MAXLINEAR, INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and no evaluation of controls and procedures can provide absolute assurance that all control issues and instances of 61 Table of Contents fraud, if any, within a company have been detected. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, prior to filing this Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Form 10-K. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-K. Management’s Annual Report on Internal Controls over Financial Reporting Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting based on criteria established in the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2020. Management’s evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 did not include internal controls over financial reporting that had not yet been integrated for a portion of the Home Gateway Platform Division of Intel Corporation, which we refer to as the Wi-Fi and Broadband assets business, which we acquired in a business combination in July 2020, as described below. Assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting in the year of acquisition under SEC guidelines. The omitted portion of the Wi-Fi and Broadband assets business relates to certain sales and other transactions made on our behalf by Intel Corporation under the transition services agreement and comprised approximately 5% of our total assets and 3% of our total liabilities as of December 31, 2020 and approximately 23% of total revenues and 19% of cost of goods sold for the year ended December 31, 2020. The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Grant Thornton LLP, an independent registered public accounting firm, and Grant Thornton LLP has issued a report on our internal control over financial reporting, which is included herein. Changes in Internal Control over Financial Reporting An evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to determine whether any change in our internal control over financial reporting occurred during the fiscal quarter ended December 31, 2020 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. On July 31, 2020, we completed the acquisition of the Home Gateway Platform Division of Intel Corporation, which we refer to as the Wi-Fi and Broadband assets business. On September 9, 2020, we completed the acquisition of NanoSemi, Inc. We have completed the integration of NanoSemi into our existing system of internal control over financial reporting; however, we are in the process of integrating the processes, systems, and controls relating to the Wi-Fi and Broadband assets business into our existing system of internal control over financial reporting in accordance with our integration plans through the fiscal quarter ended December 31, 2020. We expect to complete the integration of the internal controls over financial reporting related to the Wi-Fi and Broadband assets business in 2021. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 62 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders MaxLinear, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of MaxLinear, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 11, 2021 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting (“Management's Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting for the portion of the business not yet integrated from the acquisition of the Home Gateway Platform Division of Intel Corporation, which management refers to as the Wi-Fi and Broadband assets business. The omitted portion of the Wi-Fi and Broadband assets business relates to certain sales and other transactions made on the Company's behalf by Intel Corporation under a transition services agreement and comprises approximately 5% of total assets, 3% of total liabilities, 23% of total revenues, and 19% of total cost of goods sold as of and for the year ended December 31, 2020. As indicated in Management’s Report, the Wi-Fi and Broadband assets business was acquired during 2020. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded the internal control over financial reporting related to certain sales and other transactions as discussed. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 63 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Grant Thornton LLP Newport Beach, California February 11, 2021 ITEM 9B. OTHER INFORMATION None. 64 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 with respect to our directors and executive officers will be either (i) included in an amendment to this Annual Report on Form 10-K or (ii) incorporated by reference to our Definitive Proxy Statement to be filed in connection with our 2021 Annual Meeting of Stockholders, or the 2021 Proxy Statement. Such amendment in the 2021 Proxy Statement will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2020. Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16(a) of the Exchange Act. This information will be contained under the caption “Related Person Transactions and Section 16(a) Beneficial Ownership Reporting Compliance” in either an amendment to this Annual Report on Form 10-K or the 2021 Proxy Statement and is incorporated herein by reference. Code of Conduct We have adopted a code of ethics and employee conduct that applies to our board of directors and all of our employees, including our chief executive officer and principal financial officer. Our code of conduct is available at our website by visiting www.maxlinear.com and clicking through “Investors,” “Corporate Governance,” “Governance,” “Governance Documents,” and “Code of Conduct.” When required by the rules of the New York Stock Exchange, or NYSE, or the Securities and Exchange Commission, or SEC, we will disclose any future amendment to, or waiver of, any provision of the code of conduct for our chief executive officer and principal financial officer or any member or members of our board of directors on our website within four business days following the date of such amendment or waiver. The information required by Item 10 with respect to our audit committee is incorporated by reference from the information set forth under the caption “Corporate Governance and Board of Directors — Board Committees” in either an amendment to this Annual Report on Form 10-K or the 2021 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the information set forth under the captions “Compensation of Non-Employee Directors” and “Executive Compensation” in either an amendment to this Annual Report on Form 10-K or our 2021 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item 12 is incorporated by reference from the information set forth under the captions “Executive Compensation — Equity Compensation Plan Information” and “Security Ownership” in either an amendment to this Annual Report on Form 10-K or our 2021 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 is incorporated by reference from the information set forth under the captions “Corporate Governance and Board of Directors — Director Independence” and “Related Person Transactions and Section 16(a) Beneficial Ownership Reporting Compliance” in either an amendment to this Annual Report on Form 10-K or our 2021 Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 is incorporated by reference from the information set forth under the caption “Proposal Number 3 — Ratification of Appointment of Independent Registered Public Accounting Firm” in either an amendment to this Annual Report on Form 10-K or our 2021 Proxy Statement. 65 Table of Contents PART IV — FINANCIAL INFORMATION 66 Table of Contents ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES a) Documents filed as part of the report 1. Financial Statements Our consolidated financial statements are attached hereto and listed on the Index to Consolidated Financial Statements of this Annual Report on Form 10-K. 2. Financial Statement Schedules Schedule II. Valuation and Qualifying Accounts —Years ended December 31, 2020, 2019 and 2018 All other schedules are omitted as the required information is inapplicable, or the information is presented in the financial statements or related notes. SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS (in thousands): Classification Balance at beginning of year Additions (deductions) charged to expenses Other Additions (Deductions) Balance at end of year Allowance for credit losses (previously, allowance for doubtful accounts) 2020 $ — $ — $ — $ — $ — 2019 46 — — ( 46 ) — 2018 73 — — ( 27 ) 46 Warranty reserves 2020 $ 553 $ 300 $ — $ ( 153 ) $ 700 2019 519 74 — ( 40 ) 553 2018 941 ( 414 ) — ( 8 ) 519 Valuation allowance for deferred tax assets 2020 $ 77,957 $ ( 7,385 ) $ 1,239 $ — $ 71,811 2019 79,196 ( 1,239 ) — — 77,957 2018 84,560 ( 5,761 ) 397 — 79,196 67 Table of Contents 3. Exhibits Exhibit Number Exhibit Title 2.1 Agreement and Plan of Merger and Reorganization, dated as of February 3, 2015, by and among MaxLinear, Inc., a Delaware corporation, Entropic Communications, Inc., a Delaware corporation, Excalibur Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of MaxLinear, and Excalibur Subsidiary, LLC, a Delaware limited liability company and wholly-owned subsidiary of MaxLinear (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on February 4, 2015 (File No. 001-34666)). 2.2 Agreement and Plan of Merger, dated as of March 28, 2017, by and among MaxLinear, Inc., a Delaware corporation, Exar Corporation, a Delaware corporation, and Eagle Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of MaxLinear (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on March 29, 2017 (File No. 001-34666)). 2.3 Asset Purchase Agreement, dated as of April 5, 2020, by and among MaxLinear, Inc., a Delaware corporation, Intel Corporation, a Delaware corporation, and MaxLinear Asia Singapore Private Limited, a wholly-owned subsidiary of MaxLinear (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on April 6, 2020 (File No. 001-34666)). 3.1 Registrant’s Amended and Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on March 29, 2010 (incorporated by reference to Exhibit 3.5 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). 3.2 Registrant’s Amended and Restated Bylaws, as amended to date (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 10, 2015 (File No. 001-34666)). 3.3 Registrant’s Amended and Restated Bylaws, as amended to date (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on February 16, 2017 (File No. 001-34666)). 3.4 Certificate of Retirement (incorporated by reference to Exhibit 3.1 to the Amendment No. 1 on Form 8-A filed with the Securities and Exchange Commission on March 30, 2017 (Registration No. 001-34666)). 4.1 Specimen common stock certificate of Registrant (incorporated by reference to Exhibit 4.1 of the Registrant’s Amendment No. 1 on Form 8-A filed on March 30, 2017 (File No. 001-34666)). *4.2 Description of the registrant's securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. +10.1 Form of Director and Executive Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). +10.2 Form of Director and Controlling Person Indemnification Agreement (incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). +10.3 2004 Stock Plan, as amended (incorporated by reference to Exhibit 10.3 of the Registrant’s Annual Report on Form 10-K filed on February 6, 2013 (File No. 001-34666)). +10.4 Form of Stock Option Agreement under the 2004 Stock Plan (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). +10.5 Amendment No. 1 to the form of Stock Option Agreement under the 2004 Stock Plan (incorporated by reference to Exhibit 10.5 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). +10.6 2010 Equity Incentive Plan, as amended on December 13, 2018 (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed on December 19, 2018 (File No. 001-34666)). +10.7 Form of Agreement under the 2010 Equity Incentive (incorporated by reference to Exhibit 10.7 of the Registrant’s Quarterly Report on Form 10-Q filed on July 28, 2011 (File No. 001-34666)). +10.8 2010 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed on August 15, 2016 (File No. 001-34666)). +10.12 Form of Change in Control Agreement for Chief Executive Officer and Chief Financial Officer (incorporated herein by reference to Exhibit 10.12 of the Registrant's Annual Report on Form 10-K filed on February 17, 2016). +10.13 Form of Change in Control Agreement for Executive Officers (incorporated herein by reference to Exhibit 10.13 of the Registrant's Annual Report on Form 10-K filed on February 17, 2016). 10.14 Lease Agreement, dated May 18, 2009, between the Registrant and JCCE - Palomar, LLC (incorporated by reference to Exhibit 10.14 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). 68 Table of Contents Exhibit Number Exhibit Title †10.15 Sublease Agreement, dated May 9, 2009, between the Registrant and CVI Laser, LLC (incorporated by reference to Exhibit 10.15 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). †10.16 Intellectual Property License Agreement, dated June 18, 2009, between the Registrant and Intel Corporation, (incorporated by reference to Exhibit 10.16 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). +†10.17 Employment Offer Letter, dated November 9, 2012, between the Registrant and Will Torgerson (incorporated by reference to Exhibit 10.17 of the Registrant’s Annual Report on Form 10-K filed on February 6, 2013 (File No. 001-34666)). †10.18 Distributor Agreement, dated June 5, 2009, between the Registrant and Moly Tech Limited (incorporated by reference to Exhibit 10.18 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). †10.19 Distributor Agreement, dated October 3, 2005, between the Registrant and Tomen Electronics Corporation (incorporated by reference to Exhibit 10.19 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). †10.20 Distributor Agreement, dated August 19, 2009, between the Registrant and Lestina International Ltd. (incorporated by reference to Exhibit 10.20 of the Registrant’s Registration Statement on Form S-1 and all amendments thereto (File No. 333-162947)). +10.21 MaxLinear, Inc. Executive Bonus Plan, as amended (incorporated herein by reference to Exhibit 10.21 of the Registrant’s Annual Report on Form 10-K filed on February 17, 2016). +10.22 Employment Offer Letter, dated April 22, 2011, between the Registrant and Michael LaChance (incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K filed on March 14, 2012 (File No. 001-34666)). 10.23 Stock Repurchase Agreement, dated August 21, 2012, by and among the Registrant, Mission Ventures III, L.P., Mission Ventures Affiliates III, L.P., and U.S. Venture Partners VIII, L.P. (incorporated by reference to Exhibit 10.23 of the Registrant’s Current Report on Form 8-K filed on August 22, 2012 (File No. 001-34666)). 10.24 Stock Repurchase Agreement, dated October 31, 2012, by and among the Registrant, U.S. Venture Partners VIII, L.P, USVP VIII Affiliates Fund, L.P., USVP Entrepreneur Partners VIII-A, L.P. and USVP Entrepreneur Partners VIII-B, L.P. (incorporated by reference to Exhibit 10.24 of the Registrant’s Current Report on Form 8-K filed on October 31, 2012 (File No. 001-34666)). 10.26 Lease Agreement, dated December 17, 2013, between Registrant and The Campus Carlsbad, LLC (incorporated by reference to Exhibit 10.26 of the Registrant’s Annual Report on Form 10-K filed on February 7, 2014 (File No. 001-34666)). 10.28 Form of MaxLinear Voting Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 4, 2015 (File No. 001-34666)). 10.29 Form of Entropic Voting Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 4, 2015 (File No. 001-34666)). 10.30 First Amendment to Lease, dated May 6, 2015, between Registrant, on the one hand, and Brookwood CB I, LLC and Brookwood CB II, LLC, as tenants in common and successors-in-interest to The Campus Carlsbad, LLC, on the other hand (incorporated by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2015 (File No. 333-34666)). +10.31 Entropic Communications, Inc. 2007 Equity Incentive Plan and Form of Option Agreement, Form of Option Grant Notice thereunder and Notice of Exercise (incorporated herein by reference to Entropic Communication, Inc.’s Annual Report on Form 10-K filed on March 3, 2008 (File No. 001-33844)). +10.32 Entropic Communications, Inc. 2007 Non-Employee Directors’ Stock Option Plan and Form of Option Agreement, Forms of Grant Notice, and Notice of Exercise thereunder (incorporated herein by reference to Entropic Communications, Inc.’s Registration Statement on Form S-1 filed on July 27, 2007 (No. 333-144899)). 10.33 Lease Agreement, dated November 11, 2015, between Registrant and The Northwestern Mutual Life Insurance Company (incorporated herein by reference to Exhibit 10.33 of the Registrant’s Annual Report on Form 10-K filed on February 17, 2016). 10.34 Asset Purchase Agreement, by and between the Company and Microsemi, dated as of April 28, 2016 (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on April 28, 2016). 69 Table of Contents Exhibit Number Exhibit Title 10.35 Asset Purchase Agreement, dated as of May 9, 2016, by and between the Registrant and Broadcom (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on May 9, 2016). +10.36 Employment Promotion Letter, dated February 11, 2016, between the Registrant and Connie Kwong (incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 10-Q filed on May 9, 2016). 10.37 Debt Commitment Letter by and among MaxLinear, Inc., JPMorgan Chase Bank, N.A., Deutsche Bank AG New York Branch, and Deutsche Bank Securities Inc., dated as of March 28, 2017 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K/A filed on March 31, 2017 (File No. 001-34666)). 10.38 Credit Agreement, dated as of May 12, 2017, by and among MaxLinear, Inc., the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (incorporated by references to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on May 12, 2017 (File No. 001-34666)). 10.39 Security Agreement, dated as of May 12, 2017, by and among MaxLinear, Inc., the subsidiary guarantors from time to time party thereto, and JPMorgan Chase Bank, N.A., as collateral agent (incorporated by references to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on May 12, 2017 (File No. 001-34666)). +10.40 Employment Offer Letter, dated June 7, 2018, between the Registrant and Steven Litchfield (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 10-Q filed on August 7, 2018 (File No. 001-34666)). +10.41 Employment Offer Letter, dated June 27, 2018, between the Registrant and Michael Bollesen (incorporated by reference to Exhibit 10.2 to the Registrants Current Report on Form 10-Q filed on August 7, 2018 (File No. 001-34666)). +10.42 Form of Change in Control Agreement for Chief Executive Officer and Chief Financial Officer, as amended (incorporated herein by reference to Exhibit 10.1 of the Registrant's Form 8-K filed on December 19, 2018 (File No. 001-34666)). +10.43 Form of Change in Control Agreement for Executive Officers, as amended (incorporated herein by reference to Exhibit 10.2 of the Registrant's Form 8-K filed on December 19, 2018 (File No. 001-34666)). +10.44 Executive Incentive Bonus Plan, as amended on December 13, 2018 (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed on December 19, 2018 (File No. 001-34666)). +10.45 Clawback Policy, as adopted on December 13, 2018 (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed on December 19, 2018 (File No. 001-34666)). +†10.46 Form of Restricted Stock Unit Award Agreement for Performance-Based Awards under the 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 of the Registrant's Form 10-Q filed on July 25, 2019 (File No. 001-34666)). 10.47 Debt Commitment Letter by and among MaxLinear, Inc., MUFG Union Bank, and Wells Fargo Bank, N.A. dated as of April 5, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on April 6, 2020 (File No. 001-34666)). 