UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NO. 0-16538
MAXIM INTEGRATED PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2896096
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or Organization)
120 SAN GABRIEL DRIVE,
SUNNYVALE, CALIFORNIA 94086
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(408) 737-7600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days:
YES [X] NO[ ]
CLASS: COMMON STOCK, OUTSTANDING AT NOV 1, 2001
$.001 PAR VALUE 322,954,034 SHARES
MAXIM INTEGRATED PRODUCTS, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 29, 2001 and June 30, 2001 3
Condensed Consolidated Statements of Income
for the three months ended
September 29, 2001 and September 23, 2000 4
Condensed Consolidated Statements of Cash Flows
for the three months ended September 29,
2001 and September 23, 2000 5
Notes to Condensed Consolidated Financial Statements 6-12
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-18
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk 18
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 18
SIGNATURES 19
2
CONDENSED CONSOLIDATED BALANCE SHEETS
MAXIM INTEGRATED PRODUCTS, INC.
September 29, June 30,
2001 2001
(Amounts in thousands) (Unaudited)
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 139,455 $ 93,796
Short-term investments 935,674 1,126,556
---------- ----------
Total cash, cash equivalents and short-term
investments 1,075,129 1,220,352
---------- ----------
Accounts receivable, net 99,462 152,488
Inventories 159,308 162,656
Deferred tax assets 118,590 103,205
Income tax refund receivable 37,654 50,187
Other current assets 6,548 10,204
---------- ----------
Total current assets 1,496,691 1,699,092
---------- ----------
Property, plant and equipment, at cost, less
accumulated depreciation 723,443 712,039
Other assets 18,786 19,400
---------- ----------
TOTAL ASSETS $2,238,920 $2,430,531
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 82,532 $ 100,921
Income taxes payable 11,502 8,963
Accrued salary and related expenses 63,106 75,992
Accrued expenses 99,108 94,105
Deferred income on shipments to distributors 39,072 45,396
---------- ----------
Total current liabilities 295,320 325,377
---------- ----------
Other liabilities 4,000 4,000
---------- ----------
Total liabilities 299,320 329,377
---------- ----------
Stockholders' equity:
Common stock 324 330
Additional paid-in capital 129,080 351,652
Retained earnings 1,806,932 1,745,638
Accumulated other comprehensive income 3,264 3,534
---------- ----------
Total stockholders' equity 1,939,600 2,101,154
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,238,920 $2,430,531
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
MAXIM INTEGRATED PRODUCTS, INC.
Three Months Ended
----------------------------
(Unaudited) September 29, September 23,
(Amounts in thousands, except per share data) 2001 2000
------------ -------------
Net revenues $239,426 $422,309
Cost of goods sold 71,845 148,415
-------- --------
Gross margin 167,581 273,894
-------- --------
Operating expenses:
Research and development 65,974 66,589
Selling, general and
administrative 25,091 41,562
-------- --------
Total operating expenses 91,065 108,151
-------- --------
Operating income 76,516 165,743
Interest income and other, net 14,967 13,383
-------- --------
Income before provision for
income taxes 91,483 179,126
Provision for income taxes 30,189 60,053
-------- --------
Net income $ 61,294 $119,073
======== ========
Earnings per share:
Basic $ 0.19 $ 0.37
Diluted $ 0.17 $ 0.33
======== ========
Shares used in the calculation of earnings per share:
Basic 330,711 322,946
Diluted 359,499 364,493
======== ========
Dividends declared per share $ -- $ 0.006
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXIM INTEGRATED PRODUCTS, INC.
