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 DECEMBER 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 FEB 1, 2002
$.001 PAR VALUE 325,840,966 SHARES
MAXIM INTEGRATED PRODUCTS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
as of December 29, 2001 and June 30, 2001 3
Condensed Consolidated Statements of Income
for the three and six months ended
December 29, 2001 and December 30, 2000 4
Condensed Consolidated Statements of Cash Flows
for the six months ended December 29, 2001 and
December 30, 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
ITEM 4. Submission of Matters to a Vote of Security Holders 19
SIGNATURES 20
2
CONDENSED CONSOLIDATED BALANCE SHEETS
MAXIM INTEGRATED PRODUCTS, INC.
==============================================================================
December 29, June 30,
2001 2001
(Amounts in thousands) (Unaudited)
==============================================================================
ASSETS
- ------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 158,728 $ 93,796
Short-term investments 938,479 1,126,556
- ------------------------------------------------------------------------------
Total cash, cash equivalents and short-term
investments 1,097,207 1,220,352
- ------------------------------------------------------------------------------
Accounts receivable, net 94,754 152,488
Inventories 154,447 162,656
Deferred tax assets 126,310 103,205
Income tax refund receivable 40,017 50,187
Other current assets 8,465 10,204
- ------------------------------------------------------------------------------
Total current assets 1,521,200 1,699,092
- ------------------------------------------------------------------------------
Property, plant and equipment, at cost, less
accumulated depreciation 727,800 712,039
Other assets 19,578 19,400
- ------------------------------------------------------------------------------
TOTAL ASSETS $2,268,578 $2,430,531
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61,005 $ 100,921
Income taxes payable 10,462 8,963
Accrued salary and related expenses 70,907 75,992
Accrued expenses 92,426 94,105
Deferred income on shipments to distributors 31,154 45,396
- ------------------------------------------------------------------------------
Total current liabilities 265,954 325,377
- ------------------------------------------------------------------------------
Other liabilities 4,000 4,000
- ------------------------------------------------------------------------------
Total liabilities 269,954 329,377
- ------------------------------------------------------------------------------
Stockholders' equity:
Common stock 325 330
Additional paid-in capital 127,225 351,652
Retained earnings 1,869,486 1,745,638
Accumulated other comprehensive income 1,588 3,534
- ------------------------------------------------------------------------------
Total stockholders' equity 1,998,624 2,101,154
- ------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,268,578 $2,430,531
==============================================================================
See accompanying Notes to Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
MAXIM INTEGRATED PRODUCTS, INC.
- ------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Amounts in thousands, except per --------------------------- ----------------------------
share data) December 29, December 30, December 29, December 30,
(Unaudited) 2001 2000 2001 2000
================================================================================================
Net revenues $247,108 $438,317 $486,534 $860,626
Cost of goods sold 73,961 154,112 145,806 302,527
- ----------------------------------------------------------------------------------------------
Gross margin 173,147 284,205 340,728 558,099
- ----------------------------------------------------------------------------------------------
Operating expenses:
Research and development 68,567 71,527 134,541 138,116
Selling, general and
administrative 22,857 43,419 47,948 84,981
- ----------------------------------------------------------------------------------------------
Total operating expenses 91,424 114,946 182,489 223,097
- ----------------------------------------------------------------------------------------------
Operating income 81,723 169,259 158,239 335,002
Interest income, net 11,641 14,912 26,608 28,295
- ----------------------------------------------------------------------------------------------
Income before provision for
income taxes 93,364 184,171 184,847 363,297
Provision for income taxes 30,810 61,995 60,999 122,048
- ----------------------------------------------------------------------------------------------
Net income $ 62,554 $122,176 $123,848 $241,249
==============================================================================================
Earnings per share:
Basic $ 0.19 $ 0.38 $ 0.38 $ 0.75
Diluted $ 0.18 $ 0.34 $ 0.35 $ 0.66
==============================================================================================
Shares used in the calculation
of earnings per share:
Basic 323,897 324,491 327,304 323,719
Diluted 355,799 361,563 357,649 363,028
==============================================================================================
Dividends declared per share $ -- $ 0.006 $ -- $ 0.012
==============================================================================================
See accompanying Notes to Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXIM INTEGRATED PRODUCTS, INC.
