10-Q 1 f66757e10-q.txt FORM 10-Q FOR QUARTERLY PERIOD ENDED SEPT.23, 2000 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 23, 2000 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 20, 2000 $.001 PAR VALUE 284,211,181 SHARES 2 MAXIM INTEGRATED PRODUCTS, INC. INDEX
PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets 3 As of September 23, 2000 and June 24, 2000 Consolidated Statements of Income 4 for the three months ended September 23, 2000 and September 25, 1999 Consolidated Statements of Cash Flows 5 for the three months ended September 23, 2000 and September 25, 1999 Notes to Consolidated Financial Statements 6-9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-12 ITEM 3. Quantitative and Qualitative Disclosures About 13 Market Risk PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14
2 3 CONSOLIDATED BALANCE SHEETS MAXIM INTEGRATED PRODUCTS, INC.
September 23, June 24, 2000 2000 ----------- ----------- (Amounts in thousands) (unaudited) ASSETS Current assets: Cash and cash equivalents $ 50,742 $ 53,057 Short-term investments 661,967 587,889 ----------- ----------- Total cash, cash equivalents and short-term investments 712,709 640,946 ----------- ----------- Accounts receivable, net 144,481 147,184 Inventories 64,040 58,593 Deferred tax assets 54,392 67,500 Income tax refund receivable 6,500 5,186 Other current assets 4,404 12,010 ----------- ----------- Total current assets 986,526 931,419 ----------- ----------- Property, plant and equipment, at cost, less accumulated depreciation 429,033 411,342 Other assets 5,666 7,022 ----------- ----------- TOTAL ASSETS $ 1,421,225 $ 1,349,783 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 59,741 $ 54,318 Income taxes payable 10,108 9,503 Accrued salaries 49,312 41,450 Accrued expenses 67,080 86,256 Deferred income on shipments to distributors 22,218 16,924 ----------- ----------- Total current liabilities 208,459 208,451 ----------- ----------- Other liabilities 4,000 4,000 Deferred tax liabilities 19,500 19,500 ----------- ----------- Total liabilities 231,959 231,951 ----------- ----------- Stockholders' equity: Common stock 285 283 Additional paid-in capital 68,523 90,364 Retained earnings 1,121,928 1,028,655 Accumulated other comprehensive income (1,470) (1,470) ----------- ----------- Total stockholders' equity 1,189,266 1,117,832 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,421,225 $ 1,349,783 =========== ===========
See accompanying Notes to Consolidated Financial Statements. 3 4 CONSOLIDATED STATEMENTS OF INCOME MAXIM INTEGRATED PRODUCTS, INC.
Three Months Ended --------------------------------- (Unaudited) September 23, September 25, (Amounts in thousands, 2000 1999 except per share data) ------------- ------------- Net revenues $285,095 $180,046 Cost of goods sold 84,021 54,482 -------- -------- Gross margin 201,074 125,564 -------- -------- Operating expenses: Research and development 46,656 28,309 Selling, general and administrative 23,051 15,295 -------- -------- Total operating expenses 69,707 43,604 -------- -------- Operating income 131,367 81,960 Interest income and other, net 9,956 6,455 -------- -------- Income before provision for income taxes 141,323 88,415 Provision for income taxes 48,050 30,061 -------- -------- Net income $ 93,273 $ 58,354 ======== ======== Earnings per share: Basic $ 0.33 $ 0.21 Diluted $ 0.29 $ 0.19 ======== ======== Shares used in the calculation of earnings per share: Basic 283,601 273,586 Diluted 322,675 313,886 ======== ========
See accompanying Notes to Consolidated Financial Statements. 4 5 CONSOLIDATED STATEMENTS OF CASH FLOWS MAXIM INTEGRATED PRODUCTS, INC.
