What changed in this filing

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Item 1A. Risk Factors

2020-08-19 compared with 2020-05-20 · 99 added, 29 removed, 299 unchanged (30% of the section changed)

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The description below includes any material changes to and supersedes the description of the risk factors affecting our business previously discussed in "Risk Factors” set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended November 2, 2019.

Risks Related to the Proposed Acquisition of Maxim Integrated Products, Inc.

Our ability to complete the acquisition of Maxim Integrated Products, Inc.

(Maxim) is subject to various closing conditions, including approval by our and Maxim’s shareholders and the receipt of consents and approvals from governmental authorities, which may impose conditions that could adversely affect us or cause the acquisition not to be completed.

On July 12, 2020, we entered into a definitive agreement (the Merger Agreement) to acquire Maxim, an independent manufacturer of innovative analog and mixed-signal products and technologies.

The merger is subject to a number of conditions to closing as specified in the Merger Agreement.

These closing conditions include, among others, the approval by our shareholders of the issuance of our common stock pursuant to the Merger Agreement, the adoption by Maxim stockholders of the Merger Agreement, the expiration or earlier termination of any applicable waiting period (or any extension thereof), the receipt of required approvals under U.S.

and certain foreign competition laws, and the absence of governmental restraints or prohibitions preventing the consummation of the merger.

No assurance can be given that the required shareholder, governmental and regulatory consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all required consents and approvals are obtained and the required conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents and approvals.

Any delay in completing the merger could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that we and Maxim expect to achieve if the merger is successfully completed within its expected time frame.

Additionally, either we or Maxim may terminate the Merger Agreement under certain circumstances, including, among other reasons, if the merger is not completed by July 12, 2021 (which date may be extended under certain circumstances).

Under certain circumstances, including if the proposed merger is terminated due to a failure to obtain the required regulatory clearances, we may be required to pay Maxim a termination fee of $830.0 million.

In addition, either we or Maxim may be required to pay a termination fee to the other party equal to $725.0 million if the Merger Agreement is terminated in certain other circumstances, including if the Merger Agreement is terminated because either our or Maxim’s board of directors has changed its recommendation in respect of the shareholder proposals relating to the merger.

We can provide no assurance that the various closing conditions will be satisfied and that the necessary approvals will be obtained, or that any required conditions will not materially adversely affect the combined company following the acquisition.

In addition, we can provide no assurance that these conditions will not result in the abandonment or delay of the acquisition.

The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations and the trading price of our common stock.

The termination of the Merger Agreement could negatively impact our business.

If the merger is not completed for any reason, including as a result of a failure to obtain the required approvals from our shareholders or Maxim’s stockholders, our ongoing business may be adversely affected and, without realizing any of the expected benefits of having completed the merger, we would be subject to a number of risks, including the following:

• we may experience negative reactions from the financial markets, including negative impacts on our stock price;

• we may experience negative reactions from our customers, suppliers, distributors and employees;

• we will be required to pay our costs relating to the merger, such as financial advisory, legal, financing and accounting costs and associated fees and expenses, whether or not the merger is completed;

• the Merger Agreement places certain restrictions on the conduct of our business prior to completion of the merger and such restrictions, the waiver of which is subject to Maxim’s consent (not to be unreasonably withheld, conditioned or delayed), may prevent us from taking certain actions during the pendency of the merger;

• matters relating to the merger (including integration planning) will require substantial commitments of time and resources by our and Maxim’s management, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial to our business.

Until the completion of the merger or the termination of the Merger Agreement in accordance with its terms, we are prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to us and our shareholders.

From and after the date of the Merger Agreement and prior to completion of the merger, the Merger Agreement restricts us from taking specified actions without Maxim’s consent and requires that our business be conducted in the ordinary course in all material respects.

These restrictions may prevent us from making appropriate changes to our business or organizational structure or from pursuing attractive business opportunities that may arise prior to the completion of the merger, and could have the effect of delaying or preventing other strategic transactions.

Adverse effects arising from these restrictions during the pendency of the merger could be exacerbated by any delays in consummation of the merger or termination of the Merger Agreement.

Whether or not the merger is completed, the announcement and pendency of the merger could cause disruptions in our business, which could have an adverse effect on our business and financial results.