==============================================================================================
For the Six Months Ended
(Amounts in thousands) -------------------------------
(Unaudited) December 29, December 30,
Increase (decrease) in cash and cash equivalents 2001 2000
==============================================================================================
Cash flows from operating activities:
Net income $ 123,848 $ 241,249
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other 28,519 47,513
Plant and equipment charges -- 31,865
Adjustment to conform fiscal period of pooled entity -- 3,608
Changes in assets and liabilities:
Accounts receivable 57,734 20,760
Inventories 8,209 (9,818)
Deferred taxes (12,996) 7,495
Income tax refund receivable 10,170 (1,956)
Other current assets 1,350 10,107
Accounts payable (39,916) 32,823
Income taxes payable 67,911 93,764
Deferred income on shipments to distributors (14,242) 8,216
All other accrued liabilities (6,764) (5,292)
- ----------------------------------------------------------------------------------------------
Net cash provided by operating activities 223,823 480,334
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment, net (44,280) (194,830)
Other non-current assets (178) (2,823)
Purchases of available-for-sale securities (819,045) (410,518)
Proceeds from sales/maturities of available-for-sale
securities 1,004,361 290,919
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 140,858 (317,252)
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 54,699 52,803
Repurchase of common stock (354,448) (205,304)
Dividends paid -- (3,936)
- ----------------------------------------------------------------------------------------------
Net cash used in financing activities (299,749) (156,437)
- ----------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 64,932 6,645
Cash and cash equivalents:
Beginning of year 93,796 82,217
- ----------------------------------------------------------------------------------------------
End of period $ 158,728 $ 88,862
==============================================================================================
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 and six months ended
December 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. The three months ended
December 30, 2000 consisted of 14 weeks. The impact of the extra week on the
Company's operating results for the three months ended December 30, 2000
consisted primarily of additional salary related expenses. These additional
expenses were not material.
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 and six months ended December
30, 2000 was combined with the Dallas Semiconductor statement of income for the
three and six months ended December 31, 2000.
6
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 3: INVENTORIES
Inventories consist of (in thousands):
December 29, June 30,
2001 2001
------------ --------
(Unaudited)
Raw materials $ 16,386 $ 21,893
Work-in-process 103,679 91,727
Finished goods 34,382 49,036
-------- --------
$154,447 $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 Six Months Ended
(Amounts in thousands, except per ---------------------------- ----------------------------
share data) December 29, December 30, December 29, December 30,
(Unaudited) 2001 2000 2001 2000
=====================================================================================================
Numerator for basic earnings per
share and diluted earnings per
share
Net income $ 62,554 $122,176 $123,848 $241,249
=====================================================================================================
Denominator for basic earnings per
share 323,897 324,491 327,304 323,719
Effect of dilutive securities:
stock options and warrants 31,902 37,072 30,345 39,309
--------------------------------------------------------
Denominator for diluted earnings
per share 355,799 361,563 357,649 363,028
=====================================================================================================
Earnings per share:
Basic $ 0.19 $ 0.38 $ 0.38 $ 0.75
Diluted $ 0.18 $ 0.34 $ 0.35 $ 0.66
=====================================================================================================
7
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 5: SHORT-TERM INVESTMENTS
All short-term investments at December 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, 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 Six Months Ended
---------------------------- ----------------------------
(Amounts in thousands) December 29, December 30, December 29, December 30,
(Unaudited) 2001 2000 2001 2000
========================================================================================
United States $ 95,936 $196,099 $182,691 $389,388
Europe 50,083 100,946 107,226 198,161
Pacific Rim 97,710 134,848 190,049 261,546
Rest of World 3,379 6,424 6,568 11,531
- --------------------------------------------------------------------------------------
$247,108 $438,317 $486,534 $860,626
======================================================================================
Net long-lived assets by geographic region were as follows:
- --------------------------------------------------------
(Amounts in thousands) December 29, June 30,
(Unaudited) 2001 2001
- --------------------------------------------------------
United States $662,152 $646,519
Rest of World 65,648 65,520
- --------------------------------------------------------
$727,800 $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 Six Months Ended
----------------------------- -----------------------------
(Amounts in thousands) December 29, December 30, December 29, December 30,
(Unaudited) 2001 2000 2001 2000
=======================================================================================================
Change in unrealized gains
(losses) on investments,
net of tax of $(962), $809,
$(1,070), and $809, respectively $ (1,802) $ 1,377 $ (1,691) $ 1,377
Change in unrealized gains
(losses) on forward exchange
contracts, net of tax of $63, $0,
$(134), and $0, respectively 127 -- (255) --
- -----------------------------------------------------------------------------------------------------
Other comprehensive income (loss) $ (1,675) $ 1,377 $ (1,946) $ 1,377
=====================================================================================================
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 year 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. 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. Based on the cash flow
analysis, 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 December 29, 2001, the Company recorded special
charges of $1.4 million related to reductions in the Company's manufacturing
workforce. It is expected that 201 employees will be terminated by these
actions, of which 158 were terminated and $1.0 million of termination benefits
were paid by December 29, 2001. In addition to the above, during the three
months ended December 29, 2001, the Company paid $0.2 million of termination
benefits related to special charges recorded during the fourth quarter of fiscal
year 2001. The Company has terminated 391 employees and has paid $5.1 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 December 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 $1.4 million less
than the amount recorded for such charges at September 29, 2001. Accordingly,
the Company decreased the amount recorded for purchase order cancellation fees
by $1.4 million to reflect this change in estimate.