For the three months ended
--------------------------------
(Amounts in thousands) (Unaudited) September 29, September 23,
Increase (decrease) in cash and cash equivalents 2001 2000
--------- ---------
Cash flows from operating activities:
Net income $ 61,294 $ 119,073
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other 14,198 22,374
Plant and equipment charges -- 16,665
Adjustment to conform fiscal period of pooled entity -- 3,608
Changes in assets and liabilities:
Accounts receivable 53,026 (8,046)
Inventories 3,348 (6,820)
Deferred taxes (6,175) 6,758
Income tax refund receivable 12,533 (1,188)
Other current assets 3,077 5,918
Accounts payable (18,389) 294
Income taxes payable 32,628 42,968
Deferred income on shipments to distributors (6,324) 6,800
All other accrued liabilities (7,883) (5,862)
--------- ---------
Net cash provided by operating activities 141,333 202,542
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment, net (25,602) (67,543)
Other non-current assets 614 1,031
Purchases of available-for-sale securities (370,739) (191,676)
Proceeds from sales/maturities of available-for-sale
securities 561,625 115,949
--------- ---------
Net cash provided by (used in) investing activities 165,898 (142,239)
--------- ---------
Cash flows from financing activities:
Issuance of common stock 25,060 30,590
Repurchase of common stock (286,632) (99,123)
Dividends paid -- (1,963)
--------- ---------
Net cash used in financing activities (261,572) (70,496)
--------- ---------
Net increase (decrease) in cash and cash equivalents 45,659 (10,193)
Cash and cash equivalents:
Beginning of year 93,796 82,217
--------- ---------
End of period $ 139,455 $ 72,024
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
5
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, all adjustments (consisting
of normal recurring items) considered necessary for a fair presentation have
been included. The results of operations for the three months ended September
29, 2001 are not necessarily indicative of the results to be expected for the
entire year. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Annual Report on Form 10-K for the year ended June 30, 2001.
The Company has a 52-to-53-week fiscal year that ends on the last Saturday in
June. Accordingly, every sixth or seventh fiscal year will be a 53-week fiscal
year. Fiscal year 2001 was a 53-week fiscal year.
NOTE 2: BUSINESS COMBINATION
On April 11, 2001, the Company acquired Dallas Semiconductor Corporation (Dallas
Semiconductor), a leading provider of specialty semiconductors. The Company
issued approximately 41.0 million shares of its common stock in exchange for all
the outstanding common stock of Dallas Semiconductor. In addition, the Company
exchanged all options to purchase Dallas Semiconductor common stock for options
to purchase approximately 5.9 million shares of the Company's common stock. The
transaction was accounted for as a pooling-of-interests and qualifies as a
tax-free reorganization.
All financial data of the Company presented in these condensed consolidated
financial statements has been restated to include the historical financial data
of Dallas Semiconductor in accordance with accounting principles generally
accepted in the United States and pursuant to Regulation S-X of the Securities
and Exchange Commission. Adjustments relating to deferral of income on shipments
to distributors were required to conform the accounting policies of the acquired
company. The Company and Dallas Semiconductor had certain differences in the
classification of revenues and expenses in their historical statements of
operations and assets and liabilities in their historical balance sheets.
Adjustments have been made to conform the combined companies' income statement
and balance sheet classifications. In addition, the lives of the property, plant
and equipment acquired as part of the merger with Dallas Semiconductor were
conformed to the lives used by the Company as appropriate.
The Company's statement of income for the three months ended September 23, 2000
was combined with the Dallas Semiconductor statement of income for the three
months ended October 1, 2000.
6
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 3: INVENTORIES
Inventories consist of (in thousands):
September 29, June 30,
2001 2001
------------- --------
(Unaudited)
Raw materials $ 19,929 $ 21,893
Work-in-process 100,464 91,727
Finished goods 38,915 49,036
-------- --------
$159,308 $162,656
======== ========
NOTE 4: EARNINGS PER SHARE
Basic earnings per share are computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share
incorporates the incremental shares issuable upon the assumed exercise of stock
options and other potentially dilutive securities. The number of incremental
shares from the assumed issuance of stock options and other potentially dilutive
securities is calculated applying the treasury stock method. The following table
sets forth the computation of basic and diluted earnings per share.
Three Months Ended
------------------------------
(Amounts in thousands, except per share September 29, September 23,
data) 2001 2000
------------- -------------
Numerator for basic earnings per share
and diluted earnings per share
Net income $ 61,294 $119,073
======== ========
Denominator for basic earnings per share 330,711 322,946
Effect of dilutive securities:
stock options and warrants 28,788 41,547
-------- --------
Denominator for diluted earnings per share 359,499 364,493
======== ========
Earnings per share:
Basic $ 0.19 $ 0.37
Diluted $ 0.17 $ 0.33
======== ========
7
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 5: SHORT-TERM INVESTMENTS
All short-term investments at September 29, 2001 are classified as
available-for-sale and consist primarily of U.S. Treasury and Federal Agency
debt securities maturing within one year. Unrealized gains and losses, net of
tax, on securities in this category are included in accumulated other
comprehensive income which is a separate component of stockholders' equity. The
cost of securities sold is based on the specific identification method. Interest
earned on securities is included in "Interest income and other, net" in the
condensed consolidated statements of income.
