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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 (FEE REQUIRED)
For the Fiscal Year Ended June 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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, including Zip Code)
Registrant's telephone number, including area code: (408) 737-7600
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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 registrants 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, 1998 was approximately $2,341,000,000*.
Number of shares outstanding of the registrant's Common Stock, $.001 par
value, as of August 3, 1998: 130,412,014.
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DOCUMENTS INCORPORATED BY REFERENCE:
Part II - Annual Report to Stockholders for the fiscal year ended June 27, 1998
Part III - Proxy Statement for the 1998 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, 1998. 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 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 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
statement.
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 11 through 16 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
three 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 15 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 Japanese and other foreign
manufacturers; lower capital requirements as a result of 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 June 27, 1998, Maxim has introduced over 1,500 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:
Industry Typical Application
Communications . . . . . . . . . . . Broadband Networks
Cable System
Central Office Switches
Direct Broadcast TV
Fiber Optics
Pagers
PBX
Phones
* Cellular
* Cordless
Satellite Communications
Transmission Systems
Video Communications
Wireless Communications
Industrial Control . . . . . . . . . . Control of
* Flow
* Position
* Pressure
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* 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
Mainframes
Minicomputers
Personal Computers
Printers
Point of Sale Terminals
Tape Drives
Workstations
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.
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.
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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, and South
Korea, where wafers are separated into individual integrated circuits and
assembled into a variety of packages.
During fiscal 1997, Maxim completed construction of a
141,000-square-foot manufacturing and test facility in the Philippines. At the
present time, this facility is operating as Maxim's offshore test facility,
testing the majority of Maxim's packaged units. The rest of the packaged units
are tested at its Sunnyvale, California and Beaverton, Oregon facilities upon
receipt from assembly subcontractors. At some time in the future, the
Philippines facility may also be used for part of Maxim's assembly requirements
in addition to, or in place of, assembly subcontractors.
The broad range of products demanded by the analog integrated circuit
market requires multiple manufacturing process technologies. Twenty 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 three geographically separated fabrication facilities
in Sunnyvale and San Jose, California and Beaverton, Oregon and, to a small
extent, manufacturing subcontractors. The Company currently uses five
subcontract silicon foundries that represent less than 8% of wafer production.
Each of the subcontractors currently used by Maxim is unaffiliated with Maxim.
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. (See "Item 2.
Properties" below).
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.
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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.
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 various distribution channels. As is customary in the industry, domestic
distributors are entitled to certain price rebates and limited product return
privileges.
International sales are conducted by 13 Maxim sales offices and 36
sales representative organizations and distributors consisting of 60 office
locations. 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 habitually
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 56%, 57%, and 57% of
net revenues in fiscal 1998, 1997 and 1996, respectively. (See "Note 10 Notes to
Consolidated Financial Statements" as set forth in the Company's Annual Report
to Stockholders for the fiscal year ended June 27, 1998.)
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 27, 1998, the Company's backlog was approximately $181
million as compared to approximately $152 million at June 30, 1997. The Company
includes in its backlog customer-released orders with firm schedules for
shipment within the next 12 months. As is customary in the
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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 $72.2 million,
$51.3 million, and $47.5 million in fiscal 1998, 1997, and 1996, 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
Burr-Brown Corporation, Harris Corporation, Lucent Technologies, Micrel Inc.,
Motorola Inc., National Semiconductor Corporation, Philips Electronics N.V.,
Rockwell Corporation, Siliconix Inc., Sipex Corporation, TelCom Semiconductor
Inc., and Texas Instruments Inc. While Japanese and other 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 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
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agreements with employees, consultants, silicon foundries and other suppliers
and vendors will be adequate to protect the Company's interests.
Maxim currently owns 71 U.S. patents and 27 foreign patents with
expiration dates ranging from 2001 to 2016. In addition, the Company has applied
for 52 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.
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. In addition, the Company has registered
certain of its mask sets under the Semiconductor Chip Protection Act of 1984.
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, 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 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
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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 27, 1998, Maxim had 3,066 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 Tektronix's 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 38% 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. High-frequency designs
often require a multitude of component technologies, and there are no monolithic
IC processes currently available that can combine the performance advantages of
all disparate technologies. High-frequency modules and hybrids are intended to
combine the optimum technologies and deliver maximum performance.
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 that are
not purely historical are forward-looking statements, including statements
regarding the Company's beliefs,
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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.
The semiconductor market has historically been cyclical and subject to
significant economic downturns at various times. After a period of increasing
demand, more recently the semiconductor industry, including the portions in
which the Company participates, has been experiencing reduced demand. Current
conditions are affected by the major economic problems in the Asian market. 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.
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 and 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.
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
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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. For
example, increasing manufacturing capacity and efficiency in its high-frequency
processes has advanced at a slower rate than planned. 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.
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 to print
circuits on a wafer, 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 92% of its wafer production requirements
at three internal wafer fabrication facilities. One fabrication facility is
currently operating at capacity. 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
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have significantly greater financial, manufacturing, and marketing resources
than the Company and some of which have greater technical resources than the
Company. 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 Japanese and other
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 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. Each of the foundries currently used
by Maxim are unaffiliated with Maxim and 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.
Maxim relies on subcontractors located in the Philippines, Malaysia,
and South Korea to separate wafers into individual integrated circuits and
package them. The Company also performs final testing for the majority 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 maintaining 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
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suppliers that could have materially adverse effects on Maxim's ability to
achieve its planned production.
Dependence on Independent Distributors and Sales Representatives
A significant portion of the Company's sales is realized through
electronics distributors and independent sales representatives that are not
under the direct 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 collect open accounts could adversely affect the
Company's results of operation. Termination of a significant distributor,
whether at the Company's or the distributor's initiative, is 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."
