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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
COMMISSION FILE NUMBER 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
Incorporation or organization) Identification 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
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any Amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of August 3, 1999 was approximately $5,777,000,000*.
Number of shares outstanding of the registrant's Common Stock, $.001
par value, as of August 3, 1999: 136,451,206.
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DOCUMENTS INCORPORATED BY REFERENCE:
Part II - Annual Report to Stockholders for the fiscal year ended June 26, 1999
Part III - Proxy Statement for the 1999 Annual Meeting of Stockholders
* Excludes the Common Stock held by executive officers, directors and
stockholders whose ownership exceeds 5% of the Common Stock outstanding at
August 3, 1999. Exclusion of such shares should not be construed to indicate
that each of such persons possesses the power, direct or indirect, to control
the Registrant, or that each such person is controlled by or under common
control with the Registrant.
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PART I
This Annual Report on Form 10-K and the documents incorporated herein
by reference contain forward-looking statements that have been made pursuant to
and in reliance on the provisions of the Private Securities Litigation Reform
Act of 1995.
Forward-looking statements include (a) projections relevant to future
revenue, income, earnings, capital expenditures, capital structure or other
financial items, (b) statements of plans or objectives of the Company's
management for future operations, including plans or objectives relating to the
Company's products or services, (c) statements of future economic performance,
and (d) statements of any assumptions underlying or relating to any of the
foregoing. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," and variations of such words and similar
expressions relating to the future operations are intended to identify
forward-looking statements.
All forward-looking statements are based on the Company's current
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 may differ
materially from those predicted or implied in any such forward-looking
statements.
Risks and uncertainties that could cause actual results to differ
materially include those set forth throughout this Form 10-K and in the
documents incorporated herein by reference. Particular attention should be paid
to the section entitled "Risk Factors" at pages 12 through 17 below and to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's Annual Report to Stockholders, which
is incorporated herein by reference.
The Company undertakes no obligation to update any forward-looking
statement, whether as a result of new information relating to existing
conditions, future events or otherwise. However, 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.
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ITEM 1. BUSINESS
Maxim Integrated Products, Inc., ("Maxim" or the "Company") designs,
develops, manufactures, and markets a broad range of linear and mixed-signal
integrated circuits, commonly referred to as analog circuits. The Company also
provides a range of high-frequency design processes and capabilities that can be
used in custom design. The analog market is highly fragmented and characterized
by many diverse applications, a great number of product variations, and
relatively long product life cycles. Maxim's objective is to develop and market
both proprietary and industry-standard analog integrated circuits that meet the
increasingly stringent quality standards demanded by customers. Maxim operates
two wafer fabrication facilities (See "Manufacturing" below). In addition, the
Company subcontracts the fabrication of a small portion of its silicon wafers to
outside silicon foundries. Based on product announcements by its competitors,
Maxim believes that in the past 16 years it has developed more products for the
analog market, including proprietary and second-source products, than any of its
competitors over the same period.
THE ANALOG INTEGRATED CIRCUIT MARKET
All electronic signals fall into one of two categories, linear or
digital. Linear (or analog) signals represent real world phenomena, such as
temperature, pressure, sound, or speed, and are continuously variable over a
wide range of values. Digital signals represent the "ones" and "zeros" of binary
arithmetic and are either on or off.
Three general classes of semiconductor products arise from this
partitioning of signals into linear or digital. There are those, such as
memories and microprocessors, that operate only in the digital domain. There are
linear devices such as amplifiers, references, analog multiplexers, and switches
that operate primarily in the analog domain. Finally, there are mixed-signal
devices that combine linear and digital functions on the same integrated circuit
and interface between the analog and digital worlds. Maxim targets both the
linear and mixed-signal markets, often collectively referred to as the analog
market.
The Company believes that, compared to the digital integrated circuit
market, the analog market has generally been characterized by a wider range of
standard products used in smaller quantities by a large number of customers;
longer product life cycles; less competition from foreign manufacturers; lower
capital requirements as a result of generally using more mature manufacturing
technologies; and relatively more stable growth rates that are less influenced
by economic cycles. The Company believes that the widespread application of
low-cost microprocessor-based systems has affected the market for analog
integrated circuits by increasing the need for interfaces with the analog world.
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The analog market is a highly fragmented group of niche markets,
serving numerous and widely differing applications for instrumentation,
industrial control, data processing, communications, military, video, and
selected medical equipment. For each application, different users may have
unique requirements for circuits with specific resolution, accuracy, linearity,
speed, power, and signal amplitude capability, which results in a high degree of
market complexity. Maxim's products can be used in a variety of applications,
but serve only certain segments of the total analog market.
PRODUCTS AND APPLICATIONS
The Company initially entered the analog market with a relatively
narrow portfolio of products as second sources for industry-standard parts for
which there was an existing customer base. After establishing a position in the
market, the Company began to introduce technically innovative proprietary
products. Although second sourcing continues to be a component of the Company's
product development program, current research and development emphasize
development of proprietary circuits. The Company believes it addresses the
requirements of the market by providing competitively priced products that add
value to electronic equipment with superior quality and reliability.
As of the Company's product introduction year ending July 24, 1999,
Maxim has introduced over 1,780 products. These products are available with
numerous packaging alternatives, including packages for surface mount
technology.
The following table illustrates the major industries served by the
Company and typical applications for which the Company's products can be used:
<TABLE>
<CAPTION>
Industry Typical Application
-------- -------------------
<S> <C>
Communications ..................... Broadband Networks
Cable System
Central Office Switches
Direct Broadcast TV
Fiber Optics
Pagers
PBX
Phones
* Cellular/PCS
* Cordless
Satellite Communications
Transmission Systems
Video Communications
Wireless Communications
</TABLE>
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<TABLE>
<S> <C>
Industrial Control ................. Control of
* Flow
* Position
* Pressure
* Temperature
* Velocity
Robotics
Instrumentation .................... Automatic Test Equipment
Analyzers
Data Recorders
Measuring Instruments
* Electrical
* Light
* Pressure
* Sound
* Speed
* Temperature
Testers
Data Processing .................... Bar-code Readers
Disk Drives
Hand-Held Computers/PDA
Mainframes
Personal Computers
Printers
Point of Sale Terminals
Tape Drives
Servers
Workstations
</TABLE>
The Company also sells products for military and selected medical
equipment.
While Maxim's proprietary products have received substantial market
acceptance, Maxim has experienced additional competition as Maxim's competitors
have developed second sources for Maxim's successful innovative proprietary
products. Typically in the semiconductor industry, when a proprietary product
becomes second sourced, the credibility of the original design is enhanced, and
there is an opportunity to increase total revenues as the potential customers'
reluctance to design in a sole-source product is removed, but gross margins may
be adversely affected due to increased price competition.
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PRODUCT QUALITY
Maxim places strong emphasis on product quality from initial design
through final quality assurance. In the product design phase, Maxim applies a
set of circuit design rules that it believes results in enhanced product
reliability. Upon receipt from Maxim's own fabrication facilities or from
silicon foundries, a majority of processed wafers are tested for conformance
with specific parameters. Products are individually tested using specialized
test equipment and complex programs to ensure that they meet data sheet
performance levels. In addition, long-term operating life and mechanical stress
tests are routinely performed on samples to assure continued consistency.
MANUFACTURING
Maxim uses its own wafer fabrication facilities and, to a small extent,
silicon foundries to produce wafers. The majority of processed wafers are
subjected to parametric and functional testing at the Company's facilities. As
is customary in the industry, the Company ships most of its processed wafers to
foreign assembly subcontractors, located in the Philippines, Malaysia, Thailand
and South Korea, where wafers are separated into individual integrated circuits
and assembled into a variety of packages. The Company assembles some integrated
circuits at its 141,000 square foot manufacturing and test facility located in
the Philippines.
The broad range of products demanded by the analog integrated circuit
market requires multiple manufacturing process technologies. Many different
process technologies are currently used for wafer fabrication of the Company's
products. Historically, wafer fabrication of analog integrated circuits has not
required the state-of-the-art processing equipment necessary for the fabrication
of advanced digital integrated circuits, although newer processes do utilize and
require some of these facilities and equipment.
In addition, hybrid products are manufactured using a complex multichip
technology featuring thin-film, thick-film, and laser-trimmed resistors.
For the majority of these technologies in multiple fabrication lines,
the Company relies on its fabrication facilities in San Jose, California and
Beaverton, Oregon and, to a small extent, manufacturing subcontractors. A third
fabrication facility located in Sunnyvale, California was phased out during
fiscal 1999. The Company currently uses four subcontract silicon foundries that
represent less than 5% of wafer production. None of the subcontractors currently
used by Maxim is affiliated with Maxim.
Most of the wafers produced in fiscal 1999 were manufactured at one of
the Company's three wafer manufacturing facilities. In December 1989, the
Company acquired a wafer fabrication facility in Sunnyvale, California capable
of producing 3 micron CMOS and bipolar products. Maxim leased the building
housing the facility and purchased all manufacturing assets required for its
manufacturing operations. In May 1994, the Company acquired a mixed-class wafer
fabrication facility in Beaverton, Oregon capable of producing CMOS and bipolar
products. In November 1997, the company acquired a sub-micron wafer fabrication
facility in San Jose, California. The Company transferred production from the
Sunnyvale facility to the Beaverton facility and suspended wafer production at
this facility in December 1998. (See "Item 2. Properties" below).
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As is typical in the semiconductor industry, the Company has
experienced disruptions in the supply of processed wafers due to quality
problems or failure to achieve satisfactory electrical yields. If the foundries
used by the Company were unwilling or the Company's own internal wafer
fabrication facilities were unable to produce adequate supplies of processed
wafers conforming to the Company's quality standards, the Company's business and
relationships with its customers could be adversely affected.
Due to the relatively lengthy manufacturing cycle, the Company builds
some of its inventory in advance of receiving orders from its customers. As a
consequence of inaccuracies inherent in forecasting, inventory imbalances
periodically occur that result in surplus amounts of some Company products and
shortages of others. Such shortages can adversely affect customer relations and
surpluses can result in larger-than-desired inventory levels which can adversely
affect the Company's financial position. Excess inventory issues can also arise
when customers cancel orders. Finished products and work in process for those
orders may be unsaleable. See "Risk Factors - Factors Affecting Future Operating
Results."
SALES AND MARKETING
In the United States and Canada, the Company sells its products through
a direct sales and applications organization in eight regional sales offices and
through its own and other unaffiliated distribution channels. As is customary in
the industry, domestic distributors are entitled to certain price rebates and
product return privileges.
International sales are conducted by 13 Maxim sales offices, 35 sales
representative organizations and distributors. The Company sells in both United
States dollars and various foreign currencies. Over half of the Company's
international sales are billed and payable in United States dollars and are
therefore not directly subject to currency exchange fluctuations. A portion of
the Company's sales from its United Kingdom, French, and German affiliates is
denominated in the local currencies. The majority of the sales to customers and
distributors located in Japan are denominated in yen. The Company places foreign
currency forward contracts to protect the United States dollar value of its firm
sales commitments and net monetary assets. Changes in the relative value of the
dollar, however, may create pricing pressures for Maxim's products. In addition,
various forms of protectionist trade legislation have been proposed in the
United States and certain foreign countries. A change in current tariff
structures or other trade policies could adversely affect the Company's foreign
marketing strategies. In general, payment terms for foreign customers,
distributors and others, are longer than for U.S. customers, and certain major
foreign customers generally pay for product well beyond the scheduled payment
dates.
As is customary in the semiconductor industry, the Company's domestic
distributors may market products competitive with Maxim's. The Company's
independent sales representatives and international distributors may not
represent competitive product lines, although they are permitted to sell
non-competing products for other companies.
International sales accounted for approximately 59%, 56%, and 57% of
net revenues in fiscal 1999, 1998 and 1997, respectively. (See Note 11 "Segment
Information" of the Notes to
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Consolidated Financial Statements as set forth in the Company's Annual Report to
Stockholders for the fiscal year ended June 26, 1999.)
The Company also sells product directly to original equipment
manufacturers. In particular, the Company has a long-term supply arrangement
with Tektronix, Inc. for the supply of products manufactured by Tektronix prior
to its sale in May 1994 of its integrated circuits operation ("ICO") to the
Company and for new designs created by Tektronix.
As of June 26, 1999, the Company's backlog was approximately $176
million as compared to approximately $181 million at June 27, 1998. The Company
includes in its backlog customer-released orders with firm schedules for
shipment within the next 12 months. As is customary in the semiconductor
industry, these orders may be canceled in most cases without penalty to the
customers. In addition, the Company's backlog includes orders from domestic
distributors as to which revenues are not recognized until the products are sold
by the distributors. Such products when sold may result in revenue lower than
the stated backlog amounts as a result of discounts that are authorized by the
Company at the time of sale by the distributors. Accordingly, the Company
believes that its backlog at any time should not be used as a measure of future
revenues.
The Company warrants its products to its customers generally for 12
months from shipment, but in certain cases for longer periods. Warranty expense
to date has been minimal.
RESEARCH AND DEVELOPMENT
The Company believes that research and development is critical to its
future success. Objectives for the research and development function include
definition and design of innovative proprietary products that meet customer
needs, development of second-source products, design of parts for high yield and
reliability, and development of manufacturing processes and advanced packaging
to support an expanding product line.
Research and development expenses were approximately $88.2 million,
$72.2 million, and $51.3 million in fiscal 1999, 1998, and 1997, respectively.
COMPETITION
The analog integrated circuit industry is intensely competitive, and
virtually all major semiconductor companies presently compete with, or
conceivably could compete with, some segment of the Company's business. Maxim's
primary competitors are Analog Devices, Inc. and Linear Technology Corporation.
Other competitors with respect to some of the Company's products include Applied
Micro Circuits Corporation, Burr-Brown Corporation, Conexant Systems Inc.,
Harris Corporation, Lucent Technologies, Micrel Inc., Mitsubishi Corporation,
Mitsui & Co. Ltd., Motorola Inc., National Semiconductor Corporation, Philips
Electronics N.V., Ricoh Company, Ltd., Seiko Corporation, SGS-Thomson
Microelectronics N.V., Siliconix Inc., Sipex Corporation, TelCom Semiconductor
Inc., Texas Instruments Inc., Vitesse Semiconductor Corporation and others,
including start-up companies. While foreign manufacturers have not played a
major role in markets from which the Company currently derives a majority of its
revenue, they possess the necessary technical and financial capabilities to
participate in these markets, and there can be no assurance that significant
foreign competition will not develop in the future. Many of Maxim's competitors
have
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substantially greater financial, manufacturing, and marketing resources than the
Company, and some of Maxim's competitors have greater technical resources. The
Company believes it competes favorably with these corporations primarily on the
basis of technical innovation, product definition, quality, and service. There
can be no assurance that competitive factors will not adversely affect the
Company's future business.
PATENTS, LICENSES, AND OTHER INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily upon know-how, rather than on patents, to
develop and maintain its competitive position. There can be no assurance that
others will not develop or patent similar technology or reverse engineer the
Company's products or that the confidentiality agreements with employees,
consultants, silicon foundries and other suppliers and vendors will be adequate
to protect the Company's interests.
