercised
18,986

 
26,383

Issuance of common stock under employee stock purchase program
17,689

 
14,975

Repurchase of common stock
(437,047
)
 
(279,944
)
Dividends paid
(380,231
)
 
(320,766
)
Net cash provided by (used in) financing activities
(1,312,681
)
 
(580,514
)
Net increase (decrease) in cash and cash equivalents
111,079

 
(616,528
)
Cash and cash equivalents:
 
 
 
Beginning of period
$
1,543,484

 
$
2,246,121

End of period
$
1,654,563

 
$
1,629,593

Supplemental disclosures of cash flow information:
 
 
 
Cash paid, net, during the period for income taxes
$
74,385

 
$
17,281

Cash paid for interest
$
31,751

 
$
31,750

Noncash financing and investing activities:
 
 
 
Accounts payable related to property, plant and equipment purchases
$
15,252

 
$
6,798

See accompanying Notes to Condensed Consolidated Financial Statements.

8



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


NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Maxim Integrated Products, Inc. and all of its majority-owned subsidiaries (collectively, the “Company” or “Maxim Integrated”) included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) have been condensed or omitted pursuant to applicable rules and regulations. In the opinion of management, all adjustments of a normal recurring nature which were considered necessary for fair statement have been included. The year-end condensed consolidated balance sheet data were derived from audited consolidated financial statements but do not include all disclosures required by GAAP. The results of operations for the nine months ended March 30, 2019 are not necessarily indicative of the results to be expected for the entire year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2018.

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 2018 was a 53-week fiscal year and fiscal year 2019 is a 52-week fiscal year. The second quarter of fiscal year 2018 was a 14-week quarter and the second quarter of fiscal year 2019 was a 13-week quarter.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recently Issued Accounting Pronouncements

(i) New Accounting Updates Recently Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("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. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires reporting companies to disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

On July 1, 2018, the Company adopted Topic 606 and related amendments (ASU 2015-14, Deferral of the Effective Date; ASU 2016-08, Principal versus Agent Considerations; ASU 2016-10, Identifying Performance Obligations and Licensing, ASU 2016-12, Narrow-Scope Improvements and Practical Expedients and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers) using the modified retrospective method applied to all contracts that are not completed at the date of initial application (i.e., July 1, 2018). Results for reporting periods beginning after July 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting standards under Topic 605.

There was no impact on the opening retained earnings as of July 1, 2018 due to the adoption of Topic 606. However, in conjunction with the adoption of the new standard, the Company recorded a reclassification of accrued revenue reserves for price adjustments and other revenue reserves from accounts receivable, net to price adjustment and other revenue reserves within current liabilities.

The cumulative effect of the changes to the condensed consolidated balance sheet from the adoption of Topic 606 was as follows (in thousands):
 
As of June 30, 2018
 
Effect of Adoption of Topic 606
 
As of July 1, 2018
 
 
 
 
 
 
Accounts receivable, net
$
280,072

 
$
141,652

 
$
421,724

Price adjustment and other revenue reserves

 
141,652

 
141,652



9



Balance Sheet Reclassification

Under Topic 605, the gross amount of accrued revenue reserves for price adjustments and other revenue reserves of $141.7 million was included within accounts receivable, net as of June 30, 2018. Subsequent to the adoption of Topic 606, such balances are presented on a gross basis as accrued price adjustments and other revenue reserves of $141.7 million, which is presented in the price adjustment and other revenue reserves balance sheet caption.

The adoption of Topic 606 has no impact on the total cash flows from operating, investing, or financing activities on the Condensed Consolidated Statements of Cash Flows.

The following table summarizes the impacts of adopting Topic 606 on the Company’s Condensed Consolidated Balance Sheet as of March 30, 2019 (in thousands):

 
As Reported
 
If Reported Under Topic 605
 
Effect of Adoption of Topic 606
 
 
 
 
 
 
Accounts receivable, net
$
381,152

 
$
275,141

 
$
106,011

Price adjustment and other revenue reserves
106,011

 

 
106,011


Practical Expedients and Elections

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
The Company has elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods.
The Company has elected to exclude sales, use, value added, and some excise taxes, if applicable, from the measurement of the transaction price. 

