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EXHIBIT 13.1
COVER 1
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This Annual Report and the documents incorporated herein by reference contain
forward-looking statements that have been made pursuant to and in reliance on
the provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may include (a) projections relevant to future
revenue, income, earnings, capital expenditures, capital structure or other
financial items, (b) statements of plans or objectives of the Company's
management for future operations, including plans or objectives relating to the
Company's products or services, (c) statements of future economic performance,
and (d) statements of any assumptions underlying or relating to any of the
foregoing. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," and variations of such words and similar
expressions relating to the future are intended to identify forward-looking
statements.
All forward-looking statements are based on the Company's current outlook,
expectations, estimates, projections, beliefs, and plans or objectives about its
business and its industry. These statements are not guarantees of future
performance and are subject to risk and uncertainty. Actual results may differ
materially from those in any such forward-looking statement. Particular
attention should be paid to the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained elsewhere
in this Annual Report.
The Company undertakes no obligation to update any forward-looking statement,
whether as a result of new information relating to existing conditions, future
events or otherwise. However, readers should carefully review future reports and
documents that the Company files from time to time with the Securities and
Exchange Commission, such as its Annual Reports on Form 10-K and its Quarterly
Reports on Form 10-Q (particularly the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Risk Factors") and any current reports on Form 8-K.
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Established in 1983, Maxim Integrated Products is a worldwide leader in design,
development, manufacture, and marketing of linear and mixed-signal integrated
circuits. Maxim circuits "connect" the real world and digital world by
detecting, measuring, amplifying, and converting real world signals, such as
temperature, pressure, or sound, into the digital signals necessary for computer
processing. Products include data converters, interface circuits, microprocessor
supervisors, operational amplifiers, power supplies, multiplexers, switches,
battery chargers, battery management circuits, RF circuits, fiber optic
transceivers, sensors, and voltage references. Our products are used in a wide
variety of microprocessor-based electronics equipment, including personal
computers and peripherals, process control, instrumentation, test equipment,
handheld devices, wireless and fiber communications, and video displays.
Maxim markets over 1,780 products, of which over 1,480 are proprietary, and net
revenues were $607.0 million for the year ended June 26, 1999. The Company has
over 3,000 employees. Our headquarters is in Sunnyvale, California, and we have
facilities in San Jose, California; Beaverton, Oregon; and other locations
worldwide.
Maxim's mission is to continuously invent high-quality analog engineering
solutions that add value to our customers' microprocessor-based electronics
worldwide. We have consistently increased our stockholders' equity by meeting
our cost and performance goals, minimizing time-to-market, and maximizing our
engineering productivity.
TABLE OF CONTENTS
Financial Highlights............................. 4
Letter To Our Stockholders....................... 5
Quarterly Highlights............................. 8
Financial Information............................ 11
Board of Directors and Corporate Officers........ 37
Corporate Data, Stockholder Information.......... 38
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Financial Highlights
(Amounts in thousands, except share data) FY1999 FY1998 FY1997
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Net revenues $606,965 $560,220 $433,710
Net income $196,122 $178,144 $136,974
Earnings per share--diluted $ 1.29 $ 1.18 $ 0.94
- -------------------------------------------------------------------------------------------
[NET REVENUES PERFORMANCE GRAPH]
[OPERATING INCOME PERFORMANCE GRAPH]
[STOCKHOLDERS' EQUITY PERFORMANCE GRAPH]
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To Our Stockholders
[PHOTO OMITTED]
As the 1990s draw to a close, rankings are being published for the best
performing companies of the decade. It should be no surprise that Maxim is
turning up on such lists as the top performing semiconductor company of the
`90s. Few companies in any industry can match Maxim's consistency of performance
over the past 10 years. The average compounded annual return on the Company's
stock price over the past 10 years was 51 percent. More important to both Maxim
and our stockholders is our ability to extend this track record of growth and
stability into the next decade.
FINANCIAL HIGHLIGHTS
Maxim ended fiscal 1999 with net revenues of $607.0 million. Operating income
was $276.8 million, and diluted earnings per share were $1.29. The Company
increased cash and short-term investments by $191.8 million after paying $113.9
million to repurchase 2.9 million shares of its common stock and $38.7 million
for capital equipment. Total assets increased to $1.0 billion. Stockholders'
equity grew to $879.2 million in fiscal 1999 from $631.0 million in fiscal 1998.
Return on average stockholders' equity for 1999 was 26.0 percent. This return,
one of the highest in the industry, confirms that the Company has continued to
make good product and capacity investment decisions with stockholders' assets.
ON TRACK WITH PRODUCT AND PROCESS DEVELOPMENT
Maxim has long been the leader in analog and mixed-signal IC design. Today, we
are also a leader in manufacturing process innovation. This year, we were the
first company to introduce standard ICs designed using high-frequency silicon
germanium (SiGe) technology. We are now delivering SiGe products for both
wireless communications and telecom applications. Maxim power management
products designed on our state-of-the-art 1.2-um BiCMOS process are leading the
industry with their low power and high levels of integration. Also during the
year, we brought to market high-performance sigma delta analog-to-digital
converters that employ state-of-the-art mixed-signal submicron processes,
combining extremely high accuracy and very low power for industrial
applications.
Although we missed by 5 percent our goal of introducing over 300 products during
our product announcement year, we executed well overall and significantly
surpassed last year's level. The products we introduced this year are key to our
achieving revenue growth plans for FY2002. Our goal for FY2000 is to increase
product introductions once again by the amount required to meet our objectives
for increased revenues in FY2003 and FY2004.
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To Our Stockholders
ADDITION OF OUTSTANDING EXECUTIVE TALENT
Maxim added two new business unit executives during the year and created
one new business unit staffed to focus on products for emerging markets
that will be important to Maxim in 4 to 5 years. Maxim was very
successful this year in hiring senior technical managers throughout the
Company. We believe ours to be the broadest and strongest senior
management team in our industry--bar none.
Successful companies attract the best talent, and Maxim added to its
team a significant number of expert professionals this year, thanks to
our exciting corporate culture, the growth of our stock option value,
and our highly effective mentorship programs.
RECENTLY ACQUIRED FACILITIES IN SUCCESSFUL OPERATION
This year, after 9 great years of operation and 1 million 4-inch wafers
produced, we closed our Sunnyvale fabrication facility. This decision
was based on our having successfully achieved cost-effective production
levels in our 6-inch submicron wafer fabrication facility in San Jose,
acquired in November 1997. Our 80,000-square-foot Oregon fab produced 70
percent of our needs for 6-inch wafers during the year. We are currently
utilizing approximately 53,000 square feet for today's demand. An
additional 7,500-square-foot R&Dfab will be put in operation in Q1 FY00.
Our Oregon facility operated at less than the optimal capacity levels
that it is expected to achieve in the coming years. Today, the San Jose
and Beaverton facilities combined have the capacity to manufacture
approximately $225 million in product revenue per quarter. We believe
that an additional capital investment of less than $50 million in those
two facilities would enable us to manufacture approximately $290 million
in product revenue per quarter.
We are now testing over 90 percent of our packaged units at our test
facility in the Philippines, a 45 percent increase over FY98 levels.
