<PAGE> 1
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 include (a) projections relevant to future revenue,
income, earnings, capital expenditures, capital structure, sufficiency of cash
funds and other financial items, (b) statements of plans or objectives of the
Company's management for future operations, including, without limitation, the
Company's goal of becoming a $3.5 billion company and its execution in this
regard; facilities, operations, and capacity expansion; composition of our
customer base; plans or objectives relating to the Company's expenses, products,
their development, manufacture, marketing, and sale, (c) statements of future
economic performance including, without limitation, the Company's position to
meet the growing demand for analog solutions, (d) statements regarding bookings
and backlog, and (e) 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. 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; whether the
Company is able to manufacture in a correct mix to respond to orders on hand and
new orders received in the future; whether the Company is able to achieve its
new product development and introduction goals, including, without limitation,
goals for recruiting, retaining, training, and motivating engineers,
particularly design engineers, and goals for conceiving and introducing timely
new products that are well received in the marketplace; whether the Company is
able to effectively and successfully expand manufacturing operations to meet
increased demand for the Company's products; and whether the Company is able to
successfully commercialize its new technologies, such as its next-generation
high-frequency technologies, that it has been investing in by designing and
introducing new products based on these new technologies.
Other important factors that could cause actual results to differ materially
from those predicted 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; and competitors that may
outperform the Company.
Readers should also 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. 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.
2
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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, sound, voice, or light, 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 2,100 products, of which over 1,800 are proprietary. Net
revenues were $864.9 million for the year ended June 24, 2000. The Company has
over 4,100 employees. Our headquarters is in Sunnyvale, California, and we have
facilities in San Jose, California; Beaverton, Oregon; Cavite, the Philippines;
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>
<CAPTION>
Table of Contents
-----------------
<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
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FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Amounts in thousands, except share data) FY2000 FY1999 FY1998
-------- -------- ---------
<S> <C> <C> <C>
Net revenues $864,924 $606,965 $560,220
Net income $280,619 $196,122 $178,144
Earnings per share--diluted $ 0.88 $ 0.64 $ 0.59
</TABLE>
Net Revenues
(dollars in millions)
[BAR GRAPH]
Twelve Months Ending
Operating Income
(percentage of net revenues)
[BAR GRAPH]
Twelve Months Ending
Stockholders' Equity
(dollars in millions)
[BAR GRAPH]
4
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TO OUR STOCKHOLDERS
[PHOTO]
Four years ago, when we developed our 5-year plan, it seemed possible that we
could become a $1 billion company in fiscal year 2001, if our four business
units executed their new product development, manufacturing, and marketing
plans. Four years later in fiscal 2000, our annual bookings have well exceeded
this $1 billion target, our four business units have increased to eight, and
they have introduced more products in a single quarter than in all of fiscal
1995. Our fourth quarter fiscal 2000 revenues exceeded those for the entire 1995
fiscal year. We certainly have come a long way since 1995. Today, we are working
toward our goal of becoming a $3.5 billion company, and toward that end we are
executing well on all fronts.
FINANCIAL HIGHLIGHTS
Maxim ended fiscal 2000 with net revenues of $864.9 million. Operating income
for fiscal 2000 was $385.4 million. The Company increased cash and short-term
investments by $126.2 million after paying $257.0 million for 5.8 million
shares of its common stock and $154.6 million for capital equipment, properties,
and facilities. Diluted earnings per share for fiscal 2000 were $0.88. Total
assets increased to $1.3 billion. Stockholders' equity grew to $1.1 billion.
Return on average stockholders' equity for fiscal 2000 was 28.1%. We believe
that this return, one of the highest in the industry, confirms that the Company
continued to make good product and capacity investment decisions with
stockholders' assets.
A RECORD-BREAKING YEAR FOR NEW PRODUCT INTRODUCTIONS
Maxim introduced a record 383 products during the 12-month product announcement
year ending in July 2000, a 35% increase over last year's record of 284
products. As a television anchor noted, "That's more than one new product per
day, including weekends!" These products, which are important to our revenues in
fiscal 2003 through fiscal 2005 and beyond, are being designed into a wide
spectrum of end equipment, including testers, medical devices, notebook
computers, cellular phones, optical switches, set-top boxes, video displays, GPS
receivers, digital cameras, and industrial controls.
MEETING THE UNPRECEDENTED DEMAND FOR OUR PRODUCTS
Worldwide bookings for the year exceeded our expectations, and demand for our
products increased steadily as the year progressed.
The Maxim management team learned from the manufacturing and planning challenges
of fiscal 1996, when unprecedented customer demand and capacity constraints led
to delivery delays, double bookings, and subsequently inventory buildup in the
sales channel. During fiscal 2000, we consistently kept our manufacturing
capacity level ahead of our shipment level and were guided by our detailed
estimate of end market consumption for our products. We monitored distribution
orders to avoid shipping product for
5
<PAGE> 6
TO OUR STOCKHOLDERS
inventory rather than for customer consumption. We worked closely with our key
customers and met our commitments to them to ensure that our lead times did not
impede their production schedules. We built die bank inventory to enable us to
respond more quickly to turns orders and accurately anticipated what our
customers would need.
We believe that our micromanagement of our manufacturing schedules enabled us to
meet our customers' needs more effectively than most of our competitors and
certainly added to our reputation as a dependable and trustworthy supplier to
our strategic customer base.