Updated Revenue Recognition Policy

The Company recognizes revenue for sales to direct customers and distribution customers ("distributors") when a customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The transaction price is calculated as selling price net of variable considerations, such as distributor price adjustments. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it is expected to be entitled. The transaction price does not include amounts collected on behalf of another party, such as sales taxes or value added tax. The Company elected the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed. The Company estimates 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 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 agreement with the related customers. Customers are generally required to pay for products and services within the Company’s standard terms, which is net 30 days from the date of invoice. The Company does not have any significant financing components greater than one year.

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 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.


10



Distributor price adjustments are estimated based on the Company's historical experience rates and also considering economic conditions and contractual terms. To date, actual distributor claims activity has been materially consistent with the estimates that the Company has made based on its historical rates.

The Company's revenue arrangements do not contain significant financing components. Revenue is recognized over a period of time when it is assessed that performance obligations are satisfied over a period rather than at a point in time. When any of the following criteria is fulfilled, revenue is recognized over a period of time:

(a) The customer simultaneously receives and consumes the benefits provided by the performance completed.
(b) Performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced.
(c) Performance does not create an asset with an alternative use, and has an enforceable right to payment for performance completed to date.

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. The application of this ASU was made by the means of a cumulative-effect adjustment to the balance sheet for the equity securities that qualify for the practical expedient to estimate fair value using the net asset value per share. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) is being applied prospectively to equity investments that exist as of the date of adoption. The Company adopted ASU 2016-01 in the first quarter of fiscal year 2019. As a result of this adoption, the Company recognized an increase of $2.5 million, net of tax, in retained earnings at the beginning of fiscal year 2019.

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. The Company adopted ASU 2016-16 in the first quarter of fiscal year 2019. The adoption of this guidance did not have an impact on the Company's 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 application of ASU 2017-07 requires retrospective basis for all periods presented. The Company adopted ASU 2017-07 in the first quarter of fiscal year 2019. The adoption of this guidance did not have a material impact on the Company's 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. Unless the changes in terms or conditions meet all three criteria outlined in the guidance, modification accounting should be applied. The three criteria relate to changes in the terms and conditions that affect the fair value, vesting conditions, or classification of a share-based payment award. The guidance is required to be applied prospectively to an award modified on or after the adoption date. The Company adopted ASU 2017-09 in the first quarter of fiscal year 2019. The adoption of this guidance did not have an impact on the Company's consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. 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. The Company adopted ASU 2018-02 in the first quarter of fiscal year 2019. There was no material change to the Company's consolidated financial statements as a result of this adoption.

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 model, with small discrepancies related to the term assumption when valuing non-employee awards. The Company adopted ASU 2018-07 in the first quarter of fiscal year 2019. The adoption of this guidance did not have an impact on the Company's consolidated financial statements.


11



SEC Disclosure Update and Simplification. In August 2018, the SEC adopted a final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, which amends certain disclosure requirements that were redundant and outdated. The rule also requires registrants to include in their interim financial statements a reconciliation of changes in stockholders' equity in the notes or as a separate statement. The final rule was effective on November 5, 2018. The Company has adopted the final rule as of December 29, 2018, and has included a reconciliation of the changes in stockholders' equity in this Form 10-Q.

(ii) Recent Accounting Updates Not Yet Effective

In February 2016, the FASB issued ASU 2016-02, Leases and subsequent amendments to the initial update: ASU 2017-13, ASU 2018-01, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842), which supersede the lease accounting requirements in Topic 840. Topic 842 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 and expects that there will be a material increase in assets and liabilities on the Consolidated Balance Sheets at adoption due to the recognition of right-of-use assets and related lease liabilities. Upon adoption, the Company expects that its financial statement disclosures will be expanded to present additional details of its leasing arrangements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which improves disclosures by removing, modifying and adding disclosure requirements related to fair value measurements. The update highlights adjustments in disclosures for changes in the fair value of Level 1, Level 2, and Level 3 instruments. This guidance is effective beginning in the first quarter of fiscal year 2021, with early adoption permitted. The Company does not believe that this update will have a material impact on its consolidated financial statements.

