<PAGE> 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 DECEMBER 27, 1997
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 JANUARY 30, 1997
$.001 PAR VALUE 130,943,860 SHARES
<PAGE> 2
MAXIM INTEGRATED PRODUCTS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets 3
As of June 30, 1997 and December 27, 1997
Consolidated Statements of Income 4
for the three and six months ended
December 31, 1996 and December 27, 1997
Consolidated Statements of Cash Flows 5
for the six months ended December 31,
1996 and December 27, 1997
Notes to Consolidated Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security
Holders 11
ITEM 6. Reports on Form 8-K 11
SIGNATURE 12
</TABLE>
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
MAXIM INTEGRATED PRODUCTS, INC.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
June 30, December 27,
1997 1997
(Amounts in thousands, except per share data) (Unaudited)
================================================================================
<S> <C> <C>
ASSETS
- --------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 18,562 $ 12,679
Short-term investments 205,391 214,118
- --------------------------------------------------------------------------------
Total cash, cash equivalents and short-term
investments 223,953 226,797
- --------------------------------------------------------------------------------
Accounts receivable, net 91,642 100,435
Inventories 36,833 38,534
Prepaid taxes and other current assets 24,579 27,344
- --------------------------------------------------------------------------------
Total current assets 377,007 393,110
- --------------------------------------------------------------------------------
Property, plant and equipment, at cost, less
accumulated depreciation 174,508 233,625
Other assets 4,871 6,542
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 556,386 $ 633,277
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,249 $ 31,133
Income taxes payable 10,916 12,365
Accrued salaries 16,408 17,113
Accrued expenses 16,312 19,114
Deferred income on shipments to distributors 16,336 14,965
- --------------------------------------------------------------------------------
Total current liabilities 85,221 94,690
- --------------------------------------------------------------------------------
Deferred income taxes 1,600 1,600
Other liabilities 4,000 4,000
Commitments
- --------------------------------------------------------------------------------
Stockholders' equity:
Common stock 128 131
Additional paid-in capital 92,773 78,341
Retained earnings 373,770 456,563
Translation adjustment (1,106) (2,048)
- --------------------------------------------------------------------------------
Total stockholders' equity 465,565 532,987
- --------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 556,386 $ 633,277
================================================================================
</TABLE>
See accompanying notes
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
MAXIM INTEGRATED PRODUCTS, INC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(Amounts in thousands, except per
share data) Three months ended Six months ended
- -----------------------------------------------------------------------------------------
December 31, December 27, December 31, December 27,
(Unaudited) 1996 1997 1996 1997
=========================================================================================
<S> <C> <C> <C> <C>
Net revenues $104,686 $135,000 $205,686 $260,000
Cost of goods sold 35,530 44,550 68,557 86,050
- -----------------------------------------------------------------------------------------
Gross margin 69,156 90,450 137,129 173,950
- -----------------------------------------------------------------------------------------
Operating expenses:
Research and development 11,471 17,013 23,367 32,493
Selling, general and
administrative 9,039 11,811 18,987 22,745
- -----------------------------------------------------------------------------------------
Total operating expenses 20,510 28,824 42,354 55,238
- -----------------------------------------------------------------------------------------
Operating income 48,646 61,626 94,775 118,712
Interest income, net 1,830 3,266 3,264 6,732
- -----------------------------------------------------------------------------------------
Income before provision for
income taxes 50,476 64,892 98,039 125,444
Provision for income taxes 17,162 22,063 33,333 42,651
- -----------------------------------------------------------------------------------------
Net income $ 33,314 $ 42,829 $ 64,706 $ 82,793
- -----------------------------------------------------------------------------------------
Basic income per share $ 0.27 $ 0.33 $ 0.52 $ 0.64
- -----------------------------------------------------------------------------------------
Shares used in the calculation of
basic income per share 124,551 128,733 123,351 128,648
- -----------------------------------------------------------------------------------------
Diluted income per share $ 0.23 $ 0.29 $ 0.45 $ 0.55
- -----------------------------------------------------------------------------------------
Shares used in the calculation of
diluted income per share 144,844 149,749 142,807 150,279
=========================================================================================
</TABLE>
See accompanying notes
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXIM INTEGRATED PRODUCTS, INC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents For the six months ended