WE HAVE NOT BEEN CAPACITY CONSTRAINED
In anticipation of continued strong demand for our products, we increased
quarterly manufacturing capacity at our two wafer fabs by over 80% during the
year. These facilities also achieved significant quality and productivity
improvements. Additional capacity expansion is planned for the coming year in
anticipation of continued growth in the fiscal 2002 to fiscal 2003 timeframe.
Our San Jose fabrication facility, which was responsible for over 35% of our
manufacturing in fiscal 2000, is expected to double its capacity by the end of
fiscal 2002. Our Beaverton fabrication facility is undergoing an expansion that
is expected to add 40,000 square feet of wafer fabrication capacity in fiscal
2001 for use in fiscal 2002.
During fiscal 2001, we intend to expand our offshore test operations, doubling
our existing Philippines test facility and adding a new facility in Thailand. We
anticipate that our test facilities will be capable of processing 350 million
units per quarter by the end of fiscal 2001 and twice that number in fiscal
2002.
Over the past several years, the Maxim headquarters location has been unable to
expand at the same rate as our growing employee population. To avoid leaving
what has been our home for more than 10 years, we are in the process of building
a new 120,000-square-foot headquarters building on our San Gabriel Drive campus,
scheduled for completion in November 2000. This building will enable us to
consolidate our technical personnel and should accommodate our needs at
headquarters through fiscal 2003.
MAXIM REMAINS THE ENGINEER'S COMPANY
Maxim's advanced products and processes, excellent mentoring program, and
financial rewards make the Company an extremely desirable place to work for
creative and productive engineers, especially when compared to companies in
unstable, unproven industries and those in our industry with inconsistent
results and career uncertainties. For most technologists, compensation is second
to job satisfaction. Maxim creates a unique environment for the most talented
engineers to develop products that help other people and companies achieve their
goals.
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TO OUR STOCKHOLDERS
MAXIM LEADS THE WAY IN CUSTOMER SERVICE, ELECTRONIC COMMERCE
As Maxim has grown in size and stature in the electronics industry,
relationships with key customers have become strategic and mutually beneficial.
Industry leaders in microprocessor-based electronics and digital communications
are increasingly looking forward to innovations from Maxim to win in today's
competitive marketplace.
Maxim was a pioneer of Internet technologies in 1996 when we put all of our
technical literature online for access by engineers worldwide. Since then, we
have focused on the Internet as an important communications tool and have an
extensive technical website with literature in a variety of different languages.
This year, we were among the first in our industry to offer an electronic
commerce alternative to our customers, who can now place orders online of any
volume at any time. Maxim is strongly committed to being at the forefront of new
enabling business-to-business technology as a way of better serving our growing
international customer base.
MAXIM AND THE INFORMATION AGE
The world is at the dawning of the Information Age, an unprecedented period of
economic growth driven by technologies that deliver written and oral data.
Computer technology, networking technology, and digital communications are
delivering data to people worldwide, enabling them to improve their
productivity, their quality of life, and in fact create other businesses.
Maxim's analog and mixed-signal circuits enable the technologies that drive this
Information Age. For this reason, we believe that our growth is not confined to
a business cycle; demand for our products will continue to be strong as the
global demand for data increases in developed and developing countries. We feel
confident that this year's accomplishments strongly position us to meet this
growing demand for high-quality, high-performance innovative analog solutions.
Sincerely,
/s/ JOHN F. GIFFORD
----------------------------------
John F. Gifford
President, Chief Executive Officer
and Chairman of the Board
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QUARTERLY HIGHLIGHTS
First Quarter FY00
- Net revenues of $180.0 million
- Net income of $58.4 million ($0.19 diluted earnings per share)
Net Revenues
(dollars in millions)
[BAR GRAPH]
Operating Income
(percentage of net revenues)
[BAR GRAPH]
Stockholders' Equity
(dollars in millions)
[BAR GRAPH]
Second Quarter FY00
- Net revenues of $201.7 million
- Net income of $64.6 million ($0.20 diluted earnings per share)
Net Revenues
(dollars in millions)
[BAR GRAPH]
Operating Income
(percentage of net revenues)
[BAR GRAPH]
Stockholders' Equity
(dollars in millions)
[BAR GRAPH]
8
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QUARTERLY HIGHLIGHTS
Third Quarter FY00
- Net revenues of $226.5 million
- Net income of $74.7 million ($0.23 diluted earnings per share)
Net Revenues
(dollars in millions)
[BAR GRAPH]
Operating Income
(percentage of net revenues)
[BAR GRAPH]
Stockholders' Equity
(dollars in millions)
[BAR GRAPH]
Fourth Quarter FY00
- Net revenues of $256.6 million
- Net income of $82.9 million ($0.26 diluted earnings per share)
Net Revenues
(dollars in millions)
[BAR GRAPH]
Operating Income
(percentage of net revenues)
[BAR GRAPH]
Stockholders' Equity
(dollars in millions)
[BAR GRAPH]
9
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10
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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
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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 $864.9 million in fiscal 2000, a 42.5% increase from net revenues of
$607.0 million in fiscal 1999. This increase in net revenues for fiscal 2000 is
related primarily to higher unit shipments resulting from continued introduction
of new proprietary products, increased market acceptance of the Company's
existing proprietary and second-source products, and an increase in market
demand for analog semiconductor products in general.