Whether or not the merger is completed, the announcement and pendency of the merger could cause disruptions in our business.

Specifically :

• our and Maxim’s current and prospective employees will experience uncertainty about their future roles with the combined company, which might adversely affect the two companies’ abilities to retain key managers and other employees;

• uncertainty regarding the completion of the merger may cause our and Maxim’s customers, suppliers, distributors, vendors, strategic partners or others that deal with us or Maxim to delay or defer entering into contracts with us or Maxim, make other decisions concerning us or Maxim, or seek to change or cancel existing business relationships with us or Maxim, which could negatively affect our respective businesses;

• the Merger Agreement restricts us and our subsidiaries from taking specified actions during the pendency of the merger without Maxim’s consent, which may prevent us from pursuing attractive business opportunities or strategic transactions that may arise prior to the completion of the merger;

• the attention of our and Maxim’s management may be directed toward the completion of the merger.

We have diverted significant management resources in an effort to complete the merger and are subject to restrictions contained in the Merger Agreement on the conduct of our business.

If the merger is not completed, we will have incurred significant costs, including the diversion of management resources, for which we will have received little or no benefit.

We will incur significant acquisition-related costs in connection with the Maxim acquisition, and the combined company could incur substantial expenses related to the integration of Maxim.

We have incurred and expect to incur a number of non-recurring costs associated with combining the operations of the two companies, as well as transaction fees and other costs related to the merger.

These costs and expenses include fees paid to financial, legal and accounting advisors, facilities and systems consolidation costs, severance and other potential employment-related costs, including severance payments that may be made to certain Maxim employees, filing fees, printing expenses and other related charges.

We will need to pay some of these costs regardless of whether the merger is completed.

The combined company will also incur restructuring and integration costs in connection with the merger.

The costs related to restructuring will be expensed as a cost of the ongoing results of operations of either us or the combined company.

There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the merger and the integration of Maxim’s business.

Although we expect that the elimination of duplicative costs, strategic benefits, and additional income, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction, merger-related and restructuring costs over time, any net benefit may not be achieved in the near term or at all.

We will bear many of these costs even if the merger is not completed.

While we have assumed that certain expenses would be incurred in connection with the merger and the other transactions contemplated by the Merger Agreement, there are many factors beyond our control that could affect the total amount or the timing of the integration and implementation expenses.

Combining our business with Maxim’s may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated benefits of the merger, which may adversely affect the combined company’s business results and negatively affect the value of the combined company’s common stock.

The success of the merger will depend on, among other things, the ability of the two companies to combine their businesses in a manner that facilitates growth opportunities and realizes expected cost savings.

The combined company may encounter difficulties in integrating our and Maxim’s businesses and realizing the anticipated benefits of the merger.

The combined company must achieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth.

If the combined company is not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected.

The merger involves the combination of two companies which currently operate, and until the completion of the merger will continue to operate, as independent public companies.

There can be no assurances that our respective businesses can be integrated successfully.

It is possible that the integration process could result in the loss of key employees from both companies, the loss of customers, the disruption of our, Maxim’s or both companies’ ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated.

The combined company will be required to devote management attention and resources to integrating its business practices and operations, and prior to the merger, management attention and resources will be required to plan for such integration.

Potential difficulties the combined company may encounter in the integration process include the following:

• lost sales and customers as a result of certain customers of either or both of the two companies deciding not to do business with the combined company, or deciding to decrease their amount of business in order to reduce their reliance on a single company;

• integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products and services, especially in the COVID-19 environment which has required employees to work remotely in some locations;

• potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the merger;

• performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the merger and integrating the companies’ operations.

Any of these factors could result in the combined company failing to realize the anticipated benefits of the acquisition, on the expected timeline or at all.

An inability to realize the full extent of the anticipated benefits of the merger and the other transactions contemplated by the Merger Agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of the common stock of the combined company.

In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized.

Actual growth and cost savings, if achieved, may be lower than what we and Maxim expect and may take longer to achieve than anticipated.

If we and Maxim are not able to adequately address integration challenges, we may be unable to successfully integrate their operations or realize the anticipated benefits of the integration of the two companies.

The market value of our common stock could decline if large amounts of our common stock are sold following the Maxim acquisition.

If the merger is consummated, it is expected that we will issue a significant number of shares of our common stock to former Maxim stockholders.

