10-Q 1 d14635_10q.htm

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 March 27, 2004

 

or

 

 

o

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
Incorporation or Organization)

 

(I.R.S. Employer I.D. No.)

 

 

 

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 Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes x   No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
          Yes
x   No o

Class: Common Stock,

Outstanding at April 23, 2004

                $.001 par value

322,240,476 shares




MAXIM INTEGRATED PRODUCTS, INC.

INDEX

 

Page

 


PART I. FINANCIAL INFORMATION

 

 

 

 

ITEM 1. Financial Statements

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 27, 2004 and June 28, 2003

3

 

 

 

 

 

 

4

 

 

 

 

 

 

5

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6-12

 

 

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

13-20

 

 

 

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

20

 

 

 

 

ITEM 4. Controls and Procedures

20

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

ITEM 1. Legal Proceedings

21

 

 

 

 

ITEM 2. Changes in Securities, Use of Proceeds and Issuer Repurchases of Equity Securities

21

 

 

 

 

ITEM 6. Exhibits and Reports on Form 8-K

21

 

 

SIGNATURES

22




CONDENSED CONSOLIDATED BALANCE SHEETS

MAXIM INTEGRATED PRODUCTS, INC.

 

 

Mar. 27,
2004

 

Jun. 28,
2003

 

 

 


 


 

(Amounts in thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

     Cash and cash equivalents

 

$

109,033

 

$

210,841

 

     Short-term investments

 

 

979,978

 

 

953,166

 

 

 



 



 

               Total cash, cash equivalents and short-term investments

 

 

1,089,011

 

 

1,164,007

 

 

 



 



 

 

 

 

 

 

 

 

 

     Accounts receivable, net

 

 

162,423

 

 

126,760

 

     Inventories

 

 

103,366

 

 

121,192

 

     Deferred tax assets

 

 

147,780

 

 

136,180

 

     Income tax refund receivable

 

 

6,864

 

 

11,246

 

     Other current assets

 

 

8,501

 

 

5,257

 

 

 



 



 

               Total current assets

 

 

1,517,945

 

 

1,564,642

 

Property, plant and equipment, at cost, less accumulated depreciation

 

 

889,063

 

 

769,885

 

Other assets

 

 

32,751

 

 

33,435

 

 

 



 



 

 

TOTAL ASSETS

 

$

2,439,759

 

$

2,367,962

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

     Accounts payable

 

$

85,429

 

$

42,041

 

     Income taxes payable

 

 

19,102

 

 

10,900

 

     Accrued salary and related expenses

 

 

93,697

 

 

70,468

 

     Accrued expenses

 

 

67,989

 

 

70,926

 

     Deferred income on shipments to distributors

 

 

20,928

 

 

21,582

 

 

 



 



 

               Total current liabilities

 

 

287,145

 

 

215,917

 

Other liabilities

 

 

4,000

 

 

4,000

 

Deferred tax liabilities

 

 

102,805

 

 

77,633

 

 

 



 



 

               Total liabilities

 

 

393,950

 

 

297,550

 

 

 



 



 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

     Common stock

 

 

324

 

 

325

 

     Additional paid-in capital

 

 

78,257

 

 

112,172

 

     Retained earnings

 

 

1,961,781

 

 

1,956,491

 

     Accumulated other comprehensive income

 

 

5,447

 

 

1,424 

 

 

 



 



 

               Total stockholders’ equity

 

 

2,045,809

 

 

2,070,412

 

 

 



 



 

                    TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

 

$

2,439,759

 

$

2,367,962

 

 

 



 



 

See accompanying Notes to Condensed Consolidated Financial Statements.

3



CONDENSED CONSOLIDATED STATEMENTS OF INCOME

MAXIM INTEGRATED PRODUCTS, INC.

 

 

Three Months Ended

 

Nine Months Ended

 

 

 


 


 

 

 

Mar. 27,
2004

 

Mar. 29,
2003

 

Mar. 27,
2004

 

Mar. 29,
2003

 

 

 


 


 


 


 

(Amounts in thousands, except per share data)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

370,023

 

$

286,232

 

$

1,018,300

 

$

858,190

 

Cost of goods sold

 

 

111,761

 

 

86,146

 

 

307,818

 

 

259,810

 

 

 



 



 



 



 

          Gross margin

 

 

258,262

 

 

200,086

 

 

710,482

 

 

598,380

 

 

 



 



 



 



 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

     Research and development

 

 

77,255

 

 

66,805

 

 

218,562

 

 

205,112

 

     Selling, general and administrative

 

 

23,546

 

 

21,065

 

 

67,128

 

 

64,606

 

 

 



 



 



 



 

          Total operating expenses

 

 

100,801

 

 

87,870

 

 

285,690

 

 

269,718

 

 

 



 



 



 



 

          Operating income

 

 

157,461

 

 

112,216

 

 

424,792

 

 

328,662

 

Interest income, net

 

 

5,469

 

 

3,611

 

 

15,589

 

 

11,424

 

 

 



 



 



 



 

          Income before provision for income taxes

 

 

162,930

 

 

115,827

 

 

440,381

 

 

340,086

 

Provision for income taxes

 

 

53,767

 

 

38,223

 

 

145,326

 

 

112,228

 

 

 



 



 



 



 

          Net income

 

$

109,163

 

$

77,604

 

$

295,055

 

$

227,858

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

          Basic

 

$

0.33

 

$

0.24

 

$

0.90

 

$

0.71

 

 

 



 



 



 



 

          Diluted

 

$

0.31

 

$

0.23

 

$

0.84

 

$

0.67

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in the calculation of earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

          Basic

 

 

328,247

 

 

322,905

 

 

327,894

 

 

321,201

 

 

 



 



 



 



 

          Diluted

 

 

354,183

 

 

341,863

 

 

351,801

 

 

340,044

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.08

 

$

0.02

 

$

0.24

 

$

0.04

 

 

 



 



 



 



 

See accompanying Notes to Condensed Consolidated Financial Statements.

4



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

MAXIM INTEGRATED PRODUCTS, INC.