Net Revenues
(dollars in millions)
[BAR GRAPH]
The Company's net revenues of $607.0 million for fiscal 1999 represented an
increase of 8.3% from net revenues of $560.2 million for fiscal 1998. This
increase was primarily related to higher unit shipments resulting from continued
introduction of new proprietary products and increased market acceptance of the
Company's existing proprietary and second-source products.
Approximately 57%, 59%, and 56% of the Company's net revenues in fiscal 2000,
1999, and 1998, respectively, were derived from customers located outside the
United States, primarily in the Pacific Rim and Europe. While the majority of
these sales are denominated in U.S. dollars, the Company enters into foreign
currency forward contracts to mitigate its risks on firm commitments and net
monetary assets denominated in foreign currencies. The impact of changes in
foreign exchange rates on net revenues and the Company's results of operations
for fiscal 2000, 1999, and 1998 was immaterial.
Gross Margin The Company's gross margin as a percentage of net revenues was
69.9% in fiscal 2000 compared to 68.8% in fiscal 1999. The improvement in gross
margin from fiscal 1999 to fiscal 2000 was principally due to production
efficiencies obtained through economies of scale and cost reductions. The
increase in gross margin for fiscal 2000 was offset by $27.1 million recorded to
write down certain manufacturing equipment to net realizable value, increased
inventory reserves of $3.3 million, $3.0 million recorded for royalty expense,
and Medicare taxes on realized gains from the exercise of employee stock
options. Due to a recent accounting interpretation by the Financial Accounting
Standards Board, the Company must expense these Medicare taxes. Previously these
tax payments were recorded within Stockholders' Equity as an offset against the
proceeds received from the exercise of stock options. Gross margin for fiscal
Gross Margin
(percentage of net revenues)
[BAR GRAPH]
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1999 was negatively impacted by an increase in inventory reserves of $8.0
million, $7.5 million expensed for negative manufacturing variances, charges of
$3.6 million recorded to obsolete a 4-inch wafer fabrication facility, and $2.7
million recorded to write down certain manufacturing equipment to net realizable
value.
The Company's gross margin as a percentage of net revenues was 68.8% in fiscal
1999 compared to 67.2% in fiscal 1998. The improvement in gross margin in fiscal
1999 was principally due to production efficiencies obtained through economies
of scale and cost reductions. Gross margin for fiscal 1998 was negatively
impacted by an increase in inventory reserves of $10.4 million and $8.2 million
recorded to write down certain manufacturing equipment to net realizable value.
The increase in gross margin for fiscal 1999 was offset by the items previously
noted.
Research and Development Research and development expenses were $142.3 million
and $88.2 million for fiscal 2000 and 1999, respectively, which represented
16.4% and 14.5% of net revenues, respectively. The increase in research and
development expenses both in terms of absolute dollars and as a percentage of
net revenues is due to the Company's continuous efforts to introduce new
products. Specifically, research and development expenses increased in fiscal
2000 due to increased headcount and related employee expenses to continue
product development to support revenue growth, increased wafer and mask expenses
to support new product development, $8.1 million recorded to write down certain
equipment to net realizable value, and expenses for Medicare taxes on realized
gains from the exercise of employee stock options.
Research & Development
(dollars in millions)
[BAR GRAPH]
Research and development expenses were $88.2 million and $72.2 million in 1999
and 1998, respectively, which represented 14.5% and 12.9% of net revenues,
respectively. The increase in research and development expenses both in terms of
absolute dollars and 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 research and development
expenditures in absolute dollars in future periods. The level of research and
development expenditures as a
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
percentage of net revenues will vary from period to period, depending, in part,
on the level of net revenues.
Selling, General and Administrative Selling, general and administrative
expenses were $77.1 million and $52.3 million in fiscal 2000 and 1999,
respectively, which represented 8.9% and 8.6% of net revenues, respectively. The
increase in selling, general and administrative expenses is primarily due to
increased headcount and related employee expenses to support the Company's
higher revenues, charges recorded primarily for technology licensing of $15.0
million, and expenses for Medicare taxes on realized gains from the exercise of
employee stock options.
Selling, General & Administrative
(dollars in millions)
[BAR GRAPH]
Selling, general and administrative expenses were $52.3 million and $49.3
million in fiscal 1999 and 1998, respectively, which represented 8.6% and 8.8%
of net revenues, respectively. The increase in selling, general, and
administrative expenses in absolute dollars in fiscal 1999 was primarily due to
additional headcount and related employee expenses to support the Company's
increased level of revenues.
Interest Income and Other, Net Interest income and other, net increased to
$39.8 million in fiscal 2000 from $20.4 million in fiscal 1999. This increase
was due to higher levels of invested cash, cash equivalents, and short-term
investments and higher average interest rates. In addition, included within
interest income and other, net in fiscal 2000 is a $4.5 million gain from the
cash sale of the Company's 50% interest in its high frequency packaging and
assembly subsidiary and a $5.6 million gain from the sale of an investment in an
unrelated test equipment company.
Interest income and other, net was $20.4 million in fiscal 1999 compared to
$14.9 million in fiscal 1998. The increase in interest income and other, net in
fiscal 1999 was 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
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 24, 2000, the Company investment
portfolio had an expected weighted average return of 6.2% and a weighted
maturity of 222 days.
Provision for Income Taxes The effective tax rate was 34% for fiscal 2000,
1999, and 1998.
OUTLOOK:
Both end market and net bookings for the Company increased throughout fiscal
2000. These increases occurred in all geographic locations and were due in large
part to a significant increase in demand for the Company's products targeting
wireless and wired communications, portable equipment, networks, and broad-based
industrial applications.