Maxim currently owns 85 U.S. patents and 21 foreign patents with
expiration dates ranging from 2001 to 2017. In addition, the Company has applied
for 71 U.S. patents, a large number of which have corresponding patent
applications in multiple foreign jurisdictions. It is the Company's policy to
seek patent protection for significant inventions that may be patented, though
the Company may elect, in appropriate cases, not to seek patent protection even
for significant inventions if other protection, such as maintaining the
invention as a trade secret, is considered more advantageous. In addition, the
Company has registered certain of its mask sets under the Semiconductor Chip
Protection Act of 1984.
There can be no assurance that any patent will issue on pending
applications or that any patent issued will provide substantive protection for
the technology or product covered by it. The Company believes that patent and
mask work protection is of less significance in its business than experience,
innovation, and management skill.
Maxim has registered several of its trademarks with the U.S. Patent and
Trademark Office and in foreign jurisdictions.
Maxim is a party to a number of licenses, including patent licenses and
other licenses obtained from Tektronix in connection with its acquisition of
Tektronix's ICO in May 1994.
Due to the many technological developments and the technical complexity
of the semiconductor industry, it is possible that certain of the Company's
designs or processes may involve infringement of patents or other intellectual
property rights held by others. From time to time, the Company has received, and
in the future may receive, notice of claims of infringement by its products on
intellectual property rights of third parties. (See "Risk Factors-Intellectual
Property Litigation and Claims," and "Legal Proceedings") If any such
infringements were to exist, the Company might be obligated to seek a license
from the holder of the rights and might have liability for past infringement. In
the past, it has been common semiconductor industry practice for patent holders
to offer licenses on reasonable terms and rates. Although in some situations,
typically where the patent directly relates to a specific product or family of
products, patent holders have refused to grant licenses, though the practice of
offering licenses appears to be generally continuing. However, no assurance can
be given that the Company will be able to obtain licenses
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as needed in all cases or that the terms of any license that may be offered will
be acceptable to Maxim. In those circumstances where an acceptable license is
not available, the Company would need either to change the process or product so
that it no longer infringes or else stop manufacturing the product or products
involved in the infringement.
ENVIRONMENTAL REGULATION
Federal, state, and local regulations impose a variety of environmental
controls on the storage, handling, discharge and disposal of certain chemicals
and gases used in semiconductor manufacturing. The Company's facilities have
been designed to comply with these regulations, and it believes that its
activities are conducted in material compliance with such regulations. There can
be no assurance, however, that interpretation and enforcement of current or
future environmental regulations will not impose costly requirements upon the
Company. Any failure of the Company to control adequately the storage, use, and
disposal of regulated substances could result in future liabilities.
Increasing public attention has been focused on the environmental
impact of electronic manufacturing operations. While the Company to date has not
experienced any materially adverse effects on its business from environmental
regulations, there can be no assurance that changes in such regulations will not
impose costly equipment or other requirements.
EMPLOYEES
The supply of skilled analog designers and other engineers required for
Maxim's business is limited, and competition for such personnel is intense. The
Company's growth also requires the hiring or training of additional middle-level
managers. If the Company is unable to hire, retain, and motivate qualified
technical and management personnel, its operations and financial results will be
adversely affected.
None of the Company's employees is subject to a collective bargaining
agreement. The Company believes that its relations with its employees are good.
As of June 26, 1999, Maxim had 3,045 employees.
MAXTEK COMPONENTS CORPORATION
In connection with Maxim's 1994 purchase of the integrated circuits
business of Tektronix, Inc., Maxim and Tektronix jointly formed a new company,
which is equally owned, to operate and grow Tektronix's high frequency hybrid
circuit business. This company, named Maxtek Components Corporation, is an
independent company devoted to design and production of multichip modules and
hybrids. Maxtek's principal customer, Tektronix, accounts for approximately 40%
of its revenue. Under Maxtek's supply agreements, all of its costs related to
the Tektronix supply agreement are reimbursed on a cost plus profit basis.
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RISK FACTORS
An investment in the securities of Maxim involves certain risks. In
evaluating the Company and its business, prospective investors should give
careful consideration to the factors listed below, in addition to the
information provided elsewhere in this Annual Report on Form 10-K, in the
documents incorporated herein by reference and in other documents filed with the
Securities and Exchange Commission.
The statements contained in this Annual Report on Form 10-K, including
those contained in documents incorporated herein by reference, that are not
purely historical are forward-looking statements, including statements regarding
the Company's beliefs, expectations, plans, or intentions regarding the future.
All forward-looking statements included in this document are made as of the date
hereof, based on information available to the Company as of the date hereof, and
the Company assumes no obligation to update any forward-looking statement. It is
important to note that the Company's actual results could differ materially from
those in such forward-looking statements. Forward-looking statements in this
Annual Report on Form 10-K involve risk and uncertainty, including risk factors
discussed below.
Factors Affecting Future Operating Results
The Company's future operating results are difficult to predict and may
be affected by a number of factors.
Important factors affecting the Company's ability to achieve future
revenue growth include whether, and the extent to which, demand for the
Company's products increases and reflects real end user demand, whether customer
cancellations and delays of outstanding orders increase, and whether the Company
is able to manufacture in the correct mix to respond to orders on hand and new
orders received in the future.
The semiconductor market has historically been cyclical and subject to
significant economic downturns at various times. After a period of decreasing
demand that extended into fiscal 1999, more recently the semiconductor industry,
including the portions in which the Company participates, has been experiencing
increased demand. However, economic conditions in Europe and Asia continue to
present concerns. It is uncertain what level of demand will prevail in the
future for the industry and for the markets targeted by the Company.
Other key factors affecting the Company's revenues and operating
results that could cause actual results to differ materially from past or
predicted results include the timing of new product announcements or
introductions by the Company and its competitors, competitive pricing pressures,
fluctuations in manufacturing yields and manufacturing efficiency, adequate
availability of wafers and manufacturing capacity, changes in product mix, and
economic conditions in the United States and international markets. As a result
of these and other factors, there can be no assurance that the Company will not
experience material fluctuations in its future operating results on a quarterly
or annual basis.
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As noted above, the Company's ability to realize its quarterly revenue
goals and projections is affected to a significant extent by its ability to
match inventory and current production mix with the product mix required to
fulfill orders on hand and orders received within a quarter for delivery in that
quarter (referred to as "turns business"). This issue, which has been one of the
distinguishing characteristics of the analog integrated circuit industry,
results from the very large number of individual parts offered for sale, the
very large number of customers combined with limitations on Maxim's and its
customers' ability to forecast orders accurately and relatively lengthy
manufacturing cycles. Because of this extreme complexity in the Company's
business, no assurance can be given that the Company will achieve a match of
inventory on hand, production units, and shippable orders sufficient to realize
quarterly revenue goals.
In addition, in certain markets where end-user demand may be
particularly volatile and difficult to predict, for example notebook computers
and telephones, some Maxim customers place orders that require Maxim to
manufacture product and have it available for shipment even though the customer
is unwilling to make a binding commitment to purchase all, or even any, of the
product so manufactured. At any given time this situation could affect a
material portion of the Company's backlog. As a result, in any fiscal period,
the Company is subject to the risk of cancellation of orders leading to a sharp
fall-off of sales and backlog. Further, those orders may be for products that
meet the customer's unique requirements so that those cancelled orders would, in
addition, result in an inventory of unsaleable products and consequent inventory
write-offs. Because of lengthy manufacturing cycles for certain of the products
subject to these uncertainties, the amount of unsaleable product could be
substantial.
Dependence on New Products and Process Technologies
The Company's future success will depend very significantly on its
continued ability to introduce new products and to develop new process
technologies. Semiconductor design and process technology are subject to rapid
technological change, requiring a high level of expenditures for research and
development. Design and process development for the analog portion of the market
in which the Company participates are particularly challenging. The success of
new product introductions is dependent on several factors, including proper new
product selection, timely product introduction, achievement of acceptable
production yields, and market acceptance. From time to time, Maxim has not fully
achieved its new product introduction and process development goals. There can
be no assurance that the Company will successfully develop or implement new
process technologies or that new products will be introduced on a timely basis
or receive substantial market acceptance.
In addition, the Company's growth is dependent on its continued ability
to penetrate new markets such as the high-frequency communications segment of
the electronics market where the Company has limited experience and competition
is intense. There can be no assurance that the markets being served by the
Company will continue to grow; that the Company's existing and new products will
meet the requirements of such markets; that the Company's products will achieve
customer acceptance in such markets; that competitors will not force prices to
an unacceptably low level or take market share from the Company; or that the
Company can achieve or maintain profit in these markets.
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Manufacturing Risks
The fabrication of integrated circuits is a highly complex and precise
process. Minute impurities, contaminants in the manufacturing environment,
difficulties in the fabrication process, defects in the masks used in the wafer
manufacturing process, manufacturing equipment failures, wafer breakage, or
other factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be nonfunctional. The Company has from time to
time in the past experienced lower-than-expected production yields, which have
delayed product shipments and adversely affected gross margins. There can be no
assurance that the Company will not experience a decrease in manufacturing
yields or that the Company will be able to maintain acceptable manufacturing
yields in the future.
The number of shippable die per wafer for a given product is critical
to the Company's results of operations. To the extent the Company does not
achieve acceptable manufacturing yields or experiences delays in its wafer
fabrication, assembly or final test operations, its results of operations could
be adversely affected. During periods of decreased demand, fixed wafer
fabrication costs could have an adverse effect on the Company's financial
condition, gross margins, and results of operations.
The Company manufactures over 95% of its wafer production requirements
internally. Given the nature of the Company's products, it would be difficult to
arrange for independent manufacturing facilities to supply such products. Any
prolonged inability to utilize one of the Company's manufacturing facilities as
a result of fire, natural disaster, or otherwise, would have a material adverse
effect on the Company's results of operations.
Competition
The Company experiences intense competition from a number of companies,
many of which have significantly greater financial, manufacturing, and marketing
resources than the Company and some of which have greater technical resources
than the Company and have intellectual property rights to which the Company is
not privy. To the extent that the Company's proprietary products become more
successful, competitors will offer second sources for some of those products,
possibly causing some erosion of profit margins. Although foreign manufacturers
have not played a major role in the markets from which the Company currently
derives the bulk of its revenue, they possess the necessary technical and
financial capabilities to participate in these markets, and there can be no
assurance that significant foreign competition will not develop in the future.
See "Business-Competition."
Dependence on Independent Distributors and Sales Representatives
A significant portion of the Company's sales is realized through
independent electronics distributors and independent sales representatives that
are not under the control of the Company. These independent sales organizations
generally represent product lines offered by several companies and thus could
reduce their sales efforts applied to the Company's products or terminate their
representation of the Company. Payment terms for foreign distributors are
substantially longer, either according to contract or by practice, than for U.S.
customers. The inability to
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collect open accounts could adversely affect the Company's results of operation.
The Company has recently initiated its own distribution activities. It is
uncertain how the Company's independent distributors will react to this change.
Termination of a significant distributor, whether at the Company's or the
distributor's initiative, could be significantly disruptive to the Company's
current business. If the Company were unable to find suitable replacements,
terminations by significant distributors or representatives could have a
material adverse impact on the Company. See "Business-Sales and Marketing."
Dependence on Independent Foundries, Subcontractors, and Philippines Test
Facility
Although the Company has an internal capability to fabricate most of
its wafers, Maxim remains dependent on outside silicon foundries for a small but
important portion of its wafer fabrication. None of the foundries currently used
by Maxim is affiliated with Maxim, and all are relatively small operations. As
is typical in the semiconductor industry, from time to time the Company has
experienced disruptions in the supply of processed wafers from these foundries
due to quality problems, failure to achieve satisfactory electrical yields, and
capacity limitations. Procurement from foundries is done by purchase order and
long-term contracts. If these foundries are unable or unwilling to produce
adequate supplies of processed wafers conforming to the Company's quality
standards, the Company's business and relationships with its customers for the
limited quantities of products produced by these foundries would be adversely
affected. Finding alternate sources of supply or initiating internal wafer
processing for these products would be difficult and time consuming. There can
be no assurance the Company would be successful in manufacturing such wafers
internally.
Maxim relies on subcontractors located in the Philippines, Malaysia,
Thailand, and South Korea to separate wafers into individual integrated circuits
and package them. The Company performs final testing for almost all of its
products at a facility owned by the Company in the Philippines. In the past,
South Korea and the Philippines have experienced relatively severe political
disorders, labor disruptions, and natural disasters. Although the Company has
been affected by these problems, none has materially affected the Company's
revenues or costs to date. However, similar problems in the future or more
aggravated consequences of current problems, could affect deliveries to Maxim of
assembled, tested product, possibly resulting in substantial delayed or lost
sales and/or increased expense. See "Business-Manufacturing."
Availability of Materials, Supplies, and Subcontract Services
Over the past few years, the semiconductor industry has experienced a
very large expansion of fabrication capacity and production worldwide. As a
result of increasing demands from semiconductor manufacturers, availability of
certain basic materials and supplies, such as polysilicon, silicon wafers, lead
frames and molding compounds, and of subcontract services, like epitaxial growth
and ion implantation and assembly of integrated circuits into packages, have
from time to time, over the past few years, been in short supply and may be
expected to come into short supply again if overall industry demand increases.
Maxim devotes continuous efforts to maintain availability of all required
materials, supplies, and subcontract services. However, Maxim does not have
long-term agreements providing for all of these materials, supplies, and
services, and shortages could occur as a result of capacity limitations or
production constraints on suppliers that
15
<PAGE> 16
could have materially adverse effects on Maxim's ability to achieve its planned
production.
In addition, suppliers of semiconductor manufacturing equipment are
sometimes unable to deliver test and/or fabrication equipment to a schedule that
meets the Company's requirements. Delays in delivery of equipment needed for
planned growth could adversely affect the Company's ability to achieve its
manufacturing and revenue plan in the future.
Protection of Proprietary Information
The Company relies primarily upon know-how, rather than on patents, to
develop and maintain its competitive position. There can be no assurance that
others will not develop or patent similar technology or reverse engineer the
Company's products or that the confidentiality agreements upon which the Company
relies will be adequate to protect its interests. Other companies have obtained
patents covering a variety of semiconductor designs and processes, and the
Company might be required to obtain licenses under some of these patents or be
precluded from making and selling the infringing products. There can be no
assurance that Maxim would be able to obtain licenses, if required, upon
commercially reasonable terms. See "Business-Patents, Licenses, and Other
Intellectual Property Rights," and "Risk Factors-Intellectual Property
Litigation and Claims."
Intellectual Property Litigation and Claims
The Company is subject to various legal proceedings (See Item 3, Legal
Proceedings) and other similar claims that involve possible infringement of
patent or other intellectual property rights of third parties. In addition, from
time to time, the Company receives notices that its products or processes may be
infringing the intellectual property rights of others. See "Business-Patents,
Licenses, and Other Intellectual Property Rights."