The following table summarizes the activity related to the above actions for the
six months ended December 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
Special charges -- 1,400 -- -- 1,400
Adjustment -- -- (1,400) -- (1,400)
Cash payments -- (1,167) -- -- (1,167)
- -------------------------------------------------------------------------------------------------------
Reserve balance at
December 29, 2001 $ 3,235 $ 417 $ 3,532 $ 1,818 $ 9,002
=======================================================================================================
The remaining merger and special charges reserve at December 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. Linear Technology Corporation
has appealed the decision. While the Company continues to believe the claims are
without merit, no assurance can be given as to the outcome of the 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
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
10 b-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.
On October 1, 2001 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 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 $247.1 million and $438.3 million for the three months ended
December 29, 2001 and December 30, 2000, respectively, a decrease of 43.6%. Net
revenues were $486.5 million and $860.6 million for the six months ended
December 29, 2001 and December 30, 2000, respectively, a decrease of 43.5%. The
decrease in net revenues is due to downturns in certain industry segments and in
the general economy.
During the three and six months ended December 29, 2001, approximately 61% and
62%, respectively, 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 and six months ended December 29, 2001 was
immaterial.
GROSS MARGIN
Gross margin was 70.1% and 64.8% for the three months ended December 29, 2001
and December 30, 2000, respectively. The increase in gross margin for the three
months ended December 29, 2001 is attributable to cost reductions and charges
recorded during the three months ended December 29, 2001 as compared to the
three months ended December 30, 2000. Gross margin for the three months ended
December 29, 2001 was negatively impacted due to $3.0 million recorded for
inventory reserves. Gross margin for the three months ended December 30, 2000
was negatively impacted due to $14.3 million recorded for inventory reserves and
$11.6 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.
Gross margin was 70.0% and 64.8% for the six months ended December 29, 2001 and
December 30, 2000, respectively. The increase in gross margin for the six months
ended December 29, 2001 is attributable to cost reductions and charges recorded
during the six months ended December 29, 2001 as compared to the six months
ended December 30, 2000. Gross margin for the six months ended December 29, 2001
was negatively impacted due to $6.5 million recorded for inventory reserves.
Gross margin for the six months ended December 30, 2000 was negatively impacted
due to $16.9 million recorded for inventory reserves and $26.5 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 $68.6 million and $71.5 million for the
three months ended December 29, 2001, and December 30, 2000, respectively, which
represented 27.7% and 16.3% of net revenues, respectively.
Research and development expenses were $134.5 million and $138.1 million for the
six months ended December 29, 2001, and December 30, 2000, respectively, which
represented 27.7% and 16.0% of net revenues, respectively.
The decrease in research and development expenses in absolute dollars for the
three and six months ended December 29, 2001 as compared to the same periods in
the prior year is due to $3.6 million and $7.1 million recorded during the three
and six months ended December 30, 2000, respectively, 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 primarily by increased headcount and related
employee expenses to continue development of new products to support revenue
growth.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $22.8 million and $43.4
million for the three months ended December 29, 2001, and December 30, 2000,
respectively, which represented 9.2% and 9.9% of net revenues, respectively.
Selling, general and administrative expenses were $47.9 million and $85.0
million for the six months ended December 29, 2001, and December 30, 2000,
respectively, which represented 9.9% and 9.9% of net revenues, respectively.
The decrease in selling, general, and administrative expenses in absolute
dollars for the three and six months ended December 29, 2001 as compared to the
three and six months ended December 30, 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
charges of $4.0 million and $7.0 million during the three and six months ended
December 30, 2000, respectively, for technology licensing.
INTEREST INCOME, NET
Interest income, net was $11.6 million and $26.6 million for the three and six
months ended December 29, 2001, respectively, compared to $14.9 million and
$28.3 million for the three and six months ended December 30, 2000,
respectively. The decrease in interest income, net for the three and six months
ended December 29, 2001 as compared to the three and six months ended December
30, 2000 is a result of decreased interest rates on invested amounts offset
somewhat by higher levels of invested cash.
INCOME TAXES
The effective income tax rate for the three months ended December 29, 2001 and
December 30, 2000 was 33.0% and 33.7%, respectively. The effective income tax
rate for the six months ended December 29, 2001 and December 30, 2000 was 33.0%
and 33.6%, respectively. These rates differ 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
Second quarter bookings were approximately $230 million, a 9% increase over the
first quarter's level of $211 million. Turns orders received during the quarter
were $125 million, a 23% increase over the $102 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). Order cancellations were down
39% from the first quarter and down 81% from the year ago level. Bookings
increased in all geographic regions except the U.S., where bookings decreased
slightly compared to the prior quarter. Bookings increased in most of the
Company's 14 business units, with particular strength in those business units
with products for portable equipment. Bookings were down from the first quarter
for those business units with products for the test equipment, fiber and
telecommunication equipment markets.