 

 

Nine Months Ended

 

 

 


 

 

 

Mar. 27,
2004

 

Mar. 29,
2003

 

 

 


 


 

(Amounts in thousands)

 

(Unaudited)

 

Increase (decrease) in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

295,055

 

$

227,858

 

Adjustments to reconcile net income to net cash
  provided by operating activities:

 

 

 

 

 

 

 

     Depreciation and amortization

 

 

43,571

 

 

45,795

 

     Tax benefit related to stock based compensation plans

 

 

112,737

 

 

81,443

 

     Changes in assets and liabilities:

 

 

 

 

 

 

 

          Accounts receivable

 

 

(35,663

)

 

5,948

 

          Inventories

 

 

17,826

 

 

15,454

 

          Deferred taxes

 

 

11,708

 

 

26,400

 

          Income tax refund receivable

 

 

4,382

 

 

25,292

 

          Other current assets

 

 

(3,249

)

 

(1,238

)

          Accounts payable

 

 

43,388

 

 

(7,516

)

          Income taxes payable

 

 

8,202

 

 

7,715

 

          Deferred income on shipments to distributors

 

 

(654

)

 

(5,454

)

          All other accrued liabilities

 

 

20,292

 

 

(8,455

)

 

 



 



 

Net cash provided by operating activities

 

 

517,595

 

 

413,242

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

     Additions to property, plant and equipment

 

 

(162,749

)

 

(55,683

)

     Other non-current assets

 

 

684

 

 

(4,608

)

     Purchases of available-for-sale securities

 

 

(885,822

)

 

(1,104,826

)

     Proceeds from sales/maturities of available-for-sale securities

 

 

864,902

 

 

873,350

 

 

 



 



 

Net cash used in investing activities

 

 

(182,985

)

 

(291,767

)

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

     Issuance of common stock

 

 

143,479

 

 

59,871

 

     Repurchase of common stock

 

 

(501,117

)

 

(107,251

)

     Dividends paid

 

 

(78,780

)

 

(12,869

)

 

 



 



 

Net cash used in financing activities

 

 

(436,418

)

 

(60,249

)

 

 



 



 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(101,808

)

 

61,226

 

Cash and cash equivalents:

 

 

 

 

 

 

 

     Beginning of period

 

 

210,841

 

 

173,807

 

 

 



 



 

 

 

 

 

 

 

 

 

     End of period

 

$

109,033

 

$

235,033

 

 

 



 



 

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 accompanying unaudited condensed interim consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended March 27, 2004 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 fiscal year ended June 28, 2003.

The Company has a 52-to-53-week fiscal year that ends on the last Saturday in June.  Accordingly, every sixth or seventh fiscal year will be a 53-week fiscal year.  Fiscal years 2004 and 2003 are 52-week fiscal years.

NOTE 2: STOCK-BASED COMPENSATION

Under Statement of Financial Accounting Standards 148 (SFAS 148), the Company may elect to continue to account for the grant of stock options under Accounting Principal Board (APB) Opinion 25, in which options granted with an exercise price equal to the fair market value on the date of grant do not require recognition of expense in the Company’s financial statements. Under SFAS 148, the Company is, however, required to provide pro forma disclosure regarding net income and earnings per share as if the Company had accounted for its employee stock options (including shares issued under the 1996 Stock Incentive Plan, 1993 Officer and Director Stock Option Plan, 1987 Stock Option Plan, 1987 Supplemental Stock Option Plan, 1988 Nonemployee Director Stock Option Plan, and Supplemental Nonemployee Stock Option Plan, collectively called “options”) granted subsequent to June 30, 1995, under the methodology prescribed by that statement. Since the Company has elected to account for the grant of options under APB Opinion No. 25, the following information is for disclosure purposes only.

As required under SFAS 148, the reported net income and earnings per share have been presented to reflect the impact had the Company been required to include the amortization of the Black-Scholes option value as an expense. The pro forma amounts are as follows: 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 


 


 

 

 

Mar. 27,
2004

 

Mar. 29,
2003

 

Mar. 27,
2004

 

Mar. 29,
2003

 

 

 


 


 


 


 

(Amounts in thousands, except per share data)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income - as reported

 

$

109,163

 

$

77,604

 

$

295,055

 

$

227,858

 

Deduction: total stock-based employee compensation
  expense determined under the fair value method,
  net of tax

 

 

(39,691

)

 

(44,094

)

 

(94,222

)

 

(109,595

)

 

 



 



 



 



 

Net income - pro forma

 

 

69,472

 

 

33,510

 

 

200,833

 

 

118,263

 

 

 



 



 



 



 

Basic earnings per share -pro forma

 

$

0.21

 

$

0.10

 

$

0.61

 

$

0.37

 

 

 



 



 



 



 

Diluted earnings per share -pro forma

 

$

0.20

 

$

0.10

 

$

0.58

 

$

0.35

 

 

 



 



 



 



 

6



MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3: INVENTORIES

Inventories consist of the following:

 

 

Mar. 27,
2004

 

Jun. 28,
2003

 

 

 


 


 

(Amounts in thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Raw materials

 

$

10,757

 

$

10,249

 

Work-in-process

 

 

68,153

 

 

79,687

 

Finished goods

 

 

24,456

 

 

31,256

 

 

 



 



 

 

 

$

103,366

 

$

121,192

 

 

 



 



 

NOTE 4: OTHER ASSETS

Included in Other Assets in the Condensed Consolidated Balance Sheets at March 27, 2004 is $10.9 million of intellectual property.  During the first quarter of fiscal 2004, the Company converted $13.4 million of  4% senior secured convertible notes resulting from amounts loaned to a privately held semiconductor company to a long-term intangible asset.  The notes were secured by a first priority lien on, or security interest in, substantially all the assets, including intellectual property, of this company.  This privately held semiconductor company ceased operations due to insolvency during fiscal year 2003.  Per the terms of the 4% senior secured convertible notes, the Company accelerated the maturity of said notes and foreclosed on its first priority lien and security interest. During the first quarter of fiscal 2004, the Company acquired substantially all the assets, including intellectual property, and, as noted above, converted the $13.4 million of 4% senior secured convertible notes to a long-term intangible asset which is being amortized over the remaining estimated useful life of the associated intellectual property.  The Company also acquired approximately $1.5 million of cash, accounts receivable and fixed assets, which reduced the balance of the 4% senior secured convertible notes.