NOTE 3: BALANCE SHEET COMPONENTS

Inventories consist of:
 
March 30,
2019
 
June 30,
2018
Inventories:
(in thousands)
Raw materials
$
18,799

 
$
16,251

Work-in-process
172,020

 
173,859

Finished goods
82,013

 
92,280

 
$
272,832

 
$
282,390


Property, plant and equipment, net consists of:
 
March 30,
2019
 
June 30,
2018
Property, plant and equipment, net:
(in thousands) 
Land
$
17,731

 
$
17,731

Buildings and building improvements
258,642

 
254,733

Machinery, equipment and software
1,358,892

 
1,309,487

 
1,635,265

 
1,581,951

Less: accumulated depreciation
(1,063,310
)
 
(1,002,587
)
 
$
571,955

 
$
579,364


12




Accrued salary and related expenses consist of:
 
March 30,
2019
 
June 30,
2018
Accrued salary and related expenses:
(in thousands)
Accrued vacation
$
28,831

 
$
30,695

Accrued bonus
56,187

 
92,288

Accrued salaries
13,711

 
8,210

ESPP withholding
15,634

 
5,158

Accrued fringe benefits
8,075

 
4,752

Other
5,927

 
10,579

 
$
128,365

 
$
151,682


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 acquisition related contingent consideration liabilities.


13



Assets and liabilities measured at fair value on a recurring basis were as follows:
 
As of March 30, 2019
 
As of June 30, 2018
 
Fair Value
 Measurements Using
 
Total
Balance
 
Fair Value
 Measurements Using
 
Total
Balance
 
Level 1
 
Level 2
 
Level 3
 
 
Level 1
 
Level 2
 
Level 3
 
 
(in thousands)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Agency securities
$

 
$

 
$

 
$

 
$

 
$
13,946

 
$

 
$
13,946

    Certificates of deposit

 

 

 

 

 
6,000

 

 
6,000

    Commercial paper

 

 

 

 

 
45,063

 

 
45,063

    Corporate debt securities

 

 

 

 

 
3,819

 

 
3,819

    Money market funds
195,805

 

 

 
195,805

 
98,467

 

 

 
98,467

    U.S. Treasury securities

 

 

 

 

 
30,988

 

 
30,988

Short term investments
 
 
 
 
 
 


 
 
 
 
 
 
 


    Certificates of deposit

 
5,000

 

 
5,000

 

 
52,428

 

 
52,428

    Commercial paper

 
2,999

 

 
2,999

 

 
64,354

 

 
64,354

    Corporate debt securities

 
185,994

 

 
185,994

 

 
367,765

 

 
367,765

    U.S. Treasury securities

 
49,871

 

 
49,871

 

 
598,368

 

 
598,368

Other current assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts

 
230

 

 
230

 

 
235

 

 
235

Total assets
$
195,805

 
$
244,094

 
$

 
$
439,899

 
$
98,467

 
$
1,182,966

 
$

 
$
1,281,433

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
$

 
$
496

 
$

 
$
496

 
$

 
$
1,845

 
$

 
$
1,845

Contingent consideration

 

 
9,052

 
9,052

 

 

 
8,000

 
8,000

Other liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration

 

 

 

 

 

 
8,000

 
8,000

Total Liabilities
$

 
$
496

 
$
9,052

 
$
9,548

 
$

 
$
1,845

 
$
16,000

 
$
17,845


During the nine months ended March 30, 2019 and the year ended June 30, 2018, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.

There were no assets or liabilities measured at fair value on a non-recurring basis as of March 30, 2019 and June 30, 2018 other than impairments of long-lived assets. The Company uses various inputs to evaluate investments in privately held companies, including valuations of recent financing events as well as other relevant information regarding the performance of the issuer. There were no material impairments of long-lived assets in any of the periods presented.


14



NOTE 5: FINANCIAL INSTRUMENTS

Short-term investments
Fair values were as follows:
 
March 30, 2019
 
June 30, 2018
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
 
(in thousands)
Available-for-sale investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
$
5,000

 
$

 
$

 
$
5,000

 
$
52,429

 
$

 
$
(1
)
 
$
52,428

Commercial paper
2,999

 

 

 
2,999

 
64,354

 

 

 
64,354

Corporate debt securities
186,446

 
21

 
(473
)
 
185,994

 
369,734

 
39

 
(2,008
)
 
367,765

U.S. Treasury securities
49,973

 

 
(102
)
 
49,871

 
600,068

 
10

 
(1,710
)
 
598,368

Total available-for-sale investments
$
244,418

 
$
21

 
$
(575
)
 
$
243,864

 
$
1,086,585

 
$
49

 
$
(3,719
)
 
$
1,082,915


In the three and nine months ended March 30, 2019 and June 30, 2018, the Company did not recognize any impairment charges on short-term investments. All available-for-sale investments have maturity dates between April 1, 2019 and March 12, 2021.