December 31, December 27,
(Amounts in thousands)(unaudited) 1996 1997
=========================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income $ 64,706 $ 82,793
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and translation adjustment 9,874 7,050
Reduction of equipment value 0 4,842
Changes in assets and liabilities:
Accounts receivable (892) (8,793)
Inventories (6,999) (1,701)
Prepaid taxes and other current assets 410 (2,765)
Accounts payable (10,670) 5,884
Income taxes payable 14,255 35,880
Deferred income taxes 0 0
Deferred income on shipments to distributors 1,399 (1,371)
All other accrued liabilities 1,740 3,507
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 73,823 125,326
- -----------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (23,539) (71,951)
Deposits and other non-current assets (263) (1,671)
Purchases of held-to-maturity securities (24,313) 0
Purchases of available-for-sale securities (81,469) (95,329)
Proceeds from maturities of held-to-maturity securities 31,849 0
Proceeds from sales/maturities of available-for-sale
securities 0 86,602
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (97,735) (82,349)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 16,586 16,779
Repurchase of common stock (17,088) (65,639)
- -----------------------------------------------------------------------------------------
Net cash used in financing activities (502) (48,860)
- -----------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (24,414) (5,883)
Cash and cash equivalents:
Beginning of year 60,283 18,562
- -----------------------------------------------------------------------------------------
End of period $ 35,869 $ 12,679
=========================================================================================
</TABLE>
See accompanying notes
5
<PAGE> 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 and six months ended December
27, 1997 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 30, 1997.
Effective July 1, 1997, the Company adopted a 52-53 week fiscal year that will
end on the last Saturday in June, and in which each accounting quarter will end
on the last Saturday of the quarter.
NOTE 2: INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
June 30, December 27,
1997 1997
------- ------------
(unaudited)
<S> <C> <C>
Raw materials $ 5,058 $ 3,124
Work in process 22,349 22,685
Finished goods 9,426 12,725
------- -------
$36,833 $38,534
======= =======
</TABLE>
NOTE 3: INVESTMENT SECURITIES
All investment securities owned at December 27, 1997 are classified as
available-for-sale and are included in short-term investments. At December 27,
1997, all investment securities consist of U.S. Treasury and Federal Agency debt
securities maturing within one year. Securities identified as available-for-sale
are carried at fair market value. 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
December 27, 1997. The cost of securities sold is based on the specific
identification method. Interest earned on securities is included in investment
income.
6
<PAGE> 7
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4: INCOME PER SHARE
Beginning in Q298, the Company is required to report two separate income per
share numbers: basic and diluted in compliance with the Financial Accounting
Standard No. 128 (FAS 128) Earnings Per Share which was issued in February 1997.
Basic income per share is calculated based only on weighted average common
shares outstanding. Diluted income per share is calculated based on the weighted
average number of common and dilutive common equivalent shares outstanding
during each respective period. The number of common equivalent shares which
became issuable pursuant to the grant of stock options has been calculated using
the treasury stock method. Diluted income per share is the same number Maxim
previously reported as income per share.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------- -------------------------
December December December December
31, 1996 27, 1997 31, 1996 27, 1997
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Numerator for basic income per share and
diluted income per share:
Net income $ 33,314 $ 42,829 $ 64,706 $ 82,793
Denominator:
Denominator for basic income per share 124,551 128,733 123,351 128,648
-------- -------- -------- -----------
Effect of dilutive securities:
Stock options and warrants 20,293 21,016 19,456 21,631
-------- -------- -------- -----------
Denominator for diluted income per share 144,844 149,749 142,807 150,279
======== ======== ======== ===========
Basic income per share $ 0.27 $ 0.33 $ 0.52 $ 0.64
======== ======== ======== ===========
Diluted income per share $ 0.23 $ 0.29 $ 0.45 $ 0.55
======== ======== ======== ===========
</TABLE>
On December 5, 1997, the Company effected a two-for-one stock split in the form
of a stock dividend, thereby doubling the number of outstanding shares of common
stock. All share and per share amounts for the prior periods have been adjusted
to reflect the split.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net revenues increased by 29.0% and 26.4% for the three and six months ended
December 27, 1997 compared to the three and six months ended December 31, 1996.
The increase is attributable primarily to higher unit shipments resulting from
continued introduction of new proprietary products and increased market
acceptance of the Company's proprietary and second source products.