Former Maxim stockholders may decide not to hold the shares of our common stock that they will receive in the merger, and our shareholders may decide to reduce their investment in us as a result of the changes to our investment profile as a result of the merger.

Other Maxim stockholders, such as funds with limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of our common stock that they receive in the merger.

Such sales of our common stock could have the effect of depressing the market price for our common stock.

Risks Related to the Business

The extent to which the novel strain of the coronavirus (COVID-19) pandemic will adversely affect our business, financial condition and results of operations is uncertain.

The COVID-19 pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns.

These measures have adversely impacted and is expected to further adversely impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers.

We have significant operations worldwide, including in the United States, the Philippines, Ireland, Singapore, Malaysia, China, and India, and each of these countries has been affected by the outbreak and taken measures to try to contain it, resulting in disruptions at some of our manufacturing operations and facilities.

These measures have adversely impacted and are expected to further adversely impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers.

We have significant operations worldwide, including in the United States, the Philippines, Ireland, Singapore, Malaysia, China, and India, and each of these countries has been affected by the pandemic and taken measures to try to contain it, resulting in disruptions at some of our manufacturing operations and facilities.

There is considerable uncertainty regarding the impact, and expected duration, of such measures and potential future measures, and restrictions on our access to our facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers.

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We cannot provide assurance that such measures will be sufficient to mitigate the risks posed by COVID-19, and our ability to perform critical functions could be harmed.

The COVID-19 outbreak has significantly increased economic and demand uncertainty and has caused an economic slowdown that is likely to continue and result in a global recession.

The spread of COVID-19 has led to disruption and volatility in the global capital markets, which may adversely affect our and our customers’ and suppliers’ liquidity, cost of capital and ability to access the capital markets.

The COVID-19 pandemic has significantly increased economic and demand uncertainty and has caused an economic slowdown that is likely to continue and result in a global recession.

The COVID-19 pandemic has led to disruption and volatility in the global capital markets, which may adversely affect our and our customers’ and suppliers’ liquidity, cost of capital and ability to access the capital markets.

As a result, the continued spread of COVID-19 could cause further disruption in our supply chain and customer demand, and could adversely affect the ability of our customers to perform, including in making timely payments to us, which could further adversely impact our business, financial condition and results of operations.

We cannot at this time fully quantify or forecast the impact of COVID-19 on our business.

The degree to which COVID-19 impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain, including the scope and duration of the outbreak, the actions to contain the virus or treat its impact, or how quickly and to what extent normal economic and operating conditions can resume.

We cannot at this time fully quantify or forecast the impact of the COVID-19 pandemic on our business.

The degree to which the pandemic impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic, the actions to contain the virus or treat its impact, or how quickly and to what extent normal economic and operating conditions can resume.

Political and economic uncertainty as well as disruptions in global credit and financial markets could materially and adversely affect our business and results of operations.

Continuing political and global macroeconomic uncertainty, including related to the COVID-19 pandemic, trade disputes between the United States and China, and the United Kingdom's withdrawal from the European Union, and uncertainty regarding the stability of global credit and financial markets may lead consumers and businesses to postpone or reduce spending, which may cause our customers to cancel, decrease or delay their existing and future orders for our products and make it difficult for us to accurately forecast and plan our future business activities.

Continuing political and global macroeconomic uncertainty, including related to the COVID-19 pandemic, trade and political disputes between the United States and China, and the United Kingdom's withdrawal from the European Union, and uncertainty regarding the stability of global credit and financial markets may lead consumers and businesses to postpone or reduce spending, which may cause our customers to cancel, decrease or delay their existing and future orders for our products and make it difficult for us to accurately forecast and plan our future business activities.

Financial difficulties experienced by our customers could result in nonpayment or payment delays for previously purchased products, thereby increasing our credit risk exposure.

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In addition, financial difficulties experienced by our suppliers, distributors or customers could result in product delays, increased accounts receivable defaults and inventory challenges.

conditions deteriorate, we may record additional charges relating to restructuring costs or the impairment of assets and our business and results of operations could be materially and adversely affected.

If economic conditions deteriorate, we may record additional charges relating to restructuring costs or the impairment of assets and our business and results of operations could be materially and adversely affected.