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 "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 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
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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 56% of the Company's net
revenues in fiscal 1998 were from foreign 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.
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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 1998, 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, located in
Beaverton, Oregon, on 21 acres, totals 226,000 square feet and contains 71,000
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 in
Sunnyvale, California, to support future expansion and currently is utilizing
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 can provide future capacity for assembly
and other 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 purposes through fiscal
1999.
ITEM 3. LEGAL PROCEEDINGS
Maxim Integrated Products, Inc. vs. Analog Devices, Inc. and
Pioneer-Standard Electronics, Inc., Action Nos. C-92-20716-JW and C-96-20723 JW
EAI in the United States District Court for the Northern District of California.
These proceedings were completed in the fourth fiscal quarter of 1998 in favor
of both defendants and against Maxim. Judgment has not yet been entered.
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.
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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 case is in its early stages with the
parties continuing to be 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 late 1999.
The Company has asserted in its answer, and continues to believe, that
the allegations in the complaint are without merit.
Although the case is still in its relatively early stages and 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 27,
1998 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 27,
1998 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 27,
1998 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
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The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 27,
1998 under the subheading "Interest Income" under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations. "
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 27,
1998 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
None
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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 1998 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."
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
John F. Gifford 57 President, Chief Executive Officer
and Chairman of the Board
Frederick G. Beck 61 Vice President
Ziya G. Boyacigiller 46 Vice President
Michael J. Byrd 38 Vice President and
Chief Financial Officer
Tunc Doluca 40 Vice President
Richard C. Hood 48 Vice President
Kenneth J. Huening 37 Vice President
Carl W. Jasper 42 Corporate Controller and
Principal Accounting Officer
William N. Levin 57 Vice President
Nasrollah Navid 49 Vice President
Pirooz Parvarandeh 38 Vice President
Robert F. Scheer 45 Vice President
Vijay Ullal 40 Vice President
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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. Byrd joined Maxim in February 1994 as Vice President and Chief
Financial Officer. Prior to joining Maxim he was with Ernst & Young LLP from
August 1982 to February 1994 where he held various positions, including partner.
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.
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 integrated circuit test 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. 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.
Mr. Levin joined Maxim in August 1990 as Vice President. From 1987 and
until joining Maxim, he was Vice President, Program Management, for Shugart
Corporation.
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 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. 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.
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ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's Proxy Statement for the 1998 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 1998 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 1998 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 1998
Annual Report to Stockholders and are incorporated herein by reference
pursuant to Item 8.
Consolidated Balance Sheets at June 27, 1998 and June 30, 1997.
Consolidated Statements of Income for each of the three years in the
period ended June 27, 1998.
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended June 27, 1998.
Consolidated Statements of Cash Flows for each of the three years in
the period ended June 27, 1998.
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
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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
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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 25, 1998 MAXIM INTEGRATED PRODUCTS, INC.
By /s/ Michael J. Byrd
-------------------------------
Michael J. Byrd, Vice President
and Chief Financial
Officer (For the Registrant
and as Principal Financial
Officer)
By /s/ Carl W. Jasper
-------------------------------
Carl W. Jasper,
Corporate Controller (Principal
Accounting 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.
Signature Title Date
- --------- ----- ----
/s/ John F. Gifford President, Chief September 25, 1998
- ----------------------------- Executive Officer and
John F. Gifford Chairman of the Board
(Principal Executive Officer)
/s/ James R. Bergman Director September 25, 1998
- -----------------------------
James R. Bergman
/s/ B. Kipling Hagopian Director September 25, 1998
- -----------------------------
B. Kipling Hagopian
/s/ A.R. Wazzan Director September 25, 1998
- -----------------------------
A.R. Wazzan
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MAXIM INTEGRATED PRODUCTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS
(amounts in thousands)
Additions
Charged
Balance at to Costs Balance at
Beginning and End
of Period Expenses Deductions (1) of Period
--------- -------- -------------- ---------
Allowance for doubtful accounts:
Year ended June 30, 1996 $1,145 $154 $ 9 $1,290
Year ended June 30, 1997 $1,290 $ 54 $ - $1,344
Year ended June 27, 1998 $1,344 $568 $20 $1,892
(1) Uncollectible accounts written off.
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EXHIBIT INDEX
Exhibit Sequentially
Number Numbered Page Description
- ------ ------------- -----------
3.1 0 Restated Certificate of Incorporation of the Company as filed
with the Delaware Secretary of State on September 21, 1995
3.3 Amendment to Restated Certificate of Incorporation of the
Company as filed with the Delaware Secretary of State
on December 3, 1997.
3.4 Q Amended and Restated Bylaws of the Company, as amended
10.1 X Form of the Company's Domestic Distributor Agreement
10.2 # Form of the Company's International Distributor Agreement
10.3 # Form of the Company's Domestic Sales Representative Agreement
10.4 # Form of the Company's International Representative Agreement
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,
- --------
(1) Management contract or compensatory plan or arrangement.
27
Exhibit Sequentially
Number Numbered Page Description
- ------ ------------- -----------
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 1987 Supplemental Stock Option Plan, as amended(1)
10.13 Supplemental Nonemployee Stock Option Plan, as amended(1)
10.14 1987 Employee Stock Participation Plan, as amended(1)
10.15 1988 Nonemployee Director Stock Option Plan, as amended(1)
10.16 1996 Stock Incentive Plan(1)
10.17 Q Lease Agreement with Mathilda Development L.P., dated September
30, 1993
10.18 Bonus Plan(1)
13.1 Portions of the Annual Report to Stockholders for the fiscal year ended June
27, 1998 incorporated by reference into the Form 10-K
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedules
* 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.
# Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1992.
- --------------
(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.
28
+ Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1993.
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.
P Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1996.
Q Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1997.