10.48 Incremental Amendment No. 1, dated as of July 31, 2020, by and among MaxLinear, the guarantors party thereto, the lenders party thereto, MUFG Bank, Ltd., as administrative agent, and MUFG as collateral agent. *11.1 Statement re computation of income (loss) per share (included in Part IV, Item 15 of this Form 10-K). *21.1 Subsidiaries of the Registrant. *23.1 Consent of Independent Registered Public Accounting Firm. *24.1 Power of Attorney (included on the signature page of this Form 10-K). *31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. #*32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 70 Table of Contents Exhibit Number Exhibit Title 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith. # In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished pursuant to this item will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. + Indicates a management contract or compensatory plan. † Confidential treatment has been requested and received for certain portions of these exhibits. (b) Exhibits The exhibits filed as part of this report are listed in Item 15(a)(3) of this Form 10-K. (c) Schedules The financial statement schedule required by Regulation S-X and Item 8 of this form is listed in Item 15(a)(2) of this Form 10-K. 71 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MAXLINEAR, INC. (Registrant) By: /s/ KISHORE SEENDRIPU, Ph.D. Kishore Seendripu, Ph.D. President and Chief Executive Officer Date: February 11, 2021 (Principal Executive Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kishore Seendripu, Ph.D. and Steven Litchfield, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-facts and agents, or his substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: 72 Table of Contents Signature Title Date /s/ KISHORE SEENDRIPU, Ph.D. President, Chief Executive Officer, and Director February 11, 2021 Kishore Seendripu, Ph.D. (Principal Executive Officer) /s/ STEVEN G. LITCHFIELD Chief Financial Officer and Chief Corporate Strategy Officer February 11, 2021 Steven G. Litchfield (Principal Financial Officer) /s/ CONNIE KWONG Corporate Controller February 11, 2021 Connie Kwong (Principal Accounting Officer) /s/ THOMAS E. PARDUN Lead Director February 11, 2021 Thomas E. Pardun /s/ DANIEL A. ARTUSI Director February 11, 2021 Daniel A. Artusi /s/ CAROLYN D. BEAVER Director February 11, 2021 Carolyn D. Beaver /s/ GREGORY P. DOUGHERTY Director February 11, 2021 Gregory P. Dougherty /s/ ALBERT J. MOYER Director February 11, 2021 Albert J. Moyer /s/ DONALD E. SCHROCK Director February 11, 2021 Donald E. Schrock /s/ THEODORE TEWKSBURY, Ph.D. Director February 11, 2021 Theodore Tewksbury, Ph.D. 73 Table of Contents MaxLinear, Inc. Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 76 Consolidated Balance Sheets 79 Consolidated Statements of Operations 80 Consolidated Statements of Comprehensive Income (Loss) 81 Consolidated Statements of Stockholders’ Equity 82 Consolidated Statements of Cash Flows 83 Notes to Consolidated Financial Statements 84 74 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders MaxLinear, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of MaxLinear, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 11, 2021 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Business combinations - valuation of identifiable intangible assets As discussed in Note 3 to the financial statements, the Company acquired the Home Gateway Platform Division, which the Company refers to as the Wi-Fi and Broadband Assets business, pursuant to an Asset Purchase Agreement with Intel Corporation on July 31, 2020 for a purchase consideration of $150.0 million, which resulted in identifiable intangible assets of $58.0 million. Further, on September 9, 2020, the Company acquired NanoSemi, Inc. for a total purchase price of $61.2 million, which resulted in identifiable intangible assets of $19.9 million. Management estimated the fair value of identifiable intangible assets using available valuation methods. We identified the valuation of identifiable intangible assets as a critical audit matter. The principal consideration for our determination that valuation of identifiable intangible assets is a critical audit matter is that management’s judgments and estimates in selecting valuation methods, and determining significant assumptions and prospective financial information are subject to a high level of judgment and estimation uncertainty. Therefore, subjective and complex auditor judgment is necessary to evaluate the reasonableness of management’s selections, judgments and assumptions since the application of alternative methods and assumptions can result in differing estimates of fair value and historical results may not be indicative of the future 75 Table of Contents due to uncertainties arising from technological advances, complexities in developing new products, industry consolidation and economic factors. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included, among others: • Utilizing a valuation specialist to assist in evaluating the appropriateness of the Company’s selection of valuation methods for the identifiable intangible assets and evaluating the reasonableness of significant assumptions used, including the discount rate, contributory asset charges, and long-term growth rates; • Evaluating significant assumptions of prospective financial information used, such as growth rates, customer attrition rate, the technology obsolescence curve and margin percentages, were reasonable by considering past performance, industry data, current market forecasts, and whether such assumptions were consistent with evidence obtained in other areas of the audit; • Testing the mathematical accuracy of the calculations; and • Testing the design and operating effectiveness of internal controls relating to the valuation reports and allocation of purchase price, which included management’s review of the preliminary valuation report for the completeness and mathematical accuracy of the data, evaluating the reasonableness of significant assumptions used in the calculations, such as assumed growth rates, customer attrition rate, margin percentages, discount rate, contributory asset charges and the long term growth rates as compared to industry and market data. Inventory valuation As discussed in Note 1 to the financial statements, the Company assesses the recoverability of its inventory based on judgments and assumptions about future demand and market conditions. Future demand is determined based on historical sales and expected future sales. The Company reduces its inventory to its lower of cost or net realizable value on a part-by-part basis to account for its obsolescence or lack of marketability. Reductions are calculated as the difference between the cost of inventory and its net realizable value based upon the assumptions about future demand, market conditions, and costs. We identified inventory valuation as a critical audit matter. The principal consideration for our determination that inventory valuation is a critical audit matter is that management’s estimates of future demand and market conditions are subject to a high level of estimation uncertainty. Therefore, subjective and complex auditor judgment is necessary to evaluate the reasonableness of management’s judgments and assumptions since historical results may not be indicative of the future due to uncertainties arising from technological advances, complexities in developing new products, industry consolidation and economic factors. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others: • Evaluating management’s assumptions with regard to future demand by considering whether: ◦ Current and past results indicated management’s ability to reliably forecast future demand. We compared prior year forecasts of future demand to actual results in the current year; ◦ Changes contemplated in forecasted future demand compared with the current year actual results are reasonable; and ◦ The information was consistent with evidence obtained in other areas of the audit; • Evaluating the propriety of significant adjustments to the inventory valuation calculations, by making inquiries of management and reviewing judgments, assumptions and documentation supporting such adjustments; • Testing the completeness, accuracy, and relevance of underlying data used in the estimate of net realizable value of its inventories; and • Testing the design and operating effectiveness of internal controls over the inventory valuation adjustments, including management’s review of the demand forecast and significant adjustments to the inventory valuation calculations. Realizability of deferred tax assets As discussed in Note 1 to the financial statements, management records valuation allowances to reduce deferred tax assets when a judgment is made that is considered more likely than not that a tax benefit will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible. The Company assesses the need for a valuation allowance by evaluating both positive and negative evidence that may exist. We identified the realizability of deferred tax assets as a critical audit matter. The principal consideration for our determination that the realizability of deferred tax assets is a critical audit matter is that the forecast of future taxable income is an accounting 76 Table of Contents estimate subject to a high level of estimation. There is inherent uncertainty and subjectivity related to management’s judgments and assumptions regarding the Company’s international tax structure and transfer pricing agreements, determination of the taxable income by jurisdiction, and the impacts of the Tax Act on future taxable income, which are complex in nature and require significant auditor judgment. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. With the assistance of engagement team members possessing specialized skill in income tax matters, our audit procedures related to the realizability of deferred tax assets included the following, among others: • Reviewing management’s application of the rules under the Tax Act with a focus on Global Intangible Low-Taxed Income and the ordering rules and its expected impact on estimated future taxable income; • Comparing the scheduled reversals of deferred tax liabilities to the underlying financial and tax accounting records; • Comparing the forecast of future taxable income to the following: ◦ Prior year actual results by jurisdiction to evaluate the reasonableness of significant changes contemplated for the following year; ◦ Forecasts of future information used in other areas, such as inventory valuation and impairment assessment of intangible assets, to evaluate completeness and consistency; • Reviewing the Company’s transfer pricing assumptions, including royalty rates and cost plus markups, applied by the Company and its non-US subsidiaries; and • Testing the design and operating effectiveness of management’s internal controls over the completeness and accuracy of the forecast of future taxable income and the proper application of relevant tax law to support the realizability of deferred tax assets. /s/ Grant Thornton LLP We have served as the Company’s auditor since 2016. Newport Beach, California February 11, 2021 77 Table of Contents MAXLINEAR, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value amounts) December 31, December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 148,901 $ 92,708 Short-term restricted cash 115 349 Accounts receivable, net 67,442 50,411 Inventory 97,839 31,510 Prepaid expenses and other current assets 47,421 6,792 Total current assets 361,718 181,770 Long-term restricted cash 1,018 60 Property and equipment, net 39,470 16,613 Leased right-of-use assets 21,886 10,978 Intangible assets, net 207,266 187,971 Goodwill 302,828 238,330 Deferred tax assets 86,065 67,284 Other long-term assets 2,191 2,785 Total assets $ 1,022,442 $ 705,791 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 32,751 $ 13,442 Accrued price protection liability 47,766 12,557 Accrued expenses and other current liabilities 105,842 31,171 Accrued compensation 47,302 9,392 Total current liabilities 233,661 66,562 Long-term lease liabilities 20,862 9,335 Long-term debt 363,592 206,909 Other long-term liabilities 13,210 8,065 Total liabilities 631,325 290,871 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.0001 par value; 25,000 shares authorized, no shares issued or outstanding — — Common stock, $ 0.0001 par value; 550,000 shares authorized, 74,536 shares issued and outstanding at December 31, 2020 and 71,931 shares issued and outstanding at December 31, 2019 7 7 Additional paid-in capital 602,064 529,596 Accumulated other comprehensive income (loss) 1,435 ( 887 ) Accumulated deficit ( 212,389 ) ( 113,796 ) Total stockholders’ equity 391,117 414,920 Total liabilities and stockholders’ equity $ 1,022,442 $ 705,791 See accompanying notes. 78 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Years Ended December 31, 2020 2019 2018 Net revenue $ 478,596 $ 317,180 $ 384,997 Cost of net revenue 265,798 149,495 176,223 Gross profit 212,798 167,685 208,774 Operating expenses: Research and development 179,993 98,344 120,046 Selling, general and administrative 130,025 88,762 101,789 Impairment losses 86 — 2,198 Restructuring charges 3,833 2,636 3,838 Total operating expenses 313,937 189,742 227,871 Loss from operations ( 101,139 ) ( 22,057 ) ( 19,097 ) Interest income 409 775 78 Interest expense ( 12,952 ) ( 11,133 ) ( 14,255 ) Other income (expense), net ( 1,170 ) ( 69 ) 422 Total interest and other income (expense), net ( 13,713 ) ( 10,427 ) ( 13,755 ) Loss before income taxes ( 114,852 ) ( 32,484 ) ( 32,852 ) Income tax benefit ( 16,259 ) ( 12,586 ) ( 6,653 ) Net loss $ ( 98,593 ) $ ( 19,898 ) $ ( 26,199 ) Net loss per share: Basic $ ( 1.35 ) $ ( 0.28 ) $ ( 0.38 ) Diluted $ ( 1.35 ) $ ( 0.28 ) $ ( 0.38 ) Shares used to compute net loss per share: Basic 73,133 71,005 68,490 Diluted 73,133 71,005 68,490 See accompanying notes. 79 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Years Ended December 31, 2020 2019 2018 Net loss $ ( 98,593 ) $ ( 19,898 ) $ ( 26,199 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments, net of tax expense of $ 216 in 2020, expense of $ 136 in 2019 and benefit of $ 200 in 2018 1,010 160 ( 1,572 ) Net actuarial gain on pension and other defined benefit plans, net of tax expense of $ 0 in 2020 1,172 — — Unrealized gain (loss) on interest rate swap, net of tax expense of $ 8 in 2020, benefit of $ 341 in 2019 and expense of $ 187 in 2018 225 ( 1,319 ) 702 Less: Reclassification adjustments of unrealized gain on interest rate swap, net of tax of $ 0 in 2020 ( 85 ) — — Unrealized gain (loss) on interest rate swap, net of tax 140 ( 1,319 ) 702 Other comprehensive income (loss) 2,322 ( 1,159 ) ( 870 ) Total comprehensive loss $ ( 96,271 ) $ ( 21,057 ) $ ( 27,069 ) See accompanying notes. 80 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at December 31, 2017 67,400 $ 7 $ 455,497 $ 1,039 $ ( 69,119 ) $ 387,424 Common stock issued pursuant to equity awards, net 1,875 — 1,761 — — 1,761 Employee stock purchase plan 276 — 4,452 — — 4,452 Stock-based compensation — — 31,734 — — 31,734 Cumulative effect of adoption of new accounting principles — — ( 157 ) 103 1,688 1,634 Other comprehensive loss — — — ( 870 ) — ( 870 ) Net loss — — — — ( 26,199 ) ( 26,199 ) Balance at December 31, 2018 69,551 7 493,287 272 ( 93,630 ) 399,936 Common stock issued pursuant to equity awards, net 2,132 — 140 — — 140 Employee stock purchase plan 248 — 4,109 — — 4,109 Stock-based compensation — — 32,060 — — 32,060 Cumulative effect of adoption of new accounting principles — — — — ( 268 ) ( 268 ) Other comprehensive loss — — — ( 1,159 ) — ( 1,159 ) Net loss — — — — ( 19,898 ) ( 19,898 ) Balance at December 31, 2019 71,931 7 529,596 ( 887 ) ( 113,796 ) 414,920 Common stock issued pursuant to equity awards, net 1,515 — 3,997 — — 3,997 Common stock issued for merger, net 804 — 17,080 — — 17,080 Employee stock purchase plan 286 — 3,794 — — 3,794 Stock-based compensation — — 47,597 — — 47,597 Other comprehensive income — — — 2,322 — 2,322 Net loss — — — — ( 98,593 ) ( 98,593 ) Balance at December 31, 2020 74,536 $ 7 $ 602,064 $ 1,435 $ ( 212,389 ) $ 391,117 See accompanying notes. 81 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2020 2019 2018 Operating Activities Net loss $ ( 98,593 ) $ ( 19,898 ) $ ( 26,199 ) Adjustments to reconcile net loss to cash provided by operating activities: Amortization and depreciation 76,513 66,401 79,027 Impairment losses 86 — 2,198 Inventory fair value adjustments 32,945 — — Amortization of debt issuance costs and accretion of discount on debt and leases 2,201 1,577 1,148 Stock-based compensation 47,597 32,060 31,721 Deferred income taxes ( 18,488 ) ( 15,693 ) ( 12,144 ) Loss on disposal of property and equipment — 46 430 Impairment of leasehold improvements 319 1,442 735 Impairment of leased right-of-use assets 1,508 9,240 — Gain on extinguishment of lease liabilities — ( 10,437 ) — (Gain) loss on foreign currency and other 1,289 760 ( 809 ) Excess tax benefits on stock-based awards ( 677 ) ( 4,064 ) ( 2,028 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 16,856 ) 9,090 6,595 Inventory ( 31,837 ) 10,195 11,696 Prepaid expenses and other assets ( 38,954 ) 3,805 1,071 Leased right-of-use assets 441 3,044 — Accounts payable, accrued expenses and other current liabilities 57,094 1,261 5,923 Accrued compensation 32,606 2,021 8,961 Deferred revenue and deferred profit — — ( 138 ) Accrued price protection liability 34,719 ( 3,966 ) ( 5,117 ) Lease liabilities ( 6,386 ) ( 8,142 ) — Other long-term liabilities ( 1,934 ) ( 394 ) ( 381 ) Net cash provided by operating activities 73,593 78,348 102,689 Investing Activities Purchases of property and equipment ( 12,487 ) ( 6,887 ) ( 7,825 ) Purchases of intangible assets ( 2,799 ) ( 86 ) — Cash used in acquisitions, net of cash acquired ( 160,000 ) — — Net cash used in investing activities ( 175,286 ) ( 6,973 ) ( 7,825 ) Financing Activities Net proceeds from the issuance of debt 175,000 — — Payment of debt issuance cost ( 2,696 ) — — Repayment of debt ( 17,188 ) ( 50,000 ) ( 93,000 ) Net proceeds from issuance of common stock 8,068 8,603 6,839 Minimum tax withholding paid on behalf of employees for restricted stock units ( 3,535 ) ( 11,986 ) ( 7,623 ) Net cash provided by (used in) financing activities 159,649 ( 53,383 ) ( 93,784 ) Effect of exchange rate changes on cash and cash equivalents ( 1,039 ) 934 ( 1,301 ) Increase in cash, cash equivalents and restricted cash 56,917 18,926 ( 221 ) Cash, cash equivalents and restricted cash at beginning of period 93,117 74,191 74,412 Cash, cash equivalents and restricted cash at end of period $ 150,034 $ 93,117 $ 74,191 Supplemental disclosures of cash flow information: Cash paid for interest $ 11,082 $ 11,259 $ 13,957 Cash paid for income taxes $ 2,822 $ 4,417 $ 5,426 Supplemental disclosures of non-cash investing and financing activities: Common stock issued in acquisitions, at fair value $ 17,080 $ — $ — Deferred payments of purchase price for acquisitions, at fair value $ 34,100 $ — $ — Issuance of shares for payment of bonuses $ 3,258 $ 7,632 $ 6,997 See accompanying notes. 82 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) 1. Organization and Summary of Significant Accounting Policies Description of Business MaxLinear, Inc. was incorporated in Delaware in September 2003. MaxLinear, Inc., together with its wholly owned subsidiaries, collectively referred to as MaxLinear, or the Company, is a provider of communications systems-on-chip (SoC) solutions used in broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications. MaxLinear is a fabless integrated circuit design company whose products integrate all or substantial portions of a high-speed communication system, including radio frequency (RF), high-performance analog, mixed-signal, digital signal processing, security engines, data compression and networking layers, and power management. MaxLinear’s customers include electronics distributors, module makers, original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs, who incorporate the Company’s products in a wide range of electronic devices, including cable Data Over Cable Service Interface Specifications (DOCSIS), fiber and DSL broadband modems and gateways; Wi-Fi and wireline routers for home networking; radio transceivers and modems for 4G/5G base-station and backhaul infrastructure; fiber-optic modules for data center, metro, and long-haul transport networks; as well as power management and interface products used in these and many other markets. Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of MaxLinear, Inc. and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. All intercompany transactions and investments have been eliminated in consolidation. The functional currency of certain foreign subsidiaries is the local currency. Accordingly, assets and liabilities of these foreign subsidiaries are translated at the current exchange rate at the balance sheet date and historical rates for equity. Revenue and expense components are translated at weighted average exchange rates in effect during the period. Gains and losses resulting from foreign currency translation are included as a component of stockholders’ equity. Foreign currency transaction gains and losses are included in the results of operations, and to date, have not been material. Use of Estimates and Significant Risks and Uncertainties The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes of the consolidated financial statements. Actual results could differ from those estimates. In the year ended December 31, 2020, the Company’s revenues were impacted by the coronavirus disease, or COVID-19, pandemic. In particular, the Company experienced some negative impact to its revenue and gross profits in the first half of 2020 due to several industry-wide dynamics related to COVID-19 including supply constraints as well as customer requests to temporarily delay shipments. Although the Company has benefited from increased demand for certain of its products from the work-from-home environment in the second half of 2020, heightened volatility and uncertainty in customer demand and the worldwide economy in general has continued, and the Company may experience increased volatility in its sales and revenues in the near future. However, the magnitude of such volatility on the Company’s business and its duration is uncertain and cannot be reasonably estimated at this time. The Company also believes that its $ 148.9 million of cash and cash equivalents at December 31, 2020 will be sufficient to fund its projected operating requirements for at least the next twelve months. A material adverse impact from COVID-19 could result in a need to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating activities, particularly if the Company pursues additional acquisitions. The Company’s future capital requirements will depend on many factors, including the Company’s efforts to complete the integration of the acquired Wi-Fi and Broadband assets business and NanoSemi (Note 3), changes in revenue, the expansion of engineering, sales and marketing activities, the timing and extent of expansion into new territories, the timing of introductions of new products and enhancements to existing products, the continuing market acceptance of the Company’s products and potential material investments in, or acquisitions of, complementary businesses, services or technologies. Additional funds may not be available on terms favorable to the Company or at all. If the Company is unable to raise additional funds when needed, it may not be able to sustain its operations or execute its strategic plans. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of February 11, 2021, the issuance date of this Annual Report on Form 10-K. Actual results could differ from those estimates, particularly if the Company experiences material impacts from 83 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) COVID-19. Business Combinations The Company applies the provisions of ASC 805, Business Combinations , in accounting for its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. Costs to exit or restructure certain activities of an acquired company or the Company’s internal operations are accounted for as termination and exit costs pursuant to ASC 420, Exit or Disposal Cost Obligations , and are accounted for separately from the business combination. A liability for costs associated with an exit or disposal activity is recognized and measured at its fair value in the consolidated statements of operations in the period in which the liability is incurred. For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may extend its review, evaluation, and adjustment of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether the Company includes these contingencies as a part of the fair value estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts. A pre-acquisition contingency (non-income tax related) is only recognized as an asset or a liability if: (i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement period, changes in estimates of such contingencies will affect earnings and could have a material effect on the Company's results of operations and financial position. In addition, uncertain tax positions and tax-related valuation allowances assumed, if any, in connection with a business combination are initially estimated as of the acquisition date. The Company re-evaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to the preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the end of the measurement period or final determination of the estimated value of the tax allowance or contingency, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect the income tax provision (benefit) in the consolidated statements of operations and could have a material impact on the results of operations and financial position. Cash and Cash Equivalents The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are recorded at cost, which approximates market value. Accounts Receivable The Company performs ongoing credit evaluations of its customers and assesses each customer’s credit worthiness. The Company monitors collections and payments from its customers and maintains an allowance for doubtful accounts, which effective January 1, 2020, is based upon applying an expected credit loss rate to receivables based on the historical loss rate from similar high risk customers adjusted for current conditions, including any specific customer collection issues identified, and forecasts of economic conditions. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The allowance for credit losses as of December 31, 2020 and the activity in this account, including the current-period provision for expected credit losses for the year ended December 31, 2020, were not material. Inventory The Company assesses the recoverability of its inventory based on assumptions about demand and market conditions. Forecasted demand is determined based on historical sales and expected future sales. Inventory is stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis and net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, 84 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) disposal and transportation. The Company reduces its inventory to its lower of cost or net realizable value on a part-by-part basis to account for its obsolescence or lack of marketability. Reductions are calculated as the difference between the cost of inventory and its net realizable value based upon assumptions about future demand, market conditions and costs. Once established, these adjustments are considered permanent and are not revised until the related inventory is sold or disposed of. Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and compensation are considered to be representative of their respective fair values because of the short-term nature of these accounts. The interest rate swap was carried at fair value prior to its expiration in 2020. Property and Equipment Property and equipment is carried at cost and depreciated over the estimated useful lives of the assets, ranging from two to five years , using the straight-line method. Leasehold improvements are stated at cost and amortized over the shorter of the estimated useful lives of the assets or the lease term. Production Masks Production masks with alternative future uses or discernible future benefits are capitalized and amortized over their estimated useful life of two to five years . To determine if the production mask has alternative future uses or benefits, the Company evaluates risks associated with developing new technologies and capabilities, and the related risks associated with entering new markets. Production masks that do not meet the criteria for capitalization are expensed as research and development costs. Goodwill and Intangible Assets Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method. Intangible assets represent purchased intangible assets including developed technology, in-process research and development, or IPR&D, technologies acquired or licensed from other companies, customer relationships, non-compete covenants, backlog, and trademarks and tradenames. Purchased finite-lived intangible assets are capitalized and amortized over their estimated useful lives. Technologies acquired or licensed from other companies, customer relationships, non-compete covenants, backlog, and trademarks and tradenames are capitalized and amortized over the lesser of the terms of the agreement, or estimated useful life. The Company capitalizes IPR&D projects acquired as part of a business combination. On completion of each project, IPR&D assets are reclassified to developed technology and amortized over their estimated useful lives. Impairment of Goodwill and Long-Lived Assets Goodwill is not amortized but is tested for impairment using either a qualitative assessment, and/or quantitative assessment, which effective with its October 31, 2020 impairment test, is based on comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, a goodwill impairment loss is recorded. The Company tests by reporting unit, goodwill and other indefinite-lived intangible assets for impairment as of October 31 each year or more frequently if it believes indicators of impairment exist. During development, IPR&D is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company reviews indefinite-lived intangible assets for impairment using a qualitative assessment, followed by a quantitative assessment, as needed, each year as of October 31, the date of its annual goodwill impairment review, or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Recoverability of indefinite-lived intangible assets is measured by comparing the carrying amount of the asset to its fair value. In certain cases, the Company utilizes the relief-from-royalty method when appropriate, and a fair value will be obtained based on analysis over the costs saved by owning the right instead of leasing it. Once an IPR&D project is complete, it becomes a finite-lived intangible asset and is evaluated for impairment both immediately prior to its change in classification and thereafter in accordance with the Company's policy for long-lived assets. The Company regularly reviews the carrying amount of its long-lived assets subject to depreciation and amortization, as well as the useful lives, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. An impairment loss would be recognized when the sum of the expected future undiscounted net cash 85 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) flows is less than the carrying amount of the asset. Should impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the asset over the asset’s fair value. During the years 2020, 2019, and 2018, the Company identified impairment of intangible assets of $ 0.1 million, $ 0 and $ 2.2 million, respectively. Refer to Goodwill and Intangible Assets, Note 5 for more information. Revenue Recognition The Company's revenue is primarily generated from sales of the Company’s integrated circuits to electronics distributors, module makers, OEMs, and ODMs under individual customer purchase orders, some of which have underlying master sales agreements that specify terms governing the product sales. Effective January 1, 2018, the Company adopted ASC 606 and recognizes such revenue at the point in time when control of the products is transferred to the customer at the estimated net consideration for which collection is probable, taking into account the customer's rights to price protection, other pricing credits, unit rebates, and rights to return unsold product. Transfer of control occurs either when products are shipped to or received by the distributor or direct customer, based on the terms of the specific agreement with the customer, if the Company has a present right to payment and transfer of legal title and the risks and rewards of ownership to the customer has occurred. For most of the Company's product sales, transfer of control occurs upon shipment to the distributor or direct customer. In assessing whether collection of consideration from a customer is probable, the Company considers the customer's ability and intention to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, typically 30 days from the invoice date, which occurs on the date of transfer of control of the products to the customer. Since payment terms are less than a year, the Company has elected the practical expedient and does not assess whether a customer contract has a significant financing component. A five-step approach is applied in the recognition of revenue under ASC 606: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the Company satisfies a performance obligation. The Company applied ASC 606 to its customer contracts that were not completed before the January 1, 2018 adoption date. Customer purchase orders plus the underlying master sales agreements are considered to be contracts with the customer for purposes of applying the five-step approach under ASC 606. Pricing adjustments and estimates of returns under contractual stock rotation rights are treated as variable consideration for purposes of determining the transaction price, and are estimated at the time control transfers using the expected value method based on the Company's analysis of actual price adjustment claims by distributors and historical product return rates, and then reassessed at the end of each reporting period. The Company also considers whether any variable consideration is constrained, since such amounts for which it is probable that a significant reversal will occur when the contingency is subsequently resolved are required to be excluded from revenues. Price adjustments are finalized at the time the products are sold through to the end customer and the distributor or end customer submits a claim to reduce the sale price to a pre-approved net price. Stock rotation allowances are capped at a fixed percentage of the Company's sales to a distributor for a period of time, up to six months, as specified in the individual distributor contract. If the Company's current estimates of such credits and rights are materially inaccurate, it may result in adjustments that affect future revenues and gross profits. Returns under the Company's general assurance warranty of products for a period of one to three years have not been material and warranty-related services are not considered a separate performance obligation under the customer contracts. Most of the Company's customers resell the Company's product as part of their product and thus are tax-exempt; however, to the extent the Company collects and remits taxes on product sales from customers, it has elected to exclude from the measurement of transaction price such taxes. Each distinct promise to transfer products is considered to be an identified performance obligation for which revenue is recognized upon transfer of control of the products to the customer. Although customers may place orders for products to be delivered on multiple dates that may be in different quarterly reporting periods, all of the orders are scheduled within one year from the order date. The Company has opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606. The Company has also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, as the period over which the sales commission asset that would have been recognized is less than one year. Customer contract liabilities consist primarily of obligations to deliver rebates to customers in the form of units of products which are included in accrued expenses and other current liabilities in the consolidated balance sheets. Other obligations to customers consist of estimates of price protection rights offered to the Company's end customers, which are 86 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) included in accrued price protection liability in the consolidated balance sheets, as well as price adjustments expected to be claimed by the distributor upon sell-through of the products to their customers, and amounts expected to be returned by distributors under stock rotation rights, which are included in accrued expenses and other current liabilities in the consolidated balance sheets. The Company also records a right of return asset, consisting of amounts representing the products the Company expects to receive from customers in returns, which is included in inventory in the consolidated balance sheets, and is typically settled within six months of transfer of control to the customer, or the period over which stock rotation rights are based. Upon lapse of the time period for stock rotations, or the contractual end to price protection and rebate programs, which is approximately one to two years , and when the Company believes unclaimed amounts are no longer subject to payment and will not be paid, any remaining asset or liability is derecognized by an offsetting entry to cost of net revenue and net revenue. For additional disclosures regarding contract liabilities and other obligations to customers, see Note 15 . The Company assesses customer accounts receivable and contract assets for impairment in accordance with ASC 310-10-35. Warranty The Company generally provides a warranty on its products for a period of one to three years. The Company makes estimates of product return rates and expected costs to replace the products under warranty at the time revenue is recognized based on historical warranty experience and any known product warranty issues. If actual return rates and/or replacement costs differ significantly from these estimates, adjustments to recognize additional cost of net revenue may be required in future periods. As of December 31, 2020 and 2019, the Company has warranty reserves of $ 0.7 million and $ 0.6 million, respectively, based on the Company’s estimates. Segment Information The Company operates in one segment as it has developed, marketed and sold primarily only one class of similar products, radio-frequency, high-performance analog and mixed-signal communications system-on-chip solutions for the connected home, wired and wireless infrastructure markets and industrial and multi-market applications. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company’s Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results and plans for products or components below the consolidated unit level. Accordingly, the Company reports as a single operating segment. Stock-based Compensation The Company measures the cost of employee services received in exchange for equity incentive awards, including restricted stock units and restricted stock awards, employee stock purchase rights and stock options based on the grant date fair value of the award. The Company calculates the fair value of restricted stock units and performance-based restricted stock units based on the fair market value of the Company’s common stock on the grant date. Stock-based compensation expense is then determined based on the number of restricted stock units that are expected to vest; for performance-based restricted stock units, this is the number of units that are expected to vest during the performance period if it is probable that the Company will achieve the performance metrics specified in the underlying award agreement. The Company uses the Black-Scholes valuation model to calculate the fair value of stock options and employee stock purchase rights granted to employees. Stock-based compensation expense is recognized over the period during which the employee is required to provide services in exchange for the award, which is usually the vesting period. The Company recognizes compensation expense over the vesting period using the straight-line method and classifies these amounts in the consolidated statements of operations based on the department to which the related employee reports. Research and Development Costs incurred in connection with the development of the Company’s technology and future products are charged to research and development expense as incurred. 