During the quarter, 55% of net revenues were derived from customers outside of
the United States. While the majority of these sales are denominated in US
dollars, the Company does place foreign currency forward contracts to mitigate
its risks on its firm sales commitments and assets denominated in foreign
currencies, and as a result, the net impact associated with changes in foreign
currency on the Company's operating results for the quarter was minimal.
Gross margin was 67.0% and 66.9% in the three and six months ended December 27,
1997, compared to 66.1% and 66.7% for the three and six months ended December
31, 1996. The increase in gross margin for the three and six months ended
December 27, 1997 was principally due to production efficiencies obtained
through economies of scale offset somewhat by the charge related to equipment
writedowns discussed below.
Research and development expenses were 12.6% and 12.5% of net revenues in the
three and six months ended December 27, 1997, compared to 11.0% and 11.4% in the
three and six months ended December 31, 1996. The increase was primarily
attributable to continued investments in product development efforts.
Selling, general and administrative expenses were 8.7% of net revenues for both
the three and six months ended December 27, 1997, compared to 8.6% and 9.2% for
the three and six months ended December 31, 1996. Selling, general and
administrative expenses increased in absolute dollars primarily as a result of
increased headcount associated with the Company's direct sales efforts.
During the quarter ended December 27, 1997, the Company recorded a charge of
$4.8 million to reduce the carrying value of certain pieces of capital
equipment. Of this amount, $2.8 million was charged to cost of goods sold, $1.0
million was charged to research and development expenses, and $1.0 million was
charged to selling, general and administrative expenses.
The Company's operating income decreased slightly to 45.6% and 45.7% of net
revenues in the three and six months ended December 27, 1997, compared to 46.5%
and 46.1% in the three and six months ended December 31, 1996.
Net interest income increased to $3.3 million in the three months and $6.7
million in the six months ended December 27, 1997 compared to $1.8 million and
$3.3 million for the three and six months ended December 31, 1996, as a result
of higher invested cash balances at higher average interest rates.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
The effective income tax rate for both the three and six months ended December
27, 1997 was 34%. This rate differs from the federal statutory rate primarily
due to state income taxes and the federal research and development tax credit.
OUTLOOK
During Q298, backlog shippable within the next 12 months increased to $208
million from the $182 million reported at the end of Q198. Eighty percent of the
ending Q298 backlog consists of orders that were requested for shipment in Q398
or earlier. Customer inventories of Maxim products remained at low levels
worldwide.
Net bookings in Q298 exceeded the record booking levels set in Q198. Although
net bookings in the Pacific Rim were down slightly from Q198, they remained up
from the levels recorded in Q3 and Q4 of fiscal 1997. Net bookings in Japan were
lower in Q298 than in the previous four quarters. Net bookings in Europe and the
United States were strong and exceeded Q198 levels. Net bookings across the
majority of the Company's product areas continued to be strong; however, the
Company has seen significant weakness in orders from automatic test equipment
customers, including several who primarily serve the Pacific Rim markets.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds for the first six months of fiscal year
1998 have been the net cash generated from operating activities of $125.3
million and the issuance of common stock of $16.8 million associated with the
Company's stock option programs. The principal uses of funds have been the
purchase of $72 million in property, plant and equipment, of which $42 million
was for a sub-micron wafer fabrication facility located in San Jose, California.
The uses of funds also included repurchase of $65.6 million of common stock, and
net purchases of $8.7 million in short-term investments.
During the six month period ended December 31, 1997, the Company's accounts
receivable, inventories and accounts payable increased as a result of higher
revenue levels recorded in Q298 and related purchases of capital equipment. Days
of sales outstanding related to accounts receivable and number of days in
inventory on hand declined from the Q497 levels.
The Company anticipates that it will spend up to $95 million for capital
equipment in fiscal 1998 and believes that it possesses sufficient liquidity and
capital resources to fund these purchases and its operations for the foreseeable
future. In addition, the Company intends to continue to repurchase its common
stock from time to time consistent with its policy and practice of using the
proceeds from the exercise of stock options and the resulting tax benefit to
repurchase its common stock.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
STOCK SPLIT
On December 5, 1997, the Company effected a two-for-one stock split in the form
of a stock dividend, thereby doubling the number of outstanding shares of common
stock. All share and per share amounts for the prior periods have been adjusted
to reflect the split.