For the three months ended ----------------------------------- (Unaudited) September 23, September 25, (Amounts in thousands) 2000 1999 Increase (decrease) in cash and cash equivalents ------------- ------------- Cash flows from operating activities: Net income $ 93,273 $ 58,354 Adjustments to reconcile net income to net cash Provided by operating activities: Depreciation, amortization and other 6,931 4,804 Reduction of equipment value 16,665 2,500 Changes in assets and liabilities: Accounts receivable 2,703 (13,744) Inventories (5,447) 428 Deferred taxes 13,108 -- Income tax refund receivable (1,314) 12,483 Other current assets 7,606 189 Accounts payable 5,423 2,920 Income taxes payable 46,045 27,634 Deferred income on shipments to distributors 5,294 (422) All other accrued liabilities (11,314) 22,407 --------- --------- Net cash provided by operating activities 178,973 117,553 --------- --------- Cash flows from investing activities: Additions to property, plant and equipment (41,287) (34,180) Other assets 1,356 (775) Purchases of available-for-sale securities (148,319) (81,397) Proceeds from sales/maturities of available-for-sale securities 74,241 44,871 --------- --------- Net cash used in investing activities (114,009) (71,481) --------- --------- Cash flows from financing activities: Issuance of common stock 28,197 18,182 Repurchase of common stock (95,476) (36,214) --------- --------- Net cash used in financing activities (67,279) (18,032) --------- --------- Net increase (decrease) in cash and cash equivalents (2,315) 28,040 Cash and cash equivalents: Beginning of year 53,057 34,126 --------- --------- End of period $ 50,742 $ 62,166 ========= =========
See accompanying Notes to Consolidated Financial Statements. 5 6 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 23, 2000 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 24, 2000. NOTE 2: INVENTORIES Inventories consist of (in thousands):
September 23, June 24, 2000 2000 ------------- ------- (unaudited) Raw materials $ 6,531 $ 5,246 Work-in-process 27,947 24,980 Finished goods 29,562 28,367 ------- ------- $64,040 $58,593 ======= =======
6 7 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.
Three Months Ended ------------------------------------ September 23, September 25, (Amounts in thousands, 2000 1999 except per share data) ------------- ------------- Numerator for basic earnings per share and diluted earnings per share Net income $ 93,273 $ 58,354 ======== ======== Denominator for basic earnings per share 283,601 273,586 Effect of dilutive securities: Stock options and warrants 39,074 40,300 -------- -------- Denominator for diluted earnings per share 322,675 313,886 ======== ======== Earnings per share: Basic $ 0.33 $ 0.21 Diluted $ 0.29 $ 0.19 ======== ========
7 8 MAXIM INTEGRATED PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE 4: SHORT-TERM INVESTMENTS All short-term investments at September 23, 2000 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 23, 2000. 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 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 Statement of Financial Accounting Standard No. 131 (SFAS131), "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:
For the three months ended ------------------------------------ September 23, September 25, 2000 1999 (Amounts in thousands) ------------- ------------- United States $120,647 $ 80,138 Europe 70,285 40,382 Pacific Rim 89,056 57,042 Rest of World 5,107 2,484 -------- -------- $285,095 $180,046 -------- --------
Net long-lived assets by geographic region were as follows:
September 23, June 24, 2000 2000 (Amounts in thousands) ------------- --------- United States $393,434 $376,819 Rest of World 35,599 34,523 -------- -------- $429,033 $411,342 -------- --------
8 9 NOTE 6: STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133 (SFAS 133), "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" At the beginning of fiscal year 2001, the Company adopted SFAS 133. This standard requires 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 uses foreign currency exchange contracts to offset the effect of foreign currency exchange fluctuations from its foreign currency revenue and does not speculate in derivatives or leverage financial products. The effect of adopting SFAS 133 did not have a material effect on the Company's financial position or results of operations. NOTE 7: RECENT ACCOUNTING DEVELOPMENTS The Securities and Exchange Commission (SEC) issued in December 1999 SEC Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 addresses the SEC's views and provides guidance in applying generally accepted accounting principles to revenue recognition in financial statements and must be adopted by the Company in the fourth quarter of fiscal 2001. The effect of adopting SAB 101 is not expected to have a material effect on the Company's financial position or results of operations. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS NET REVENUES Net revenues for the three months ended September 23, 2000 increased 58.3% to $285.1 million compared to $180.0 million for the same period last year. The increase is primarily attributable to higher unit shipments resulting from continued introduction of new proprietary products, increased market acceptance of the Company's proprietary and second-source products, and an increase in market demand for analog semiconductor products in general. During the quarter, approximately 58% 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 Gross margin was 70.5% in the three months ended September 23, 2000, compared to 69.7% for the three months ended September 25, 1999. The increase is primarily attributable to production efficiencies obtained through economies of scale and cost reductions. The increase in gross margin in the three month period ended September 23, 2000 was partially offset by $14.9 million recorded to