This operation contributed over $8 million to profit through cost
reductions this past year and significantly contributed to improved
product quality. We have sufficient improved floorspace at our
Philippines facility to significantly increase production test volume,
if required, with the addition of test equipment. At the same time, we
are exploring other geographic locations for possible diversification of
our test activities.
BUSINESS IMPROVED AS THE YEAR PROGRESSED
During the uncertainty of FY99, when we had limited visibility of future
end-market demand, although we closely managed our resources, we
continued our emphasis on new product and technology development. As a
result of our unwavering commitment to new product development, we
believe that this year's correction will have a limited impact on our
long-term growth objectives.
Bookings for the Company began to improve in Q2 FY99 after three
quarters of decline, and bookings for Q4 FY99 reached a company record
level of $198 million. However, backlog was sufficiently depleted during
the year to preclude material growth until such time as healthy backlog
is restored.
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To Our Stockholders
Beginning in the second quarter, we saw a high percentage of short-term
orders and a decline in order cancellations. Earlier in the year we
attributed the high level of short-term orders to the reduced lead times
we were able to offer and limited customer visibility of demand for
their products. We believe that customers are now more optimistic about
demand for their products and are considering more aggressive growth
models.
PLANS IN PLACE FOR FY2000 AND BEYOND
We believe that our accomplishments this year in introducing and
merchandising new products, achieving significant technology
developments, augmenting fab and test capacity, and attracting technical
experts continue to position us to meet what we believe will be growing
demand for our products in the longer term. We have greater
organizational depth than ever before, as well as several new emerging
product lines. We believe that we have a well-positioned opportunity to
take our place among the great IC companies of the past, present, and
future.
Sincerely,
/s/ JOHN F. GIFFORD
-----------------------------------
John F. Gifford
President, Chief Executive Officer
and Chairman of the Board
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Quarterly Highlights
First Quarter FY99
o Net revenues of $155.3 million
o Net income of $49.4 million ($0.33 diluted earnings per share)
[NET REVENUES PERFORMANCE GRAPH]
[OPERATING INCOME PERFORMANCE GRAPH]
[STOCKHOLDERS' EQUITY PERFORMANCE GRAPH]
Second Quarter FY99
o Net revenues of $145.0 million
o Net income of $46.5 million ($0.31 diluted earnings per share)
[NET REVENUES PERFORMANCE GRAPH]
[OPERATING INCOME PERFORMANCE GRAPH]
[STOCKHOLDERS' EQUITY PERFORMANCE GRAPH]
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QUARTERLY HIGHLIGHTS
THIRD QUARTER FY99
o Net revenues of $147.2 million
o Net income of $47.7 million ($0.31 diluted earnings per share)
[NET REVENUES PERFORMANCE GRAPH]
[OPERATING INCOME PERFORMANCE GRAPH]
[STOCKHOLDERS' EQUITY PERFORMANCE GRAPH]
FOURTH QUARTER FY99
o Net revenues of $159.5 million
o Net income of $52.6 million ($0.34 diluted earnings per share)
[NET REVENUES PERFORMANCE GRAPH]
[OPERATING INCOME PERFORMANCE GRAPH]
[STOCKHOLDERS' EQUITY PERFORMANCE GRAPH]
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FINANCIAL INFORMATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................... 12
Consolidated Balance Sheets ............................................ 18
Consolidated Statements of Income ...................................... 19
Consolidated Statements of Stockholders' Equity ........................ 20
Consolidated Statements of Cash Flows .................................. 21
Notes to Consolidated Financial Statements ............................. 22
Report of Ernst & Young LLP, Independent Auditors ...................... 34
Selected Financial Data ................................................ 35
Financial Highlights by Quarter ........................................ 36
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
Net Revenues Maxim Integrated Products, Inc. (the Company) reported
net revenues of $607.0 million in fiscal 1999, $560.2 million in fiscal
1998, and $433.7 million in fiscal 1997. The increases in net revenues
for fiscal 1999 and fiscal 1998 are related primarily to higher unit
shipments resulting from continued introduction of new proprietary
products and increased market acceptance of the Company's proprietary
and second-source products.
[Net Revenues PERFORMANCE GRAPH]
Approximately 59% of the Company's fiscal 1999 net revenues was derived
from customers outside the U.S., primarily in Europe and the Pacific Rim
(56% in fiscal 1998 and 57% in fiscal 1997). While a majority of the
Company's sales are denominated in U.S. dollars, the Company enters into
foreign currency forward contracts to mitigate its risk on firm
commitments and net monetary assets denominated in foreign currencies;
as a result, the impact of changes in foreign exchange rates on revenues
and the Company's results of operations for 1999 was minimal.
[Gross Margin PERFORMANCE GRAPH]
Gross Margin The Company's gross margin as a percentage of net
revenues was 68.8%, 67.2%, and 66.5% in fiscal 1999, 1998, and 1997,
respectively. The continued improvements in gross margin are principally
due to production efficiencies obtained through economies of scale and
cost reductions. These efficiencies were partially offset in fiscal 1999
by an increase in inventory reserves of $8.0 million ($10.4 million in
fiscal 1998) and the write-down of certain equipment of $2.7 million
($8.2 million in fiscal 1998).
[Research and Development PERFORMANCE GRAPH]
Research and Development The Company is continuously working to
introduce new products through its research and development efforts.
Research and development expenses were 14.5%, 12.9%, and 11.8% of net
revenues in fiscal 1999, 1998, and 1997, respectively. The increase in
research and development expenses as a percentage of net revenues was
due primarily to increased headcount and wafer and mask expenses to
support new product development. The Company intends to continue
increasing its R&D expenditures on an absolute dollar basis in future
periods. However, the level of R&D expenditures as a percentage of net
revenues will vary from period to period, depending on the level of net
revenues.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
[Selling, General and Administrative PERFORMANCE GRAPH]
Selling, General and Administrative Selling, general and
administrative expenses were 8.6%, 8.8%, and 8.8% of net revenues in
fiscal 1999, 1998, and 1997, respectively. Selling, general and
administrative expenses increased in fiscal 1999 in absolute dollars as
a result of additional headcount and related expenses to support the
Company's increased level of revenues. The increase in selling, general
and administrative expenses in fiscal 1998 in absolute dollars was
primarily due to increased expenses associated with the Company's direct
sales efforts.
Interest Income, Net Interest income, net increased to $20.4 million
in fiscal 1999 from $14.9 million in fiscal 1998 and $8.6 million in
fiscal 1997, primarily due to higher levels of invested cash, cash
equivalents, and short-term investments. The Company's exposure to
market risk for changes in interest rates relates primarily to the
Company's investment portfolio. Under its investment policy, the Company
invests exclusively in U.S. Treasury and Federal Agency debt securities
with a maturity of one year or less. Investments mature at frequent
intervals during the year, at which time the funds are available for use
in the business, or for reinvestment, as cash demands dictate. This
policy is intended to reduce default risk, market risk, and reinvestment
risk. The Company does not use derivative financial instruments in its
investment portfolio. The fair value of the Company's investment
portfolio or related interest income would not be significantly impacted
by a material change in interest rates, due to the short-term nature of
the Company's investment portfolio. At June 26, 1999, the Company's
investment portfolio had an expected weighted average return of 4.9% and
a weighted maturity of 245 days.