At the end of the fourth quarter of fiscal 2000, backlog shippable within the
next 12 months was approximately $420 million (compared to $166 million at the
end of fiscal 1999 and $171 million at the end of fiscal 1998). While bookings
and backlog were at record levels for the Company, turns orders as a percent of
bookings had decreased during fiscal 2000 to the more historic level of 30% by
the end of fiscal 2000. Turns orders are customer orders that are for delivery
within the same quarter and may result in revenue within the same quarter if the
Company has available inventory that matches those orders. Because the Company's
backlog of orders at any point is not necessarily based on firm, noncancelable
orders and because the Company's customers do in fact routinely cancel orders
for their own convenience with little notice, backlog has limited value as a
predictor of future revenues.
The Company's ability to increase its revenues and earnings in the first quarter
of fiscal 2001 and beyond will depend on a variety of factors, including
particularly continued growth in end-market bookings and net bookings and
continued ability to manufacture efficiently and in the correct mix to match
orders.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION:
Overview Total assets grew to $1,349.8 million at the end of fiscal 2000, up
from $1,022.3 million at the end of fiscal 1999. The increase is primarily due
to favorable operating results for the year. Net accounts receivable increased
to $147.2 million at the end of fiscal 2000 from $79.3 million at the end of
fiscal 1999, primarily due to an overall increase in sales volume. Net property,
plant, and equipment increased to $411.3 million at the end of fiscal 2000 from
$290.1 million at the end of fiscal 1999, reflecting the Company's efforts to
expand manufacturing operations to meet increased demand for its products. Net
inventory grew to $58.6 million in fiscal 2000 from $45.3 million in fiscal
1999 due to higher manufacturing production to support the Company's higher
revenue levels.
Liquidity and Capital Resources The Company's primary source of funds for
fiscal 2000, 1999, and 1998 has been from net cash generated from operating
activities of approximately $483.8 million, $306.2 million, and $295.5 million,
respectively. In addition, the Company received approximately $79.3 million,
$51.1 million, and $37.2 million of proceeds from the exercises of stock options
and purchases of common stock under the Employee Stock Participation Plan during
fiscal 2000, 1999, and 1998, respectively.
Cash, Cash Equivalents &
Short-Term Investments
(dollars in millions)
[BAR GRAPH]
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 $135.7
million, $114.3 million, and $74.3 million in fiscal 2000, 1999, and 1998,
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 2000, 1999, and 1998 were repurchases of
$257.0 million, $113.9 million, and $123.1 million of the Company's common
stock, and purchases of property, plant and equipment of $176.1 million, $54.3
million, and $109.4 million, respectively. In fiscal 2000, $24.8 million of the
$176.1 million in capital purchases was for a building and land located in
Hillsboro, Oregon. This facility is part of the Company's
16
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
plan to expand manufacturing operations to meet increased customer demand. 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 24, 2000, the Company's available funds consisted of $640.9 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 2001.
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Amounts in thousands, except share data) JUNE 24, 2000 June 26, 1999
----------------------------------------- ------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 53,057 $ 34,126
Short-term investments 587,889 480,580
----------- -----------
Total cash, cash equivalents and
short-term investments 640,946 514,706
----------- -----------
Accounts receivable (net of allowance for doubtful
accounts of $1,771 in 2000 and $1,485 in 1999) 147,184 79,330
Inventories 58,593 45,283
Deferred tax assets 67,500 47,850
Income tax refund receivable 5,186 36,649
Other current assets 12,010 5,056
----------- -----------
Total current assets 931,419 728,874
----------- -----------
Property, plant and equipment, at cost, less
accumulated depreciation 411,342 290,133
Other assets 7,022 3,307
----------- -----------
Total assets $ 1,349,783 $ 1,022,314
----------- -----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 54,318 $ 40,257
Income taxes payable 9,503 2,484
Accrued salaries 41,450 26,364
Accrued expenses 86,256 35,477
Deferred income on shipments to distributors 16,924 16,316
----------- -----------
Total current liabilities 208,451 120,898
----------- -----------
Other liabilities 4,000 4,000
Deferred tax liabilities 19,500 18,200
Commitments and contingencies
----------- -----------
Total liabilities 231,951 143,098
----------- -----------
Stockholders' equity:
Preferred stock, $0.001 par value;
Authorized: 2,000,000 shares;
Issued and outstanding: none -- --
Common stock, $0.001 par value;
Authorized: 480,000,000 shares;
Issued and outstanding: 282,795,178 in 2000
and 271,670,752 in 1999 283 272
Additional paid-in capital 90,364 132,378
Retained earnings 1,028,655 748,036
Accumulated other comprehensive income (1,470) (1,470)
----------- -----------
Total stockholders' equity 1,117,832 879,216
----------- -----------
Total liabilities and stockholders' equity $ 1,349,783 $ 1,022,314
----------- -----------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
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<PAGE> 19
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
For the years ended JUNE 24, 2000 June 26, 1999 June 27, 1998
--------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Net revenues $864,924 $606,965 $560,220
Cost of goods sold 260,171 189,673 183,724
-------- -------- --------
Gross margin 604,753 417,292 376,496
-------- -------- --------
Operating expenses:
Research and development 142,279 88,249 72,204
Selling, general and administrative 77,082 52,275 49,256
-------- -------- --------