87 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Leases The Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether an arrangement contains a lease at inception. Effective January 1, 2019, the Company recognizes a lease liability to make contractual payments under all leases with terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying asset for the lease term. The lease liability is initially measured at the present value of the lease payments over the lease term using the collateralized incremental borrowing rate since the implicit rate is unknown. Options to extend or terminate a lease are included in the lease term when it is reasonably certain that the Company will exercise such an option. The right-of-use asset is initially measured as the contractual lease liability plus any initial direct costs and prepaid lease payments made, less any lease incentives. Upon adoption of ASC 842 on January 1, 2019, the carrying value of lease-related restructuring liabilities for certain restructured leases existing at that date, was offset against the related right-of-use assets. Lease expense is recognized on a straight-line basis over the lease term. Upon adoption of ASC 842, the Company elected certain practical expedients and accordingly has (1) carried forward its prior assessments of (a) whether existing contracts on the January 1, 2019 adoption date contain leases, (b) classification of leases as operating or financing and (c) initial direct costs for existing leases and (2) considered hindsight in determining the lease term and assessing impairment of the right-of-use-asset. In addition, the Company used a portfolio approach for its facility leases when making judgments and estimates, such as the discount rate. Leased right-of-use assets are subject to impairment testing as a long-lived asset at the asset-group level. The Company monitors its long-lived assets for indicators of impairment. As the Company's leased right-of-use assets primarily relate to facility leases, early abandonment of all or part of facility as part of a restructuring plan is typically an indicator of impairment. If impairment indicators are present, the Company tests whether the carrying amount of the leased right-of-use asset is recoverable including consideration of sublease income, and if not recoverable, measures impairment loss for the right-of-use asset or asset group. Derivatives and Hedging Activities The Company records derivatives in the consolidated balance sheets at fair value. Hedge accounting is applied to derivatives designated in a hedging relationship. A derivative designated as a hedge of a forecasted transaction is carried at fair value with the effective portion of a derivative’s gain or loss recorded in other comprehensive income (i.e., a separate component of stockholders’ equity) and subsequently recognized in earnings in the same period or periods the hedged forecasted transaction affects earnings. The ineffective portion of a derivative’s gain or loss is recorded in earnings as it occurs. Changes in certain terms of the hedged transactions, including the selection of interest rate from one-month LIBOR to another rate could cause ineffectiveness in the derivatives and result in reclassification of amounts in accumulated other comprehensive income (loss) into earnings. Pension and Other Defined Benefit Retirement Obligations The costs of pension and certain other defined benefit employee retirement benefits are required to be recognized based upon actuarial valuations. The related net retirement benefit obligation is recognized as the excess of the projected benefit obligation over the fair value of the plan assets. In measuring the retirement benefit obligation, the discount rate, expected long-term rate of return on plan assets, and long-term rate of salary increase are the most significant assumptions. Retirement benefit costs primarily represent the increase in the actuarial present value of the retirement benefit obligation. Income Taxes The Company provides for income taxes utilizing the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are presented net as noncurrent. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when a judgment is made that is considered more likely than not that a tax benefit will not be realized. A decision to record a valuation allowance results in an increase in income tax expense or a decrease in income tax benefit. If the valuation allowance is released in a future period, income tax expense will be reduced accordingly. The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. The impact of an uncertain income tax position is recognized at the largest amount that is “more likely than not” to be sustained 88 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company continually assesses the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required. On December 22, 2017, the Tax Cuts and Jobs Act, or the Tax Act, was enacted into U.S. tax law. In 2018, the Company made an accounting policy election to treat Global Intangible Low Taxed Income in accordance with the Tax Act as a period cost. Comprehensive Income (Loss) Comprehensive income (loss) is defined as the change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income (loss) includes certain changes in equity that are excluded from net income (loss), net of tax, such as foreign currency translation gains and losses, and unrealized gains and losses from interest rate hedging activities. Litigation and Settlement Costs Legal costs are expensed as incurred. The Company is involved in disputes, litigation and other legal actions in the ordinary course of business. The Company continually evaluates uncertainties associated with litigation and records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the loss or range of loss can be reasonably estimated. Recently Adopted Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , to replace the incurred loss methodology with an expected credit loss model that requires consideration of a broader range of information to estimate credit losses over the lifetime of the asset, including current conditions and reasonable and supportable forecasts in addition to historical loss information, to determine expected credit losses. Pooling of assets with similar risk characteristics and the use of a loss model are also required. Also, in April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to clarify the inclusion of recoveries of trade receivables previously written off when estimating an allowance for credit losses. The amendments in this update were required to be applied using the modified retrospective method with an adjustment to accumulated deficit and were effective for the Company beginning with fiscal year 2020, including interim periods. The adoption of the amendments in this update as of January 1, 2020 did not have a material impact on the Company’s accounts receivable, net and accumulated deficit, as well as its results of operations for the year ended December 31, 2020. In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this update are effective for the Company beginning with fiscal year 2020, including interim periods. The adoption of the amendments in this update as of the Company’s October 31, 2020 goodwill impairment test date did not have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ended December 31, 2020. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement , to improve the fair value measurement reporting of 89 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) financial instruments. The amendments in this update require, among other things, added disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update eliminate, among other things, disclosure of the reasons for and amounts of transfers between Level 1 and Level 2 for assets and liabilities that are measured at fair value on a recurring basis and an entity's valuation processes for Level 3 fair value measurements. The amendments in this update were effective for the Company beginning with fiscal year 2020. Retrospective application is required for all amendments in this update except the added disclosures, which should be applied prospectively. The adoption of the amendments in this update did not have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ended December 31, 2020. In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , to provide additional guidance on the accounting for costs of implementing cloud computing arrangements that are service contracts. The amendments in this update require the capitalization of implementation costs during the application development stage of such hosting arrangements and amortization of the expense over the term of the arrangement including any option to extend reasonably certain to be exercised or option to terminate reasonably certain not to be exercised. Capitalized implementation costs and amortization thereof are also required to be classified in the same line item in the statements of financial position, operations and cash flows associated with the hosting service fees. The amendments in this update were effective for the Company beginning with fiscal year 2020. Entities may select retrospective or prospective application to all implementation costs incurred after the adoption date. The Company has selected prospective application. The adoption of the amendments in this update did not have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ended December 31, 2020. In August 2018, the FASB issued ASU No. 2018-14 Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20) , to clarify disclosure requirements related to defined benefit pension plans. The amendment adds a narrative description on the reasons for significant gains and losses affecting the benefit obligation and an explanation of any other significant changes in the benefit obligation or plan assets not otherwise apparent in other disclosures. The amendment removes the disclosure of amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit costs over the next year. The amendments in this update are effective for the Company beginning with fiscal year 2021. Entities are required to apply the amendments on a retrospective basis with early adoption permitted. The Company selected to early adopt this update. The adoption of the amendments in this update did not have a material impact on the Company's defined benefit plan disclosures and the Company's consolidated financial position and results of operations as of and for the year ended December 31, 2020. In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting , that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR), which will be discontinued by the end of 2021. Also, in January 2021, the FASB issued ASU No. 2021-01 Reference Rate Reform (Topic 848)—Scope , to clarify that cash flow hedges are eligible for certain optional expedients and exceptions for the application of subsequent assessment methods to assume perfect effectiveness as previously presented in ASU 2020-04. The amendments in this update are effective immediately and may be applied through December 31, 2022. The Company's LIBOR interest rate swap expired in October 2020 and was not impacted by reference rate reform. Therefore, the adoption of the amendments in this update did not have a material impact on the Company’s accumulated other comprehensive loss or its results of operations as of and for the year ended December 31, 2020. In May 2020, the SEC issued a final rule that amends the financial statement requirements for business acquisitions and related pro forma financial information. The rule modifies the significance tests to replace total assets with aggregate worldwide market value of common equity in the investment test and to include a revenue component in the income test while requiring the use of absolute value to calculate average net income for the last five fiscal years. The rule improves the presentation of pro forma financial information by replacing pro forma adjustments with transaction accounting adjustments and adds the optional disclosure of management’s adjustments related to synergies and dis-synergies. The rule also reduces the number of acquiree annual financial statement periods required to a maximum of the two most recent fiscal years. The final rule is effective for the Company beginning with fiscal year 2021, with early application permitted; all applicable aspects of the rule are required to be applied upon adoption. The Company has early adopted the rule in its filings related to the acquisition of the Wi-Fi and Broadband assets business. The adoption of the rule did not have an impact on the Company’s consolidated financial position and results of operations as of and for the year ended December 31, 2020. 90 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Recently Issued Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes , to remove certain exceptions and improve consistency of application, including, among other things, requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The amendments in this update will be effective for the Company beginning with fiscal year 2021, with early adoption permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of the amendments in this update is not expected to have a material impact on the Company’s consolidated financial position and results of operations. In October 2020, the FASB issued ASU No. 2020-10 Codification Improvements , to make incremental improvements to GAAP and address stakeholder suggestions, including, among other things, clarifying that the requirement to provide comparative information in the financial statements extends to the corresponding disclosures section. The amendments in this update will be effective for the Company beginning with fiscal year 2021, with early adoption permitted. The amendments in this update should be applied retrospectively and at the beginning of the period that includes the adoption date. The adoption of the amendments in this update is not expected to have a material impact on the Company’s consolidated financial position and results of operations. 2. Net Income (Loss) Per Share Basic earnings per share, or EPS, is calculated by dividing net loss by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing net income by the weighted-average number of common shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock options, restricted stock units and restricted stock awards are considered to be common stock equivalents and are only included in the calculation of diluted EPS when their effect is dilutive. In periods in which the Company has a net loss, dilutive common stock equivalents are excluded from the calculation of diluted EPS. The table below presents the computation of basic and diluted earnings per share: Years Ended December 31, 2020 2019 2018 (in thousands, except per share amounts) Numerator: Net loss $ ( 98,593 ) $ ( 19,898 ) $ ( 26,199 ) Denominator: Weighted average common shares outstanding—basic 73,133 71,005 68,490 Dilutive common stock equivalents — — — Weighted average common shares outstanding—diluted 73,133 71,005 68,490 Net loss per share: Basic $ ( 1.35 ) $ ( 0.28 ) $ ( 0.38 ) Diluted $ ( 1.35 ) $ ( 0.28 ) $ ( 0.38 ) For the years ended December 31, 2020, 2019, and 2018, the Company incurred net losses and accordingly excluded common stock equivalents for outstanding stock-based awards, which represented all potentially dilutive securities, of 3.2 million, 2.5 million, and 3.7 million, respectively, from the calculation of diluted net loss per share due to their anti-dilutive nature. 91 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) 3. Business Combinations Acquisition of the Wi-Fi and Broadband assets business On July 31, 2020, the Company and certain of its designated subsidiaries completed their acquisition of the Home Gateway Platform Division, which the Company refers to as the Wi-Fi and Broadband assets business, pursuant to an Asset Purchase Agreement with Intel Corporation, or Intel, dated April 5, 2020 (the “Asset Purchase Agreement”), and related agreements. The Company paid cash consideration of $ 150.0 million for the purchase of certain assets of the Wi-Fi and Broadband assets business, and assumed certain liabilities primarily related to specified employment matters. The transaction was funded with a portion of the net proceeds from a secured incremental term loan with an aggregate principal amount of $ 175.0 million (Note 8). The Wi-Fi and Broadband assets business develops a broad portfolio of connected home products, including Wi-Fi, Ethernet and Broadband Gateway Processor SoCs, which enables the Company to strengthen its existing connected home portfolio by bringing together a complete, scalable, and complementary platform of connectivity and access solutions to address its customers’ needs across target end-markets. The acquired assets and assumed liabilities, together with the employees who joined the Company and its subsidiaries as a result of the transaction, represent a business as defined in ASC 805, Business Combinations . The Company is integrating the acquired assets and rehired employees into the Company’s existing business. The Asset Purchase Agreement also contains customary representations, warranties and covenants, including indemnification provisions set forth therein. Pursuant to the Purchase Agreement, Intel has retained, and will be obligated to indemnify MaxLinear for, certain liabilities, including but not limited to those relating to the Home Gateway Platform Division for pre-closing taxes and specified employment matters, and MaxLinear has assumed, and will indemnify Intel for, certain liabilities, including but not limited to those relating to the Home Gateway Platform Division and the Transferred Assets for certain pre-closing and post-closing actions, events and periods (including certain product-related liabilities for products sold prior to the Closing for up to a $ 25.0 million cap), and specified employment matters. In connection with the transaction, the Company and Intel have entered into as of the closing certain other ancillary agreements, including (i) an intellectual property matters agreement, pursuant to which Intel will grant to the Company a license to certain intellectual property rights for use by the Company in connection with the acquired assets and the Company will grant back to Intel a license to the intellectual property rights in the acquired assets, (ii) a supply agreement, pursuant to which Intel will manufacture and fabricate certain products for the Company that are part of the acquired assets, (iii) an ethernet network controller services agreement, pursuant to which the Company will provide Intel with certain development services with respect to certain Intel ethernet network controller products, (iv) a transition services agreement, pursuant to which Intel will provide certain services on a transitional basis for up to a 12-month period after the closing, the scope of which includes services relating to real estate and facilities, information technology, and supply chain, procurement, sales operations, and engineering support, and (v) a side letter regarding the delayed transfer of certain inventory. Pursuant to the delayed inventory side letter, the Company has control and economic benefits of the inventory, but the title and possession of the inventory has been delayed until the last day that Intel provides services under the transition services agreement. Acquisition