Provision for Income Taxes The effective tax rate was 34% for fiscal
1999, 1998, and 1997.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OUTLOOK:
Both end-market bookings and net bookings for the Company were greater
during the fourth quarter of fiscal 1999 than during the prior quarters
of the fiscal year. These increased booking levels reflect increased
demand for the Company's products, primarily in the United States and
Japan. Although bookings in the fourth quarter of fiscal 1999 increased
by 16% over third quarter bookings, the Company expects that bookings
will adjust to lower growth levels in future quarters.
At the end of the fourth quarter of fiscal 1999, backlog shippable
within the next 12 months was approximately $176 million (compared to
$181 million at the end of fiscal 1998 and $152 million at the end of
fiscal 1997). The backlog level at the end of fiscal 1999 had been
sufficiently depleted to preclude significant revenue growth until such
time as backlog is significantly increased above current levels. Because
the Company's backlog of orders at any point is not necessarily based on
firm, noncancelable orders and because the Company's customers do in
fact routinely cancel orders for their own convenience with little
notice, opening backlog has limited value as a predictor of future
revenues.
The Company's ability to increase its revenues and earnings in the first
quarter of fiscal 2000 and beyond will depend in part on the continued
growth in end-market bookings and net bookings.
FINANCIAL CONDITION:
Overview Total assets grew to $1,022.3 million at the end of fiscal
1999, up from $769.5 million at the end of fiscal 1998. The increase is
primarily due to favorable operating results for the year. Accounts
receivable decreased to $79.3 million at the end of fiscal 1999 from
$101.9 million at the end of fiscal 1998, primarily due to shipments
occurring at a more linear rate throughout fiscal 1999 as compared to
fiscal 1998. Inventory grew at a slower rate than revenues, increasing
slightly from $44.7 million in fiscal 1998 to $45.3 million in fiscal
1999 due to continued improvements in productivity.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
[Cash, Cash Equivalents and Short-Term Investments PERFORMANCE GRAPH]
Liquidity and Capital Resources The Company's primary source of funds
for fiscal 1999, 1998, and 1997 has been from net cash generated from
operating activities of approximately $306.2 million, $295.5 million,
and $187.1 million, respectively. In addition, the Company received
approximately $51.1 million, $37.2 million, and $31.2 million of
proceeds from the exercises of stock options and purchases of common
stock under the Employee Stock Participation Plan during fiscal 1999,
1998, and 1997, respectively.
Another source of cash from the Company's option programs is the tax
deductions that arise from exercise of options. These tax benefits
amounted to $114.3 million, $74.3 million, and $52.4 million in fiscal
1999, 1998, and 1997, respectively. It has been 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.
The Company plans to continue this policy although, at management's
discretion, it may repurchase its common stock in amounts significantly
in excess of or below such estimates.
The principal uses of funds for fiscal 1999, 1998, and 1997 were
repurchases of $113.9 million, $123.1 million, and $80.7 million of the
Company's common stock, and purchases of property, plant and equipment
of $54.3 million, $109.4 million, and $44.2 million, respectively. In
fiscal 1998, $42.0 million of the $109.4 million in capital purchases
was for a sub-micron wafer fabrication facility located in San Jose,
California.
As of June 26, 1999, the Company's available funds consisted of $514.7
million in cash, cash equivalents, and short-term U.S. Treasury and
Federal Agency debt securities.
The Company anticipates that the available funds and cash generated from
operations will be sufficient to meet cash and working capital
requirements, including its anticipated level of capital expenditures,
through the end of fiscal 2000.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Year 2000 Issue:
As a result of certain computer programs' being written using two digits
rather than four to define the applicable year, any of the Company's
computer programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000 (the "Year 2000
issue"). This could result in a system failure or miscalculations,
causing disruptions of operations including, among other things, a
temporary inability to process transactions, send invoices, or engage in
normal business activities.
The Company has evaluated the required modifications to both new and
existing software and hardware systems to mitigate the Year 2000 issue
and is 100% complete with respect to remediation on systems identified
and determined to be critical to the Company's operations. Remediation
continues on noncritical systems. The Company expects to have all
required modifications completed prior to December 31, 1999. The Company
is working with its significant suppliers and large customers to
determine the extent to which the Company is vulnerable to those third
parties' failure to minimize their own Year 2000 issue. The Company
currently has no contingency plan in the event that it is unable to
complete system modifications to address the Year 2000 issue. The
Company has limited contingency plans with respect to third parties in
the event that they are unable to complete system modifications to
mitigate the Year 2000 issue. Costs incurred to date related to the Year
2000 issue have been minimal. While the Company has fully completed the
evaluation of its Year 2000 issue and is approximately 85% complete with
respect to remediation on all its systems (critical and noncritical),
there can be no assurance that further evaluation and remediation will
not be required. The Company does not anticipate that the future cost of
these efforts, should they be necessary, will be material.
The date on which the Company plans to complete any necessary Year 2000
modifications and costs related to completing such modifications are
based on management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans, and
other factors. However, there can be no assurance that these estimates
will be achieved, and actual completion dates and costs could differ
significantly from those estimates. Specific factors that might cause
such significant differences include, but are not limited to, the
identification of additional systems that require remediation, the
availability and cost of personnel trained in this area, the ability to
identify, locate, and correct all relevant computer codes, and similar
uncertainties. Any failure to timely, successfully, and cost effectively
assess, remediate, and resolve the Company's Year 2000 issues, including
those regarding its own as well as suppliers' and third parties'
internal systems, products, services, and contingency plans, may have a
material adverse effect on the Company's business and results of
operations. The Company is continuing its efforts to ensure Year 2000
readiness, and there can be no assurance that there will not be new Year
2000 issues not identified above and significant delays in or increased
costs associated with such efforts which could have a material adverse
effect on the Company's business and results of operations.
Maxim believes that its most reasonably likely worst-case Year 2000
scenarios would relate to problems with the systems of third parties
rather than with the Company's internal systems. The Company has little
control over assessing and remediating the Year 2000 problems of third
parties. The Company believes the risks are greatest with infrastructure
(e.g., electricity and water supply), telecommunications, transportation
supply chains, and critical suppliers of materials.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's linear and mixed-signal integrated circuit production is
conducted at both domestic and foreign facilities. The Company does not
generally maintain facilities that would allow it to generate its own
electrical or water supply in lieu of that supplied by utilities. A
worst-case scenario involving a critical supplier of materials would be
the partial or complete shutdown of the supplier and its resulting
inability to provide critical supplies to the Company on a timely basis.
The Company does not have the capability to replace third party supplies
with internal production. The Company is working with suppliers of
critical materials to ensure buffer supplies are maintained.
The Company is not in a position to identify or to avoid all possible
worst-case scenarios. Due to the large number of variables involved, the
Company cannot provide an estimate of the damage it might suffer if any
worst-case scenario were to occur.