It is the Company’s intention to use the intellectual property acquired in designing and developing new products.  As required by Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), the Company assessed the recoverability of the intellectual property.  Based on this assessment, as of March 27, 2004, the intellectual property is fully recoverable based on the projected discounted cash flows attributable to products designed and developed with this intellectual property.  Should it be determined in a future period that the projected remaining discounted cash flows attributable to products designed and developed with the acquired intellectual property are less than the net book value represented by the intellectual property, the Company’s results of operations could be materially adversely impacted in the period such determination is made. 

Also included in Other Assets in the Condensed Consolidated Balance Sheets at March 27, 2004 are loans to employees of approximately $6.9 million. These loans are collateralized primarily by employee stock options held by the respective employees. To the extent such collateral is not sufficient to cover the amounts owed, there is risk of loss to the Company. To date, the Company has not experienced any material losses related to these employee loans.

7



MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5: 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.  The number of incremental shares from the assumed issuance of stock options is calculated applying the treasury stock method.  The following table sets forth the computation of basic and diluted earnings per share.

 

 

Three Months Ended

 

Nine Months Ended

 

 

 


 


 

 

 

Mar. 27,
2004

 

Mar. 29,
2003

 

Mar. 27,
2004

 

Mar. 29,
2003

 

 

 


 


 


 


 

(Amounts in thousands, except per share data)

 

(Unaudited)

 

(Unaudited)

 

Numerator for basic earnings per share and
  diluted earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

     Net income

 

$

109,163

 

$

77,604

 

$

295,055

 

$

227,858

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earning per share

 

 

328,247

 

 

322,905

 

 

327,894

 

 

321,201

 

     Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

          Stock options

 

 

25,936

 

 

18,958

 

 

23,907

 

 

18,843

 

 

 



 



 



 



 

Denominator for diluted earnings per share

 

 

354,183

 

 

341,863

 

 

351,801

 

 

340,044

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic

 

$

0.33

 

$

0.24

 

$

0.90

 

$

0.71

 

 

 



 



 



 



 

     Diluted

 

$

0.31

 

$

0.23

 

$

0.84

 

$

0.67

 

 

 



 



 



 



 

Approximately 6.5 million and 37.4 million of the Company’s stock options were excluded from the calculation of diluted earnings per share for the three months ending March 27, 2004 and March 29, 2003, respectively.  Approximately 13.7 million and 42.5 million of the Company’s stock options were excluded from the calculation of diluted earnings per share for the nine months ending March 27, 2004 and March 29, 2003, respectively.  These options were excluded, as they were antidilutive; however, such options could be dilutive in the future.

NOTE 6: SHORT-TERM INVESTMENTS

All short-term investments at March 27, 2004 are classified as available-for-sale and consist primarily of U.S. Treasury and Federal Agency debt securities with original maturities beyond three months.  Unrealized gains and losses, net of tax, on securities in this category are included in accumulated other comprehensive income (loss) which is a separate component of stockholders’ equity. The cost of securities sold is based on the specific identification method.  Interest earned on securities is included in “Interest income, net” in the Condensed Consolidated Statements of Income.

8



MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7: 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 bill-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

 

Nine Months Ended

 

 

 


 


 

 

 

Mar. 27,
2004

 

Mar. 29,
2003

 

Mar. 27,
2004

 

Mar. 29,
2003

 

 

 


 


 


 


 

(Amounts in thousands)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

114,830

 

$

94,230

 

$

308,276

 

$

286,737

 

Europe

 

 

72,710

 

 

57,348

 

 

198,623

 

 

163,702

 

Pacific Rim

 

 

177,163

 

 

131,958

 

 

498,613

 

 

399,125

 

Rest of World

 

 

5,320

 

 

2,696

 

 

12,788

 

 

8,626

 

 

 



 



 



 



 

 

 

$

370,023

 

$

286,232

 

$

1,018,300

 

$

858,190

 

 

 



 



 



 



 

Net long-lived fixed assets by geographic region were as follows:

 

 

Mar. 27,
2004

 

June 28,
2003

 

 

 

 


 


 

 

(Amounts in thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

795,667

 

$

694,454

 

 

Rest of World

 

 

93,396

 

 

75,431

 

 

 

 



 



 

 

 

 

$

889,063

 

$

769,885

 

 

 

 



 



 

 

NOTE 8: COMPREHENSIVE INCOME (LOSS)

Comprehensive income consists of net income 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

 

Nine Months Ended

 

 

 


 


 

 

 

Mar. 27,
2004

 

Mar. 29,
2003

 

Mar. 27,
2004

 

Mar. 29,
2003

 

 

 


 


 


 


 

(Amounts in thousands)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains (losses) on investments,
  net of tax of $2,558, $(638), $1,866 and $(549),
  respectively

 

 

$

5,199

 

 

 

$

(1,121

)

 

 

$

4,026

 

 

 

$

(934

)

 

Change in unrealized gains (losses) on forward
  exchange contracts, net of tax of $417, $107,
  $(2) and $836, respectively

 

 

 

846

 

 

 

 

219

 

 

 

 

(3

)

 

 

 

1,627

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

Other Comprehensive Income (Loss)

 

 

$

6,045

 

 

 

$

(902

)

 

 

$

4,023

 

 

 

$

693

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

9



MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accumulated other comprehensive income (loss) presented in the condensed consolidated balance sheet at March 27, 2004 and June 28, 2003 consists of net unrealized gains on available-for-sale investments of $7.0 million and $3.0 million, respectively, net unrealized losses on forward exchange contracts of $(0.1) million and $(0.1) million, respectively, and foreign currency translation adjustments of $(1.5) million and $(1.5) million, respectively.  Foreign currency translation adjustments are not tax affected.

NOTE 9: MERGER AND SPECIAL CHARGES

In the fourth quarter of fiscal year 2001, the Company acquired Dallas Semiconductor, a leading supplier of specialty semiconductors. As a result of the merger, the Company recorded a charge of $163.4 million. The charge consisted of $26.4 million of merger costs, $124.4 million to reduce the net book value of Dallas Semiconductor’s long-lived assets to fair value, and $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. 

During the nine months ended March 27, 2004, the Company has cash payments against the reserve of approximately $0.4 million.