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

Derivative instruments and hedging activities

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

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

Derivatives designated as cash flow hedging instruments

The Company designates certain forward contracts as hedging instruments pursuant to Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging (“ASC 815”). As of March 30, 2019 and June 30, 2018, the notional amounts of the forward contracts the Company held to purchase international currencies were $44.4 million and $49.7 million, respectively, and the notional amounts of forward contracts the Company held to sell international currencies were $0 and $1.2 million, respectively.

Derivatives not designated as hedging instruments

As of March 30, 2019 and June 30, 2018, the notional amounts of the forward contracts the Company held to purchase international currencies were $19.9 million and $21.1 million, respectively, and the notional amounts of forward contracts the Company held to sell international currencies were $21.9 million and $21.3 million, respectively. The Company's foreign currency forward contract gains or losses included in the Condensed Consolidated Statements of Income were not material for the three and nine months ended March 30, 2019 and March 31, 2018.


15



Effect of hedge accounting on the Condensed Consolidated Statements of Income

The following tables summarize the gains (losses) from hedging activities recognized in the Company's Condensed Consolidated Statements of Income:
 
Three Months Ended
Nine Months Ended
 
March 30, 2019
March 30, 2019
 
Net Revenue
 
Cost of Goods Sold
 
Operating Expenses
 
Net Revenue
 
Cost of Goods Sold
 
Operating Expenses
 
(in thousands)
Income and expenses line items in which the effects of cash flow hedges are recorded
$
542,383

 
$
201,552

 
$
183,691

 
$
1,757,784

 
$
613,669

 
$
570,588

 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) reclassified from accumulated other comprehensive income into income
$
6

 
$
261

 
$
(79
)
 
$
50

 
$
(335
)
 
$
(1,906
)


 
Three Months Ended
Nine Months Ended
 
March 31, 2018
March 31, 2018
 
Net Revenue
 
Cost of Goods Sold
 
Operating Expenses
 
Net Revenue
 
Cost of Goods Sold
 
Operating Expenses
 
(in thousands)
Income and expenses line items in which the effects of cash flow hedges are recorded
$
648,599

 
$
224,653

 
$
199,108

 
$
1,846,913

 
$
639,460

 
$
596,401

 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) reclassified from accumulated other comprehensive income into income
$
(11
)
 
$
165

 
$
356

 
$
(64
)
 
$
116

 
$
1,781




Outstanding debt obligations

The following table summarizes the Company’s outstanding debt obligations:
 
March 30, 2019
 
June 30, 2018
 
(in thousands)
3.45% fixed rate notes due June 2027
$
500,000

 
$
500,000

2.5% fixed rate notes due November 2018

 
500,000

3.375% fixed rate notes due March 2023
500,000

 
500,000

Total outstanding debt
1,000,000

 
1,500,000

Less: Current portion (included in "Current portion of debt")

 
(499,406
)
Less: Reduction for unamortized discount and debt issuance costs
(7,775
)
 
(9,447
)
Total long-term debt
$
992,225

 
$
991,147


On June 15, 2017, the Company completed a public offering of $500 million aggregate principal amount of the Company's 3.45% senior unsecured and unsubordinated notes due in June 2027 (“2027 Notes”), with an effective interest rate of 3.5%. Interest on

16



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. In November of 2018, the Company repaid the entire $500 million in principal and any outstanding interest, related to these outstanding notes.

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

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

The Company accounts for all the notes above based on their amortized cost. The discount and expenses are being amortized to Interest and other income (expense), net in the Condensed Consolidated Statements of Income over the life of the notes. The interest expense is recorded in Interest and other income (expense), net in the Condensed Consolidated Statements of Income. Amortized discount and expenses, as well as interest expense associated with the notes, were $8.9 million and $12.4 million during the three months ended March 30, 2019 and March 31, 2018, respectively. Amortized discount and expenses, as well as interest expense associated with the notes, were $32.5 million and $37.1 million during the nine months ended March 30, 2019 and March 31, 2018, respectively.

The estimated fair value of the Company’s outstanding debt obligations was approximately $985 million as of March 30, 2019. The estimated fair value of the debt is based primarily on observable market inputs and is a Level 2 measurement.

The Company recorded interest expense of $9.3 million and $12.4 million during the three months ended March 30, 2019, and March 31, 2018, respectively. The Company recorded interest expense of $33.9 million and $37.6 million during the nine months ended March 30, 2019 and March 31, 2018, respectively.