Forward-Looking Information:
Forward-looking statements in this Annual Report, including this
"Management's Discussion and Analysis" section, involve risk and
uncertainty. There are numerous factors that could cause the Company's
actual results to differ materially from results predicted or implied.
Important factors affecting the Company's ability to achieve future
revenue growth 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; and
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; and whether the Company is able to
successfully commercialize its new technologies, such as its new
second-generation high-frequency technologies, that it has been
investing in by designing and introducing new products based on these
new technologies.
Other important factors that could cause actual results to differ
materially from those predicted 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 material, equipment, supplies,
and services; unanticipated manufacturing problems; technological and
product development risks; competitors' actions; the ability of the
Company to mitigate the Year 2000 issue; and other risk factors
described in the Company's filings with the Securities and Exchange
Commission.
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.
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CONSOLIDATED BALANCE SHEETS
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(Amounts in thousands, except share data) June 26, 1999 June 27, 1998
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Assets
--------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 34,126 $ 16,739
Short-term investments 480,580 306,209
--------------------------------------------------------------------------------------------------
Total cash, cash equivalents and
short-term investments 514,706 322,948
--------------------------------------------------------------------------------------------------
Accounts receivable (net of allowance for doubtful
accounts of $1,485 in 1999 and $1,892 in 1998) 79,330 101,921
Inventories 45,283 44,707
Deferred tax assets 47,850 34,400
Income tax refund receivable 36,649 --
Other current assets 5,056 4,039
--------------------------------------------------------------------------------------------------
Total current assets 728,874 508,015
--------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost, less
accumulated depreciation 290,133 255,453
Other assets 3,307 6,024
--------------------------------------------------------------------------------------------------
Total assets $ 1,022,314 $ 769,492
--------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 40,257 $ 35,169
Income taxes payable 2,484 27,412
Accrued salaries 26,364 21,421
Accrued expenses 35,477 22,604
Deferred income on shipments to distributors 16,316 23,686
--------------------------------------------------------------------------------------------------
Total current liabilities 120,898 130,292
--------------------------------------------------------------------------------------------------
Other liabilities 4,000 4,000
Deferred tax liabilities 18,200 4,200
Commitments and contingencies
--------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $0.001 par value;
Authorized: 2,000,000 shares;
Issued and outstanding: none -- --
Common stock, $0.001 par value;
Authorized: 240,000,000 shares;
Issued and outstanding: 135,835,376 in 1999
and 130,752,346 in 1998 136 131
Additional paid-in capital 132,514 81,118
Retained earnings 748,036 551,914
Accumulated other comprehensive income (1,470) (2,163)
--------------------------------------------------------------------------------------------------
Total stockholders' equity 879,216 631,000
--------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,022,314 $ 769,492
--------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
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(Amounts in thousands, except per share data)
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------------------------
Net revenues $606,965 $560,220 $433,710
Cost of goods sold 189,673 183,724 145,307
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Gross margin 417,292 376,496 288,403
- --------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 88,249 72,204 51,264
Selling, general and administrative 52,275 49,256 38,194
- --------------------------------------------------------------------------------------------------------------
Total operating expenses 140,524 121,460 89,458
- --------------------------------------------------------------------------------------------------------------
Operating income 276,768 255,036 198,945
Interest income, net 20,386 14,879 8,590
- --------------------------------------------------------------------------------------------------------------
Income before provision
for income taxes 297,154 269,915 207,535
Provision for income taxes 101,032 91,771 70,561
- --------------------------------------------------------------------------------------------------------------
Net income $196,122 $178,144 $136,974
- --------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 1.48 $ 1.37 $ 1.09
Diluted $ 1.29 $ 1.18 $ 0.94
- --------------------------------------------------------------------------------------------------------------
Shares used in the calculation of earnings per share:
Basic 132,722 129,838 125,430
Diluted 152,059 150,661 145,754
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Common
Stock Additional Other
------------------------- Paid-In Retained Comprehensive
(Amounts in thousands, except share data) Shares Par Value Capital Earnings Income Total
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 122,891,038 $ 123 $ 89,878 $236,796 $(1,372) $ 325,425
Components of comprehensive income:
Net income -- -- -- 136,974 -- 136,974
Translation adjustment -- -- -- -- 266 266
---------
Total comprehensive income 137,240
---------
Exercise of stock options under
the Stock Option and Purchase Plans 8,448,466 8 31,200 -- -- 31,208
Repurchase of common stock (3,881,000) (4) (80,701) -- -- (80,705)
Tax benefit on exercise of non-qualified
stock options and disqualifying
dispositions under stock plans -- -- 52,397 -- -- 52,397
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 127,458,504 127 92,774 373,770 (1,106) 465,565
Components of comprehensive income:
Net income -- -- -- 178,144 -- 178,144
Translation adjustment -- -- -- -- (1,057) (1,057)
---------
Total comprehensive income 177,087
---------
Exercise of stock options under
the Stock Option and Purchase Plans 6,939,982 7 37,222 -- -- 37,229
Repurchase of common stock (3,646,140) (3) (123,131) -- -- (123,134)
Tax benefit on exercise of non-qualified
stock options and disqualifying
dispositions under stock plans -- -- 74,253 -- -- 74,253
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 27, 1998 130,752,346 131 81,118 551,914 (2,163) 631,000
Components of comprehensive income:
Net income -- -- -- 196,122 -- 196,122
Translation adjustment -- -- -- -- 693 693
---------
Total comprehensive income 196,815
---------
Exercise of stock options under
the Stock Option and Purchase Plans 7,998,030 8 51,055 -- -- 51,063
Repurchase of common stock (2,915,000) (3) (113,940) -- -- (113,943)
Tax benefit on exercise of non-qualified
stock options and disqualifying
dispositions under stock plans -- -- 114,281 -- -- 114,281
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 26, 1999 135,835,376 $ 136 $ 132,514 $748,036 $(1,470) $ 879,216
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
20
20
CONSOLIDATED STATEMENTS OF
CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
Increase (decrease) in cash and cash equivalents
For the years ended JUNE 26, 1999 June 27, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 196,122 $ 178,144 $ 136,974
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization, and other 17,639 15,082 17,013
Reduction of equipment value 2,700 12,342 --
Changes in assets and liabilities:
Accounts receivable 22,591 (10,279) (10,978)
Inventories (576) (7,874) (6,362)
Deferred taxes 550 (10,300) 775
Income tax refund receivable (36,649) -- --
Other current assets (1,017) (960) 409
Accounts payable 5,088 9,920 (4,489)
Income taxes payable 89,353 90,749 43,990
Deferred income on shipments to distributors (7,370) 7,350 1,805
All other accrued liabilities 17,816 11,305 7,943
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 306,247 295,479 187,080
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment, net (54,326) (109,426) (44,187)
Other non-current assets 2,717 (1,153) 1,304
Purchase of held-to-maturity securities -- -- (24,313)
Purchases of available-for-sale securities (571,083) (384,305) (239,437)
Proceeds from maturities of held-to-maturity securities -- 5,800 95,122
Proceeds from sales/maturities of available-for-sale securities 396,712 277,687 32,207
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (225,980) (211,397) (179,304)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 51,063 37,229 31,208
Repurchase of common stock (113,943) (123,134) (80,705)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (62,880) (85,905) (49,497)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 17,387 (1,823) (41,721)
Cash and cash equivalents:
Beginning of year 16,739 18,562 60,283
- --------------------------------------------------------------------------------------------------------------------------
End of year $ 34,126 $ 16,739 $ 18,562
- --------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
- --------------------------------------------------------------------------------------------------------------------------
Income taxes $ 43,316 $ 8,293 $ 19,967
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
21
21
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Nature of Operations:
Maxim Integrated Products, Inc. (the Company) designs, develops,
manufactures, and markets linear and mixed-signal integrated circuits.