At March 27, 2004, the Company has a reserve balance of $1.5 million related to merger costs, $3.0 million related to purchase order cancellations fees, and $1.4 million related primarily to unresolved claims that resulted from the termination of certain sales representatives leaving a total remaining reserve balance of $6.0 million

The following table summarizes the activity related to the merger for fiscal year 2004.

 

 

Merger  Costs

 

Purchase Order
Cancellation Fees

 

Other

 

Total

 

 

 


 


 


 


 

Reserve balance at
  June 28, 2003

 

 

$

1,606

 

 

 

$

3,039

 

 

$

1,719

 

$

6,364

 

Cash payments

 

 

 

(61

)

 

 

 

---

 

 

 

(298

)

 

(359

)

 

 

 



 

 

 



 

 



 



 

Reserve balance at
  March 27, 2004

 

 

$

1,545

 

 

 

$

3,039

 

 

$

1,421

 

$

6,005

 

 

 

 



 

 

 



 

 



 



 

10



MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10: CONTINGENCIES

On June 26, 1997, a complaint was filed by Linear Technology Corporation (“LTC”) naming the Company and certain other unrelated parties as defendants.  The complaint alleges that each of the defendants, including the Company, has willfully infringed, induced infringement and contributorily infringed LTC’s United States Patent 5,481,178 relating to control circuits and methods for maintaining high efficiencies over broad current ranges in a switching regulator circuit, all of which has allegedly damaged LTC in an unspecified amount.  The complaint further alleges that the Company’s actions have been, and continue to be, willful and deliberate and seeks a permanent injunction against the Company as well as unspecified actual and treble damages including costs, expenses, and attorneys’ fees.  The Company answered the complaint on October 20, 1997, denying all of LTC’s substantive allegations and counterclaiming for a declaration that LTC’s patent is invalid and not infringed.

On September 21, 2001, the Federal District Court for the Northern District of California issued an order dismissing the patent litigation action by LTC.  The court found that the Company did not infringe any of the claims of the asserted patent. The Company had 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. LTC has appealed the decision. Maxim filed a cross-appeal in response to LTC’s appeal. Appellate briefs have been filed by both Maxim and LTC. The Company filed its reply brief on April 2, 2003 and its response brief on June 20, 2003.  Oral arguments were heard in December 2003.   The Company does not believe that the ultimate outcome of these matters will have a material adverse effect on the financial position or liquidity of the Company.  If, however, the appellate court in the action brought by LTC were to reverse the trial court’s dismissal of the patent litigation claims brought by LTC against the Company, and were LTC to prevail in its claims against the Company, the Company’s operating results could be materially adversely affected.

On December 12, 2002, Qualcomm Inc. filed and on February 4, 2003, Qualcomm Inc. served the Company with a complaint for patent infringement claiming that certain of the Company’s products infringe one or all of three Qualcomm Inc. patents.  Qualcomm seeks a preliminary and permanent injunction as well as unspecified actual and treble damages including costs, expenses and attorneys fees. Qualcomm withdrew one of its patents from the claim in June 2003. Qualcomm recently amended the complaint to add three new transmission related patents. The Company is presently reviewing these claims and has filed a motion for summary judgment which was heard in April 2004.  While no assurance can be given in this regard, the Company does not believe that the ultimate outcome of the action will have a material adverse effect on the Company’s financial condition, liquidity, or results of operation.

In addition to the above, the Company is subject to other legal proceedings and claims that arise in the normal course of its business. The Company does not believe that the ultimate outcome of these matters will have a material adverse effect on the financial position of the Company.

NOTE 11: INDEMNIFICATIONS AND PRODUCT WARRANTY

The Company indemnifies certain customers, distributors, suppliers, and subcontractors for attorney fees and damages and costs awarded against these parties in certain circumstances in which the Company’s products are alleged to infringe third party intellectual property rights, including patents, registered trademarks, or copyrights. The terms of the Company’s indemnification obligations are in effect from the date of sale of the product. In certain cases, there are limits on and exceptions to the Company’s potential liability for indemnification relating to intellectual property infringement claims. The Company cannot estimate the amount of potential future payments, if any, that the Company might be required to make as a result of these agreements. To date, the Company has not paid or been required to defend any indemnification claims, and accordingly, the Company has not accrued any amounts for our indemnification obligations. However, there can be no assurances that the Company will not have any future financial exposure under those indemnification obligations.

11



MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company enters into contracts with certain customers whereby the Company commits to supply quantities of specified parts at a predetermined scheduled delivery date.  Should the Company be unable to supply the customer with the specified part at the quantity and product quality desired at the scheduled delivery date, the customer may incur additional production costs.  In addition, the customer may incur lost revenues due to delay in receiving the parts necessary to have the end product ready for sale to its customers or due to product quality issues which may arise.  Under the customer supply agreements, the Company may be liable for direct additional production costs or lost revenues.  The Company tries to limit such liabilities.  However, if products were not shipped on time, the Company may be liable for damages.  Such liability, should it arise, may have a material adverse impact on the Company’s results of operations and financial condition.

The Company’s standard terms and conditions of sale warrant products to be free from defects in warranty and labor for a period of 12 months from date of sale, with the Company’s liability being limited to repair or replacement of defective product.  In some cases, the Company has negotiated special liability terms or is subject to laws of other jurisdictions which increase the warranty period and/or the liability for defective product to include direct and consequential damages.  In many of these cases, the Company has negotiated a cap on the liability exposure of the Company. 

As noted above, the Company generally warrants its products against defects in materials and workmanship for a period of 12 months with longer periods for certain customers.  If there is a material increase in the rate of customer claims or our estimates of probable losses relating to specifically identified warranty exposure are inaccurate, the Company may record a charge against future cost of sales.  Warranty expense has historically been immaterial to our financial statements.

NOTE 12: COMMON STOCK REPURCHASES

On March 15, 2002, the Board of Directors authorized the Company to repurchase up to 10 million shares of the Company’s common stock from time to time at the discretion of the Company’s management.  On May 13, 2002, the Board of Directors authorized the Company to repurchase an additional 10 million shares of the Company’s common stock. On May 22, 2003, the Board of Directors extended the share repurchase authorizations noted above to the end of the Company’s fiscal year 2004. On March 9, 2004, the Board of Directors authorized the Company to repurchase an additional 10 million shares of the Company’s common stock. This share repurchase authorization has no expiration date. The number of shares to be repurchased and timing of those repurchases will be based on several factors, including the price of Maxim stock, general market and business conditions, and other factors.

