1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 1999
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, CA 94086
(Address of Principal Executives 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 OCTOBER 22, 1999
$.001 PAR VALUE 136,678,840 SHARES
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MAXIM INTEGRATED PRODUCTS, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
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ITEM 1. Financial Statements
Consolidated Balance Sheets 3
As of September 25, 1999 and June 26, 1999
Consolidated Statements of Income 4
for the three months ended
September 25, 1999 and September 26, 1998
Consolidated Statements of Cash Flows 5
for the three months ended September 25,
1999 and September 26, 1998
Notes to Consolidated Financial Statements 6-8
ITEM 2. Management's Discussion and Analysis of 9-13
Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About 14
Market Risk
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
3
CONSOLIDATED BALANCE SHEETS
MAXIM INTEGRATED PRODUCTS, INC.
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September 25, June 26,
1999 1999
(Amounts in thousands) (unaudited)
===================================================================================================
ASSETS
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Current assets:
Cash and cash equivalents $ 62,166 $ 34,126
Short-term investments 517,106 480,580
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Total cash, cash equivalents and short-term
investments 579,272 514,706
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Accounts receivable, net 93,074 79,330
Inventories 44,855 45,283
Deferred tax assets 47,850 47,850
Income tax refund receivable 24,166 36,649
Other current assets 4,867 5,056
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Total current assets 794,084 728,874
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Property, plant and equipment, at cost, less
accumulated depreciation 317,009 290,133
Other assets 4,082 3,307
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TOTAL ASSETS $ 1,115,175 $ 1,022,314
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 43,177 $ 40,257
Income taxes payable 3,994 2,484
Accrued salaries 32,499 26,364
Accrued expenses 51,749 35,477
Deferred income on shipments to distributors 15,894 16,316
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Total current liabilities 147,313 120,898
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Other liabilities 4,000 4,000
Deferred tax liabilities 18,200 18,200
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Stockholders' equity:
Common stock 137 136
Additional paid-in capital 140,605 132,514
Retained earnings 806,390 748,036
Accumulated other comprehensive income (1,470) (1,470)
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Total stockholders' equity 945,662 879,216
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,115,175 $ 1,022,314
===================================================================================================
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
MAXIM INTEGRATED PRODUCTS, INC.
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Three Months Ended
(Unaudited) -----------------------------------
(Amounts in thousands, except per share September 25, September 26,
data) 1999 1998
=====================================================================================================
Net revenues $ 180,046 $ 155,281
Cost of goods sold 54,482 50,453
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Gross margin 125,564 104,828
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Operating expenses:
Research and development 28,309 21,051
Selling, general and
administrative 15,295 13,487
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Total operating expenses 43,604 34,538
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Operating income 81,960 70,290
Interest income, net 6,455 4,551
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Income before provision for
income taxes 88,415 74,841
Provision for income taxes 30,061 25,446
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Net income $ 58,354 $ 49,395
=====================================================================================================
Earnings per share:
Basic $ 0.43 $ 0.38
Diluted $ 0.37 $ 0.33
=====================================================================================================
Shares used in the calculation of earnings per share:
Basic 136,793 130,581
Diluted 156,943 148,660
=====================================================================================================
See accompanying Notes to Consolidated Financial Statements.
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5
CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXIM INTEGRATED PRODUCTS, INC.
=======================================================================================================
For the three months ended
------------------------------
(Amounts in thousands)(Unaudited) September 25, September 26,
Increase (decrease) in cash and cash equivalents 1999 1998
=======================================================================================================
Cash flows from operating activities:
Net income $ 58,354 $ 49,395
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation, amortization and other 4,804 4,787
Reduction of equipment value 2,500
Changes in assets and liabilities:
Accounts receivable (13,744) 2,442
Inventories 428 -
Income tax refund receivable 12,483 -
Other current assets 189 921
Accounts payable 2,920 (9,094)
Income taxes payable 27,634 8,377
Deferred income on shipments to distributors (422) 570
All other accrued liabilities 22,407 7,937
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 117,553 65,335
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (34,180) (11,244)
Other assets (775) 33
Purchases of available-for-sale securities (81,397) (59,517)
Proceeds from sales/maturities of available-for-sale
securities 44,871 75,942
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (71,481) 5,214
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 18,182 8,489
Repurchase of common stock (36,214) (43,502)
- -------------------------------------------------------------------------------------------------------
Net cash used in financing activities (18,032) (35,013)
- -------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 28,040 35,536
Cash and cash equivalents:
Beginning of year 34,126 16,739
- -------------------------------------------------------------------------------------------------------
End of period $ 62,166 $ 52,275
=======================================================================================================
See accompanying Notes to Consolidated Financial Statements.