write down the carrying value of certain manufacturing equipment to net realizable value, increased inventory reserves, and Medicare taxes on realized gains from the exercise of employee stock options. Due to an accounting interpretation by the Financial Accounting Standards Board, the Company must expense these Medicare taxes. For the three month period ended September 25,1999, these tax payments were recorded within Stockholders' Equity as an offset against the proceeds received from the exercise of employee stock options. During the three month period ended September 25, 1999, the Company recorded $2.5 million to write down the carrying value of certain manufacturing equipment to net realizable value. RESEARCH AND DEVELOPMENT Research and development expenses were $46.7 million and $28.3 million for the three months ended September 23, 2000 and September 25, 1999, respectively, which represented 16.4% and 15.7% of net revenues, respectively. The increase in absolute dollars and as a percentage of net revenues is due primarily to increased headcount and related employee expenses, increased wafer and mask expenses to support new product development, $3.5 million recorded to write down certain equipment to net realizable value, and expenses for Medicare taxes on realized gains from the exercise of employee stock options. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses were $23.1 million and $15.3 million for the three months ended September 23, 2000 and September 25, 1999, respectively, which represented 8.1% and 8.5% of net revenues, respectively. The increase in selling, general and administrative expenses in absolute dollars is due to increased headcount and related employee expenses to support the Company's increased revenues, charges recorded for technology licensing of $3.0 million, and expenses for Medicare taxes on realized gains from the exercise of employee stock options. During the three months ended September 25, 1999, the Company recorded a charge of $1.5 million for technology licensing. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) INTEREST INCOME AND OTHER, NET Net interest income increased to $10.0 million in the three months ended September 23, 2000 compared to $6.5 million for the comparable period a year ago as a result of higher levels of invested cash, cash equivalents and short-term investments and higher average interest rates on invested amounts. INCOME TAXES The effective income tax rate for both the three months ended September 23, 2000 and September 25, 1999 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. OUTLOOK Bookings on the Company were approximately $339 million in the first quarter of fiscal 2001. This was approximately 6% below the bookings level of the fourth quarter of fiscal 2000 but was above the Company's estimate of customer consumption for the first quarter of the current fiscal year. Turns orders received during the quarter were $98 million compared to the fourth quarter of fiscal 2000 of $108 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). First quarter ending backlog shippable within the next 12 months was approximately $443 million, including approximately $353 million requested for shipment in the second quarter of fiscal 2001. Last quarter, the Company reported fourth quarter ending backlog shippable within the next 12 months of approximately $420 million, including approximately $314 million that was requested for shipment in the first quarter of fiscal 2001. All backlog numbers have been adjusted to be net of cancellations and estimated future U.S. distribution ship and debit pricing adjustments. The Company believes bookings for the first quarter of fiscal 2001 have moderated to a level closer to but significantly above estimated end market consumption for Maxim's products. 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, backlog has limited value as a predictor of future revenues. 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 $179.0 million, and proceeds from the issuance of common stock of $28.2 million associated with the Company's stock option programs. The principal uses of funds were the repurchase of $95.5 million of common stock, the purchase of $41.3 million in property, plant and equipment and $74.1 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 next twelve months. 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 11 12 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. 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, forecasted demand, shipments, turns orders, capital spending, the sufficiency of capital resources and liquidity, the Company's stock repurchase policy and end market consumption of the Company's products. 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. Such 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 expand manufacturing operations to meet increased demand for the Company's products; 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. 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; possible effects of capacity constraints affecting other suppliers to equipment manufacturers; 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 24, 2000. 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. 12 13 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 24, 2000. PART II. OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.4 Bylaws of the Registrant as amended (Amended on August 17, 2000). 27.1 Financial Data Schedule. (b) No Reports on Form 8-K were filed during the quarter ended September 23, 2000. ITEMS 1, 2, 3, 4 AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE. 13 14 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 7, 2000 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) 14 15 EXHIBIT INDEX
Exhibits Description -------- ----------- 3.4 Bylaws of the Registrant as amended (Amended on August 17, 2000). 27.1 Financial Data Schedule.