If one or more of the Company's products or processes were determined
to infringe any such intellectual property rights, the Company might be enjoined
by a court from further manufacture and/or sale of the affected products. The
Company would then need to obtain a license from the holders of the rights
and/or to reengineer the Company's products or processes in such a way as to
avoid the alleged infringement. In any of those cases, there can be no assurance
that the Company would be able to obtain any necessary license on commercially
reasonable terms or that the Company would be able to reengineer its products or
processes to avoid infringement. An adverse result in litigation arising from
such a claim could involve an injunction to prevent the sales of a material
portion of the Company's products, a reduction or the elimination of the value
of related inventories, and the assessment of a substantial monetary award for
damages related to past sales.
Foreign Trade and Currency Exchange
Many of the materials and manufacturing steps in the Company's products
are supplied by foreign companies or by the Company's operations abroad, such as
its test operations in the Philippines. Approximately 59% of the Company's net
revenues in fiscal 1999 were from foreign
16
<PAGE> 17
customers. Accordingly, both manufacturing and sales of the Company's products
may be adversely affected by political or economic conditions abroad. In
addition, various forms of protectionist trade legislation have been proposed in
the United States and certain foreign countries. A change in current tariff
structures or other trade policies could adversely affect the Company's foreign
manufacturing or marketing strategies. Currency exchange fluctuations could also
increase the cost of components manufactured abroad and the cost of the
Company's products to foreign customers or decrease the costs of products from
the Company's foreign competitors. See "Business-Manufacturing" and
"Business-Sales and Marketing."
Dependence on Key Personnel
The Company's success depends to a significant extent upon the
continued service of its president, John F. Gifford, its other executive
officers, and key management and technical personnel, particularly its
experienced analog design engineers, and on its ability to continue to attract,
retain, and motivate qualified personnel.
The Company does not maintain any key person life insurance policy on
any such person. The competition for such employees is very intense. The loss of
the services of Mr. Gifford, or of one or more of the Company's executive
officers, design engineers, other key personnel, or the inability to continue to
attract qualified personnel, could have a material adverse effect on the
Company.
17
<PAGE> 18
ITEM 2. PROPERTIES
Maxim's headquarters are located in a 63,000-square-foot building in
Sunnyvale, California, which the Company purchased in October 1987. Between
December 1989 and June 1999, the Company purchased 6 buildings adjacent to its
headquarters building in Sunnyvale with an aggregate of 95,000 square feet of
space. These buildings serve as the executive offices of the Company and also
provide space for engineering, manufacturing, administration, customer service
and other uses. In December 1989, in connection with acquiring one of its wafer
fabrication facilities, Maxim assumed the operating lease of the
30,000-square-foot building in Sunnyvale, California. This lease extends through
November 2003 and has a five-year lease extension option. In May 1994, Maxim
purchased the Tektronix integrated circuit operation. This facility, which is
located in Beaverton, Oregon, on 21 acres, totals 226,000 square feet and
contains 80,000 square feet of wafer fabrication areas as well as engineering,
manufacturing, and general office space. A portion of the space is leased to an
unrelated party. In fiscal 1996, the Company acquired an approximately 9-acre
parcel and a 30,000-square-foot building in Sunnyvale, California, to support
future expansion. The Company currently is utilizing the 30,000 square feet as
office space. In 1997, the Company completed construction of an approximate
141,000-square-foot facility at Gateway Business Park in Cavite Province,
Philippines. The facility is now operating as the Company's principal final test
operation, and it also provides other related manufacturing operations for the
Company. In November 1997, the Company acquired a 67,000-square-foot building
including a sub-micron wafer fabrication facility in San Jose, California. The
Company expects these buildings and the contiguous land to be adequate for its
business purposes through fiscal 2000.
ITEM 3. LEGAL PROCEEDINGS
Linear Technology Corporation vs. Maxim Integrated Products, Inc. et
al., Action No. C-98-1727 FMS in the Federal District Court for the Northern
District of California. 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. The parties are still involved in discovery
proceedings. The case has been bifurcated into separate liability and damages
trials, with the issues of liability and willfulness likely to go to jury trial
in calendar year 2000.
The Company has asserted in its answer, and continues to believe, that
the allegations in the complaint are without merit.
18
<PAGE> 19
Although the outcome of a jury trial involving patents and intellectual
property is inherently uncertain, the Company does not believe that the ultimate
outcome of the matter will have a material adverse effect on the Company's
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 26,
1999 under the headings "Financial Information - Financial Highlights by
Quarter" and "Corporate Data, Stockholder Information."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 26,
1999 under the heading "Financial Information - Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 26,
1999 under the heading "Financial Information - Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 26,
1999 under the subheading "Interest Income" under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 26,
1999 under the headings "Financial Information - Consolidated Balance Sheets,
- - Consolidated Statements of Income, - Consolidated Statements of Stockholders'
Equity, Consolidated Statements of Cash Flows, - Notes to Consolidated Financial
Statements, - Report of Ernst & Young LLP, Independent Auditors and - Financial
Highlights by Quarter."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
20
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Other than as follows, the information required by this item is
incorporated by reference from the Company's Proxy Statement for the 1999 Annual
Meeting of Stockholders under the headings "Proposal 1 - Election of Directors"
and "Compliance with Section 16(A) of the Securities Exchange Act of 1934."
The officers of the Company, including executive officers and other Vice
Presidents, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John F. Gifford 58 President, Chief Executive Officer and
Chairman of the Board
Frederick G. Beck 61 Vice President
Ziya G. Boyacigiller 47 Vice President
Tunc Doluca 41 Vice President
Laszlo V. Gal, Ph.D. 51 Vice President
Richard C. Hood 49 Vice President
Kenneth J. Huening 38 Vice President
Carl W. Jasper 43 Vice President and
Chief Financial Officer
Nasrollah Navid, Ph. D. 50 Vice President
Pirooz Parvarandeh 39 Vice President
Charles G. Rigg 55 Vice President
Robert F. Scheer 46 Vice President
Vijay Ullal 40 Vice President
</TABLE>
21
<PAGE> 22
Mr. Gifford, a founder of the Company, has served as Maxim's President,
Chief Executive Officer and Chairman of the Board since its incorporation in
April 1983.
Mr. Beck, a founder of the Company, has served as Vice President since
May 1983, except for a medical leave between December 1991 and January 1994.
Mr. Boyacigiller joined Maxim in June 1983 and was promoted to Vice
President in April 1995. Prior to April 1995, he served in business management
and integrated circuits design positions.
Mr. Doluca joined Maxim in October 1984 and was promoted to Vice
President in July 1994. Prior to July 1994, he served in a number of integrated
circuit development positions.
Dr. Gal joined Maxim in April 1999 as Vice President. Prior to joining
Maxim, he was with Applied Micro Circuits Corporation where he served as Vice
President of Engineering from January 1997 to April 1999. Before joining Applied
Micro Circuits Corporation, Dr. Gal's tenure included 11 years at Unisys
(1983-1994) and 3 years at Motorola (1994-1997) in various technical and
management positions.
Mr. Hood, a founder of the Company, joined the Company in June 1983 and
was promoted to Vice President in February 1997. Prior to February 1997, he
served in a number of engineering and manufacturing positions.
Mr. Huening joined Maxim in December 1983 and was promoted to Vice
President in December 1993. Prior to December 1993, he served in a number of
quality assurance positions.
Mr. Jasper joined Maxim in May 1998 and was promoted to Principal
Accounting Officer in June 1998 and to Vice President and Chief Financial
Officer in April 1999. Prior to joining Maxim, he was with Read-Rite Corporation
from November 1995 to April 1998 where he held the position of Vice President,
Corporate Controller and prior to that was with Ernst & Young LLP from September
1983 to November 1995.
Dr. Navid joined Maxim in May 1997 as Vice President. Prior to joining
Maxim and since 1980, he was with Philips Semiconductors where he served in a
number of wireless communications product line management positions.
Mr. Parvarandeh joined Maxim in August 1988 and was promoted to Vice
President in July 1997. Prior to July 1997, he served in a number of integrated
circuit development positions.
Mr. Rigg joined Maxim in August 1996 as managing director and general
counsel and was promoted to Vice President in April 1999. Prior to joining
Maxim, he was with Ropers, Majeski, Kohn and Bentley from 1970 to 1996 where he
held various positions, including director.
Mr. Scheer joined Maxim in June 1983 and was promoted to Vice President
in June 1992.
Mr. Ullal joined Maxim in December 1989 and was promoted to Vice
President in March 1996. Prior to March 1996, he served in a number of wafer fab
operation positions.
22
<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders under
the headings "Executive Compensation" and "Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders under
the heading "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference
from the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders
under the heading "Certain Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are included in the Company's 1999
Annual Report to Stockholders and are incorporated herein by reference
pursuant to Item 8.
Consolidated Balance Sheets at June 26, 1999 and June 27, 1998.
Consolidated Statements of Income for each of the three years in the
period ended June 26, 1999.
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended June 26, 1999.
Consolidated Statements of Cash Flows for each of the three years in
the period ended June 26, 1999.
Notes to Consolidated Financial Statements
(a)(2) The following financial statement schedule is filed as part of this
Form 10-K.
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or
because the required
23
<PAGE> 24
information is included in the consolidated financial statements or
notes thereto.
(a)(3) Exhibits. See attached Exhibit Index.
(b) Reports on Form 8-K. None
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 24, 1999 MAXIM INTEGRATED PRODUCTS, INC.
By /s/ Carl W. Jasper
-----------------------------------------
Carl W. Jasper, Vice President and Chief
Financial Officer (For the Registrant
and as Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John F. Gifford President, Chief September 24, 1999
- ------------------- Executive Officer and
John F. Gifford Chairman of the Board
(Principal Executive Officer)
/s/ James R. Bergman Director September 24, 1999
- ----------------------------
James R. Bergman
/s/ B. Kipling Hagopian Director September 24, 1999
- -----------------------------
B. Kipling Hagopian
/s/ A.R. Wazzan Director September 24, 1999
- -----------------------------
A.R. Wazzan
</TABLE>
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Numbered Page Description
- ------- ------------- -----------
<S> <C> <C>
3.1 0 Restated Certificate of Incorporation of the Company as
filed with the Delaware Secretary of State on September 21,
1995
3.3 R Amendment to Restated Certificate of Incorporation of the
Company as filed with the Delaware Secretary of State on
December 3, 1997.
3.4 S Amended and Restated Bylaws of the Company, as amended
10.5 0 Agreement dated as of July 14, 1987, amended and restated
February 1994 between John F. Gifford and the Company(1)
10.6 X Agreement dated as of March 7, 1991 between John F. Gifford
and the Company(1)
10.8 * Form of Indemnity Agreement
10.9 Z Asset Purchase Agreement by and between the Company and
Tektronix, Inc., dated as of March 31, 1994, as amended,
with certain attachments(2)
10.10 0 Technology Transfer Agreement dated May 27, 1994 by and
between the Company and Tektronix, Inc.(2)
10.11 0 Incentive Stock Option Plan, as amended(1)
10.12 R 1987 Supplemental Stock Option Plan, as amended(1)
10.13 R Supplemental Nonemployee Stock Option Plan, as amended(1)
</TABLE>
- ----------
(1) Management contract or compensatory plan or arrangement.
(2) Schedules and certain attachments omitted pursuant to Item 601(b) of
Registration S-K. The Company hereby undertakes to furnish supplemental
copies of any of the omitted schedules upon request by the Commission.
Certain material omitted pursuant to the request for confidential treatment
by the Company.
26
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Numbered Page Description
- ------- ------------- -----------
<S> <C> <C>
10.14 R 1987 Employee Stock Participation Plan, as amended(1)
10.15 R 1988 Nonemployee Director Stock Option Plan, as amended(1)
10.16 1996 Stock Incentive Plan, as amended(1)
10.18 R Bonus Plan(1)
13.1 Portions of the Annual Report to Stockholders for the fiscal
year ended June 26, 1999 incorporated by reference into the
Form 10-K
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedules
</TABLE>
- ---------------
* Incorporated by Reference to the Company's Registration Statement on Form
S-1 No. 33-19561.
X Incorporated by Reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1991.
Z Incorporated by Reference to the Company's Form 8-K filed with the
Commission on June 11, 1994.
0 Incorporated by Reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1995.
R Incorporated by Reference to the Company's Annual Report on Form 10-K for
the year ended June 27, 1998.
S Incorporated by Reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 26, 1998.
27
<PAGE> 28
MAXIM INTEGRATED PRODUCTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
Additions
Charged
Balance at to Costs Balance at
Beginning and End
of Period Expenses Deductions(1) of Period
---------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1997 $ 1,290 $ 54 $ - $1,344
Year ended June 27, 1998 $ 1,344 $ 568 $ 20 $1,892
Year ended June 26, 1999 $ 1,892 $ 182 $ 589 $1,485
</TABLE>
- ----------------
(1) Uncollectible accounts written off.
28
<PAGE> 1
Exhibit 10.16
MAXIM INTEGRATED PRODUCTS, INC.
1996 STOCK INCENTIVE PLAN
Adopted August 16, 1996
Approved by Shareholders November 14, 1996
As further amended by the Board of Directors on April 16, 1997 and May 15, 1997
Approved by Shareholders November 13, 1997
As further amended by the Board of Directors on March 10, 1998,
May 14, 1998, and August 13, 1998
Approved by Shareholders November 19, 1998
As further amended by the Board of Directors on August 12, 1999.
1. Purposes of the Plan. The purposes of this Stock Incentive Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees,
Directors and Consultants of the Company and its Subsidiaries and to promote the
success of the Company's business.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.
(c) "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Options granted to residents therein.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means a change in ownership or control of
the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or
1
<PAGE> 2
exchange offer made directly to the Company's stockholders which a majority of
the Continuing Directors who are not Affiliates or Associates of the offeror do
not recommend such stockholders accept, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who are
Continuing Directors.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means any committee appointed by the Board to
administer the Plan.
(h) "Common Stock" means the common stock of the Company.
(i) "Company" means Maxim Integrated Products, Inc., a Delaware
corporation.
(j) "Consultant" means any person who is a consultant, advisor,
independent contractor, vendor, customer or other person having a past, current
or prospective business relationship with the Company or any Parent or
Subsidiary.
(k) "Continuing Directors" means members of the Board who either
(i) have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six (36) months
and were elected or nominated for election as Board members by at least a
majority of the Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.
(l) "Continuous Status as an Employee, Director or Consultant"
means that the employment, director or consulting relationship with the Company,
any Parent, or Subsidiary, is not interrupted or terminated. Continuous Status
as an Employee, Director or Consultant shall not be considered interrupted in
the case of (i) any leave of absence approved by the Company or (ii) transfers
between locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. A leave of absence approved by the Company shall
include sick leave, military leave, or any other personal leave approved by an
authorized representative of the Company. For purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.
(m) "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated,
2
<PAGE> 3
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with complete liquidation
or dissolution of the Company, or
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger.
(n) "Covered Employee" means any person who is a "covered
employee" under Section 162(m)(3) of the Code.
(o) "Director" means a member of the Board.