NOTE 6: SEGMENT INFORMATION
The Company operates and tracks its results in one operating segment. The
Company designs, develops, manufactures and markets a broad range of linear and
mixed-signal integrated circuits. The Chief Executive Officer has been
identified as the Chief Operating Decision Maker as defined by Statement of
Financial Accounting Standard No. 131 (SFAS 131), "Disclosures about Segments of
an Enterprise and Related Information."
Enterprise-wide information is provided in accordance with SFAS 131.
Geographical revenue information is based on the customer's ship-to location.
Long-lived assets consist of property, plant and equipment. Property, plant and
equipment information is based on the physical location of the assets at the end
of each fiscal period.
Net revenues from unaffiliated customers by geographic region were as follows:
Three Months Ended
------------------------------
(Amounts in thousands) September 29, September 23,
(Unaudited) 2001 2000
------------- -------------
United States $ 86,755 $193,289
Europe 57,143 97,215
Pacific Rim 92,339 126,698
Rest of World 3,189 5,107
-------- --------
$239,426 $422,309
======== ========
Net long-lived assets by geographic region were as follows:
(Amounts in thousands) September 29, June 30,
(Unaudited) 2001 2001
------------ --------
United States $657,756 $646,519
Rest of World 65,687 65,520
-------- --------
$723,443 $712,039
======== ========
8
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 7: COMPREHENSIVE INCOME
Comprehensive income (loss) consists of net income (loss) and net unrealized
gains (losses) on available-for-sale investments and forward exchange contracts.
The components of other comprehensive income (loss) and related tax effects were
as follows:
Three months ended
----------------------------
(Amounts in thousands) September 29, September 23,
(Unaudited) 2001 2000
------------- -------------
Change in unrealized gains (losses) on investments,
net of tax of ($108) $ 112 $ --
Change in unrealized gains (losses) on forward exchange
contracts, net of tax of ($197) (382) --
----- -----
Other comprehensive income (loss) $(270) $ --
===== =====
Accumulated other comprehensive income presented in the accompanying condensed
consolidated balance sheet consists of the accumulated net unrealized gain on
available-for-sale investments and forward exchange contracts and the
accumulated foreign currency translation adjustments. Foreign currency
translation adjustments are not tax affected.
9
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 8: MERGER AND SPECIAL CHARGES
During the fourth quarter of fiscal 2001, the Company recorded merger costs in
connection with the acquisition of Dallas Semiconductor of approximately $26.4
million. These costs consist of approximately $14.1 million intended to satisfy
the change in control payments under previously existing employment contracts
and other non-employee director arrangements for which there was no future
economic benefit; a $5.8 million payment to be made under a change in control
provision in a previously existing life insurance arrangement for which there
was no future economic benefit; and $6.5 million for fees related to investment
banking, legal, accounting, filings with regulatory agencies, financial
printing, and other related costs. It is expected that substantially all of
these direct transaction costs will be paid out of existing cash reserves within
12 months of the consummation of the merger.