Consideration The following table summarizes the fair value of purchase price consideration to acquire the Wi-Fi and Broadband assets business (in thousands): Description Amount Fair value of purchase consideration: Cash $ 150,000 92 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Purchase Price Allocation The following is an allocation of purchase price as of the July 31, 2020 acquisition closing date based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands): Description Amount Purchase price allocation: Inventory $ 67,100 Property and equipment 17,641 Identifiable intangible assets 58,000 Deferred tax assets 457 Accrued expenses ( 68 ) Accrued price protection liability ( 413 ) Accrued compensation ( 7,916 ) Other long-term liabilities ( 8,197 ) Identifiable net assets acquired 126,604 Goodwill 23,396 Total purchase price $ 150,000 The fair value of inventories acquired with the Wi-Fi and Broadband assets business included acquisition accounting fair market value adjustments of $ 32.9 million. The Company recognized $ 32.9 million in inventory fair value adjustments in cost of sales in the consolidated statement of operations for the year ended December 31, 2020. The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands): Category Estimated Life in Years Fair Value Finite-lived intangible assets: Developed technology 7 $ 43,200 Customer-related intangible 5 6,800 Product backlog 0.58 800 50,800 Indefinite-lived intangible assets: IPR&D N/A 7,200 Total identifiable intangible assets acquired $ 58,000 Acquisition of NanoSemi, Inc. On September 9, 2020, the Company completed its acquisition of NanoSemi, Inc. or NanoSemi, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with NanoSemi, dated September 9, 2020. The initial closing transaction consideration consisted of $ 10.0 million in cash and 804,163 shares of MaxLinear’s common stock. In addition, the NanoSemi securityholders will receive $ 35.0 million in deferred cash payments payable in 2021, and certain NanoSemi securityholders may also receive up to an additional $ 35.0 million in potential contingent consideration, subject to the acquired business’s satisfying certain financial objectives from July 1, 2020 through December 31, 2022. The stock consideration was issued in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended. In connection with the acquisition, MaxLinear agreed to provide the NanoSemi stockholders with certain registration rights with respect to the shares of MaxLinear common stock they received in the acquisition. NanoSemi is an industry-leading provider of intellectual property that utilizes patented machine learning techniques to improve signal integrity and power efficiency in systems-on-chip, or SoCs, application-specific integrated circuits, or ASICs, and field-programmable gate arrays, or FPGAs, used in next-generation communication and artificial intelligence systems. Its 93 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) technology enables higher throughput connections for 5G, Wi-Fi, and WiGig smartphones and base stations while simultaneously reducing energy consumption. Acquisition Consideration The following table summarizes the fair value of purchase price consideration to acquire NanoSemi (in thousands): Description Amount Fair value of purchase consideration: Cash $ 10,000 Common stock issued (1) 17,080 Deferred payments (2) 34,100 Contingent consideration (3) — Total purchase price $ 61,180 _________________ (1) The fair value of common stock issued in the merger is based on 804,163 shares issued on the September 9, 2020 acquisition date at the closing price of the Company’s common stock of $ 21.24 per share. (2) The fair value of the deferred payments was determined by discounting to present value payments totaling $ 35.0 million expected to be made to NanoSemi securityholders throughout 2021. (3) The fair value of contingent consideration is zero as the applicable financial objectives from July 1, 2020 through December 31, 2022 are not expected to be met based on the Company's forecast. Purchase Price Allocation The following is an allocation of purchase price as of the September 9, 2020 acquisition closing date based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands): Description Amount Purchase price allocation: Accounts receivable $ 175 Prepaid expenses and other current assets 879 Property and equipment 177 Leased right-of-use assets 1,805 Identifiable intangible assets 19,900 Accounts payable ( 602 ) Accrued expenses and other current liabilities ( 323 ) Accrued compensation ( 223 ) Long-term lease liabilities ( 1,546 ) Other long-term liabilities ( 164 ) Identifiable net assets acquired 20,078 Goodwill 41,102 Total purchase price $ 61,180 94 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands): Category Estimated Life in Years Fair Value Finite-lived intangible assets: Developed technology 7 $ 17,500 Trademarks and tradenames 7 1,000 Customer-related intangible 5 900 Product backlog 5.33 500 Total identifiable intangible assets acquired $ 19,900 Assumptions in the Allocations of Purchase Price Management prepared the purchase price allocations for the Wi-Fi and Broadband assets business and NanoSemi, and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets, inventory, and property and equipment, and the portions of the purchase consideration for NanoSemi expected to be paid to NanoSemi securityholders in the future, as described above. Certain NanoSemi securityholders that are employees are not required to remain employed in order to receive the deferred payments and contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration have been accounted for as a portion of the purchase consideration. Estimates of fair value require management to make significant estimates and assumptions. The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that MaxLinear believes will result from integrating the operations of the Wi-Fi and Broadband assets business and NanoSemi with the operations of MaxLinear. Certain liabilities included in the purchase price allocations are based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared. Adjustments between the preliminary purchase price allocations initially recorded as reflected in the Company’s interim condensed consolidated financial statements as of September 30, 2020 and the amounts reflected as of December 31, 2020 primarily resulted from a refinement of the Company’s forecast with respect to the NanoSemi business, resulting in a decrease in estimated fair value of contingent consideration to $ 0 and a decrease in the valuation of intangible assets; and updates to our evaluation of certain income tax positions with respect to both acquisitions. Updates to the valuations of certain assets acquired and liabilities assumed and our evaluation of certain income tax positions may result in changes to the recorded amounts of assets and liabilities, with corresponding adjustments to goodwill amounts in subsequent periods. We expect to complete the purchase price allocations within 12 months of the respective acquisition dates. The fair value of the identified intangible assets acquired from the Wi-Fi and Broadband assets business and NanoSemi was estimated using an income approach. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. Indications of value are developed by discounting future net cash flows to their present value at market-based rates of return. More specifically, the fair value of the developed technology, IPR&D and backlog assets was determined using the multi-period excess earnings method, or MPEEM. MPEEM is an income approach to fair value measurement attributable to a specific intangible asset being valued from the asset grouping’s overall cash-flow stream. MPEEM isolates the expected future discounted cash-flow stream to its net present value. Significant factors considered in the calculation of the developed technology and IPR&D intangible assets were the risks inherent in the development process, including the likelihood of achieving technological success and market acceptance. Each project was analyzed to determine the unique technological innovations, the existence and reliance on core technology, the existence of any alternative future use or current technological feasibility and the complexity, cost, and time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration, and growth rates. Developed technology will begin amortization immediately and IPR&D will begin amortization upon the completion of each project. If any of the projects are abandoned, the Company will be required to impair the related IPR&D asset. In connection with the acquisition of the Wi-Fi and Broadband assets business, the Company has assumed liabilities which primarily consist of accrued employee compensation and benefits in jurisdictions where such transfer is required either by law or by work council agreement. In connection with the acquisition of NanoSemi, the Company assumed certain operating liabilities. The liabilities assumed in these acquisitions are included in the respective purchase price allocations above. 95 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Goodwill recorded in connection with the Wi-Fi and Broadband assets business and NanoSemi was $ 23.4 million and $ 41.1 million, respectively. The Company does not expect to deduct any of the acquired goodwill for tax purposes. Proforma Combined Financial Information The following table presents unaudited pro forma combined financial information for each of the periods presented, as if the acquisitions of the Wi-Fi and Broadband assets business and NanoSemi had occurred at the beginning of fiscal year 2019: Years Ended December 31, 2020 2019 (in thousands) Net revenue – proforma combined $ 703,165 $ 708,139 Net loss – proforma combined $ ( 101,783 ) $ ( 152,070 ) The following adjustments were included in the unaudited pro forma combined net revenues: Years Ended December 31, 2020 2019 (in thousands) Net revenue $ 478,596 $ 317,180 Add: Net revenue – acquired businesses 224,569 390,959 Net revenues – proforma combined $ 703,165 $ 708,139 The following adjustments were included in the unaudited pro forma combined net loss: Years Ended December 31, 2020 2019 (in thousands) Net loss $ ( 98,593 ) $ ( 19,898 ) Add: Results of operations – acquired businesses ( 63,882 ) ( 97,368 ) Less: Proforma adjustments Depreciation of property and equipment 5,810 2,020 Amortization of intangible assets 11,428 17,583 Inventory fair value adjustments 32,945 ( 32,945 ) Acquisition and integration expenses 14,243 ( 14,243 ) Interest expense ( 4,963 ) 2,816 Other expense 1,867 ( 7,604 ) Income taxes ( 638 ) ( 2,431 ) Net loss – proforma combined $ ( 101,783 ) $ ( 152,070 ) Net loss per share – proforma combined: Basic $ ( 1.39 ) $ ( 2.12 ) Diluted $ ( 1.39 ) $ ( 2.12 ) Shares used to compute net loss per share – proforma combined: Basic 73,133 71,809 Diluted 73,133 71,809 96 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) The pro forma combined financial information for the year ended December 31, 2020 includes aggregate non-recurring adjustments of $ 33.7 million consisting of inventory fair value adjustments of $ 32.9 million and amortization of intangible assets of $ 0.8 million, respectively, for which the related assets have useful lives of less than one year. The pro forma combined financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations of the consolidated business had the acquisitions actually occurred at the beginning of fiscal year 2019 or of the results of future operations of the consolidated business. The unaudited pro forma financial information does not reflect any operating efficiencies and cost saving that may be realized from the integration of the acquisitions in the Company's consolidated statements of operations. For the year ended December 31, 2020, $ 209.7 million of revenue and $ 110.7 million of gross profit, excluding $ 36.3 million consisting of inventory fair-value adjustments of $ 32.9 million and amortization of acquired intangible assets of $ 3.4 million for the Wi-Fi and Broadband assets business and NanoSemi since the acquisition date, are included in the Company’s consolidated statement of operations. Acquisition and integration-related costs of $ 14.2 million related to the acquisitions of the Wi-Fi and Broadband assets business and NanoSemi were included in selling, general, and administrative expenses in the Company’s statement of operations for the year ended December 31, 2020. 4. Restructuring Activity From time to time, the Company approves and implements restructuring plans as a result of internal resource alignment, and cost saving measures. Such restructuring plans include terminating employees, vacating certain leased facilities, and cancellation of contracts. The following table presents the activity related to the plans, which is included in restructuring charges in the consolidated statements of operations: Years Ended December 31, 2020 2019 2018 (in thousands) Employee separation expenses $ 1,620 $ 1,150 $ 2,094 Lease related expenses 1,998 1,301 1,608 Other 215 185 136 $ 3,833 $ 2,636 $ 3,838 Lease related charges for the year ended December 31, 2020 included the impairment of leased right-of-use assets of $ 1.5 million related to a reduction in expected cash inflows from subleases. Lease related and other charges for the years ended December 31, 2019 and 2018 primarily related to exiting certain redundant facilities. 97 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) The following table presents a roll-forward of the Company's restructuring liability for the years ended December 31, 2020 and 2019. The restructuring liability is included in accrued expenses and other current liabilities and other long-term liabilities in the consolidated balance sheets. Employee Separation Expenses Lease Related Expenses Other Total (in thousands) Liability as of December 31, 2018 $ 409 $ 1,490 $ 47 $ 1,946 Transfer to right-of-use asset — ( 299 ) — ( 299 ) Restructuring charges 1,150 1,301 185 2,636 Cash payments ( 1,559 ) ( 1,720 ) ( 163 ) ( 3,442 ) Non-cash charges — 46 ( 50 ) ( 4 ) Liability as of December 31, 2019 — 818 19 837 Restructuring charges 1,620 1,998 215 3,833 Cash payments ( 2,165 ) ( 322 ) ( 36 ) ( 2,523 ) Reimbursement due from Intel (Note 6) 4,415 — — 4,415 Non-cash charges and adjustments ( 596 ) ( 1,774 ) ( 195 ) ( 2,565 ) Liability as of December 31, 2020 3,274 720 3 3,997 Less: current portion as of December 31, 2020 ( 3,274 ) ( 351 ) ( 3 ) ( 3,628 ) Long-term portion as of December 31, 2020 $ — $ 369 $ — $ 369 As of December 31, 2020, the remaining employee separation balance primarily consists of reduction in force costs that will be reimbursed by Intel and other severance payments, and remaining lease related charges primarily consist of common area maintenance obligations. The Company does not expect to incur additional material costs related to current restructuring plans. 5. Goodwill and Intangible Assets Goodwill Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. The fair values of net tangible assets and intangible assets acquired are based upon preliminary valuations and the Company’s estimates and assumptions are subject to change within the measurement period (potentially up to one year from the acquisition date). The following table presents the changes in the carrying amount of goodwill for the periods indicated: Years Ended December 31, 2020 2019 (in thousands) Beginning balance $ 238,330 $ 238,330 Acquisitions (Note 3) 64,498 — Ending balance $ 302,828 $ 238,330 The Company performs an annual goodwill impairment assessment on October 31st each year, using a quantitative assessment comparing the fair value of each reporting unit, which the Company has determined to be the entity itself, with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded. 98 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) As a result of the Company's impairment assessment, no goodwill impairment was recognized as of October 31, 2020. In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. As of December 31, 2020, there were no indications of impairment of the Company’s goodwill balances. Acquired Intangibles Finite-lived Intangible Assets The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases, which continue to be amortized: December 31, 2020 December 31, 2019 Weighted Average Useful Life (in Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Value Accumulated Amortization Net Carrying Amount (in thousands) Licensed technology 5.9 $ 4,869 $ ( 2,006 ) $ 2,863 $ 2,156 $ ( 1,583 ) $ 573 Developed technology 6.9 304,061 ( 146,252 ) 157,809 243,361 ( 108,522 ) 134,839 Trademarks and trade names 6.2 14,800 ( 8,818 ) 5,982 13,800 ( 6,511 ) 7,289 Customer relationships 4.6 128,800 ( 96,047 ) 32,753 121,100 ( 75,847 ) 45,253 Non-compete covenants 3.0 1,100 ( 1,100 ) — 1,100 ( 1,083 ) 17 Backlog 2.4 1,300 ( 641 ) 659 — — — 6.2 $ 454,930 $ ( 254,864 ) $ 200,066 $ 381,517 $ ( 193,546 ) $ 187,971 The following table sets forth amortization expense associated with finite-lived intangible assets, which is included in the consolidated statements of operations as follows: Years Ended December 31, 2020 2019 2018 Cost of net revenue $ 37,784 $ 33,932 $ 35,821 Research and development 5 48 150 Selling, general and administrative 23,529 23,035 31,976 $ 61,318 $ 57,015 $ 67,947 Amortization of finite-lived intangible assets in cost of net revenue in the consolidated statements of operations results primarily from acquired developed technology. The following table sets forth activity during the years ended December 31, 2020 and 2019 related to finite-lived intangible assets: Years Ended December 31, 2020 2019 (in thousands) Beginning balance $ 187,971 $ 240,500 Acquisitions (Note 3) 70,700 — Other additions 2,799 86 Transfers to developed technology from IPR&D — 4,400 Amortization ( 61,318 ) ( 57,015 ) Impairment losses ( 86 ) — Ending balance $ 200,066 $ 187,971 99 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) The Company regularly reviews the carrying amounts of its long-lived assets subject to depreciation and amortization, as well as the related useful lives, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. An impairment loss is recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. Should impairment exist, the impairment loss is measured based on the excess of the carrying amount of the asset over the asset’s fair value. During the year ended December 31, 2019, no impairment losses related to finite-lived intangible assets were recognized. Impairment losses related to finite-lived intangible assets for the year ended December 31, 2020 was $ 0.1 million and related to purchased licensed technology and for the year ended December 31, 2018 was $2.2 million and related to acquired developed technology. The following table presents future amortization of the Company’s finite-lived intangible assets at December 31, 2020: Amortization (in thousands) 2021 $ 66,772 2022 48,908 2023 36,802 2024 20,804 2025 10,706 Thereafter 16,074 Total $ 200,066 Indefinite-lived Intangible Assets Indefinite-lived intangible assets consist entirely of acquired in-process research and development technology, or IPR&D. The following table sets forth the Company’s activities related to the indefinite-lived intangible assets: Years Ended December 31, 2020 2019 (in thousands) Beginning balance $ — $ 4,400 Acquisitions (Note 3) 7,200 — Transfers to developed technology from IPR&D — ( 4,400 ) Ending balance $ 7,200 $ — The Company performs its annual assessment of indefinite-lived intangible assets on October 31 each year or more frequently if events or changes in circumstances indicate that the asset might be impaired utilizing a qualitative test as a precursor to the quantitative test comparing the fair value of the assets with their carrying amount. Based on the qualitative test, if it is more likely than not that indicators of impairment exists, the Company proceeds to perform a quantitative analysis. Based on the Company’s assessment as of October 31, 2020, no indicators of impairment were identified. In the years ended December 31, 2020, 2019 and 2018, no IPR&D impairment losses were recorded. 