(p) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Parent or Subsidiary of the
Company for purposes of Section 422 of the Code. The payment of a director's fee
by the Company shall not be sufficient to constitute "employment" by the
Company. Except for purposes of grants of Incentive Stock Options, "Employee"
also includes any person whom an officer identifies as a prospective employee of
the Company or any Parent or Subsidiary of the Company.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(r) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) Where there exists a public market for the Common Stock,
the Fair Market Value of a share of Common Stock shall be (A) the closing sale
price of the Common Stock for the last market trading day prior to the date of
the determination or on the date of the determination, as determined by the
Administrator at the time of the determination (or, if no sales were reported on
either such date, on the last trading date on which sales were reported) on the
stock exchange determined by the Administrator to be the primary market for the
Common Stock or the Nasdaq National Market, whichever is applicable or (B) if
the Common Stock is not traded on any such exchange or national market system,
the closing price of a Share on the Nasdaq Small Cap Market for the day prior to
the time of the determination (or, if no such price was reported on that date,
on the last date on which such price was reported), in each case, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable; or
(ii) In the absence of an established market of the type
described in (i), above, for the Common Stock, the Fair Market Value thereof
shall be determined by the Administrator in good faith.
(s) "Grantee" means an Employee, Director or Consultant who
receives an Option under the Plan.
(t) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
3
<PAGE> 4
(u) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(v) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(w) "Option" means a stock option granted pursuant to the Plan.
(x) "Option Agreement" means the written agreement evidencing the
grant of an Option executed by the Company and the Grantee, including any
amendments thereto.
(y) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(z) "Performance-Based Compensation" means compensation
qualifying as "performance-based compensation" under Section 162(m) of the Code.
(aa) "Plan" means this 1996 Stock Incentive Plan.
(bb) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor thereto.
(cc) "Share" means a share of the Common Stock.
(dd) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
(ee) "Subsidiary Disposition" means the disposition by the
Company of its equity holdings in any subsidiary corporation effected by a
merger or consolidation involving that subsidiary corporation, the sale of all
or substantially all of the assets of that subsidiary corporation or the
Company's sale or distribution of substantially all of the outstanding capital
stock of such subsidiary corporation.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 10 below, the maximum
aggregate number of Shares which may be issued pursuant to this Plan is
28,000,000 Shares [adjusted to reflect the stock dividend effective December 5,
1997]; provided, however, that such maximum aggregate number of Shares shall be
increased by the number of Shares or options returned to the Company's Incentive
Stock Option Plan, 1987 Employee Stock Participation Plan, and Supplemental
Nonemployee Stock Option Plan. Notwithstanding the foregoing, the maximum
aggregate number of Shares available for grant of Incentive Stock Options shall
be 28,000,000 Shares, and such number shall not be subject to adjustment as
described above. The Shares to be issued pursuant to the Plan may be authorized,
but unissued, or reacquired Common Stock.
(b) If an Option expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Option exchange
program, or if any unissued Shares are retained by the Company upon exercise of
an Option in order to satisfy the exercise price for such Option or any
withholding taxes due with respect to such Option, such unissued or
4
<PAGE> 5
retained Shares shall become available for future grant under the Plan (unless
the Plan has terminated). Shares that actually have been issued under the Plan
pursuant to an Option shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if unvested Shares
are forfeited, or repurchased by the Company at their original purchase price,
such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator.
(i) Administration with Respect to Directors and Officers.
With respect to grants of Options to Directors or Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board.
(ii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Options and may limit such authority by requiring that
such Options must be reported to and ratified by the Board or a Committee within
six (6) months of the grant date, and if so ratified, shall be effective as of
the grant date.
(iii) Administration With Respect to Covered Employees.
Notwithstanding the foregoing, grants of Options to any Covered Employee
intended to qualify as Performance-Based Compensation shall be made only by a
Committee (or subcommittee of a Committee) which is comprised solely of two or
more Directors eligible to serve on a committee making Options qualifying as
Performance-Based Compensation. In the case of such Options granted to Covered
Employees, references to the "Administrator" or to a "Committee" shall be deemed
to be references to such Committee or subcommittee.
(iv) Administration Errors. In the event an Option is granted
in a manner inconsistent with the provisions of this subsection (a), such Option
shall be presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to
whom Options may be granted from time to time hereunder;
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<PAGE> 6
(ii) to determine whether and to what extent Options are
granted hereunder;
(iii) to determine the number of Shares or the amount of
other consideration to be covered by each Option granted hereunder;
(iv) to determine the Fair Market Value of the Common Stock
in accordance with Section 2(r) of the Plan;
(v) to approve forms of Option Agreement for use under the
Plan;
(vi) to determine the terms and conditions of any Option
granted hereunder;
(vii) to amend the terms of any outstanding Option granted
under the Plan, provided that any amendment that would adversely affect the
Grantee's rights under an outstanding Option shall not be made without the
Grantee's written consent;
(viii) to reduce the exercise price of any Option to reflect
a reduction in the Fair Market Value of the Common Stock since the grant date of
the Option without a material adverse impact on the Grantee; provided, however,
that (A) such reductions in the aggregate do not apply to Options covering more
than five percent (5%) of the maximum aggregate number of Shares available under
Section 3((a)), above (as amended from time to time), in any twelve (12) month
period, (B) such reduction is approved by a majority of the members of the
Administrator, and (C) the Administrator determines in good faith and in writing
that such reductions occur only infrequently and principally in response to
conditions other than poor operating performance by the Company. For purposes of
this subsection ((viii)), the issuance of an Option in replacement of an
existing Option with a lower exercise price (or a lower base amount on which
appreciation is measured) without a material adverse impact on the Grantee shall
be deemed to be a reduction in the exercise price of the earlier granted Option;
(ix) to construe and interpret the terms of the Plan and
Options granted pursuant to the Plan;
(x) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Option shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan; and
(xi) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. Eligibility. Non-Qualified Stock Options may be granted to
Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee, Director or Consultant who has been granted an
Option may, if otherwise eligible, be granted additional Options. Options may be
granted to such Employees of the Company and its
6
<PAGE> 7
subsidiaries who are residing in foreign jurisdictions as the Administrator may
determine from time to time.
6. Terms and Conditions of Options.
(a) Designation of Option. Each Option shall be designated in the
Option Agreement as either an Incentive Stock Option or a Non-Qualified Stock
Option. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by a Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is granted.
(b) Conditions of Option. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms and conditions of each
Option including, but not limited to, the Option vesting schedule, form of
payment upon exercise of the Option and satisfaction of any performance
criteria.
(c) Individual Option Limit. The maximum number of Shares with
respect to which Options may be granted to any individual in any fiscal year of
the Company shall be 6,000,000 [adjusted to reflect the stock dividend effective
December 5, 1997]. The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization pursuant to Section
10, below. To the extent required by Section 162(m) of the Code or the
regulations thereunder, in applying the foregoing limitation with respect to an
individual, if any Option is canceled, the canceled Option shall continue to
count against the maximum number of Shares with respect to which Options may be
granted to the individual. For this purpose, the repricing of an Option shall be
treated as the cancellation of the existing Option and the grant of a new
Option.
(d) Term of Option. The term of each Option shall be ten (10)
years from the date of grant for all Grantees other than Directors who are not
Employees, in whose case the term shall be five (5) years from the date of
grant. However, in the case of an Incentive Stock Option granted to a Grantee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
(e) Transferability of Options. Incentive Stock Options may not
be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent or distribution, and may be
exercised during the lifetime of the Grantee only by the Grantee. Non-Qualified
Stock Options shall be transferable to the extent provided in the Option
Agreement.
(f) Time of Granting Options. The date of grant of an Option
shall for all purposes be the date on which the Administrator makes the
determination to grant such Option, or such other date as is determined by the
Administrator. Notice of the grant determination shall
7
<PAGE> 8
be given to each Employee, Director or Consultant to whom an Option is so
granted within a reasonable time after the date of such grant.
(g) Vesting During Leave of Absence. During any leave of absence
from employment, directorship or consulting arrangement with the Company or any
Parent or Subsidiary, vesting of such Grantee's Options shall cease, and shall
resume upon the Grantee's return to his or her relationship with the Company,
Parent or Subsidiary. The dates on which such Grantee's Options vest shall
thereafter be adjusted by the duration of the leave of absence.
7. Option Exercise Price, Consideration and Taxes.
(a) Exercise Price. The exercise price for an Option shall be as
follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be not less than one hundred
ten percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per
Share exercise price shall be not less than eighty-five percent (85%) of the
Fair Market Value per Share on the date of grant unless otherwise determined by
the Administrator; provided, however, that in the case the per Share exercise
price is less than one hundred percent (100%) of the Fair Market Value per Share
on the date of the grant, the Administrator determines in writing and in good
faith that (A) such grants are made infrequently, (B) there is a good business
reason for the grant that outweighs the normal presumption of a per Share
exercise price of not less than one hundred percent (100%) of the Fair Market
Value per Share on the date of grant, and (C) the aggregate number of Shares
subject to such Options does not exceed five percent (5%) of the aggregate
maximum number of Shares under Section 3((a)), above, as amended from time to
time.
(iii) In the case of Options intended to qualify as
Performance-Based Compensation, the per Share exercise price shall be not less
than one hundred percent (100%) of the Fair Market Value per Share on the date
of grant.
(b) Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise of an Option including the
method of payment, shall be determined by the Administrator (and, in the case of
an Incentive Stock Option, shall be determined at the time of grant). In
addition to any other types of consideration the Administrator may determine,
the Administrator is authorized to accept as consideration for Shares issued
under the Plan the following:
(i) cash;
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<PAGE> 9
(ii) check;
(iii) delivery of Grantee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate;
(iv) surrender of Shares (including withholding of Shares
otherwise deliverable upon exercise of the Option) which have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised (but only to the extent that
such exercise of the Option would not result in an accounting compensation
charge with respect to the Shares used to pay the exercise price unless
otherwise determined by the Administrator);
(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. In connection with each option granted pursuant to
this Plan, at any time when the Company could have any withholding obligation
(whether for Federal, state, local or foreign income, disability, Medicare,
employment or other taxes or otherwise) as a result of exercise of an option,
the lapse of any substantial risk of forfeiture to which the shares are subject
at the time of exercise, or the disposition of shares acquired upon such
exercise, the Company shall have no obligation to permit exercise of such option
or to issue any shares upon exercise of the option unless and until either the
exercise of the option is accompanied by sufficient payment, as determined by
the Company in its absolute discretion, to meet those withholding obligations on
such exercise, lapse or disposition or other arrangements are made that are
satisfactory to the Company in its absolute discretion to provide otherwise for
such payment. The Company shall have no liability to any optionee or transferee
for exercising the foregoing right not to permit exercise or issue shares.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Option granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Option Agreement.
(ii) An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to Shares subject to an Option, notwithstanding the exercise of an Option. The
Company shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Option. No adjustment will be made for a
9
<PAGE> 10
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in the Option Agreement or Section 10,
below.
(b) Exercise of Option Following Termination of Employment,
Director or Consulting Relationship.
(i) An Option may not be exercised after the termination date
of such Option set forth in the Option Agreement and may be exercised following
the termination of a Grantee's Continuous Status as an Employee, Director or
Consultant only to the extent that the Grantee was entitled to exercise it at
the date of such termination (but in no event later than the expiration of the
term of such option as set forth in the Option Agreement). Options shall be
exercisable for a period of ninety (90) days following termination generally,
and for a period of five hundred forty-seven (547) days following termination
due to death of the Grantee or three hundred sixty-five (365) days following
termination due to the disability of the Grantee (or, in each case, such other
period of time as is determined by the Administrator, which such determination
in the case of an Incentive Stock Option shall be made at the time of grant of
the Option).
(ii) All Options shall terminate to the extent not exercised
on the last day of the period specified in paragraph (i) above or the last day
of the original term of the Option, whichever occurs first.
(iii) Any Option designated as an Incentive Stock Option to
the extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Status as an Employee, Director or Consultant shall convert automatically to a
Non-Qualified Stock Option and thereafter shall be exercisable as such to the
extent exercisable by its terms for the period specified in the Option
Agreement.
(c) Exercise of Option Following Termination of Employment,
Director or Consulting Relationship. In the event of termination of a Grantee's
Continuous Status as an Employee, Director or Consultant with the Company for
any reason other than disability or death (but not in the event of an Grantee's
change of status from Employee to Consultant or from Consultant to Employee),
such Grantee may, but only within ninety (90) days after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his or her Option to the
extent that the Grantee was entitled to exercise it at the date of such
termination or to such other extent as may be determined by the Administrator.
If the Grantee should die within ninety (90) days after the date of such
termination, the Grantee's estate or the person who acquired the right to
exercise the Option by bequest or inheritance may exercise the Option to the
extent that the Grantee was entitled to exercise it at the date of such
termination within five hundred forty-seven (547) days of the Grantee's date of
death, but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement. In the event of an Grantee's change of
status from Employee to Consultant, an Employee's Incentive Stock Option shall
convert automatically to a Non-Qualified Stock Option on the ninety-first (91st)
day following such change of status. If the Grantee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
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<PAGE> 11
(d) Disability of Grantee. In the event of termination of a
Grantee's Continuous Status as an Employee, Director or Consultant as a result
of his or her disability, Grantee may, but only within three hundred sixty-five
(365) days from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Non-Qualified Stock Option on the day three (3)
months and one day following such termination. To the extent that Grantee is not
entitled to exercise the Option at the date of termination, or if Grantee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(e) Death of Grantee. In the event of the death of a Grantee, the
Option may be exercised at any time within five hundred forty-seven (547) days
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement), by the Grantee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Grantee was entitled to exercise
the Option at the date of death. If, at the time of death, the Grantee was not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If,
after death, the Grantee's estate or a person who acquired the right to exercise
the Option by bequest or inheritance does not exercise the Option within the
time specified herein, the Option shall terminate.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the number of Shares covered
by each outstanding Option, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan, as well as the price per share of Common
Stock covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of
11
<PAGE> 12
issued shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other similar event resulting in an increase or decrease in the number of issued
shares of Common Stock. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason hereof shall be
made with respect to, the number or price of Shares subject to an Option.
11. Corporate Transactions/Changes in Control/Subsidiary
Dispositions.
(a) The Administrator shall have the authority, exercisable
either in advance of any actual or anticipated Corporate Transaction, Change in
Control or Subsidiary Disposition or at the time of an actual Corporate
Transaction, Change in Control or Subsidiary Disposition and exercisable at the
time of the grant of an Option under the Plan or any time while an Option
remains outstanding, to provide for the full automatic vesting and
exercisability of one or more outstanding unvested Options under the Plan and
the release from restrictions on transfer and repurchase or forfeiture rights of
such Options in connection with a Corporate Transaction, Change in Control or
Subsidiary Disposition, on such terms and conditions as the Administrator may
specify. The Administrator also shall have the authority to condition any such
Option vesting and exercisability or release from such limitations upon the
subsequent termination of the Continuous Status as an Employee or Consultant of
the Grantee within a specified period following the effective date of the Change
in Control or Subsidiary Disposition. The Administrator may provide that any
Options so vested or released from such limitations in connection with a Change
in Control or Subsidiary Disposition, shall remain fully exercisable until the
expiration or sooner termination of the Option. Effective upon the consummation
of a Corporate Transaction, all outstanding Options under the Plan shall
terminate unless assumed by the successor company or its Parent.