During the fourth quarter of fiscal 2001, the Company recorded special charges
of $137.0 million. These special charges resulted from the significant decrease
in demand that occurred during the fourth quarter of fiscal 2001 for Dallas
Semiconductor's products in combination with the Company's intention to close
Dallas Semiconductor's 6-inch wafer manufacturing facility and dispose of the
related equipment. The Company intends to complete construction of an 8-inch
wafer manufacturing facility located in Dallas, Texas that was under
construction when the merger was consummated between the Company and Dallas
Semiconductor. Once complete, the 8-inch wafer manufacturing facility will serve
as Dallas Semiconductor's primary wafer manufacturing facility. In addition, the
Company is concentrating test operations of the combined company at the
Company's test facilities located in the Philippines and Thailand. Once
complete, certain Dallas Semiconductor test equipment will be disposed of. The
Company concluded that the above facts indicated that Dallas Semiconductor's
long-lived assets might be impaired, and as required by accounting principles
generally accepted in the United States, performed a cash flow analysis of the
related assets. Based on the cash flow analysis, the cash flows expected to be
generated by Dallas Semiconductor's long-lived assets during their estimated
remaining useful lives are not sufficient to recover the net book value of the
assets. The Company obtained a valuation report from an independent appraiser of
the estimated fair value of the equipment at June 30, 2001, and validated the
report with its own knowledge of the semiconductor used equipment market. Based
on the cash flow analysis and valuation report, an impairment charge of $124.4
million was recorded to reduce the net book value of Dallas Semiconductor's
long-lived assets to fair value. In addition to the above, the Company recorded
special charges of $12.6 million to reflect the reorganization of the Company's
sales organization, purchase order cancellation fees, and the reduction in the
Company's manufacturing workforce. The above actions directly impacted employees
in the Company's sales, marketing, and manufacturing organizations.
During the three months ended September 29, 2001, the Company terminated 297
employees and paid $3.0 million of termination benefits related to the above
actions. The Company has terminated 390 employees and has paid $4.9 million of
termination benefits related to the special charges recorded during the fourth
quarter of fiscal year 2001.
10
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Based on developments that occurred during the three months ended September 29,
2001 related to the special charges recorded during the fourth quarter of fiscal
2001, the Company revised its estimate of the reserve balance needed for
purchase order cancellation fees. Based on the current status of negotiations
with vendors regarding purchase order cancellation fees, the Company believes
the amount which will ultimately be paid will be approximately $2.6 million less
than the amount recorded for such charges during the fourth quarter of fiscal
2001. Accordingly, the Company decreased the amount recorded for purchase order
cancellation fees by $2.6 million to reflect this change in estimate. In
addition, as noted above, the Company terminated 297 employees during the three
months ended September 29, 2001. These terminations resulted in the Company
paying out approximately $2.6 million more in severance than the Company had
recorded for such payments at June 30, 2001. This increase resulted from a
higher level of terminations in the Company's manufacturing workforce in order
to better match capacity with demand for the Company's products.
The following table summarizes the activity related to the above actions for the
three months ended September 29, 2001:
Purchase
Order
Merger Cancellation
(Amount in thousands) Costs Severance Fees Other Total
-------- --------- ------------ -------- --------
Reserve balance
at June 30, 2001 $ 8,141 $ 553 $ 7,513 $ 2,244 $ 18,451
Adjustment -- 2,581 (2,581) -- --
Cash payments (4,906) (2,950) -- (426) (8,282)
-------- -------- -------- -------- --------
Reserve balance
at September 29, 2001 $ 3,235 $ 184 $ 4,932 $ 1,818 $ 10,169
======== ======== ======== ======== ========
The remaining merger and special charges reserve at September 29, 2001 is
expected to be paid out by the end of fiscal year 2002.
NOTE 9: CONTINGENCIES
On September 21, 2001, the Federal District Court for the Northern District of
California issued an order dismissing a patent litigation action by Linear
Technology Corporation against the Company described in prior periodic reports
to the SEC. The court found that the Company did not infringe any of the claims
of the asserted patent. The suit had claimed that the Company infringed various
"sleep mode" and "current reversal prevention" claims of U.S. Patent No.
5,481,178. These claims were directed to the operation of switching voltage
regulators, parts commonly used in laptop computers, cellular telephones and
other applications. The Company moved for summary judgment on a number of
subjects, including noninfringement, invalidity and unenforceability of the
patent. The court found that the Company's remaining summary judgment motions
were rendered moot by its noninfringement ruling. The Company expects that
Linear Technology Corporation will appeal the decision. No assurance can be
given as to the outcome of any possible appeal.