6. Financial Instruments The composition of financial instruments were as follows: December 31, 2020 December 31, 2019 (in thousands) Liabilities Contingent consideration (Note 3) $ — $ — Interest rate swap $ — $ 37 100 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) The fair values of the Company’s financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants and is recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The levels are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The Company classifies its financial instrument within Level 2 of the fair value hierarchy on the basis of models utilizing market observable inputs. The interest rate swap has been valued on the basis of valuations provided by third-party pricing services, as derived from standard valuation or pricing models. Market-based observable inputs for the interest rate swap include one month LIBOR-based yield curves over the term of the swap. The Company reviews third-party pricing provider models, key inputs and assumptions and understands the pricing processes at its third-party providers in determining the overall reasonableness of the fair value of its Level 2 financial instruments. The Company also considers the risk of nonperformance by assessing the swap counterparty's credit risk in the estimate of fair value of the interest rate swap. Through the expiration of the swap in October 2020, the Company has not made any adjustments to the valuations obtained from its third party pricing providers. The contingent consideration liability is associated with the Company’s acquisition of NanoSemi (Note 3) and is classified as a Level 3 financial instrument. The fair value of contingent consideration is based on applying the Monte Carlo simulation method to forecast achievement under various contingent consideration events which may result in up to $35.0 million in payments subject to the acquired business’s satisfying certain financial objectives from July 1, 2020 through December 31, 2022, under the Merger Agreement. Key inputs in the valuation include forecasted revenue, of which the financial objectives are not expected to be met, revenue volatility and discount rate. Underlying forecast mathematics were based on Geometric Brownian Motion in a risk-neutral framework and discounted back to the applicable period in which the accumulative thresholds were achieved at discount rates commensurate with the risk and expected payout term of the contingent consideration. The following are the financial instruments that are measured on a recurring basis. The contingent consideration liability, a Level 3 financial instrument, was $ 0 as of December 31, 2020. The interest rate swap, which expired in October 2020 and was a Level 2 financial instrument, was a liability of $ 0.04 million as of December 31, 2019. The following table summarizes activity for the interest rate swap: Fair Value at December 31, 2020 2019 (in thousands) Interest rate swap Beginning balance $ ( 37 ) $ 1,623 Unrealized gain (loss) recognized in other comprehensive income (loss) 122 ( 1,660 ) Gain recognized in earnings ( 85 ) — Ending balance $ — $ ( 37 ) There were no transfers between Level 1, Level 2 or Level 3 fair value hierarchy categories of financial instruments in the years ended December 31, 2020 and 2019. Financial Instruments Not Recorded at Fair Value on a Recurring Basis Some of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents, restricted cash, net receivables, certain other assets, accounts payable, accrued price protection liability, accrued expenses, accrued compensation costs, and other current liabilities. 101 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) The Company’s long-term debt is not recorded at fair value on a recurring basis, but is measured at fair value for disclosure purposes (Note 8). 7. Balance Sheet Details Cash, cash equivalents, and restricted cash consist of the following: December 31, 2020 December 31, 2019 (in thousands) Cash and cash equivalents $ 148,901 $ 92,708 Short-term restricted cash 115 349 Long-term restricted cash 1,018 60 Total cash, cash equivalents and restricted cash $ 150,034 $ 93,117 As of December 31, 2020 and December 31, 2019, cash and cash equivalents included $ 20.4 million and $ 20.4 million of money market funds, respectively. As of December 31, 2020 and 2019, the Company has restricted cash of $ 1.1 million and $ 0.4 million, respectively. The cash is restricted in connection with guarantees for certain import duties and office leases. Inventory consists of the following: December 31, 2020 December 31, 2019 (in thousands) Work-in-process $ 35,852 $ 14,525 Finished goods 61,987 16,985 $ 97,839 $ 31,510 Prepaid and other current assets consist of the following: December 31, 2020 December 31, 2019 (in thousands) Prepaid expenses $ 7,674 $ 3,366 Other receivables 32,762 — Other current assets 6,985 3,426 $ 47,421 $ 6,792 As of December 31, 2020, other receivables of $ 32.8 million consist of amounts due from Intel of approximately $ 28.4 million for amounts collected on the Company’s behalf from customers on sales of the Company’s products under the transition services agreement and of approximately $ 4.4 million for reimbursement of certain severance and other personnel-related costs pursuant to the Asset Purchase Agreement (Note 3). Property and equipment consist of the following: Useful Life (in Years) December 31, 2020 December 31, 2019 (in thousands) Furniture and fixtures 5 $ 2,524 $ 2,199 Machinery and equipment 3 - 5 55,456 35,660 Masks and production equipment 2 - 5 19,205 15,209 Software 3 7,194 5,956 Leasehold improvements 1 - 5 16,871 16,186 Construction in progress N/A 8,050 746 109,300 75,956 Less accumulated depreciation and amortization ( 69,830 ) ( 59,343 ) $ 39,470 $ 16,613 102 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Depreciation expense for the years ended December 31, 2020, 2019, and 2018 was $ 11.3 million, $ 7.3 million, and $ 11.1 million, respectively. Accrued price protection liability consists of the following activity: Years Ended December 31, 2020 2019 (in thousands) Beginning balance $ 12,557 $ 16,454 Charged as a reduction of revenue 48,942 24,449 Reversal of unclaimed rebates ( 159 ) ( 42 ) Payments ( 13,574 ) ( 28,304 ) Ending balance $ 47,766 $ 12,557 Accrued expenses and other current liabilities consist of the following: December 31, 2020 December 31, 2019 (in thousands) Deferred purchase price payments $ 34,484 $ — Payables under transition services agreement 17,420 — Accrued technology license payments 5,821 4,500 Accrued professional fees 2,620 861 Accrued engineering and production costs 3,448 4,491 Accrued restructuring 3,628 294 Accrued royalty 1,965 923 Short-term lease liabilities 8,144 4,810 Accrued customer credits 1,135 832 Income tax liability 1,193 65 Customer contract liabilities 29 107 Accrued obligations to customers for price adjustments 10,277 8,382 Accrued obligations to customers for stock rotation rights 2,036 1,410 Other 13,642 4,496 $ 105,842 $ 31,171 As of December 31, 2020, other payables of $ 17.4 million consist of amounts due to Intel of approximately $ 9.1 million for purchases of inventory and $ 8.3 million for other operating expenses incurred by Intel on behalf of MaxLinear under the transition services agreement (Note 3). 103 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) The following table summarizes the balances in accumulated other comprehensive income (loss) by component: Cumulative Translation Adjustments Interest Rate Hedge Pension and Other Defined Benefit Plan Obligation Total (in thousands) Balance at December 31, 2018 $ ( 907 ) $ 1,179 $ — $ 272 Other comprehensive income (loss) before reclassifications, net of tax 160 ( 1,319 ) — ( 1,159 ) Balance at December 31, 2019 ( 747 ) ( 140 ) — ( 887 ) Other comprehensive income (loss) before reclassifications, net of tax 1,010 225 1,172 2,407 Amounts reclassified, net of tax — ( 85 ) — ( 85 ) Net current period other comprehensive income (loss) 1,010 140 1,172 2,322 Balance at December 31, 2020 $ 263 $ — $ 1,172 $ 1,435 8. Debt and Interest Rate Swap Debt The carrying amount of the Company's long-term debt consists of the following: December 31, 2020 December 31, 2019 (in thousands) Principal balance: Initial term loan $ 212,000 $ 212,000 Incremental term loan 157,812 — 369,812 212,000 Less: Unamortized debt discount ( 1,767 ) ( 1,328 ) Unamortized debt issuance costs ( 4,453 ) ( 3,763 ) Net carrying amount of long-term debt 363,592 206,909 Less: current portion of long-term debt — — Long-term debt, non-current portion $ 363,592 $ 206,909 As of December 31, 2020 and 2019, the weighted average effective interest rate on long-term debt was approximately 4.4 % and 4.9 %, respectively. During the year ended December 31, 2020, the Company recognized amortization of debt discount of $ 0.4 million and debt issuance costs of $ 1.1 million to interest expense. During the year ended December 31, 2019, the Company recognized amortization of debt discount of $ 0.3 million and debt issuance costs of $ 0.9 million to interest expense. During the year ended December 31, 2018, the Company recognized amortization of debt discount of $ 0.3 million and debt issuance costs of $ 0.8 million to interest expense. The approximate fair value of the term loan as of December 31, 2020 and 2019 was $ 376.1 million and $ 214.6 million, respectively, which was estimated on the basis of inputs that are observable in the market and which is considered a Level 2 measurement method in the fair value hierarchy. 104 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) As of December 31, 2020, future payments of principal are as follows: Amount (in thousands) 2021 $ — 2022 15,312 2023 142,500 2024 212,000 Total principal payments due 369,812 Less: current portion — Long-term debt principal, non-current portion $ 369,812 Initial Term Loan On May 12, 2017, the Company entered into a credit agreement with certain lenders and a collateral agent in connection with the acquisition of Exar Corporation. The credit agreement provides for an initial secured term B loan facility, or the “Initial Term Loan,” in an aggregate principal amount of $ 425.0 million. The credit agreement permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of $ 160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests. Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the credit agreement or new lenders. Loans under the credit agreement bear interest, at the Company’s option, at a rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50% , (y) the prime rate then in effect and (z) an adjusted LIBOR rate determined on the basis of a one- three- or six-month interest period, plus 1.0% or (ii) an adjusted LIBOR rate, subject to a floor of 0.75% , in each case, plus an applicable margin of 2.50 % in the case of LIBOR rate loans and 1.50 % in the case of base rate loans. Commencing on September 30, 2017, the Initial Term Loan will amortize in equal quarterly installments equal to 0.25 % of the original principal amount of the Initial Term Loan, with the balance payable on the maturity date. The Initial Term Loan has a term of seven years and will mature on May 12, 2024, at which time all outstanding principal and accrued and unpaid interest on the Initial Term Loan must be repaid. The Company is also required to pay fees customary for a credit facility of this size and type. The Company is required to make mandatory prepayments of the outstanding principal amount of term loans under the credit agreement with the net cash proceeds from the disposition of certain assets and the receipt of insurance proceeds upon certain casualty and condemnation events, in each case, to the extent not reinvested within a specified time period, from excess cash flow beyond stated threshold amounts, and from the incurrence of certain indebtedness. The Company has the right to prepay its term loans under the credit agreement, in whole or in part, at any time without premium or penalty, subject to certain limitations and a 1.0% soft call premium applicable during the first six months for the loan term. The Company exercised its right to prepay and made aggregate payments of principal of $ 213.0 million to date through December 31, 2020. The Company’s obligations under the credit agreement are required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the credit agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the subsidiary guarantors pursuant to a security agreement with the collateral agent. The credit agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its restricted subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, and sell assets, in each case, subject to limitations and exceptions. As of December 31, 2020, the Company was in compliance with such covenants. The credit agreement also contains customary events of default that include, among other things, certain payment defaults, cross defaults to other indebtedness, covenant defaults, change in control defaults, judgment defaults, and bankruptcy and insolvency defaults. If an event of default exists, the lenders may require immediate payment of all obligations under the credit agreement, and may exercise certain other rights and remedies provided for under the credit agreement, the other loan documents and applicable law. 105 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) The debt is carried at its principal amount, net of unamortized debt discount and issuance costs, and is not adjusted to fair value each period. The issuance date fair value of the liability component of the debt in the amount of $ 398.5 million was determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the term loan at a market interest rate for nonconvertible debt of 4.6 %, which represents a Level 2 fair value measurement. The debt discount of $ 2.1 million and debt issuance costs of $ 6.0 million are being amortized to interest expense using the effective interest method from the issuance date through the contractual maturity date of the term loan of May 12, 2024. Incremental Term Loan In connection with the acquisition of the Wi-Fi and Broadband assets business, on July 31, 2020, the Company entered into an incremental term loan agreement with certain lenders that amends the credit agreement, dated as of May 12, 2017 with a secured incremental term loan facility in an aggregate principal amount of $ 175.0 million (the “Incremental Term Loan”). The Incremental Term Loan bears interest, at the Company’s option, at an Adjusted LIBOR plus a fixed applicable margin of 4.25 % per annum or an Adjusted Base Rate plus a fixed applicable margin of 3.25 % per annum. The Incremental Term Loan is subject to a financial covenant of an initial maximum total net leverage ratio of 3.5 to 1 which decreases to 3.0 to 1 beginning with the sixth full fiscal quarter ending after July 31, 2020. During any period during which the Company (i) fails to maintain a public corporate rating from S&P that is equal to or higher than BB- and a public corporate rating from Moody's that is equal to or higher than Ba3 or (ii) fails to maintain a total leverage ratio of 3.0 to 1 or less, the applicable margin will increase to 4.75% in the case of LIBOR Rate loans and 3.75% in the case of Base Rate loans. As of December 31, 2020, the Company was in compliance with such covenants. Commencing on July 31, 2020, the Incremental Term Loan amortizes in quarterly installments of principal equal to (i) 1.25 % of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the first through fourth full fiscal quarters of the Company after July 31, 2020, (ii) 2.50 % of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the fifth through eighth full fiscal quarters of the Company after July 31, 2020, and (iii) 3.75 % of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the ninth through the eleventh full fiscal quarters of the Company after July 31, 2020. The Incremental Term Loan has a term of three years and will mature on July 31, 2023, at which time all outstanding principal and accrued and unpaid interest on the Incremental Term Loan is due. The Company is also required to pay fees customary for a credit facility of this size and type. The Company has made aggregate payments of principal of $ 17.2 million to date through December 31, 2020. The debt is carried at its principal amount, net of unamortized debt discount and issuance costs, and is not adjusted to fair value each period. The issuance date fair value of the liability component of the debt in the amount of $ 181.1 million was determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the term loan at a market interest rate for nonconvertible debt of 3.2 %, which represents a Level 3 fair value measurement. The debt discount of $ 0.9 million and debt issuance costs of $ 1.8 million are being amortized to interest expense using the effective interest method from the issuance date through the contractual maturity date of the term loan of July 31, 2023. Interest Rate Swap In November 2017, the Company entered into a fixed-for-floating interest rate swap with an amortizing notional amount to swap a substantial portion of variable rate LIBOR interest payments under its term loans for fixed interest payments bearing an interest rate of 1.74685 %. The interest rate swap expired in October 2020. The Company's outstanding debt was still subject to a 2.5 % fixed applicable margin during the term of the loan. The interest rate swap was designated as a cash flow hedge of a portion of floating rate interest payments on long-term debt and effectively fixed the interest rate on a substantial portion of the Company’s long-term debt at approximately 4.25 %. Accordingly, the Company applied cash flow hedge accounting to the interest rate swap and it was recorded at fair value as an asset or liability and the effective portion of changes in the fair value of the interest rate swap, as measured quarterly, were reported in other comprehensive income (loss). As of December 31, 2019, the fair value of the interest rate swap was a $ 0.04 million liability and was included in other current liabilities in the consolidated balance sheet (Note 6). The change in fair value related to the interest rate swap asset included in other comprehensive income (loss) for the years ended December 31, 2020, 2019, and 2018 was a $ 0.1 million increase, a $ 1.7 million decrease and a $ 0.9 million increase in fair value, respectively. Upon expiration of the interest rate swap, a total $ 0.1 million of unrealized gain was recorded in interest income and included in gain/loss on foreign currency and other in the statement of cash flows at December 31, 2020. 106 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) 9. Stock-Based Compensation and Employee Benefit Plans Common Stock Each share of common stock is entitled to one vote per share and holders of the common stock vote as a single class of stock on any matter that is submitted to a vote of stockholders. Employee Compensation Plans At December 31, 2020, the Company had stock-based compensation awards outstanding under the following plans: the 2004 Stock Plan, the 2010 Equity Incentive Plan, as amended, or 2010 Plan, and the 2010 Employee Stock Purchase Plan, or ESPP, and plans under which equity incentive awards were assumed in connection with the acquisitions of Entropic Corporation in 2015 and Exar Corporation in 2017. All current stock awards are issued under the 2010 Plan and ESPP. 2010 Equity Incentive Plan The 2010 Plan, as amended, provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards, and other forms of equity compensation, or collectively, stock awards. The aggregate number of shares of common stock that may be issued pursuant to stock awards under the 2010 Plan will increase by any shares subject to stock options or other awards granted under the 2004 Stock Plan that expire or otherwise terminate without having been exercised in full and shares issued pursuant to awards granted under the 2004 Stock Plan that are forfeited to or repurchased by the Company. In addition, the number of shares of common stock reserved for issuance will automatically increase on the first day of each fiscal year, equal to the lesser of: 2,583,311 shares of the Company’s common stock; four percent ( 4 %) of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year; or such lesser amount as the Company’s board of directors may determine. Options granted will generally vest over a four years period and the term can be from seven to ten years . The 2010 plan , as amended, contains a clawback policy, which requires the Company's executive officers to repay to MaxLinear certain incentive compensation if (i) the Company restates its financial statements as a result of a material error or due to material non-compliance with reporting requirements under applicable law; (ii) no more than three (3) years have elapsed since the original filing date of the financial statements; and (iii) an independent committee of the board’s compensation committee determines, in its sole discretion, that the misreporting event occurred due to fraud or intentional misconduct within MaxLinear and, following consideration of such factors as the committee may deem reasonable and appropriate, including the extent to which an executive officer knew or should have known of the factors resulting in the misreporting, that the executive officer should repay any “recoverable compensation.” Recoverable compensation is defined in the clawback policy but generally includes any cash or equity compensation paid to executive officers under the Company's Executive Incentive Bonus Plan or 2010 Equity Incentive Plan, as amended, to the extent the amount actually paid by MaxLinear exceeds the amount that would have been paid if the financial misreporting event had not occurred. To date, there has been no repayment of compensation from executive officers pursuant to such clawback policy. As of December 31, 2020, the number of shares reserved for future issuance under the 2010 Plan and awards outstanding under the 2004 Plan are 14,879,764 shares and 0 shares, respectively. 2010 Employee Stock Purchase Plan The ESPP authorizes the issuance of shares of the Company’s common stock pursuant to purchase rights granted to the Company’s employees. The number of shares of the Company’s common stock reserved for issuance will automatically increase on the first day of each fiscal year, equal to the least of: 968,741 shares of the Company’s common stock; one and a quarter percent ( 1.25 %) of the outstanding shares of the Company’s common stock on the first day of the fiscal year; or such lesser amount as may be determined by the Company's board of directors or a committee appointed by the Company's board of directors to administer the ESPP. The ESPP is implemented through a series of offerings of purchase rights to eligible employees. Under the ESPP, the Company may specify offerings with a duration of not more than 27 months , and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of the Company’s common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. Generally, all eligible employees, including executive officers, employed by the Company may participate in the ESPP and may contribute up to 15 % of their earnings for the purchase of the Company’s common stock under the ESPP. Unless otherwise determined by the Company’s board of directors, common stock will be purchased for accounts of employees participating in the ESPP at a price per share equal to the lower of (a) 85 % of the fair market value of a share of the Company’s common stock on the first date of an offering or (b) 85 % of the fair market value of a share of the Company’s 107 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) common stock on the date of purchase. As of December 31, 2020, the number of shares of common stock reserved for future issuance under the ESPP is 3,365,693 shares. Employee Incentive Bonus In May 2013, the Company's compensation committee amended its Executive Incentive Bonus Plan to permit the settlement of awards under the plan in any combination of cash or shares of its common stock. Additionally, the Company settles a majority of bonus awards for all other employees in common stock. When bonus awards are settled in common stock issued under the 2010 Plan, the number of shares issuable to plan participants is determined based on the closing sales price of the Company's common stock as determined in trading on the New York Stock Exchange on the date approved by the Board of Directors. In March 2020 and February 2019, the Company issued 0.2 million and 0.3 million freely-tradable shares, respectively, of its common stock in settlement of bonus awards to employees, including executives, for the 2019 and 2018 performance periods, respectively. At December 31, 2020, an accrual of $ 32.8 million was recorded for bonus awards for employees for the 2020 performance period, which the Company intends to settle primarily in shares of its common stock, unless otherwise required to be settled in cash due to local laws or agreements. Common stock in settlement of employee bonuses is to be issued under the Company’'s 2010 Equity Incentive Plan, as amended, with the number of shares issuable to plan participants determined based on the closing sales price of the Company’s common stock as determined in trading on the New York Stock Exchange at a date to be determined. The Company's compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock. Stock-Based Compensation The Company recognizes stock-based compensation expense in the consolidated statements of operations, based on the department to which the related employee reports, as follows: Years Ended December 31, 2020 2019 2018 (in thousands) Cost of net revenue $ 577 $ 557 $ 489 Research and development 22,252 16,545 17,953 Selling, general and administrative 24,172 14,938 13,279 Restructuring expense 596 — — $ 47,597 $ 32,040 $ 31,721 The total unrecognized compensation cost related to unvested restricted stock units as of December 31, 2020 was $ 79.7 million, and the weighted average period over which these equity awards are expected to vest is 2.8 years. The total unrecognized compensation cost related to performance-based restricted stock units as of December 31, 2020 was $ 11.4 million, and the weighted average period over which these equity awards are expected to vest is 1.4 years. The total unrecognized compensation cost related to unvested stock options as of December 31, 2020 was $ 1.0 million, and the weighted average period over which these equity awards are expected to vest is 1.5 years. Restricted Stock Units A summary of the Company’s restricted stock unit activity is as follows: Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value per Share Outstanding at December 31, 2019 2,924 $ 21.72 Granted 4,601 18.96 Vested ( 1,197 ) 20.57 Canceled ( 496 ) 18.44 Outstanding at December 31, 2020 5,832 20.05 108 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Performance-Based Restricted Stock Units Performance-based restricted stock units are eligible to vest at the end of each fiscal year in a three-year performance period based on the Company’s annual growth rate in net sales and non-GAAP diluted earnings per share (subject to certain adjustments) over baseline results relative to the growth rates for a peer group of companies for the same metrics and periods. For the performance-based restricted stock units granted, 60 % of each performance-based award is subject to the net sales metric for the performance period and 40 % is subject to the non-GAAP diluted earnings per share metric for the performance period. The maximum percentage for a particular metric is 250 % of the target number of units subject to the award related to that metric, however, vesting of the performance stock units is capped at 30 % and 100 %, respectively, of the target number of units subject to the award in years one and two, respectively, of the three-year performance period. As of December 31, 2020, the Company believes that it is probable that the Company will achieve performance metrics specified in the award agreement based on its expected revenue and non-GAAP diluted EPS results over the performance period and calculated growth rates relative to its peers’ expected results based on data available, as defined in the respective award agreements. A summary of the Company’s performance-based restricted stock unit activity is as follows: Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value per Share Outstanding at December 31, 2019 445 $ 22.21 Granted (1) 1,416 11.67 Vested ( 21 ) 22.21 Canceled ( 118 ) 15.98 Outstanding at December 31, 2020 1,722 13.97 ________________ (1) Number of shares granted is based on the maximum percentage achievable in the performance-based restricted stock unit award. Employee Stock Purchase Rights and Stock Options Employee Stock Purchase Rights During the year ended December 31, 2020, there were 285,633 shares of common stock purchased under the ESPP at a weighted average price of $ 13.29 . The fair values of employee stock purchase rights were estimated using the Black-Scholes option pricing model at their respective grant date using the following assumptions: Years Ended December 31, 2020 2019 2018 Weighted-average grant date fair value per share $ 6.41 - $ 8.66 $ 5.48 - $ 6.61 $ 5.01 - $ 5.37 Risk-free interest rate 0.12 % - 0.15 % 1.59 % - 2.43 % 2.09 % - 2.51 % Dividend yield — % — % — % Expected term (in years) 0.5 0.5 0.5 Volatility 59.72 % - 93.25 % 40.47 % - 43.14 % 38.82 % - 46.17 % The risk-free interest rate assumption was based on the United States (U.S.) Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The expected term is the duration of the offering period for each grant date. In addition, the estimated volatility incorporates the historical volatility over the expected term based on the Company's daily closing stock prices. 109 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Stock Options A summary of the Company’s stock option activity is as follows: Number of Options (in thousands) Weighted-Average Exercise Price Weighted-Average Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2019 1,337 $ 13.05 Exercised ( 496 ) 9.78 Canceled ( 44 ) 20.85 Outstanding at December 31, 2020 797 $ 14.67 2.7 $ 18,757 Vested and expected to vest at December 31, 2020 797 $ 14.67 2.7 $ 18,757 Exercisable at December 31, 2020 664 $ 13.90 2.4 $ 16,123 No stock options were granted by the Company during the years ended December 31, 2020 and 2019. The fair values of stock options granted in 2018 were estimated using the Black-Scholes option pricing model on the grant date using the following assumptions: December 31, 2018 Weighted-average grant date fair value per share $ 8.14 Risk-free interest rate 2.76 % Dividend yield — % Expected term (in years) 5.50 Volatility 44.30 % The risk-free interest rate assumption was based on the U.S. Treasury's rates for zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The expected term of the options was calculated using the simplified method as prescribed by guidance provided by the SEC. This decision was based on the lack of historical data due to the Company’s limited number of stock option exercises under the 2010 Equity Incentive Plan. Estimated volatility incorporates historical volatility of the Company over the expected term based on the Company's daily closing stock prices. The intrinsic value of stock options exercised during 2020, 2019 and 2018 was $ 4.9 million, $ 22.2 million, and $ 8.1 million, respectively. Cash received from exercise of stock options was $ 4.4 million, $ 4.5 million and $ 0.7 million during the years ended December 31, 2020, 2019 and 2018, respectively. The tax benefit from stock options exercised was $ 5.2 million, $ 20.7 million, and $ 7.8 million during the years ended December 31, 2020, 2019 and 2018, respectively. 10. Income Taxes The domestic and international components of loss before income taxes are presented as follows: Years Ended December 31, 2020 2019 2018 (in thousands) Domestic $ ( 112,778 ) $ ( 61,893 ) $ 16,405 Foreign ( 2,074 ) 29,409 ( 49,257 ) Loss before income taxes $ ( 114,852 ) $ ( 32,484 ) $ ( 32,852 ) The income tax provision (benefit) consists of the following: 110 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Years Ended December 31, 2020 2019 2018 (in thousands) Current: Federal $ ( 176 ) $ 1,604 $ 3,292 State 12 16 37 Foreign 2,687 1,560 1,640 Total current 2,523 3,180 4,969 Deferred: Federal ( 18,595 ) ( 13,793 ) 788 State ( 705 ) ( 1,829 ) ( 2,799 ) Foreign 8,025 1,095 ( 3,884 ) Change in valuation allowance ( 7,507 ) ( 1,239 ) ( 5,727 ) Total deferred ( 18,782 ) ( 15,766 ) ( 11,622 ) Total income tax benefit $ ( 16,259 ) $ ( 12,586 ) $ ( 6,653 ) The actual income tax provision (benefit) differs from the amount computed using the federal statutory rate as follows: Years Ended December 31, 2020 2019 2018 (in thousands) Provision (benefit) at statutory rate $ ( 24,119 ) $ ( 6,821 ) $ ( 6,814 ) State income taxes (net of federal benefit) 9 11 20 Research and development credits ( 6,521 ) ( 7,815 ) ( 8,849 ) Foreign rate differential 2,354 ( 4,489 ) 8,640 Stock compensation 5,425 ( 2,750 ) 74 Foreign income inclusion 1,446 3,936 1,103 Provision to return ( 286 ) 1,887 ( 27 ) Uncertain tax positions 222 1,244 1,463 Permanent and other 131 716 1,319 Foreign unremitted earnings ( 233 ) ( 103 ) 1,960 Tax Act — — 185 Transaction costs 883 — — Attribute expirations 11,937 2,837 — Valuation allowance ( 7,507 ) ( 1,239 ) ( 5,727 ) Total income tax benefit $ ( 16,259 ) $ ( 12,586 ) $ ( 6,653 ) 111 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) The components of the deferred income tax assets are as follows: December 31, 2020 2019 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 65,790 $ 65,477 Research and development credits 79,019 80,404 Accrued expenses and other 11,669 7,768 Lease obligation 1,731 2,047 Accrued compensation 4,442 1,441 Stock-based compensation 5,415 3,460 168,066 160,597 Less valuation allowance ( 71,811 ) ( 77,957 ) 96,255 82,640 Deferred tax liabilities: Fixed assets ( 42 ) ( 246 ) Leased right-of-use assets ( 1,099 ) ( 1,483 ) Intangible assets ( 9,049 ) ( 13,627 ) Net deferred tax assets $ 86,065 $ 67,284 At December 31, 2020, the Company had federal, state and foreign tax net operating loss carryforwards of approximately $ 281.3 million, $ 78.7 million and $ 4.4 million, respectively. The federal and state tax loss carryforwards will begin to expire in 2021 and 2028, respectively, unless previously utilized. The foreign tax loss carryforwards will not expire. At December 31, 2020, the Company had federal, state and foreign tax credit carryforwards of approximately $ 49.0 million, $ 90.1 million and $ 1.9 million, respectively. The federal and foreign tax credit carryforwards will begin to expire in 2023 and 2026, respectively, unless previously utilized. The state tax credit carryforwards do not expire. The Company also has foreign incentive deductions of approximately $ 5.8 million that do not expire. The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the temporary differences reverse. The Company records a valuation allowance to reduce its deferred taxes to the amount it believes is more likely than not to be realized. In making such determination, the Company considers all available positive and negative evidence quarterly, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years. The Company believes it is more likely than not to realize certain federal and foreign deferred assets. The Company continues to maintain a valuation allowance on its state deferred taxes, certain of its federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where the Company has cumulative losses or otherwise is not expected to utilize certain tax attributes. The Company does not incur expense or benefit in certain tax-free jurisdictions in which it operates. The income tax benefit for the year ended December 31, 2020 primarily related to the generation of research and development tax credits, mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10. The income tax benefit for the year ended December 31, 2019 and 2018 primarily related to the mix of pre-tax income among jurisdictions, discrete tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10. Income tax positions must meet a more-likely-than-not threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are de-recognized 112 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) in the first financial reporting period in which that threshold is no longer met. The Company records potential penalties and interest accrued related to unrecognized tax benefits within the consolidated statements of operations as income tax expense. At December 31, 2020, the Company’s unrecognized tax benefits totaled $ 63.8 million, $ 54.3 million of which, if recognized at a time when the valuation allowance no longer exists, would affect the effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. At December 31, 2020 and 2019, the Company had accrued interest and penalties of approximately $ 0.6 million and $ 0.9 million, respectively. The total amounts of interest and penalties recognized for the years ended December 31, 2020, 2019, and 2018 were not material. The following table summarizes the changes to the unrecognized tax benefits during 2020, 2019 and 2018: (in thousands) Balance as of December 31, 2017 $ 63,086 Additions based on tax positions related to the current year 3,080 Additions related to acquisitions — Decreases based on tax positions of prior year ( 4,696 ) Balance as of December 31, 2018 $ 61,470 Additions based on tax positions related to the current year 1,678 Decreases based on tax positions of prior year ( 1,121 ) Balance as of December 31, 2019 $ 62,027 Additions based on tax positions related to the current year 1,506 Additions related to acquisitions 1,154 Decreases based on tax positions of prior year ( 922 ) Balance as of December 31, 2020 $ 63,765 The Company is subject to federal and state income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions. At December 31, 2020, the statutes of limitations for the assessment of federal, state, and foreign income taxes are closed for the years before 2017, 2016 and 2015, respectively. In April 2017, the Company’s subsidiary in Singapore began operating under certain tax incentives in Singapore, which are generally effective through March 2022, and are conditional upon meeting certain employment and investment thresholds in Singapore. Under the incentives, qualifying income derived from certain sales of the Company’s integrated circuits is taxed at a concessionary rate over the incentive period, and there are reduced Singapore withholding taxes on certain intercompany royalties during the incentive period. Primarily because of the Company’s Singapore net operating losses and a full valuation allowance in Singapore, the incentives did not have a material impact on the Company’s income tax expense for the years ended December 31, 2020, 2019 and 2018. On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, a $2 trillion relief package comprising a combination of tax provisions and other stimulus measures. The CARES Act broadly provides entities tax payment relief and significant business incentives and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act, or the Tax Act. The tax relief measures for entities include a five-year net operating loss carry back, increases interest expense deduction limits, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The Act also provides other non-income tax benefits, including federal funding for a range of stabilization measures and emergency funding to assist those impacted by the COVID-19 pandemic. Similar legislation is being enacted in other jurisdictions in which the Company operates. ASC Topic 740, Income Taxes , requires the effect of changes in tax rates and laws on deferred tax balances to be recognized in the period in which new legislation is enacted. The enactment of the CARES Act and similar legislation in other jurisdictions in which the Company operates was not material to the Company’s income tax benefit for the year ended December 31, 2020. On July 27, 2015, the US Tax Court decided on behalf of Altera Corporation, or Altera US, that certain 2003 Internal Revenue Service, or IRS regulations underpinning the transfer pricing between related parties for shared costs were invalid. The case involved the cost-sharing arrangement, or CSA entered into by Altera US with an international subsidiary. Pursuant to the terms of the CSA, the parties agreed to share the risks and costs of research and development, or R&D activities, including granted stock options and other stock-based compensation, or SBC, to certain of its employees responsible for conducting the R&D activities. In allocating the costs to be shared pursuant to that CSA, Altera US included the cash compensation of its 113 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) employees engaged in R&D in the shared cost pool but excluded their SBC. The IRS had imposed transfer pricing adjustments in each of the tax years 2004 through 2007 on the basis of Altera US’ failure to include SBC costs in its CSA cost pool. On June 7, 2019, in a 2-1 ruling, a panel of the Ninth Circuit Court of Appeals reversed the Tax Court’s holding and upheld a 2003 IRS regulation that requires participants in a CSA to share SBC costs. After the Ninth Circuit Court’s reversal, Altera filed a petition for en banc review of the decision by Ninth Circuit judges. The petition was denied, and the taxpayer decided to appeal to the Supreme Court. On June 22, 2020, the Supreme Court of the United States announced that it was denying the petition for certiorari and will not review an appeals court decision in the case of Altera Corporation & Subsidiaries v. Commissioner (Altera v. Comm). The announcement represented new information that the Company considered in its second quarter tax provision for the six months ended June 30, 2020. The evaluation of this ruling for all open tax periods was not material to the Company’s income tax benefit for the year ended December 31, 2020. 