We are exposed to business, economic, political, legal, regulatory and other risks through our significant worldwide operations, which could adversely affect our business, financial condition and results of operations.

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Risks associated with our international business operations include the following:

• political, legal and economic changes, crises or instability and civil unrest in markets in which we do business, including potential macroeconomic weakness related to trade disputes between the United States and China, the United Kingdom's withdrawal from the European Union and the implementation of the United States-Mexico-Canada Agreement;

• political, legal and economic changes, crises or instability and civil unrest in markets in which we do business, including potential macroeconomic weakness related to trade and political disputes between the United States and China, the United Kingdom's withdrawal from the European Union and the implementation of the United States-Mexico-Canada Agreement;

• compliance requirements of U.S.

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• greater difficulty enforcing intellectual property rights and weaker laws protecting such rights;

• natural disasters or public health emergencies, such as the current COVID-19 outbreak;

• natural disasters or public health emergencies, such as the current COVID-19 pandemic;

• transportation disruptions and delays and increases in labor and transportation costs;

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In addition, our success in the Chinese markets may be adversely affected by China's continuously evolving policies, laws and regulations, including those relating to antitrust, cybersecurity and data protection, the environment, indigenous innovation and the promotion of a domestic semiconductor industry, and intellectual property rights and enforcement and protection of those rights.

The Company carries outside basis differences in certain of its subsidiaries, primarily arising from acquisition accounting adjustments and undistributed earnings that are considered indefinitely reinvested.

We carry outside basis differences in certain of our subsidiaries, primarily arising from acquisition accounting adjustments and undistributed earnings that are considered indefinitely reinvested.

We intend to reinvest these funds in our international operations, and our current plans do not demonstrate a need to repatriate these earnings to fund our U.S.

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If we are unable to address our U.S.

cash requirements through operations, borrowings under our current revolving credit facility, future debt or equity offerings or other sources of cash obtained at an acceptable cost, it may be

necessary for us to consider repatriation of earnings that are indefinitely reinvested, and we may be required to pay additional taxes under current tax laws, which could have a material adverse effect on our results of operations and financial condition.

cash requirements through operations, borrowings under our current revolving credit facility, future debt or equity offerings or other sources of cash obtained at an acceptable cost, it may be necessary for us to consider repatriation of earnings that are indefinitely reinvested, and we may be required to pay additional taxes under current tax laws, which could have a material adverse effect on our results of operations and financial condition.

Our future revenue, gross margins, operating results, net income and earnings per share are difficult to predict and may materially fluctuate.

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• new accounting pronouncements or changes in existing accounting standards and practices;

• the effects of public health emergencies, natural disasters, widespread travel disruptions, security risks, terrorist activities, international conflicts and other events beyond our control.

• the effects of public health emergencies, civil unrest, natural disasters, widespread travel disruptions, security risks, terrorist activities, international conflicts and other events beyond our control.

In addition, the semiconductor market has historically been cyclical and subject to significant economic upturns and downturns.

Our business and certain of the end markets we serve are also subject to rapid technological changes and material fluctuations in demand based on end-user preferences.

There can be no assurance (i) that products stocked in our inventory will not be rendered obsolete before we ship them, or (ii) that we will be able to design, develop and produce products in a timely

fashion to accommodate changing customer demand.

As a result of these and other factors, we may experience material fluctuations in future revenue, gross margins, operating results, net income and earnings per share on a quarterly or annual basis.

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Our effective tax rate reflects the applicable tax rate in effect in the various tax jurisdictions around the world where our income is earned.

Our effective tax rate for the first three and six months of the fiscal year ending October 31, 2020 was below our U.S.

Our effective tax rate for the first nine months of the fiscal year ending October 31, 2020 was below our U.S.

federal statutory rate of 21%.

This is primarily due to lower statutory tax rates applicable to our operations in the foreign jurisdictions in which we earn income.

This is primarily due to lower statutory tax rates applicable to our operations in the foreign

jurisdictions in which we earn income.

A number of factors may increase our future effective tax rate, including:

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Despite these efforts, internal or external parties may attempt to copy, disclose, obtain or use our products or technology without our authorization.

Also, former employees may seek employment with our business partners, customers or competitors, and there can be no

assurance that the confidential nature of our proprietary information will be maintained in the course of such future employment.