11
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 10: COMMON STOCK REPURCHASES
Following the extraordinary events on September 11, 2001, the Securities and
Exchange Commission issued an Emergency Order pursuant to Section 12(k)(2) of
the Securities Exchange Act of 1934. This Emergency Order was issued to
temporarily ease the restrictions of Rule 10-b-18 during the five business days
following the opening of the U.S. securities market on September 17, 2001. The
Emergency Order also provided that, despite pooling-of-interests provisions in
Accounting Principles Board Opinion No. 16, Business Combinations, and the
related interpretations of the American Institute of Certified Public
Accountants, consensuses of the Financial Accounting Standards Board's Emerging
Issues Task Force, rules and regulations of the Commission and interpretations
by its staff, and other authoritative accounting guidance, a company could
continue to account for its business combination transactions as a
pooling-of-interests if it repurchased its own common stock pursuant to the
Emergency Order. Subsequently, the Securities Exchange Commission extended this
Emergency Order to September 28, 2001.
As a result of the Emergency Order, the Company authorized the repurchase of up
to 10 million shares of its common stock for the ten business days following the
opening of the U.S. securities markets on September 17, 2001.
During the period from September 17, 2001 to September 28, 2001, the Company
repurchased 8.2 million shares of its common stock for $286.6 million.
NOTE 11: SUBSEQUENT EVENT
On September 28, 2001, the Securities and Exchange Commission issued an
Exemptive Order to respond to market developments. Similar to its previously
issued Emergency Order, the Exemptive Order eased the restrictions of Rule
10b-18 and provided that, despite pooling-of-interests provisions in Accounting
Principles Board Opinion No. 16, Business Combinations, and the related
interpretations of the American Institute of Certified Public Accountants,
consensuses of the Financial Accounting Standards Board's Emerging Issues Task
Force, rules and regulations of the Commission and interpretations by its staff,
and other authoritative accounting guidance, a company could continue to account
for its business combination transactions as a pooling-of-interests if it
repurchased its own common stock pursuant to the Exemptive Order during the
period from October 1, 2001 to October 12, 2001.
As a result of the Exemptive Order, the Company increased the number of shares
authorized to be repurchased to 15 million, and during the period from October
1, 2001 to October 12, 2001, the Company repurchased an additional 2.0 million
shares of its common stock for $67.8 million. The Company does not anticipate
any further common stock repurchases in fiscal year 2002, and, to the extent
that the Board's authorization to repurchase shares was not fully executed by
October 12, 2001, that authorization has been rescinded.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NET REVENUES
Net revenues were $239.4 million and $422.3 million for the three months ended
September 29, 2001 and September 23, 2000, respectively, a decrease of 43.3%.
The decrease in net revenues is due to downturns in certain industry segments
(particularly Internet and network-related businesses) and in the general
economy.
During the three months ended September 29, 2001, approximately 64% of net
revenues were derived from customers outside of the United States. While the
majority of these sales are denominated in US dollars, the Company enters into
foreign currency forward contracts to mitigate its risks on firm commitments and
net monetary assets denominated in foreign currencies. The impact of changes in
foreign exchange rates on revenue and the Company's results of operations for
the three ended September 29, 2001 was immaterial.
GROSS MARGIN
Gross margin was 70.0% and 64.9% for the three months ended September 29, 2001
and September 23, 2000, respectively. The increase in gross margin for the three
months ended September 29, 2001 is primarily attributable to production
efficiencies obtained through economies of scale and cost reductions. The
increase in gross margin in the three months ended September 29, 2001 was
partially offset by an increase in inventory reserves of $3.5 million. Gross
margin for the three months ended September 23, 2000 was negatively impacted due
to $14.9 million recorded to reduce the carrying value of plant and equipment
that was abandoned, no longer in use, or whose estimated useful lives were
shortened, resulting in accelerated depreciation.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
RESEARCH AND DEVELOPMENT
Research and development expenses were $66.0 million and $66.6 million for the
three months ended September 29, 2001, and September 23, 2000, respectively,
which represented 27.6% and 15.8% of net revenues, respectively.
The decrease in research and development expenses in absolute dollars for the
three months ended September 29, 2001 as compared to the same period in the
prior year is due to $3.5 million recorded during the three months ended
September 23, 2000 to reduce the carrying value of plant and equipment that was
abandoned, no longer in use, or whose estimated useful lives were shortened,
resulting in accelerated depreciation. The decrease is somewhat offset by
increased headcount and related employee expenses to continue development of new
products to support revenue growth, and increased wafer and mask expenses to
support new product development.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $25.1 million and $41.6
million for the three months ended September 29, 2001, and September 23, 2000,
respectively, which represented 10.5% and 9.8% of net revenues, respectively.
The decrease in selling, general, and administrative expenses in absolute
dollars for the three months ended September 29, 2001 as compared to the three
months ended September 23, 2000 is due to lower sales representative commissions
and decreased headcount related expenses due mainly to a reorganization of the
combined Company's sales organization completed in the fourth quarter of fiscal
year 2001. In addition, the Company recorded a charge of $3.0 million for
technology licensing during the three months ended September 23, 2000.
INTEREST INCOME AND OTHER, NET
Interest income and other, net was $15.0 million and $13.4 million for the three
months ended September 29, 2001, and September 23, 2000, respectively. The
increase in interest income and other, net for the three months ended September
29, 2001 is a result of higher levels of invested cash, cash equivalents and
short-term investments partially offset by decreased interest rates on invested
amounts.
INCOME TAXES
The effective income tax rate for the three months ended September 29, 2001 and
September 23, 2000 was 33.0% and 33.5%, respectively. This rate differs from the
federal statutory rate primarily due to state income taxes and tax exempt
earnings of the Company's Foreign Sales Corporation.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
OUTLOOK
First quarter bookings were approximately $211 million, an 18% increase over the
previous quarter's level of $179 million. Turns orders received during the
quarter were $102 million, a 64% increase over the $62 million received in the
prior quarter. Turns orders are customer orders that are for delivery within the
same quarter and may result in revenue within the same quarter if the Company
has available inventory that matches those orders. Bookings increased in the
U.S. both for OEM and distribution channels and in the Pacific Rim region.
Bookings for most product lines were higher than in the fourth quarter of fiscal
2001. First quarter ending backlog shippable within the next 12 months was
approximately $196 million, including $172 million requested for shipment in the
second quarter of fiscal year 2002.
While the Company is encouraged by the increase in order rates, it remains
cautious about its short-term revenue outlook because of customers' backlog
situations and their unwillingness to commit to inventories and longer-term
orders due to short lead times. As lead times begin to lengthen, the Company
expects bookings rates to continue to increase. The Company expects that its
fourth quarter was the bottom of the correction period for bookings, with the
first quarter representing the revenue low point. Although the Company expects
second quarter bookings to exceed first quarter levels, it estimates that second
quarter revenues and earnings will increase only slightly over first quarter
levels due to available backlog at the beginning of the second quarter.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds for the three months ended September 29,
2001 were from $190.9 million of net investment activities, net cash generated
from operating activities of $141.3 million, and proceeds from the issuance of
common stock of $25.1 million associated with the Company's stock option
programs.
The principal uses of funds were the repurchase of $286.6 million of common
stock and the purchase of $25.6 million in property, plant and equipment. The
Company believes that it possesses sufficient liquidity and capital resources to
fund its property, plant and equipment purchases and operations for the next
twelve months.
In the past, it was the Company's policy to reduce the dilution effect from
stock options by repurchasing its common stock from time to time in amounts
based on estimates of proceeds from stock option exercises and of tax benefits
related to such exercises. That stock repurchase policy was discontinued in the
third quarter of fiscal 2001 with the exception of common stock repurchased
pursuant to the Emergency Order issued by the Securities and Exchange Commission
on September 14, 2001 and the Exemptive Order issued by the Securities and
Exchange Commission on September 28, 2001 (See Notes 10 and 11 to Notes to
Condensed Consolidated Financial Statements).
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
FORWARD-LOOKING INFORMATION AND RISK FACTORS
This Report on Form 10-Q contains forward-looking statements, including
statements regarding or implicating the Company's expectations, intentions,
plans, goals and hopes regarding the future. Forward-looking statements in this
report, including this Management's Discussion and Analysis section, involve
risk and uncertainty. They include the Company's expectations regarding future
revenues, the Company's assessment of its customers' willingness or
unwillingness to commit to inventories and longer-term orders, the Company's
expectations regarding booking rates increases and the bottoms in bookings and
revenues, the Company's estimate that revenues and earnings will increase in the
second fiscal quarter of 2002 and the Company's assessment of the sufficiency of
its capital resources and liquidity. Results could differ materially from those
forecasted based upon, among other things, the Company incorrectly assessing
customer end-user demand and willingness to commit to inventories and orders,
and order cancellation levels; technical difficulties in bringing new products
and processes to market in a timely manner; market developments that could
adversely affect the growth of the mixed-signal analog market such as further
declines in customer forecasts or greater than expected cyclical downturns
within the mixed-signal analog segment of the semiconductor market or possible
effects of capacity constraints affecting other suppliers to equipment
manufacturers; and the Company being unable to sustain its successes in
recruiting and retaining high- quality personnel and its successes in the
markets its products are introduced in, as well as other risks described in the
Company's Form 10-K for the fiscal year ended June 30, 2001.