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MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments (consisting of normal
recurring items) considered necessary for a fair presentation have been
included. The results of operations for the three months ended September 25,
1999 are not necessarily indicative of the results to be expected for the entire
year. These 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 26, 1999.
NOTE 2: INVENTORIES
Inventories consist of (in thousands):
September 25, June 26,
1999 1999
------------ -----------
(unaudited)
Raw materials $ 4,277 $ 3,473
Work-in-process 21,226 18,932
Finished goods 19,352 22,878
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$ 44,855 $ 45,283
======== ========
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MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 3: 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.
------------------------------------------------------------------------------------------
(Amounts in thousands) Three Months Ended
---------------------------------
September 25, September 26,
1999 1998
==========================================================================================
Numerator for basic earnings per share
and diluted earnings per share
Net income $ 58,354 $ 49,395
=========================================================================================
Denominator for basic earnings per share 136,793 130,581
Effect of dilutive securities:
Stock options and warrants 20,150 18,079
--------- ----------
Denominator for diluted earnings per share 156,943 148,660
==========================================================================================
Earnings per share:
Basic $ 0.43 $ 0.38
Diluted $ 0.37 $ 0.33
=========================================================================================
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MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4: SHORT-TERM INVESTMENTS
All short-term investments at September 25, 1999 are classified as
available-for-sale and consist 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 reportable as a separate component of
stockholders' equity. Because of the short term to maturity and relative price
insensitivity to changes in market interest rates, amortized cost approximates
fair market value and no unrealized gains or losses have been recorded at
September 25, 1999. The cost of securities sold is based on the specific
identification method. Interest earned on securities is included in interest
income, net in the consolidated statements of income.
NOTE 5: 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 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 period.
Net revenues from unaffiliated customers by geographic region were as follows:
For the three months ended
--------------------------------------------
(Amounts in thousands) September 25, 1999 September 26, 1998
- ----------------------------------------------------------------------
United States $80,138 $63,190
Europe 40,433 41,576
Pacific Rim 50,966 46,896
Rest of World 8,509 3,619
- ----------------------------------------------------------------------
$180,046 $155,281
- ----------------------------------------------------------------------
Net long-lived assets by geographic region were as follows:
(Amounts in thousands) September 25, 1999 June 26,1999
- ----------------------------------------------------------------------
United States $289,085 $264,190
Rest of World 27,924 25,943
- ----------------------------------------------------------------------
$317,009 $290,133
- ----------------------------------------------------------------------
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net revenues for the three months ended September 25, 1999 increased 15.9% to
$180.0 million compared to $155.3 million for the same period last year. The
increase is primarily attributable 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.
During the quarter, 55% 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 quarter was immaterial.
Gross margin was 69.7% in the three months ended September 25, 1999, compared to
67.5% for the three months ended September 26, 1998. The increase in gross
margin for the three month period ended September 25, 1999 was due primarily to
production efficiencies obtained through economies of scale and cost reductions.
During the three month period ended September 25, 1999, the Company recorded a
charge of $2.5 million to reduce the carrying value of manufacturing equipment
to net realizable value. During the three month period ended September 26, 1998,
the Company expensed $2.8 million of negative manufacturing variances and
recorded a charge of $2.3 million related to obsoleting a 4-inch wafer
fabrication facility.
Research and development expenses were 15.7% of net revenues in the three months
ended September 25, 1999, compared to 13.6% for the three months ended September
26, 1998. Research and development expenses increased approximately $7.3 million
in absolute dollars for the three month period ended September 25, 1999 over the
comparable period last year. The increase of 34% is attributable to increased
headcount and related employee expenses, and increased wafer and mask expenses
to support new product development.
Selling, general and administrative expenses decreased slightly to 8.5% of net
revenues for the three months ended September 25, 1999, compared to 8.7% for the
three months ended September 26, 1998. The increase in selling, general, and
administrative expenses in absolute dollars of $1.8 million is due to increased
headcount and related employee expenses to support the Company's higher
revenues, and a $1.5 million charge recorded for technology licensing matters.
Net interest income increased to $6.5 million in the three months ended
September 25, 1999 compared to $4.6 million for the comparable period a year ago
as a result of higher levels of invested cash, cash equivalents and short-term
investments offset somewhat by lower interest rates on invested amounts.
The effective income tax rate for both the three months ended September 25, 1999
and September 26, 1998 was 34%. This rate differs from the federal statutory
rate primarily due to state income taxes and tax exempt earnings of the
Company's Foreign Sales Corporation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
OUTLOOK
Bookings on the Company were approximately $242 million in the first quarter of
fiscal 2000, a 22% increase over the fourth quarter of fiscal 1999 of $198
million. This growth rate exceeded the Company's expectations. During the
quarter, customers continued their trend of ordering for near-term delivery.
Turns orders received during the quarter were $101 million, compared to the
fourth quarter of fiscal 1999 of $81 million (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). End-market bookings increased 23% over the fourth quarter of fiscal
1999 levels (end-market bookings are end-user customer bookings received by both
Maxim and the Company's distributors during the quarter). This increase was
fueled by double-digit end-market bookings growth in the U.S., Pacific Rim,
Japan, and Europe. Bookings increased across all major product lines during the
quarter.
First quarter ending backlog shippable within the next 12 months was
approximately $225 million, including $192 million requested for shipment in the
second quarter of fiscal 2000. Last quarter, the Company reported fourth quarter
ending backlog shippable within the next 12 months of approximately $176
million, including $144 million that was requested for shipment in the first
quarter of fiscal 2000. Order cancellations remained low during the quarter at
approximately $11 million, compared to $13 million in the fourth quarter of
fiscal 1999.
Backlog, which was significantly depleted during fiscal 1999 has now returned to
a healthy level. The Company expects that in future quarters, the bookings
growth rate will moderate to levels reflective of our forecasted demand for our
products in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds for the first three months of fiscal 2000
were from net cash generated from operating activities of $117.6 million, and
proceeds from the issuance of common stock of $18.2 million associated with the
Company's stock option programs.
The principal uses of funds were the repurchase of $36.2 million of common
stock, the purchase of $34.2 million in property, plant and equipment and $36.5
million of net investment activities.
The Company believes that it possesses sufficient liquidity and capital
resources to fund these purchases and its operations for the foreseeable future.
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
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 100%
complete with respect to remediation on systems identified and determined to be
critical and is approximately 85% complete with respect to remediation on its
systems identified and determined to be 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 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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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.
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FORWARD-LOOKING INFORMATION
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. Such statements include, among
others, statements regarding bookings, bookings growth rate, forecasted demand,
shipments, turns orders, capital spending, the sufficiency of capital resources
and liquidity, the Company's stock repurchase policy, completion and success of
Year 2000 related modifications and costs of Year 2000 remediation efforts.
Forward-looking statements in this 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 in this report.
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 the 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 materials, 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 above under the heading Year 2000 Issue and 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 26, 1999.
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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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures set forth in Item 7A of its Annual Report
on Form 10-K for the year ended June 26, 1999 have not changed significantly.
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Financial Data Schedule.
(b) No Reports on Form 8-K were filed during the quarter ended
September 25, 1999.
ITEMS 1, 2, 3, 4 AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVEMBER 9, 1999 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)
15
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INDEX TO EXHIBITS
27 Financial Data Schedule