Between the dates of the March 15, 2002 authorization to the end of fiscal year 2003, the Company purchased 13.6 million shares for $618.4 million. During the nine months ended March 27, 2004, the Company repurchased approximately 10.4 million shares of its common stock for $501.1 million. As of March 27, 2004, approximately 6.1 million shares remained available under the above repurchase authorizations.

NOTE 13: SUBSEQUENT EVENT

On April 20, 2004, the Board of Directors declared a cash dividend of $0.08 per share on the Company’s common stock payable on May 28, 2004 to stockholders of record on May 7, 2004.

12



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its financial statements.  The Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of the Company’s financial condition and results of operations, and require the Company to make its most difficult and subjective accounting judgments, often as a result of the need to make estimates of matters that are inherently uncertain.  Based on this definition, the Company’s most critical accounting policies include revenue recognition and accounts receivable allowances, which impacts the recording of revenues; valuation of inventories, which impacts costs of goods sold and gross margins; the assessment of recoverability of long-lived assets, which impacts write-offs of fixed assets; accounting for income taxes, which impacts the income tax provision; and assessment of contingencies, which impacts charges recorded in cost of goods sold and selling, general and administrative expenses.  These policies and the estimates and judgments involved are discussed further below.  The Company has other key accounting policies that either do not generally require estimates and judgments that are as difficult or subjective, or it is less likely that such accounting policies would have a material impact on the Company’s reported results of operations for a given period.

Revenue Recognition and Accounts Receivable Allowances

Revenue from product sales to the Company’s direct customers is recognized upon shipment, provided that persuasive evidence of a sales arrangement exists, the price is fixed and determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations.

A portion of the Company’s sales is made to domestic distributors under agreements that provide the possibility of certain sales price rebates and limited product return privileges.  Given the uncertainties associated with the levels of returns and other credits that will be issued to these distributors, the Company defers recognition of such sales until the product is sold by the domestic distributors to their end customers.  The Company estimates the provision for returns and price rebates based on historical experience and known future returns and price rebates.  Revenue on all shipments to international distributors is recognized upon shipment to the distributor, when the above criteria are met, with appropriate provision of reserves for returns and allowances, as these distributors generally do not have price rebate or product return privileges.  Accounts receivable from both domestic and international distributors are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon shipment at which point the Company has a legally enforceable right to collection under normal terms.

The Company must make estimates of potential future product returns and sales allowances related to current period product revenue.  Management analyzes historical returns, changes in customer demand, and acceptance of products when evaluating the adequacy of sales returns and allowances.  Estimates made by the Company may differ from actual product returns and sales allowances.  These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable. In addition, the Company monitors collectibility of accounts receivable primarily through review of the accounts receivable aging. When facts and circumstances indicate the collection of specific amounts or from specific customers is at risk, the Company assesses the impact on amounts recorded for bad debts and, if necessary, will record a charge in the period such determination is made.  To date, the Company has not experienced material write-offs of accounts receivable due to uncollectibility.

13



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Inventories

Inventories are stated at the lower of cost, which approximates actual cost on a first-in-first-out basis, or market value.  Because of the cyclicality of the market, inventory levels, obsolescence of technology, and product life cycles, the Company writes down inventories to net realizable value based on backlog, forecasted product demand, and historical sales levels.  Backlog is subject to revisions, cancellations, and rescheduling.  Actual demand and market conditions may be lower than those projected by the Company.  This difference could have a material adverse effect on the Company’s gross margin should inventory write downs beyond those initially recorded become necessary.   Alternatively, should actual demand and market conditions be more favorable than those estimated by the Company, gross margin could be favorably impacted.  During fiscal year 2003, the Company had inventory write downs of $11.9 million due primarily to work in process and finished goods inventory manufactured in excess of forecasted demand. During the nine months ended March 27, 2004, the Company had inventory write downs of $2.2 million due primarily to work in process and finished goods inventory manufactured in excess of forecasted demand.

The Company’s standard cost revision policy is to continuously monitor manufacturing variances and revise standard costs when necessary.  The Company’s policy for recording a write down of inventory is generally to write down, at standard cost, work-in-process and finished goods inventory in excess of estimated 12 months demand based on backlog, historical sales levels and forecasted demand, which has no forecasted product demand.

Long-Lived Assets

The Company evaluates the recoverability of long-lived assets in accordance with Statement of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets.”  The Company performs periodic reviews to determine whether facts and circumstances exist that would indicate that the carrying amounts of long-lived assets might not be fully recoverable.  If facts and circumstances indicate that the carrying amount of long-lived assets might not be fully recoverable, the Company compares projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful life against their respective carrying amounts.  In the event that the projected undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets.   Evaluation of impairment of long-lived assets requires estimates in the forecast of future operating results that are used in the preparation of the expected future undiscounted cash flows.  Actual future operating results and the remaining economic lives of the Company’s long-lived assets could differ from the Company’s estimates used in assessing the recoverability of these assets.  These differences could result in additional impairment charges, which could have a material adverse impact on the Company’s results of operations. 

Accounting for Income Taxes

The Company records a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized.  In assessing the need for a valuation allowance, historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered.  In the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount, an adjustment to the deferred tax asset valuation allowance would be recorded.  This adjustment would increase income in the period such determination was made.  Likewise, should it be determined that all or part of the net deferred tax asset would not be realized in the future, an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period such determination would be made. 

On a periodic basis the Company evaluates its deferred tax asset balance for realizability.  To the extent the Company believes it is more likely than not that some portion of its deferred tax assets will not be realized, the Company will increase the valuation allowance against the deferred tax assets.  Realization of the Company’s deferred tax assets is dependent primarily upon future U.S. taxable income.  The Company’s judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors.  These changes, if any, may require possible material adjustments to these deferred tax assets, resulting in a reduction in net income or an increase in net loss in the period when such determinations are made.