Products include data converters, interface circuits, microprocessor
supervisors, operational amplifiers, power supplies, multiplexers,
switches, battery chargers, battery management circuits, RF circuits,
fiber optic transceivers, sensors, and voltage references. Maxim
Integrated Products, Inc., is a global company with manufacturing
facilities in the United States, testing facilities in the Philippines,
and sales offices throughout the world. The Company's products are sold
to customers in numerous markets, including data processing,
telecommunications, networking, industrial control, instrumentation, and
military markets.
2. Summary of Significant Accounting Policies:
Basis of presentation:
The consolidated financial statements include the accounts of Maxim
Integrated Products, Inc., and all of its wholly owned subsidiaries.
Intercompany balances and transactions have been eliminated. 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 years 1999, 1998, and 1997 were 52-week years.
Cash equivalents and short-term investments:
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents. Short-term investments
consist of U.S. Treasury and Federal Agency debt securities with
original maturities beyond three months and within one year.
All of the Company's cash equivalents and short-term investments are
considered available-for-sale. Such securities are carried at fair
market value based on market quotes. Unrealized gains and losses, net of
tax, on securities in this category are reportable as 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.
Derivative financial instruments held for purposes other than trading:
The Company enters into forward exchange contracts to hedge certain firm
sales commitments denominated in foreign currencies and the net monetary
assets and liabilities of its foreign subsidiaries. The purpose of the
Company's foreign currency hedging activities is to protect the Company
from the risk that the eventual dollar cash flows resulting from the
sale of products to international customers will be adversely affected
by changes in exchange rates. Gains and losses related to these
contracts are deferred and included in operating income to match with
the overall gains or losses from the underlying transactions. Any gain
or loss realized from early termination of a forward contract is
included in operating income upon termination.
Inventories:
Inventories are stated at the lower of standard cost (which approximates
first in, first out) or market.
22
22
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Property, plant and equipment:
Property, plant and equipment are stated at cost, and depreciation is
computed on the straight line method over estimated useful lives of 2 to
40 years. Leasehold improvements are amortized over the lesser of their
useful lives or the remaining term of the related lease.
Revenue recognition:
Revenue from product sales direct to customers is generally recognized
upon shipment. A portion of the Company's sales are made to domestic
distributors under agreements which provide for certain price rebates
and limited product return privileges. As a result, the Company defers
recognition of such sales until the merchandise is sold by the domestic
distributors.
Foreign currency translation and remeasurement:
For foreign operations with the local currency as the functional
currency, assets and liabilities are translated at year-end exchange
rates, and statements of operations are translated at the average
exchange rates during the year. Exchange gains or losses arising from
the translation of foreign currency denominated assets and liabilities
are included as a component of stockholders' equity.
For foreign operations with the U.S. dollar as the functional currency,
monetary assets and liabilities are remeasured at the year-end exchange
rates. Certain non-monetary assets and liabilities are remeasured using
historical rates. Statements of operations are remeasured at the average
exchange rates during the year. Net gains and losses from foreign
currency remeasurements have been minimal and are included in selling,
general and administrative expenses.
During fiscal 1999, the Company changed the functional currency of its
foreign operations having the local currency as the functional currency
to the U.S. dollar to reflect the significance of U.S.-dollar-based
revenues for its foreign operations. This change did not have a material
impact on the Company's financial position or results of operation. The
ending foreign currency translation adjustment of $(1,470,000) will
remain as a component of stockholders' equity.
Employee stock plans:
The Company accounts for its stock option and employee stock purchase
plans in accordance with provisions of the Accounting Principles Board's
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." In
addition, the Company discloses pro forma information related to its
stock plans according to Financial Accounting Standards Board Statement
No. 123 (SFAS 123), "Accounting for Stock Based Compensation." See Note
8 of "Notes To Consolidated Financial Statements."
23
23
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
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.
New accounting pronouncements:
Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities," was
issued by the Financial Accounting Standards Board in June 1998. The
standard will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings, or be
recognized in other comprehensive income until the hedged item is
recognized in earnings. The change in a derivative's fair value related
to the ineffective portion of a hedge, if any, will be immediately
recognized in earnings. The Company will adopt this standard as of the
beginning of fiscal year 2001. The effect of adopting the standard is
currently being evaluated, but is not expected to have a material effect
on the Company's financial position or results of operations.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates relate to the useful lives of fixed
assets, allowances for doubtful accounts and customer returns, inventory
reserves, potential reserves relating to litigation matters, accrued
liabilities, and other reserves. Actual results may differ from those
estimates, and such differences may be material to the financial
statements.
24
24
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Concentration of credit risk:
Due to the Company's credit evaluation and collection process, bad debt
expenses have been immaterial. Credit risk with respect to trade
receivables is limited, because a large number of geographically diverse
customers make up the Company's customer base, thus spreading the credit
risk. While a significant portion of the Company's revenues are made
through domestic and international distributors, no single customer has
accounted for greater than 10% of net revenues in the last three fiscal
years.
The Company places its investments with government entities and high
credit quality financial institutions and limits the amount of credit
exposure to any one financial institution.
Concentration of other risks:
The semiconductor industry is characterized by rapid technological
change, competitive pricing pressures, and cyclical market patterns. The
Company's results of operations are affected by a wide variety of
factors, including general economic conditions, both at home and abroad,
economic conditions specific to the semiconductor industry and to the
analog portion of that industry, demand for the Company's products, the
timely introduction of new products, implementation of new manufacturing
technologies, the ability to manufacture efficiently, the ability to
safeguard patents and intellectual property in a rapidly evolving
market, and reliance on assembly and wafer fabrication subcontractors
and on independent distributors and sales representatives. As a result,
the Company may experience substantial period-to-period fluctuations in
future operating results due to the factors mentioned above or other
factors.
25
25
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
3. Financial Instruments:
Investments:
Short-term investments in available-for-sale securities are as follows:
------------------------------------------------------------------------------
(Amounts in thousands) June 26, 1999 June 27, 1998
------------------------------------------------------------------------------
U.S. Treasury securities at market value $262,425 $147,880
Federal Agency Debt securities at market value 218,155 158,329
------------------------------------------------------------------------------
$480,580 $306,209
------------------------------------------------------------------------------
Due to short maturity terms and relative price insensitivity to market
interest rates, amortized cost approximates fair market value, and no
unrealized gains or losses have been recorded at June 26, 1999 and June
27, 1998. Fair market values are calculated based upon prevailing market
quotes at the end of each fiscal year. Gross realized gains or losses
for the fiscal years ended June 1999, 1998, and 1997 were immaterial.