Total operating expenses 219,361 140,524 121,460
-------- -------- --------
Operating income 385,392 276,768 255,036
Interest income and other, net 39,789 20,386 14,879
-------- -------- --------
Income before provision for income taxes 425,181 297,154 269,915
Provision for income taxes 144,562 101,032 91,771
-------- -------- --------
Net income $280,619 $196,122 $178,144
-------- -------- --------
Earnings per share:
Basic $ 1.01 $ 0.74 $ 0.69
Diluted $ 0.88 $ 0.64 $ 0.59
-------- -------- --------
Shares used in the calculation of earnings per share:
Basic 277,640 265,444 259,676
Diluted 317,832 304,118 301,322
-------- -------- --------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
19
<PAGE> 20
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, 1997 254,917,008 $ 254 $ 92,647 $ 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 13,879,964 14 37,215 -- -- 37,229
Repurchase of common stock (7,292,280) (6) (123,128) -- -- (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 261,504,692 262 80,987 551,914 (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 15,996,060 16 51,047 -- -- 51,063
Repurchase of common stock (5,830,000) (6) (113,937) -- -- (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 271,670,752 272 132,378 748,036 (1,470) 879,216
Components of comprehensive income:
Net income -- -- -- 280,619 -- 280,619
------------
Total comprehensive income 280,619
------------
Exercise of stock options under the
Stock Option and Purchase Plans 16,879,426 17 79,271 -- -- 79,288
Repurchase of common stock (5,755,000) (6) (257,000) -- -- (257,006)
Tax benefit on exercise of non-qualified
stock options and disqualifying
dispositions under stock plans -- -- 135,715 -- -- 135,715
----------- --------- ---------- ----------- ------------- ------------
BALANCE, JUNE 24, 2000 282,795,178 $ 283 $ 90,364 $ 1,028,655 $ (1,470) 1,117,832
----------- --------- ---------- ----------- ------------- ------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
20
<PAGE> 21
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Amounts in thousands)
Increase (decrease) in cash and cash equivalents
For the years ended JUNE 24, 2000 June 26, 1999 June 27, 1998
------------------------------------------------ -------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 280,619 $ 196,122 $ 178,144
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization, and other 19,731 17,639 15,082
Reduction of equipment value 35,200 2,700 12,342
Changes in assets and liabilities:
Accounts receivable (67,854) 22,591 (10,279)
Inventories (13,310) (576) (7,874)
Deferred taxes (18,350) 550 (10,300)
Income tax refund receivable 31,463 (36,649) --
Other current assets (6,954) (1,017) (960)
Accounts payable 14,061 5,088 9,920
Income taxes payable 142,734 89,353 90,749
Deferred income on shipments to distributors 608 (7,370) 7,350
All other accrued liabilities 65,865 17,816 11,305
--------- --------- ---------
Net cash provided by operating activities 483,813 306,247 295,479
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment, net (176,140) (54,326) (109,426)
Other non-current assets (3,715) 2,717 (1,153)
Purchases of available-for-sale securities (531,039) (571,083) (384,305)
Proceeds from maturities of held-to-maturity securities -- -- 5,800
Proceeds from sales/maturities of available-for-sale securities 423,730 396,712 277,687
--------- --------- ---------
Net cash used in investing activities (287,164) (225,980) (211,397)
--------- --------- ---------
Cash flows from financing activities:
Issuance of common stock 79,288 51,063 37,229
Repurchase of common stock (257,006) (113,943) (123,134)
--------- --------- ---------
Net cash used in financing activities (177,718) (62,880) (85,905)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 18,931 17,387 (1,823)
Cash and cash equivalents:
Beginning of year 34,126 16,739 18,562
--------- --------- ---------
End of year $ 53,057 $ 34,126 $ 16,739
--------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid (refund received), net during the year for:
--------- --------- ---------
Income taxes $ (12,697) $ 43,316 $ 8,293
--------- --------- ---------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
21
<PAGE> 22
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 Thailand, 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 2000, 1999, and 1998
were 52-week years. Fiscal year 2001 will be a 53-week year.
Certain amounts in the prior-year financial statements have been reclassified to
conform to the current year's presentation.
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> 23
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:
The U.S. dollar is the functional currency for the Company's foreign operations.
Using 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.
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> 24
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.
Stock split:
On December 22, 1999, the Company effected a two-for-one stock split in the form
of a stock dividend. All share and per share amounts from prior periods have
been adjusted to reflect this stock split.
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 not expected to have a material effect on the
Company's financial position or results of operations.
The Securities and Exchange Commission (SEC) issued in December 1999 SEC Staff
Accounting Bulletin No. 101 (SAB101), "Revenue Recognition in Financial
Statements." SAB101 addresses the SEC's views and provides guidance in applying
generally accepted accounting principles to revenue recognition in financial
statements and must be adopted by the Company in the fourth quarter of fiscal
2001. The effect of adopting SAB101 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> 25
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. A significant portion of the
Company's revenues is made through domestic and international distributors. One
distributor accounted for approximately 11% of net revenues in fiscal 2000. No
distributor accounted for greater than 10% of net revenues in fiscal 1999 and
1998. No OEM customer accounted for more than 4% of net revenues in each of
fiscal 2000, 1999, and 1998.