14



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Contingencies

From time to time, the Company receives notices that its products or manufacturing processes may be infringing the patent or intellectual property rights of others. The Company periodically assesses each matter in order to determine if a contingent liability in accordance with Statement of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies,” should be recorded.  In making this determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts.  Based on the information obtained, combined with management’s judgment regarding all the facts and circumstances of each matter, the Company determines whether it is probable that a contingent loss may be incurred and whether the amount of such loss can be estimated.  Should a loss be probable and estimable, the Company records a contingent loss in accordance with SFAS 5.  In determining the amount of a contingent loss, the Company takes into consideration advice received from experts in the specific matter, current status of legal proceedings, settlement negotiations which may be ongoing, prior case history and other factors.   Should the judgments and estimates made by management be incorrect, the Company may need to record additional contingent losses that could materially adversely impact the Company’s results of operations.  Alternatively, if the judgments and estimates made by management are incorrect and a particular contingent loss does not occur, the contingent loss recorded would be reversed thus favorably impacting the Company’s results of operations. See Note 10 of Notes to Condensed Consolidated Financial Statements.

RESULTS OF OPERATIONS

Net Revenues

Net revenues were $370.0 million and $286.2 million for the three months ended March 27, 2004 and March 29, 2003, respectively, an increase of 29.3%.  Net revenues were $1,018.3 million and $858.2 million for the nine months ended March 27, 2004 and March 29, 2003, respectively, an increase of 18.7%. The increase in net revenues for both the three and nine months ended March 27, 2004 as compared to the three and nine months ended March 29, 2003 is primarily due to higher unit shipments resulting from the introduction of new proprietary products and increased order rates on the Company’s already existing proprietary and second-source products.

During the three months ended March 27, 2004 and March 29, 2003, approximately 69% and 67%, respectively, of net revenues were derived from customers outside of the United States.  During the nine months ended March 27, 2004 and March 29, 2003, approximately 70% and 67%, respectively, of net revenues were derived from customers outside of the United States.  While the majority of these sales are denominated in U.S. dollars, the Company enters into foreign currency forward contracts to mitigate its risks on firm commitments and net monetary assets denominated in foreign currencies.  The impact of changes in foreign exchange rates on revenue and the Company’s results of operations for the three and nine months ended March 27, 2004 and March 29, 2003 was immaterial.

Gross Margin

Gross margin as a percentage of net revenues was 69.8% and 69.9% for the three months ended March 27, 2004 and March 29, 2003, respectively.  The gross margin percentage for the three months ended March 27, 2004 as compared to the three months ended March 29, 2003 decreased primarily due to $1.8 million of start up costs at the Company’s newly acquired wafer fabrication facility in San Antonio, Texas. Gross margins for the three months ended March 29, 2003 was negatively impacted due to $3.1 million of inventory write downs.

15



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Gross margin as a percentage of net revenues was 69.8% and 69.7% for the nine months ended March 27, 2004 and March 29, 2003, respectively.  The gross margin percentage for the nine months ended March 27, 2004 as compared to the nine months ended March 29, 2003 slightly increased primarily due to cost saving measures implemented by the Company. These cost saving measures included, but were not limited to, salary and wage reductions, reduced headcount and reductions in certain salary related expenses.  These reductions were slightly offset by $2.8 million of start up costs at the Company’s newly acquired wafer fabrication facility in San Antonio, Texas. Gross margins for the nine months ended March 27, 2004 and March 29, 2003 were negatively impacted due to $2.2 million and $9.1 million of inventory write downs, respectively.

Research and Development

Research and development expenses were $77.3 million and $66.8 million for the three months ended March 27, 2004, and March 29, 2003, respectively, which represented 20.9% and 23.3% of net revenues, respectively.  The increase in research and development expenses in absolute dollars is due to the result of hiring additional engineers and increased expenses to support the Company’s new product development efforts.

Research and development expenses were $218.6 million and $205.1 million for the nine months ended March 27, 2004, and March 29, 2003, respectively, which represented 21.5% and 23.9% of net revenues, respectively.  The increase in research and development expenses in absolute dollars is due to the result of hiring additional engineers and increased expenses to support the Company’s new product development efforts.

The level of research and development expenditures as a percentage of net revenues will vary from period to period, depending, in part, on the level of net revenues and, in part, on the Company’s success in recruiting the technical personnel needed for its new product introductions and process development.  The Company continuously attempts to control and, if possible, reduce expense levels in all areas including research and development.  However, the Company views research and development expenditures as critical to maintaining a high level of new product introductions, which in turn are critical to the Company’s plan for future growth.

Selling, General and Administrative

Selling, general and administrative expenses were $23.5 million and $21.1 million for the three months ended March 27, 2004, and March 29, 2003, respectively, which represented 6.4% and 7.4% of net revenues, respectively.  The increase in selling, general, and administrative expenses in absolute dollars for the three months ended March 27, 2004 as compared to the three months ended March 29, 2003 is primarily due to increased headcount related expenses.

Selling, general and administrative expenses were $67.1 million and $64.6 million for the nine months ended March 27, 2004, and March 29, 2003, respectively, which represented 6.6% and 7.5% of net revenues, respectively.  The increase in selling, general, and administrative expenses in absolute dollars for the nine months ended March 27, 2004 as compared to the nine months ended March 29, 2003 is primarily due to increased headcount related expenses.

Interest Income, Net

Interest income, net was $5.5 million and $15.6 million for the three and nine months ended March 27, 2004, respectively, compared to $3.6 million and $11.4 million for the three and nine months ended March 29, 2003, respectively.  The increase in interest income, net for the three and nine months ended March 27, 2004 as compared to the three and nine months ended March 29, 2003 is due to higher average interest rates combined with higher average levels of invested cash, cash equivalents, and short-term investments.

16



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Income Taxes

The effective income tax rate for the three and nine months ended March 27, 2004 and March 29, 2003 was 33.0%, respectively. The effective rates were lower than the U.S. federal and state combined statutory rate primarily due to tax benefits on export sales.

Realization of the net deferred tax asset of $45.0 million at March 27, 2004 is dependent primarily upon achieving future U.S. taxable income of $129 million.  The Company believes it is more likely than not that the net deferred tax assets will be realized based on historical earnings and expected levels of future taxable income.  Levels of future taxable income are subject to the various risks and uncertainties as described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003.  An increase in the valuation allowance against net deferred tax assets may be necessary if it is more likely than not that all or a portion of the net deferred tax assets will not be realized.  The Company periodically assesses the need for increases to the deferred tax asset valuation allowance.