(b) The portion of any Incentive Stock Option accelerated under
this Section 11 in connection with a Corporate Transaction, Change in Control or
Subsidiary Disposition shall remain exercisable as an Incentive Stock Option
under the Code only to the extent the $100,000 dollar limitation of Section
422(d) of the Code is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated excess portion of such Option shall be exercisable as
a Non-Qualified Stock Option.
12. Term of Plan. The Plan shall become effective upon its adoption
by the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the
Plan. To the extent required to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such manner and to such a
degree as required.
(b) No Option may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall
not affect Options already granted, and such Options shall remain in full force
and effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the
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<PAGE> 13
Grantee and the Administrator, which agreement must be in writing and signed by
the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment. The Plan shall not confer upon
any Grantee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
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EXHIBIT 13.1
COVER 1
1
<PAGE> 2
This Annual Report and the documents incorporated herein by reference contain
forward-looking statements that have been made pursuant to and in reliance on
the provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may include (a) projections relevant to future
revenue, income, earnings, capital expenditures, capital structure or other
financial items, (b) statements of plans or objectives of the Company's
management for future operations, including plans or objectives relating to the
Company's products or services, (c) statements of future economic performance,
and (d) statements of any assumptions underlying or relating to any of the
foregoing. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," and variations of such words and similar
expressions relating to the future are intended to identify forward-looking
statements.
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 may differ
materially from those in any such forward-looking statement. Particular
attention should be paid to the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained elsewhere
in this Annual Report.
The Company undertakes no obligation to update any forward-looking statement,
whether as a result of new information relating to existing conditions, future
events or otherwise. However, 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 Annual Reports on Form 10-K and its Quarterly
Reports on Form 10-Q (particularly the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Risk Factors") and any current reports on Form 8-K.
2
<PAGE> 3
Established in 1983, Maxim Integrated Products is a worldwide leader in design,
development, manufacture, and marketing of linear and mixed-signal integrated
circuits. Maxim circuits "connect" the real world and digital world by
detecting, measuring, amplifying, and converting real world signals, such as
temperature, pressure, or sound, into the digital signals necessary for computer
processing. Products include data converters, interface circuits, microprocessor
supervisors, operational amplifiers, power supplies, multiplexers, switches,
battery chargers, battery management circuits, RF circuits, fiber optic
transceivers, sensors, and voltage references. Our products are used in a wide
variety of microprocessor-based electronics equipment, including personal
computers and peripherals, process control, instrumentation, test equipment,
handheld devices, wireless and fiber communications, and video displays.
Maxim markets over 1,780 products, of which over 1,480 are proprietary, and net
revenues were $607.0 million for the year ended June 26, 1999. The Company has
over 3,000 employees. Our headquarters is in Sunnyvale, California, and we have
facilities in San Jose, California; Beaverton, Oregon; and other locations
worldwide.
Maxim's mission is to continuously invent high-quality analog engineering
solutions that add value to our customers' microprocessor-based electronics
worldwide. We have consistently increased our stockholders' equity by meeting
our cost and performance goals, minimizing time-to-market, and maximizing our
engineering productivity.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights............................. 4
Letter To Our Stockholders....................... 5
Quarterly Highlights............................. 8
Financial Information............................ 11
Board of Directors and Corporate Officers........ 37
Corporate Data, Stockholder Information.......... 38
</TABLE>
3
<PAGE> 4
Financial Highlights
<TABLE>
<CAPTION>
(Amounts in thousands, except share data) FY1999 FY1998 FY1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $606,965 $560,220 $433,710
Net income $196,122 $178,144 $136,974
Earnings per share--diluted $ 1.29 $ 1.18 $ 0.94
- -------------------------------------------------------------------------------------------
</TABLE>
[NET REVENUES PERFORMANCE GRAPH]
[OPERATING INCOME PERFORMANCE GRAPH]
[STOCKHOLDERS' EQUITY PERFORMANCE GRAPH]
4
<PAGE> 5
To Our Stockholders
[PHOTO OMITTED]
As the 1990s draw to a close, rankings are being published for the best
performing companies of the decade. It should be no surprise that Maxim is
turning up on such lists as the top performing semiconductor company of the
`90s. Few companies in any industry can match Maxim's consistency of performance
over the past 10 years. The average compounded annual return on the Company's
stock price over the past 10 years was 51 percent. More important to both Maxim
and our stockholders is our ability to extend this track record of growth and
stability into the next decade.
FINANCIAL HIGHLIGHTS
Maxim ended fiscal 1999 with net revenues of $607.0 million. Operating income
was $276.8 million, and diluted earnings per share were $1.29. The Company
increased cash and short-term investments by $191.8 million after paying $113.9
million to repurchase 2.9 million shares of its common stock and $38.7 million
for capital equipment. Total assets increased to $1.0 billion. Stockholders'
equity grew to $879.2 million in fiscal 1999 from $631.0 million in fiscal 1998.
Return on average stockholders' equity for 1999 was 26.0 percent. This return,
one of the highest in the industry, confirms that the Company has continued to
make good product and capacity investment decisions with stockholders' assets.
ON TRACK WITH PRODUCT AND PROCESS DEVELOPMENT
Maxim has long been the leader in analog and mixed-signal IC design. Today, we
are also a leader in manufacturing process innovation. This year, we were the
first company to introduce standard ICs designed using high-frequency silicon
germanium (SiGe) technology. We are now delivering SiGe products for both
wireless communications and telecom applications. Maxim power management
products designed on our state-of-the-art 1.2-um BiCMOS process are leading the
industry with their low power and high levels of integration. Also during the
year, we brought to market high-performance sigma delta analog-to-digital
converters that employ state-of-the-art mixed-signal submicron processes,
combining extremely high accuracy and very low power for industrial
applications.
Although we missed by 5 percent our goal of introducing over 300 products during
our product announcement year, we executed well overall and significantly
surpassed last year's level. The products we introduced this year are key to our
achieving revenue growth plans for FY2002. Our goal for FY2000 is to increase
product introductions once again by the amount required to meet our objectives
for increased revenues in FY2003 and FY2004.
5
<PAGE> 6
To Our Stockholders
ADDITION OF OUTSTANDING EXECUTIVE TALENT
Maxim added two new business unit executives during the year and created
one new business unit staffed to focus on products for emerging markets
that will be important to Maxim in 4 to 5 years. Maxim was very
successful this year in hiring senior technical managers throughout the
Company. We believe ours to be the broadest and strongest senior
management team in our industry--bar none.
Successful companies attract the best talent, and Maxim added to its
team a significant number of expert professionals this year, thanks to
our exciting corporate culture, the growth of our stock option value,
and our highly effective mentorship programs.
RECENTLY ACQUIRED FACILITIES IN SUCCESSFUL OPERATION
This year, after 9 great years of operation and 1 million 4-inch wafers
produced, we closed our Sunnyvale fabrication facility. This decision
was based on our having successfully achieved cost-effective production
levels in our 6-inch submicron wafer fabrication facility in San Jose,
acquired in November 1997. Our 80,000-square-foot Oregon fab produced 70
percent of our needs for 6-inch wafers during the year. We are currently
utilizing approximately 53,000 square feet for today's demand. An
additional 7,500-square-foot R&Dfab will be put in operation in Q1 FY00.
Our Oregon facility operated at less than the optimal capacity levels
that it is expected to achieve in the coming years. Today, the San Jose
and Beaverton facilities combined have the capacity to manufacture
approximately $225 million in product revenue per quarter. We believe
that an additional capital investment of less than $50 million in those
two facilities would enable us to manufacture approximately $290 million
in product revenue per quarter.
We are now testing over 90 percent of our packaged units at our test
facility in the Philippines, a 45 percent increase over FY98 levels.
This operation contributed over $8 million to profit through cost
reductions this past year and significantly contributed to improved
product quality. We have sufficient improved floorspace at our
Philippines facility to significantly increase production test volume,
if required, with the addition of test equipment. At the same time, we
are exploring other geographic locations for possible diversification of
our test activities.
BUSINESS IMPROVED AS THE YEAR PROGRESSED
During the uncertainty of FY99, when we had limited visibility of future
end-market demand, although we closely managed our resources, we
continued our emphasis on new product and technology development. As a
result of our unwavering commitment to new product development, we
believe that this year's correction will have a limited impact on our
long-term growth objectives.
Bookings for the Company began to improve in Q2 FY99 after three
quarters of decline, and bookings for Q4 FY99 reached a company record
level of $198 million. However, backlog was sufficiently depleted during
the year to preclude material growth until such time as healthy backlog
is restored.
6
<PAGE> 7
To Our Stockholders
Beginning in the second quarter, we saw a high percentage of short-term
orders and a decline in order cancellations. Earlier in the year we
attributed the high level of short-term orders to the reduced lead times
we were able to offer and limited customer visibility of demand for
their products. We believe that customers are now more optimistic about
demand for their products and are considering more aggressive growth
models.
PLANS IN PLACE FOR FY2000 AND BEYOND
We believe that our accomplishments this year in introducing and
merchandising new products, achieving significant technology
developments, augmenting fab and test capacity, and attracting technical
experts continue to position us to meet what we believe will be growing
demand for our products in the longer term. We have greater
organizational depth than ever before, as well as several new emerging
product lines. We believe that we have a well-positioned opportunity to
take our place among the great IC companies of the past, present, and
future.
Sincerely,
/s/ JOHN F. GIFFORD
-----------------------------------
John F. Gifford
President, Chief Executive Officer
and Chairman of the Board
7
<PAGE> 8
Quarterly Highlights
First Quarter FY99
o Net revenues of $155.3 million
o Net income of $49.4 million ($0.33 diluted earnings per share)
[NET REVENUES PERFORMANCE GRAPH]
[OPERATING INCOME PERFORMANCE GRAPH]
[STOCKHOLDERS' EQUITY PERFORMANCE GRAPH]
Second Quarter FY99
o Net revenues of $145.0 million
o Net income of $46.5 million ($0.31 diluted earnings per share)
[NET REVENUES PERFORMANCE GRAPH]
[OPERATING INCOME PERFORMANCE GRAPH]
[STOCKHOLDERS' EQUITY PERFORMANCE GRAPH]
8
<PAGE> 9
QUARTERLY HIGHLIGHTS
THIRD QUARTER FY99
o Net revenues of $147.2 million
o Net income of $47.7 million ($0.31 diluted earnings per share)
[NET REVENUES PERFORMANCE GRAPH]
[OPERATING INCOME PERFORMANCE GRAPH]
[STOCKHOLDERS' EQUITY PERFORMANCE GRAPH]
FOURTH QUARTER FY99
o Net revenues of $159.5 million
o Net income of $52.6 million ($0.34 diluted earnings per share)
[NET REVENUES PERFORMANCE GRAPH]
[OPERATING INCOME PERFORMANCE GRAPH]
[STOCKHOLDERS' EQUITY PERFORMANCE GRAPH]
9
<PAGE> 10
FINANCIAL INFORMATION
<TABLE>
<S> <C>
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................... 12
Consolidated Balance Sheets ............................................ 18
Consolidated Statements of Income ...................................... 19
Consolidated Statements of Stockholders' Equity ........................ 20
Consolidated Statements of Cash Flows .................................. 21
Notes to Consolidated Financial Statements ............................. 22
Report of Ernst & Young LLP, Independent Auditors ...................... 34
Selected Financial Data ................................................ 35
Financial Highlights by Quarter ........................................ 36
</TABLE>
11
<PAGE> 11
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
Net Revenues Maxim Integrated Products, Inc. (the Company) reported
net revenues of $607.0 million in fiscal 1999, $560.2 million in fiscal
1998, and $433.7 million in fiscal 1997. The increases in net revenues
for fiscal 1999 and fiscal 1998 are related 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.
[Net Revenues PERFORMANCE GRAPH]
Approximately 59% of the Company's fiscal 1999 net revenues was derived
from customers outside the U.S., primarily in Europe and the Pacific Rim
(56% in fiscal 1998 and 57% in fiscal 1997). While a majority of the
Company's sales are denominated in U.S. dollars, the Company enters into
foreign currency forward contracts to mitigate its risk on firm
commitments and net monetary assets denominated in foreign currencies;
as a result, the impact of changes in foreign exchange rates on revenues
and the Company's results of operations for 1999 was minimal.
[Gross Margin PERFORMANCE GRAPH]
Gross Margin The Company's gross margin as a percentage of net
revenues was 68.8%, 67.2%, and 66.5% in fiscal 1999, 1998, and 1997,
respectively. The continued improvements in gross margin are principally
due to production efficiencies obtained through economies of scale and
cost reductions. These efficiencies were partially offset in fiscal 1999
by an increase in inventory reserves of $8.0 million ($10.4 million in
fiscal 1998) and the write-down of certain equipment of $2.7 million
($8.2 million in fiscal 1998).
[Research and Development PERFORMANCE GRAPH]
Research and Development The Company is continuously working to
introduce new products through its research and development efforts.
Research and development expenses were 14.5%, 12.9%, and 11.8% of net
revenues in fiscal 1999, 1998, and 1997, respectively. The increase in
research and development expenses as a percentage of net revenues was
due primarily to increased headcount and wafer and mask expenses to
support new product development. The Company intends to continue
increasing its R&D expenditures on an absolute dollar basis in future
periods. However, the level of R&D expenditures as a percentage of net
revenues will vary from period to period, depending on the level of net
revenues.
12
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
[Selling, General and Administrative PERFORMANCE GRAPH]
Selling, General and Administrative Selling, general and
administrative expenses were 8.6%, 8.8%, and 8.8% of net revenues in
fiscal 1999, 1998, and 1997, respectively. Selling, general and
administrative expenses increased in fiscal 1999 in absolute dollars as
a result of additional headcount and related expenses to support the
Company's increased level of revenues. The increase in selling, general
and administrative expenses in fiscal 1998 in absolute dollars was
primarily due to increased expenses associated with the Company's direct
sales efforts.
Interest Income, Net Interest income, net increased to $20.4 million
in fiscal 1999 from $14.9 million in fiscal 1998 and $8.6 million in
fiscal 1997, primarily due to higher levels of invested cash, cash
equivalents, and short-term investments. The Company's exposure to
market risk for changes in interest rates relates primarily to the
Company's investment portfolio. Under its investment policy, the Company
invests exclusively in U.S. Treasury and Federal Agency debt securities
with a maturity of one year or less. Investments mature at frequent
intervals during the year, at which time the funds are available for use
in the business, or for reinvestment, as cash demands dictate. This
policy is intended to reduce default risk, market risk, and reinvestment
risk. The Company does not use derivative financial instruments in its
investment portfolio. The fair value of the Company's investment
portfolio or related interest income would not be significantly impacted
by a material change in interest rates, due to the short-term nature of
the Company's investment portfolio. At June 26, 1999, the Company's
investment portfolio had an expected weighted average return of 4.9% and
a weighted maturity of 245 days.