Additional risk factors include whether, and the extent to which, demand for the
Company's products increases and reflects real end-user demand; whether customer
cancellations and delays of outstanding orders increase; whether the Company is
able to manufacture in a correct mix to respond to orders on hand and new orders
received in the future; whether the Company is able to achieve its new product
development and introduction goals, including, without limitation, goals for
recruiting, retaining, training, and motivating engineers, particularly design
engineers, and goals for conceiving and introducing timely new products that are
well received in the marketplace; whether the Company is able to effectively and
successfully manage manufacturing operations during a period of diminished
demand; and whether the Company is able to successfully commercialize its new
technologies, such as its next-generation high-frequency technologies, that it
has been investing in by designing and introducing new products based on these
new technologies.
In addition to the above, there are certain risks and uncertainties related to
the Company's acquisition of Dallas Semiconductor (see Notes 2 and 8 of Notes to
Condensed Consolidated Financial Statements). Although the process of
integrating the personnel and operations of Dallas Semiconductor, with the goals
of reducing cost and increasing efficiency and productivity, has been proceeding
well in most regards, no assurance can be given that products, technologies,
distribution channels, customer support operations, management information
systems, key personnel and businesses of Dallas Semiconductor will be
effectively assimilated into the Company's business or product offerings, or
that such integration will be completed according to the Company's schedule, or
that the results of the integration will be successful.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT'D)
Other important factors that could cause actual results to differ materially
from those predicted or implied in this report include overall worldwide
economic conditions; demand for electronic products and semiconductors
generally; demand for the end-user products for which the Company's
semiconductors are suited; timely availability of raw materials, equipment,
supplies and services; unanticipated manufacturing problems; technological and
product development risks; competitors that may outperform the Company; and
other risk factors described in the Company's filings with the Securities and
Exchange Commission and in particular its report on Form 10-K for the year ended
June 30, 2001.
All forward-looking statements included in this document are made as of the date
hereof, based on the information available to the Company as of the date hereof,
and the Company assumes no obligation to update any forward-looking statement,
whether as a result of new information relating to existing conditions, future
events or otherwise.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk has not changed significantly from the risks disclosed
in Item 7A of the Company's Annual Report on Form 10-K for the year ended June
30, 2001.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On September 21, 2001, the Federal District Court for the Northern District of
California issued an order dismissing a patent litigation action by Linear
Technology Corporation against the Company described in prior periodic reports
to the SEC. The court found that the Company did not infringe any of the claims
of the asserted patent. The suit had claimed that the Company infringed various
"sleep mode" and "current reversal prevention" claims of U.S. Patent No.
5,481,178. These claims were directed to the operation of switching voltage
regulators, parts commonly used in laptop computers, cellular telephones and
other applications. The Company moved for summary judgment on a number of
subjects, including noninfringement, invalidity and unenforceability of the
patent. The court found that the Company's remaining summary judgment motions
were rendered moot by its noninfringement ruling. The Company expects that
Linear Technology Corporation will appeal the decision. No assurance can be
given as to the outcome of any possible appeal.
ITEMS 2, 3, 4, 5 AND 6 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.
18
SIGNATURES
Pursuant to the requirements 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.
NOVEMBER 12, 2001 MAXIM INTEGRATED PRODUCTS, INC.
- ----------------- ------------------------------------------
(Date) (Registrant)
/s/ Carl W. Jasper
------------------------------------------
CARL W. JASPER
Vice President and Chief
Financial Officer (For the
Registrant and as Principal
Financial Officer)
/s/ Sharon E. Smith-Lenox
------------------------------------------
SHARON E. SMITH-LENOX
Corporate Controller (Principal
Accounting Officer)
19