Inventory

In prior fiscal periods, the Company has experienced the theft of inventory at its test facility in Cavite, the Philippines. The Company has implemented control procedures to prevent and detect such theft. There can be no assurance, however, that these control procedures will be effective in preventing or detecting, in a timely manner, future theft and that such theft, when detected, will not have a material adverse impact on the Company’s results of operations. The Company’s control procedures did not detect any material theft of inventory during the nine months ended March 27, 2004.

17



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

OUTLOOK

Third quarter net bookings were approximately $488 million, a 17% increase over the previous quarter’s level of $417 million. Turns orders received in the quarter were $189 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). Bookings increased in all geographic locations, with the greatest bookings improvement in the U.S. and Europe. Bookings grew robustly in the third quarter of fiscal 2004, and orders for power management products, telecom and datacom products, products for ATE and industrial applications, and the products serving an even broader base of customers were significantly above the second quarter of fiscal 2004.

Third quarter ending backlog shippable within the next 12 months was approximately $437 million, including approximately $373 million requested for shipment in the fourth quarter of fiscal year 2004. The Company’s second quarter ending backlog shippable within the next 12 months was approximately $327 million, including approximately $293 million that was requested for shipment in the second quarter of fiscal year 2004.

The Company believes that capacity is in place or coming on line to meet forecasted demand for fiscal 2005. Start-up activities at the Company’s wafer manufacturing facility in San Antonio are proceeding on schedule, and the Company expects products for shipment to be manufactured at that facility to start in the fourth quarter of fiscal 2004. The Company’s new test facility in Thailand will be in operation as planned in the first quarter of fiscal 2005, and the Company continues to increase capacity at both its Thailand and Philippines test facilities with additional test equipment purchased over the past few quarters.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of funds for the nine months ended March 27, 2004 were from net cash generated from operating activities of $517.6 million and proceeds from the exercises of stock options and purchases of common stock under the Employee Stock Participation Plan of 2.4 million shares in the amount of $143.5 million.  Another source of cash from the Company’s stock option programs is the tax deductions that arise from exercise of options.  These tax benefits amounted to $112.7 million in the nine months ended March 27, 2004. 

The principal uses of funds were the repurchase of 10.4 million shares of the Company’s common stock for $501.1 million, the payment of $78.8 million for dividends and the purchase of $162.7 million in property, plant and equipment.  Included in the purchase of property, plant and equipment, $40.5 million was for the payment of the Company’s newly acquired fabrication facility in San Antonio, Texas.  The Company believes that it possesses sufficient liquidity and capital resources to fund its property, plant and equipment purchases, common stock repurchases, dividend payments, and operations for at least the next twelve months.  The Company plans to continue to repurchase its common stock in fiscal year 2004.  The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company’s common stock, general market conditions, and other factors.  See Note 12 of Notes to Condensed Consolidated Financial Statements regarding the status of the Company’s common stock repurchases.

The Company is subject to pending legal proceedings.  For example, see Note 10 of Notes to Condensed Consolidated Financial Statements for information regarding pending patent litigation.  Although the results of such legal proceedings are unpredictable, the Company does not believe that any pending legal proceedings will have a material adverse impact on its liquidity or financial position.  If, however, the appellate court in the action brought by Linear Technology Corporation were to reverse the trial court’s dismissal of the patent litigation claims brought by Linear Technology Corporation against the Company, and were Linear Technology Corporation to prevail in its claims against the Company, the Company’s operating results could be materially adversely affected.

18



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

The following table provides a summary of the effect on liquidity and cash flows from the Company’s contractual obligations as of March 27, 2004:

(Amounts in thousands)
(Unaudited)

 

Fiscal Year:
2004

 

2005

 

2006

 

2007

 

2008

 

2009 and thereafter

 

Total

 

 

 


 


 


 


 


 


 


 

Contractual obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Noncancellable operating leases

 

 

$

788

 

 

 

$

2,734

 

 

 

$

1,866

 

 

 

$

1,167

 

 

 

$

888

 

 

 

$

455

 

 

 

$

7,898

 

 

On April 20, 2004, the Board of Directors declared a cash dividend of $0.08 per share on the Company’s common stock payable on May 28, 2004 to stockholders of record on May 7, 2004.  This will result in a cash payment of approximately $26.0 million.  See Note 13 of Notes to Condensed Consolidated Financial Statements.

FORWARD-LOOKING INFORMATION AND RISK FACTORS

This Report on Form 10-Q contains forward-looking statements that fall within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  All statements included or incorporated by reference in this Report, other than statements that are purely historical, are forward-looking statements, including statements regarding or implicating the Company’s expectations, intentions, plans, goals and hopes regarding the future.  Words such as “anticipates,” “expects,” “intends,” “plans,” believes,” “seeks,” “estimates,” variations of such words and similar expressions identify forward-looking statements.  Forward-looking statements in this Report, including this Management’s Discussion and Analysis section, involve risk and uncertainty.

Forward-looking statements include, without limitation, the Company’s intention to use the intellectual property acquired from a privately-held semiconductor company to develop new products, the Company’s intention to convert 6-inch to 8-inch wafer production at Dallas Semiconductor’s manufacturing facilities throughout fiscal 2004, the Company’s belief that the ultimate outcome of the LTC litigation and any pending legal proceedings will not have a material adverse effect on the financial position or liquidity of the Company, the Company’s belief that it is more likely than not that net deferred tax assets will be realized, the Company’s belief that it possesses sufficient liquidity and capital resources to fund operations for at least the next twelve months, the Company’s assessment of its customers’ current ordering activities and demand for products, the Company’s expectation that it will continue to purchase its common stock in fiscal year 2004, the Company’s continuous attempts to control and reduce expenses, the Company’s belief that the ATE market will continue to improve during calendar 2004 and that there could be a shortage of foundry capacity for high-frequency chip production, the Company’s plan to have its San Antonio facility in production in the fourth quarter of fiscal 2004, the Company’s belief that it has capacity in place or coming on line to meet forecasted demand for fiscal 2005, the Company’s belief that its new test facility in Thailand will be in operation in the first quarter of fiscal 2005 and it will continue to increase capacity at both its Thailand and Philippines test facilities.