11. Employee Retirement Plans Defined Contribution Plan The Company has a 401(k) defined contribution retirement plan (the 401(k) Plan) covering all eligible employees. Participants may voluntarily contribute on a pre-tax basis an amount not to exceed a maximum contribution amount pursuant to Section 401(k) of the Internal Revenue Code. The Company is not required to contribute, nor has it contributed, to the 401(k) Plan for any of the periods presented. Pension and Other Defined Benefit Retirement Obligations In connection with the July 31, 2020 acquisition of the Wi-Fi and Broadband assets business (Note 3), the Company assumed an obligation of $ 7.9 million associated with certain defined benefit retirement plans, including a pension plan. The benefit is based on a formula applied to eligible employee earnings. Net periodic benefit costs were $ 0.2 million for the year ended December 31, 2020 and were recorded to research and development expenses in the consolidated statement of operations. Benefit Obligation and Plan Assets for Pension Benefit Plans The vested benefit obligation for a defined-benefit pension or other retirement plan is the actuarial present value of the vested benefits to which the employee is currently entitled based on the employee's expected date of separation or retirement. 114 Table of Contents December 31, 2020 (in thousands) Changes in projected benefit obligation: Projected benefit obligation, beginning of period $ — Projected benefit obligation assumed in acquisition 13,274 Service cost 157 Interest cost 59 Actuarial (gain) loss ( 1,172 ) Benefits paid ( 786 ) Currency exchange rate changes 490 Projected benefit obligation, end of period 12,022 Changes in fair value of plan assets: Fair value of plan assets, beginning of period — Plan assets transferred from acquisition 5,417 Currency exchange rate changes 217 Fair value of plan assets, end of period 5,634 Net unfunded status $ 6,388 Amounts recognized in the Consolidated Balance Sheets Other long-term liabilities $ 6,388 Accumulated other comprehensive (income) loss, before tax $ ( 1,172 ) Changes in actuarial gains and losses in the projected benefit obligation are primarily driven by discount rate movement. The Company uses the corridor approach to amortize actuarial gains and losses. Under this approach, net actuarial gains or losses in excess of 10% of the larger of the projected benefit obligation or the fair value of plan assets are amortized on a straight-line basis. As of December 31, 2020, all plans had accumulated benefit obligations and projected benefit obligations in excess of plan assets. As of December 31, 2020, the accumulated benefit obligations were $ 11.1 million for the pension plans. December 31, 2020 (in thousands) Plans with accumulated benefit obligation in excess of plan assets Accumulated benefit obligation $ 11,127 Plan assets $ 5,634 Plans with projected benefit obligation in excess of plan assets Projected benefit obligation $ 12,022 Plan assets $ 5,634 115 Table of Contents Assumptions for Pension Benefit Plans December 31, 2020 (in thousands) Weighted average actuarial assumptions used to determine benefit obligations Discount rate 0.5 % - 0.6 % Rate of compensation increase 2.6 % - 3.8 % Weighted average actuarial assumptions used to determine costs Discount rate 0.5 % - 0.6 % Expected long-term rate of return on plan assets 0.79 % Rate of compensation increase 2.6 % - 3.8 % The Company establishes the discount rate for each pension plan by analyzing current market long-term bond rates and matching the bond maturity with the average duration of the pension liabilities. The Company establishes the long-term expected rate of return by developing a forward-looking, long-term return assumption for each pension fund asset class, taking into account factors such as the expected real return for the specific asset class and inflation. A single, long-term rate of return is then calculated as the weighted average of the target asset allocation percentages and the long-term return assumption for each asset class. Pension Plan Assets The plan assets are currently all in liquid cash and cash equivalents and an investment strategy is being developed to ensure that sufficient assets are available to pay pension benefits as they come due. Estimated Future Benefit Payments for Pension Benefit Plans The estimated benefit payments over the next five years and beyond are as follows: Estimated Future Benefit Payments (in thousands) 2021 $ — 2022 — 2023 20 2024 48 2025 48 Thereafter 762 879 12. Leases Operating Leases Operating lease arrangements primarily consist of office leases expiring at various years through 2028. These leases often have original terms of 2 to 7 years and contain options to extend the lease up to 5 years or terminate the lease, which are included in leased right-of-use assets and lease liabilities in the consolidated balance sheet when the Company is reasonably certain it will renew the underlying leases. Since the implicit rate of such leases is unknown and the Company is not reasonably certain to renew its leases, the Company has elected to apply a collateralized incremental borrowing rate to facility leases on the original lease term in calculating the present value of future lease payments. As of December 31, 2020 and 2019, the weighted 116 Table of Contents average discount rate for operating leases was 4.0 % and 5.0 %, respectively, and the weighted average remaining lease term for operating leases was 4.6 years and 2.9 years, respectively. The table below presents aggregate future minimum payments due under leases, reconciled to lease liabilities included in the consolidated balance sheet as of December 31, 2020: Operating Leases (in thousands) 2021 $ 9,032 2022 7,336 2023 3,694 2024 2,958 2025 2,844 Thereafter 4,794 Total minimum payments 30,658 Less: imputed interest ( 2,655 ) Less: unrealized translation gain 1,013 Total lease liabilities 29,006 Less: short-term lease liabilities ( 8,144 ) Lease liabilities - long-term $ 20,862 Operating lease costs were $ 5.2 million, $ 3.1 million and $ 4.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. Short-term lease costs for the years ended December 31, 2020 and 2019 were not material. There were $ 15.9 million and $ 0.5 million of right-of-use assets obtained in exchange for new lease liabilities for the years ended December 31, 2020 and 2019, respectively, including $ 1.8 million in right-of-use assets from acquisitions in 2020 (Note 3). Subleases The Company has a subleased facility that it ceased using in connection with a restructuring plan (Note 4). Such sublease expires in fiscal 2021, and future minimum rental income under the sublease is $ 0.1 million. Total sublease income related to leased facilities the Company ceased using in connection with a restructuring plan for the years ended December 31, 2020, 2019 and 2018 was approximately $ 0.4 million, $ 1.2 million and $ 2.4 million, respectively (Note 4). Lease Terminations In the year ended December 31, 2019, the Company terminated certain facility leases and a related sublease, which were due to expire in 2022 to 2023, upon release from the landlords. The Company had previously ceased use of all or portions of the related facilities. As a result of such terminations, the Company reduced leased right-of-use assets by approximately $ 9.2 million, lease liabilities by approximately $ 10.1 million, and other related liabilities by approximately $ 0.3 million in the consolidated balance sheet. The related net impact in the consolidated statement of operations was a gain of approximately $ 1.2 million, which consisted of a gain on extinguishment of lease-related liabilities of $ 10.4 million, partially offset by impairment of leased right-of-use assets of $ 9.2 million. The Company also recorded impairment of related leasehold improvements of $ 1.4 million. 117 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) 13. Commitments and Contingencies Inventory Purchase and Other Contractual Obligations As of December 31, 2020, future minimum payments under inventory purchase and other obligations are as follows: Inventory Purchase Obligations Other Obligations Total (in thousands) 2021 $ 71,211 $ 21,315 $ 92,526 2022 — 18,640 18,640 2023 — 10,121 10,121 2024 — 447 447 Total minimum payments $ 71,211 $ 50,523 $ 121,734 Other obligations consist of contractual payments due for software licenses. Our inventory purchase obligations and other obligations increased by $ 99.1 million to $ 121.7 million as of December 31, 2020, from $ 22.6 million as of December 31, 2019 primarily as a result of increased orders of software licenses and inventory placed with our vendors during the period, which is due in part to our 2020 acquisitions (Note 3). Other Matters In addition, from time to time, the Company is subject to threats of litigation or actual litigation in the ordinary course of business, some of which may be material. The Company believes that there are no other currently pending litigation matters that, if determined adversely by the Company, would have a material effect on the Company's business or that would not be covered by the Company’s existing liability insurance. 14. Concentration of Credit Risk, Significant Customers and Geographic Information Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable. Collateral is generally not required for customer receivables. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. At times, such deposits may be in excess of insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. Significant Customers The Company markets its products and services to manufacturers of a wide range of electronic devices (Note 1). The Company sells its products both directly to customers and through third-party distributors, both of which are referred to as the Company’s customers (Note 15). The Company makes periodic evaluations of the credit worthiness of its customers. Customers comprising greater than 10% of net revenues for each of the periods presented are as follows: Years Ended December 31, 2020 2019 2018 Percentage of total net revenue Customer A (direct) 15 % 14 % 18 % Customer B (direct) 13 % * * 118 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Balances greater than 10% of accounts receivable, based on the Company’s billings to the contract manufacturer customers, are as follows: December 31, 2020 2019 Percentage of gross accounts receivable Customer B (direct) 17 % * Customer C (distributor) 13 % * Customer D (distributor) * 10 % Suppliers comprising greater than 10% of total inventory purchases are as follows: Years ended December 31, 2020 2019 2018 Vendor A 34 % * * Vendor B 20 % 14 % 19 % Vendor C 11 % 17 % 16 % Vendor D * 13 % 15 % Vendor E * 15 13 % * Represents less than 10% of the inventory purchases for the respective period. Geographic Information The Company's consolidated net revenues by geographic area based on ship-to location are as follows (in thousands): Years Ended December 31, 2020 2019 2018 Amount % of total net revenue Amount % of total net revenue Amount % of total net revenue Asia $ 393,579 82 % $ 265,122 84 % $ 312,877 81 % United States 15,501 3 % 13,984 4 % 18,060 5 % Rest of world 69,516 15 % 38,074 12 % 54,060 14 % Total $ 478,596 100 % $ 317,180 100 % $ 384,997 100 % The products shipped to individual countries representing greater than 10% of net revenue for each of the periods presented are as follows: Years Ended December 31, 2020 2019 2018 Percentage of total net revenue Hong Kong 42 % 46 % 43 % China 17 % 14 % 19 % The determination of which country a particular sale is allocated to is based on the destination of the product shipment. No other individual country accounted for more than 10% of net revenue during these periods. Although a large percentage of the Company’s products is shipped to Asia, and in particular, Hong Kong and China, the Company believes that a significant number of the systems designed by customers and incorporating the Company’s semiconductor products are subsequently sold outside Asia to Europe, Middle East, and Africa, or EMEA markets and North American markets. 119 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Long-lived assets, which consists of property and equipment, net, leased right-of-use assets, intangible assets, net, and goodwill, by geographic area are as follows (in thousands): As of December 31, 2020 2019 Amount % of total Amount % of total United States $ 403,071 72 % $ 385,302 85 % Singapore 136,967 24 % 63,556 14 % Rest of world 31,412 5 % 5,034 1 % Total $ 571,450 100 % $ 453,892 100 % 15. Revenue from Contracts with Customers Revenue by Market The table below presents disaggregated net revenues by market (in thousands): Year Ended December 31, 2020 (1) 2019 (1) 2018 Broadband $ 244,424 $ 119,320 $ 207,336 % of net revenue 51 % 38 % 54 % Infrastructure 76,166 85,369 82,388 % of net revenue 16 % 27 % 21 % Industrial and multi-market 87,267 79,137 95,273 % of net revenue 18 % 25 % 25 % Connectivity 70,739 33,354 — % of net revenue 15 % 11 % — % Total net revenue $ 478,596 $ 317,180 $ 384,997 _______________ (1) The Company’s net revenues by market was revised during 2020 to align with changing end-market conditions, the Company’s current business priorities, as well as growth opportunities in the four categories. The broadband category includes the Company’s prior connected home category plus the SoC business from the Wi-Fi and Broadband assets business, but excludes wired connectivity. The infrastructure category remains unchanged. Industrial and multi-market includes the previously reported revenue plus component revenues from the Wi-Fi and Broadband assets business. The Company’s connectivity category includes primarily its MoCA/G.hn products and Wi-Fi and Ethernet revenues from the Wi-Fi and Broadband assets business. The 2019 amounts were adjusted to reflect the change in market categories; however, 2018 amounts have not been adjusted. Revenues from sales to the Company’s distributors accounted for 49 %, 52 % and 42 % of net revenue for the years ended December 31, 2020, 2019 and 2018, respectively. Contract Liabilities As of December 31, 2020 and 2019, customer contract liabilities consist of estimates of obligations to deliver rebates to customers in the form of units of products and were approximately $ 0.03 million and $ 0.1 million, respectively. Revenue recognized in the years ended December 31, 2020 and 2019 that was included in the contract liability balance as of the beginning of those respective years was immaterial. There were no material changes in the contract liabilities balance during the years ended December 31, 2020 and 2019. 120 MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts and percentage data) Obligations to Customers for Price Adjustments and Returns and Assets for Right-of-Returns As of December 31, 2020 and 2019, obligations to customers consisting of estimates of price protection rights offered to the Company's end customers totaled $ 47.8 million and $ 12.6 million and are included in accrued price protection liability in the consolidated balance sheets. For activity in this account, including amounts included in net revenue, refer to Note 7. As of December 31, 2020 and 2019, other obligations to customers representing estimates of price adjustments to be claimed by distributors upon sell-through of their inventory to their end customer were $ 10.3 million and $ 8.4 million, respectively. As of December 31, 2020 and 2019, other obligations to customers representing estimates of stock rotation returns to be claimed by distributors on products sold were $ 2.0 million and $ 1.4 million, respectively. Obligations to customers for estimates of price adjustments and stock rotation return rights are included in accrued expenses and other current liabilities in the consolidated balance sheets (Note 7). The increase in revenue in the years ended December 31, 2020 and 2019 from net changes in transaction prices for amounts included in obligations to customers for price adjustments as of the beginning of those respective years was not material. As of December 31, 2020 and 2019, right of return assets under customer contracts representing the estimates of product inventory the Company expects to receive from customers in stock rotation returns were approximately $ 0.6 million and $ 0.3 million, respectively. Right of return assets are included in inventory in the consolidated balance sheets (Note 7). As of December 31, 2020 and 2019, there were no impairment losses recorded on customer accounts receivable. 16. Selected Quarterly Financial Data (Unaudited) The following table presents the Company’s unaudited quarterly financial data for each of the eight quarters in the period ended December 31, 2020. In management’s opinion, this information has been presented on the same basis as the audited consolidated financial statements included in a separate section of this report, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements and related notes. The operating results for any quarter should not be relied upon as necessarily indicative of results for any future period. Year Ended December 31, 2020 First Quarter Second Quarter Third Quarter Fourth Quarter (in thousands, except per share amounts) Net revenue $ 62,027 $ 65,220 $ 156,633 $ 194,716 Gross profit $ 30,762 $ 32,743 $ 66,206 $ 83,087 Net loss $ ( 15,469 ) $ ( 21,807 ) $ ( 36,645 ) $ ( 24,672 ) Net loss per share: Basic $ ( 0.21 ) $ ( 0.30 ) $ ( 0.50 ) $ ( 0.33 ) Diluted $ ( 0.21 ) $ ( 0.30 ) $ ( 0.50 ) $ ( 0.33 ) Year Ended December 31, 2019 First Quarter Second Quarter Third Quarter Fourth Quarter (in thousands, except per share amounts) Net revenue $ 84,635 $ 82,507 $ 80,020 $ 70,018 Gross profit $ 45,077 $ 44,080 $ 41,904 $ 36,624 Net loss $ ( 4,851 ) $ ( 2,229 ) $ ( 4,714 ) $ ( 8,104 ) Net loss per share: Basic $ ( 0.07 ) $ ( 0.03 ) $ ( 0.07 ) $ ( 0.11 ) Diluted $ ( 0.07 ) $ ( 0.03 ) $ ( 0.07 ) $ ( 0.11 ) 121