Also, former employees may seek employment with our business partners, customers or competitors, and there can be no assurance that the confidential nature of our proprietary information will be maintained in the course of such future employment.

A significant disruption in, or breach in security of, our information technology systems or certain of our products could materially and adversely affect our business or reputation.

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Our information technology systems may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, telecommunication failures, employee malfeasance, user errors, catastrophes or other unforeseen events.

Due to the COVID-19 outbreak, many of our employees are temporarily working remotely, which may pose additional data security risks.

Due to the COVID-19 pandemic, many of our employees are temporarily working

remotely, which may pose additional data security risks.

We also rely upon external cloud providers for certain infrastructure activities.

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Our growth is also dependent on our ability to identify and penetrate new markets where we have limited experience yet require significant investments, resources and technological advancements in order to compete effectively and there can be no assurance that we will achieve success in these markets.

There can be no assurance that the markets we serve and/or target based on our business strategy will grow in the future, that our existing and new products will meet the requirements of these

markets, that our products, or the end-products in which our products are used, will achieve customer acceptance in these markets, that competitors will not force price reductions or take market share from us, or that we can achieve or maintain adequate gross margins or profits in these markets.

There can be no assurance that the markets we serve and/or target based on our business strategy will grow in the future, that our existing and new products will meet the requirements of these markets, that our products, or the end-products in which our products are used, will achieve customer acceptance in these markets, that competitors will not force price reductions or take market share from us, or that we can achieve or maintain adequate gross margins or profits in these markets.

We may not be able to compete successfully in markets within the semiconductor industry in the future.

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Many companies have sufficient financial, manufacturing, technical, sales and marketing resources to develop and market products that compete with our products.

Some of our competitors may have more advantageous supply or development relationships with our current and potential customers or suppliers.

Some of our competitors may

have more advantageous supply or development relationships with our current and potential customers or suppliers.

Our competitors also include both emerging companies selling specialized products in markets we serve and companies outside of the U.S., including entities associated with well-funded efforts by foreign governments to create indigenous semiconductor industries.

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Our ability to make payments of principal and interest on our indebtedness when due depends upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our consolidated operations, many of which are beyond our control.

For example, the disruption to economic activity

resulting from the COVID-19 outbreak has had, and is likely to continue to have, adverse effects on our supply chain, manufacturing operations and facilities, and workforce.

For example, the disruption to economic activity resulting from the COVID-19 pandemic has had, and is likely to continue to have, adverse effects on our supply chain, manufacturing operations and facilities, and workforce.

If we are unable to generate sufficient cash flow from operations in the future to service our outstanding debt, we may be required to, among other things:

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The semiconductor industry is characterized by frequent claims and litigation involving patent and other intellectual property rights.

Other companies or individuals have obtained patents covering a variety of semiconductor designs and processes, and we might be required to obtain licenses under some of these patents or be precluded from making and selling infringing products, if those patents are found to be valid and infringed by us.

Other companies or individuals have obtained patents covering a variety of semiconductor designs and

processes, and we might be required to obtain licenses under some of these patents or be precluded from making and selling infringing products, if those patents are found to be valid and infringed by us.

In the event a third party makes a valid intellectual property claim against us and a license is not available to us on commercially reasonable terms, or at all, we could be forced either to redesign or to stop production of products incorporating that intellectual property, and our operating results could be materially and adversely affected.

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Our current revolving credit facility, term loan and outstanding debt instruments impose, and future debt instruments to which we may become subject may impose, restrictions that limit our ability to engage in activities that could otherwise benefit our Company, including to undertake certain transactions, to create certain liens on our assets and to incur certain subsidiary indebtedness.

Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control such as changes in technology, government regulations and the level of competition in our markets.

Our ability to comply with these financial restrictions and covenants is dependent on our future performance,

which is subject to prevailing economic conditions and other factors, including factors that are beyond our control such as changes in technology, government regulations and the level of competition in our markets.

In addition, our revolving credit facility and term loan require us to maintain compliance with specified financial ratios.

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• rumors and speculation in the press, investment community or on social media about us, our customers or other companies in our industry;

• announcements by us, our customers or our competitors of significant new products, technical innovations, material transactions, acquisitions or dispositions, litigation, capital commitments or revised earnings estimates;

• departures of key personnel;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors