-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QqrRVK1d/IJ0/pQgEWAsL9JXRi9cXQo/uv9j4QnIL1kKfzxU4yMgScjspqe92IUN XrACsTZYDFBbg0tOJ2kOiQ== 0000891618-01-502099.txt : 20020410 0000891618-01-502099.hdr.sgml : 20020410 ACCESSION NUMBER: 0000891618-01-502099 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010929 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXIM INTEGRATED PRODUCTS INC CENTRAL INDEX KEY: 0000743316 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942896096 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16538 FILM NUMBER: 1781457 BUSINESS ADDRESS: STREET 1: 120 SAN GABRIEL DR CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4087377600 MAIL ADDRESS: STREET 1: 120 SAN GABRIEL DR CITY: SUNNYVALE STATE: CA ZIP: 94086 10-Q 1 f77037e10-q.txt FORM 10-Q PERIOD ENDING SEPTEMBER 29, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________ COMMISSION FILE NO. 0-16538 MAXIM INTEGRATED PRODUCTS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 94-2896096 (State or Other Jurisdiction of (I.R.S. Employer I.D. No.) Incorporation or Organization)
120 SAN GABRIEL DRIVE, SUNNYVALE, CALIFORNIA 94086 (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 737-7600 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days: YES [X] NO[ ] CLASS: COMMON STOCK, OUTSTANDING AT NOV 1, 2001 $.001 PAR VALUE 322,954,034 SHARES
MAXIM INTEGRATED PRODUCTS, INC. INDEX
PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets as of September 29, 2001 and June 30, 2001 3 Condensed Consolidated Statements of Income for the three months ended September 29, 2001 and September 23, 2000 4 Condensed Consolidated Statements of Cash Flows for the three months ended September 29, 2001 and September 23, 2000 5 Notes to Condensed Consolidated Financial Statements 6-12 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-18 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 18 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 18 SIGNATURES 19
2 CONDENSED CONSOLIDATED BALANCE SHEETS MAXIM INTEGRATED PRODUCTS, INC.
September 29, June 30, 2001 2001 (Amounts in thousands) (Unaudited) ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 139,455 $ 93,796 Short-term investments 935,674 1,126,556 ---------- ---------- Total cash, cash equivalents and short-term investments 1,075,129 1,220,352 ---------- ---------- Accounts receivable, net 99,462 152,488 Inventories 159,308 162,656 Deferred tax assets 118,590 103,205 Income tax refund receivable 37,654 50,187 Other current assets 6,548 10,204 ---------- ---------- Total current assets 1,496,691 1,699,092 ---------- ---------- Property, plant and equipment, at cost, less accumulated depreciation 723,443 712,039 Other assets 18,786 19,400 ---------- ---------- TOTAL ASSETS $2,238,920 $2,430,531 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 82,532 $ 100,921 Income taxes payable 11,502 8,963 Accrued salary and related expenses 63,106 75,992 Accrued expenses 99,108 94,105 Deferred income on shipments to distributors 39,072 45,396 ---------- ---------- Total current liabilities 295,320 325,377 ---------- ---------- Other liabilities 4,000 4,000 ---------- ---------- Total liabilities 299,320 329,377 ---------- ---------- Stockholders' equity: Common stock 324 330 Additional paid-in capital 129,080 351,652 Retained earnings 1,806,932 1,745,638 Accumulated other comprehensive income 3,264 3,534 ---------- ---------- Total stockholders' equity 1,939,600 2,101,154 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,238,920 $2,430,531 ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements. 3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME MAXIM INTEGRATED PRODUCTS, INC.
Three Months Ended ---------------------------- (Unaudited) September 29, September 23, (Amounts in thousands, except per share data) 2001 2000 ------------ ------------- Net revenues $239,426 $422,309 Cost of goods sold 71,845 148,415 -------- -------- Gross margin 167,581 273,894 -------- -------- Operating expenses: Research and development 65,974 66,589 Selling, general and administrative 25,091 41,562 -------- -------- Total operating expenses 91,065 108,151 -------- -------- Operating income 76,516 165,743 Interest income and other, net 14,967 13,383 -------- -------- Income before provision for income taxes 91,483 179,126 Provision for income taxes 30,189 60,053 -------- -------- Net income $ 61,294 $119,073 ======== ======== Earnings per share: Basic $ 0.19 $ 0.37 Diluted $ 0.17 $ 0.33 ======== ======== Shares used in the calculation of earnings per share: Basic 330,711 322,946 Diluted 359,499 364,493 ======== ======== Dividends declared per share $ -- $ 0.006 ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements. 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS MAXIM INTEGRATED PRODUCTS, INC.
For the three months ended -------------------------------- (Amounts in thousands) (Unaudited) September 29, September 23, Increase (decrease) in cash and cash equivalents 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 61,294 $ 119,073 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other 14,198 22,374 Plant and equipment charges -- 16,665 Adjustment to conform fiscal period of pooled entity -- 3,608 Changes in assets and liabilities: Accounts receivable 53,026 (8,046) Inventories 3,348 (6,820) Deferred taxes (6,175) 6,758 Income tax refund receivable 12,533 (1,188) Other current assets 3,077 5,918 Accounts payable (18,389) 294 Income taxes payable 32,628 42,968 Deferred income on shipments to distributors (6,324) 6,800 All other accrued liabilities (7,883) (5,862) --------- --------- Net cash provided by operating activities 141,333 202,542 --------- --------- Cash flows from investing activities: Additions to property, plant and equipment, net (25,602) (67,543) Other non-current assets 614 1,031 Purchases of available-for-sale securities (370,739) (191,676) Proceeds from sales/maturities of available-for-sale securities 561,625 115,949 --------- --------- Net cash provided by (used in) investing activities 165,898 (142,239) --------- --------- Cash flows from financing activities: Issuance of common stock 25,060 30,590 Repurchase of common stock (286,632) (99,123) Dividends paid -- (1,963) --------- --------- Net cash used in financing activities (261,572) (70,496) --------- --------- Net increase (decrease) in cash and cash equivalents 45,659 (10,193) Cash and cash equivalents: Beginning of year 93,796 82,217 --------- --------- End of period $ 139,455 $ 72,024 ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements. 5 MAXIM INTEGRATED PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. The results of operations for the three months ended September 29, 2001 are not necessarily indicative of the results to be expected for the entire year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended June 30, 2001. The Company has a 52-to-53-week fiscal year that ends on the last Saturday in June. Accordingly, every sixth or seventh fiscal year will be a 53-week fiscal year. Fiscal year 2001 was a 53-week fiscal year. NOTE 2: BUSINESS COMBINATION On April 11, 2001, the Company acquired Dallas Semiconductor Corporation (Dallas Semiconductor), a leading provider of specialty semiconductors. The Company issued approximately 41.0 million shares of its common stock in exchange for all the outstanding common stock of Dallas Semiconductor. In addition, the Company exchanged all options to purchase Dallas Semiconductor common stock for options to purchase approximately 5.9 million shares of the Company's common stock. The transaction was accounted for as a pooling-of-interests and qualifies as a tax-free reorganization. All financial data of the Company presented in these condensed consolidated financial statements has been restated to include the historical financial data of Dallas Semiconductor in accordance with accounting principles generally accepted in the United States and pursuant to Regulation S-X of the Securities and Exchange Commission. Adjustments relating to deferral of income on shipments to distributors were required to conform the accounting policies of the acquired company. The Company and Dallas Semiconductor had certain differences in the classification of revenues and expenses in their historical statements of operations and assets and liabilities in their historical balance sheets. Adjustments have been made to conform the combined companies' income statement and balance sheet classifications. In addition, the lives of the property, plant and equipment acquired as part of the merger with Dallas Semiconductor were conformed to the lives used by the Company as appropriate. The Company's statement of income for the three months ended September 23, 2000 was combined with the Dallas Semiconductor statement of income for the three months ended October 1, 2000. 6 MAXIM INTEGRATED PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE 3: INVENTORIES Inventories consist of (in thousands):
September 29, June 30, 2001 2001 ------------- -------- (Unaudited) Raw materials $ 19,929 $ 21,893 Work-in-process 100,464 91,727 Finished goods 38,915 49,036 -------- -------- $159,308 $162,656 ======== ========
NOTE 4: EARNINGS PER SHARE Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options and other potentially dilutive securities. The number of incremental shares from the assumed issuance of stock options and other potentially dilutive securities is calculated applying the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share.
Three Months Ended ------------------------------ (Amounts in thousands, except per share September 29, September 23, data) 2001 2000 ------------- ------------- Numerator for basic earnings per share and diluted earnings per share Net income $ 61,294 $119,073 ======== ======== Denominator for basic earnings per share 330,711 322,946 Effect of dilutive securities: stock options and warrants 28,788 41,547 -------- -------- Denominator for diluted earnings per share 359,499 364,493 ======== ======== Earnings per share: Basic $ 0.19 $ 0.37 Diluted $ 0.17 $ 0.33 ======== ========
7 MAXIM INTEGRATED PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE 5: SHORT-TERM INVESTMENTS All short-term investments at September 29, 2001 are classified as available-for-sale and consist primarily of U.S. Treasury and Federal Agency debt securities maturing within one year. Unrealized gains and losses, net of tax, on securities in this category are included in accumulated other comprehensive income which is a separate component of stockholders' equity. The cost of securities sold is based on the specific identification method. Interest earned on securities is included in "Interest income and other, net" in the condensed consolidated statements of income. NOTE 6: SEGMENT INFORMATION The Company operates and tracks its results in one operating segment. The Company designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by Statement of Financial Accounting Standard No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information." Enterprise-wide information is provided in accordance with SFAS 131. Geographical revenue information is based on the customer's ship-to location. Long-lived assets consist of property, plant and equipment. Property, plant and equipment information is based on the physical location of the assets at the end of each fiscal period. Net revenues from unaffiliated customers by geographic region were as follows:
Three Months Ended ------------------------------ (Amounts in thousands) September 29, September 23, (Unaudited) 2001 2000 ------------- ------------- United States $ 86,755 $193,289 Europe 57,143 97,215 Pacific Rim 92,339 126,698 Rest of World 3,189 5,107 -------- -------- $239,426 $422,309 ======== ========
Net long-lived assets by geographic region were as follows:
(Amounts in thousands) September 29, June 30, (Unaudited) 2001 2001 ------------ -------- United States $657,756 $646,519 Rest of World 65,687 65,520 -------- -------- $723,443 $712,039 ======== ========
8 MAXIM INTEGRATED PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE 7: COMPREHENSIVE INCOME Comprehensive income (loss) consists of net income (loss) and net unrealized gains (losses) on available-for-sale investments and forward exchange contracts. The components of other comprehensive income (loss) and related tax effects were as follows:
Three months ended ---------------------------- (Amounts in thousands) September 29, September 23, (Unaudited) 2001 2000 ------------- ------------- Change in unrealized gains (losses) on investments, net of tax of ($108) $ 112 $ -- Change in unrealized gains (losses) on forward exchange contracts, net of tax of ($197) (382) -- ----- ----- Other comprehensive income (loss) $(270) $ -- ===== =====
Accumulated other comprehensive income presented in the accompanying condensed consolidated balance sheet consists of the accumulated net unrealized gain on available-for-sale investments and forward exchange contracts and the accumulated foreign currency translation adjustments. Foreign currency translation adjustments are not tax affected. 9 MAXIM INTEGRATED PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE 8: MERGER AND SPECIAL CHARGES During the fourth quarter of fiscal 2001, the Company recorded merger costs in connection with the acquisition of Dallas Semiconductor of approximately $26.4 million. These costs consist of approximately $14.1 million intended to satisfy the change in control payments under previously existing employment contracts and other non-employee director arrangements for which there was no future economic benefit; a $5.8 million payment to be made under a change in control provision in a previously existing life insurance arrangement for which there was no future economic benefit; and $6.5 million for fees related to investment banking, legal, accounting, filings with regulatory agencies, financial printing, and other related costs. It is expected that substantially all of these direct transaction costs will be paid out of existing cash reserves within 12 months of the consummation of the merger. During the fourth quarter of fiscal 2001, the Company recorded special charges of $137.0 million. These special charges resulted from the significant decrease in demand that occurred during the fourth quarter of fiscal 2001 for Dallas Semiconductor's products in combination with the Company's intention to close Dallas Semiconductor's 6-inch wafer manufacturing facility and dispose of the related equipment. The Company intends to complete construction of an 8-inch wafer manufacturing facility located in Dallas, Texas that was under construction when the merger was consummated between the Company and Dallas Semiconductor. Once complete, the 8-inch wafer manufacturing facility will serve as Dallas Semiconductor's primary wafer manufacturing facility. In addition, the Company is concentrating test operations of the combined company at the Company's test facilities located in the Philippines and Thailand. Once complete, certain Dallas Semiconductor test equipment will be disposed of. The Company concluded that the above facts indicated that Dallas Semiconductor's long-lived assets might be impaired, and as required by accounting principles generally accepted in the United States, performed a cash flow analysis of the related assets. Based on the cash flow analysis, the cash flows expected to be generated by Dallas Semiconductor's long-lived assets during their estimated remaining useful lives are not sufficient to recover the net book value of the assets. The Company obtained a valuation report from an independent appraiser of the estimated fair value of the equipment at June 30, 2001, and validated the report with its own knowledge of the semiconductor used equipment market. Based on the cash flow analysis and valuation report, an impairment charge of $124.4 million was recorded to reduce the net book value of Dallas Semiconductor's long-lived assets to fair value. In addition to the above, the Company recorded special charges of $12.6 million to reflect the reorganization of the Company's sales organization, purchase order cancellation fees, and the reduction in the Company's manufacturing workforce. The above actions directly impacted employees in the Company's sales, marketing, and manufacturing organizations. During the three months ended September 29, 2001, the Company terminated 297 employees and paid $3.0 million of termination benefits related to the above actions. The Company has terminated 390 employees and has paid $4.9 million of termination benefits related to the special charges recorded during the fourth quarter of fiscal year 2001. 10 MAXIM INTEGRATED PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) Based on developments that occurred during the three months ended September 29, 2001 related to the special charges recorded during the fourth quarter of fiscal 2001, the Company revised its estimate of the reserve balance needed for purchase order cancellation fees. Based on the current status of negotiations with vendors regarding purchase order cancellation fees, the Company believes the amount which will ultimately be paid will be approximately $2.6 million less than the amount recorded for such charges during the fourth quarter of fiscal 2001. Accordingly, the Company decreased the amount recorded for purchase order cancellation fees by $2.6 million to reflect this change in estimate. In addition, as noted above, the Company terminated 297 employees during the three months ended September 29, 2001. These terminations resulted in the Company paying out approximately $2.6 million more in severance than the Company had recorded for such payments at June 30, 2001. This increase resulted from a higher level of terminations in the Company's manufacturing workforce in order to better match capacity with demand for the Company's products. The following table summarizes the activity related to the above actions for the three months ended September 29, 2001:
Purchase Order Merger Cancellation (Amount in thousands) Costs Severance Fees Other Total -------- --------- ------------ -------- -------- Reserve balance at June 30, 2001 $ 8,141 $ 553 $ 7,513 $ 2,244 $ 18,451 Adjustment -- 2,581 (2,581) -- -- Cash payments (4,906) (2,950) -- (426) (8,282) -------- -------- -------- -------- -------- Reserve balance at September 29, 2001 $ 3,235 $ 184 $ 4,932 $ 1,818 $ 10,169 ======== ======== ======== ======== ========
The remaining merger and special charges reserve at September 29, 2001 is expected to be paid out by the end of fiscal year 2002. NOTE 9: CONTINGENCIES On September 21, 2001, the Federal District Court for the Northern District of California issued an order dismissing a patent litigation action by Linear Technology Corporation against the Company described in prior periodic reports to the SEC. The court found that the Company did not infringe any of the claims of the asserted patent. The suit had claimed that the Company infringed various "sleep mode" and "current reversal prevention" claims of U.S. Patent No. 5,481,178. These claims were directed to the operation of switching voltage regulators, parts commonly used in laptop computers, cellular telephones and other applications. The Company moved for summary judgment on a number of subjects, including noninfringement, invalidity and unenforceability of the patent. The court found that the Company's remaining summary judgment motions were rendered moot by its noninfringement ruling. The Company expects that Linear Technology Corporation will appeal the decision. No assurance can be given as to the outcome of any possible appeal. 11 MAXIM INTEGRATED PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE 10: COMMON STOCK REPURCHASES Following the extraordinary events on September 11, 2001, the Securities and Exchange Commission issued an Emergency Order pursuant to Section 12(k)(2) of the Securities Exchange Act of 1934. This Emergency Order was issued to temporarily ease the restrictions of Rule 10-b-18 during the five business days following the opening of the U.S. securities market on September 17, 2001. The Emergency Order also provided that, despite pooling-of-interests provisions in Accounting Principles Board Opinion No. 16, Business Combinations, and the related interpretations of the American Institute of Certified Public Accountants, consensuses of the Financial Accounting Standards Board's Emerging Issues Task Force, rules and regulations of the Commission and interpretations by its staff, and other authoritative accounting guidance, a company could continue to account for its business combination transactions as a pooling-of-interests if it repurchased its own common stock pursuant to the Emergency Order. Subsequently, the Securities Exchange Commission extended this Emergency Order to September 28, 2001. As a result of the Emergency Order, the Company authorized the repurchase of up to 10 million shares of its common stock for the ten business days following the opening of the U.S. securities markets on September 17, 2001. During the period from September 17, 2001 to September 28, 2001, the Company repurchased 8.2 million shares of its common stock for $286.6 million. NOTE 11: SUBSEQUENT EVENT On September 28, 2001, the Securities and Exchange Commission issued an Exemptive Order to respond to market developments. Similar to its previously issued Emergency Order, the Exemptive Order eased the restrictions of Rule 10b-18 and provided that, despite pooling-of-interests provisions in Accounting Principles Board Opinion No. 16, Business Combinations, and the related interpretations of the American Institute of Certified Public Accountants, consensuses of the Financial Accounting Standards Board's Emerging Issues Task Force, rules and regulations of the Commission and interpretations by its staff, and other authoritative accounting guidance, a company could continue to account for its business combination transactions as a pooling-of-interests if it repurchased its own common stock pursuant to the Exemptive Order during the period from October 1, 2001 to October 12, 2001. As a result of the Exemptive Order, the Company increased the number of shares authorized to be repurchased to 15 million, and during the period from October 1, 2001 to October 12, 2001, the Company repurchased an additional 2.0 million shares of its common stock for $67.8 million. The Company does not anticipate any further common stock repurchases in fiscal year 2002, and, to the extent that the Board's authorization to repurchase shares was not fully executed by October 12, 2001, that authorization has been rescinded. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS NET REVENUES Net revenues were $239.4 million and $422.3 million for the three months ended September 29, 2001 and September 23, 2000, respectively, a decrease of 43.3%. The decrease in net revenues is due to downturns in certain industry segments (particularly Internet and network-related businesses) and in the general economy. During the three months ended September 29, 2001, approximately 64% of net revenues were derived from customers outside of the United States. While the majority of these sales are denominated in US dollars, the Company enters into foreign currency forward contracts to mitigate its risks on firm commitments and net monetary assets denominated in foreign currencies. The impact of changes in foreign exchange rates on revenue and the Company's results of operations for the three ended September 29, 2001 was immaterial. GROSS MARGIN Gross margin was 70.0% and 64.9% for the three months ended September 29, 2001 and September 23, 2000, respectively. The increase in gross margin for the three months ended September 29, 2001 is primarily attributable to production efficiencies obtained through economies of scale and cost reductions. The increase in gross margin in the three months ended September 29, 2001 was partially offset by an increase in inventory reserves of $3.5 million. Gross margin for the three months ended September 23, 2000 was negatively impacted due to $14.9 million recorded to reduce the carrying value of plant and equipment that was abandoned, no longer in use, or whose estimated useful lives were shortened, resulting in accelerated depreciation. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) RESEARCH AND DEVELOPMENT Research and development expenses were $66.0 million and $66.6 million for the three months ended September 29, 2001, and September 23, 2000, respectively, which represented 27.6% and 15.8% of net revenues, respectively. The decrease in research and development expenses in absolute dollars for the three months ended September 29, 2001 as compared to the same period in the prior year is due to $3.5 million recorded during the three months ended September 23, 2000 to reduce the carrying value of plant and equipment that was abandoned, no longer in use, or whose estimated useful lives were shortened, resulting in accelerated depreciation. The decrease is somewhat offset by increased headcount and related employee expenses to continue development of new products to support revenue growth, and increased wafer and mask expenses to support new product development. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses were $25.1 million and $41.6 million for the three months ended September 29, 2001, and September 23, 2000, respectively, which represented 10.5% and 9.8% of net revenues, respectively. The decrease in selling, general, and administrative expenses in absolute dollars for the three months ended September 29, 2001 as compared to the three months ended September 23, 2000 is due to lower sales representative commissions and decreased headcount related expenses due mainly to a reorganization of the combined Company's sales organization completed in the fourth quarter of fiscal year 2001. In addition, the Company recorded a charge of $3.0 million for technology licensing during the three months ended September 23, 2000. INTEREST INCOME AND OTHER, NET Interest income and other, net was $15.0 million and $13.4 million for the three months ended September 29, 2001, and September 23, 2000, respectively. The increase in interest income and other, net for the three months ended September 29, 2001 is a result of higher levels of invested cash, cash equivalents and short-term investments partially offset by decreased interest rates on invested amounts. INCOME TAXES The effective income tax rate for the three months ended September 29, 2001 and September 23, 2000 was 33.0% and 33.5%, respectively. This rate differs from the federal statutory rate primarily due to state income taxes and tax exempt earnings of the Company's Foreign Sales Corporation. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) OUTLOOK First quarter bookings were approximately $211 million, an 18% increase over the previous quarter's level of $179 million. Turns orders received during the quarter were $102 million, a 64% increase over the $62 million received in the prior quarter. Turns orders are customer orders that are for delivery within the same quarter and may result in revenue within the same quarter if the Company has available inventory that matches those orders. Bookings increased in the U.S. both for OEM and distribution channels and in the Pacific Rim region. Bookings for most product lines were higher than in the fourth quarter of fiscal 2001. First quarter ending backlog shippable within the next 12 months was approximately $196 million, including $172 million requested for shipment in the second quarter of fiscal year 2002. While the Company is encouraged by the increase in order rates, it remains cautious about its short-term revenue outlook because of customers' backlog situations and their unwillingness to commit to inventories and longer-term orders due to short lead times. As lead times begin to lengthen, the Company expects bookings rates to continue to increase. The Company expects that its fourth quarter was the bottom of the correction period for bookings, with the first quarter representing the revenue low point. Although the Company expects second quarter bookings to exceed first quarter levels, it estimates that second quarter revenues and earnings will increase only slightly over first quarter levels due to available backlog at the beginning of the second quarter. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds for the three months ended September 29, 2001 were from $190.9 million of net investment activities, net cash generated from operating activities of $141.3 million, and proceeds from the issuance of common stock of $25.1 million associated with the Company's stock option programs. The principal uses of funds were the repurchase of $286.6 million of common stock and the purchase of $25.6 million in property, plant and equipment. The Company believes that it possesses sufficient liquidity and capital resources to fund its property, plant and equipment purchases and operations for the next twelve months. In the past, it was the Company's policy to reduce the dilution effect from stock options by repurchasing its common stock from time to time in amounts based on estimates of proceeds from stock option exercises and of tax benefits related to such exercises. That stock repurchase policy was discontinued in the third quarter of fiscal 2001 with the exception of common stock repurchased pursuant to the Emergency Order issued by the Securities and Exchange Commission on September 14, 2001 and the Exemptive Order issued by the Securities and Exchange Commission on September 28, 2001 (See Notes 10 and 11 to Notes to Condensed Consolidated Financial Statements). 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) FORWARD-LOOKING INFORMATION AND RISK FACTORS This Report on Form 10-Q contains forward-looking statements, including statements regarding or implicating the Company's expectations, intentions, plans, goals and hopes regarding the future. Forward-looking statements in this report, including this Management's Discussion and Analysis section, involve risk and uncertainty. They include the Company's expectations regarding future revenues, the Company's assessment of its customers' willingness or unwillingness to commit to inventories and longer-term orders, the Company's expectations regarding booking rates increases and the bottoms in bookings and revenues, the Company's estimate that revenues and earnings will increase in the second fiscal quarter of 2002 and the Company's assessment of the sufficiency of its capital resources and liquidity. Results could differ materially from those forecasted based upon, among other things, the Company incorrectly assessing customer end-user demand and willingness to commit to inventories and orders, and order cancellation levels; technical difficulties in bringing new products and processes to market in a timely manner; market developments that could adversely affect the growth of the mixed-signal analog market such as further declines in customer forecasts or greater than expected cyclical downturns within the mixed-signal analog segment of the semiconductor market or possible effects of capacity constraints affecting other suppliers to equipment manufacturers; and the Company being unable to sustain its successes in recruiting and retaining high- quality personnel and its successes in the markets its products are introduced in, as well as other risks described in the Company's Form 10-K for the fiscal year ended June 30, 2001. Additional risk factors include whether, and the extent to which, demand for the Company's products increases and reflects real end-user demand; whether customer cancellations and delays of outstanding orders increase; whether the Company is able to manufacture in a correct mix to respond to orders on hand and new orders received in the future; whether the Company is able to achieve its new product development and introduction goals, including, without limitation, goals for recruiting, retaining, training, and motivating engineers, particularly design engineers, and goals for conceiving and introducing timely new products that are well received in the marketplace; whether the Company is able to effectively and successfully manage manufacturing operations during a period of diminished demand; and whether the Company is able to successfully commercialize its new technologies, such as its next-generation high-frequency technologies, that it has been investing in by designing and introducing new products based on these new technologies. In addition to the above, there are certain risks and uncertainties related to the Company's acquisition of Dallas Semiconductor (see Notes 2 and 8 of Notes to Condensed Consolidated Financial Statements). Although the process of integrating the personnel and operations of Dallas Semiconductor, with the goals of reducing cost and increasing efficiency and productivity, has been proceeding well in most regards, no assurance can be given that products, technologies, distribution channels, customer support operations, management information systems, key personnel and businesses of Dallas Semiconductor will be effectively assimilated into the Company's business or product offerings, or that such integration will be completed according to the Company's schedule, or that the results of the integration will be successful. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) Other important factors that could cause actual results to differ materially from those predicted or implied in this report include overall worldwide economic conditions; demand for electronic products and semiconductors generally; demand for the end-user products for which the Company's semiconductors are suited; timely availability of raw materials, equipment, supplies and services; unanticipated manufacturing problems; technological and product development risks; competitors that may outperform the Company; and other risk factors described in the Company's filings with the Securities and Exchange Commission and in particular its report on Form 10-K for the year ended June 30, 2001. All forward-looking statements included in this document are made as of the date hereof, based on the information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement, whether as a result of new information relating to existing conditions, future events or otherwise. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk has not changed significantly from the risks disclosed in Item 7A of the Company's Annual Report on Form 10-K for the year ended June 30, 2001. PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS On September 21, 2001, the Federal District Court for the Northern District of California issued an order dismissing a patent litigation action by Linear Technology Corporation against the Company described in prior periodic reports to the SEC. The court found that the Company did not infringe any of the claims of the asserted patent. The suit had claimed that the Company infringed various "sleep mode" and "current reversal prevention" claims of U.S. Patent No. 5,481,178. These claims were directed to the operation of switching voltage regulators, parts commonly used in laptop computers, cellular telephones and other applications. The Company moved for summary judgment on a number of subjects, including noninfringement, invalidity and unenforceability of the patent. The court found that the Company's remaining summary judgment motions were rendered moot by its noninfringement ruling. The Company expects that Linear Technology Corporation will appeal the decision. No assurance can be given as to the outcome of any possible appeal. ITEMS 2, 3, 4, 5 AND 6 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NOVEMBER 12, 2001 MAXIM INTEGRATED PRODUCTS, INC. - ----------------- ------------------------------------------ (Date) (Registrant) /s/ Carl W. Jasper ------------------------------------------ CARL W. JASPER Vice President and Chief Financial Officer (For the Registrant and as Principal Financial Officer) /s/ Sharon E. Smith-Lenox ------------------------------------------ SHARON E. SMITH-LENOX Corporate Controller (Principal Accounting Officer) 19 -----END PRIVACY-ENHANCED MESSAGE-----