Foreign exchange contracts:
At June 26, 1999, the Company held forward exchange contracts, all
having maturities of less than one year, to exchange various foreign
currencies for U.S. dollars in the amount of $43.9 million. Gains and
losses related to these contracts are deferred and matched with the
overall gains or losses from the underlying transactions. The table
below summarizes, by currency, the notional amounts of the Company's
forward exchange contracts and net unrealized gain or loss at the end of
fiscal 1999 and 1998. The net unrealized gain or loss approximates
carrying value of these contracts.
----------------------------------------------------
June 26, 1999 June 27, 1998
----------------------------------------------------
Notional Unrealized Notional Unrealized
(Amounts in thousands) Amounts Gain/(Loss) Amounts Gain/(Loss)
-------------------------------------------------------------------------------------
Currency:
Japanese Yen $23,238 $ 565 $33,158 $ 2,162
British Pound Sterling 10,086 101 6,463 (37)
German Mark 7,692 351 8,870 77
French Franc 2,918 101 3,982 (1)
-------------------------------------------------------------------------------------
$43,934 $ 1,118 $52,473 $ 2,201
-------------------------------------------------------------------------------------
The net unrealized gain is potentially subject to credit risk as it
represents appreciation of the hedge position over spot exchange rates
at year end. The Company controls credit risk through credit approvals
and monitoring procedures.
26
26
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
4. Inventories:
The components of inventories were:
(Amounts in thousands) June 26, 1999 June 27, 1998
------------------------------------------------------------
Raw materials $ 3,473 $ 4,826
Work-in-process 18,932 29,575
Finished goods 22,878 10,306
------------------------------------------------------------
$45,283 $44,707
------------------------------------------------------------
5. Property, Plant and Equipment:
Property, plant and equipment consists of:
(Amounts in thousands) June 26, 1999 June 27, 1998
----------------------------------------------------------------------------
Land $ 26,817 $ 26,817
Buildings 47,923 47,923
Building improvements 44,869 33,082
Machinery and equipment 270,767 231,380
----------------------------------------------------------------------------
390,376 339,202
----------------------------------------------------------------------------
Less accumulated depreciation
and amortization (100,243) (83,749)
----------------------------------------------------------------------------
$ 290,133 $ 255,453
----------------------------------------------------------------------------
During fiscal 1999, the Company recorded a charge of $2.7 million to
cost of goods sold to reduce the carrying value of capital equipment to
net realizable value. During fiscal 1998, the Company recorded charges
of $12.3 million to reduce the carrying value of certain pieces of
capital equipment, of which $8.2 million was charged to cost of goods
sold, $3.1 million was charged to research and development expenses, and
$1.0 million was charged to selling, general and administrative
expenses.
27
27
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
6. Commitments and Contingencies:
The Company is a defendant in a patent infringement lawsuit that alleges
that certain of the Company's products infringe a United States patent
owned by the plaintiff in the lawsuit. The lawsuit is in the discovery
phase, with a jury trial on the issues of liability and willfulness
likely to occur in calendar 2000. In addition, the Company is subject to
other legal proceedings and claims that arise in the normal course of
its business. The Company does not believe that the ultimate outcome of
these matters will have a material adverse effect on the financial
position of the Company.
The Company leases certain facilities, including a wafer fabrication
facility for which the lease expires in November 2003. Under that lease,
the Company has a five-year lease extension option and is responsible
for maintenance, taxes, and insurance on the facility.
Future annual minimum lease payments for all leased facilities are as
follows:
Fiscal Year (Amounts in thousands)
--------------------------------------------------------------------------
2000 $1,745
2001 1,378
2002 1,059
2003 982
2004 453
2005-2010 479
--------------------------------------------------------------------------
$6,096
--------------------------------------------------------------------------
Rent expense was approximately $1.3 million in fiscal 1999 and $1.4
million in each of fiscal 1998 and 1997.
7. Comprehensive Income:
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," at
the beginning of fiscal 1999. The adoption has no impact on net income
or total stockholders' equity. Comprehensive income consists of net
income and foreign currency translation adjustments. Accumulated other
comprehensive income presented in the consolidated balance sheets
consists of foreign currency translation adjustments. Foreign currency
translation adjustments are not tax affected.
28
28
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
8. Employee Stock and Benefit Plans:
Stock option and purchase plans:
At June 26, 1999, the Company has reserved a total of 45,351,572 of its
common shares for issuance to employees and certain others under its
1996 Stock Incentive Plan, 1987 Supplemental Stock Option Plan, 1983
Incentive Stock Option Plan, 1987 Employee Stock Participation Plan (ESP
Plan), 1988 Nonemployee Director Stock Option Plan, and Supplemental
Nonemployee Stock Option Plan. Under the plans, options are generally
granted at a price not less than fair market value as determined by the
Board at the date of grant. Subject to certain limitations, the Board
has authority to make grants at prices less than fair market value.
Options granted under the stock option plans described above generally
vest within 5 years and expire from 5 to 10 years from the date of the
grant or such shorter term as may be provided in the agreement. Under
the 1987 Employee Stock Participation Plan, employees of the Company may
purchase shares of common stock at a price not less than the lesser of
85% of the fair market value of the stock on the date the purchase right
is granted or the date the right is exercised. During fiscal 1999, the
Company received $114,281,000 of tax benefit on the exercise of
nonqualified stock options and on disqualifying dispositions under stock
plans ($74,253,000 in fiscal 1998 and $52,397,000 in fiscal 1997).
Information with respect to activity under the stock option plans and
ESP Plan is set forth below:
Outstanding Options
-------------------------------
Shares Weighted Average
Available Number of Price
for Grant Shares Per Share
-------------------------------------------------------------------------------
Balance, June 30, 1996 857,824 45,850,226 $ 5.93
Shares reserved 14,530,000 -- --
Options granted (8,931,886) 8,931,886 $ 18.94
Options terminated 1,172,966 (1,172,966) $ 12.70
Options exercised -- (8,448,466) $ 3.71
-------------------------------------------------------------------------------
Balance, June 30, 1997 7,628,904 45,160,680 $ 8.64
Options granted (7,883,730) 7,883,730 $ 31.13
Options terminated 1,408,924 (1,408,924) $ 15.14
Options exercised -- (6,939,982) $ 5.36
-------------------------------------------------------------------------------
Balance, June 27, 1998 1,154,098 44,695,504 $ 12.97
Shares reserved 7,500,000 -- --
Options granted (7,755,474) 7,755,474 $ 37.86
Options terminated 2,837,502 (2,837,502) $ 18.43
Options exercised -- (7,998,030) $ 6.78
-------------------------------------------------------------------------------
Balance, June 26, 1999 3,736,126 41,615,446 $ 18.27
-------------------------------------------------------------------------------
At June 26, 1999, 16,604,914 options to purchase shares of common stock
were exercisable (options exercisable at June 27, 1998 and June 30, 1997
were 17,308,790 and 16,217,762, respectively).