Provision for Income Taxes The effective tax rate was 34% for fiscal
1999, 1998, and 1997.
13
<PAGE> 13
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OUTLOOK:
Both end-market bookings and net bookings for the Company were greater
during the fourth quarter of fiscal 1999 than during the prior quarters
of the fiscal year. These increased booking levels reflect increased
demand for the Company's products, primarily in the United States and
Japan. Although bookings in the fourth quarter of fiscal 1999 increased
by 16% over third quarter bookings, the Company expects that bookings
will adjust to lower growth levels in future quarters.
At the end of the fourth quarter of fiscal 1999, backlog shippable
within the next 12 months was approximately $176 million (compared to
$181 million at the end of fiscal 1998 and $152 million at the end of
fiscal 1997). The backlog level at the end of fiscal 1999 had been
sufficiently depleted to preclude significant revenue growth until such
time as backlog is significantly increased above current levels. Because
the Company's backlog of orders at any point is not necessarily based on
firm, noncancelable orders and because the Company's customers do in
fact routinely cancel orders for their own convenience with little
notice, opening backlog has limited value as a predictor of future
revenues.
The Company's ability to increase its revenues and earnings in the first
quarter of fiscal 2000 and beyond will depend in part on the continued
growth in end-market bookings and net bookings.
FINANCIAL CONDITION:
Overview Total assets grew to $1,022.3 million at the end of fiscal
1999, up from $769.5 million at the end of fiscal 1998. The increase is
primarily due to favorable operating results for the year. Accounts
receivable decreased to $79.3 million at the end of fiscal 1999 from
$101.9 million at the end of fiscal 1998, primarily due to shipments
occurring at a more linear rate throughout fiscal 1999 as compared to
fiscal 1998. Inventory grew at a slower rate than revenues, increasing
slightly from $44.7 million in fiscal 1998 to $45.3 million in fiscal
1999 due to continued improvements in productivity.
14
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
[Cash, Cash Equivalents and Short-Term Investments PERFORMANCE GRAPH]
Liquidity and Capital Resources The Company's primary source of funds
for fiscal 1999, 1998, and 1997 has been from net cash generated from
operating activities of approximately $306.2 million, $295.5 million,
and $187.1 million, respectively. In addition, the Company received
approximately $51.1 million, $37.2 million, and $31.2 million of
proceeds from the exercises of stock options and purchases of common
stock under the Employee Stock Participation Plan during fiscal 1999,
1998, and 1997, respectively.
Another source of cash from the Company's option programs is the tax
deductions that arise from exercise of options. These tax benefits
amounted to $114.3 million, $74.3 million, and $52.4 million in fiscal
1999, 1998, and 1997, respectively. It has been the Company's policy to
reduce the dilution effect from stock options by repurchasing its common
stock from time to time in amounts based on estimates of proceeds from
stock option exercises and of tax benefits related to such exercises.
The Company plans to continue this policy although, at management's
discretion, it may repurchase its common stock in amounts significantly
in excess of or below such estimates.
The principal uses of funds for fiscal 1999, 1998, and 1997 were
repurchases of $113.9 million, $123.1 million, and $80.7 million of the
Company's common stock, and purchases of property, plant and equipment
of $54.3 million, $109.4 million, and $44.2 million, respectively. In
fiscal 1998, $42.0 million of the $109.4 million in capital purchases
was for a sub-micron wafer fabrication facility located in San Jose,
California.
As of June 26, 1999, the Company's available funds consisted of $514.7
million in cash, cash equivalents, and short-term U.S. Treasury and
Federal Agency debt securities.
The Company anticipates that the available funds and cash generated from
operations will be sufficient to meet cash and working capital
requirements, including its anticipated level of capital expenditures,
through the end of fiscal 2000.
15
<PAGE> 15
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Year 2000 Issue:
As a result of certain computer programs' being written using two digits
rather than four to define the applicable year, any of the Company's
computer programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000 (the "Year 2000
issue"). This could result in a system failure or miscalculations,
causing disruptions of operations including, among other things, a
temporary inability to process transactions, send invoices, or engage in
normal business activities.
The Company has evaluated the required modifications to both new and
existing software and hardware systems to mitigate the Year 2000 issue
and is 100% complete with respect to remediation on systems identified
and determined to be critical to the Company's operations. Remediation
continues on noncritical systems. The Company expects to have all
required modifications completed prior to December 31, 1999. The Company
is working with its significant suppliers and large customers to
determine the extent to which the Company is vulnerable to those third
parties' failure to minimize their own Year 2000 issue. The Company
currently has no contingency plan in the event that it is unable to
complete system modifications to address the Year 2000 issue. The
Company has limited contingency plans with respect to third parties in
the event that they are unable to complete system modifications to
mitigate the Year 2000 issue. Costs incurred to date related to the Year
2000 issue have been minimal. While the Company has fully completed the
evaluation of its Year 2000 issue and is approximately 85% complete with
respect to remediation on all its systems (critical and noncritical),
there can be no assurance that further evaluation and remediation will
not be required. The Company does not anticipate that the future cost of
these efforts, should they be necessary, will be material.
The date on which the Company plans to complete any necessary Year 2000
modifications and costs related to completing such modifications are
based on management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans, and
other factors. However, there can be no assurance that these estimates
will be achieved, and actual completion dates and costs could differ
significantly from those estimates. Specific factors that might cause
such significant differences include, but are not limited to, the
identification of additional systems that require remediation, the
availability and cost of personnel trained in this area, the ability to
identify, locate, and correct all relevant computer codes, and similar
uncertainties. Any failure to timely, successfully, and cost effectively
assess, remediate, and resolve the Company's Year 2000 issues, including
those regarding its own as well as suppliers' and third parties'
internal systems, products, services, and contingency plans, may have a
material adverse effect on the Company's business and results of
operations. The Company is continuing its efforts to ensure Year 2000
readiness, and there can be no assurance that there will not be new Year
2000 issues not identified above and significant delays in or increased
costs associated with such efforts which could have a material adverse
effect on the Company's business and results of operations.
Maxim believes that its most reasonably likely worst-case Year 2000
scenarios would relate to problems with the systems of third parties
rather than with the Company's internal systems. The Company has little
control over assessing and remediating the Year 2000 problems of third
parties. The Company believes the risks are greatest with infrastructure
(e.g., electricity and water supply), telecommunications, transportation
supply chains, and critical suppliers of materials.
16
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's linear and mixed-signal integrated circuit production is
conducted at both domestic and foreign facilities. The Company does not
generally maintain facilities that would allow it to generate its own
electrical or water supply in lieu of that supplied by utilities. A
worst-case scenario involving a critical supplier of materials would be
the partial or complete shutdown of the supplier and its resulting
inability to provide critical supplies to the Company on a timely basis.
The Company does not have the capability to replace third party supplies
with internal production. The Company is working with suppliers of
critical materials to ensure buffer supplies are maintained.
The Company is not in a position to identify or to avoid all possible
worst-case scenarios. Due to the large number of variables involved, the
Company cannot provide an estimate of the damage it might suffer if any
worst-case scenario were to occur.
Forward-Looking Information:
Forward-looking statements in this Annual 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.
Important factors affecting the Company's ability to achieve future
revenue growth include whether, and the extent to which, demand for the
Company's products increases and reflects real end-user demand; whether
customer cancellations and delays of outstanding orders increase; and
whether the Company is able to manufacture in a correct mix to respond
to orders on hand and new orders received in the future; whether the
Company is able to achieve its new product development and introduction
goals, including, without limitation, goals for recruiting, retaining,
training, and motivating engineers, particularly design engineers, and
goals for conceiving and introducing timely new products that are well
received in the marketplace; and whether the Company is able to
successfully commercialize its new technologies, such as its new
second-generation high-frequency technologies, that it has been
investing in by designing and introducing new products based on these
new technologies.
Other important factors that could cause actual results to differ
materially from those predicted include overall worldwide economic
conditions; demand for electronic products and semiconductors generally;
demand for the end-user products for which the Company's semiconductors
are suited; timely availability of raw material, equipment, supplies,
and services; unanticipated manufacturing problems; technological and
product development risks; competitors' actions; the ability of the
Company to mitigate the Year 2000 issue; and other risk factors
described in the Company's filings with the Securities and Exchange
Commission.
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.
17
<PAGE> 17
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
(Amounts in thousands, except share data) June 26, 1999 June 27, 1998
--------------------------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,126 $ 16,739
Short-term investments 480,580 306,209
--------------------------------------------------------------------------------------------------
Total cash, cash equivalents and
short-term investments 514,706 322,948
--------------------------------------------------------------------------------------------------
Accounts receivable (net of allowance for doubtful
accounts of $1,485 in 1999 and $1,892 in 1998) 79,330 101,921
Inventories 45,283 44,707
Deferred tax assets 47,850 34,400
Income tax refund receivable 36,649 --
Other current assets 5,056 4,039
--------------------------------------------------------------------------------------------------
Total current assets 728,874 508,015
--------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost, less
accumulated depreciation 290,133 255,453
Other assets 3,307 6,024
--------------------------------------------------------------------------------------------------
Total assets $ 1,022,314 $ 769,492
--------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 40,257 $ 35,169
Income taxes payable 2,484 27,412
Accrued salaries 26,364 21,421
Accrued expenses 35,477 22,604
Deferred income on shipments to distributors 16,316 23,686
--------------------------------------------------------------------------------------------------
Total current liabilities 120,898 130,292
--------------------------------------------------------------------------------------------------
Other liabilities 4,000 4,000
Deferred tax liabilities 18,200 4,200
Commitments and contingencies
--------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $0.001 par value;
Authorized: 2,000,000 shares;
Issued and outstanding: none -- --
Common stock, $0.001 par value;
Authorized: 240,000,000 shares;
Issued and outstanding: 135,835,376 in 1999
and 130,752,346 in 1998 136 131
Additional paid-in capital 132,514 81,118
Retained earnings 748,036 551,914
Accumulated other comprehensive income (1,470) (2,163)
--------------------------------------------------------------------------------------------------
Total stockholders' equity 879,216 631,000
--------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,022,314 $ 769,492
--------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
18
<PAGE> 18
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $606,965 $560,220 $433,710
Cost of goods sold 189,673 183,724 145,307
- --------------------------------------------------------------------------------------------------------------
Gross margin 417,292 376,496 288,403
- --------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 88,249 72,204 51,264
Selling, general and administrative 52,275 49,256 38,194
- --------------------------------------------------------------------------------------------------------------
Total operating expenses 140,524 121,460 89,458
- --------------------------------------------------------------------------------------------------------------
Operating income 276,768 255,036 198,945
Interest income, net 20,386 14,879 8,590
- --------------------------------------------------------------------------------------------------------------
Income before provision
for income taxes 297,154 269,915 207,535
Provision for income taxes 101,032 91,771 70,561
- --------------------------------------------------------------------------------------------------------------
Net income $196,122 $178,144 $136,974
- --------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 1.48 $ 1.37 $ 1.09
Diluted $ 1.29 $ 1.18 $ 0.94
- --------------------------------------------------------------------------------------------------------------
Shares used in the calculation of earnings per share:
Basic 132,722 129,838 125,430
Diluted 152,059 150,661 145,754
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements
19
<PAGE> 19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Common
Stock Additional Other
------------------------- Paid-In Retained Comprehensive
(Amounts in thousands, except share data) Shares Par Value Capital Earnings Income Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1996 122,891,038 $ 123 $ 89,878 $236,796 $(1,372) $ 325,425
Components of comprehensive income:
Net income -- -- -- 136,974 -- 136,974
Translation adjustment -- -- -- -- 266 266
---------
Total comprehensive income 137,240
---------
Exercise of stock options under
the Stock Option and Purchase Plans 8,448,466 8 31,200 -- -- 31,208
Repurchase of common stock (3,881,000) (4) (80,701) -- -- (80,705)
Tax benefit on exercise of non-qualified
stock options and disqualifying
dispositions under stock plans -- -- 52,397 -- -- 52,397
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 127,458,504 127 92,774 373,770 (1,106) 465,565
Components of comprehensive income:
Net income -- -- -- 178,144 -- 178,144
Translation adjustment -- -- -- -- (1,057) (1,057)
---------
Total comprehensive income 177,087
---------
Exercise of stock options under
the Stock Option and Purchase Plans 6,939,982 7 37,222 -- -- 37,229
Repurchase of common stock (3,646,140) (3) (123,131) -- -- (123,134)
Tax benefit on exercise of non-qualified
stock options and disqualifying
dispositions under stock plans -- -- 74,253 -- -- 74,253
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 27, 1998 130,752,346 131 81,118 551,914 (2,163) 631,000
Components of comprehensive income:
Net income -- -- -- 196,122 -- 196,122
Translation adjustment -- -- -- -- 693 693
---------
Total comprehensive income 196,815
---------
Exercise of stock options under
the Stock Option and Purchase Plans 7,998,030 8 51,055 -- -- 51,063
Repurchase of common stock (2,915,000) (3) (113,940) -- -- (113,943)
Tax benefit on exercise of non-qualified
stock options and disqualifying
dispositions under stock plans -- -- 114,281 -- -- 114,281
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 26, 1999 135,835,376 $ 136 $ 132,514 $748,036 $(1,470) $ 879,216
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
20
<PAGE> 20
CONSOLIDATED STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
Increase (decrease) in cash and cash equivalents
For the years ended JUNE 26, 1999 June 27, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 196,122 $ 178,144 $ 136,974
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization, and other 17,639 15,082 17,013
Reduction of equipment value 2,700 12,342 --
Changes in assets and liabilities:
Accounts receivable 22,591 (10,279) (10,978)
Inventories (576) (7,874) (6,362)
Deferred taxes 550 (10,300) 775
Income tax refund receivable (36,649) -- --
Other current assets (1,017) (960) 409
Accounts payable 5,088 9,920 (4,489)
Income taxes payable 89,353 90,749 43,990
Deferred income on shipments to distributors (7,370) 7,350 1,805
All other accrued liabilities 17,816 11,305 7,943
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 306,247 295,479 187,080
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment, net (54,326) (109,426) (44,187)
Other non-current assets 2,717 (1,153) 1,304
Purchase of held-to-maturity securities -- -- (24,313)
Purchases of available-for-sale securities (571,083) (384,305) (239,437)
Proceeds from maturities of held-to-maturity securities -- 5,800 95,122
Proceeds from sales/maturities of available-for-sale securities 396,712 277,687 32,207
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (225,980) (211,397) (179,304)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 51,063 37,229 31,208
Repurchase of common stock (113,943) (123,134) (80,705)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (62,880) (85,905) (49,497)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 17,387 (1,823) (41,721)
Cash and cash equivalents:
Beginning of year 16,739 18,562 60,283
- --------------------------------------------------------------------------------------------------------------------------
End of year $ 34,126 $ 16,739 $ 18,562
- --------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
- --------------------------------------------------------------------------------------------------------------------------
Income taxes $ 43,316 $ 8,293 $ 19,967
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
21
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Nature of Operations:
Maxim Integrated Products, Inc. (the Company) designs, develops,
manufactures, and markets linear and mixed-signal integrated circuits.