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, manufacturing
capacity, 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> 26
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 24, 2000 June 26, 1999
---------------------------------------------- ------------- -------------
<S> <C> <C>
U.S. Treasury securities at market value $290,023 $262,425
Federal Agency Debt securities at market value 297,866 218,155
-------- --------
$587,889 $480,580
-------- --------
</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 24, 2000 and June 26, 1999. 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 2000, 1999,
and 1998 were immaterial.
Foreign exchange contracts:
At June 24, 2000, 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 $99.2 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 2000 and 1999. The net unrealized gain or loss
approximates the carrying value of these contracts.
<TABLE>
<CAPTION>
JUNE 24, 2000 June 26, 1999
----------------------- ------------------------
NOTIONAL UNREALIZED Notional Unrealized
(AMOUNTS IN THOUSANDS) AMOUNTS GAIN/(LOSS) Amounts Gain/(Loss)
---------------------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Currency:
Japanese Yen $ 59,326 $ 1,593 $ 23,238 $ 565
British Pound Sterling 20,307 612 10,086 101
German Mark 16,168 473 7,692 351
French Franc 2,877 82 2,918 101
Swiss Franc 477 (8) -- --
-------- -------- -------- --------
$ 99,155 $ 2,752 $ 43,934 $ 1,118
-------- -------- -------- --------
</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> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Inventories:
The components of inventories were:
<TABLE>
<CAPTION>
(Amounts in thousands) JUNE 24, 2000 June 26, 1999
---------------------- ------------- -------------
<S> <C> <C>
Raw materials $ 5,246 $ 3,473
Work-in-process 24,980 18,932
Finished goods 28,367 22,878
------- -------
$58,593 $45,283
------- -------
</TABLE>
5. Property, Plant and Equipment:
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
(Amounts in thousands) JUNE 24, 2000 June 26, 1999
---------------------- ------------- -------------
<S> <C> <C>
Land $ 41,366 $ 26,817
Buildings 68,694 47,923
Building improvements 54,761 44,869
Machinery and equipment 399,500 270,767
--------- ---------
564,321 390,376
--------- ---------
Less accumulated depreciation
and amortization (152,979) (100,243)
--------- ---------
$ 411,342 $ 290,133
--------- ---------
</TABLE>
The Company evaluates its property, plant, and equipment in accordance with
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." During fiscal 2000, the Company determined that certain property, plant,
and equipment was impaired. Accordingly, the Company estimated the fair value of
these assets and recorded impairment charges of $27.1 million to cost of goods
sold and $8.1 million to research and development costs to reduce the carrying
value of these assets to net realizable value. During fiscal 1999, the Company
recorded a charge of $2.7 million to cost of goods sold to reduce the carrying
value of property, plant, and equipment to net realizable value.
27
<PAGE> 28
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
2001. 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 of its facilities under various operating leases that
expire at various dates through 2011. The lease agreements generally include
renewal provisions and require the Company to pay property taxes, insurance, and
maintenance costs.
Future annual minimum lease payments for all leased facilities are as follows:
<TABLE>
<CAPTION>
Fiscal Year (Amounts in thousands)
----------- ----------------------
<S> <C>
2001 $2,473
2002 2,035
2003 1,479
2004 785
2005 374
2006-2011 775
------
$7,921
------
</TABLE>
Rent expense was approximately $1.6 million, $1.3 million and $1.4 million in
fiscal 2000, 1999, and 1998 respectively.
7. Comprehensive Income:
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> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Employee Stock and Benefit Plans:
Stock option and purchase plans:
At June 24, 2000, the Company has reserved a total of 85,823,718 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 2000, the Company recorded $135,715,000 of tax
benefit on the exercise of nonqualified stock options and on disqualifying
dispositions under stock plans ($114,281,000 in fiscal 1999 and $74,253,000 in
fiscal 1998).
Information with respect to activity under the stock option plans and ESP Plan
is set forth below:
<TABLE>
<CAPTION>
Outstanding Options
-------------------------------
Weighted
Shares Average
Available Number of Price
for Grant Shares Per Share
----------- ----------- ---------
<S> <C> <C> <C>
BALANCE, JUNE 30, 1997 15,257,808 90,321,360 $ 4.32
Options granted (15,767,460) 15,767,460 $15.57
Options terminated 2,817,848 (2,817,848) $ 7.57
Options exercised -- (13,879,964) $ 2.68
----------- ----------- ------
BALANCE, JUNE 27, 1998 2,308,196 89,391,008 $ 6.49
Shares reserved 15,000,000 -- --
Options granted (15,510,948) 15,510,948 $18.93
Options terminated 5,675,004 (5,675,004) $ 9.22
Options exercised -- (15,996,060) $ 3.39
----------- ----------- ------
BALANCE, JUNE 26, 1999 7,472,252 83,230,892 $ 9.14
Shares reserved 12,000,000 -- --
Options granted (12,949,344) 12,949,344 $42.56
Options terminated 3,291,336 (3,291,336) $14.69
Options exercised -- (16,879,426) $ 4.69
----------- ----------- ------
BALANCE, JUNE 24, 2000 9,814,244 76,009,474 $15.17
----------- ----------- ------
</TABLE>
At June 24, 2000, 29,132,769 options to purchase shares of common stock were
exercisable (options exercisable at June 26, 1999 and June 27, 1998 were
33,209,828 and 34,617,580, respectively).