29
29
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The following table summarizes information about options outstanding at
June 26, 1999:
Outstanding Options Options Exercisable
----------------------------------------- ---------------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices June 26, 1999 Life (Years) Price June 26, 1999 Price
---------------------------------------------------------------------------------------------
$ 0.89 - $ 5.56 9,996,153 3.5 $ 3.75 9,315,451 $ 3.64
$ 5.78 - $14.75 7,989,910 5.0 $ 8.38 4,653,848 $ 7.62
$14.78 - $22.56 8,709,085 7.0 $17.22 1,649,436 $16.65
$22.63 - $33.06 9,026,653 8.3 $27.79 791,309 $26.63
$33.13 - $59.00 5,893,645 9.3 $43.32 194,870 $35.92
---------------------------------------------------------------------------------------------
$ 0.89 - $59.00 41,615,446 6.3 $18.27 16,604,914 $ 7.52
---------------------------------------------------------------------------------------------
Stock-based compensation:
Under SFAS 123, the Company may elect to continue to account for the
grant of stock options under APB Opinion 25, in which options granted
with an exercise price equal to the fair market value on the date of
grant do not require recognition of expense in the Company's financial
statements. Under SFAS 123, the Company is, however, required to provide
pro forma disclosure regarding net income and earnings per share as if
the Company had accounted for its employee stock options (including
shares issued under the 1996 Stock Incentive Plan, 1987 Supplemental
Stock Option Plan, 1998 Nonemployee Director Stock Option Plan, and
Supplemental Nonemployee Stock Option Plan, collectively called
"options") granted subsequent to June 30, 1995, under the methodology
prescribed by that statement. Since the Company has elected to account
for the grant of options under APB Opinion No. 25, the following
information is for disclosure purposes only and it will not affect the
current or future earnings of the Company.
The valuation of options granted in fiscal 1999, 1998, and 1997 reported
below has been estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
Stock Option Plans Employee Stock Participation Plan
--------------------------------------------------------------------------
Fiscal year 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------------
Expected option holding period (in years) 4.4 4.0 4.4 0.5 0.5 0.5
Risk-free interest rate 6.0% 6.0% 6.4% 5.4% 5.3% 5.4%
Stock price volatility 0.51 0.48 0.47 0.51 0.48 0.47
Dividend yield -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------
401(k) retirement plan:
The Company sponsors a 401(k) retirement plan [401(k) Plan] under which
full-time U.S. employees may contribute, on a pretax basis, between 5%
and 15% of their total annual income from the Company, subject to a
maximum aggregate annual contribution imposed by the Internal Revenue
Code. Company contributions to the 401(k) Plan were immaterial in fiscal
1999, 1998, and 1997.
30
30
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The Black-Scholes option pricing model was developed for use in
estimating the value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require
the input of highly subjective assumptions, including the expected stock
price volatility. Because the Company's options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect the
estimate of value, in the opinion of management, the existing models do
not necessarily provide a reliable single measure of the value of the
options. The following is a summary of weighted average grant date
values generated by application of the Black- Scholes model:
Weighted Average Grant Date Value
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
-------------------------------------------------------------------------------------------------------------
Stock Option Plans $ 19.21 $ 14.59 $ 9.83
Employee Stock Participation Plan $ 9.76 $ 7.12 $ 5.99
-------------------------------------------------------------------------------------------------------------
As required under SFAS 123, the reported net income and earnings per
share have been presented to reflect the impact had the Company been
required to include the amortization of the Black-Scholes option value
as an expense. The adjusted amounts are as follows:
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
-------------------------------------------------------------------------------------------------------------
Pro forma net income adjusted for SFAS 123 (in thousands) $ 158,092 $ 145,204 $ 121,190
-------------------------------------------------------------------------------------------------------------
Pro forma diluted earnings per share
adjusted for SFAS 123 $ 1.04 $ 0.96 $ 0.83
-------------------------------------------------------------------------------------------------------------
The effects of the disclosures above relate only to options granted
after June 30, 1995. Therefore, the impact on net income recalculated
under SFAS 123 is not likely to be representative of similar
disclosures in future years as additional option grants will impact
future disclosures.
9. Earnings Per Share:
The following table sets forth the computation of basic and diluted
earnings per share:
(Amounts in thousands, except per share data)
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
---------------------------------------------------------------------------------------
Numerator for basic earnings per share
and diluted earnings per share
Net Income $196,122 $178,144 $136,974
---------------------------------------------------------------------------------------
Denominator for basic earnings per share 132,722 129,838 125,430
Effect of dilutive securities:
Stock options and warrants 19,337 20,823 20,324
---------------------------------------
Denominator for diluted earnings per share 152,059 150,661 145,754
---------------------------------------------------------------------------------------
Earnings per share:
Basic $ 1.48 $ 1.37 $ 1.09
Diluted $ 1.29 $ 1.18 $ 0.94
---------------------------------------------------------------------------------------
31
31
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
10. Income Taxes:
The provision for income taxes consists of the following:
(Amounts in thousands)
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
-------------------------------------------------------------------------
Federal
Current $ 84,299 $ 87,461 $54,976
Deferred 450 (9,200) 4,015
State
Current 12,004 9,305 8,225
Deferred 100 (1,100) 595
Foreign
Current 4,179 5,305 2,750
-------------------------------------------------------------------------
$101,032 $ 91,771 $70,561
-------------------------------------------------------------------------
Pretax income from foreign operations was approximately $12.0 million,
$18.0 million, and $6.4 million for the years ended June 26, 1999, June
27, 1998, and June 30, 1997, respectively.
The Company enjoys a tax holiday with respect to its operations in
Cavite, Philippines, which will expire in fiscal 2002. The impact of
this holiday was to increase net income by approximately $991,000 ($0.01
diluted earnings per share) and $1,274,000 ($0.01 diluted earnings per
share) during fiscal 1999 and 1998, respectively. At June 26, 1999,
accumulated pretax earnings of approximately $6,663,000 are intended to
be permanently reinvested outside the United States, and no federal tax
has been provided on these earnings.
The provision for income taxes differs from the amount computed by
applying the statutory rate as follows:
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
----------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State tax, net of
federal benefit 2.6 2.0 2.8
General business credits (0.7) (1.0) (0.7)
Exempt earnings of Foreign
Sales Corporation (2.5) (2.0) (2.5)
Other (0.4) -- (0.6)
----------------------------------------------------------------------------------
34.0% 34.0% 34.0%
----------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The components of the Company's deferred tax assets and
liabilities are as follows:
(Amounts in thousands) June 26, 1999 June 27, 1998
------------------------------------------------------------------------------------------------
Deferred tax assets:
Inventory valuation and reserves $ 16,679 $ 8,958
Distributor related accruals 9,980 8,943
Accrued compensation 10,762 4,783
Other reserves and accruals not
currently deductible for tax reporting 13,973 13,502
------------------------------------------------------------------------------------------------
Total deferred tax assets 51,394 36,186
------------------------------------------------------------------------------------------------
Deferred tax liabilities--fixed assets cost recovery (21,744) (5,986)
------------------------------------------------------------------------------------------------
Net deferred tax assets $ 29,650 $ 30,200
------------------------------------------------------------------------------------------------
32
32
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
11. Segment Information:
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information" in fiscal 1999. The new standard revises the way operating
segments are reported. 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 SFAS 131.