YEAR 2000 ISSUE
The Company has recently commenced a Year 2000 date conversion project to assess
possible impact of Year 2000 Issues on its business. The Company is looking at
(a) its internal information and operating systems, (b) possible effects on the
Company of third parties' failure to fix their own Year 2000 Issues, and (c)
whether any material contingencies may exist related to products sold by the
Company. The Company expects that these assessments will enable it to develop
plans for any required changes, testing and implementation; to make estimates of
likely time involved, and costs of any required changes; and to determine
whether Year 2000 Issues are likely to have a material impact on future
financial results or financial condition.
FORWARD LOOKING INFORMATION
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 the Outlook section
includes forward looking statements regarding backlog, orders, and bookings that
might imply anticipated revenue and revenue growth, and the Liquidity and
Capital Resources section includes forward looking statements regarding future
capital expenditures and sufficiency of the Company's liquidity. Important
factors affecting whether the Company will achieve future revenue and revenue
growth include whether demand for the Company's products continues to increase
and reflects real end user demand; whether customer cancellations and delays of
outstanding orders increase (note that the Company's backlog of orders is
generally not based on legally binding customer contracts); and whether the
Company is able to manufacture in a correct mix to respond to orders on hand and
new orders received in the future. 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.
Other important factors that could cause actual results to differ materially
from those predicted include overall economic conditions, such as the currency
of and other economic issues affecting Asian countries, demand for electronic
products and semiconductors generally; demand for the end-user products for
which the Company's semiconductors are suited; timely availability of raw
materials, equipment, supplies and services; unanticipated manufacturing
problems; technological and product development risks; competitors' actions; and
other risk factors described in the Company's filings with the Securities and
Exchange Commission and in particular its recent report on Form 10K.
10
<PAGE> 11
PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an Annual Meeting of Stockholders on November 13, 1997.
The Stockholders elected the Board's nominees as directors by the votes
indicated:
<TABLE>
<CAPTION>
Nominee Votes in Favor Votes Withheld
- ------- -------------- --------------
<S> <C> <C>
James R. Bergman 58,722,368 123,817
John F. Gifford 58,722,448 123,817
Robert F. Graham 58,710,423 123,817
B. Kipling Hagopian 58,720,996 123,817
A.R. Frank Wazzan 58,722,454 123,817
</TABLE>
The increase of 3,750,000 shares of common stock under the Company's 1996 Stock
Incentive Plan was ratified and approved with 35,209,145 votes in favor,
19,697,287 against, 47,117 abstentions and 3,890,006 non-votes.
The increase in number of authorized shares of common stock to 240,000,000
shares was approved with 57,038,270 votes in favor, 1,676,262 against, 46,806
abstentions, and 82,217 non-votes.
The Bonus Plan for the Company's Executive Officers was approved with 57,413,736
votes in favor, 801,028 against, 179,620 abstentions and 449,171 non votes.
The selection of Ernst & Young LLP as the Company's independent auditors for
fiscal 1998 was ratified with 58,777,241 votes in favor, 14,816 votes against,
51,498 abstentions and no non-votes.
ITEM 6: REPORTS ON FORM 8-K
(a) No Reports on Form 8-K were filed during the quarter ended December
27, 1997
ITEMS 1, 2, 3, AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.
11
<PAGE> 12
SIGNATURE
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.
FEBRUARY 4, 1998 MAXIM INTEGRATED PRODUCTS,INC.
(Date) (Registrant)
/s/ Michael J. Byrd
------------------------------------------
MICHAEL J. BYRD
Vice President and Chief Financial Officer
(Authorized on behalf of the Registrant
and as Principal Financial Officer)
12
<PAGE> 13
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27.1 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-27-1997
<CASH> 226,797
<SECURITIES> 0
<RECEIVABLES> 102,340
<ALLOWANCES> (1,905)
<INVENTORY> 38,534
<CURRENT-ASSETS> 393,110
<PP&E> 308,546
<DEPRECIATION> (74,921)
<TOTAL-ASSETS> 633,277
<CURRENT-LIABILITIES> 94,690
<BONDS> 0
0
0
<COMMON> 131
<OTHER-SE> 534,904
<TOTAL-LIABILITY-AND-EQUITY> 633,277
<SALES> 260,000
<TOTAL-REVENUES> 260,000
<CGS> 86,050
<TOTAL-COSTS> 86,050
<OTHER-EXPENSES> 55,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 125,444
<INCOME-TAX> 42,651
<INCOME-CONTINUING> 82,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,793
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.55
</TABLE>