Actual results could differ materially from those forecasted based upon, among other things, the Company’s inability to use the intellectual property from a privately-held company, delays in conversion from 6-inch to 8-inch wafer production at Dallas Semiconductor’s manufacturing facilities, the ability to supply high frequency wafer requirements if the Company is not able to convert from 6-in to 8-inch wafer production, unexpected outcomes in the Company’s pending litigation and legal proceedings, unexpected changes in earnings and taxable income that adversely affect the realizability of net deferred tax assets, the Company incorrectly assessing liquidity and capital resources, customer demand, customer willingness to commit to inventories and orders, and higher than expected order cancellation levels, the Company’s ability to repurchase its common stock at favorable prices, the Company’s effectiveness in controlling and reducing expenses, the Company incorrectly assessing that the ATE market will continue to improve during calendar 2004, the Company’s incorrectly assessing that there could be a shortage of foundry capacity for high-frequency chip production, and unexpected delays in preparing its San Antonio facility for production.

19



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

In addition, future business could be adversely affected by technical difficulties in bringing new products and processes to market in a timely manner; market developments that could adversely affect the growth of the mixed-signal analog market; the Company being unable to sustain its success in recruiting and retaining high-quality personnel; the Company’s success in the markets its products are introduced in; whether, and the extent to which, demand for the Company’s products increases and reflects real end-user demand; customer cancellations and delays of outstanding orders; 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; whether the Company is able to effectively and successfully manage manufacturing operations; whether the Company is able to successfully commercialize its new technologies; 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 fiscal year ended June 28, 2003.

All forward-looking statements are based on the Company’s current outlook, expectations, estimates, projections, beliefs and plans or objectives about its business and its industry.  These statements are not guarantees of future performance and are subject to risk and uncertainty.  Actual results could differ materially from those predicted or implied in any such forward-looking statements.

The Company disclaims any duty to and undertakes no obligation to update any forward-looking statement, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.  Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q.  Readers should carefully review future reports and documents that the Company files from time to time with the Securities and Exchange Commission, such as its quarterly reports on Form 10-Q (particularly Management’s Discussion and Analysis of Financial Condition and Results of Operations) and any current reports on Form 8-K.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s market risk has not changed significantly from the interest rate and foreign currency risks disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003.

ITEM 4: CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures.  The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 is properly and timely recorded, processed, summarized and reported.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in this report at the reasonable assurance level.

It should be noted that any control system, no matter how well designed and operated, can provide only reasonable assurance to the tested objectives.  The design of any control systems is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

There has been no change in the Company’s internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

20



PART II. OTHER INFORMATION

ITEM 1:

LEGAL PROCEEDINGS

On December 12, 2002, Qualcomm Inc. filed and on February 4, 2003, Qualcomm Inc. served the Company with a complaint for patent infringement claiming that certain of the Company’s products infringe one or all of three Qualcomm Inc. patents.  Qualcomm seeks a preliminary and permanent injunction as well as unspecified actual and treble damages including costs, expenses and attorneys fees. Qualcomm withdrew one of its patents from the claim in June 2003. Qualcomm recently amended the complaint to add three new transmission related patents. The Company is presently reviewing these claims and has filed a motion for summary judgment which was heard in April 2004.  While no assurance can be given in this regard, the Company does not believe that the ultimate outcome of the action will have a material adverse effect on the Company’s financial condition, liquidity, or results of operation.

On April 13, 2004, the Company announced that it has filed a claim against Qualcomm in federal district court in San Diego.  The Company’s claim states that Qualcomm has violated United States antitrust laws and has misused its patents in maintaining dominance in the market for Code-Division Multiple Access technology by improperly seeking to exclude competition.

ITEM 2:

CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER REPURCHASES OF EQUITY SECURITIES


(e)

Information Required by Item 703 of Regulation S-K

The following table summarizes the activity related to stock repurchases for the third quarter of fiscal year 2004.

 

 

Issuer Repurchases of Equity Securities

 

 

 


 

 

 

Total Number
of Shares
Purchased

 

Average
Price Paid
per Share

 

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

 

Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs

 

 

 


 


 


 


 

Dec. 28, 2003 – Jan. 27, 2004

 

 

2,363,342

 

 

 

$

53.10

 

 

 

2,363,342

 

 

 

1,672,015

 

 

Jan. 28, 2004 – Feb. 27, 2004

 

 

88,663

 

 

 

 

51.04

 

 

 

88,663

 

 

 

1,583,352

 

 

Feb. 28, 2004 – Mar. 27, 2004

 

 

5,500,000

 

 

 

 

46.37

 

 

 

5,500,000

 

 

 

6,083,352

 

 

 

 

 


 

 

 



 

 

 


 

 

 

 

 

 

Total

 

 

7,952,005

 

 

 

$

48.43

 

 

 

7,952,005

 

 

 

6,083,352

 

 

 

 

 


 

 

 



 

 

 


 

 

 

 

 

 


1.

Shares repurchased pursuant to share repurchase program authorized on May 13, 2002 to repurchase 10 million shares and extended on May 22, 2003, to expire at the end of fiscal year 2004.

 

 

2.

Shares repurchased pursuant to share repurchase program authorized on March 9, 2004 to repurchase 10 million shares has no expiration date.


ITEM 6:

EXHIBITS AND REPORTS ON FORM 8-K


(a)

Exhibits


31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(b)

Reports on Form 8-K

On February 5, 2004, Maxim Integrated Products, Inc. furnished a report on Form 8-K announcing the Company’s earnings for the second quarter ended December 27, 2003, as presented in a press release dated February 5, 2004.

ITEMS 3, 4 AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.

21



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.

May 6, 2004

MAXIM INTEGRATED PRODUCTS, INC.

 

 

(Date)

 

(Registrant)

 

 

 

 

 

 

 

 

 

 

 

 

/s/ Carl W. Jasper

 

 

 


 

 

 

 

CARL W. JASPER
Vice President,
Chief Financial Officer
(For the Registrant and as
Principal Financial Officer
and as Chief Accounting Officer)

 

22