Second quarter ending backlog shippable within the next 12 months was
approximately $187 million, including $170 million requested for shipment in the
third quarter of fiscal year 2002. The Company's first quarter ending backlog
shippable within the next 12 months was approximately $196 million, including
approximately $172 million requested for shipment in the second quarter of
fiscal year 2002.
The Company is confident that inventory levels for much of the end equipment
that its products address are either significantly reduced or have moderated.
The Company remains cautious about the short-term outlook for the telecom and
ATE markets, where its customers are still working through inventories. Although
the Company believes that its customers' visibility is better now than it has
been in the past several quarters, turns orders remain high because of the
Company's short lead times. As lead times increase, the Company expects
customers to place orders beyond their immediate needs.
The Company is encouraged by the continued increase in bookings during its
second quarter. Although visibility remains limited, the Company currently
expects bookings to increase again in the third quarter of fiscal year 2002.
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 six months ended December 29,
2001 were from net cash generated from operating activities of $223.8 million,
$185.3 million of net investment activities, and proceeds from the issuance of
common stock of $54.7 million associated with the Company's stock option
programs.
The principal uses of funds were the repurchase of $354.4 million of common
stock and the purchase of $44.3 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.
The Company is subject to pending legal proceedings. For example, see Note 9 of
Notes to Condensed Consolidated Financial Statements for information regarding a
pending patent litigation. Although the results of such legal proceedings are
unpredictable, the Company does not believe that any pending legal proceedings
will have a material adverse impact on its liquidity or financial position. If,
however, the court in the action brought by Linear Technology Corporation were
to reverse its recent dismissal of the patent litigation claims brought by
Linear Technology Corporation against the Company, and were Linear Technology
Corporation to prevail in its claims against the Company, the Company's
operating results could be adversely affected.
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 terminated in the
third quarter of fiscal 2001. See Note 10 of Notes to Condensed Consolidated
Financial Statements regarding repurchases of common stock in the first and
second quarters of fiscal year 2002 and the subsequent termination of such
repurchases.
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. Forward-looking statements include the Company's
expectations regarding future bookings, the Company's assessment of its
customers' ability to forecast their future business and their willingness or
unwillingness to commit to inventories and longer term orders, the Company's
assessment of the outlook for the telecom and ATE markets 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. Given the
Company's backlog of orders at the end of December 2001, the Company's ability
to increase revenues in the current quarter will depend on the amount of turns
orders that it can generate and on its ability to match orders with available
inventory. In addition, future business could be adversely affected by 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; the Company being unable
to sustain its successes in recruiting and retaining high-quality personnel; and
the Company's 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. Linear Technology Corporation
has appealed the decision. While the Company continues to believe the claims are
without merit, no assurance can be given as to the outcome of the appeal.
18
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on November 15, 2001. The
following proposals were voted on by the Company's Stockholders and results
obtained thereon:
PROPOSAL 1: ELECTION OF DIRECTORS
The following directors were elected as directors by the votes indicated:
Nominee Votes in Favor Votes Withheld
- ------- -------------- --------------
James R. Bergman 288,602,764 1,390,257
John F. Gifford 266,823,540 23,169,481
B. Kipling Hagopian 288,595,629 1,397,392
Eric C. Karros 288,170,508 1,822,513
M.D. Sampels 288,509,956 1,483,065
A.R. Frank Wazzan 288,580,220 1,412,801
PROPOSAL 2: RATIFICATION AND APPROVAL OF THE COMPANY'S 1996 STOCK INCENTIVE
PLAN, AS AMENDED, AND AMENDMENTS TO THE COMPANY'S 1987 EMPLOYEE STOCK
PARTICIPATION PLAN, AS AMENDED, INCLUDING, WITHOUT LIMITATION, AMENDMENTS
INCREASING THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE BY 13,200,000 SHARES.
The proposal was ratified and approved with 183,918,792 votes in favor,
104,808,679 against, and 1,265,550 abstentions.
PROPOSAL 3: RATIFICATION OF RETENTION OF INDEPENDENT AUDITORS
The retention of Ernst & Young LLP as the Company's independent auditors for
fiscal year 2002 was ratified with 288,344,759 votes in favor, 713,740 votes
against, and 934,522 abstentions.
ITEMS 2, 3, 5 AND 6 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.
19
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.
FEBRUARY 12, 2002 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)
20