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 year.
Net revenues from unaffiliated customers by geographic region were as
follows:
(Amounts in thousands)
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
---------------------------------------------------------------------------
United States $249,923 $244,927 $188,209
Europe 152,769 148,245 109,849
Pacific Rim 187,857 161,985 125,425
Rest of World 16,416 5,063 10,227
---------------------------------------------------------------------------
$606,965 $560,220 $433,710
---------------------------------------------------------------------------
Net long-lived assets by geographic region were as follows:
(Amounts in thousands) June 26, 1999 June 27, 1998
--------------------------------------------------------
United States $264,190 $233,747
Rest of World 25,943 21,706
--------------------------------------------------------
$290,133 $255,453
--------------------------------------------------------
33
33
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Maxim Integrated Products, Inc.
We have audited the accompanying consolidated balance sheets of Maxim
Integrated Products, Inc., as of June 26, 1999 and June 27, 1998, and
the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended June
26, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Maxim Integrated Products, Inc., at June 26, 1999 and June 27, 1998, and
the consolidated results of its operations and its cash flows for each
of the three years in the period ended June 26, 1999, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
July 30, 1999
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SELECTED FINANCIAL DATA
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(Amounts in thousands, except per share data)
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Fiscal Year 1999 1998 1997 1996 1995
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Net revenues $ 606,965 $560,220 $433,710 $421,626 $250,820
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Cost of goods sold $ 189,673 $183,724 $145,307 $146,253 $103,598
Gross margin % 68.8% 67.2% 66.5% 65.3% 58.7%
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Operating income $ 276,768 $255,036 $198,945 $185,890 $ 57,234
% of net revenues 45.6% 45.5% 45.9% 44.1% 22.8%
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Net income $ 196,122 $178,144 $136,974 $123,345 $ 38,906
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Earnings per share:
Basic $ 1.48 $ 1.37 $ 1.09 $ 1.03 $ 0.34
Diluted $ 1.29 $ 1.18 $ 0.94 $ 0.87 $ 0.29
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Shares used in the calculation of earnings per share:
Basic 132,722 129,838 125,430 120,204 115,703
Diluted 152,059 150,661 145,754 141,854 133,004
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Cash, cash equivalents
and short-term investments $ 514,706 $322,948 $223,953 $129,253 $ 92,295
Working capital $ 607,976 $377,723 $291,786 $176,182 $ 95,978
Total assets $1,022,314 $769,492 $556,386 $417,794 $256,133
Stockholders' equity $ 879,216 $631,000 $465,565 $325,425 $178,710
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FINANCIAL HIGHLIGHTS BY QUARTER
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Unaudited
(Amounts in thousands, except per share data)
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Quarter Ended
1999 6/26/99 3/27/99 12/26/98 9/26/98
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Net revenues $ 159,484 $ 147,188 $ 145,012 $155,281
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Cost of goods sold $ 48,273 $ 45,538 $ 45,409 $ 50,453
Gross margin % 69.7% 69.1% 68.7% 67.5%
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Operating income $ 73,899 $ 67,004 $ 65,575 $ 70,290
% of net revenues 46.3% 45.5% 45.2% 45.3%
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Net income $ 52,566 $ 47,669 $ 46,492 $ 49,395
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Earnings per share:
Basic $ 0.39 $ 0.36 $ 0.35 $ 0.38
Diluted $ 0.34 $ 0.31 $ 0.31 $ 0.33
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Shares used in calculation of earnings per share:
Basic 135,235 133,762 131,309 130,581
Diluted 155,622 153,981 149,972 148,660
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Market price range - High $ 64.81 $ 55.00 $ 44.94 $ 36.06
- Low $ 49.19 $ 40.88 $ 22.56 $ 27.19
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Quarter Ended
1998 6/27/98 3/28/98 12/27/97 9/27/97
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Net revenues $ 155,181 $ 145,039 $ 135,000 $125,000
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Cost of goods sold $ 50,424 $ 47,250 $ 44,550 $ 41,500
Gross margin % 67.5% 67.4% 67.0% 66.8%
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Operating income $ 70,082 $ 66,242 $ 61,626 $ 57,086
% of net revenues 45.2% 45.7% 45.6% 45.7%
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Net income $ 49,201 $ 46,150 $ 42,829 $ 39,964
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Earnings per share:
Basic $ 0.37 $ 0.35 $ 0.33 $ 0.31
Diluted $ 0.33 $ 0.31 $ 0.29 $ 0.26
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Shares used in calculation of earnings per share:
Basic 131,546 130,510 128,733 128,564
Diluted 150,862 151,223 149,749 150,810
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Market price range - High $ 40.62 $ 42.00 $ 38.19 $ 37.50
- Low $ 27.62 $ 28.50 $ 28.50 $ 27.94
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BOARD OF DIRECTORS AND CORPORATE
OFFICERS
BOARD OF DIRECTORS
John F. Gifford
Chairman of the Board, President
and Chief Executive Officer
James R. Bergman
Director
General Partner of DSV Partners
B. Kipling Hagopian
Director
Special Limited Partner of Brentwood Venture Capital
Partner, Apple/Oaks Partners LLC
Dr. A. R. Frank Wazzan
Director
Dean of Engineering & Applied Sciences at
University of California, Los Angeles
CORPORATE OFFICERS
John F. Gifford
Chairman of the Board, President
and Chief Executive Officer
Frederick G. Beck
Vice President
Ziya G. Boyacigiller
Vice President
Tunc Doluca
Vice President
Laszlo V. Gal, Ph.D.
Vice President
Anthony C. Gilbert
Corporate Secretary
Richard C. Hood
Vice President
Kenneth J. Huening
Vice President
Carl W. Jasper
Vice President and Chief Financial Officer
Nasrollah Navid, Ph.D.
Vice President
Pirooz Parvarandeh
Vice President
Charles G. Rigg
Vice President
Robert F. Scheer
Vice President
Vijay Ullal
Vice President
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CORPORATE DATA
STOCKHOLDER
INFORMATION
INDEPENDENT AUDITORS
Ernst & Young LLP
San Jose, California
LEGAL COUNSEL
Morrison & Foerster LLP
Palo Alto, California
REGISTRAR/TRANSFER AGENT
Boston EquiServe
Boston, Massachusetts
CORPORATE HEADQUARTERS
120 San Gabriel Drive
Sunnyvale, California 94086
(408) 737-7600
FORM 10-K
A copy of the Company's Form 10-K filed with the Securities & Exchange
Commission, without exhibits, is available without charge upon writing
to:
Stockholder Relations
Maxim Integrated Products, Inc.
120 San Gabriel Drive
Sunnyvale, California 94086
STOCK LISTING
At June 26, 1999, there were approximately 1,239 stockholders of record
of the Company's common stock. Maxim common stock is traded on the
NASDAQ National Market under the symbol MXIM. The Company has never paid
cash dividends on its common stock and has no present plans to do so.
ANNUAL MEETING
The annual meeting of stockholders will be on Thursday, November 18,
1999 at 11:00 a.m. at the Company's Event Center, 433 Mathilda Avenue,
Sunnyvale, California 94086.
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