Products include data converters, interface circuits, microprocessor
supervisors, operational amplifiers, power supplies, multiplexers,
switches, battery chargers, battery management circuits, RF circuits,
fiber optic transceivers, sensors, and voltage references. Maxim
Integrated Products, Inc., is a global company with manufacturing
facilities in the United States, testing facilities in the Philippines,
and sales offices throughout the world. The Company's products are sold
to customers in numerous markets, including data processing,
telecommunications, networking, industrial control, instrumentation, and
military markets.
2. Summary of Significant Accounting Policies:
Basis of presentation:
The consolidated financial statements include the accounts of Maxim
Integrated Products, Inc., and all of its wholly owned subsidiaries.
Intercompany balances and transactions have been eliminated. 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 1999, 1998, and 1997 were 52-week years.
Cash equivalents and short-term investments:
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents. Short-term investments
consist of U.S. Treasury and Federal Agency debt securities with
original maturities beyond three months and within one year.
All of the Company's cash equivalents and short-term investments are
considered available-for-sale. Such securities are carried at fair
market value based on market quotes. Unrealized gains and losses, net of
tax, on securities in this category are reportable as 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.
Derivative financial instruments held for purposes other than trading:
The Company enters into forward exchange contracts to hedge certain firm
sales commitments denominated in foreign currencies and the net monetary
assets and liabilities of its foreign subsidiaries. The purpose of the
Company's foreign currency hedging activities is to protect the Company
from the risk that the eventual dollar cash flows resulting from the
sale of products to international customers will be adversely affected
by changes in exchange rates. Gains and losses related to these
contracts are deferred and included in operating income to match with
the overall gains or losses from the underlying transactions. Any gain
or loss realized from early termination of a forward contract is
included in operating income upon termination.
Inventories:
Inventories are stated at the lower of standard cost (which approximates
first in, first out) or market.
22
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Property, plant and equipment:
Property, plant and equipment are stated at cost, and depreciation is
computed on the straight line method over estimated useful lives of 2 to
40 years. Leasehold improvements are amortized over the lesser of their
useful lives or the remaining term of the related lease.
Revenue recognition:
Revenue from product sales direct to customers is generally recognized
upon shipment. A portion of the Company's sales are made to domestic
distributors under agreements which provide for certain price rebates
and limited product return privileges. As a result, the Company defers
recognition of such sales until the merchandise is sold by the domestic
distributors.
Foreign currency translation and remeasurement:
For foreign operations with the local currency as the functional
currency, assets and liabilities are translated at year-end exchange
rates, and statements of operations are translated at the average
exchange rates during the year. Exchange gains or losses arising from
the translation of foreign currency denominated assets and liabilities
are included as a component of stockholders' equity.
For foreign operations with the U.S. dollar as the functional currency,
monetary assets and liabilities are remeasured at the year-end exchange
rates. Certain non-monetary assets and liabilities are remeasured using
historical rates. Statements of operations are remeasured at the average
exchange rates during the year. Net gains and losses from foreign
currency remeasurements have been minimal and are included in selling,
general and administrative expenses.
During fiscal 1999, the Company changed the functional currency of its
foreign operations having the local currency as the functional currency
to the U.S. dollar to reflect the significance of U.S.-dollar-based
revenues for its foreign operations. This change did not have a material
impact on the Company's financial position or results of operation. The
ending foreign currency translation adjustment of $(1,470,000) will
remain as a component of stockholders' equity.
Employee stock plans:
The Company accounts for its stock option and employee stock purchase
plans in accordance with provisions of the Accounting Principles Board's
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." In
addition, the Company discloses pro forma information related to its
stock plans according to Financial Accounting Standards Board Statement
No. 123 (SFAS 123), "Accounting for Stock Based Compensation." See Note
8 of "Notes To Consolidated Financial Statements."
23
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Earnings per share:
Basic earnings per share are computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per
share incorporates the incremental shares issuable upon the assumed
exercise of stock options and other potentially dilutive securities. The
number of incremental shares from the assumed issuance of stock options
and other potentially dilutive securities is calculated applying the
treasury stock method.
New accounting pronouncements:
Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities," was
issued by the Financial Accounting Standards Board in June 1998. The
standard will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings, or be
recognized in other comprehensive income until the hedged item is
recognized in earnings. The change in a derivative's fair value related
to the ineffective portion of a hedge, if any, will be immediately
recognized in earnings. The Company will adopt this standard as of the
beginning of fiscal year 2001. The effect of adopting the standard is
currently being evaluated, but is not expected to have a material effect
on the Company's financial position or results of operations.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates relate to the useful lives of fixed
assets, allowances for doubtful accounts and customer returns, inventory
reserves, potential reserves relating to litigation matters, accrued
liabilities, and other reserves. Actual results may differ from those
estimates, and such differences may be material to the financial
statements.
24
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Concentration of credit risk:
Due to the Company's credit evaluation and collection process, bad debt
expenses have been immaterial. Credit risk with respect to trade
receivables is limited, because a large number of geographically diverse
customers make up the Company's customer base, thus spreading the credit
risk. While a significant portion of the Company's revenues are made
through domestic and international distributors, no single customer has
accounted for greater than 10% of net revenues in the last three fiscal
years.
The Company places its investments with government entities and high
credit quality financial institutions and limits the amount of credit
exposure to any one financial institution.
Concentration of other risks:
The semiconductor industry is characterized by rapid technological
change, competitive pricing pressures, and cyclical market patterns. The
Company's results of operations are affected by a wide variety of
factors, including general economic conditions, both at home and abroad,
economic conditions specific to the semiconductor industry and to the
analog portion of that industry, demand for the Company's products, the
timely introduction of new products, implementation of new manufacturing
technologies, the ability to manufacture efficiently, the ability to
safeguard patents and intellectual property in a rapidly evolving
market, and reliance on assembly and wafer fabrication subcontractors
and on independent distributors and sales representatives. As a result,
the Company may experience substantial period-to-period fluctuations in
future operating results due to the factors mentioned above or other
factors.
25
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
3. Financial Instruments:
Investments:
Short-term investments in available-for-sale securities are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
(Amounts in thousands) June 26, 1999 June 27, 1998
------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury securities at market value $262,425 $147,880
Federal Agency Debt securities at market value 218,155 158,329
------------------------------------------------------------------------------
$480,580 $306,209
------------------------------------------------------------------------------
</TABLE>
Due to short maturity terms and relative price insensitivity to market
interest rates, amortized cost approximates fair market value, and no
unrealized gains or losses have been recorded at June 26, 1999 and June
27, 1998. Fair market values are calculated based upon prevailing market
quotes at the end of each fiscal year. Gross realized gains or losses
for the fiscal years ended June 1999, 1998, and 1997 were immaterial.
Foreign exchange contracts:
At June 26, 1999, the Company held forward exchange contracts, all
having maturities of less than one year, to exchange various foreign
currencies for U.S. dollars in the amount of $43.9 million. Gains and
losses related to these contracts are deferred and matched with the
overall gains or losses from the underlying transactions. The table
below summarizes, by currency, the notional amounts of the Company's
forward exchange contracts and net unrealized gain or loss at the end of
fiscal 1999 and 1998. The net unrealized gain or loss approximates
carrying value of these contracts.
<TABLE>
<CAPTION>
----------------------------------------------------
June 26, 1999 June 27, 1998
----------------------------------------------------
Notional Unrealized Notional Unrealized
(Amounts in thousands) Amounts Gain/(Loss) Amounts Gain/(Loss)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Currency:
Japanese Yen $23,238 $ 565 $33,158 $ 2,162
British Pound Sterling 10,086 101 6,463 (37)
German Mark 7,692 351 8,870 77
French Franc 2,918 101 3,982 (1)
-------------------------------------------------------------------------------------
$43,934 $ 1,118 $52,473 $ 2,201
-------------------------------------------------------------------------------------
</TABLE>
The net unrealized gain is potentially subject to credit risk as it
represents appreciation of the hedge position over spot exchange rates
at year end. The Company controls credit risk through credit approvals
and monitoring procedures.
26
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
4. Inventories:
The components of inventories were:
<TABLE>
<CAPTION>
(Amounts in thousands) June 26, 1999 June 27, 1998
------------------------------------------------------------
<S> <C> <C>
Raw materials $ 3,473 $ 4,826
Work-in-process 18,932 29,575
Finished goods 22,878 10,306
------------------------------------------------------------
$45,283 $44,707
------------------------------------------------------------
</TABLE>
5. Property, Plant and Equipment:
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
(Amounts in thousands) June 26, 1999 June 27, 1998
----------------------------------------------------------------------------
<S> <C> <C>
Land $ 26,817 $ 26,817
Buildings 47,923 47,923
Building improvements 44,869 33,082
Machinery and equipment 270,767 231,380
----------------------------------------------------------------------------
390,376 339,202
----------------------------------------------------------------------------
Less accumulated depreciation
and amortization (100,243) (83,749)
----------------------------------------------------------------------------
$ 290,133 $ 255,453
----------------------------------------------------------------------------
</TABLE>
During fiscal 1999, the Company recorded a charge of $2.7 million to
cost of goods sold to reduce the carrying value of capital equipment to
net realizable value. During fiscal 1998, the Company recorded charges
of $12.3 million to reduce the carrying value of certain pieces of
capital equipment, of which $8.2 million was charged to cost of goods
sold, $3.1 million was charged to research and development expenses, and
$1.0 million was charged to selling, general and administrative
expenses.
27
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
6. Commitments and Contingencies:
The Company is a defendant in a patent infringement lawsuit that alleges
that certain of the Company's products infringe a United States patent
owned by the plaintiff in the lawsuit. The lawsuit is in the discovery
phase, with a jury trial on the issues of liability and willfulness
likely to occur in calendar 2000. In addition, 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.
The Company leases certain facilities, including a wafer fabrication
facility for which the lease expires in November 2003. Under that lease,
the Company has a five-year lease extension option and is responsible
for maintenance, taxes, and insurance on the facility.
Future annual minimum lease payments for all leased facilities are as
follows:
<TABLE>
<CAPTION>
Fiscal Year (Amounts in thousands)
--------------------------------------------------------------------------
<S> <C>
2000 $1,745
2001 1,378
2002 1,059
2003 982
2004 453
2005-2010 479
--------------------------------------------------------------------------
$6,096
--------------------------------------------------------------------------
</TABLE>
Rent expense was approximately $1.3 million in fiscal 1999 and $1.4
million in each of fiscal 1998 and 1997.
7. Comprehensive Income:
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," at
the beginning of fiscal 1999. The adoption has no impact on net income
or total stockholders' equity. Comprehensive income consists of net
income and foreign currency translation adjustments. Accumulated other
comprehensive income presented in the consolidated balance sheets
consists of foreign currency translation adjustments. Foreign currency
translation adjustments are not tax affected.
28
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
8. Employee Stock and Benefit Plans:
Stock option and purchase plans:
At June 26, 1999, the Company has reserved a total of 45,351,572 of its
common shares for issuance to employees and certain others under its
1996 Stock Incentive Plan, 1987 Supplemental Stock Option Plan, 1983
Incentive Stock Option Plan, 1987 Employee Stock Participation Plan (ESP
Plan), 1988 Nonemployee Director Stock Option Plan, and Supplemental
Nonemployee Stock Option Plan. Under the plans, options are generally
granted at a price not less than fair market value as determined by the
Board at the date of grant. Subject to certain limitations, the Board
has authority to make grants at prices less than fair market value.
Options granted under the stock option plans described above generally
vest within 5 years and expire from 5 to 10 years from the date of the
grant or such shorter term as may be provided in the agreement. Under
the 1987 Employee Stock Participation Plan, employees of the Company may
purchase shares of common stock at a price not less than the lesser of
85% of the fair market value of the stock on the date the purchase right
is granted or the date the right is exercised. During fiscal 1999, the
Company received $114,281,000 of tax benefit on the exercise of
nonqualified stock options and on disqualifying dispositions under stock
plans ($74,253,000 in fiscal 1998 and $52,397,000 in fiscal 1997).
Information with respect to activity under the stock option plans and
ESP Plan is set forth below:
<TABLE>
<CAPTION>
Outstanding Options
-------------------------------
Shares Weighted Average
Available Number of Price
for Grant Shares Per Share
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, June 30, 1996 857,824 45,850,226 $ 5.93
Shares reserved 14,530,000 -- --
Options granted (8,931,886) 8,931,886 $ 18.94
Options terminated 1,172,966 (1,172,966) $ 12.70
Options exercised -- (8,448,466) $ 3.71
-------------------------------------------------------------------------------
Balance, June 30, 1997 7,628,904 45,160,680 $ 8.64
Options granted (7,883,730) 7,883,730 $ 31.13
Options terminated 1,408,924 (1,408,924) $ 15.14
Options exercised -- (6,939,982) $ 5.36
-------------------------------------------------------------------------------
Balance, June 27, 1998 1,154,098 44,695,504 $ 12.97
Shares reserved 7,500,000 -- --
Options granted (7,755,474) 7,755,474 $ 37.86
Options terminated 2,837,502 (2,837,502) $ 18.43
Options exercised -- (7,998,030) $ 6.78
-------------------------------------------------------------------------------
Balance, June 26, 1999 3,736,126 41,615,446 $ 18.27
-------------------------------------------------------------------------------
</TABLE>
At June 26, 1999, 16,604,914 options to purchase shares of common stock
were exercisable (options exercisable at June 27, 1998 and June 30, 1997
were 17,308,790 and 16,217,762, respectively).
29
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The following table summarizes information about options outstanding at
June 26, 1999:
<TABLE>
<CAPTION>
Outstanding Options Options Exercisable
----------------------------------------- ---------------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices June 26, 1999 Life (Years) Price June 26, 1999 Price
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.89 - $ 5.56 9,996,153 3.5 $ 3.75 9,315,451 $ 3.64
$ 5.78 - $14.75 7,989,910 5.0 $ 8.38 4,653,848 $ 7.62
$14.78 - $22.56 8,709,085 7.0 $17.22 1,649,436 $16.65
$22.63 - $33.06 9,026,653 8.3 $27.79 791,309 $26.63
$33.13 - $59.00 5,893,645 9.3 $43.32 194,870 $35.92
---------------------------------------------------------------------------------------------
$ 0.89 - $59.00 41,615,446 6.3 $18.27 16,604,914 $ 7.52
---------------------------------------------------------------------------------------------
</TABLE>
Stock-based compensation:
Under SFAS 123, the Company may elect to continue to account for the
grant of stock options under 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 123, 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, 1987 Supplemental
Stock Option Plan, 1998 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 and it will not affect the
current or future earnings of the Company.