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

NOTE 6: STOCK-BASED COMPENSATION

At March 30, 2019, the Company had one stock incentive plan, the Company's 1996 Stock Incentive Plan (the “1996 Plan”) and one employee stock purchase plan, the 2008 Employee Stock Purchase Plan (the “2008 ESPP”). The 1996 Plan was adopted by the Board of Directors to provide the grant of incentive stock options, non-statutory stock options, restricted stock units (“RSUs”), and market stock units (“MSUs”) to employees, directors, and consultants.

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

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

MSUs granted to employees typically vest over a four-year cliff period and are converted into shares of the Company's common stock upon vesting, subject to the employee's continued service to the Company over that period. The number of shares that are

17



released at the end of the performance period can range from zero to a maximum cap depending on the Company's performance. MSUs granted after August 2017 will continue to vest post-employment at the Company for certain individuals satisfying specific eligibility requirements.

The following tables show total stock-based compensation expense by type of award, and the resulting tax effect, included in the Condensed Consolidated Statements of Income for the three and nine months ended March 30, 2019 and March 31, 2018, respectively:

Three Months Ended

March 30, 2019

March 31, 2018

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
$
8


$
1,951


$
654


$
2,613


$
35


$
2,003


$
537


$
2,575

Research and development
5


9,399


1,658


11,062


13


8,725


1,339


10,077

Selling, general and administrative
64


8,184


897


9,145


51


7,218


684


7,953

Pre-tax stock-based compensation expense
$
77


$
19,534


$
3,209


$
22,820


$
99


$
17,946


$
2,560


$
20,605

Less: income tax effect






1,946








2,053

Net stock-based compensation expense








$
20,874








$
18,552


 
Nine Months Ended
 
March 30, 2019
 
March 31, 2018
 
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
$
28

 
$
5,597

 
$
1,656

 
$
7,281

 
$
196

 
$
5,783

 
$
1,482

 
$
7,461

Research and development
27

 
26,783

 
3,948

 
30,758

 
507

 
24,212

 
3,342

 
28,061

Selling, general and administrative
178

 
24,600

 
2,156

 
26,934

 
636

 
21,004

 
1,770

 
23,410

Pre-tax stock-based compensation expense
$
233

 
$
56,980

 
$
7,760

 
$
64,973

 
$
1,339

 
$
50,999

 
$
6,594

 
$
58,932

Less: income tax effect
 
 
 
 
 
 
6,214

 
 
 
 
 
 
 
6,830

Net stock-based compensation expense
 
 
 
 
 
 
$
58,759

 
 
 
 
 
 
 
$
52,102


The expenses included in the Condensed Consolidated Statements of Income for RSUs include expenses related to MSUs of $3.0 million and $2.2 million for the three months ended March 30, 2019 and March 31, 2018, respectively, and $8.3 million and $5.8 million for the nine months ended March 30, 2019 and March 31, 2018, respectively.

Stock Options

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

There were no stock options granted in the three and nine months ended March 30, 2019 and March 31, 2018.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of March 30, 2019 and related activity for the nine months ended March 30, 2019:

18



 
Number of
Shares 
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in Years)
 
Aggregate Intrinsic Value(1)
Balance at June 30, 2018
1,688,253

 
$
27.72

 
 
 
 
Options Granted

 

 
 
 
 
Options Exercised
(699,416
)
 
27.13

 
 
 
 
Options Cancelled
(3,439
)
 
28.08

 
 
 
 
Balance at March 30, 2019
985,398

 
$
28.14

 
1.3
 
$
25,692,173

Exercisable, March 30, 2019
985,398

 
$
28.14

 
1.3
 
$
25,692,173

Vested and expected to vest, March 30, 2019
985,398

 
$
28.14

 
1.3
 
$
25,692,173


(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, 2019, 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, 2019.

As of March 30, 2019, there was no unrecognized stock compensation from unvested stock options.

Restricted Stock Units and Other Awards

The fair value of RSUs and other awards under the Company’s 1996 Plan is estimated using the value of the Company’s common stock on the date of grant, reduced by the present value of dividends expected to be paid on the Company’s common stock prior to vesting. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis.

The weighted-average fair value of RSUs and other awards granted was $51.01 and $54.81 per share for the three months ended March 30, 2019 and March 31, 2018, respectively, and $54.04 and $44.49 per share for the nine months ended March 30, 2019 and March 31, 2018, respectively.