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about options outstanding at June 24,
2000:
<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 24, 2000 Life (Years) Price June 24, 2000 Price
--------------- -------------- ---------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ 0.45 - $ 3.63 16,839,932 3.23 $ 2.41 15,846,608 $ 2.36
$ 3.75 - $ 8.47 14,078,709 4.73 $ 6.82 8,489,032 $ 6.58
$ 8.48 - $14.53 17,704,170 7.03 $ 12.21 3,338,428 $ 11.58
$14.63 - $28.69 16,956,316 8.14 $ 20.45 1,116,969 $ 19.79
$28.75 - $73.69 10,430,347 9.40 $ 43.49 341,732 $ 36.36
---------- ---- -------- ---------- --------
$ 0.45 - $73.69 76,009,474 6.29 $ 15.17 29,132,769 $ 5.72
---------- ---- -------- ---------- --------
</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 2000, 1999, and 1998 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 2000 1999 1998 2000 1999 1998
----------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected option holding period (in years) 4.4 4.4 4.0 0.5 0.5 0.5
Risk-free interest rate 5.9% 6.0% 6.0% 5.6% 5.4% 5.3%
Stock price volatility 0.55 0.51 0.48 0.55 0.51 0.48
Dividend yield -- -- -- -- -- --
---- ---- ---- ---- ---- ----
</TABLE>
30
<PAGE> 31
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 24, 2000 June 26, 1999 June 27, 1998
------------------- ------------- ------------- --------------
<S> <C> <C> <C>
Stock Option Plans $22.38 $ 9.61 $ 7.30
Employee Stock Participation Plan $ 8.39 $ 4.88 $ 3.56
------ ------ ------
</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 24, 2000 June 26, 1999 June 27, 1998
------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Pro forma net income adjusted for SFAS 123 (in thousands) $ 211,191 $ 158,092 $ 145,204
Pro forma diluted earnings per share adjusted for SFAS 123 $ 0.66 $ 0.52 $ 0.48
---------- ---------- ----------
</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.
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 2000, 1999, and 1998.
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 24, 2000 June 26, 1999 June 27, 1998
--------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Numerator for basic earnings per share
and diluted earnings per share
Net Income $280,619 $196,122 $ 178,144
-------- -------- ---------
Denominator for basic earnings per share 277,640 265,444 259,676
Effect of dilutive securities:
Stock options and warrants 40,192 38,674 41,646
-------- -------- ---------
Denominator for diluted earnings per share 317,832 304,118 301,322
-------- -------- ---------
Earnings per share:
Basic $ 1.01 $ 0.74 $ 0.69
Diluted $ 0.88 $ 0.64 $ 0.59
-------- -------- ---------
</TABLE>
31
<PAGE> 32
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 24, 2000 June 26, 1999 June 27, 1998
---------------------- ------------- ------------- -------------
Federal
<S> <C> <C> <C>
Current $ 140,302 $ 84,299 $ 87,461
Deferred (17,000) 450 (9,200)
State
Current 18,710 12,004 9,305
Deferred (1,350) 100 (1,100)
Foreign
Current 3,900 4,179 5,305
--------- --------- ---------
$ 144,562 $ 101,032 $ 91,771
--------- --------- ---------
</TABLE>
Pretax income from foreign operations was approximately $11.4 million, $12.0
million, and $18.0 million for the years ended June 24, 2000, June 26, 1999, and
June 27, 1998, 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 $1,021,000 ($0.003 diluted earnings per
share), $991,000 ($0.003 diluted earnings per share), and $1,274,000 ($0.004
diluted earnings per share) during fiscal 2000, 1999, and 1998, respectively. At
June 24, 2000, accumulated pretax earnings of approximately $9,660,000 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 24, 2000 June 26, 1999 June 27, 1998
------------------- ------------- ------------- --------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State tax, net of federal benefit 2.5 2.6 2.0
General business credits (0.5) (0.7) (1.0)
Exempt earnings of Foreign Sales Corporation (2.5) (2.5) (2.0)
Other (0.5) (0.4) --
---- ---- ----
34.0% 34.0% 34.0%
---- ---- ----
</TABLE>
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 24, 2000 June 26, 1999
---------------------- ------------- -------------
<S> <C> <C>
Deferred tax assets:
Inventory valuation and reserves $ 22,492 $ 16,679
Distributor related accruals 18,263 9,980
Accrued compensation 13,440 10,762
Net operating loss carryovers 80,500 --
Tax credit carryovers 19,100 --
Other reserves and accruals not
currently deductible for tax reporting 18,193 13,973
--------- ---------
Total deferred tax assets 171,988 51,394
Deferred tax liabilities--fixed assets cost recovery (24,388) (21,744)
--------- ---------
Net deferred tax assets before
valuation allowance 147,600 29,650
Valuation allowance (99,600) --
--------- ---------
Net deferred tax assets $ 48,000 $ 29,650
--------- ---------
</TABLE>
The valuation allowance of $99,600,000, when realized, will be recorded as a
credit to common stock.
11. Segment Information:
The Company operates and tracks its results in one operating segment. The
Company designs, develops, manufactures and markets a broad range of linear and
mixed-signal integrated circuits. The Chief Executive Officer has been
identified as the Chief Operating Decision Maker as defined by Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information."
Enterprise-wide information is provided in accordance with SFAS 131.
Geographical revenue information is based on the customer's ship-to location.
Long-lived assets consist of property, plant and equipment. Property, plant and
equipment information is based on the physical location of the assets at the end
of each fiscal year.