The valuation of options granted in fiscal 1999, 1998, and 1997 reported
below has been estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
Stock Option Plans Employee Stock Participation Plan
--------------------------------------------------------------------------
Fiscal year 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected option holding period (in years) 4.4 4.0 4.4 0.5 0.5 0.5
Risk-free interest rate 6.0% 6.0% 6.4% 5.4% 5.3% 5.4%
Stock price volatility 0.51 0.48 0.47 0.51 0.48 0.47
Dividend yield -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
401(k) retirement plan:
The Company sponsors a 401(k) retirement plan [401(k) Plan] under which
full-time U.S. employees may contribute, on a pretax basis, between 5%
and 15% of their total annual income from the Company, subject to a
maximum aggregate annual contribution imposed by the Internal Revenue
Code. Company contributions to the 401(k) Plan were immaterial in fiscal
1999, 1998, and 1997.
30
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The Black-Scholes option pricing model was developed for use in
estimating the value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require
the input of highly subjective assumptions, including the expected stock
price volatility. Because the Company's options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect the
estimate of value, in the opinion of management, the existing models do
not necessarily provide a reliable single measure of the value of the
options. The following is a summary of weighted average grant date
values generated by application of the Black- Scholes model:
<TABLE>
<CAPTION>
Weighted Average Grant Date Value
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock Option Plans $ 19.21 $ 14.59 $ 9.83
Employee Stock Participation Plan $ 9.76 $ 7.12 $ 5.99
-------------------------------------------------------------------------------------------------------------
</TABLE>
As required under SFAS 123, 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 adjusted amounts are as follows:
<TABLE>
<CAPTION>
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income adjusted for SFAS 123 (in thousands) $ 158,092 $ 145,204 $ 121,190
-------------------------------------------------------------------------------------------------------------
Pro forma diluted earnings per share
adjusted for SFAS 123 $ 1.04 $ 0.96 $ 0.83
-------------------------------------------------------------------------------------------------------------
</TABLE>
The effects of the disclosures above relate only to options granted
after June 30, 1995. Therefore, the impact on net income recalculated
under SFAS 123 is not likely to be representative of similar
disclosures in future years as additional option grants will impact
future disclosures.
9. Earnings Per Share:
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for basic earnings per share
and diluted earnings per share
Net Income $196,122 $178,144 $136,974
---------------------------------------------------------------------------------------
Denominator for basic earnings per share 132,722 129,838 125,430
Effect of dilutive securities:
Stock options and warrants 19,337 20,823 20,324
---------------------------------------
Denominator for diluted earnings per share 152,059 150,661 145,754
---------------------------------------------------------------------------------------
Earnings per share:
Basic $ 1.48 $ 1.37 $ 1.09
Diluted $ 1.29 $ 1.18 $ 0.94
---------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
10. Income Taxes:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Amounts in thousands)
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
-------------------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current $ 84,299 $ 87,461 $54,976
Deferred 450 (9,200) 4,015
State
Current 12,004 9,305 8,225
Deferred 100 (1,100) 595
Foreign
Current 4,179 5,305 2,750
-------------------------------------------------------------------------
$101,032 $ 91,771 $70,561
-------------------------------------------------------------------------
</TABLE>
Pretax income from foreign operations was approximately $12.0 million,
$18.0 million, and $6.4 million for the years ended June 26, 1999, June
27, 1998, and June 30, 1997, respectively.
The Company enjoys a tax holiday with respect to its operations in
Cavite, Philippines, which will expire in fiscal 2002. The impact of
this holiday was to increase net income by approximately $991,000 ($0.01
diluted earnings per share) and $1,274,000 ($0.01 diluted earnings per
share) during fiscal 1999 and 1998, respectively. At June 26, 1999,
accumulated pretax earnings of approximately $6,663,000 are intended to
be permanently reinvested outside the United States, and no federal tax
has been provided on these earnings.
The provision for income taxes differs from the amount computed by
applying the statutory rate as follows:
<TABLE>
<CAPTION>
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State tax, net of
federal benefit 2.6 2.0 2.8
General business credits (0.7) (1.0) (0.7)
Exempt earnings of Foreign
Sales Corporation (2.5) (2.0) (2.5)
Other (0.4) -- (0.6)
----------------------------------------------------------------------------------
34.0% 34.0% 34.0%
----------------------------------------------------------------------------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) June 26, 1999 June 27, 1998
------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory valuation and reserves $ 16,679 $ 8,958
Distributor related accruals 9,980 8,943
Accrued compensation 10,762 4,783
Other reserves and accruals not
currently deductible for tax reporting 13,973 13,502
------------------------------------------------------------------------------------------------
Total deferred tax assets 51,394 36,186
------------------------------------------------------------------------------------------------
Deferred tax liabilities--fixed assets cost recovery (21,744) (5,986)
------------------------------------------------------------------------------------------------
Net deferred tax assets $ 29,650 $ 30,200
------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
11. Segment Information:
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information" in fiscal 1999. The new standard revises the way operating
segments are reported. The Company operates and tracks its results in
one operating segment. The Company designs, develops, manufactures and
markets a broad range of linear and mixed-signal integrated circuits.
The Chief Executive Officer has been identified as the Chief Operating
Decision Maker as defined by SFAS 131.
Enterprise-wide information is provided in accordance with SFAS 131.
Geographical revenue information is based on the customer's ship-to
location. Long-lived assets consist of property, plant and equipment.
Property, plant and equipment information is based on the physical
location of the assets at the end of each fiscal year.
Net revenues from unaffiliated customers by geographic region were as
follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
For the years ended June 26, 1999 June 27, 1998 June 30, 1997
---------------------------------------------------------------------------
<S> <C> <C> <C>
United States $249,923 $244,927 $188,209
Europe 152,769 148,245 109,849
Pacific Rim 187,857 161,985 125,425
Rest of World 16,416 5,063 10,227
---------------------------------------------------------------------------
$606,965 $560,220 $433,710
---------------------------------------------------------------------------
</TABLE>
Net long-lived assets by geographic region were as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) June 26, 1999 June 27, 1998
--------------------------------------------------------
<S> <C> <C>
United States $264,190 $233,747
Rest of World 25,943 21,706
--------------------------------------------------------
$290,133 $255,453
--------------------------------------------------------
</TABLE>
33
<PAGE> 33
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Maxim Integrated Products, Inc.
We have audited the accompanying consolidated balance sheets of Maxim
Integrated Products, Inc., as of June 26, 1999 and June 27, 1998, and
the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended June
26, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Maxim Integrated Products, Inc., at June 26, 1999 and June 27, 1998, and
the consolidated results of its operations and its cash flows for each
of the three years in the period ended June 26, 1999, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
July 30, 1999
34
<PAGE> 34
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 606,965 $560,220 $433,710 $421,626 $250,820
- ----------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold $ 189,673 $183,724 $145,307 $146,253 $103,598
Gross margin % 68.8% 67.2% 66.5% 65.3% 58.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income $ 276,768 $255,036 $198,945 $185,890 $ 57,234
% of net revenues 45.6% 45.5% 45.9% 44.1% 22.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 196,122 $178,144 $136,974 $123,345 $ 38,906
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 1.48 $ 1.37 $ 1.09 $ 1.03 $ 0.34
Diluted $ 1.29 $ 1.18 $ 0.94 $ 0.87 $ 0.29
- ----------------------------------------------------------------------------------------------------------------------------------
Shares used in the calculation of earnings per share:
Basic 132,722 129,838 125,430 120,204 115,703
Diluted 152,059 150,661 145,754 141,854 133,004
- ----------------------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents
and short-term investments $ 514,706 $322,948 $223,953 $129,253 $ 92,295
Working capital $ 607,976 $377,723 $291,786 $176,182 $ 95,978
Total assets $1,022,314 $769,492 $556,386 $417,794 $256,133
Stockholders' equity $ 879,216 $631,000 $465,565 $325,425 $178,710
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 35
FINANCIAL HIGHLIGHTS BY QUARTER
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Unaudited
(Amounts in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------
Quarter Ended
1999 6/26/99 3/27/99 12/26/98 9/26/98
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 159,484 $ 147,188 $ 145,012 $155,281
- ----------------------------------------------------------------------------------------------------------------------
Cost of goods sold $ 48,273 $ 45,538 $ 45,409 $ 50,453
Gross margin % 69.7% 69.1% 68.7% 67.5%
- ----------------------------------------------------------------------------------------------------------------------
Operating income $ 73,899 $ 67,004 $ 65,575 $ 70,290
% of net revenues 46.3% 45.5% 45.2% 45.3%
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 52,566 $ 47,669 $ 46,492 $ 49,395
- ----------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.39 $ 0.36 $ 0.35 $ 0.38
Diluted $ 0.34 $ 0.31 $ 0.31 $ 0.33
- ----------------------------------------------------------------------------------------------------------------------
Shares used in calculation of earnings per share:
Basic 135,235 133,762 131,309 130,581
Diluted 155,622 153,981 149,972 148,660
- ----------------------------------------------------------------------------------------------------------------------
Market price range - High $ 64.81 $ 55.00 $ 44.94 $ 36.06
- Low $ 49.19 $ 40.88 $ 22.56 $ 27.19
- ----------------------------------------------------------------------------------------------------------------------
Quarter Ended
1998 6/27/98 3/28/98 12/27/97 9/27/97
- ----------------------------------------------------------------------------------------------------------------------
Net revenues $ 155,181 $ 145,039 $ 135,000 $125,000
- ----------------------------------------------------------------------------------------------------------------------
Cost of goods sold $ 50,424 $ 47,250 $ 44,550 $ 41,500
Gross margin % 67.5% 67.4% 67.0% 66.8%
- ----------------------------------------------------------------------------------------------------------------------
Operating income $ 70,082 $ 66,242 $ 61,626 $ 57,086
% of net revenues 45.2% 45.7% 45.6% 45.7%
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 49,201 $ 46,150 $ 42,829 $ 39,964
- ----------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.37 $ 0.35 $ 0.33 $ 0.31
Diluted $ 0.33 $ 0.31 $ 0.29 $ 0.26
- ----------------------------------------------------------------------------------------------------------------------
Shares used in calculation of earnings per share:
Basic 131,546 130,510 128,733 128,564
Diluted 150,862 151,223 149,749 150,810
- ----------------------------------------------------------------------------------------------------------------------
Market price range - High $ 40.62 $ 42.00 $ 38.19 $ 37.50
- Low $ 27.62 $ 28.50 $ 28.50 $ 27.94
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 36
BOARD OF DIRECTORS AND CORPORATE
OFFICERS
BOARD OF DIRECTORS
John F. Gifford
Chairman of the Board, President
and Chief Executive Officer
James R. Bergman
Director
General Partner of DSV Partners
B. Kipling Hagopian
Director
Special Limited Partner of Brentwood Venture Capital
Partner, Apple/Oaks Partners LLC
Dr. A. R. Frank Wazzan
Director
Dean of Engineering & Applied Sciences at
University of California, Los Angeles
CORPORATE OFFICERS
John F. Gifford
Chairman of the Board, President
and Chief Executive Officer
Frederick G. Beck
Vice President
Ziya G. Boyacigiller
Vice President
Tunc Doluca
Vice President
Laszlo V. Gal, Ph.D.
Vice President
Anthony C. Gilbert
Corporate Secretary
Richard C. Hood
Vice President
Kenneth J. Huening
Vice President
Carl W. Jasper
Vice President and Chief Financial Officer
Nasrollah Navid, Ph.D.
Vice President
Pirooz Parvarandeh
Vice President
Charles G. Rigg
Vice President
Robert F. Scheer
Vice President
Vijay Ullal
Vice President
37
<PAGE> 37
CORPORATE DATA
STOCKHOLDER
INFORMATION
INDEPENDENT AUDITORS
Ernst & Young LLP
San Jose, California
LEGAL COUNSEL
Morrison & Foerster LLP
Palo Alto, California
REGISTRAR/TRANSFER AGENT
Boston EquiServe
Boston, Massachusetts
CORPORATE HEADQUARTERS
120 San Gabriel Drive
Sunnyvale, California 94086
(408) 737-7600
FORM 10-K
A copy of the Company's Form 10-K filed with the Securities & Exchange
Commission, without exhibits, is available without charge upon writing
to:
Stockholder Relations
Maxim Integrated Products, Inc.
120 San Gabriel Drive
Sunnyvale, California 94086
STOCK LISTING
At June 26, 1999, there were approximately 1,239 stockholders of record
of the Company's common stock. Maxim common stock is traded on the
NASDAQ National Market under the symbol MXIM. The Company has never paid
cash dividends on its common stock and has no present plans to do so.
ANNUAL MEETING
The annual meeting of stockholders will be on Thursday, November 18,
1999 at 11:00 a.m. at the Company's Event Center, 433 Mathilda Avenue,
Sunnyvale, California 94086.
38
<PAGE> 38
COVER 3
<PAGE> 39
COVER 4
<PAGE> 1
Exhibit 21
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
<S> <C>
Maxim Integrated Products England
UK Limited
Maxim International Inc. Virgin Islands
Maxim GmbH Germany
Maxim SARL France
Maxim Japan K.K. Japan
Maxim Integrated Products Korea, Inc. Korea
Maxim Phil. Operating Corporation Philippines
Maxim Phil. Holding Corporation Philippines
These Subsidiaries are 100% owned by the Registrant.
Maxtek Components Corporation Oregon
This Subsidiary is 50% owned by the Registrant.
Maxim Phil. Land Corporation Philippines
This Subsidiary is 40% owned by the Registrant.
</TABLE>
29
<PAGE> 1
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Maxim Integrated Products, Inc. of our report dated July 30, 1999, included
in the Annual Report to Shareholders of Maxim Integrated Products, Inc.
Our audits also included the consolidated financial statement schedule of
Maxim Integrated Products, Inc. listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-57849, 33-72186, 33-54026, 33-44485, 33-37470, 33-37469,
33-34728, 33-34519, 33-25639 and 33-22147) pertaining to the 1993 Incentive
Stock Option Plan, the 1983 Supplemental Nonemployee Stock Option Plan, the 1987
Supplemental Stock Option Plan, the 1987 Employee Stock Option Participation
Plan, and the 1988 Nonemployee Director Stock Option Plan of our report dated
July 30, 1999, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the consolidated financial statement schedule included
in this Annual Report (Form 10-K) of Maxim Integrated Products, Inc.
/s/ ERNST & YOUNG LLP
San Jose, California
September 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME AND NOTES THERETO FOR
ITS FISCAL YEAR END JUNE 26, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS AND NOTES IN ITS ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> JUN-26-1999
<CASH> 514,706
<SECURITIES> 0
<RECEIVABLES> 80,815
<ALLOWANCES> (1,485)
<INVENTORY> 45,283
<CURRENT-ASSETS> 728,874
<PP&E> 390,376
<DEPRECIATION> (100,243)
<TOTAL-ASSETS> 1,022,314
<CURRENT-LIABILITIES> 120,898
<BONDS> 0
0
0
<COMMON> 136
<OTHER-SE> 879,080
<TOTAL-LIABILITY-AND-EQUITY> 1,022,314
<SALES> 606,965
<TOTAL-REVENUES> 606,965
<CGS> 189,673
<TOTAL-COSTS> 189,673
<OTHER-EXPENSES> 140,524
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (20,386)
<INCOME-PRETAX> 297,154
<INCOME-TAX> 101,032
<INCOME-CONTINUING> 196,122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196,122
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.29
</TABLE>