The following table summarizes the outstanding and expected to vest RSUs and other awards as of March 30, 2019 and related activity during the nine months ended March 30, 2019:
 
Number of
Shares 
 
Weighted Average
Remaining
Contractual Term
(in Years)
 
 
Aggregate Intrinsic
Value(1) 
Balance at June 30, 2018
5,524,432

 
 
 
 
Restricted stock units and other awards granted
1,614,379

 
 
 
 
Restricted stock units and other awards released
(1,377,399
)
 
 
 
 
Restricted stock units and other awards cancelled
(458,762
)
 
 
 
 
Balance at March 30, 2019
5,302,650

 
2.7
 
$
287,456,657

Outstanding and expected to vest, March 30, 2019
4,439,502

 
2.7
 
$
240,665,404

(1)
Aggregate intrinsic value for RSUs and other awards represents the closing price per share of the Company’s common stock on March 29, 2019, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of March 30, 2019.
The Company withheld shares totaling $23.0 million in value as a result of employee withholding taxes based on the value of RSUs on vesting date for the nine months ended March 30, 2019. Total payments for employees’ tax obligations to taxing authorities are reflected as financing activities within the Condensed Consolidated Statements of Cash Flows.

As of March 30, 2019, there was $162.6 million of unrecognized compensation expense related to 5.3 million unvested RSUs and other awards, which is expected to be recognized over a weighted average period of approximately 2.7 years.

Market Stock Units (MSUs)


19



The Company grants MSUs to senior members of management in lieu of granting stock options. For MSUs granted prior to September 2017, the performance metrics of this program are based on relative performance of the Company’s stock price as compared to the Semiconductor Exchange Traded Fund index SPDR S&P (the “XSD”). For MSUs granted in September 2017 and after, the performance metrics for this program are based on the total shareholder return ("TSR") of the Company relative to the TSR of the other companies included in the XSD. The fair value of MSUs is estimated using a Monte Carlo simulation model on the date of grant. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis. Compensation expense is recognized based on the initial valuation and is not subsequently adjusted as a result of the Company’s performance relative to that of the XSD or the TSR of the companies included in the XSD, as applicable. Vesting for MSUs is contingent upon both service and market conditions and has a four-year vesting cliff period. MSUs granted after August 2017 vest based upon annual performance and are subject to continued service through the end of the four-year period, but will continue to vest post-employment at the Company for certain individuals satisfying specific eligibility requirements.

The weighted-average fair value of MSUs granted was $75.48 and $51.03 per share for the nine months ended March 30, 2019 and March 31, 2018, respectively.

The following table summarizes the number of MSUs outstanding and expected to vest as of March 30, 2019 and their activity during the nine months ended March 30, 2019:
 
Number of
Shares 
 
Weighted Average
Remaining
Contractual Term
(in Years)
 
 
Aggregate Intrinsic
Value
(1) 
Balance at June 30, 2018
1,079,064

 
 
 
 
Market stock units granted
247,804

 
 
 
 
Market stock units released
(13,594
)
 
 
 
 
Market stock units cancelled
(264,742
)
 
 
 
 
Balance at March 30, 2019
1,048,532

 
2.7
 
$
56,840,920

Outstanding and expected to vest, March 30, 2019
976,524

 
2.7
 
$
52,937,345

(1)
Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on March 29, 2019, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of March 30, 2019.

As of March 30, 2019, there was $31.3 million of unrecognized compensation expense related to 1.0 million unvested MSUs, which is expected to be recognized over a weighted average period of approximately 2.7 years.

Employee Stock Purchase Plan

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

The fair value of 2008 ESPP rights granted to employees has been estimated at the date of grant using the Black-Scholes option valuation model using the following assumptions for the offering periods outstanding:
 
Three Months Ended
 
Nine Months Ended
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
Expected holding period (in years)
0.5 years
 
0.5 years
 
0.5 years
 
0.5 years
Risk-free interest rate
2.4% - 2.6%
 
1.1% - 1.5%
 
1.6% - 2.6%
 
0.8% - 1.5%
Expected stock price volatility
27.5 % - 28.9%
 
20.5% - 20.7%
 
19.6% - 32.7 %
 
19.1% - 24.7%
Dividend yield
2.8% - 3.1%
 
3.0% - 3.1%
 
2.8% - 3.1%
 
3.0% - 3.4%

As of March 30, 2019, there was $5.3 million of unrecognized compensation expense related to the 2008 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

20



excludes unvested RSUs and other awards as well as MSUs. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options, assumed release of unvested RSUs and other awards as well as MSUs, and assumed issuance of common stock under the 2008 ESPP using the treasury stock method.

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