Net revenues from unaffiliated customers by geographic region were as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
For the years ended JUNE 24, 2000 June 26, 1999 June 27, 1998
------------------- ------------- ------------- -------------
<S> <C> <C> <C>
United States $368,632 $249,923 $244,927
Europe 202,447 152,977 148,245
Pacific Rim 281,056 192,711 161,985
Rest of World 12,789 11,354 5,063
-------- -------- --------
$864,924 $606,965 $560,220
-------- -------- --------
</TABLE>
Net long-lived assets by geographic region were as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) JUNE 24, 2000 June 26, 1999
---------------------- ------------- -------------
<S> <C> <C>
United States $376,819 $264,190
Rest of World 34,523 25,943
-------- --------
$411,342 $290,133
-------- --------
</TABLE>
33
<PAGE> 34
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 24, 2000 and June 26, 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three fiscal years in the period ended June 24, 2000. 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 auditing standards generally accepted
in the United States. 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 24, 2000 and June 26, 1999, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended June 24, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
-----------------------------------
San Jose, California
August 8, 2000
34
<PAGE> 35
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
Fiscal Year 2000 1999 1998 1997 1996
-------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 864,924 $ 606,965 $ 560,220 $ 433,710 $ 421,626
---------- ---------- ---------- ---------- ----------
Cost of goods sold $ 260,171 $ 189,673 $ 183,724 $ 145,307 $ 146,253
Gross margin % 69.9% 68.8% 67.2% 66.5% 65.3%
---------- ---------- ---------- ---------- ----------
Operating income $ 385,392 $ 276,768 $ 255,036 $ 198,945 $ 185,890
---------- ---------- ---------- ---------- ----------
% of net revenues 44.6% 45.6% 45.5% 45.9% 44.1%
---------- ---------- ---------- ---------- ----------
Net income $ 280,619 $ 196,122 $ 178,144 $ 136,974 $ 123,345
---------- ---------- ---------- ---------- ----------
Earnings per share:
Basic $ 1.01 $ 0.74 $ 0.69 $ 0.55 $ 0.51
Diluted $ 0.88 $ 0.64 $ 0.59 $ 0.47 $ 0.43
---------- ---------- ---------- ---------- ----------
Shares used in the calculation
of earnings per share:
Basic 277,640 265,444 259,676 250,860 240,408
Diluted 317,832 304,118 301,322 291,508 283,708
---------- ---------- ---------- ---------- ----------
Cash, cash equivalents
and short-term investments $ 640,946 $ 514,706 $ 322,948 $ 223,953 $ 129,253
Working capital $ 722,968 $ 607,976 $ 377,723 $ 291,786 $ 176,182
Total assets $1,349,783 $1,022,314 $ 769,492 $ 556,386 $ 417,794
Stockholders' equity $1,117,832 $ 879,216 $ 631,000 $ 465,565 $ 325,425
---------- ---------- ---------- ---------- ----------
</TABLE>
35
<PAGE> 36
FINANCIAL HIGHLIGHTS BY QUARTER
Unaudited
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------
2000 6/24/00 3/25/00 12/25/99 9/25/99
--------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 256,610 $ 226,540 $ 201,728 $ 180,046
----------- ----------- ----------- -----------
Cost of goods sold $ 76,660 $ 68,117 $ 60,912 $ 54,482
Gross margin % 70.1% 69.9% 69.8% 69.7%
----------- ----------- ----------- -----------
Operating income $ 111,494 $ 100,640 $ 91,298 $ 81,960
% of net revenues 43.4% 44.4% 45.3% 45.5%
----------- ----------- ----------- -----------
Net income $ 82,931 $ 74,703 $ 64,631 $ 58,354
----------- ----------- ----------- -----------
Earnings per share:
Basic $ 0.29 $ 0.27 $ 0.23 $ 0.21
Diluted $ 0.26 $ 0.23 $ 0.20 $ 0.19
----------- ----------- ----------- -----------
Shares used in calculation
of earnings per share:
Basic 282,058 279,388 275,528 273,586
Diluted 321,715 320,016 315,711 313,886
----------- ----------- ----------- -----------
Market price range - High $ 75.69 $ 73.69 $ 47.94 $ 36.91
- Low $ 50.31 $ 45.50 $ 31.55 $ 30.13
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
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 $ 0.19 $ 0.18 $ 0.18 $ 0.19
Diluted $ 0.17 $ 0.15 $ 0.16 $ 0.17
----------- ----------- ----------- -----------
Shares used in calculation
of earnings per share:
Basic 270,470 267,524 262,618 261,162
Diluted 311,244 307,962 299,944 297,320
----------- ----------- ----------- -----------
Market price range - High $ 32.41 $ 27.50 $ 22.47 $ 18.03
- Low $ 24.60 $ 20.44 $ 11.28 $ 13.60
----------- ----------- ----------- -----------
</TABLE>
36
<PAGE> 37
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
Eric P. Karros
Director
Los Angeles Dodgers Organization
A.R. Frank Wazzan, Ph.D.
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
Tunc Doluca
Vice President
Laszlo V. Gal, Ph.D.
Vice President
Robi B. Georges
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
Sharon E. Smith-Lenox
Corporate Controller and
Principal Accounting Officer
Vijay Ullal
Vice President
37
<PAGE> 38
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 24, 2000, there were approximately 2,869 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 16, 2000 at
11:00 a.m. at the Company's Event Center, 433 North Mathilda Avenue, Sunnyvale,
California 94086.
38
<PAGE> 39
COVER 4
39
